form10-qsb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________to _______________.

Commission File Number 333-45678

SEQUIAM CORPORATION

(Exact name of small business issuer as specified in its charter)

California

(State or other jurisdiction of incorporation or organization)

33-0875030

(I.R.S. Employer Identification No.)

300 Sunport Lane, Orlando, Florida 32809

(Address of principal executive offices)

407-541-0773

(Issuer’s telephone number)

(Former name, former address and former fiscal year if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for the such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of the Registrant’s Common Stock outstanding as of August 17, 2007 was 89,360,071.

Transitional Small Business Disclosure Format (Check one): Yes o No x

FORM 10-QSB

INDEX

	Page

PART I: FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

Condensed Consolidated Balance Sheets (Unaudited)	3

Condensed Consolidated Statements of Operations (Unaudited)	4

Condensed Consolidated Statements of Cash Flows (Unaudited)	5

Notes to Condensed Consolidated Financial Statements (Unaudited)	7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	17

ITEM 3. CONTROLS AND PROCEDURES	26

PART II. OTHER INFORMATION	26

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26

ITEM 6. EXHIBITS	27

SIGNATURES	28

Introductory Note

Caution Concerning Forward-Looking Statements

This Report and our other communications and statements may contain “forward-looking statements,” including statements about our beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

·	our expectations regarding our expenses and revenue;

·	our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing;

·	plans for future products, for enhancements of existing products and for development of new technologies;

·	our anticipated growth strategies;

·	existing and new customer relationships;

·	our technology strengths;

·	our intellectual property, third-party intellectual property and claims related to infringement thereof;

·	anticipated trends and challenges in our business and the markets in which we operate; and

·	sources of new revenue.

For information concerning these factors and related matters, see Item 2, “Management’s Discussion and Analysis or Plan of Operation,” in this Report, and the following sections of our Annual Report on Form 10-KSB for the year ended December 31, 2006: (a) “Risk Factors” in Item 6, “Management’s Discussion and Analysis or Plan of Operation,” and (b) “Introduction” in Item 6, “Management’s Discussion and Analysis or Plan of Operation.” However, other factors besides those referenced could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us herein speak as of the date of this Report. We do not undertake to update any forward-looking statement, except as required by law.

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Sequiam Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

	June 30, 2007 (Unaudited)			December 31, 2006
Assets
Current assets:
Cash	$	92,520		$	54,161
Receivables, net		176,869			836,715
Inventory		772,571			766,969
Prepaid expenses		34,667			-
Total current assets		1,076,627			1,657,845
Property and equipment, net		879,871			919,909
Intellectual properties, net		435,302			559,927
Goodwill		154,103			-
Product development costs		442,333			364,117
Loan costs, net		173,206			-
Advance receivable		172,000			140,000
Investment in joint venture		51,848			60,000
Deposits and other assets		33,579			16,264
Total assets	$	3,418,869		$	3,718,062

Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable	$	622,147		$	1,190,380
Accrued expenses		520,079			1,274,324
Dividends payable		114,852			179,808
Customer deposits		28,034			112,500
Deferred revenue		24,500			31,500
Deferred rents		34,283			35,917
Current portion of long-term debt		454,649			3,512,188
Loans from shareholders		658,923			682,997
Total current liabilities		2,457,467			7,019,614

Long-term debt		4,478,967			1,191,079
Total liabilities		6,936,434			8,210,693

Minority interest in subsidiary		14,579			-

Shareholders’ deficit:
Preferred shares		2			3
Common shares		87,743			82,281
Additional paid-in capital		21,783,118			18,493,022
Accumulated deficit		(25,428,347	)		(23,080,135	)
Accumulated other comprehensive income		25,340			12,198
Total shareholders’ deficit		(3,532,144	)		(4,492,631	)
Total liabilities and shareholders’ deficit	$	3,418,869		$	3,718,062

See accompanying notes to condensed consolidated financial statements.

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2007	2006	2007	2006

Revenues
Product sales	$ 466,214	$ 103,993	$ 1,157,118	$ 210,194
Services – Engineering	290,938	-	290,938	-
Services - Other	15,593	16,973	32,302	57,711
Other	-	-	112,500	-

Total revenues	772,745	120,966	1,592,858	267,905

Costs and expenses:
Cost of product sales	383,864	138,149	1,071,736	258,159
Cost of services – engineering	38,160	-	38,160	-
Cost of services – other	24,885	28,425	52,117	55,071
Selling, general and administrative	973,938	1,278,177	1,855,104	2,003,858
Gain on sale of equipment	-	(5,000)	-	(5,000)
Gain on restructuring of debt	-	-	-	(13,055)
Loss on settlement of lawsuit	-	200,000	-	200,000
	1,420,847	1,639,751	3,017,117	2,499,033

Loss from operations	(648,102)	(1,518,785)	(1,424,259)	(2,231,128)

Interest expense	(560,463)	(1,127,156)	(938,722)	(1,473,085)

Loss before minority interest in net (income) loss of subsidiary
and equity in net loss of unconsolidated joint venture	(1,208,565)	(2,645,941)	(2,362,981)	(3,704,213)

Minority interest in net (income) loss of subsidiary	(14,579)	-	22,921	-
Equity in net loss of unconsolidated joint venture	(8,152)	-	(8,152)	-

Net loss	(1,231,296)	(2,645,941)	(2,348,212)	(3,704,213)

Preferred stock dividends	(68,559)	(34,247)	(140,122)	(34,247)

Net loss applicable to common shareholders	$(1,299,855)	$(2,680,188)	$(2,488,334)	$(3,738,460)
Net loss per common share:
Basic and diluted	$(0.02)	$(0.04)	$(0.03)	$(0.06)

Shares used in computation of net loss per common share - Basic and diluted weighted average shares outstanding	85,163,949	70,231,677	83,857,099	67,360,947



See accompanying notes to condensed consolidated financial statements

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(2,348,212	)	$	(3,704,213	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		278,002			256,625
Accretion of debt discount		502,454			851,187
Amortization of loan costs		23,619			139,121
Amortization of product development costs		49,329			-
Gain on sale of equipment		-			(5,000	)
Gain on restructuring of debt		-			(13,055	)
Issuance of common stock in exchange for services and interest		171,000			254,128
Issuance of common stock in exchange for salaries		-			282,269
Issuance of stock options to employees		34,247			29,779
Minority interest in net loss of subsidiary		(22,921	)		-
Equity in net loss of unconsolidated joint venture		8,152			-
(Increase) decrease in receivables		581,860			(26,723	)
Increase in allowance for bad debts		79,230			19,316
(Increase) decrease in inventory		138,894			(508,490	)
Increase in prepaid expenses, deposits and other assets		(4,284	)		(32,976	)
Increase (decrease) in deferred revenue		(7,000	)		48,500
Increase (decrease) in accounts payable		(670,901	)		153,524
Increase in accrued expenses		55,248			400,192
Decrease in customer deposits		(84,466	)		-
Increase (decrease) in deferred rents		(1,634	)		321
Net cash used for operating activities		(1,217,383	)		(1,855,495	)

Cash flows from investing activities:
Proceeds from sale of equipment		-			5,000
Equipment purchases		(34,257	)		(11,585	)
Cash acquired through acquisition of Sequiam East		89,042			-
Increase in advance receivable		(32,000	)		-
Product development costs capitalized		(127,545	)		(133,570	)
Net cash used for investing activities		(104,760	)		(140,155	)

Cash flows from financing activities:
Repayment of notes payable		-			(20,000	)
Proceeds from long-term debt		1,750,000			-
Repayment of long-term debt		(217,910	)		(316,953	)
Proceeds from shareholder loans		250,000			-
Repayment of shareholder loans		(274,074	)		(648	)
Payment of loan costs		(157,752	)		-
Proceeds from sale of common stock and exercise of warrants		-			250,000
Proceeds from sale of preferred stock		-			2,962,500
Payment of stock issuance costs		-			(347,181	)
Net cash provided by financing activities		1,350,264			2,527,718
Effect of exchange rate changes on cash		10,238			11,335

Net increase in cash		38,359			543,403
Cash, beginning of period		54,161			763,197
Cash, end of period	$	92,520		$	1,306,600

See accompanying notes to condensed consolidated financial statements.

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Six months ended June 30,
	2007		2006
Supplemental cash flow information:
Cash paid for interest	$	176,803	$	174,468

Supplemental disclosures of non-cash investing and financing activities:

Series B preferred stock dividend declared and unpaid at end of period	$	114,852	$	34,247
Common shares issued upon conversion of mandatorily redeemable cumulative convertible preferred stock		-		719,000
Common shares issued for payment of accrued shareholders’ salaries		-		1,539,792
Beneficial conversion feature of preferred stock		-		1,295,112
Refinance long-term debt		3,275,000		-
Original issue discount on long-term debt		2,797,855		-
Refinance accrued expenses as long-term debt		725,000		-
Acquisition of Sequiam East, Inc.		150,000		-
Loan costs unpaid at end of period		39,073		-
Common shares issued for payment of Series B preferred stock dividend		205,078		-
Common shares issued upon conversion of Series B preferred stock		2,867		-
Common shares issued for payment of long-term debt		127,500		-

See accompanying notes to condensed consolidated financial statements.

