Sequiam Corp 10QSB 09-30-2005

10QSB 1 body.htm SEQUIAM CORP 10QSB 09-30-2005 Sequiam Corp 10QSB 09-30-2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended September 30, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to _______________.

Commission File Number 333-45678

SEQUIAM CORPORATION

(Exact name of registrant 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, including zip code, of principal executive offices)

407-541-0773

(Registrant’s telephone number, including area code)

(Former name, former address)

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 October 31, 2005 was 63,838,321.

DOCUMENTS INCORPORATED BY REFERENCE

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

FORM 10-QSB

INDEX

	Page

PART I: FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

Condensed Consolidated Balance Sheets (Unaudited)	3

Condensed Consolidated Statements of Operations (Unaudited)	5

Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)	6

Condensed Consolidated Statements of Cash Flows (Unaudited)	7

Notes to Condensed Consolidated Financial Statements (Unaudited)	10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS	23

ITEM 3. CONTROLS AND PROCEDURES	30

PART II. OTHER INFORMATION	30

ITEM 6. EXHIBITS	30

SIGNATURES	31

Index

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Sequiam Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

	September 30, 2005 (Unaudited)			December 31, 2004
Assets
Current assets:
Cash	$	302,299		$	-
Accounts receivable, net		273,181			39,111
Prepaid expenses		10,427			97,125
Total current assets		585,907			136,236
Property and equipment, net		1,135,938			1,303,757
Acquired software, net		120,001			163,200
Intellectual properties, net		870,224			644,896
Product development costs		192,817			34,509
Loan costs, net		-			224,252
Deposits and other assets		25,381			8,805
Total assets	$	2,930,268		$	2,515,655

Liabilities and shareholders’ deficit
Current liabilities:
Bank overdraft	$	-		$	24,165
Notes payable		250,387			1,692,077
Accounts payable		575,520			706,966
Accrued interest		223,256			96,299
Accrued expenses		56,385			-
Current portion of long-term debt		788,205			840,245
Deferred revenue		-			6,000
Deferred rents		37,070			26,141
Loans from shareholders		484,450			348,951
Accrued shareholder salaries		1,519,792			1,349,792
Total current liabilities		3,935,065			5,090,636
Long-term debt		4,129,818			2,301,793
Total liabilities		8,064,883			7,392,429
Shareholders’ deficit:
Common shares		63,839			47,966
Additional paid-in capital		10,792,041			7,524,118
Accumulated deficit		(15,990,495	)		(12,448,858	)
Total shareholders’ deficit		(5,134,615	)		(4,876,774	)
Total liabilities and shareholders’ deficit	$	2,930,268		$	2,515,655

See accompanying notes to condensed consolidated financial statements.

Index

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2005			2004			2005			2004

Revenues
Services	$	206,143		$	28,252		$	368,747		$	98,391
Product sales		116,700			18,669			152,472			81,783

Total Revenues		322,843			46,921			521,219			180,174

Costs and expenses:
Cost of services		154,577			221,200			450,928			680,215
Cost of product sales		130,164			61,166			234,922			173,663
Selling, general and administrative		511,488			818,247			2,321,548			2,003,743
Gain on sale of equipment		-			-			(370	)		(146	)
Loss on impairment of equipment held for resale		-			-			-			40,706
Loss on impairment of intellectual properties		154,469						154,469			-
Loss on debt settlement		-			-			-			5,492
Total costs and expenses		950,698			1,100,613			3,161,497			2,903,673

Loss from operations		(627,855	)		(1,053,692	)		(2,640,278	)		(2,723,499	)

Interest expense, net		(181,985	)		(167,464	)		(901,359	)		(590,732	)

Net loss	$	(809,840	)	$	(1,221,156	)	$	(3,541,637	)	$	(3,314,231	)
Net loss per common share:
Basic and diluted	$	(0.01	)	$	(0.03	)	$	(0.06	)	$	(0.07	)

Shares used in computation of net loss per common share - Basic and diluted weighted average shares outstanding		62,337,353			46,506,905			55,823,443			45,974,767

See accompanying notes to condensed consolidated financial statements

Index

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

Nine months ended September 30, 2005

(Unaudited)

	Common Shares
	Shares Outstanding		Par Value		Additional Paid-in Capital		Accumulated Deficit			Total

Balance at December 31, 2004		47,965,604	$	47,966	$	7,524,118	$	(12,448,858	)	$	(4,876,774	)
Private placements of common shares		417,358		417		78,880		-			79,297
Common share warrants exercised		914,444		914		356,408		-			357,322
Common shares issued for services		3,793,238		3,793		516,829		-			520,622
Common shares issued for salaries		2,373,772		2,375		342,161		-			344,536
Acquisition of Constellation Biometrics Corporation		1,635,513		1,636		173,364		-			175,000
Common shares issued for debt conversions		6,738,392		6,738		986,444		-			993,182
Warrants issued in connection with long-term debt		-		-		813,837		-			813,837
Net loss		-		-		-		(3,541,637	)		(3,541,637	)
Balance at September 30, 2005		63,838,321	$	63,839	$	10,792,041	$	(15,990,495	)	$	(5,134,615	)

See accompanying notes to condensed consolidated financial statements.

Index

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended September 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(3,541,637	)	$	(3,314,231	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		390,361			422,449
Accretion of debt discount		485,228			334,928
Amortization of loan costs		224,252			-
Issuance of common stock in exchange for services		520,622			232,542
Issuance of common stock in exchange for salaries		344,536			-
Gain on sale of equipment		-			(146	)
Loss on impairment of equipment held for sale		-			40,706
Loss on impairment of intellectual properties		154,469			-
Loss on debt settlement		-			5,492
Decrease (Increase) in accounts receivable		(140,952	)		7,047
Decrease (Increase) in prepaid expenses and other assets		70,122			(188,699	)
Decrease in bank overdraft		(24,165	)		-
Decrease in accounts payable		(162,626	)		(32,816	)
Increase in accrued shareholders salaries		170,000			105,000
Increase in other accrued expenses		180,331			31,438
Decrease in deferred revenues		(6,000	)		-
Increase in deferred rents		10,929			-
Net cash used for operating activities		(1,324,530	)		(2,356,290	)

Cash flows from investing activities:
Leasehold improvements		-			(338,501	)
Equipment purchases		(288	)		(25,575	)
Purchase of intellectual properties		(650	)		-
Cash paid for WMW Communications		-			(70,529	)
Product development costs capitalized		(158,308	)		-
Net cash used for investing activities		(159,246	)		(434,605	)

Cash flows from financing activities:
Proceeds from sale of common stock and exercise of warrants		436,619			793,817
Proceeds from long-term debt		2,100,000			2,328,936
Repayment of long-term debt		(1,055,000	)		(218,944	)
Proceeds from note payable		-			1,175,000
Payment of notes payable		(47,804	)		(486,126	)
Proceeds from shareholder loans		366,761			-
Repayments of shareholder loans		(14,501	)		(337,851	)
Net cash provided by financing activities		1,786,075			3,254,832
Net change in cash		302,299			463,937
Cash, beginning of period		-			151,450
Cash, end of period	$	302,299		$	615,387

See accompanying notes to condensed consolidated financial statements.

