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 April 30, 2006
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to
Commission file number 000-50213
AEGIS ASSESSMENTS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware |
| 72-1525702 |
(State or other jurisdiction |
| (I.R.S. Employer Identification No.) |
of incorporation or organization) |
|
|
7975 N. Hayden Road, Suite D-363, Scottsdale, AZ 85258
(Address of principal executive offices)
480.778.9140
(Issuer’s telephone number)
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 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
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer’s common equity outstanding as of June 15, 2006 was approximately 32,500,000 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (Check one):
Yes x No o
INDEX TO FORM 10-QSB FILING
FOR THE PERIOD ENDED APRIL 30, 2006
TABLE OF CONTENTS
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Aegis Assessments, Inc.
(A Development Stage Company)
April 30, 2006
(Unaudited)
Assets |
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Current Assets |
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Cash and cash equivalents |
| $ | 128,278 |
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Advance |
| 1,750 |
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Prepaid expense |
| 8,620 |
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Inventory |
| 415,544 |
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Total Current Assets |
| 554,192 |
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Property and equipment, net of accumulated depreciation of $149,599 at April 30, 2006 |
| 205,385 |
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U.S. Treasury Bonds - Restricted |
| 4,973,404 |
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Other Assets |
| 7,616 |
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Total Assets |
| $ | 5,740,597 |
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Liabilities and Shareholders’ Equity |
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Current Liabilities |
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Accounts Payable |
| $ | 233,362 |
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Accrued Payroll |
| 115,916 |
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Deferred Revenue |
| 350,000 |
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Notes payable |
| 112,500 |
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Convertible debentures (note 3) |
| 157,808 |
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Accrued expenses |
| 9,644 |
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Total Current Liabilities |
| 979,230 |
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Commitments and contingencies (notes 2 and 5) |
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Contingent loss on derivative and equity swap |
| 3,995,548 |
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Series A 8% convertible preferred stock $.001 par value; 200,000 shares authorized. |
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Shareholders’ equity: |
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Preferred stock, $.001 par value, 10,000,000 shares authorized for issuance in one or more series. |
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Common stock, $.001 par value; 100,000,000 shares authorized; 32,431,508 shares issued and outstanding at January 31, 2006 |
| 32,431 |
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Additional paid-in capital |
| 23,460,963 |
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Stock subscription receivable — related party |
| (67,500 | ) | |
Stock subscription receivable |
| (103,015 | ) | |
Unrealized loss on marketable securities |
| (50,117 | ) | |
Deficit accumulated during the development stage |
| (22,506,943 | ) | |
Total shareholders’ equity |
| 765,819 |
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Total liabilities and shareholders’ equity |
| 5,740,597 |
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The accompanying notes are an integral part of the condensed financial statements
1
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
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| For the three |
| For the three |
| For the nine |
| For the nine |
| January 16,2002 |
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| months ended |
| months ended |
| months ended |
| months ended |
| (inception) to |
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| April 30,2006 |
| April 30,2005 |
| April 30,2006 |
| April 30,2005 |
| April 30,2006 |
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| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
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Revenue |
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| $ | 52,447 |
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| $ | 58,447 |
| $ | 70,992 |
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Operating expense |
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Cost of equipment sold |
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| $ | 27,000 |
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| $ | 31,500 |
| $ | 35,100 |
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General and administrative expenses — other |
| 760,958 |
| 2,572,205 |
| $ | 1,612,764 |
| 5,922,956 |
| $ | 18,259,422 |
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Consulting fees — related party |
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| $ | 287,065 |
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Total Operating expenses |
| $ | 760,958 |
| $ | 2,599,205 |
| $ | 1,612,764 |
| $ | 5,954,456 |
| $ | 18,581,587 |
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Loss on interest rate derivative swap |
| $ | 16,096 |
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| $ | 52,098 |
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| $ | 95,548 |
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Loss on equity swap |
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| 3,400,000 |
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| 3,900,000 |
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| — |
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Loss before provision for income taxes |