Sequiam Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Description of Business

Sequiam Corporation (“Sequiam” or the “Company”) through its wholly owned subsidiaries, develops, markets, and supports a portfolio of biometric fingerprint unlocking devices that enable users to gain access using their personal identity. The Company also provides internet access and hosting services and custom software development services.

The Company's operations are divided into two distinct operating segments: Safety and Security and Information Management. The Safety and Security segment includes the Company’s biometric technology products. The Information Management segment includes all non-biometric technology products.

The Company's condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since inception, which have caused an accumulated deficit of approximately $25,428,000 as of June 30, 2007. In addition, the Company has a working capital deficit of approximately $1,381,000 as of June 30, 2007. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

Management has been able, thus far, to finance the losses, as well as the growth of the business, primarily through debt and stock offerings. The Company entered into a new financing arrangement during March 2007 and is continuing to attempt to increase revenues through sales and licensing of its biometric security products. There are no assurances that the Company will be successful in achieving its goals.

Management believes that its current and future plans provide an opportunity to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The Company, under the rules and regulations of the Securities and Exchange Commission, has prepared the unaudited condensed consolidated financial statements. The accompanying condensed consolidated financial statements contain all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of such financial statements. Certain information and disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under such rules and regulations although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end balance sheet data was derived from the audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes for the Company included in Form 10-KSB filed for the year ended December 31, 2006. Interim results of operations for the periods presented may not necessarily be indicative of the results to be expected for the full year.

Net Loss per Common Share

Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted loss per common share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options, adjusted for the assumed repurchase of the Company’s common stock, at the average market price, from the exercise proceeds and also may include incremental shares issuable in connection with convertible securities. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. As of June 30, 2007, the Company had 135,270,279 potentially dilutive common shares as a result of warrants and options granted and convertible preferred stock issued.

Principles of Consolidation

The consolidated financial statements include the accounts of the Sequiam Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.

Accounting for Stock-Based Compensation

At June 30, 2007, the Company has two stock-based compensation plans (the “Plans”) which are described more fully in Note 9.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R) “Share-Based Payment”, using the modified-prospective transition method. Under that transition method, compensation cost recognized includes (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Accordingly, results for prior periods have not been restated.

As a result of adopting Statement 123(R) on January 1, 2006, the Company’s net losses for the six months ended June 30, 2007 and 2006 were $34,247 and $29,779 higher, respectively, than if it had continued to account for share-based compensation under APB 25. Basic and diluted net losses per common share for the periods ended June 30, 2007 and 2006 would have remained $0.03 and $0.06, respectively, if the Company had not adopted Statement 123(R). Also, there was no change in cash used in operating activities and cash provided by financing activities as a result of adopting Statement 123(R).

Note 3 – Business Combination

On January 8, 2007, the Company acquired 80% of the outstanding shares (“the Purchase Shares”) of Magstone Innovation, Inc., a foreign owned Chinese corporation (“Magstone”), pursuant to an amended and restated stock purchase agreement dated January 8, 2007 by and among Sequiam, Magstone and Shixiong Chen (“the Sole Shareholder”) of Magstone (the “Magstone Acquisition”).

In exchange for the Purchase Shares owned by the Sole Shareholder, Sequiam issued and delivered to the Sole Shareholder an Installment Note Payable in the amount of $150,000 bearing interest at eight percent per annum, payable in three quarterly installments of $50,000 beginning April 1, 2007. The note is secured by the Purchase Shares. Sequiam also agreed to repay Magstone’s debt to ETI Hong Kong for HKD 1,400,000 (approximately $185,000 USD). As additional consideration, Magstone distributed to the Sole Shareholder the following: all trademarks owned by Magstone and Magstone’s 30% ownership in the Chinese Joint Venture known as New Era Biometrics. The Sole Shareholder shall pay to Magstone 9% of any distributions paid to the Sole Shareholder by the Joint Venture until such time as the Sole Shareholder no longer serves as President of Magstone.

The following table summarizes the estimated carrying values of the assets acquired and liabilities assumed at the date of acquisition.

Current assets	$ 282,481
Property and equipment	79,082
Goodwill	154,103
Total assets acquired	515,666
Current liabilities	79,102
Long-term debt	249,064
Total liabilities assumed	328,166
Minority interest	37,500
Net assets acquired	$ 150,000

Sequiam’s results of operations for the period ended June 30, 2007 include six months of operations for Magstone.

The Company acquired Magstone because it believes they have a talented staff of engineers and programmers who will work well with its development team in the United States. The Company believes the acquisition allowed it to significantly and effectively increase its professional staff at a substantial cost savings from comparable United States based staffing. Additionally, the Company believes the management of Magstone is very adept at sourcing reliable manufacturing in China for the Company’s products and at developing new business opportunities in Asia. Based upon the foregoing, the Company negotiated a purchase price for Magstone that exceeded the Company’s net assets by $154,103, which has been recorded as goodwill within the Company’s Safety and Security segment. For income tax purposes, the goodwill is amortized over a 15-year period, beginning January 2007, using the straight-line method.

The following unaudited pro forma condensed consolidated statement of operations for the three and six months ended June 30, 2006 assumes the acquisition of Magstone occurred as of January 1, 2006:

	Three Months Ended June 30, 2006	Six Months Ended June 30, 2006

Revenues	$ 120,966	$ 267,905

Net loss	$ 2,652,941	$ 3,731,213

Basic and diluted net loss per common share	$ (0.04)	$ (0.06)

Immediately following the closing, Magstone changed its name to Sequiam East, Inc. (“SEI”).

In conjunction with the foregoing, SEI entered into an employment agreement with the Sole Shareholder to serve as its President and CEO. The term of the agreement is for eight years at a minimum annual salary of $120,000 plus an annual bonus equal to 1.25 percent of SEI’s gross sales. In addition the Company granted Mr. Chen options to purchase one million five hundred thousand shares of Sequiam Corporation common stock at $0.20 per share in accordance with its 2003 Employee Stock Incentive Plan. The options will fully vest one year from the date of the agreement, or immediately in the event of any earlier termination of employment by SEI. If on December 31, 2008 the net value of the options after exercise is less than one million dollars, then the Company shall grant additional options as necessary to maintain such value.

Note 4 – Inventory

Inventory consists of the following at:

	June 30,2007		December 31, 2006
Raw materials	$	357,003	$	370,219
Work in process		62,750		127,512
Finished goods		365,042		269,238
Reserve for obsolete inventory		(12,224)		-
	$	772,571	$	766,969

Note 5 – Long-Term Debt

Refinancing

On March 30, 2007, the Company closed a debt transaction (the “Financing”) with Biometrics Investors, LLC (“Biometrics”). Pursuant to the Financing, the Company amended and restated that Second Amended, Restated and Consolidated Senior Secured Term Note, dated November 1, 2005, made to Lee Harrison Corbin, Attorney In Fact for the Trust under the Will of John Svenningsen, in the original principal amount plus interest and penalties of $3,965,119 (the “Original Note”), which was transferred to Biometrics, to provide for $2,500,000 of additional funding subject to the satisfaction of certain conditions (“Term Loan A”). The aggregate principal amount of Term Loan A (which includes $3,965,119 from the Original Note) is $6,500,000. In connection with this financing, Biometrics provided the Company with written notice that the Company was no longer in default of the Original Note as previously reported on the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 14, 2007.

Term Loan A

Term Loan A shall be disbursed by Biometrics to the Company in a series of ten disbursements, each in the amount of $250,000, payable every other week, which shall be disbursed based on the Company’s satisfaction of the conditions stated in Paragraphs 4(a) and (b) of that certain Agreement by and between the Company and Biometrics, dated March 30, 2007 (the “Loan Agreement”), including the Company’s issuance to Biometrics of a warrant exercisable for 65,719,041 shares of the Company’s common stock at an exercise price of $.01 per share (the “Initial Warrant”). As a result of the issuance of this warrant, an original issue discount of $2,797,855 was recorded, which represented the relative fair value of the warrant. Biometrics, in its sole discretion, may elect to advance Term Loan A in greater amounts or on an accelerated funding schedule. On March 30, 2007, the Company issued the Initial Warrant to Biometrics in accordance with the Loan Agreement.

The $6,500,000 promissory note issued to Biometrics has a term of two years. Interest shall be payable monthly in arrears commencing on May 1, 2007, and on the first day of each consecutive calendar month thereafter at a rate of 12% per annum. The outstanding principal balance under this note, which is $5,750,000 as of June 30, 2007, is payable on April 15, 2009 and it is collateralized by all of the Company’s assets.

The Initial Warrant is subject to adjustment for stock splits, stock dividends or similar events. Biometrics may request and, if requested, the Company has agreed to file one or more registration statements with the U.S. Securities and Exchange Commission covering the all or part of the shares issuable upon the exercise of the Initial Warrant. Biometrics has not yet requested the Company to file a registration statement.

