-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OoQKWeMFKoSn+1wVxJbAzOjC47wL3i1aJKHRG6cbZkYaAT13Ztt+DxCclY5TdB+v G6Bc6rgtzV0AuV2YSXsfXQ== 0001123606-07-000047.txt : 20071114 0001123606-07-000047.hdr.sgml : 20071114 20071114143757 ACCESSION NUMBER: 0001123606-07-000047 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071114 DATE AS OF CHANGE: 20071114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEQUIAM CORP CENTRAL INDEX KEY: 0001123606 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 330875030 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-45678 FILM NUMBER: 071243572 BUSINESS ADDRESS: STREET 1: 300 SUNPORT LANE CITY: ORLANDO STATE: FL ZIP: 32809 BUSINESS PHONE: 4075410774 MAIL ADDRESS: STREET 1: 300 SUNPORT LANE CITY: ORLANDO STATE: FL ZIP: 32809 FORMER COMPANY: FORMER CONFORMED NAME: WEDGE NET EXPERTS INC DATE OF NAME CHANGE: 20000912 10QSB 1 form10-qsb.htm SEQUIAM CORPORATION 10-QSB 9-30-07 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 September 30, 2007

OR

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 November 9, 2007 was 93,725,266.

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



 

INDEX


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.


 





ITEM 1. FINANCIAL STATEMENTS

Sequiam Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
 
 
 
September 30, 2007 (Unaudited)
 
December 31, 2006
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash
 
$
373,485
 
$
54,161
 
Receivables, net
 
 
213,919
 
 
836,715
 
Inventory
 
 
781,219
 
 
766,969
 
Prepaid expenses
    
54,645
    
-
  
Total current assets
 
 
1,423,268
 
 
1,657,845
 
Property and equipment, net
 
 
822,435
 
 
919,909
 
Intellectual properties, net
 
 
372,989
 
 
559,927
 
Goodwill
    
154,103
    
-
  
Product development costs
 
 
470,266
 
 
364,117
 
Advance receivable
 
 
187,000
 
 
140,000
 
Investment in joint venture
    
48,931
    
60,000
  
Deposits and other assets
 
 
37,148
 
 
16,264
 
Total assets
 
$
3,516,140
 
$
3,718,062
 
 
 
 
 
 
 
 
 
Liabilities and shareholders’ deficit
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Notes payable
 
$
440,450
 
$
-
 
Accounts payable
    
533,731
    
1,190,380
  
Accrued expenses
 
 
528,128
 
 
1,274,324
 
Dividends payable
 
 
113,221
 
 
179,808
 
Customer deposits
    
31,996
    
112,500
  
Deferred revenue
    
21,000
    
31,500
  
Deferred rents
 
 
32,462
 
 
35,917
 
Current portion of long-term debt
 
 
455,599
 
 
3,512,188
 
Loans from shareholders
 
 
658,923
 
 
682,997
 
Total current liabilities
 
 
2,815,510
 
 
7,019,614
 
               
Long-term debt
 
 
6,440,617
 
 
1,191,079
 
Total liabilities
 
 
9,256,127
 
 
8,210,693
 
               
Minority interest in subsidiary
    
14,197
    
-
  
               
Shareholders’ deficit:
 
 
 
 
 
 
 
Preferred shares
    
2
    
3
  
Common shares
 
 
92,347
 
 
82,281
 
Additional paid-in capital
 
 
22,106,442
 
 
18,493,022
 
Accumulated deficit
 
 
(27,967,352
)
 
(23,080,135
)
Accumulated other comprehensive income
 
 
14,377
  
 
12,198
  
Total shareholders’ deficit
 
 
(5,754,184
)
 
(4,492,631
)
Total liabilities and shareholders’ deficit
 
$
3,516,140
 
$
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 September 30,
For the Nine Months Ended September 30,
 
2007
2006
2007
2006
         
Revenues
        
   Product sales
$      411,237
$    232,371
$      1,568,355
$      442,565
   Services – Engineering
-
-
290,938
-
   Royalties
17,830
-
17,830
-
   Services - Other
99,068
28,198
131,370
85,909
   Other
-
-
112,500
-
         
Total revenues
528,135
260,569
2,120,993
528,474
         
Costs and expenses:
        
   Cost of product sales
436,512
254,714
1,508,248
512,873
   Cost of services – engineering
-
-
38,160
-
   Cost of services – other
36,620
27,221
88,737
82,292
   Selling, general and administrative
915,387
674,434
2,770,491
2,678,292
   Gain on sale of equipment
-
-
-
(5,000)
   Gain on restructuring of debt
-
-
-
(13,055)
   Loss on settlement of lawsuit
-
-
-
200,000
   Loss on extinguishment of debt
1,364,216
-
1,364,216
-
 
2,752,735
956,369
5,769,852
3,455,402
         
Loss from operations
(2,224,600)
(695,800)
(3,648,859)
(2,926,928)
         
Interest expense
(311,870)
(846,927)
(1,250,592)
(2,320,012)
         
Loss before minority interest in net loss of subsidiary and equity in net loss of unconsolidated joint venture
  
(2,536,470)
  
(1,542,727)
  
(4,899,451)
  
(5,246,940)
         
Minority interest in net loss of subsidiary
382
-
23,303
-
Equity in net loss of unconsolidated joint venture
                 (2,917)
-
(11,069)
-
         
Net loss
(2,539,005)
(1,542,727)
(4,887,217)
(5,246,940)
         
Preferred stock dividends
(48,648)
(74,671)
(188,770)
(108,918)
         