| (777,054 | ) | (2,546,758 | ) | (5,064,862 | ) | (5,896,009 | ) | (22,506,143 | ) | |||||
Provision for income taxes |
| — |
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| 800 |
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Net loss |
| $ | (777,054 | ) | $ | (2,546,758 | ) | $ | (5,064,862 | ) | $ | (5,896,009 | ) | $ | (22,506,943 | ) |
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Other comprehensive income (loss) |
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Unrealized gain (loss) on marketable securities |
| $ | 16,379 |
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| $ | 26,239 |
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| $ | (50,117 | ) | ||
Total comprehensive loss |
| $ | (760,675 | ) | $ | (2,546,758 | ) | $ | (5,038,623 | ) | $ | (5,896,009 | ) | $ | (22,557,060 | ) |
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Net loss available to common shareholders per common share — basic and diluted |
| $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.16 | ) | $ | (0.26 | ) | $ | (1.25 | ) |
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Weighted average common shares — basic and diluted |
| 31,945,689 |
| 27,447,574 |
| 30,907,873 |
| 23,017,825 |
| 18,003,540 |
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The accompanying notes are an integral part of the condensed financial statements
2
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
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| For the nine |
| For the nine |
| January 16,2002 |
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| months ended |
| months ended |
| (inception) to |
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| April 30,2006 |
| April 30,2005 |
| April 30,2006 |
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| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
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Cash flows from operating activities: |
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Net loss |
| $ | (5,064,862 | ) | $ | (5,896,009 | ) | $ | (22,506,943 | ) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash items included in the net loss: |
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Depreciation |
| 60,548 |
| 52,782 |
| 149,600 |
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Amortization and expenses related to stock and stock options |
| 20,000 |
| 4,349,565 |
| 12,884,625 |
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Amortization of the fair value of conversion rights and warrants related to notes payable |
| 157,808 |
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| 157,808 |
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Loss on interest rate derivative swap |
| 52,097 |
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| 95,547 |
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Loss on equity swap |
| 3,400,000 |
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| 3,900,000 |
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The intrinsic value of non-detachable conversion rights of the Series A 8% preferred stock |
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| 9,800 |
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Issuance of stock for payment of interest |
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| 3,266 |
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Change in Assets |
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Accounts Receivable |
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| (36,724 | ) | — |
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Inventory |
| (11,055 | ) | (208,088 | ) | (415,543 | ) | |||
Other Assets |
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| (7,616 | ) | |||
Advance |
| (1,750 | ) |
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| (1,750 | ) | |||
Prepaid expense |
| (8,620 | ) |
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| (8,620 | ) | |||
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Change in Liabilities: |
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Accrued payroll |
| 42,701 |
| 143,413 |
| 115,916 |
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Accounts payable |
| 65,578 |
| 48,612 |
| 233,362 |
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Accrued interest officers |
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| — |
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Deferred Revenue |
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| (2,333 | ) | 350,000 |
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Accrued expenses |
| 9,644 |
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| 9,644 |
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Net cash used in operating activities |
| (1,277,911 | ) | (1,548,782 | ) | (5,030,904 | ) | |||
The accompanying notes are an integral part of the condensed financial statements
3
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
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| For the period from |
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| For the nine |
| For the nine |
| January 16,2002 |
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| months ended |
| months ended |
| (inception) to |
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| April 30,2006 |
| April 30,2005 |
| April 30,2006 |
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| (Unaudited) |
| (Unaudited) |
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Cash flows used in investing activities: |
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Payments to acquire property and equipment |
| $ | (33,304 | ) | $ | (34,324 | ) | $ | (354,984 |
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Net cash flows used in investing activities |
| (33,304 | ) | (34,324 | ) | (354,984 | ) | |||
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Cash flows provided by financing activities: |
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Proceeds from issuance of preferred stock |
| — |
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| 90,100 |
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Proceeds from issuance of common stock - related party |
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| 22,500 |
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Proceeds from issuance of common stock |
| 565,485 |
| 704,030 |
| 3,577,517 |