Index

Sequiam Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

Non-cash activities:	2005		2004
Debt conversions	$	993,182		-
Warrants issued in connection with long-term debt	$	813,837		-
Acquire Constellation Biometrics, Inc.	$	175,000		-
Common Stock issued to correct error		-	$	19
Liabilities assumed with acquisition of Telepartners, Inc.		-	$	15,068
Warrants issued in connection with loan agreement		-	$	691,420

Supplemental cash flow information:
Cash paid for interest	$	77,670	$	86,704

See accompanying notes to condensed consolidated financial statements.

Index

Sequiam Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 -Description of Business and Acquisitions

General

We were incorporated in California on September 21, 1999 as Wedge Net Experts, Inc. On or about May 1, 2002, we changed our name to Sequiam Corporation and changed our stock symbol from “WNXP” to “SQUM.OB”. On May 19, 2004, our common stock was formally listed on the Frankfurt Stock Exchange under the symbol RSQ. We believe that listing our shares of common stock on the Frankfurt Stock Exchange will increase our profile with investors, both institutional and retail, in Germany and across Europe.

Until the acquisition of Smart Biometrics, Inc. in 2003, we were primarily focused on developing a portfolio of Internet and print enterprise-wide software products and developing custom software, databases and websites for businesses. We also operated as an Internet Service Provider and provided Internet access and website hosting for our customers who required those services. During this period, our business was operated under one operating segment through our subsidiaries: Sequiam Software, Inc. and Sequiam Communications, Inc.

In 2003, we decided to expand our portfolio of product offerings to include biometric technology products. The expansion into the biometric technology industry was based on our belief that the terrorist events of September 11, 2001 and the increased focus on national and personal security created an increased demand for biometric technology solutions. Because of these national and global issues, and because of our existing expertise in software design and development, we believed that we were uniquely positioned to enter the biometric industry. Furthermore, our Chief Technology Officer, Alan McGinn, played an instrumental role in connection with the research and development of the BioVaultTM while associated with Smart Biometrics, Inc.

Today, our operations are divided into two distinct operating segments: Information Management and Safety and Security. Our Information Management segment utilizes our custom software skills, our contacts with the world sports communities and interactive web-based technologies. We formed our Safety and Security segment after our acquisition of Smart Biometrics, Inc. and Fingerprint Detection Technologies, Inc. Through these acquisitions, we acquired: (a) a fingerprint biometric access control system, which will be a key feature in our future product offerings; and (b) a fingerprint detection system which we believe to be value impaired due to a patent infringement by a larger company.

Our Information Management segment consists of the following subsidiaries: (a) Sequiam Software, Inc.; (b) Sequiam Sports, Inc.; and (c) Sequiam Education, Inc. Our Safety and Security segment consists of the following subsidiaries: (a) Sequiam Biometrics, Inc.; (b) Fingerprint Detection Technologies, Inc.; and (c) Constellation Biometrics, Inc.

Development of the Business

Information Management Segment

Three principal shareholders, Nicholas VandenBrekel, Mark Mroczkowski and James Rooney, formed Sequiam Software, Inc. (formerly Sequiam, Inc.) on January 23, 2001, to research, develop, produce and market a document management software product. From its inception until April 1, 2002, Sequiam Software, Inc.’s sole business activity was the development of its software product, Sequiam Document Management System, also referred to as Sequiam DMS.

Acquisition of Brekel Group, Inc. In 2002, we acquired 99.38% of the issued and outstanding common stock of Brekel Group, Inc. We acquired Brekel Group, Inc. for its expertise in digital on-demand publishing and printing and the innovations that it brings to our document management, Internet remote print and print on-demand software applications. We also acquired Brekel Group, Inc. for its contract with the World Olympians Association and its Internet and ExtraNet expertise and product development gained from that project. Today, the business of Brekel Group, Inc. is conducted by our subsidiary Sequiam Sports, Inc., which is part of our Information Management segment.

Index

Acquisition of the Assets of W.M.W. Communications, Inc. Effective November 1, 2002, we acquired all of the assets of W.M.W. Communication, Inc., doing business as Access Orlando. We accounted for this transaction as an acquisition of the business of W.M.W. Communications, Inc. We acquired W.M.W. Communications, Inc. for its Internet Remote Print, commonly referred to as “IRP” and Internet Remote Print Duplicator, commonly referred to as “IRPlicator,” software products. IRP is a software product that allows computer users to print remotely to any printer via the Internet. Because IRP is highly complementary to the Sequiam DMS product, we have integrated the two products. W.M.W. Communications, Inc. also acted as an Internet Service Provider, which we incorporated into our business. Through our Internet hosting and collocation services, we host third-party web content on either our server located at our remote network operations center, or on the third party’s server that is located at our remote network operations center. Today, our subsidiary Sequiam Software, Inc. conducts the business of W.M.W. Communication, Inc. which is part of our Information Management segment.

Acquisition of the Assets of Telepartners, Inc. On June 1, 2003, we acquired substantially all of the assets of Telepartners, Inc. located in West Palm Beach, Florida. We accounted for this transaction as an acquisition of the business of Telepartners, Inc. Telepartners, Inc. developed supplemental educational products for schoolchildren in grades 1 through 12. The major asset acquired from Telepartners, Inc. was the Extended Classroom™ software, which is a supplemental educational program consisting of a video lesson library containing the same lesson concepts that are taught in our public school classrooms in the United States. Each lesson summary has been produced in high quality and digitally mastered, allowing for Internet and television broadcast distribution as well as being offered in CD and video formats. Today, our subsidiary Sequiam Education, Inc. holds the assets of Telepartners, Inc. that we are attempting to sell, which is part of our Information Management segment.

Safety and Security Segment

Acquisition of the Assets of Smart Biometrics, Inc. On May 9, 2003, we acquired substantially all of the assets of Smart Biometrics, Inc. located in Sanford, Florida. We accounted for this transaction as an acquisition of the business of Smart Biometrics, Inc. Smart Biometrics, Inc. is engaged in the development of biometric technologies. The BioVault™ technology, which is a secure access denial device that utilizes biometric technology and protocols to recognize a person’s fingerprint to unlock, was the major asset of Smart Biometrics, Inc. Today, our subsidiary Sequiam Biometrics, Inc., conducts the business of Smart Biometrics, Inc. which is a part of our Safety and Security segment.

Acquisition of Fingerprint Detection Technologies, Inc. On September 11, 2003, we acquired 100% of the issued and outstanding shares of common stock of Fingerprint Detection Technologies, Inc., a Florida corporation. Fingerprint Detection Technologies, Inc. has the rights to develop and market a patented and proprietary technology for fingerprint analysis using a light-emitting diode, or LED, intense headband light source. Because Fingerprint Detection Technologies, Inc. had no operating history and had not generated any revenues, we accounted for the acquisition as a purchase of its assets. Today, Fingerprint Detection Technologies, Inc. is one of our subsidiaries and is part of our Safety and Security segment.

Acquisition of Constellation Biometrics, Inc. On June 7, 2005, we acquired 100% of Constellation Biometrics Corporation, a Florida corporation (“Constellation”), effective May 31, 2005, pursuant to a stock purchase agreement dated May 31, 2005 by and among Sequiam, Constellation and the shareholders of Constellation. We accounted for this transaction as a purchase. Constellation is the parent company for a wholly owned subsidiary Biometric Security (PTY) LTD. (a/k/a Secure Biometrics or Biometrics.co.za), a South African company (“Biometric Security”), engaged in the development, marketing and sale of biometric technology products. The results of operations for the three and nine months ended September 30, 2005 include three months and four months of operations, respectively.

