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 October 31, 2003
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[ ] 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)
4100 Newport Place, Suite 660, Newport Beach, CA 92660
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(Address of principal executive offices)
877.718.7599
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(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of October 31, 2003, approximately
12,748,271 shares of our common stock were issued and outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Balance Sheet as of Ended October 31, 2003
(Unaudited)
Assets
Current Assets
Cash $ 194,107
Total Current Assets 194,107
------------------
Property and equipment, net of accumulated
depreciation of $3,690 41,437
Other Assets 9,250
-----------------
Total Assets $ 244,794
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Liabilities and Shareholders' Deficit
Current Liabilities
Accounts Payable $ 63,218
Accrued Payroll 242,533
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Total Current Liabilities 305,751
-------------------
Series A 8% convertible preferred stock $.001 par value; 200,000 shares
authorized, none outstanding.
Shareholders' deficit:
Preferred stock, $.001 par value, 10,000,000 shares authorized for issuance
in one or more series. Common stock, $.001 par value; 100,000,000 shares
authorized; 12,748,271 shares issued and outstanding
12,749
Additional paid-in capital 2,820,477
Stock and options issued for future services (822,389)
Stock subscription receivable - related party (67,500)
Deficit accumulated during the development stage (2,004,294)
-------------------
Total shareholders' deficit (60,957)
Total liabilities and shareholders' deficit $ 244,794
-------------------
The accompanying notes are an integral part of the financial statements
2
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements Of Operations
(Unaudited)
For the period from
For the three For the three January 16,2002
months ended months ended (inception) to
October 31,2003 October 31,2002 October 31,2003
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------
Net revenue -- -- --
General and administrative expenses - other $ 394,740 $ 198,378 $ 1,716,429
Consulting fees - related party 53,588 287,065
----------------------------------------------------------
Loss before provision for income taxes (448,328) (198,378) (2,003,494)
Provision for income taxes 800
----------------------------------------------------------
Net loss $ (448,328) $ (198,378) $ (2,004,294)
==========================================================
Net loss
per common share - basic and diluted $ (0.04) $ (0.02)
Weighted average common shares - basic
----------------------------------------------------------
and diluted 12,071,658 10,306,000
==========================================================
The accompanying notes are an integral part of the financial statements
3
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements Of Cash Flows
(Unaudited)
For the period from
For the three For the three January 16,2002
months ended months ended (inception) to
October 31,2003 October 31,2002 October 31,2003
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------
Cash flows used in operating activities:
Net loss $ (448,328) $ (198,378) $ (2,004,294)
Adjustments to reconcile net loss to net cash used in operating
activities:
Non-cash items included in the net loss:
Depreciation 1,342 3,691
Amortization of the prepayment of
future services from the issuance of
stock and options 212,330 1,014,042
Issuance of employee stock options 7,000
Issuance of common stock to
consultants for services 50,000 22,354
Issuance of common stock to officers
as compensation 104,000
The intrinsic value of non-detachable
conversion rights of the Series A 8%
Preferred stock 9,800
Issuance of stock for payment of interest 1,184 3,266
Increase in Other Assets (9,250) (9,250)
Increase in Liabilities:
Accrued payroll (11,238) 242,533
Accounts payable 14,244 3,760 75,243
Accrued interest officers (1,906) 2,500
----------------------------------------------------------
Net cash used in operating activities (241,622) (142,118) (531,615)
The accompanying notes are an integral part of the financial statements
4
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements Of Cash Flows
(Unaudited)
For the period from
For the three For the three January 16,2002
months ended months ended (inception) to
October 31,2003 October 31,2002 October 31,2003
(Unaudited) (Unaudited) (Unaudited)
------------------------------------------------------------
Cash flows used in investing activities
Payments to acquire property $ (18,536) $ (1,293) $ (45,128)
and equipment
Net cash flows used in investing activities (18,536) (1,293) (45,128)
Cash flows provided by financing activities
Proceeds from issuance of preferred stock 90,100
Proceeds from issuance of common
stock - related party 22,500
Proceeds from issuance of common stock 374,500 76,000 578,000
Proceeds from exercise of warrants 46,250 46,250
Proceeds from issuance of debenture 17,000
Proceeds from issuance of note payable - related party 38,000
Advances from officers 583 17,000
Stock subscription receivable 30,000
Net cash provided by financing activities 421,333 144,000 770,850
Net increase in cash and cash equivalents 161,175 589 194,107
Cash and cash equivalents, beginning of 32,932 9481 0
period
------------------------------------------------------------
Cash and cash equivalents, end of period $ 194,107 $ 10,070 $ 194,107
============================================================
Supplemental Disclosure Of Non-cash
Investing and Financing Activities:
Exercise of options applied against notes $ 17,000
====================
Payment of accounts payable with stock $ 12,025
====================
Conversion of preferred stock to common stock $ 27,500
====================
The accompanying notes are an integral part of the financial statements
5
Aegis Assessments, Inc.
(A Development Stage Company)
Notes To Financial Statements
For The Three Months Ended October 31, 2003 (Unaudited) and October 31, 2002
(Unaudited), For The Period January 16, 2002 (inception) Through October 31,
2003
Forward-Looking Statements
This Quarterly Report on Form 10-QSB, including the Notes to the Condensed
Financial Statements and this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements. The
words "believe," "expect," "anticipate," "intends," "projects," and similar
expressions identify forward-looking statements. Such statements may include,
but are not limited to, projections regarding demand for the Company's products,
the impact of the Company's development and manufacturing process on its
research and development costs, future research and development expenditures,
and the Company's ability to obtain new financing as well as assumptions related
to the foregoing. Such forward-looking statements are within the meaning of that
term in Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
1. Basis of Presentation
- ------------------------
The accompanying unaudited condensed financial statements include all
adjustments which management believes are necessary for a fair presentation of
the Company's financial position at October 31, 2003 and results of operations
for the periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
Results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year. The accompanying condensed
financial statements should be read in conjunction with our audited financial
statements and footnotes as of and for the year ended July 31, 2003, included in
our Annual Report on Form 10-KSB.