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Proceeds from exercise of warrants |
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| 184,654 |
| 630,405 |
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Proceeds from exercise of options |
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| 237,144 |
| 237,144 |
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Proceeds from issuance of debenture |
| 800,000 |
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| 817,000 |
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Proceeds from notes payable and advances - related parties |
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| 17,000 |
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| — |
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Stock subscription receivable |
| — |
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| 10,000 |
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Advances from officers |
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| — |
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Note Payable — officer |
| (94,000 | ) |
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| — |
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Note Payable |
| 112,500 |
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| 112,500 |
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Net cash provided by financing activities |
| 1,383,985 |
| 1,125,828 |
| 5,514,166 |
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Net increase in cash and cash equivalents |
| 72,770 |
| (457,278 | ) | 128,278 |
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Cash and cash equivalents, beginning of period |
| 55,508 |
| 497,577 |
| — |
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Cash and cash equivalents, end of period |
| $ | 128,278 |
| $ | 40,299 |
| $ | 128,278 |
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Supplemental Disclosure of Non-Cash Investing and Financing Activities |
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Exercise of options applied against notes |
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| $ | 17,000 |
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Payment of accounts payable with stock |
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| 12,025 |
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Conversion of preferred stock to common stock |
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| 27,500 |
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Issuance of common stock for services |
| $ | 20,000 |
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| $ | 12,884,625 |
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Issuance of stock for note — related party |
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| 67,500 |
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Issuance of stock for notes |
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| 133,000 |
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The accompanying notes are an integral part of the condensed financial statements
4
Aegis Assessments, Inc.
(A Development Stage Company)
Notes to Financial Statements
For The Three and Nine Months Ended April 30, 2006 (Unaudited) and April 30, 2005 (Unaudited), For The Period January 16, 2002 (inception) Through April 30, 2006
________________________________________________________________________
1. Basis of Presentation
The accompanying condensed financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles for complete financial statements generally accepted in the United States of America. In the opinion of management, the accompanying financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of April 30, 2006. There has not been any change in the significant accounting policies of Aegis Assessments, Inc. (“The Company”), for the periods presented. The results of operations for the three and nine months ended April 30, 2006 and 2005 are not necessarily indicative of the results for a full year period. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended July 31, 2005 filed with the Securities and Exchange Commission (the “SEC”).
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States for interim period financial information, which contemplate continuation of Aegis Assessments, Inc. (a Development Stage Company) as a going concern. However, the Company is subject to the risks and uncertainties associated with a new business, has no established source of revenue and has limited sources of equity capital. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Stock Transactions
Common Stock
In November 2004, the Company authorized through a private placement the sale of 2,000,000 equity units for $1.00 per unit. Each unit consists of one share of common stock and one warrant to purchase a share of common stock for $.50, with an exercise period that expires six months after the unit is purchased. As of January 31, 2006 the Company has sold 1,626,632 units for a total of $559,150, and 44,250 of the warrants were exercised for a total of $22,125. In addition, as of January 31, 2006 400,650 of the warrants had expired and 1,181,732 remain outstanding.
In September 2005, the Company authorized through a private placement the sale of 150,000 shares of common stock for $.33 per share. All the shares were sold as of October 31, 2005.
5
In October 2005, 200,000 shares of the Company’s restricted common shares were issued to a consultant in exchange for future services totaling $ 20,000, based on $.10 per share, which was the fair value of the Company’s common stock on the date of issuance.
In November 2005, the Company authorized through a private placement the sale of 2,533,333 shares of restricted common stock for $.15 per share. All the shares were sold as of January 31, 2006 for a total of $380,000.
3. Convertible Loans
On February 17, 2006, the Company issued convertible debentures with a face value of $800,000 with attached warrants for net proceeds of $649,467 after various fees and expenses totaling $150,533. A description of the notes is as follows:
· Maturity: The notes mature on February 17, 2007. The note-holders may elect at any time to convert their notes into shares of common stock at the conversion price (as described below). Each lender is limited to total ownership of 4.99% of the outstanding shares of the Company at any time, so the ability to convert is limited.