Index

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, 2004. 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, 2005, the Company had 29,824,423 potentially dilutive common shares as a result of warrants and options granted and convertible debt outstanding.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries Sequiam Software, Inc., Sequiam Biometrics, Inc., Sequiam Education, Inc., Fingerprint Detection Technologies, Inc., Constellation Biometrics Corporation and Sequiam Sports, Inc. (the “Company”). All intercompany transactions and accounts have been eliminated.

Accounting for Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation (“FAS 123”), encourages the use of a fair-value method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting. As allowed by FAS 123, the Company has elected to account for stock-based compensation plans under an intrinsic value method that requires compensation expense to be recorded only if, on the grant date, the current market price of the Company's common stock exceeds the exercise price the employee must pay for the stock. The Company's policy is to grant stock options at the fair market value of the underlying stock at the date of grant.

The Company has adopted the disclosure-only provisions of FAS 123. Accordingly, no compensation cost has been recognized for the stock option plans. The following table illustrates the effect on net loss and loss per share if the fair-value based method had been applied to all outstanding awards for the nine months ended September 30:

	2005			2004
Net loss, as reported	$	(3,541,637	)	$	(3,314,231	)
Add: stock-based employee compensation expense included in reported net loss net of related tax effects		-			-
Deduct: total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		-		$	(360,150	)
Pro forma net loss	$	(3,541,637	)	$	(3,674,381	)
Basic and diluted loss per common share, as reported	$	(0.06	)	$	(0.07	)
Basic and diluted loss per common share, pro forma	$	(0.06	)	$	(0.08	)

Index

The following table illustrates the effect on net loss and loss per share if the fair-value based method had been applied to all outstanding awards for the three months ended September 30:

	2005			2004
Net loss, as reported	$	(809,840	)	$	(1,221,156	)
Add: stock-based employee compensation expense included in reported net loss net of related tax effects		-			-
Deduct: total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		-		$	(10,611	)
Pro forma net loss	$	(809,840	)	$	(1,231,767	)
Basic and diluted loss per common share, as reported	$	(0.01	)	$	(0.03	)
Basic and diluted loss per common share, pro forma	$	(0.01	)	$	(0.03	)

Note 3 - Commitments and Contingencies

On October 1, 2002, the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) entered into amended and restated employment agreements with Sequiam Corporation and its Subsidiaries. The amended agreements replaced separate agreements with Sequiam, Inc. and Brekel Group, Inc. The agreements have an initial term of two years with automatic one-year renewals. The agreements provide for compensation in the form of minimum annual salary of $185,000 and $175,000 respectively, and allow for bonuses in cash, stock or stock options and participation in Company benefit plans. Full-time employment is a requirement of the contract. In the event that a change in control of the Company occurs without the prior approval of the then existing Board of Directors, these contracts will be deemed terminated and compensation of $5 million each is payable at termination, and $1 million annually for five years subsequent to termination will be due and payable to the CEO and CFO. For the three and nine months ended September 30, 2005 and 2004, Sequiam accrued and did not pay the minimum annual salaries payable to the CEO and CFO.

On November 1, 2002, the Company’s Chief Technology Officer (“CTO”) entered into an employment agreement with Sequiam Software. The agreement has an initial term of two years with automatic one-year renewals. The agreements provide for compensation in the form of minimum annual salary of $75,000 and allows for bonuses in cash, stock or stock options and participation in Company benefit plans. Full-time employment is a requirement of the contract.

Brekel entered into a note payable with Xerox Corporation in November 2000 to finance equipment. Brekel also entered into a Document Services Agreement (“Agreement”) with Xerox Corporation (“Xerox”) on November 1, 1999 commencing April 1, 2000. During the 63-month term of the Agreement ending September 30, 2005, Xerox agreed to provide equipment and services in accordance with specified performance standards. Those standards include, among other things, a performance satisfaction guaranty by Xerox. Under the terms of that guaranty, Brekel may terminate the agreement without incurring any early termination charges. Brekel gave proper notice of such termination in March 2001. On September 3, 2002 Xerox did, contrary to the contract, assert its claim for early termination charges and for monthly minimum service charges on billings made after the termination date. Xerox had taken no action since its September 3, 2002 demand letter until June 29, 2004, when Xerox Corporation filed a lawsuit in the Circuit Court in Pinellas County State of Florida. The claim amount in controversy is approximately $1,574,000. The Company disputes these claims and believes them to be without merit. Because this matter is in very preliminary stages, management is unable to determine the likelihood of an unfavorable outcome and, accordingly, has not accrued any amount for potential losses in connection with this lawsuit.

On December 21, 2004, the Company entered into a Letter Agreement with Chapman Spira & Carson, LLC ("Chapman"), pursuant to which Chapman agreed to provide various consulting, investment banking and business development services for the Company. On or about September 28, 2005, Chapman filed a complaint in United States District Court for the Southern District of New York, asserting claims for breach of contract and unjust enrichment. Chapman alleges that, notwithstanding its purported provision of services under the Letter Agreement between it and the Company, the Company failed to properly compensate Chapman for those services. The Company claims that none of those services were actually provided by Chapman. Chapman is seeking compensatory damages of $1,019,060, costs, including attorney's fees, 500,000 shares of common stock and a warrant to purchase 6,195,000 shares of stock at $0.26 per share. The Company believes that Chapman's claims are without merit and intends to vigorously defend itself against these allegations.

The Company currently operates without directors’ and officers’ insurance and is at risk for those types of losses.

Note 4 - Income taxes

The Company records income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” The Company has incurred net operating losses since inception resulting in a deferred tax asset, for which a valuation allowance was provided since it is more likely than not that the deferred tax asset will not be realized.

Index

Note 5 - Intangible Assets

As of September 30, 2005, intangible assets consist of the following:

	Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired Software		5	$	288,000	$	167,999	$	120,001
Intellectual Properties		5		1,246,900		376,676		870,224
Product Development Costs		5		192,817		-0-		192,817
			$	1,727,717	$	544,675	$	1,183,042

Amortization expense amounted to $78,151 and $76,092 for the three months ended September 30, 2005 and 2004 and $210,302 and $249,759 for the nine months ended September 30, 2005 and 2004.

The estimated future amortization expense for each of the five succeeding years is as follows:

September 30:
2006	$	306,980
2007		306,980
2008		306,980
2009		262,102
	$	1,183,042

Note 6 - Long-lived Assets Held for Disposal

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Impairment losses of $154,099 and $40,706 were charged to expense during the three and nine months ended September 30, 2005 and 2004, respectively.

Note 7- Notes and Debentures Payable

On March 5, 2003 Sequiam issued to La Jolla Cove Investors, Inc. ("LJCI"), an 8% Convertible Debenture in the principal amount of $300,000 and a warrant to purchase 2,000,000 shares of our common stock at $1.50 per share (the "Initial Financing"). Sequiam received a total of $150,000 of the principal amount of the debenture, representing the balance due at December 31, 2003.

In connection with the debenture and the warrant, Sequiam was required to register the resale of common stock to be issued to LJCI upon conversion of the debenture and exercise of the warrant. To meet this obligation, Sequiam filed a registration statement on April 27, 2003, an amended registration statement on May 7, 2003, and a second amended registration statement on June 23, 2003, all of which were withdrawn on September 5, 2003, prior to being declared effective.