Net loss applicable to common shareholders
$(2,587,653)
$(1,617,398)
$(5,075,987)
$(5,355,858)
Net loss per common share:
        
   Basic and diluted
$(0.03)
$(0.02)
$(0.06)
$(0.08)
         
Shares used in computation of net loss per common share - Basic and diluted weighted average shares outstanding
89,837,802
77,176,832
85,872,574
70,668,864
         
         
         
See accompanying notes to condensed consolidated financial statements


 



 
Sequiam Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine months ended
September 30,
 
 
 
2007
 
2006
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
 
$
(4,887,217
)
$
(5,246,940
)
Adjustments to reconcile net loss to net cash used for operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
417,442
 
 
390,936
 
Accretion of debt discount
 
 
724,017
 
 
1,503,378
 
Amortization of loan costs
 
 
31,492
 
 
253,098
 
Amortization of product development costs
    
73,993
    
14,539
  
Gain on sale of equipment
    
-
    
(5,000
)
Gain on restructuring of debt
    
-
    
(13,055
)
Loss on extinguishment of debt
    
1,364,216
    
-
  
Issuance of common stock in exchange for services and interest
 
 
171,000
 
 
314,710
  
Issuance of common stock in exchange for salaries
 
 
-
 
 
282,269
 
Issuance of common stock and stock options to employees and directors
 
 
119,247
 
 
34,246
 
Minority interest in net loss of subsidiary
    
(23,303
)
  
-
  
Equity in net loss of unconsolidated joint venture
    
11,069
    
-
  
Decrease in receivables
 
 
615,010
  
 
20,756
  
Increase in allowance for bad debts
 
 
9,030
 
 
22,132
 
(Increase) decrease in inventory
 
 
130,246
  
 
(779,451
) 
Increase in prepaid expenses, deposits and other assets
 
 
(27,830
)
 
(90,595
) 
Increase (decrease) in deferred revenue
 
 
(10,500
)
 
43,000
  
Increase (decrease) in accounts payable
 
 
(759,317
)
 
509,978
  
Increase in accrued expenses
 
 
63,297
 
 
65,137
 
Decrease in customer deposits
    
(80,504
)
  
-
  
Decrease in deferred rents
 
 
(3,455
) 
 
(496
)
Net cash used for operating activities
 
 
(2,062,067
)
 
(2,681,358
)
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Proceeds from sale of equipment
    
-
    
5,000
  
Equipment purchases
 
 
(53,948
)
 
(87,448
)
Cash acquired through acquisition of Sequiam East
    
89,042
    
-
  
Increase in advance receivable
    
(47,000
)
  
-
  
Product development costs capitalized
 
 
(180,142
)
 
(192,500
)
Net cash used for investing activities
 
 
(192,048
)
 
(274,948
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from notes payable
    
440,450
    
-
  
Repayment of notes payable
    
-
    
(20,000
)
Proceeds from long-term debt
    
2,532,500
    
-
  
Repayment of long-term debt
    
(217,910
)
  
(635,398
)
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
 
 
2,573,214
 
 
2,209,273
 
Effect of exchange rate changes on cash
 
 
225
 
 
9,595
 
 
 
 
 
 
 
 
 
Net increase in cash
 
 
319,324
  
 
(737,438
)
Cash, beginning of period
 
 
54,161
 
 
763,197
 
Cash, end of period
 
$
373,485
 
$
25,759
 
See accompanying notes to condensed consolidated financial statements.
 
Sequiam Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
 

 
 
Nine months ended
September 30,
 
 
 
2007
 
2006
 
Supplemental cash flow information:
              
Cash paid for interest
 
$
238,822
 
$
260,063
  
               
Supplemental disclosures of non-cash investing and financing activities:
 
 
 
 
 
 
 
               
Series B preferred stock dividend declared and unpaid at end of period
 
$
113,221
  
$
108,918
  
Common shares issued upon conversion of mandatorily redeemable cumulative
convertible preferred stock
 
 
 
-
 
 
1,575,000
 
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
 
 
3,039,151
 
 
-
 
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
    
255,357
    
-
  
Common shares issued upon conversion of Series B preferred stock
    
6,521
    
-
  
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 $27,967,000 as of September 30, 2007. In addition, the Company has a working capital deficit of approximately $1,392,000 as of September 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 September 30, 2007, the Company had 168,996,941 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 September 30, 2007, the Company has two stock-based compensation plans (the “Plans”) which are described more fully in Note 10.

 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 nine months ended September 30, 2007 and 2006 were $34,247 and $34,246 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 September 30, 2007 and 2006 would have remained $0.06 and $0.08, 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 Company has not yet made any of these installment payments. 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 fair 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 September 30, 2007 include nine 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 nine months ended September 30, 2006 assumes the acquisition of Magstone occurred as of January 1, 2006:

 
Three Months Ended   September 30, 2006
Nine Months Ended September 30, 2006
     
Revenues
          $ 260,569
          $ 528,474
     
Net loss
          $ 1,585,253
          $ 5,316,466
     
Basic and diluted net loss per common share
          $ (0.02)
          $ (0.08)
     
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:

 
 
September 30,2007
 
December 31, 2006
Raw materials
 
$
320,814
 
$
370,219
Work in process
    
141,809
    
127,512
Finished goods
 
 
330,820
 
 
269,238
Reserve for obsolete inventory
    
(12,224)
    
-
 
 
 $
781,219
  
 $
766,969

Note 5 – Notes Payable

During August 2007, the Company received $250,250, $95,100 and $95,100 under Promissory Note agreements with Lee Corbin, Garry Trudeau and The Trudeau Family Trust, respectively. These notes payable bear interest at 8% per annum and are payable on demand. The outstanding balance of these notes payable as of September 30, 2007 is $440,450.