· Interest: The notes provide for simple interest payable on each note at the annual rate of 10%. The subscribers have the right from and after the date of the issuance of the notes until the notes are fully paid, to convert any outstanding and unpaid principal portion of each note, and accrued interest, at the election of such subscriber into fully paid and non-assessable shares of the shares of the Company’s common stock .
· Conversion and conversion price: The outstanding balance of the notes may, at the lenders’ option, be converted to common shares at the rate of $.15 per share. The conversion price may be adjusted downward if The Company subsequently completes any financing at a lower share price.
Warrants: In connection with the financing, warrants were issued as follows:
· Series A: 5,333,333 warrants were issued with an exercise price of $.25 per share and a 3-year life.
· Series B: 5,333,333 warrants were issued with an exercise price of $.60 per share and a 3-year life.
The proceeds from the notes have been discounted for the relative fair value of the warrants, the discount, and beneficial conversion feature. All discounts will be amortized over the one year life of the notes. A summary of the notes is as follows:
| Notes Payable |
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Face value |
| $ | 800,000 |
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Less: Relative fair value of: |
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Series A warrants |
| (223,669 | ) | |
Series B warrants |
| (336,211 | ) | |
beneficial conversion feature |
| (240,120 | ) | |
Carrying amount of notes on February 17, 2006 |
| $ | 0 |
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Amortization of discounts to April 30, 2006 |
| 157,808 |
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Carrying amount of notes at April 30, 2006 |
| $ | 157,808 |
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6
At April 30, 2006 none of the debenture holders had converted their notes.
4. Commitments and Contingencies
The Company has incurred net losses since its inception in January 2002 and has no established sources of revenue. The net losses were $777,054, $2,546,758 and $22,506,943 for the quarters ended April 30, 2006 and April 30, 2005 and for the period from January 16, 2002 (inception) to April 30, 2006, respectively. Despite its negative cash flows from operations of $1,277,911, $1,548,782, and $5,030,904 for the quarters ended April 30, 2006 and April 30, 2005 and for the period from January 16, 2002 (inception) to April 30, 2006, respectively, the Company has been able to obtain additional operating capital through private funding sources. Management’s plans include the continued development of the Company’s SafetyNet products and a client awareness program that it believes will enhance its ability to generate revenues from the sale of the Company’s products. The Company has relied upon equity funding and loans from shareholders since inception.
During the quarter ended April 30, 2006, the Company financed its operations through private equity funding and loans from officers and others. The Company may offer shares of its common stock during the year ended July 31, 2006. No assurances can be given that the Company can obtain sufficient working capital through the sale of the Company’s securities and borrowing, or that the sale of the SafetyNet products will generate sufficient revenues in the future to sustain ongoing operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
5. Stock Based Compensation
The Company had no stock based compensation expense for the three months ended April 30, 2006. Prior to January 1, 2006 the Company accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (“APB 25”). Accordingly, the Company generally recognized compensation expense only when it granted options with a discounted exercise price. Any resulting compensation expense was recognized ratably over the associated service period, which was generally the option vesting term. Prior to January 1, 2006, the Company provided pro-forma disclosure amounts in accordance with FAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“FAS 148”), as if the fair value method defined by FAS No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”), had been applied to its stock-based compensation.
Effective January 1, 2006 the Company adopted the fair value recognition provisions of “Share Based Payment” (“FAS 123R”), using the modified prospective transition method and therefore has not restated prior periods’ results. Under this transition method, stock-based compensation expense for the first quarter of fiscal 2006 included compensation expense for stock-based compensation awards granted prior to, but not yet fully vested as of January 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of FAS 123. Stock-based compensation expense for all share-based payment awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of FAS 123R. The Company recognizes these
7
compensation costs over the requisite service period of the award, which is generally the option vesting term.