Effective as of January 29, 2004, the Company entered into an Agreement of Accord and Satisfaction with LJCI pursuant to which LJCI agreed to accept $200,000 plus 100,000 shares of restricted common stock in accord and satisfaction of the debenture and warrant and other documents related to the Initial Financing. As a result, all of our obligations under the Initial Financing, including the obligation to file a new registration statement, have been terminated.

Pursuant to the accord and satisfaction, Sequiam issued 100,000 shares of restricted common stock to LJCI, which, had a fair market value of $51,000, based on a closing trading price of $0.51 per share on January 29, 2004. In addition, the Company delivered to LJCI a promissory note in the principal amount of $200,000 with interest in the amount of 8% per year, plus principal, due in Nine installments of $34,017 per month beginning February 1, 2004. The Company has paid the note in full.

Index

Under the new agreement, LJCI has "piggy-back" registration rights, meaning Sequiam is obligated to include the resale of the 100,000 shares of restricted common stock by LJCI in any registered offering of securities the Company may make during any time that LJCI still holds such 100,000 shares. Unless the Company makes a registered offering, it has no obligation to register the resale of the 100,000 shares of restricted common stock.

On May 13, 2003, Sequiam entered into a loan agreement with Lee Harrison Corbin, Attorney-in-Fact For the Trust Under the Will of John Svenningsen, for a principal loan amount of $400,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, Sequiam Corporation issued two warrants to the holder to purchase 625,000 shares of its common stock at an exercise price of $0.01 per share and 350,000 shares of its common stock at $1.00 per share. The Warrants for 625,000 shares were exercised on September 25, 2003 and the warrants for 350,000 remain outstanding and expire in May 2008. The fair value of the attached warrants exceeded the value of the proceeds received from the Note and has been recorded as a debt discount of $400,000. The payment schedule was originally tied to that of the LJCI Convertible Debenture described above. However, on January 30, 2004 the Company amended the loan agreement such that all principal and interest became due on January 30, 2005. The debt discount was originally amortized over the original estimated life of the Note of 36 months. Beginning in January 2004, the remaining unamortized debt discount will be amortized over twelve months. As of September 30, 2005, the principal and interest were paid in full.

On December 18, 2003, Sequiam entered into a loan agreement with Lee Harrison Corbin, Attorney-in-Fact For the Trust Under the Will of John Svenningsen, for a principal loan amount of $100,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, Sequiam Corporation issued one warrant to the holder to purchase 200,000 shares of its common stock at an exercise price of $0.25 per share. The principal and accrued interest were paid in full during 2004.

On December 18, 2003, Sequiam entered into a loan agreement with Lee Harrison Corbin, for a principal loan amount of $50,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, Sequiam Corporation issued one warrant to the holder to purchase 100,000 shares of its common stock at an exercise price of $0.25 per share. The principal and accrued interest were paid in full during 2004.

On December 26, 2003, Sequiam entered into a debenture agreement (“Debenture”) with Eagle Financial, LLC, for a principal loan amount of $150,000 under a debenture bearing interest at ten percent (10%). The principal and accrued interest were paid in full during 2004. The Debenture also provided for an unconditional equity provision whereby the Corporation issued seventy five thousand (75,000) restricted shares to the Holder as an incentive to lend. The fair value of the shares was recorded as a debt discount of $30,000.

On or about October 3, 2002, General Electric Capital Corporation (“GE”) filed a lawsuit against Brekel Group, Inc. (“Brekel”), in the Circuit Court of the 9^th Judicial Circuit in and for Orange County, located in Orlando, Florida. GE claims that Brekel owes a deficiency balance in the amount of $93,833 for three digital copiers rented under a lease agreement. Brekel has returned possession of the copiers to GE, but Brekel disputes the claim for damages. On January 30, 2004 Brekel entered into a settlement agreement with GE by agreeing to pay $70,000 in 36 monthly installments of $1,945 without interest. The balance of the note as of September 30, 2005 is $33,055.

On February 1, 2004 Brekel entered into a settlement agreement with Precision Partners, LTD for disputed rents on a facility formerly occupied by Brekel by agreeing to pay $80,000 in 24 monthly installments of $3,510 including interest at 5%. The balance of the note as of September 30, 2005 is $17,332.

On January 30, 2004, the Company entered into a loan agreement with Lee Harrison Corbin, Attorney-in-Fact For the Trust Under the Will of John Svenningsen, for a principal loan amount of $400,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, the Company issued one warrant to the holder to purchase 800,000 shares of its common stock at an exercise price of $0.225 per share. The Warrant was exercised on January 30, 2004. The principal and interest became due on January 30, 2005. The principal and interest were paid in full.

Index

On September 7, 2004, the Company entered into an unsecured loan agreement with Eagle Funding, LLC, for a principal loan amount of $200,000 under a promissory note bearing interest at eight percent (8%). The principal became due on March 7, 2005 and the interest is due monthly. Eagle extended the term of their loan to November 7, 2005. In connection with this loan, the Company issued one warrant to the holder to purchase 400,000 shares of its common stock at an exercise price of $0.66 per share.

On September 30, 2004, the Company entered into an unsecured loan agreement with Lee Harrison Corbin, Attorney-in-Fact For the Trust Under the Will of John Svenningsen, for a principal loan amount of $500,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, the Company issued one warrant to the holder to purchase 1,300,000 shares of its common stock at an exercise price of $0.66 per share. The principal and interest became due on March 30, 2005. The principal and interest were paid in full.

On September 30, 2004, the Company entered into an unsecured loan agreement with Lee Harrison Corbin for a principal loan amount of $75,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, the Company issued one warrant to the holder to purchase 195,000 shares of its common stock at an exercise price of $0.66 per share. The principal and interest became due on March 30, 2005. The principal and interest were converted to equity.

On November 19, 2004, the Company entered into an unsecured loan agreement with Walter H. Sullivan III, for a principal loan amount of $100,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, the Company issued one warrant to the holder to purchase 260,000 shares of its common stock at an exercise price of $0.66 per share. The principal and interest became due on February 19, 2005. The principal and interest were converted to equity.

On December 16, 2004, the Company entered into an unsecured loan agreement with Lee Harrison Corbin, Attorney-in-Fact For the Trust Under the Will of John Svenningsen, for a principal loan amount of $50,000 under a promissory note bearing interest at five percent (5%). In connection with this loan, the Company issued one warrant to the holder to purchase 150,000 shares of its common stock at an exercise price of $0.33 per share. The principal and interest became due on January 31, 2005. The principal and interest were paid in full.

On May 18, 2005, Sequiam Corporation (the “Company”) closed a debt transaction with Lee Harrison Corbin, Attorney in-Fact for the Trust Under the Will of John Svenningsen (the “Trust”) pursuant to which the Trust consolidated $1.35 million in existing unsecured debt owed by the Company to the Trust and provided $2.1 million in additional financing (the “Additional Financing”) for a total of $3,450,000 (the “Loan”). The Company also issued to the Trust a warrant exercisable into 6,000,000 shares of the Company’s common stock (the “Trust Warrant”).