On June 18, 2007 the Company received a written notice (the “Notice”) from Biometrics that the Company violated the Subordination Agreement, dated March 30, 2007, by and among Mark Mroczkowski, Nick VandenBrekel and Biometrics (the “Subordination Agreement”) as a result of paying a debt owed to Mr. VandenBrekel that was classified as a “Junior Liability”. According to the Notice, the Company’s violation of the Subordination Agreement constituted an event of default under Section 14(b) of the Loan Agreement, unless cured by the Company within the 30 days curative period following the date of the Notice. The Subordination Agreement was entered into simultaneously with the Loan Agreement. The total amount borrowed from Biometrics is currently $5,750,000 (the “Liabilities”). If the Company fails to cure the default set forth in the Notice, then Biometrics may (a) accelerate payment of the Liabilities and immediately demand payment in the amount of $5,750,000 plus accrued interest and (b) foreclose on substantially all of the assets of the Company.

On June 21, 2007, the Company received an additional written notice (the “Additional Notice”) from Biometrics stating that Biometrics will refrain from enforcing its rights under the Agreement with respect to the defaults that were identified in the Notice for so long as Mr. VandenBrekel is in full compliance with the terms of the agreement described below.

On June 20, 2007, Nick VandenBrekel and Biometrics entered into an Agreement (the “Agreement”) which provides that Mr. VandenBrekel will purchase 100% of Biometrics for a purchase price equal to Biometrics’ out of pocket investment plus accrued interest, all transaction costs, and all expenses incurred by Biometrics related to its investment in the Company (the “Purchase Price”). The Agreement also stated that closing is to be no later than August 20, 2007 (the “Closing Date”) and that from June 20, 2007 until the Closing Date, Mr. VandenBrekel will provide 100% of the working capital needed by the Company as determined by Biometrics (see Note 7). The Company is not a party to this Agreement.

If Mr. VandenBrekel fails to fully fund the Purchase Price on or before the Closing Date or fails to provide the working capital required by the Company from June 20, 2007 to the Closing Date, then Mr. VandenBrekel will resign his current role and agree to serve the Company in any capacity that Biometrics requires for two years at a fixed salary of $200,000 per annum. Additionally, Mr. VandenBrekel will assign to Biometrics the five million stock options granted to him by the Company and eleven million common shares of the Company owned by him. The common shares will be held in escrow and may be returned to Mr. VandenBrekel at the sole discretion of Biometrics at the end of the two-year service period. See Note 13 - Subsequent Events for additional disclosure regarding this matter.

Term Loan B

Subject to the terms and conditions of the Loan Agreement, Biometrics agreed to make a second term loan to the Company in the principal amount of $5,000,000 (“Term Loan B”). Term Loan B shall consist of a series of advances not to exceed, in the aggregate, $5,000,000, which shall be disbursed to the Company based on the Company’s satisfaction of the conditions stated in Paragraphs 4(a) and (c) of the Loan Agreement, including the issuance to Biometrics of a warrant exercisable for 39,431,424 shares of the Company’s common stock at an exercise price of $.01 per share (the “Additional Warrant”). The Additional Warrant will not be issued to Biometrics until such time as the Company determines that it is in its best interest to borrow additional funds from Biometrics pursuant to Term Loan B. If any amounts are funded pursuant to Term Loan B, the outstanding principal balance under Term Loan B will be payable on April 15, 2009 and will be collateralized by all of the Company’s assets.

The Additional Warrant is subject to adjustment for stock splits, stock dividends or similar events. Biometrics may request and, if requested, the Company has agreed to file one or more registration statements with the U.S. Securities and Exchange Commission covering all or part of the shares issuable upon the exercise of the Additional Warrant. Biometrics has not yet requested the Company to file a registration statement.

In the Company’s opinion, the issuance and sale of the Initial Warrant, described above, was exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act of 1933, as amended. Biometrics is an accredited investor. Biometrics had an opportunity to ask management questions about the Company and had adequate access to information about the Company. No sales of securities involved the use of an underwriter and no commissions were paid in connection with the issuance or sale of any securities.

The principal documents involved in the transaction are the Loan Agreement, a Master Security Agreement, Term Notes A and B, an Initial and Additional Common Stock Purchase Warrant, a Registration Rights Agreement, a Second Amended and Restated Stock Pledge Agreement, a Shareholders Agreement, a Grant of Security Interest in Patents and Trademarks for the Company and certain of its subsidiaries, a Subsidiary Guaranty from each of the Company’s Subsidiaries, and a Subordination Agreement from Mark Mroczkowski and Nick VandenBrekel, the Company’s Chief Financial Officer and Chief Executive Officer, respectively, to Biometrics, each of which is dated as of March 30, 2007 and a copy of which is attached as an exhibit to the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 5, 2007.

Series B Waiver and Consent

In connection with the Financing, the Company’s Series B preferred shareholders and warrant holders consented to the Financing and acknowledged that the consummation of the Financing did not give rise to a termination or default under the Series B Preferred Stock Purchase Agreement, the Certificate of Determination for the Series B preferred stock, the warrants held by the Series B preferred shareholders or the Registration Rights Agreement for the Series B preferred stock and the warrants held by the Series B preferred shareholders, each of which is dated as of May 17, 2006. The Series B preferred shareholders and warrant holders further waived their: (a) rights to participate in the Financing; (b) anti-dilution rights, and (c) registration rights. The Series B preferred shareholders and warrant holders also consented to an increase in the Company’s authorized common shares and to the termination of the Registration Rights Agreement.

Series A Waiver and Consent

In connection with the Biometrics Financing, the Company’s Series A preferred shareholders and warrant holders consented to the Financing and acknowledged that the consummation of the Financing did not give rise to a termination or default under the Series A Preferred Stock Purchase Agreement or the warrants held by the Series A preferred shareholders, each of which is dated as of November 30, 2005. The Series A preferred shareholders and warrant holders further agreed to waive their rights of participation in the Financing and to any anti-dilution rights. The Series A preferred shareholders and warrant holders also consented to an increase in the Company’s authorized common shares.

Shareholder Actions

In connection with the Financing described above, 51.54% of the common shareholders voted and agreed to increase the number of directors on the Company’s Board of Directors from three to five members and further agreed to vote that the two additional directors will be representatives designated by Biometrics for so long as Biometrics remains a shareholder.

In connection with the Financing described above, 51.54% of the common shareholders voted and agreed in an action by written consent to amend the Company’s articles of incorporation to increase the authorized common shares from 200 million shares to 400 million shares.

Magstone Innovation, Inc.

As part of the acquisition of Magstone discussed in Note 2, the Company issued and delivered to Shixiong Chen an Installment Note Payable in the amount of $150,000 bearing interest at eight percent per annum, payable in three quarterly installments of $50,000 beginning April 1, 2007. The Company has not yet made any of these installment payments. The note is collateralized by the Purchase Shares. As part of the acquisition of Magstone, the Company also assumed Magstone’s debt to: a) ETI Hong Kong for $184,964 which did not bear interest, was unsecured and was paid in full during the six months ended June 30, 2007; and b) Sichuan Foreign Trade for $64,100 which does not bear interest, is unsecured and is due by December 31, 2007.

The preceding information is summarized as follows at June 30, 2007:

	Face Amount	Debt Discount	Carrying Amount
Included in Long-term debt:
Biometrics Investors, LLC	$ 5,750,000	$ (2,462,112)	$ 3,287,888
Shixiong Chen	150,000	-	150,000
Sichuan Foreign Trade	65,750	-	65,750
EastGroup Properties, LP	1,429,978	-	1,429,978
Total	7,395,728	(2,462,112)	4,933,616
Less Current Portion	(454,649)	-	(454,649)
	$ 6,941,079	$ (2,462,112)	$ 4,478,967

Note 6 – Accrued Expenses

Accrued expenses consist of the following at:

	June 30,2007		December 31, 2006
Interest	$	62,574	$	551,510
Payroll and payroll taxes		301,291		216,771
Inventory purchases		6,912		278,159
Other		149,302		227,884
	$	520,079	$	1,274,324

Note 7 – Loans from Shareholders

On June 29, 2007, Nicholas VandenBrekel, the President and Chief Executive Officer and shareholder of the Company, loaned the Company $250,000. The loan bears interest at 12% and is payable upon demand. At June 30, 2007, the outstanding balance was $250,000. See Note 13 - Subsequent Events for additional activity that occurred subsequent to June 30, 2007.

Note 8 - Capital Stock

During the six months ended June 30, 2007, the Company issued (a) 322,581 of its common shares in exchange for $100,000, which was received during 2006; (b) 684,000 of its common shares in exchange for services with a value of $171,000; (c) 178,000 of its common shares as final payment of the Company’s note payable to Aregee Investments No. 105; (d) 2,866,667 of its common shares as a result of elections made by holders of the Company’s Series B preferred stock to convert shares of the Company’s Series B preferred stock to shares of the Company’s common stock, at a fixed conversion rate of $0.21 per share; and (e) 1,410,294 of its common shares to the holders of the Company’s Series B preferred stock as payment of the 10% cumulative dividend payable. All issuances were made pursuant to Section 4(2) or 3(a)(9)of the Securities Act of 1933, as amended.