There is no impact to the Condensed Consolidated Financial Statements for the three months ended April 30, 2006 as a result of adopting FAS 123R when compared to the results had the Company continued to account for stock-based compensation under APB 25. There is no impact on both basic and diluted net loss per share for the three months ended April 30, 2006. As of April 30, 2006 the Company had no unvested options.
The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values as follows:
|
| Three months ended |
| ||
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| 2006 |
| 2005 |
|
Risk-free interest rate |
| 4.31% |
| 3.00% |
|
Dividend yield |
| N/A |
| N/A |
|
Expected volatility |
| N/A |
| 0% |
|
Expected life in years |
| 3 |
| 3 |
|
Expected forfeiture rate (through term) |
| N/A |
| — |
|
The pro forma table below reflects net loss and basic and diluted net loss per share for the three months ended April 30, 2005 had the Company applied the fair value recognition provisions of SFAS 123, as follows:
| Three months ended |
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Net loss as reported |
| $ | (2,546,758 | ) |
Deduct: Stock based employee compensation determined under fair value method |
| (12,500 | ) | |
Net loss — pro forma |
| $ | (2,559,258 | ) |
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Basic and diluted net loss per share |
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Basic and diluted — as reported |
| $ | (0.09 | ) |
Basic and diluted — pro forma |
| $ | (0.09 | ) |
The determination of the fair value of stock-based awards on the date of grant is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the price of the underlying stock, the Company’s expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and the expected annual dividend yield on the underlying shares.
The Company has used historical information to estimate expected life and forfeitures within the valuation model. The risk-free rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on historical volatility of the price of our common stock over the calculated expected life. The Company does not anticipate paying cash dividends in the future and therefore uses an expected dividend yield of 0.0%.
Developing these assumptions requires significant judgment on the part of the Company and, generally, may involve analyzing available historical data, considering whether historical data is
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relevant to predicting future behavior, making appropriate adjustments to historical data for future expectations, supplementing or replacing Company-specific historical data with data from other supportable sources and appropriately weighting each of the inputs. These assumptions are evaluated at each grant date. If factors change and the Company employs different assumptions for estimating share-based compensation expense in future periods or if the Company decides to use a different valuation model, the future periods may differ significantly from what the Company has recorded in the current period and could materially affect operating income, net income/(loss) and net income/(loss) per share. Option valuation models require the input of highly subjective assumptions including the expected life of the option. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Consequently, there is a significant risk that the Company’s estimates of the fair values of stock-based compensation awards on the grant dates may not reflect the actual values realized upon the vesting, exercise, expiration, early termination or forfeiture of those stock-based payments in the future.
If actual results differ significantly from these estimates or different key assumptions were used, there could be a material effect on the Company’s financial statements. The future impact of the cost of stock-based compensation on our results of operations, including net income/(loss) and earnings/(loss) per diluted share, will depend on, among other factors, the level of equity awards as well as the market price of the Company’s common stock at the time of the award as well as various other assumptions used in valuing such awards. The Company will periodically evaluate these estimates.
6. Subsequent Events
No significant events occurred between April 30, 2006 and June 19, 2006, the date of this report.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the period ended April 30, 2006, this “Management’s Discussion and Analysis” should be read in conjunction with the Financial Statements, including the related notes, appearing in Item 1 of this Quarterly Report. The preparation of this Quarterly Report on Form 10-QSB requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results reported in the future will not differ from those estimates or that revisions of these estimates may not become necessary in the future.