In connection with the Loan: (a) the Trust delivered $1,000,000 of the Additional Financing to Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”); and (b) the Company (i) reduced the conversion price of that certain secured convertible term note, dated as of April 27, 2004, made by the Company in favor of Laurus to $0.15 per share pursuant to Rule 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”) (the “Laurus Note”), and (ii) issued a warrant to Laurus exercisable into 1,500,000 shares of the Company’s common stock at an exercise price of $0.23 per share (the “Laurus Warrant”) (the “Payoff Consideration”). In return for receiving the Payoff Consideration, Laurus, the Trust and the Borrower entered into that certain Assignment, Assumption and Release, dated as of May 18, 2005, pursuant to which, Laurus assigned (the “Assignment”) all of its rights, liabilities and obligations under the Laurus Note, and all documents related thereto (collectively with the Laurus Note, the “Laurus Loan Documents”), to the Trust. In addition, Laurus released the Company from all liability whatsoever under the Laurus Loan Documents, except for any terms therein which may survive the assignment.

The $3,450,000 promissory note issued to the Trust (the “Trust Note”) has a term of two years. Eight percent (8%) interest shall be payable monthly in arrears commencing on November 10, 2005, and on the first day of each consecutive calendar month thereafter. Monthly amortization payments shall commence on May 10, 2006, at the rate of $75,000. The trust Note is secured by all of the Company’s assets.

Index

In connection with the Loan, the Trust received the Trust Warrant to purchase up to 6,000,000 shares of the Company’s common stock at prices ranging from $0.20 per share to $0.30 per share. All stock conversion prices and exercise prices are subject to adjustment for stock splits, stock dividends or similar events. The Company also agreed to file a registration statement with the U.S. Securities and Exchange Commission covering the shares issuable upon the exercise of the Trust Warrant and the Laurus Warrant.

Of the Loan amount, the Company received approximately $1.1 million in cash after payment to Laurus of $1,000,000 toward reduction of the Laurus Note (described above). The remaining principal balance of the Laurus Note after such payment was $818,182, which balance was converted into 5,454,547 shares of common stock by Laurus at the reduced conversion rate of $0.15 per share.

In the Company’s opinion, the issuance and sale of the Trust Warrant and the Laurus Warrant described above was exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act. The Trust and Laurus are accredited investors. The securities are not subject to resale except pursuant to registration under the Securities Act or pursuant to an available exemption from registration under the Securities Act. The Trust and Laurus 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 a Securities Purchase Agreement, an Amended and Restated Master Security Agreement, an Amended, Restated and Consolidated Senior Secured Term Note, a Common Stock Purchase Warrant issued to the Trust, a Common Stock Purchase Warrant issued to Laurus, a Registration Rights Agreement, an Amended and Restated Stock Pledge Agreement, an Amended and Restated Grant of Security Interest in Patents and Trademarks for the Company and certain of its subsidiaries, a Subsidiary Guaranty, a Subordination Agreement from Mark Mroczkowski and Nick VandenBrekel to the Trust, a Subordination Agreement from Eagle Funding, LLC to the Trust, and an Assignment, Assumption and Release, each of which is dated as of May 18, 2005.

On May 11, 2005 Walter Sullivan converted his $100,000 loan and $2,375 of accrued interest into 731,252 common shares of Sequiam Corporation at $0.14 per share.

On May 17, 2005, effective April 7, 2005, Eagle Funding LLC extended the term of their loan to November 7, 2005.

On May 17, 2005, EastGroup Properties, LP agreed to an additional six (6) month deferment of the Company’s Promissory Note payments until December 1, 2005, contingent upon the payment of April and May 2005 prior to May 31, 2005, and that all rental payments between now and December 2005 are kept current. EastGroup Properties, LP also agreed to extend the Note by twelve (12) months to represent the twelve (12) total deferred payments from December 2004 to November 2005.

On May 18, 2005 Lee Corbin converted his $75,000 loan and $2,363 of accrued interest into 552,593 common shares of Sequiam Corporation at $0.14 per share. The agreement included piggyback registration rights for all shares and warrants owned by Mr. Corbin.

On February 28, 2005 as part of the acquisition of Biometric Security (PTY) LTD, Constellation Biometrics Corporation entered into a note payable with Aregee Investments No. 105 for $440,000 payable in quarterly payments of $55,000 without interest. The note matures on April 1, 2007 and is secured by all the assets of Biometric Security (PTY) LTD.

Index

The preceding information is summarized as follows at September 30, 2005:
Included in Notes Payable:	Face Amount			Debt Discount			Carrying Amount
Notes payable - Precision	$	17,332		$	-		$	17,332
Notes payable - GE		33,055			-			33,055
Promissory note - Eagle Funding, LLC		200,000			-			200,000
	$	250,387		$	-		$	250,387
Included in Long-Term Debt:
East Group Properties	$	1,544,266		$	-		$	1,544,266
Svenningsen Trust		3,650,000			(661,243	)		2,988,757
Aregee Investments No. 105		385,000			-			385,000
Total		5,579,266			(661,243	)		4,918,023
Less Current Portion		(788,205	)		-			(788,205	)
	$	4,791,061		$	(661,243	)	$	4,129,818

Note 8 - Loans From Shareholders

On February 1, 2002, Mark Mroczkowski, the Chief Financial Officer and a shareholder of the Company, loaned Sequiam Software, Inc. $50,000. On February 15, 2005 his wife Cynthia Mroczkowski loaned Sequiam Corporation $50,000. Interest is payable at 6%. As of September 30, 2005, the balance due under these loans was $100,000 payable on demand together with accrued interest of $7,000.

Nicholas VandenBrekel, the President and Chief Executive Officer and majority shareholder of the Company, has advanced money to the Company and Sequiam Software, Inc. under demand notes. At September 30, 2005, the Company owed $371,650 on these notes, plus accrued interest of $29,500. The notes bear interest at 2% per annum and are due on demand.

Alan McGinn, the Chief Technology Officer and a shareholder of the Company, has advanced money to the Company. At September 30, 2005, the Company owed $12,000 without interest or specific repayment terms.

Note 9 - Lease Agreement and Note Payable

Prior to our acquisition of the Brekel Group, Inc., effective July 1, 2001, the Brekel Group, Inc. entered into an operating lease agreement to rent approximately 60,000 square feet of combined office and manufacturing space through June 30, 2011. Because we determined to cease Brekel’s print and publishing operations before we acquired it, effective July 1, 2002, Brekel entered into a lease forbearance agreement for 10,000 square feet of the same space for the remaining term of the lease. In April 2004, we entered into a new lease agreement and note payable with the landlord that supercedes and replaces the lease forbearance agreement entered into by the Brekel Group, Inc. effective July 1, 2002 prior to its acquisition by us.

The new lease for 24,085 square feet is effective July 1, 2004 for a period of seventy-two months beginning July 1, 2004 and ending on June 30, 2010. The note payable was fixed at $1,600,000 together with interest thereon at a simple interest rate equal to Nine percent per annum. Commencing on August 1, 2004 and continuing on the first day of each month thereafter through and including June 1, 2010, we are scheduled to pay to Lender payments consisting of principal and interest in the amount of $26,517 per month.