Note 6 – 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 $6,250,000 as of September 30, 2007, is payable on April 15, 2009 and it is collateralized by all of the Company’s assets. The Company and Biometrics have agreed that no further advances will be made under Term Loan A.

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 as of June 18, 2007 was $5,750,000 (the “Liabilities”). If the Company failed to cure the default set forth in the Notice, then Biometrics could have (a) accelerated payment of the Liabilities and immediately demanded payment in the amount of $5,750,000 plus accrued interest and (b) foreclosed 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 would 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 was 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 provided that Mr. VandenBrekel would 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 was to be no later than August 20, 2007 (the “Closing Date”) and that from June 20, 2007 until the Closing Date, Mr. VandenBrekel would provide 100% of the working capital needed by the Company as determined by Biometrics (see Note 7). The Company was not a party to this Agreement.

If Mr. VandenBrekel failed to fully fund the Purchase Price on or before the Closing Date or failed to provide the working capital required by the Company from June 20, 2007 to the Closing Date, then Mr. VandenBrekel would have resigned his current role and would have agreed to serve the Company in any capacity that Biometrics required for two years at a fixed salary of $200,000 per annum. Additionally, Mr. VandenBrekel would have assigned 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 would have been held in escrow and would have been returned to Mr. VandenBrekel at the sole discretion of Biometrics at the end of the two-year service period.

On August 15, 2007, Mr. VandenBrekel acquired 100% of Biometrics. 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 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, which is April 15, 2009.

As a result of this modification of the interest rate , which was considered a substantial modification of terms of an existing debt instrument under Emerging Issues Task Force Issue No. 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”, an extinguishment of debt occurred and the remaining balances of the original issue discount and loan costs associated with the loan agreement, which were $2,350,198 and $165,333, respectively, were written-off and recorded as a loss on extinguishment of debt. An original issue discount of $1,151,315 was recorded using the modified terms of the loan agreement. This original issue discount was recorded as a gain on extinguishment of debt, resulting in a net loss on extinguishment of debt of $1,364,216.

 
 
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 was not to be issued to Biometrics until such time as the Company determined that it was in its best interest to borrow additional funds from Biometrics pursuant to Term Loan B.  During September 2007, the Company borrowed funds pursuant to Term Loan B and, as a result, the Additional Warrant was issued to Biometrics. As a result of the issuance of the Additional Warrant, an original issue discount of $241,296 was recorded based on initial borrowing of $250,000. This original issue discount represented the relative fair value of the Additional Warrant. The outstanding balance under Term Loan B as of September 30, 2007 is $282,500. Interest shall be payable monthly in arrears at a rate of 12% per annum. The outstanding principal balance under Term Loan B is payable on April 15, 2009 and is 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 and Additional Warrants, described above, were 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. There are no ramifications to the acquisition of Magstone as a result of these installment payments not being made. No revised payment terms exist. The Company expects to repay the note in full prior to December 31, 2007. 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 nine months ended September 30, 2007; and b) Sichuan Foreign Trade for $64,100 which does not bear interest, is unsecured and is due by December 31, 2007.

EastGroup Properties, LP

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 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, and updated by an additional agreement entered into on October 24, 2007, 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 January 15, 2008. 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 January 15, 2008 then monthly payments of combined principal and interest shall be due and payable beginning January 15, 2008 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.

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

 
Face
Amount
Debt
Discount
Carrying
Amount
Included in Long-term debt:
      
Biometrics Investors, LLC
    $     6,532,500
  $                    (1,282,962)
    $     5,249,538
Shixiong Chen
150,000
-
150,000
Sichuan Foreign Trade
66,700
-
66,700
EastGroup Properties, LP
1,429,978
-
1,429,978
Total
8,179,178
(1,282,962)
6,896,216
Less Current Portion
(455,599)
-
(455,599)
 
    $     7,723,579
  $                    (1,282,962)
    $     6,440,617

Note 7 – Accrued Expenses

Accrued expenses consist of the following at:

 
 
September 30,2007
 
December 31, 2006
Interest
 
$
82,771
 
$
551,510
Payroll and payroll taxes
    
271,800
    
216,771
Inventory purchases
    
31,666
    
278,159
Other
 
 
141,891
 
 
227,884
 
 
 $
528,128
  
 $
1,274,324

 

 
Note 8 – 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 September 30, 2007, the outstanding balance was $250,000.

During the quarter ended September 30, 2007, Nicholas VandenBrekel loaned the Company a total of $500,000, via two separate loans of $250,000 each. During the quarter ended September 30, 2007, Mr. VandenBrekel assigned these loans to Biometrics Investors, LLC, the Company’s primary lender.

Note 9 - Capital Stock

During the nine months ended September 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) 500,000 of its common shares as a result of entering into a Board of Directors – Retainer Agreement with Jake Smith; (e) 6,521,429 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 (f) 1,859,245 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 10 - 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 September 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 September 30, 2007, 500,000 Stock Options and 250,000 shares of common stock had been granted under the Sequiam Corporation 2003 Non-Employee Directors and Consultants Plan.

As of September 30, 2007, 11,807,500 Stock Options and no common stock had been granted under the Sequiam Corporation 2003 Employee Stock Incentive Plan.