Forward Looking Statements
This portion of this Quarterly Report on Form 10-QSB, includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Specific forward-looking statements contained in this portion of the Quarterly Report include, but are not limited to the Company’s (i) expectation that it will begin generating significant revenues from the sale of its products rather than from equity or debt financings; (ii) plan to allocate any funds it receives to expanding production capabilities, and establishing a distribution channel for products (iii) belief that its client awareness program will enhance its ability to generate revenues from the sale of its products; and (iv) belief that as a result of developments with the Department of Homeland Security, it will be
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easier to sell RadioBridge units to state and municipal public safety agencies. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include, but are not limited to (i) market acceptance of our products; (ii) establishment and expansion of our direct and indirect distribution channels; (iii) attracting and retaining the endorsement of key opinion-leaders in the law enforcement, fire, rescue and other emergency response communities; (iv) the level of product technology and price competition for our products; (v) the degree and rate of growth of the markets in which we compete and the accompanying demand for our products; (vi) potential delays in international and domestic orders; (vii) risks associated with rapid technological change and execution and implementation risks of new technology; (viii) new product introduction risks; (ix) ramping manufacturing production to meet demand; (x) future potential litigation resulting from alleged product related injuries; (xi) potential fluctuations in quarterly operating results; (xii) financial and budgetary constraints of prospects and customers; (xiii) fluctuations in component pricing; (xiv) adoption of new or changes in accounting policies and practices, including pronouncements promulgated by standard setting bodies; (xv) changes in legislation and governmental regulation; (xvi) publicity that may adversely impact our business and/or industry; and (xvii) other factors that we a re currently unable to identify or quantify, but may exist in the future.
In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.
Executive Overview.
We have developed our flagship product, the Aegis RadioBridge, as a wireless interoperability solution for public safety agencies and commercial end users for homeland security and life safety applications. The RadioBridge™ allows most two-way radios to be interconnected regardless of the radio’s frequency, modulation or encryption scheme. We are concentrating on sales and marketing of this product for the near future, as this is the quickest path to revenues. We have also developed the SafetyNet Guardian™ System, which allows video transmissions and voice communications from the stairwells inside buildings for commercial safety applications. We anticipate that in the future some of the components and technology integrated into the Guardian System can also be sold, with certain modifications, as stand-alone products, although we are not yet in production of the Guardian or any of its accessories.
Distribution and Sales.
A limiting factor for the sale of our RadioBridge product has been the time-consuming process associated with government purchasing cycles and procurement practices of our products’ end-users. We recently entered into a distribution agreement with Quala-tel Enterprises, a distributor of confined space/rescue and emergency communications products located in the greater San Diego area. Quala-tel has begun vigorously marketing the RadioBridge and we believe this distribution relationship will allow us to reach a broad customer base in the fire safety and rescue markets that we have not significantly penetrated in the past.
We are continuing to work with James Lee Witt Associates, LLC as a strategic marketing consultant to help introduce the RadioBridge to public safety and emergency services organizations. In May 2006, with the assistance of Witt Associates, we presented the RadioBridge to city homeland security
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officials in both Chicago and Washington, D. C. We also demonstrated the RadioBridge to the Postal Inspection Service, headquartered in Dulles, Virginia. We are planning further product road shows with Witt Associates and arising from our marketing campaign in the coming months.
In March 2006 we received an order for two additional RadioBridges from the Utah County Public Works Telecommunications Division for use in the upcoming fire season. This was an additional purchase of Radio Bridges for the Utah County Fire Department. In March 2006 we also initiated a direct marketing campaign focusing on police and fire departments in the western United States that have received grant funding for interoperable radio equipment. In early May 2006 we received an order for a RadioBridge from the Menlo Park Fire Department, located in Menlo Park, California.
The RadioBridge is listed in the Department of Homeland Security’s Responder Knowledge Base, a national information resource for emergency responders, sponsored by the Oklahoma City National Memorial Institute for the Prevention of Terrorism. This project is designed to provide emergency responders with a trusted, integrated online source of information on equipment and related items such as standards, training, and grants.
Production. We contracted to develop the next generation SafetyNet RadioBridge with new features for enhanced performance with CirTran Corporation located in West Valley, Utah. CirTran Corporation is a full-service electronics contract manufacturer and has an ISO (International Organization for Standardization) 9002 registration. CirTran is currently preparing for the first mass production run of RadioBridge units.
The RadioBridge interconnects incompatible radios and bridges them to provide radio interoperability at an emergency site in a matter of minutes. The enhanced version features improvements in the sound quality of audio transmissions, the addition of an internal storage compartment for cables, headsets and other accessories, and improved bridging of trunked and non-trunked radios.