Note 9 - Stock Incentive Plans

On September 23, 2003 Sequiam executed the Sequiam Corporation 2003 Employee Stock Incentive Plan and the Sequiam Corporation 2003 Non-Employee Directors and Consultants Stock Plan (the “Plans”). These Plans are intended to allow designated officers, directors (including non-employee directors), employees and certain non-employees, including any independent contractor or consultant providing services to the Company and its Subsidiaries to receive certain options (the “Stock Options”) to purchase Sequiam common stock, par value $0.001 per share, and to receive grants of the common stock subject to certain restrictions. The maximum number of shares of the common stock that may be issued pursuant to the Plans shall be 14,000,000 and 1,000,000, respectively at June 30, 2007.

The Company may grant Stock Options in such amounts, at such times, and to the employees nominated by the management of the Company in its discretion. Stock Options granted under the Plans shall constitute “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986 as amended.

The purchase price (the “Exercise Price”) of shares of the common stock subject to each Stock Option shall be the fair market value of the common stock on the date the Stock Option is granted; provided, however, for designated non-statutory stock options, the Board of Directors may determine an Exercise Price at, above or below fair market value. For an employee holding greater than 10 percent of the total voting power of all stock of the Company, either common or preferred, the Exercise Price of an incentive stock option shall be at least 110 percent of the fair market value of the common stock on the date of the grant of the option.

The Stock Option term will begin on the date of grant of the Stock Option and shall be 10 years or such shorter period as is determined by the Company.

As of June 30, 2007, no Stock Options and 250,000 shares of common stock had been granted under the Sequiam Corporation 2003 Non-Employee Directors and Consultants Stock Plan.

A summary of Stock Option activity under the 2003 Employee Stock Incentive Plan as of June 30, 2007, and changes during the period then ended is presented below:

Options	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2006		10,357,500	$	0.234
Granted		1,500,000	$	0.200
Outstanding at June 30, 2007		11,857,500	$	0.229		6.6		-0-

Vested or expected to vest at June 30, 2007		11,857,500	$	0.229		6.6		-0-

Exercisable at June 30, 2007		10,190,834	$	0.234		6.2		-0-

The fair value of Stock Options granted during 2007 was calculated utilizing the following weighted-average assumptions: no dividend yield; expected volatility of 103.58% (calculated using historical volatility); risk-free interest rate of 4.66%; and expected term of 10 years. The fair value of each Stock Option is estimated on the date of grant using the Black-Scholes option-pricing model.

The weighted-average grant-date fair value of Stock Options granted during 2007 was $0.194.

A summary of the status of the Company’s nonvested Stock Options granted under the 2003 Employee Stock Incentive Plan as of June 30, 2007, and changes during the period ended June 30, 2007 is presented below:

Nonvested options	Number of Shares		Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2006		358,333	$	0.179
Granted		1,500,000	$	0.194
Vested		(191,667)	$	0.179
Nonvested at June 30, 2007		1,666,666	$	0.192

As of June 30, 2007, there was $320,209 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 0.5 years.

As of June 30, 2007, no common stock had been granted under the Sequiam Corporation 2003 Employee Stock Incentive Plan.

JWR Innovative Enterprises Ltd. (“JWR”) is an importer owned by Shixiong Chen, President and Chief Executive Officer of Sequiam East, Inc., a subsidiary of the Company. Sequiam East provides manufacturing services and sells products to Sequiam Biometrics, Inc., a subsidiary of the Company, and uses JWR for import services. JWR charges import related fees and makes profits that are competitive in the industry. JWR’s total import related fees charged and profits made related to transactions involving Sequiam East and Sequiam Biometrics during the six months ended June 30, 2007 were $47,649.

See Notes 7 and 13 for additional related party transactions.

Note 11 – Commitments and Contingencies

On May 16, 2007, Sequiam Biometrics, Inc. (“SBI”), a wholly-owned subsidiary of the Company, and Kwikset Corporation (“Kwikset”) amended that certain Cooperative Development and Supply Agreement dated as of September 13, 2005 (the “Agreement”). The amended agreement (the “Amendment”) provides for: (a) current payments to SBI for non-recurring engineering costs and test equipment; and (b) a fixed royalty payment to SBI for the BioLock product over a royalty term that begins June 1, 2007 and is extended to May 31, 2012. The Amendment also grants SBI full reseller privileges for the BioLock product based on terms and conditions set by Kwikset.

Kwikset and Sequiam further agreed to conduct a two phase cost reduction project for the BioLock. Kwikset agreed to pay SBI 50% of the Phase 1 cost savings achieved for a period of twelve months following the first delivery of the cost reduced product. Kwikset also agreed to pay Sequiam 50% of the Phase 2 incremental cost savings achieved for a period of twelve months following the first delivery of the phase 2 cost reduced product. Sequiam may also sell its proprietary technology to Kwikset for use in future versions of the BioLock product.

The Amendment removes a development project called BioSystems from the Agreement so that it, and all future projects contemplated by SBI and Kwikset will be governed by separate agreements. SBI also agreed to deliver to Kwikset all information necessary for the manufacture of the BioLock product exclusive of trade secrets and source code, which remain SBI’s property.

Note 12 - Operating Segments

Pursuant to FAS 131, the Company defines an operating segment as:

· A business activity from which the Company may earn revenue and incur expenses;

· Whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and

· For which discrete financial information is available.

The Company has two operating segments, which are defined as each business line that it operates. This however, excludes corporate headquarters, which does not generate revenue.

The Company’s operating segments are defined as follows:

The Safety and Security segment provides fingerprint biometric access control systems technology and fingerprint identification technology.

The Information Management segment provides interactive web-based technologies, as well as ASP, ISP and other customer web development and software development services.

The table below presents certain financial information by business segment for the quarter ended June 30, 2007.

		Safety and Security			Information Management			Segments Total			Corporate			Consolidated Total
Revenue from external customers		$	757,152		$	15,593		$	772,745			-		$	772,745
Interest expense			(4,529	)		-			(4,529	)		(555,934	)		(560,463	)
Depreciation and amortization			(82,753	)		(14,611	)		(97,364	)		(42,822	)		(140,186	)
Segment loss			(112,145	)		(132,268	)		(244,413	)		(986,883	)		(1,231,296	)
Segment assets (1)			2,443,227			58,522			2,501,749			917,120			3,418,869

(1)	Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.

The table below presents certain financial information by business segment for the six months ended June 30, 2007.

	Safety and Security			Information Management			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	1,560,556		$	32,302		$	1,592,858			-		$	1,592,858
Interest expense		(7,272	)		-			(7,272	)		(931,450	)		(938,722	)
Depreciation and amortization		(161,769	)		(30,625	)		(192,394	)		(85,608	)		(278,002	)
Segment loss		(365,544	)		(183,226	)		(548,770	)		(1,799,442	)		(2,348,212	)

The table below presents certain financial information by business segment for the quarter ended June 30, 2006.

		Safety and Security			Information Management			Segments Total			Corporate			Consolidated Total
Revenue from external customers		$	103,993		$	16,973		$	120,966			-		$	120,966
Interest expense			-			(753	)		(753	)		(1,126,403	)		(1,127,156	)
Depreciation and amortization			(69,983	)		(16,127	)		(86,110	)		(42,387	)		(128,497	)
Segment loss			(326,163	)		(69,664	)		(395,827	)		(2,250,114	)		(2,645,941	)
Segment assets (1)			1,924,371			366,206			2,290,577			2,044,530			4,335,107

(1)	Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.

The table below presents certain financial information by business segment for the six months ended June 30, 2006.

	Safety and Security			Information Management			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	210,194		$	57,711		$	267,905			-		$	267,905
Interest expense		-			(2,256	)		(2,256	)		(1,470,829	)		(1,473,085	)
Depreciation and amortization		(139,879	)		(32,086	)		(171,965	)		(84,660	)		(256,625	)
Segment loss		(625,224	)		(98,695	)		(723,919	)		(2,980,294	)		(3,704,213	)

Note 13 – Subsequent Events

Subsequent to June 30, 2007, Nicholas VandenBrekel, the President and Chief Executive Officer of the Company, loaned the Company a total of $500,000, via two separate loans of $250,000 each. These loans bear interest at 12% and are payable upon demand.

On August 15, 2007, Nicholas VandenBrekel, the President and Chief Executive Officer of the Company, acquired 100% of Biometrics Investors, LLC (“Biometrics”), the Company’s primary lender discussed in Note 5. Immediately subsequent to the acquisition of Biometrics by Mr. VandenBrekel, he sold it to an unrelated third party. Concurrent with the acquisition Biometrics: (a) waived the event of default discussed in Note 5, (b) modified the loan agreement with the Company to waive the requirement for bank account control agreements and (c) modified the loan agreement with the Company to provide that no interest shall accrue on the indebtedness evidenced by Term Loan A for the period commencing August 15, 2007 through the date of repayment.

On August 16, 2007, the Company, through its subsidiary Sequiam Sports, Inc., entered into that certain First Lease Amendment (the “Amendment”) to that certain Lease Agreement (the “Agreement”) made April 29, 2004, with EastGroup Properties, L.P. (the “Lessor”) which amends 24,085 square feet of the Company’s office space in Orlando, Florida (the “Original Space”).