 
 
A summary of Stock Option activity under the Plans as of September 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
    
2,000,000
  
$
0.193
              
Canceled
 
 
(50,000)
  
$
0.180
 
 
 
 
 
 
 
Outstanding at September 30, 2007
 
 
12,307,500
 
$
0.227
 
 
6.6
 
 
-0-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vested or expected to vest at September 30, 2007
 
 
12,307,500
 
$
0.227
 
 
6.6
 
 
-0-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at September 30, 2007
 
 
10,140,834
 
$
0.235
 
 
6.0
 
 
-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% and 124.30% (calculated using historical volatility); risk-free interest rate of 4.66% and 4.2%; 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 $0.186.

A summary of the status of the Company’s nonvested Stock Options granted under the 2003 Employee Stock Incentive Plan as of September 30, 2007, and changes during the period ended September 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
  
2,000,000
  
$
0.186
Vested
  
(191,667)
  
$
0.179
Nonvested at September 30, 2007
  
2,166,666
 
$
0.186

As of September 30, 2007, there was $401,814 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 0.6 years.
 
As described above, the Company has in effect the Sequiam Corporation 2003 Employee Stock Incentive Plan, which it refers to as the 2003 Plan. The purpose of the 2003 Plan is to provide a means for the Company and its subsidiaries and other designated affiliates, referred to as the Related Entities, to attract key personnel to provide services to the company and the Related Entities, as well as to provide a means whereby those key persons can acquire and maintain stock ownership, thereby strengthening their commitment to the welfare of the company and its Related Entities and promoting the mutuality of interests between participants and the shareholders.  A further purpose of the 2003 Plan is to provide participants with additional incentive and reward opportunities designed to enhance the profitable growth of the company and its Related Entities, and provide participants with annual and long term performance incentives to expend their maximum efforts in the creation of shareholder value.
 
On September 28, 2007, the board of directors approved an additional amendment to and restatement of the 2003 Plan and recommended that it be submitted to the shareholders for their approval at the Annual Meeting. At the Company’s annual meeting held October 23, 2007, the Company’s shareholders approved this additional amendment to and restatement of the 2003 Plan. The 2003 Plan has been amended to: (a) change the name of the 2003 Plan to the “Amended and Restated Sequiam Corporation 2003 Incentive Compensation Plan”, (b) provide for additional types of awards to be granted thereunder including, without limitation, stock appreciation rights, referred to as SARs, and other stock-related awards and performance or annual incentive awards, referred to collectively as Awards; (c) increase the maximum number of shares that may be subject to grant under the 2003 Plan from 10,000,000 to 35,000,000; (d) provide that the maximum number of awards that may be granted to any one individual per fiscal year under the Plan shall be 14,000,000, subject to adjustment as discussed below; (e) provide that the maximum amounts that a participant may receive pursuant to an annual incentive award and as a performance award is $1,000,000 and $2,000,000, respectively, and (f) to make other necessary and appropriate amendments to reflect the changes in the laws since the 2003 Plan was originally implemented.
 
 
 
Note 11 – Related Party Transactions

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 the Company believes 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 nine months ended September 30, 2007 were approximately $47,000.

See Notes 6 and 8 for additional related party transactions.

Note 12 – 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 SBI 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.

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. On October 24, 2007, an additional agreement (the “Additional Agreement”) was entered into that amended the rent start date included in the Amendment to January 15, 2008 or upon receipt of a certificate of occupancy, whichever occurs first. The revised rent schedule is as follows:

Term
Monthly Rent
January 15, 2008 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 provides 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.
 

 

 
Note 13 - 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 September 30, 2007.

 
 
Safety and Security
 
Information Management
 
Segments Total
 
Corporate
 
Consolidated Total
 
Revenue from external customers
 
$
429,067
 
$
99,068
 
$
528,135
 
 
-
 
$
528,135
 
Interest expense
 
 
(2,821
) 
 
-
  
 
(2,821
)
 
(309,049
)
 
(311,870
)
Depreciation and amortization
 
 
(82,079
)
 
(14,464
)
 
(96,543
)
 
(42,897
)
 
(139,440
)
Segment income (loss)
 
 
(498,825
)
 
85,246
  
 
(413,579
)
 
(2,125,426
)
 
(2,539,005
)
Segment assets (1)
 
 
2,505,041
 
 
135,520
 
 
2,640,561
 
 
875,579
 
 
3,516,140
 
       
(1)
  Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
 
    

 
 
 
Safety and Security
 
Information Management
 
Segments Total
 
Corporate
 
Consolidated Total
 
Revenue from external customers
 
$
1,989,623
 
$
131,370
 
$
2,120,993
 
 
-
 
$
2,120,993
 
Interest expense
 
 
(10,093
)
 
-
  
 
(10,093
)
 
(1,240,499
)
 
(1,250,592
)
Depreciation and amortization
 
 
(243,848
)
 
(45,089
)
 
(288,937
)
 
(128,505
)
 
(417,442
)
Segment loss
 
 
(864,369
)
 
(97,980
)
 
(962,349
)
 
(3,924,868
)
 
(4,887,217
)

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

 
 
Safety and Security
 
Information Management
 
Segments Total
 
Corporate
 
Consolidated Total
 
Revenue from external customers
 
$
232,371
 
$
28,198
 
$
260,569
 
 
-
 
$
260,569
 
Interest expense
 
 
-
 
 
-
  
 
-
  
 
(846,927
)
 
(846,927
)
Depreciation and amortization
 
 
(75,487
)
 
(16,211
)
 
(91,698
)
 
(42,613
) 
 
(134,311
)
Segment loss
 
 
(287,175
)
 
(40,982
)
 
(328,157
)
 
(1,214,570
)
 
(1,542,727
)
Segment assets (1)
 
 
2,237,539
 
 
202,126
 
 
2,439,665
 
 
764,852
 
 
3,204,517
 
       
(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 nine months ended September 30, 2006.