Results of Operations
We have incurred losses since our inception in 2002 and have relied on the sale of our equity securities and on loans from our officers and shareholders to fund our operations. However, we have begun filling purchase orders for our Radio Bridge product and we are now recording revenues.
There were no revenues for the three-month period ended April 30, 2006 compared to $52,447 in revenues in the comparable period in 2005.
Our general and administrative expenses other than for related parties for the three-month period ended April 30, 2006 were $760,958, as compared to $2,572,205 for the comparable period during the prior year. Our operating expenses have decreased as a result of reduction in equity-based compensation paid to employees, outside consultants, and business partners.
Our marketing activities have increased significantly, and we are incurring increased marketing costs, including costs associated with demonstrating our products to public safety agencies and government officials, major law enforcement officials, fire department officials, federal agencies, the United States Army, and working with our new distributor. We have also incurred increased costs associated with the design, preparation, and printing of marketing and product informational material, courier costs and mailing costs. Moreover, we continue to incur legal and accounting expenses and other expenses incidental to our reporting obligations as a public company and to the increase in our requirements for transactional legal and accounting services.
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Our loss before provision for income taxes was $(777,054) for the three-month period ended April 30, 2006, as compared to $(2,546,758) for the same period for the prior year. Our net loss for the three-month period ended April 30, 2006 after provision for income taxes was $(777,054), as compared to $(2,546,758) for the comparable period for the prior year. The decrease was the result primarily of a decrease in the equity-based compensation paid to employees, outside consultants, and business partners.
Liquidity and Capital Resources
At April 30, 2006, we had $128,278 in cash, as compared with $40,299 in cash during the equivalent period ended April 30, 2005. The increase is due primarily to proceeds from the convertible debentures sold during the quarter in private placement transactions.
At April 30, 2006 we had accrued payroll liability of $115,916, as compared with $159,832 at April 30, 2005. Accounts payable and deferred revenue totaled $583,362 at April 30, 2006, as compared to $451,926 at April 30, 2005. Notes payable totaled $270,308 at April 30, 2006, . There were no notes payable at April 30, 2005. These increases were due to increased costs of operations. At April 30, 2006 we had other accrued liabilities of $9,644, as compared to none at April 30, 2005.
We held property and equipment at April 30, 2006, which was valued, net of depreciation of $149,599, at $205,385, as compared with property valued, net of depreciation of $70,774, at $221,906 at April 30, 2005. The decrease is attributed to periodic charges to depreciation expense. Our total assets at April 30, 2006 were $5,740,597, as compared with $5,730,578 at April 30, 2005.
We believe we have sufficient funds currently available to satisfy our cash requirements for the next 2 months. We also anticipate increased revenues from the sale of RadioBridges during the next 12 months, but it is difficult to project a sales timeline because we believe significant sales are dependent on public safety end-users acquisition practices and our establishment of a customer support infrastructure to support such sales. We believe our relationship with Quala-tel Enterprises will increase our sales volume and decrease these procurement time cycles.
Going Concern
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our general business strategy is unproven, and we have just begun to record revenues. To date, we have relied solely on loans from shareholders and officers and the sale of our equity securities to fund our operations. We have incurred losses since our inception and we continue to incur legal, accounting, and other business and administrative expenses. Our auditor has therefore recognized that there is substantial doubt about our ability to continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-QSB, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls also are designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures.
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The evaluation of our disclosure controls by our principal executive officer and principal financial officer included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our chief executive officer, president and chief financial officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on their review and evaluation as of the end of the period covered by this Form 10-QSB, and subject to the inherent limitations described above, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective as of the end of the period covered by this report. They are not aware of any significant changes in our disclosure controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. During the period covered by this Form 10-QSB, there have not been any changes in our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Items 3-5 are not applicable and have been omitted.