Index

Rental expense for the three months ended September 30, 2005 and 2004 was $48,049 and $37,425, respectively. Rental expense for the nine months ended September 30, 2005 and 2004 was $133,702 and $99,730, respectively. The original amount of the note of $1,600,000 represents $893,112 of deferred rent and $706,888 of tenant improvements. The September 30, 2005 balance of $ 1,544,266 included $193,205 in current portion of long-term debt and $1,351,061 in long-term debt. The new minimum future rentals required under the operating lease and the maturities of the long-term note payable are as follows:

Year	Rentals		Maturities
2005	$	193,175	$	193,205
2006		197,113		244,932
2007		201,150		260,039
2008		205,287		276,078
2009		156,336		293,105
Thereafter		-		276,907
	$	953,061	$	1,544,266

Note 10 - Long-Term Debt

On May 18, 2005, Sequiam Corporation (the “Company”) closed a debt transaction with Lee Harrison Corbin, Attorney in-Fact for the Trust Under the Will of John Svenningsen (the “Trust”) pursuant to which the Trust consolidated $1.35 million in existing unsecured debt owed by the Company to the Trust and provided $2.1 million in additional financing (the “Additional Financing”) for a total of $3,450,000 (the “Loan”). Subsequently, after its acquisition of Constellation Biometrics, it consolidated into this loan a $200,000 loan from the Trust to Constellation, bringing the total to $3,650,000.

The $3,650,000 promissory note issued to the Trust (the “Trust Note”) has a term of two years. 8% interest shall be payable monthly in arrears commencing on November 10, 2005, and on the first day of each consecutive calendar month thereafter. Monthly principal payments shall commence on May 10, 2006, at the rate of $75,000. The trust Note is secured by all of the Company’s assets and matures May 17, 2007.

The maturities of the Note as of September 30, 2005 are as follows:

Year	Maturities
2006	$	375,000
2007		3,275,000
	$	3,650,000

Note 11 - Capital Stock

During the Nine months ended September 30, 2005, the Company issued 3,793,238 and 2,373,772 common shares for business advisory, marketing services and payroll valued at $520,622 and $344,536, respectively based on the Company’s quoted market price on the date of the related agreements.

Note 12 - Operating Segments

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

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

Index

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

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

The table below presents certain financial information by business segment for the quarter ended September 30, 2005.

	Information Management			Safety and Security			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	206,143		$	116,700		$	322,843					$	322,843
Interest expense, net		(1,850	)					(1,850	)		(180,135	)		(181,985	)
Depreciation and amortization		73,620			66,863			140,483			-			140,483
Segment loss		(87,823	)		(302,831	)		(390,654	)		(419,186	)		(809,840	)
Segment assets (1)		1,413,772			234,793			1,648,565			1,281,703			2,930,268

(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, 2005.

	Information Management			Safety and Security			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	311,247		$	209,972		$	521,219					$	$521,219
Interest expense, net		(20,492	)					(20,492	)		(880,867	)		(901,359	)
Depreciation and amortization		214,928			175,432			390,360			-			390,360
Segment loss		(760,964	)		(882,839	)		(1,643,803	)		(1,897,834	)		(3,541,637	)

The table below presents certain financial information by business segment for the quarter ended September 30, 2004.

Index

	Information Management			Safety and Security			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	28,252		$	18,669		$	46,921		$	-		$	46,921
Interest expense		(18,106	)		-			(18,106	)		(149,358	)		(167,464	)
Depreciation and amortization		91,057			48,968			140,025			-			140,025
Segment loss		(521,131	)		(124,073	)		(645,204	)		(575,952	)		(1,221,156	)
Segment assets(1)		1,706,479			637,272			2,343,751			960,858			3,304,609

The table below presents certain financial information by business segment for the Nine months ended September 30, 2004.

	Information Management			Safety and Security			Segments Total			Corporate			Consolidated Total
Revenue from external customers	$	98,391		$	81,783		$	180,174		$	-		$	180,174
Interest expense		(36,320	)		-			(36,320	)		(554,412	)		(590,732	)
Depreciation and amortization		264,260			158,189			422,449			-			422,449
Segment loss		(1,381,419	)		(236,318	)		(1,617,737	)		(1,696,494	)		(3,314,231	)

(1)

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

Index

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

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, 2005 compared to the three months and nine months ended September 30, 2004; 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 quarter’s report.

We are an information management and software and security technology company specializing in biological identification security systems and web-based application services for the business, education and travel industries. Our business is divided into two operating segments: (a) Safety and Security; and (b) Information Management.

We derive or plan to derive our revenues from five sources: (i) the sale and licensing of our software products; (ii) consulting, custom software services and web development services; (iii) maintenance agreements in connection with the sale and licensing of software products; (iv) Internet access and web hosting services; and (v) the sale and licensing of our biometric products. We have not yet generated revenue from the sale and licensing of our software products. Software license revenue will be recognized when all of the following criteria have been met: (a) there is an executed license agreement and software has been delivered to the customer, (b) the license fee is fixed and payable within twelve months, (c) collection is deemed probable, and (d) product returns are deemed reasonably estimable. Maintenance revenues are recognized ratably over the term of the maintenance contract, typically 12 to 36 months. Internet access and web-hosting services are recognized over the period the services are provided, typically month-to-month.

Effective May 31, 2005 Sequiam Corporation acquired Constellation Biometrics Corporation (“Constellation”) and its wholly owned subsidiary Biometric Security (PTY) LTD. (a/k/a Secure Biometrics or Biometrics.co.za), a South African company (“Biometric Security”), engaged in the development, marketing and sale of biometric technology products. Sequiam viewed the acquisition as necessary and strategic in order to increase its product offerings, sales and customer base. For the Quarter ended September 30, 2005, Constellation contributed $70,000 in sales and $15,000 in gross profit. The company is self-sustaining on its own cash flow and we expect sustained growth and profitability for that company. The company’s technologies, products and talent also contribute to Sequiam’s overall offerings and growth plan. We are now selling Constellation products successfully in the United States and in Europe and we expect growth as a result.

Index

The following table shows the proportion of total revenues by segment in the nine month period ended September 30, 2005.

Period		Information Management		Safety and Security		Total
Nine Months ended September 30, 2005		$311,247		$209,972		$521,219

Results of Operations

The following table sets forth information regarding our financial results for 2005 and 2004.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2005			2004			% Change			2005			2004			% Change
Revenue	$	322,843		$	46,921			588	%	$	521,219		$	180,174			189	%
Costs of services and product sales		284,741			282,366			1	%		685,850			853,878			-19	%
Selling, general and administrative		511,488			818,247			-37	%		2,321,548			2,003,743			16	%
Loss on impairment of intellectual properties, sale of equipment, impairment of equipment held for sale and debt settlement		154,469			-			100	%		154,099			46,052			1	%

Interest , net		181,985			167,464			-7	%		901,359			590,732			-85	%

Net Losses	$	(809,840	)	$	(1,221,156	)		34	%	$	(3,541,637	)	$	(3,314,231	)		-7	%

Quarter Ended September 30, 2005 compared to Quarter Ended September 30, 2004. Unless otherwise noted, references to 2005 represent the three-month period ended September 30, 2005 and references to 2004 represent the three-month period ended September 30, 2004.