 
 
Safety and Security
 
Information Management
 
Segments Total
 
Corporate
 
Consolidated Total
 
Revenue from external customers
 
$
442,565
 
$
85,909
 
$
528,474
 
 
-
 
$
528,474
 
Interest expense
 
 
-
 
 
(2,256
)
 
(2,256
)
 
(2,317,756
)
 
(2,320,012
)
Depreciation and amortization
 
 
(215,366
)
 
(48,297
)
 
(263,663
)
 
(127,273
) 
 
(390,936
)
Segment loss
 
 
(912,399
)
 
(139,677
)
 
(1,052,076
)
 
(4,194,864
)
 
(5,246,940
)

Note 14 – Subsequent Events
 
 On October 15, 2007, the Company appointed Chris Barrow to be its Executive Vice President and Chief Operating Officer.
 
In connection with his appointment as Executive Vice President and Chief Operating Officer, Mr. Barrow entered into an employment agreement with the Company, which has an initial term of three years, with successive one-year renewals, and provides for a base salary of $225,000. Mr. Barrow will be eligible to receive a performance-based bonus that will be based on a formula that has yet to be determined, and may be eligible for a discretionary bonus.  Mr. Barrow will also be eligible to receive stock options (the “Stock Options”) pursuant to the terms and conditions of the Company’s 2003 Employee Stock Incentive Plan, as amended, and any successor plan thereto (the “Stock Option Plan”). The number of Stock Options and terms and conditions of the Stock Options shall be determined by the committee of the Board appointed pursuant to the Stock Option Plan, or by the Board of Directors of the Company, in its discretion and pursuant to the Stock Option Plan.
 
Mr. Barrow will be entitled to three months severance pay, plus any accrued base and incentive pay, in the event that he is terminated without cause.  Mr. Barrow will be restricted from competing with the Company during the course of his employment and for a period of two years after his employment has been terminated.

In connection with the election of Jake Smith and Bob Aoki to serve as members of the Company’s Board of Directors at the October 23, 2007 annual meeting of shareholders, Mr. Smith and Mr. Aoki each entered into a retainer arrangement with the Company (the “Retainer Agreements”), which are deemed effective as of October 23, 2007 and November 1, 2007, respectively.
 
Per the Retainer Agreements, the Company will pay Mr. Smith and Mr. Aoki each a nonrefundable retainer of $52,000 per year during the term of the agreements for their services as members of the Company’s Board of Directors, which shall compensate them for all time spent preparing for, traveling to (if applicable) and attending board meetings during the year.  
 
Per the Retainer Agreements, grants of options to purchase the Company’s common stock shall be made to Mr. Smith and Mr. Aoki.  The specified number of shares for a new appointment to the Board of Directors shall be 500,000 shares in 2007.  Thirty-three percent of the options shall vest on each anniversary of the date of grant.  Also, per the Retainer Agreement, grants of the Company’s common stock shall be made to Mr. Smith and Mr. Aoki. The 2007 grants shall consist of 500,000 shares each. The grants of 500,000 options and 500,000 shares to Mr. Smith occurred in September 2007.
 
 

 







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

FORWARD LOOKING STATEMENTS

Management’s Discussion and Analysis contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that the expectations reflected in these forward-looking statements will prove to be correct. Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Current shareholders and prospective investors are cautioned that any forward-looking statements are not guarantees of future performance. Such forward-looking statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results for future periods could differ materially from those discussed in this report, depending on a variety of important factors, among which are our ability to implement our business strategy, our ability to compete with major established companies, the acceptance of our products in our target markets, the outcome of litigation, our ability to attract and retain qualified personnel, our ability to obtain financing, our ability to continue as a going concern, and other risks described from time to time in our filings with the Securities and Exchange Commission. Forward-looking statements contained in this report speak only as of the date of this report. Future events and actual results could differ materially from the forward-looking statements. You should read this report completely and with the understanding that actual future results may be materially different from what management expects. We will not update forward-looking statements even though its situation may change in the future.

INTRODUCTION
 
The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for the three months and nine months ended September 30, 2007 compared to the three months and nine months ended September 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 $0.5 million during the nine months ended September 30, 2006 to $2.1 million during the nine months ended September 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 nine month periods ended September 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 nine month periods ended September 30, 2007 and 2006.
 
 
Period
 
 
Safety and Security
 
 
Information Management
 
 
Total
 
Nine Months ended September 30, 2007
  
 
$
1,989,623
 
$
131,370
 
$
2,120,993
  
Nine Months ended September 30, 2006
 
 
$
442,565
 
$
85,909
 
$
528,474
 
 

Results of Operations

The following table sets forth information regarding our financial results for the three and nine months ended September 30, 2007 and September 30, 2006.
 