On June 7, 2006 trial in the matter entitled Aegis v. Peacock, and related cross-actions, began in Orange County Superior Court. The company intends to file a current report on Form 8-K regarding the judgment or disposition of that matter when a final decision is rendered.
Other than as described above and in our previously filed Quarterly Reports and Annual Reports, we know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. Other than as described above and in our previously filed Annual Report, there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 2. CHANGES IN SECURITIES.
On February 22, 2006, the company filed a report that it had entered into a material definitiv e agreement for the private placement of certain promissory notes with accredited investors in the principal aggregate amount of $500,000. On March 16, 2006, we amended the original Subscription Agreement (and simultaneously completed the transaction contemplated thereby) to include an additional $300,000 principal amount of secured convertible notes and related securities. The company also reported the creation of a direct financial obligation and the unregistered sale of equity securities.
The three accredited investors participating in the offering were Harborview Master Fund LP, in the principal amount of $225,000; DKR Soundshore Oasis Holding Fund Ltd., in the principal amount of $225,000; and Alpha Capital Aktiengesellschaft, in the principal amount of $350,000. The Notes each
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have a one-year maturity date and provide for simple interest payable on each Note at the annual rate of 10%. The Subscribers have the right from and after the date of the issuance of the Notes until the Notes are fully paid, to convert any outstanding and unpaid principal portion of each Note, and accrued interest, at the election of such Subscriber into fully paid and nonassessable shares of the Company’s common stock at a conversion price per share of $0.15. The Company also agreed to issue and deliver certain warrants to the Subscribers in connection with the Agreement. Each Subscriber received one Class A Warrant and one Class B Warrant (together the “Warrants”) for the right to purchase the number of shares of common stock equal to the number of shares of common stock underlying each Note assuming conversion as of February 17, 2006. The Class A Warrant is immediately exercisable for an exercise price of $0.25 per share and expires on February 17, 2011. The Class B Warrant is immediately exercisable for an exercise price of $0.60 per share and expires on February 17, 2009. The Company filed a registration statement registering the shares underlying the Notes and the Warrants which became effective on or about March 13, 2006. The Company also entered into a security agreement to secure the Notes and pursuant to such security agreement the Subscribers have been granted a security interest in all the assets of the Company. The Subscribers appointed a collateral agent to represent them collectively in connection with such security agreement.
The common stock was offered and sold in a private placement, pursuant to the provisions of Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. The common stock was offered and sold to purchasers whom the company or its authorized agents believe are “accredited investors,” as that term is defined in Rule 501 of Regulation D in reliance upon an exemption from the registration requirements of the Securities Act in a transaction not involving any public offering. Each of the investors represented to Aegis that:
· such investor is an “accredited investor;”
· the shares of common stock were purchased by such investor for its own account, for investment and without any view to the distribution, assignment or resale to others other than pursuant to a registered offering;
· such investor understood that the shares of common stock issued to the investor have not been registered under the Securities Act of 1933 or any state securities laws; and
· such investor acknowledged that it may not transfer the shares unless the shares are registered under federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to Aegis, an exemption from such laws is available.
The certificates representing such securities have been legended and are subject to stop transfer restrictions. We did not engage in any form of general solicitation or general advertising in connection with these issuances.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are attached to this Quarterly Report:
Exhibit |
| Description |
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31 |
| Certification pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(b) The company filed two Current Reports on Form 8-K during the period ended April 30, 2006.
On February 10, 2006, the company filed a report disclosing the resignation of director Joseph Grillo. On February 22, 2006, the company filed a report that it had entered into a material definitive agreement for the private placement of certain promissory notes with accredited investors in the principal aggregate amount of $500,000. The company also reported the creation of a direct financial obligation and the unregistered sale of equity securities.
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.
AEGIS ASSESSMENTS, INC. |
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Date: June 15, 2006 |
| /s/ David Smith |
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| Chief Financial Officer |
| |
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| (Principal Financial Officer and Authorized Officer) |
| |
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EXHIBIT INDEX
Exhibit |
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|
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|
|
31 |
| Certification pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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