The Amendment reduced the leased space from the Original Space to 12,934 square feet and extended the term of the current lease for a period of 28 months from July 1, 2010 through October 31, 2012. The Amendment also revised the rent schedule as follows:

Term	Monthly Rent
November 1, 2007 to October 31, 2008	$9,431.04
November 1, 2008 to October 31, 2009	$9,808.28
November 1, 2009 to October 31, 2010	$10,200.61
November 1, 2010 to October 31, 2011	$10,608.64
November 1, 2011 to October 31, 2012	$11,032.98

The Amendment further provided that the Lessor shall perform and be responsible for the cost of all construction in the Company’s leased premises to accommodate reduction of the Original Space. The contingency conditions set forth in Section 6 of the Amendment have been met as they relate to the lease terms defined in the Amendment.

The Company had previously made that certain Promissory Note (the “Note”) dated July 1, 2004 in the principal amount of $1,600.000 for the benefit of the Lessor for deferred rent and tenant improvements. The current balance of the Note is $1,429,978. Pursuant to Section 5 of the Amendment, the Lessor has agreed to accept $275,000 in full satisfaction of all amounts due under the Note if the Company pays such amount on or before November 1, 2007. The contingency conditions set forth in Section 6 of the Amendment have been waived, as they relate to the $275,000 repayment, in the Side Letter Agreement between the Company and Lessor dated August 15, 2007.

If the Company fails to pay the $275,000 to the Lessor on or before November 1, 2007 then monthly payments of combined principal and interest shall be due and payable beginning November 1, 2007 and continuing on the first day of each successive month thereafter in the amount of $6,071 until the current principal balance of the Note has been paid in full.

Pursuant to the Amendment, any default under the terms of the Note shall automatically constitute a default under the Agreement and Amendment. Likewise, any default under the terms of the Agreement or Amendment shall automatically constitute a default under the Note.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

INTRODUCTION

The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for the three months and six months ended June 30, 2007 compared to the three months and six months ended June 30, 2006; and (ii) financial liquidity and capital resources. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this Form 10-QSB.

We are a biometric technology company specializing in biological identification security systems. Our business is divided into two operating segments: (a) Safety and Security; and (b) Information Management.

The use of unique physical traits to verify a person's identity is known as biometric identification. Biometric identification includes fingerprinting, hand geometry, iris scanning, retinal scanning, voice recognition, face recognition and signature analysis. Biometric technology has been used for decades in government and law enforcement applications. Until recently, these systems were too expensive to manufacture to make retail marketing realistic. However, due to the development of more advanced technology, we believe that biometric identification techniques can be adapted for commercial purposes on an economically feasible basis. In addition, we believe that, as biometric technology becomes more familiar, that its use in safety and security applications will grow.

There are many alternatives in the biometrics industry that include, but are not limited to, fingerprint recognition, facial recognition, voice recognition, palm recognition, iris scanning and retinal scanning. Many providers have used these different methods in different applications. We believe that, although the biometric industry is in its infancy, biometric technology is a rapidly maturing science. Presently, although many companies have entered the biometric detection and application industry, many companies have failed to create a marketable product.

We believe that fingerprint identification is more effective at authenticating a person's identity than current processes. We also believe that fingerprint verification is less intrusive, more widely accepted and more cost effective than other available forms of biometric identification, and as a result, we believe that the use of biometrics for access control is becoming widely accepted in the marketplace.

Since inception, we have invested heavily in research and development and have not yet achieved profitability. Our revenue has grown from $0.3 million during the six months ended June 30, 2006 to $1.6 million during the six months ended June 30, 2007 driven primarily by demand in the biometrics product market. We expect sales of our products for use in the biometrics product market to continue to represent a substantial portion of our revenue in the foreseeable future.

We primarily sell our products to original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, or contract manufacturers. Our customers’ products are complex and require significant time to define, design and ramp to volume production. Our sales cycle begins with our marketing and sales staff and application engineers engaging with our customers’ system designers and management, which is typically a multi-month, or even multi-year, process. If we are successful, a customer will decide to incorporate our solution in its product. Because the sales cycles for our products are long, we incur expenses to develop and sell our products well in advance of generating revenue, if any, from those expenditures. We do not have long-term purchase commitments from any of our customers, as sales of our products are generally made under individual purchase orders. We have experienced revenue growth due to an increase in the number of our products offered and an expansion of our customer base.

For the six month periods ended June 30, 2007 and 2006, our revenues were derived from three sources: (i) the sale and licensing of our biometric and software products; (ii) consulting, custom software and web development services; and (iii) Internet access and web hosting services. Biometric and Software product and licensing revenue are recognized when all of the following criteria have been met: (a) there is an executed license agreement, for licensing revenue, and the technology, software or product has been delivered to the customer, (b) the sale amount is fixed and payable within twelve months, (c) collection is deemed probable, and (d) product returns are deemed reasonably estimable. Custom software development and web development services are typically performed over a period ranging from a few days to a few weeks and revenue is recognized upon completion of the project. Consulting service revenues are recognized when services are performed. Internet access and web-hosting services are recognized over the period the services are provided, typically month-to-month. Cash received from customers in advance of amounts earned is deferred and recorded as a liability.

The following table shows the proportion of total revenues by segment in the six month periods ended June 30, 2007 and 2006.

Period	Safety and Security		Information Management		Total
Six Months ended June 30, 2007	$	1,560,556	$	32,302	$	1,592,858
Six Months ended June 30, 2006	$	210,194	$	57,711	$	267,905

Results of Operations

The following table sets forth information regarding our financial results for the three and six months ended June 30, 2007 and June 30, 2006.

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006	% Change	2007	2006	% Change
Product sales	$466,214	$103,993	348 %	$1,157,118	$210,194	451 %
Services revenue – Engineering	290,938	-	-	290,938	-	-
Services revenue – Other	15,593	16,973	(8) %	32,302	57,711	(44) %
Other revenue	-	-	-	112,500	-	-
Cost of product sales	(383,864)	(138,149)	178 %	(1,071,736)	(258,159)	315 %
Cost of services revenue - Engineering	(38,160)	-	-	(38,160)	-	-
Costs of services revenue – Other	(24,885)	(28,425)	(12) %	(52,117)	(55,071)	(5) %
Selling, general and administrative	(973,938)	(1,278,177)	(24) %	(1,855,104)	(2,003,858)	(7) %
Other gains (losses)	-	(195,000)	-	-	(181,945)	-
Interest expense	(560,463)	(1,127,156)	(50) %	(938,722)	(1,473,085)	(36) %
Minority interest	(14,579)	-	-	22,921	-	-
Equity in net loss of unconsolidated joint venture	(8,152)	-	-	(8,152)	-	-
Net loss	$(1,231,296)	$(2,645,941)	(53) %	$(2,348,212)	$(3,704,213)	(37) %

Quarter Ended June 30, 2007 compared to Quarter Ended June 30, 2006. Unless otherwise noted, references to 2007 represent the three-month period ended June 30, 2007 and references to 2006 represent the three-month period ended June 30, 2006

Product Sales and Cost of Product Sales (Safety and Security Segment)

The following table sets forth information regarding product sales and cost of product sales, which consists of product costs, depreciation and amortization and other product related costs, for the three months ended June 30, 2007 and 2006.

	Three Months Ended June 30,
	2007		2006			% Change
Product sales	$	466,214	$	103,993		348	%
Product costs		249,803		65,820		280	%
Gross margin		216,411		38,173		467	%
Depreciation and amortization		82,373		70,032		18	%
Other product related costs		51,688		2,297		2,150	%
Gross profit (loss)	$	82,350	$	(34,156	)	-

Product sales increased by $362,221 or 348% to $466,214 in 2007 from $103,993 in 2006. This increase was due to our BioVault™ and BioLock products coming to market during the last six months of 2006. Sales of the BioVault™, BioLock, and related components and accessories during 2007 were $317,752 compared to 2006 sales of the prior version of the BioVault™ and BioLock components of $7,650. The increase in product sales during 2007 was also a result of an increase in sales from Constellation Biometrics Corporation from $79,710 in 2006 to $137,655 in 2007, an increase of $57,945 or 73%. Constellation’s sales consist primarily of sales of biometric products other than the BioVault™ and BioLock to customers in South Africa. We believe that Constellation’s sales increased as a result of business improvements made by the new management team that was put in place subsequent to the acquisition of Constellation in May 2005.

Gross margin increased to $216,411 in 2007 compared to $38,173 in 2006, an increase of $178,238. This increase was a result of the increase in product sales during 2007. Gross margin as a percentage of product sales increased to 46% in 2007 compared to 37% in 2006. This increase was a result of (a) the significant increase in sales of the BioVault™, BioLock, and related components and accessories during 2007 and (b) an improvement in the gross margin on sales by Constellation that resulted primarily from an increase in sales prices. We plan to reduce the costs to produce the BioVault™ and BioLock, and thus increase each item’s gross margin, by reengineering these products. The increase in other product related costs during 2007 was a result of the significant increase in sales of the BioVault™, BioLock, and related components and accessories.

During the last several years we spent significant time acquiring and redeveloping our biometric technology products. As a result, we expect more significant sales of our biometric technology products during 2007 and thereafter. In addition to our own sales efforts we are looking for other companies in the industry to whom we can license our biometric technology products. We believe that this will result in an increase in the number of outlets in which these products are made available.