Revenues. Total revenue increased by $275,922 or 588% to $322,843 in 2005, from $46,921in 2004. This occurred because we completed certain web development, custom software development and engineering services engagements. Software and license fee revenues were unchanged at $-0- for both 2005 and 2004. Revenues from consulting, custom software services, web development services and Internet access and web-hosting services totaled $206,143 in 2005 and $28,252 in 2004, an increase of $177,890 or 630%. Revenues from sales of the BioVault^TMwere $1,995 in 2005 compared to $18,669 in 2004 a decrease of $16,674 or 90%. Revenues from the maintenance of our existing IRP customers were $-0- in 2005 compared to $5,200- in 2004. During 2004 and 2003 we re-developed IRP and IRPlicator from server based products into an ASP model for use over the Internet and for marketing purposes we renamed the products PrintIt 123! and ScanIt 123!, respectively. We began generating revenues from the sale of our IRP suite of software products in the second quarter of 2004 and recorded $15,200 in ASP service fees in 2005 compared to none in 2004. Included in biometric sales for the first time in 2005 are Third quarter sales of Constellation Biometrics’ products totaling $70,226.

Index

During 2004 and 2003, we spent most of our time acquiring and redeveloping our products. Sales and marketing efforts did not commence until the third quarter of 2004. We believe that the high cost of the BioVaultÔ was an impediment to its sales and so we discontinued that product after selling the last of the inventory in the second quarter 2005. As a result, we developed a less expensive version 2.0 of the BioVault. The BioVault 2.0 is out of design and is now in the molding and casting process. We expect to begin selling BioVault 2.0 in the first quarter of 2006. In addition to our own sales efforts we are looking for other companies in the industry to whom we can license the product. Additionally we are now in negotiations to license our PrintIt123 product line (formerly IRP), ScanIt123 (formerly IRPlicator) to a software marketing company and we expect to complete that transaction in the fourth quarter of 2005.

On September 13, 2005, Sequiam Corporation entered into a five-year, Exclusive Co-Operative Development and Supply Agreement (the “Agreement”) with Black & Decker’s subsidiary Kwikset Corporation (“Kwikset”). The purpose of this agreement is to establish the business relationship between Kwikset and Sequiam in respect to the development, marketing and sales of biometric enabled security door hardware and systems.

Additionally, we are currently in discussions with other companies for the license of our other biometric technology products and we are also working with other resellers.

As a result of these recent developments, we expect: (a) that consulting, custom software services, web development and web-hosting activities will make up a smaller portion of our overall revenues; and (b) that revenues from our Safety and Security segment will begin to increase in late 2005 and throughout 2006 as we refocus our efforts on our biometric products.

Cost of Services and Product Sales. Cost of services and product sales were $284,741 in 2005 and $282,366 in 2004, an increase of $2,375 or 1 %. This increase was primarily attributable to increasing the sales of our ASP, software products and other biometric products.

Selling, General and Administrative. Selling, general and administrative expenses were $511,488 in 2005 and $818,247 in 2004, a decrease of $306,759 or 37%. The significant decrease was attributed to non-cash and non-recurring expenses for investment banking, consulting and other services acquired in exchange for stock incurred in 2004 but not recurring in 2005. The overall decrease was offset in part by increases in our recurring selling and overhead expenditures such as salaries, wages and benefits for administrative and marketing personnel, computer maintenance and supplies, professional services (such as legal and accounting fees), and corporate travel expenses.

Our total payroll was $270,614 for 2005 and $427,847 for 2004. This decrease in payroll is attributable an overall reduction in workforce in the Information Management segment, offset by the addition of Constellation employees and one time severance payments given to certain employees. We expect that payroll will increase during the fourth quarter in the safety and security segment as we have hired additional engineers and programmers to support our biometrics projects. Once we establish continued sales for our software and biometric products, we expect that the payroll burden will be reduced as a percentage of total revenue.

Losses on Sale of Equipment, Impairment of Equipment Held for Sale and Debt Settlement. A loss of $154,469 and $-0- was recognized on the impairment of intellectual properties in 2005 and 2004.

Interest Expense. Interest expense was $181,985 in 2005 and $167,464 in 2004, an increase of $12,620 or 7 %. This increase is due to write-offs of loan costs and debt discounts as a result of the refinancing of the Laurus, Corbin and Sullivan loans, which is more fully described under the caption “Liquidity and Capital Resources.”

Net Losses. We incurred net losses of $809,840 in 2005 and $1,221,156 in 2004, a decrease of $411,316 or 34%. The significant decrease was attributed to non-cash and non-recurring expenses for investment banking, consulting and other services acquired in exchange for stock incurred in 2004 but not recurring in 2005. We expect to incur additional net losses through the fourth quarter of 2005 as we continue to introduce our products to the marketplace. We expect cash flow to increase beginning in the first quarter of 2006 using proceeds from sales of our products. The Company presently estimates required sales of approximately $185,000 per month to provide a positive cash flow.

Index

Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004. Unless otherwise noted, references to 2005 represent the nine-month period ended September 30, 2005 and references to 2004 represent the nine-month period ended September 30, 2004.

Revenues. Total revenue increased by $341,046 or 189% to $521,220 in 2005, from $180,174 in 2004. This occurred because we completed certain web development, custom software development and engineering services engagements. Software and license fee revenues were unchanged at $-0- for both 2005 and 2004. Revenues from consulting, custom software services, web development services and Internet access and web-hosting services totaled $242,747 in 2005 and $98,391 in 2004, an increase of $144,356 or 147%. Revenues from sales of the BioVault^TMwere $9,771 in 2005 compared to $81,783 in 2004, a decrease of $72,012 or 88%. Revenues from the maintenance of our existing IRP customers were $4,300 in 2005 compared to $5,200 in 2004. During 2004 and 2003 we re-developed IRP and IRPlicator from server based products into an ASP model for use over the Internet and for marketing purposes we renamed the products PrintIt 123! and ScanIt 123!, respectively. We began generating revenues from the sale of our IRP suite of software products in the second quarter of 2004 and recorded $64,200 in ASP service fees in 2005 compared to none in 2004. Included in biometric sales for the first time in 2005 are sales of Constellation Biometrics’ products totaling $97,682.

Additionally, we are currently in discussions with other companies for the license of our other biometric technology products and we are also working with other resellers.

Cost of Services and Product Sales. Cost of services and product sales were $685,850 in 2005 and $853,878 in 2004, a decrease of $168,028 or 20%. This decrease was primarily attributable to discontinuing the original BioVault, which had a relatively high cost of sales and increasing the sales of our ASP other biometric products that have a much lower cost of sales.

Selling, General and Administrative. Selling, general and administrative expenses were $2,321,548 in 2005 and $2,003,743 in 2004, a increase of $317,805 or 16%. The significant increase was attributed to non-cash and non-recurring expenses for investment banking, consulting and other services acquired in exchange for stock totaling $865,187. The acquisition of Constellation added another $63,120 to selling, general and administrative expenses. The overall increase was offset in part by decreases in our recurring selling and overhead expenditures such as salaries, wages and benefits for administrative and marketing personnel, computer maintenance and supplies, professional services (such as legal and accounting fees), and corporate travel expenses.

Index

Our total payroll was $1,473,839 for 2005 and $979,360 for 2004. This increase in payroll is attributable to one time severance payments given to certain employees and the addition of Constellation employees. We expect that payroll will increase during the fourth quarter in the safety and security segment as we have hired additional engineers and programmers to support our biometrics projects. Once we establish continued sales for our software and biometric products, we expect that the payroll burden will be reduced as a percentage of total revenue.

Losses on Sale of Equipment, Impairment of Equipment Held for Sale and Debt Settlement. A loss of $154,099 was recognized on the impairment of intellectual properties in 2005 and $40,560 was recognized on the impairment of equipment in 2004.