 
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
 
2007
2006
% Change
2007
2006
% Change
Product sales
$411,237
$232,371
77 %
$1,568,355
$442,565
254 %
Services revenue – Engineering
-
-
-
290,938
-
-
Services revenue – Other
99,068
28,198
251 %
131,370
85,909
53 %
Royalty income
17,830
-
-
17,830
-
-
Other revenue
-
-
-
112,500
-
-
Cost of product sales
(436,512)
(254,714)
71 %
(1,508,248)
(512,873)
194 %
Cost of services revenue - Engineering
-
-
-
(38,160)
-
-
Costs of services revenue – Other
(36,620)
(27,221)
35 %
(88,737)
(82,292)
8 %
Selling, general and administrative
(915,387)
(674,434)
36 %
(2,770,491)
(2,678,292)
3 %
Other gains (losses)
(1,364,216)
-
-
(1,364,216)
(181,945)
650%
Interest expense
(311,870)
(846,927)
(63) %
(1,250,592)
(2,320,012)
(46) %
Minority interest
382
-
-
23,303
-
-
Equity in net loss of unconsolidated joint venture
(2,917)
-
-
(11,069)
-
-
Net loss
$(2,539,005)
$(1,542,727)
65 %
$(4,887,217)
$(5,246,940)
(7) %




 

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

 
 
Three Months Ended September 30,
 
 
 
 
 
2007
 
2006
 
% Change
 
 
 
 
 
 
 
 
 
Product sales
 
$
411,237
 
$
232,371
 
 
77
%
Product costs
    
287,627
    
159,265
    
81
%
Gross margin
    
123,610
    
73,106
    
69
%
Depreciation and amortization
 
 
82,079
  
 
75,487
  
 
9
%
Other product related costs
    
66,806
    
19,962
    
235
%
Gross profit (loss)
 
$
(25,275)
  
$
(22,343
)
 
-13
%

Product sales increased by $178,866 or 77% to $411,237 in 2007 from $232,371 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 $273,229 compared to 2006 sales of $123,818. The increase in product sales during 2007 was also a result of  sales from Sequiam East, Inc. of $100,432, which we acquired in January 2007. Sequiam East’s sales consist primarily of sales of parts used to manufacture biometric security products. The increase in product sales during 2007 was partially offset by a decrease in sales from Constellation Biometrics Corporation from $98,277 in 2006 to $14,972 in 2007, a decrease of $83,305. Constellation’s sales consist primarily of sales of biometric products other than the BioVault™ and BioLock to customers in Africa.

Gross margin increased to $123,610 in 2007 compared to $73,106 in 2006, an increase of $50,504. This increase was a result of the increase in product sales during 2007. Gross margin as a percentage of product sales remained fairly consistent at 30% in 2007 compared to 31% in 2006. 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 200th 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.

Royalty Income (Safety and Security Segment)

During 2007 royalty income was $17,830. This income was a result of BioLock sales made by Kwikset Corporation, a subsidiary of The Black and Decker Corporation. Per our agreement with Kwikset Corporation dated May 16, 2007 that is discussed above, we began to earn royalty income on sales of the BioLock beginning June 1, 2007.

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

Services revenue - Other increased significantly to $99,068 in 2007 from $28,198 in 2006, an increase of $70,870 or 251%. This increase was a result of web development services performed in 2007. While revenue increased from 2006 to 2007, our continued focus is on developing our Safety and Security segment and our portfolio of biometric products. Cost of services revenue - Other also increased to $36,620 in 2007 from $27,221 in 2006, an increase of $9,399 or 35%. This increase was also a result of web development work performed in 2007.

Selling, General and Administrative Expenses

 Selling, general and administrative expenses were $915,387 in 2007 and $674,434 in 2006, an increase of $240,953 or 36%. The increase was attributed to: (a) an increase in stock-based compensation of $85,000 that resulted from the issuance of common shares to a new member of our Board of Directors; (b) an increase in payroll expense of $56,088; (c) an increase in inside and outside sales expense of $46,222; (d) an increase in non-payroll related expenses of $44,576 incurred by Sequiam East, Inc, whom we acquired in January 2007; and (e) increases in insurance, research and development, legal, consulting and product samples expense that total $64,494. The overall increase was partially offset by a decrease in bad debt expense of $70,010. Overall, selling, general and administrative expenses have increased as a result of our growth in operations.
 
Our total payroll included in selling, general and administrative expenses was $359,137 for 2007 and $303,049 for 2006, an increase of $56,088 or 19%. This increase was due to the hiring of additional employees in our Safety and Security segment during 2006 and 2007, including employees of Sequiam East, Inc., whom we acquired during January 2007.

Other Gains (Losses)

During 2007 we recognized a loss on extinguishment of debt of $1,364,216 that resulted from a modification of an interest rate included in our loan agreement with Biometrics Investors, LLC., our primary lender.


 
 
Interest Expense
 
Interest expense was $311,870 in 2007 and $846,927 in 2006, a decrease of $535,057 or 63%. The decrease was due to 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 in net loss of subsidiary of $382 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 $2,917 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 $2,539,005 in 2007 and $1,542,727 in 2006, an increase of $996,278 or 65%. The increase was primarily due to: (a) a $240,953 increase in selling, general and administrative expenses; and (b) a $1,364,216 increase in other losses; partially offset by a $76,369 improvement in revenues and cost of revenues and a $535,057 decrease in interest expense.

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

Nine Months Ended September 30, 2007 compared to Nine Months Ended September 30, 2006.  Unless otherwise noted, references to 2007 represent the nine-month period ended September 30, 2007 and references to 2006 represent the nine-month period ended September 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 nine months ended September 30, 2007 and 2006.