We believe that the following developments will have a positive impact on our future revenues:



On May 16, 2007, Sequiam Biometrics, Inc. or Sequiam Biometrics, one of our wholly-owned subsidiaries,, and Kwikset Corporation, a subsidiary of The Black and Decker Corporation, amended that certain Cooperative Development and Supply Agreement dated as of September 13, 2005. The amended agreement provides for: (a) current payments to us for non-recurring engineering costs and test equipment; and (b) a fixed royalty payment to us for the BioLock product over a royalty term that began June 1, 2007 and is extended to May 31, 2012. The amended agreement also grants us full reseller privileges for the BioLock product based on terms and conditions set by Kwikset. Kwikset and Sequiam also further agreed to conduct a two phase cost reduction project for the BioLock product. Kwikset agreed to pay us 50% of the Phase 1 cost savings achieved for a period of twelve months following the first delivery of the cost reduced product. Kwikset also agreed to pay us 50% of the Phase 2 incremental cost savings achieved for a period of twelve months following the first delivery of the phase 2 cost reduced product. We may also sell our proprietary technology to Kwikset for use in future versions of the BioLock product.



On May 7, 2007, we announced we signed an alliance agreement with a global Fortune 100 corporation in the electronics industry.



On April 27, 2006, Sequiam Biometrics entered into a Joint Venture Agreement with Changjiang Computer Group Corporation and Magstone Innovation, Inc. The Chinese and English names of the joint venture are Shanghai Changjiang Intelligence Information Technology, LTD, and New Era Biometrics, Ltd., respectively. The joint venture is headquartered in Shanghai. The purpose of the joint venture agreement is to develop and market biometric and other information technology products and applications in China and other regions and to support Sequiam Biometrics by providing research and development for new products. The joint venture agreement grants Sequiam Biometrics exclusive rights to distribute those products in North America, Europe and Africa.

		On April 23, 2007, we announced we added our 200^th reseller location. The majority of these sales locations were added within the 60 days prior to April 23, 2007 as a result of the recent expansion of our sales and business development department.

		Effective April 15, 2006, Sequiam Biometrics entered into an Exclusive Distribution and Manufacturing Agreement with CJCC (China Jiangsu Construction Corporation). The purpose of this agreement is to provide the conditions and terms for the distribution of certain biometric products and services of Sequiam Biometrics, including a biometric personal digital assistant. The term of this agreement is five years and may be renewed for additional 24-month terms unless either party provides the other with written notice of termination at least 90 days prior to the expiration of the then current term.
		Effective April 10, 2006, Sequiam Biometrics entered into an Exclusive License Agreement with Tacoma Technology, Inc. The purpose of this agreement is to provide the conditions and terms for the manufacturing and distribution of certain biometric products of Tacoma, including all of Tacoma’s biometric sensor modules. The term of this agreement is six years and may be automatically renewed for additional 24-month terms unless either party provides the other with 30-days prior notice of its desire not to renew.

As a result of these developments, we expect that revenues from our Safety and Security segment will continue to increase during 2007 and thereafter as we continue to focus our efforts on our biometric products.

Services Revenue – Engineering and Cost of Services Revenue – Engineering (Safety and Security Segment)

Services revenue – Engineering was $290,938 during 2007. There was no Services revenue – Engineering during 2006. The revenue earned during 2007 was for non-recurring engineering work performed on the BioLock product for Kwikset Corporation. Cost of services revenue – Engineering was $38,160 during 2007 and represented the time incurred by our employees to perform the non-recurring engineering work on the BioLock product.

Services Revenue - Other and Cost of Services Revenue - Other (Information Management Segment)

Services revenue - Other decreased slightly to $15,593 in 2007 from $16,973 in 2006, a decrease of $1,380 or 8%. This decrease was a result of our continued focus on developing our Safety and Security segment and our portfolio of biometric products. Cost of services revenue - Other also decreased to $24,885 in 2007 from $28,425 in 2006, a decrease of $3,540 or 12%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $973,938 in 2007 and $1,278,177 in 2006, a decrease of $304,239 or 24%. The decrease was attributed to: (a) a decrease in payroll expense of $247,176; (b) a decrease in legal fees of $128,861; and (c) a decrease in consulting fees of $91,955. The overall decrease was partially offset by 2007 non-payroll related expenses of $79,796 incurred by Sequiam East, Inc, whom we acquired in January 2007 and an increase in bad debt expense of $61,659.

Our total payroll included in selling, general and administrative expenses was $326,353 for 2007 and $573,529 for 2006, a decrease of $247,176 or 43%. This decrease was due to $282,269 of payroll expense recognized during 2006 as a result of issuing shares of our common stock to our CEO and CFO in order to pay salaries due to them. The overall decrease was partially offset by the hiring of additional employees in our Safety and Security segment during and subsequent to the three months ended June 30, 2006, including employees of Sequiam East, Inc., whom we acquired during January 2007.

Other Gains (Losses)

During 2006 we recognized a loss on settlement of a lawsuit of $200,000. On July 13, 2006, we reached an agreement with Chapman Spira & Carson, LLC to settle the complaint filed by Chapman on or about September 28, 2005 in United States District Court for the Southern District of New York in which Chapman asserted claims for breach of contract and unjust enrichment. The agreement to settle the dispute required us to deliver a cash payment to Chapman of $200,000. This cash payment was made in July 2006. This loss was partially offset by a gain on sale of equipment of $5,000.

Interest Expense

Interest expense was $560,463 in 2007 and $1,127,156 in 2006, a decrease of $566,693 or 50%. The decrease was due to a non-cash charge of $224,386 that resulted from the issuance of 7,056,712 shares of our common stock to our CEO and CFO during 2006 that served as payment of accrued salaries and interest due to them and a non-cash charge of $101,970 that resulted from an amendment to a promissory note that modified the terms of warrants granted under the original promissory note. The decrease was also a result of a decrease in the non-cash charge that resulted from the accretion of the debt discount related to the fair value of warrants for common stock issued in connection with the various loan agreements and mandatorily redeemable cumulative convertible preferred stock.

Minority Interest

Minority interest of $14,579 in 2007 relates to the 20% ownership interest in Sequiam East, Inc. that is not held by us.

Equity in Net Loss of Unconsolidated Joint Venture

Equity in net loss of unconsolidated joint venture of $8,152 in 2007 represents our portion of the net loss of New Era Biometrics, Ltd., a joint venture in which we have a 30% ownership interest.

Net Losses

We incurred net losses of $1,231,296 in 2007 and $2,645,941 in 2006, a decrease of $1,414,645 or 53%. The decrease was primarily due to: (a) a $371,444 improvement in revenues and cost of revenues; (b) a $304,239 decrease in selling, general and administrative expenses; (c) a $195,000 decrease in other losses and; (d) a $566,693 decrease in interest expense.

We expect to incur additional net losses through the last six months of 2007 as our biometric products continue to be developed and marketed. Our overall cash flow has improved during the second quarter of 2007 primarily as a result of the financing with Biometrics Investors, LLC.

Six Months Ended June 30, 2007 compared to Six Months Ended June 30, 2006. Unless otherwise noted, references to 2007 represent the six-month period ended June 30, 2007 and references to 2006 represent the six-month period ended June 30, 2006.

Product Sales and Cost of Product Sales (Safety and Security Segment)

	Six Months Ended June 30,
	2007		2006			% Change
Product sales	$	1,157,118	$	210,194		451	%
Product costs		820,446		114,248		618	%
Gross margin		336,672		95,946		251	%
Depreciation and amortization		161,769		139,879		16	%
Other product related costs		89,521		4,032		2,120	%
Gross profit (loss)	$	85,382	$	(47,965	)	-

Product sales increased by $946,924 or 451% to $1,157,118 in 2007 from $210,194 in 2006. This increase was due to our BioVault™ and BioLock products coming to market during the last six months of 2006. Sales of the BioVault™, BioLock, and related components and accessories during 2007 were $833,274 compared to 2006 sales of the prior version of the BioVault™ and BioLock components of $9,945. The increase in product sales during 2007 was also a result of an increase in sales from Constellation Biometrics Corporation from $179,960 in 2006 to $303,229 in 2007, an increase of $123,269 or 68%. Constellation’s sales consist primarily of sales of biometric products other than the BioVault™ and BioLock to customers in South Africa. We believe that Constellation’s sales increased as a result of improvements made by the new management team that was put in place subsequent to the acquisition of Constellation in May 2005.

Gross margin increased to $336,672 in 2007 compared to $95,946 in 2006, an increase of $240,726. This increase was a result of the increase in product sales during 2007. However, gross margin as a percentage of product sales decreased to 29% in 2007 compared to 46% in 2006. This decrease was a result of the significant increase in sales of the BioVault™, BioLock, and related components and accessories during 2007. These items had a lower gross margin than the other biometric products that comprised 2006 product sales. We plan to reduce the costs to produce the BioVault™ and BioLock, and thus increase each item’s gross margin, by reengineering these products. The increase in other product related costs during 2007 was a result of the significant increase in sales of the BioVault™, BioLock, and related components and accessories.