Interest Expense. Interest expense was $901,359 in 2005 and $590,732 in 2004, an increase of $416,877 or 86%. This increase is due to write-offs of loan costs and debt discounts as a result of the refinancing of the Laurus, Corbin and Sullivan loans, which is more fully described under the caption “Liquidity and Capital Resources.”

Net Losses. We incurred net losses of $3,541,636 in 2005 and $3,314,231 in 2004, a increase of $227,405 or 7%. The increase was primarily attributed to non-cash and non-recurring expenses for investment banking, consulting and other services acquired in exchange for stock totaling $865,187 and increases in interest expense of $335,717 due to write-offs of loan costs and debt discounts as a result of the refinancing of the Laurus, Corbin and Sullivan loans. The overall increase was offset by increases in sales of $341,046. We expect to incur additional net losses through the fourth quarter of 2005 as we continue to introduce our products to the marketplace. We expect cash flow to increase beginning in the first quarter of 2006 using proceeds from sales of our products. The Company presently estimates required sales of approximately $185,000 per month to provide a positive cash flow.

Liquidity and Capital Resources

General

Our principal use of cash in our operating activities is for selling general and administrative expenses. Our principal source of liquidity has historically been from financing activities. We believe that cash provided by our operating and financing activities will provide adequate resources to satisfy our working capital, liquidity and anticipated capital expenditure requirements for approximately nine months. Before such time, we expect to have sufficient cash flow to continue our operations.

Operating Activities

Net cash used in operating activities was $1,324,531 for 2005, as a result of the net loss during the period of $3,541,637, offset by non-cash expenses of $1,964,997, increases in accrued shareholder salaries of $170,000 and net decrease in other working capital items totaling $72,361.

Investing and Financing Activities

Net cash used for investing activities for 2005 was $159,246 of product development costs for the BioVault 2.0 that we capitalized.

Net cash provided by financing activities was $1,757,282 for 2005. Proceeds from the Svenningsen Trust loan loans accounted for $2,100,000; proceeds from the sale of common stock and the exercise of warrants accounted for $436,619 plus proceeds from shareholder loans of $323,465 less payments of notes payable and long-term debt that used cash of $1,102,802.

Current liabilities of $3,935,065 exceed current assets of $585,907 by $3,349,158. Of that amount, $2,004,242 is owed to shareholders as loans and accrued but unpaid salaries under employment agreements. The officers of the Company are dedicated to its business plan and will place no undue demands on its working capital. They expect payment from future cash flows and equity capital infusions. Also included in current liabilities is $358,541 of accounts payable owed by the former Brekel Group, Inc. We are negotiating to settle these liabilities related to the former Brekel Group, Inc. at amounts less than the amounts recorded in the balance sheet. We are unable to estimate an expected settlement below the carrying amount at this time. We expect that these liabilities will be settled for cash on a reduced basis.

Index

Rental expense for the three months ended September 30, 2005 and 2004 was $48,049 and $37,425, respectively. Rental expense for the Nine months ended September 30, 2005 and 2004 was $133,702 and $99,730, respectively. The original amount of the note of $1,600,000 represents $893,112 of deferred rent and $706,888 of tenant improvements. The September 30, 2005 balance of $ 1,544,266 included $193,205 in current portion of long-term debt and $1,351,061 in long-term debt. The new minimum future rentals required under the operating lease and the maturities of the long-term note payable are as follows:

Year	Rentals		Maturities
2005	$	193,175	$	193,205
2006		197,113		244,932
2007		201,150		260,039
2008		205,287		276,078
2009		156,336		293,105
Thereafter		-		276,907
	$	953,061	$	1,544,266

On May 18, 2005, the Company closed a debt transaction with Lee Harrison Corbin, Attorney in-Fact for the Trust Under the Will of John Svenningsen (the “Trust”) pursuant to which the Trust consolidated $1.55 million in existing unsecured debt owed by the Company to the Trust and provided $2.1 million in additional financing (the “Additional Financing”) for a total of $3,650,000 (the “Loan”).

The proceeds from the Loan will not be adequate to support our operations while we build sales revenues from our products. As a result, we now need to obtain additional financing to continue our operations. We have engaged investment bankers to raise additional capital, and we expect to secure such additional capital in a timely manner.

Index

Recent Events

Application of Critical Accounting Policies

Software Development Costs

Costs incurred to establish technological feasibility of computer software products are research and development costs and are charged to expense as incurred. Costs of producing product masters subsequent to technological feasibility are capitalized. Capitalization of computer software costs ceases when the product is available for general release to the customers. Capitalized software costs are amortized using the straight-line method over the estimated useful life of the products or the gross revenue ratio method, whichever results in the greater amount of amortization.

Acquired Software

In connection with the acquisition of Access Orlando, we acquired Internet Remote Print software that was assigned a value of $288,000, representing the excess of the purchase price over the fair value of the tangible assets acquired. The acquired software is being amortized over its expected useful life of five years.

Intellectual Properties

In connection with the acquisitions of Smart Biometrics, Inc, Telepartners, Inc., Fingerprint Detection Technologies, Inc. and Constellation Biometrics Corporation, we acquired intellectual properties including patents, trademarks, technical drawings, proprietary software and other knowledge based assets that were assigned values of $700,000, $160,000 and $237,650, $575,000 respectively, for a total of $1,672,650 representing the excess of the purchase price over the fair value of the tangible assets acquired. The acquired intellectual properties are being amortized over their expected useful life of five years. During the third quarter, we wrote off the remaining balance of $154,469 of the Fingerprint Detection Technologies, Inc. patent. We consider the asset to be impaired due to a patent infringement by a larger company.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standard No. 123 "Share-Based Payment" (SFAS 123R). SFAS 123R requires Companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification This statement is effective for the first reporting period beginning after December 15, 2005. In the opinion of management, the adoption of this statement will not have a significant impact on the Company's consolidated financial statements.

Index

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 believe that the Company's disclosure controls and procedures provide reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

Changes in Internal Control Over Financial Reporting

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

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

31.1	Certification of Nicholas VandenBrekel, Chief Executive Officer and President of Sequiam Corporation, pursuant to Rule 15d-14(a) of the Securities and Exchange Act of 1934.*

31.2	Certification of Mark L. Mroczkowski, Senior Vice President and Chief Financial Officer of Sequiam Corporation, pursuant to Rule 15d-14(a) of the Securities and Exchange Act of 1934.*

32.1	Certification of Nicholas VandenBrekel, Chief Executive Officer and President of Sequiam Corporation, pursuant to 18 U.S.C. Section 1350.*

32.2	Certification of Mark L. Mroczkowski, Senior Vice President and Chief Financial Officer of Sequiam Corporation, pursuant to 18 U.S.C. Section 1350.*

(b) Reports on Form 8-K: The following reports on Form 8-K were filed during the quarter ending September 30 2005:

Form 8-K filed on September 19, 2005, regarding the Development and Supply Agreement with Black & Decker’s subsidiary Kwikset Corporation.

Form 8-K filed on September 1, 2005, regarding the acquisition of Constellation Biometrics Corporation.

Index

_______________________________

* Filed herewith

SIGNATURES

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

SEQUIAM CORPORATION

Date: November 21, 2005

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

Date: November 21, 2005

By: /s/ Mark L. Mroczkowski
Mark L. Mroczkowski, Senior Vice President and Chief Financial Officer