 
 
Nine Months Ended September 30,
 
 
 
 
 
2007
 
2006
 
% Change
 
 
 
 
 
 
 
 
 
Product sales
 
$
1,568,355
 
$
442,565
 
 
254
%
Product costs
    
1,108,073
    
273,513
    
305
%
Gross margin
    
460,282
    
169,052
    
172
%
Depreciation and amortization
 
 
243,848
  
 
215,366
  
 
13
%
Other product related costs
    
156,327
    
23,994
    
552
%
Gross profit (loss)
 
$
60,107
  
$
(70,308
)
 
-
  
 
Product sales increased by $1,125,790 or 254% to $1,568,355 in 2007 from $442,565 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 $1,106,503 compared to 2006 sales of $133,763;

·  
2007 sales from Sequiam East, Inc. of $147,165, which we acquired in January 2007. Sequiam East’s sales consist primarily of sales of parts used to manufacture biometric security products; and

·  
An increase in sales from Constellation Biometrics Corporation from $278,237 in 2006 to $318,201 in 2007, an increase of $39,964 or 14%. Constellation’s sales consist primarily of sales of biometric products other than the BioVault™ and BioLock to customers in 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 $460,282 in 2007 compared to $169,052 in 2006, an increase of $291,230. 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 38% 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 – 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.

Royalty Income (Safety and Security Segment)

During 2007 royalty income was $17,830. This income was a result of BioLock sales made by Kwikset Corporation, a subsidiary of The Black and Decker Corporation. Per our agreement with Kwikset Corporation dated May 16, 2007 that is discussed above, we began to earn royalty income on sales of the BioLock beginning June 1, 2007.

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

Services revenue - Other increased to $131,370 in 2007 from $85,909 in 2006, an increase of $45,461 or 53%. This increase was a result of web development services performed in 2007. While revenue increased from 2006 to 2007, our continued focus is on developing our Safety and Security segment and our portfolio of biometric products. Cost of services revenue - Other also increased to $88,737 in 2007 from $82,292 in 2006, an increase of $6,445 or 8%. This increase was also a result of web development work performed in 2007.

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 $2,770,491 in 2007 and $2,678,292 in 2006, an increase of $92,199 or 3%. The increase was attributed to: (a) an increase in non-payroll related expenses of $146,818 incurred by Sequiam East, Inc, whom we acquired in January 2007; (b) an increase in inside and outside sales expense of $100,003; (c) an increase in research and development expenses of $95,491; (d) an increase in stock-based compensation of $85,000 that resulted from the issuance of common shares to a new member of our Board of Directors; and (e) an increase in insurance expense of $19,836. The overall increase was partially offset by (a) a decrease in legal fees of $156,139; (b) a decrease in payroll expense of $129,043; and (c) decreases in consulting fees, travel expenses and bad debt expense that total $66,837. Overall, selling, general and administrative expenses have increased as a result of our growth in operations.
 
Our total payroll included in selling, general and administrative expenses was $1,056,630 for 2007 and $1,185,673 for 2006, a decrease of $129,043 or 11%. 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 nine months ended September 30, 2006, including employees of Sequiam East, Inc., whom we acquired during January 2007.

Other Gains (Losses)

During 2007 we recognized a loss on extinguishment of debt of $1,364,216 that resulted from a modification of an interest rate included in our loan agreement with Biometrics Investors, LLC., our primary lender.

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 $1,250,592 in 2007 and $2,320,012 in 2006, a decrease of $1,069,420 or 46%. 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 in net loss of subsidiary of $23,303 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 $11,069 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 $4,887,217 in 2007 and $5,246,940 in 2006, a decrease of $359,723 or 7%. The decrease was primarily due to: (a) a $552,539 improvement in revenues and cost of revenues; and; (b) a $1,069,420 decrease in interest expense; partially offset by a $92,199 increase in selling, general and administrative expenses and a $1,182,271 increase in other losses.

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

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 nine months ended September 30, 2007 as a result of our financing with Biometrics Investors, LLC. We expect our cash flow to continue to improve as a result of this financing and the sales and licensing of our biometric products.

Operating Activities

Net cash used for operating activities was $2,062,067 for 2007, as a result of the net loss during the period of $4,887,217 and a decrease in accounts payable of $759,317, offset by non-cash expenses of $2,901,407, a decrease in receivables of $615,010 and a decrease in inventory of $130,246.

Investing and Financing Activities

Net cash used for investing activities for 2007 was $192,048, consisting of product development costs of $180,142, equipment purchases of $53,948 and an increase in advance receivable of $47,000, offset by cash acquired through the acquisition of Sequiam East, Inc. of $89,042.

Net cash provided by financing activities for 2007 was $2,573,214, consisting of proceeds from notes payable, long-term debt and shareholder loans of $440,450, $2,532,500 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.
 

 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.

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 as of June 18, 2007 was  $5,750,000. If we failed to cure the default set forth in the Notice, then Biometrics could have (a) accelerated payment of the liabilities and immediately demand payment in the amount of $5,750,000 plus accrued interest and (b) foreclosed on substantially all of our assets.

On June 21, 2007, we received an additional written notice or Additional Notice from Biometrics stating that Biometrics would 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 was in full compliance with the terms of the agreement described below.

On June 20, 2007, Nick VandenBrekel and Biometrics entered into an agreement  which provided that Mr. VandenBrekel would 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 was to be no later than August 20, 2007 and  that from June 20, 2007 until closing, Mr. VandenBrekel would provide 100% of the working capital needed by us as determined by Biometrics. We were not a party to this agreement between Mr. VandenBrekel and Biometrics.