Services Revenue – Engineering and Cost of Services Revenue – Engineering (Safety and Security Segment)

Services Revenue - Other and Cost of Services Revenue - Other (Information Management Segment)

Services revenue - Other decreased to $32,302 in 2007 from $57,711 in 2006, a decrease of $25,409 or 44%. This decrease was a result of our continued focus on developing our Safety and Security segment and our portfolio of biometric products. Cost of services revenue - Other also decreased to $52,117 in 2007 from $55,071 in 2006, a decrease of $2,954 or 5%.

Other Revenue (Safety and Security Segment)

This was a result of recognizing a customer deposit of $112,500 as revenue during 2007. The customer initially placed a purchase order with us and we collected a deposit from the customer for $112,500. The product shipment for this purchase order was received by us from the manufacturer in January 2007. A sales invoice was then provided to the customer that went unpaid. As a result, the customer forfeited the deposit.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,855,104 in 2007 and $2,003,858 in 2006, a decrease of $148,754 or 7%. The decrease was attributed to: (a) a decrease in payroll expense of $185,132; (b) a decrease in legal fees of $164,084; and (c) a decrease in consulting fees of $40,640. The overall decrease was partially offset by 2007 non-payroll related expenses of $102,242 incurred by Sequiam East, Inc, whom we acquired in January 2007, an increase in research and development expenses of $75,715 and an increase in bad debt expense of $59,632.

Our total payroll included in selling, general and administrative expenses was $697,493 for 2007 and $882,625 for 2006, a decrease of $185,132 or 21%. This decrease was due to $282,269 of payroll expense recognized during 2006 as a result of issuing shares of our common stock to our CEO and CFO in order to pay salaries due to them. The overall decrease was partially offset by the hiring of additional employees in our Safety and Security segment during and subsequent to the six months ended June 30, 2006, including employees of Sequiam East, Inc., whom we acquired during January 2007.

Other Gains (Losses)

During 2006 we recognized a loss on settlement of a lawsuit of $200,000. On July 13, 2006, we reached an agreement with Chapman Spira & Carson, LLC to settle the complaint filed by Chapman on or about September 28, 2005 in United States District Court for the Southern District of New York in which Chapman asserted claims for breach of contract and unjust enrichment. The agreement to settle the dispute required us to deliver a cash payment to Chapman of $200,000. This cash payment was made in July 2006. During 2006 we also recognized gains on the restructuring of debt of $13,055 and on the sale of equipment of $5,000.

Interest Expense

Interest expense was $938,722 in 2007 and $1,473,085 in 2006, a decrease of $534,363 or 36%. The decrease was due to a non-cash charge of $224,386 that resulted from the issuance of 7,056,712 shares of our common stock to our CEO and CFO during 2006 that served as payment of accrued salaries and interest due to them and a non-cash charge of $101,970 that resulted from an amendment to a promissory note that modified the terms of warrants granted under the original promissory note. The decrease was also a result of a decrease in the non-cash charge that resulted from the accretion of the debt discount related to the fair value of warrants for common stock issued in connection with the various loan agreements and mandatorily redeemable cumulative convertible preferred stock.

Minority Interest

Minority interest of $22,921 in 2007 relates to the net loss allocated to the 20% ownership interest in Sequiam East, Inc. that is not held by us.

Equity in Net Loss of Unconsolidated Joint Venture

Equity in net loss of unconsolidated joint venture of $8,152 in 2007 represents our portion of the net loss of New Era Biometrics, Ltd., a joint venture in which we have a 30% ownership interest.

Net Losses

We incurred net losses of $2,348,212 in 2007 and $3,704,213 in 2006, a decrease of $1,356,001 or 37%. The decrease was primarily due to: (a) a $476,170 improvement in revenues and cost of revenues; (b) a $148,754 decrease in selling, general and administrative expenses; c) a $181,945 decrease in other losses and; d) a $534,363 decrease in interest expense.

Liquidity and Capital Resources

General

Our principal use of cash in our operating activities has historically been for inventory and selling general and administrative expenses. Our principal source of liquidity has historically been from financing activities. Our cash flow has improved during the second quarter of 2007 as a result of our new financing with Biometrics Investors, LLC. We expect our cash flow to continue to improve as a result of (a) this new financing and (b) the sales and licensing of our biometric products.

Operating Activities

Net cash used for operating activities was $1,217,383 for 2007, as a result of the net loss during the period of $2,348,212 and a decrease in accounts payable of $670,901, offset by non-cash expenses of $1,058,651, a decrease in receivables of $581,860 and a decrease in inventory of $138,894.

Investing and Financing Activities

Net cash used for investing activities for 2007 was $104,760, consisting of product development costs of $127,545, equipment purchases of $34,257 and an increase in advance receivable of $32,000, offset by cash acquired through the acquisition of Sequiam East, Inc. of $89,042.

Net cash provided by financing activities for 2007 was $1,350,264, consisting of proceeds from long-term debt and shareholder loans of $1,750,000 and $250,000, respectively, offset by repayment of shareholder loans of $274,074, repayment of long-term debt of $217,910 and payment of loan costs of $157,752.

Current liabilities of $2,457,467 exceed current assets of $1,076,627 by $1,380,840.

We anticipate sales from our products increasing to a level where they are sufficient enough to sustain our operations. Until that time, we anticipate the new financing with Biometrics Investors, LLC will provide adequate funding.

On March 30, 2007, we closed a debt transaction with Biometrics Investors, LLC or Biometrics. Pursuant to this financing, we amended and restated that Second Amended, Restated and Consolidated Senior Secured Term Note, dated November 1, 2005, made to Lee Harrison Corbin, Attorney In Fact for the Trust under the Will of John Svenningsen, in the original principal amount plus interest of $3,965,119 or the Original Note, which was transferred to Biometrics, to provide for $2,500,000 of additional funding subject to the satisfaction of certain conditions or Term Loan A. The aggregate principal amount of Term Loan A (which includes $3,965,119 from the Original Note”) is $6,500,000. In connection with this financing, Biometrics provided us with written notice that we were no longer in default of the Original Note as previously reported on the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 14, 2007.

Term Loan A

Term Loan A shall be disbursed by Biometrics to us in a series of ten disbursements, each in the amount of $250,000, payable every other week, which shall be disbursed based on our satisfaction of the conditions stated in Paragraphs 4(a) and (b) of that certain Agreement by and between us and Biometrics, dated March 30, 2007, including our issuance to Biometrics of an initial warrant exercisable for 65,719,041 shares of our common stock at an exercise price of $.01 per share. Biometrics, in its sole discretion, may elect to advance Term Loan A in greater amounts or on an accelerated funding schedule. On March 30, 2007, we issued the initial warrant to Biometrics in accordance with the Agreement.

The $6,500,000 promissory note issued to Biometrics has a term of two years. Interest shall be payable monthly in arrears commencing on May 1, 2007, and on the first day of each consecutive calendar month thereafter at a rate of 12% per annum. The outstanding principal balance under this note is payable on April 15, 2009 and it is collateralized by all of our assets.

The initial warrant issued to Biometrics is subject to adjustment for stock splits, stock dividends or similar events. Biometrics may request and, if requested, we have agreed to file one or more registration statements with the U.S. Securities and Exchange Commission covering the all or part of the shares issuable upon the exercise of the initial warrant. Biometrics has not yet requested us to file a registration statement.

Term Loan B

Subject to the terms and conditions of the Loan Agreement, Biometrics agreed to make a second term loan to us in the principal amount of $5,000,000 or Term Loan B. Term Loan B shall consist of a series of advances not to exceed, in the aggregate, $5,000,000, which shall be disbursed to us based on our satisfaction of the conditions stated in Paragraphs 4(a) and (c) of the Loan Agreement, including the issuance to Biometrics of a warrant exercisable for 39,431,424 shares of our common stock at an exercise price of $.01 per share. We will not issue the additional warrant to Biometrics until such time as we determine that it is in our best interest to borrow additional funds from Biometrics pursuant to Term Loan B. If any amounts are funded pursuant to Term Loan B, the outstanding principal balance under Term Loan B will be payable on April 15, 2009 and will be collateralized by all of our assets.

This additional warrant is subject to adjustment for stock splits, stock dividends or similar events. Biometrics may request and, if requested, we have agreed to file one or more registration statements with the U.S. Securities and Exchange Commission covering all or part of the shares issuable upon the exercise of this additional warrant. Biometrics has not yet requested us to file a registration statement.

In our opinion, the issuance and sale of the initial warrant, described above, was exempt from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(2) and Regulation D promulgated thereunder. Biometrics is an accredited investor. Biometrics had an opportunity to ask management questions about us and had adequate access to information about us. No sales of securities involved the use of an underwriter and no commissions were paid in connection with the issuance or sale of any securities.

On June 18, 2007 we received a written notice or Notice from Biometrics that we violated the Subordination Agreement, dated March 30, 2007, by and among Mark Mroczkowski, Nick VandenBrekel and Biometrics as a result of paying a debt owed to Mr. VandenBrekel that was classified as a “Junior Liability”. According to the Notice, our violation of the Subordination Agreement constituted an event of default under Section 14(b) of the Agreement, unless cured by us within the 30 days curative period following the date of the Notice. The Subordination Agreement was entered into simultaneously with the Agreement. The total amount borrowed from Biometrics is currently $5,750,000. If we fail to cure the default set forth in the Notice, then Biometrics may (a) immediately demand payment in the amount of $5,750,000 plus accrued interest and (b) foreclose on substantially all of our assets.

On June 21, 2007, we received an additional written notice or Additional Notice from Biometrics stating that Biometrics will refrain from enforcing its rights under the Agreement with respect to the defaults that were identified in the Notice for so long as Mr. VandenBrekel is in full compliance with the terms of the agreement described below.

On June 20, 2007, Nick VandenBrekel and Biometrics entered into an agreement which provides that Mr. VandenBrekel will purchase 100% of Biometrics for a purchase price equal to Biometrics’ out of pocket investment plus accrued interest, all transaction costs, and all expenses incurred by Biometrics related to its investment in us. This agreement also stated that closing is to be no later than August 20, 2007 and that from June 20, 2007 until closing, Mr. VandenBrekel will provide 100% of the working capital needed by us as determined by Biometrics. We are not a party to this agreement between Mr. VandenBrekel and Biometrics.

If Mr. VandenBrekel fails to consummate the acquisition of Biometrics as described above or fails to provide the working capital required by us from June 20, 2007 until closing, then Mr. VandenBrekel will resign his current role and agree to serve us in any capacity that Biometrics requires for two years at a fixed salary of $200,000 per annum. Additionally, Mr. VandenBrekel will assign to Biometrics the five million stock options granted to him by us and eleven million of our common shares owned by him. The common shares will be held in escrow and may be returned to Mr. VandenBrekel at the sole discretion of Biometrics at the end of the two-year service period. See the Subsequent Events section below for additional discussion regarding this matter.

The principal documents involved in the transaction are the Loan Agreement, a Master Security Agreement, Term Notes A and B, an Initial and Additional Common Stock Purchase Warrant, a Registration Rights Agreement, a Second Amended and Restated Stock Pledge Agreement, a Shareholders Agreement, a Grant of Security Interest in Patents and Trademarks for us and certain of our subsidiaries, a Subsidiary Guaranty from each of our Subsidiaries, and a Subordination Agreement from Mark Mroczkowski and Nick VandenBrekel, our Chief Financial Officer and Chief Executive Officer, respectively, to Biometrics, each of which is dated as of March 30, 2007 and a copy of which is attached as an exhibit to the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 5, 2007.

Subsequent Events

On August 15, 2007, Nicholas VandenBrekel, our President and Chief Executive Officer, acquired 100% of Biometrics Investors, LLC or Biometrics, our primary lender discussed above. Immediately subsequent to the acquisition of Biometrics by Mr. VandenBrekel, he sold it to an unrelated third party. Concurrent with the acquisition Biometrics: (a) waived the event of default discussed above, (b) modified the loan agreement with us to waive the requirement for bank account control agreements and (c) modified the loan agreement with us to provide that no interest shall accrue on the indebtedness evidenced by Term Loan A for the period commencing August 15, 2007 through the date of repayment.

On August 16, 2007, we, through our subsidiary Sequiam Sports, Inc., entered into that certain First Lease Amendment or Amendment to that certain Lease Agreement or Agreement made April 29, 2004, with EastGroup Properties, L.P. or Lessor which amends 24,085 square feet of our office space in Orlando, Florida or the Original Space.

Term	Monthly Rent
November 1, 2007 to October 31, 2008	$9,431.04
November 1, 2008 to October 31, 2009	$9,808.28
November 1, 2009 to October 31, 2010	$10,200.61
November 1, 2010 to October 31, 2011	$10,608.64
November 1, 2011 to October 31, 2012	$11,032.98

The Amendment further provided that the Lessor shall perform and be responsible for the cost of all construction in our leased premises to accommodate reduction of the Original Space. The contingency conditions set forth in Section 6 of the Amendment have been met as they relate to the lease terms defined in the Amendment.

We had previously made that certain Promissory Note, or the Note, dated July 1, 2004 in the principal amount of $1,600.000 for the benefit of the Lessor for deferred rent and tenant improvements. The current balance of the Note is $1,429,978. Pursuant to Section 5 of the Amendment, the Lessor has agreed to accept $275,000 in full satisfaction of all amounts due under the Note if we pay such amount on or before November 1, 2007. The contingency conditions set forth in Section 6 of the Amendment have been waived, as they relate to the $275,000 repayment, in the Side Letter Agreement between us and Lessor dated August 15, 2007.

If we fail to pay the $275,000 to the Lessor on or before November 1, 2007 then monthly payments of combined principal and interest shall be due and payable beginning November 1, 2007 and continuing on the first day of each successive month thereafter in the amount of $6,071 until the current principal balance of the Note has been paid in full.

We believe that our current and future plans provide an opportunity to continue as a going concern. The condensed consolidated financial statements included in this Form 10-QSB do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event we cannot continue as a going concern.

Application of Critical Accounting Policies

We utilize certain accounting policies and procedures to manage changes that occur in our business environment that may affect accounting estimates made in preparation of our financial statements. These estimates relate primarily to our allowance for doubtful accounts receivable and the recognition and measurement of potential impairment on long-lived and intangible assets. Our strategy for managing doubtful accounts includes stringent, centralized credit policies and collection procedures for all customer accounts. We utilize a credit risk rating system in order to measure the quality of individual credit transactions. We strive to identify potential problem receivables early, take appropriate collection actions, and maintain adequate reserve levels. Management reviews its long-lived and intangible assets for impairment whenever changes in circumstances or other events indicate potential impairment. Management has determined that the allowance for doubtful accounts and impairment losses are adequate at June 30, 2007.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined by Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the periodic reports filed by the Company with the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company's management. Based on their most recent evaluation, which was completed during the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective.

Changes in Internal Control Over Financial Reporting

In addition, management, including the Company's Chief Executive Officer and Chief Financial Officer, reviewed the Company's internal control over financial reporting (as defined by Rule 15(d)-15(f) of the Exchange Act), and there have been no changes in the Company's internal control or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by this report.

PART II: OTHER INFORMATION

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2007, the following activity occurred related to the Company’s capital stock:

The Company issued 178,000 of its common shares as final payment of the Company’s note payable to Aregee Investments No. 105. These shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Company issued 2,866,667 of its common shares as a result of elections made by holders of the Company’s Series B preferred stock to convert shares of the Company’s Series B preferred stock to shares of the Company’s common stock, at a fixed conversion rate of $0.21 per share. These shares were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

The Company issued 1,410,294 of its common shares to the holders of the Company’s Series B preferred stock as payment of the 10% cumulative dividend payable. These shares were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 6. EXHIBITS

(a) Exhibits:

10.1	Amendment to the Cooperative Development and Supply Agreement between Sequiam Biometrics, Inc. and Kwikset Corporation effective May 16, 2007 (Portions of this Amendment have been omitted pursuant to a request for confidential treatment).*

10.2	Notice under Loan Agreement dated as of March 30, 2007, between Sequiam Corporation and Biometrics Investors, LLC, dated June 15, 2007. ¹

10.3	Notice under Loan Agreement dated as of March 30, 2007, between Sequiam Corporation and Biometrics Investors, LLC, dated June 21, 2007.¹

10.4	Waiver of Default under Loan Agreement dated as of March 30, 2007, between Sequiam Corporation and Biometrics Investors, LLC, dated August 15, 2007.²

10.5	Modification of Loan Agreement dated as of March 30, 2007, between Sequiam Corporation and Biometrics Investors, LLC, dated August 15, 2007.²

10.6	Modification of Loan Agreement dated as of March 30, 2007, between Sequiam Corporation and Biometrics Investors, LLC, dated August 15, 2007.²

10.7	First Lease Amendment under Lease Agreement dated as of April 29, 2004, between Sequiam Corporation and EastGroup Properties, LP, dated August 16, 2007.²

10.8	Side Letter Agreement between Sequiam Corporation and EastGroup Properties, LP, dated August 15, 2007.²

16.1 Letter dated June 15, 2007 furnished by Tedder, James, Worden & Associates, PA. ³

16.2 Letter dated June 27, 2007 furnished by Tedder, James, Worden & Associates, PA. ⁴

31.1	Certification of Chief Executive Officer Pursuant To 15d-14.*
31.2	Certification of Chief Financial Officer Pursuant To 15d-14.*
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*

* Filed herewith

¹	Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 22, 2007.

²	Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2007.

³	Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 15, 2007.

⁴	Incorporated by reference from our Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on June 27, 2007.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SEQUIAM CORPORATION

Date: August 20, 2007

By: /s/ Nicholas H. VandenBrekel

Nicholas H. VandenBrekel, Chief Executive Officer and President

Date: August 20, 2007

By: /s/ Mark L. Mroczkowski

Mark L. Mroczkowski, Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)



Date: August 20, 2007		/s/ Nicholas H. VandenBrekel
		Nicholas H. VandenBrekel
		President & Chief Executive Officer



Date: August 20, 2007		/s/ Mark L. Mroczkowski
		Mark L. Mroczkowski
		Executive Vice President and Chief Financial Officer



		/s/ Nicholas H. VandenBrekel
		Nicholas H. VandenBrekel
		President and Chief Executive Officer August 20, 2007



		/s/ Mark L. Mroczkowski
		Mark L. Mroczkowski
		Executive Vice President, Secretary & Chief Financial Officer August 20, 2007