If Mr. VandenBrekel failed to fully fund the purchase price on or before the closing date or failed to provide the working capital required by us from June 20, 2007 to the closing date, then Mr. VandenBrekel would have resigned his current role and would have agreed to serve us in any capacity that Biometrics required for two years at a fixed salary of $200,000 per annum. Additionally, Mr. VandenBrekel would have assigned 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 would have been held in escrow and would have been returned to Mr. VandenBrekel at the sole discretion of Biometrics at the end of the two-year service period.

On August 15, 2007, Nicholas VandenBrekel acquired 100% of Biometrics. 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.

As a result of this modification of the interest rate, an extinguishment of debt occurred and the remaining balances of the original issue discount and loan costs associated with the loan agreement, which were $2,350,198 and $165,333, respectively, were written-off and recorded as a loss on extinguishment of debt. An original issue discount of $1,151,315 was recorded using the modified terms of the loan agreement. This original issue discount was recorded as a gain on extinguishment of debt, resulting in a net loss on extinguishment of debt of $1,364,216.

 
 
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. The additional warrant was not to be issued to Biometrics until such time as we determine that it was in our best interest to borrow additional funds from Biometrics pursuant to Term Loan B.  During September 2007, we borrowed funds pursuant to Term Loan B and, as a result, issued the additional warrant to Biometrics. As a result of the issuance of the additional warrant, an original issue discount of $241,296 was recorded, which represented the relative fair value of the additional warrant. The outstanding balance under Term Loan B as of September 30, 2007 is $282,500. Interest shall be payable monthly in arrears at a rate of 12% per annum. The outstanding principal balance under Term Loan B is payable on April 15 2009 and is 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.

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.

EastGroup Properties, LP

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.

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. On October 24, 2007, an additional agreement or the Additional Agreement was entered into that amended the rent start date included in the Amendment to January 15, 2008 or upon receipt of a certificate of occupancy, whichever occurs first. The revised rent schedule is as follows:

Term
Monthly Rent
January 15, 2008 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 provides 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 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, and updated by the Additional Agreement, 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 January 15, 2008. 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 January 15, 2008 then monthly payments of combined principal and interest shall be due and payable beginning January 15, 2008 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.

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 September 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.
 

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

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

The Company issued 3,654,762 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 448,951 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.


 
 
The Company issued a warrant exercisable for 39,431,424 shares of its common stock to Biometrics Investors, LLC as a result of borrowing funds. This warrant was issued pursuant to Section 4(2) of the Securities Act of 1033, as amended.

ITEM 6. EXHIBITS

(a) Exhibits:

10.1
    Employment Agreement, dated as of October 15, 2007, between Sequiam Corporation and Chris Barrow. 1
10.2
    Amended and Restated Sequiam Corporation 2003 Incentive Compensation Plan. 2
10.3
    Board of Directors – Retainer Agreement (Jake Smith) (Includes Exhibit A – Board of Directors Proprietary Information and Inventions Agreement and Exhibit B – Indemnity Agreement). 2
10.4
    Board of Directors – Retainer Agreement (Bob Aoki) - Includes Exhibit A – Board of Directors Proprietary Information and Inventions Agreement and Exhibit B – Indemnity Agreement.3
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 October 17, 2007.

2
Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 29, 2007.

3
Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 31, 2007.







 





 


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: November 14, 2007

By: /s/ Nicholas H. VandenBrekel                        
Nicholas H. VandenBrekel, Chief Executive Officer and President


Date: November 14, 2007

By: /s/ Mark L. Mroczkowski                                
Mark L. Mroczkowski, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 
 


29

 

 

































 EX-31.1 2 ex31-1.htm EXHIBIT 31.1 ex31-1.htm

Exhibit 31.1
Certification
 
I, Nicholas H. VandenBrekel, certify that:

1.   I have reviewed this Quarterly Report on Form 10-QSB of Sequiam Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.   The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Intentionally omitted];

(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.   The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
 
 
 
 
 
 
 
 
 
Date: November 14, 2007
 
/s/ Nicholas H. VandenBrekel
 
 
Nicholas H. VandenBrekel
 
President & Chief Executive Officer

EX-31.2 3 ex31-2.htm EXHIBIT 31.2 ex31-2.htm

Exhibit 31.2
Certification
 
I, Mark L. Mroczkowski, certify that:

1.   I have reviewed this Quarterly Report on Form 10-QSB of Sequiam Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.   The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [intentionally omitted];

(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.   The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
 
 
 
 
 
 
 
 
 
Date: November 14, 2007
 
/s/ Mark L. Mroczkowski
 
 
Mark L. Mroczkowski
 
Executive Vice President and Chief Financial Officer

EX-32.1 4 ex32-1.htm EXHIBIT 32.1 ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO
RULE 15d-14(b)
and
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sequiam Corporation (the “Company”) on Form 10-QSB for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nicholas H. VandenBrekel, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered therein.
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Nicholas H. VandenBrekel
 
 
Nicholas H. VandenBrekel
 
President and Chief Executive Officer
November 14, 2007

EX-32.2 5 ex32-2.htm EXHIBIT 32.2 ex32-2.htm

Exhibit 32.2
 
CERTIFICATION PURSUANT TO
RULE 15d-14(b)
and
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sequiam Corporation (the “Company”) on Form 10-QSB for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark L. Mroczkowski, Executive Vice President, Secretary & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
 
 
 
 
 
 
 
 
 
 
/s/ Mark L. Mroczkowski
 
 
Mark L. Mroczkowski
 
Executive Vice President, Secretary & Chief Financial Officer
November 14, 2007

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