2. Summary of Significant Accounting Policies
- ---------------------------------------------
New Accounting Pronouncements
On May 31, 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
150"). SFAS 150
6
establishes standards for how an issuer classifies and measures
in its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS 150 is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not have any financial
instruments that fall under the guidance of SFAS 150 and, therefore, the
adoption did not have any effect on its financial position or results of
operations.
Basic and Diluted Loss Per Share
In accordance with the Financial Accounting Standards Board's ("FASB") Statement
of Financial Accounting Standards (" SFAS") No. 128, Earnings Per Share, the
basic loss per common share is computed by dividing the net loss available to
common shareholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed in the same way as basic loss per
common share except that the denominator is increased to include the number of
additional common shares that would be outstanding if all potential common
shares had been issued and if the additional common shares were dilutive. As of
October 31, 2003, the Company had 3,900,000 outstanding stock options, and
warrants that can be converted into 203,834 shares of common stock. The options,
preferred stock, and warrants would have an anti-dilutive effect and, therefore,
are not included in diluted loss per share.
Stock-Based Compensation
In accordance with Statement No. 123, "Accounting for Stock-Based Compensation"
("FAS 123"), the Company accounts for its two stock option plans and other
stock-based employee compensation using the intrinsic value method prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations, as described more fully in the
Company's annual report on Form 10KSB for the year ended July 31, 2003.
Accordingly, compensation expense is recorded on the date of grant only to the
extent the current market price of the underlying stock exceeds the option
exercise price. The Company did not record any stock-based compensation expense
in the three months ended October 31, 2003 and 2002.
Had compensation expense been determined based on the fair values at dates of
grant for its stock options under FAS 123, as amended by FAS 148, net loss and
net loss per share would have been reported as indicated in the pro forma
results below (in thousands, except per share amounts):
7
For the For the
Three Months Three Months
Endeds Ended
October 31, 2003 October 31, 2002
----------------- ----------------
Net loss, as reported $ (448,328) $(198,378)
Add: Stock-based compensation expense
included in reporting net loss - -
Deduct: Stock based employee compensation
expense determined under fair value based method (19,024) (4,566)
-------------------- --------------
Pro forma net loss $(467,352) (202,944)
Net loss per share, as reported (0.04) (0.02)
Net loss per share, pro forma (0.04) (0.02)
The fair value under FAS 123 for options granted were estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
2003 2002
---------------------------------
Expected life (years) 2.5 3
Interest rate 1.40% 5.50%
Volatility 75% 0.10%
Dividend yield 0 0
3. Related Party Transactions
- --------------------------------
In October 2003 two officers and major shareholders exercised their options to
acquire 170,000 shares for $.10 per share.
On July 31, 2003 the Company owed two officers and major shareholders a total of
$18,323 for funds advanced the Company and for accrued interest. During the
quarter ended October 31, 2003 these amounts were repaid.
During October 2002, the Company issued 50,000 shares of its common stock to a
related party (the brother of an officer and major shareholder), in exchange for
future consulting services valued at $1.00 per share, the fair value per share
of the Company's common stock at the date of issuance. The value of the services
has been amortized over the term of the agreement, including the final $10,417
in the quarter ended October 31, 2003.
During December 2002, the Company issued 50,000 shares of its common stock to a
8
related party (the brother of an officer and major shareholder) in exchange for
future consulting services valued at $1.00 per share, the fair value per share
of the Company's common stock at the date of issuance. The value of the services
has been amortized over the term of the agreement, including the final $7,197 in
the quarter ended October 31, 2003.
During October 2002, the Company issued options to purchase 225,000 shares of
the Company's common stock to a related party (the brother of an officer and
major shareholder) in exchange for future consulting services. The fair value of
the common stock on the date of issuance was $.25 per share. The fair value of
these options amounted to $187,065, which has been amortized over the service
period, including the final $35,974 in the quarter ended October 31, 2003.
4. Stock Transactions
- ---------------------
Common Stock
In July 2003, through a private placement the Company authorized 300,000 equity
units, each of which consisted of one share of the Company's common stock, one
warrant to acquire one share of the Company's common stock at $.50 per share,
with an exercise period that expires six months after the purchase, and one
warrant to acquire one share of the Company's common stock at $1.50 per share,
with an exercise period that expires 18 months after purchase. A total of
249,667 equity units were sold at $1.50 per unit (the "units") and 92,500 of the
warrants were exercised during the quarter ended October 31, 2003.
In August 2003, preferred shareholders converted the remaining 5,500 shares of
the preferred stock along with related accrued interest into 28,684 shares of
common stock.
In September 2003, 912,500 shares of the Company's common shares were issued to
four consultants in exchange for future services totaling $ 900,475 based on
$1.00 per share, which was the fair value of the Company's common stock on the
date of issuance. In addition, the Company was relieved of debt owed one of the
consultants in the amount of $12,025. In the quarter ended October 31, 2003 the
Company amortized a total of $212,330 in the value of services received for
stock, including $112,560 related to shares issued during the quarter.
5. Lease Agreement
- ------------------
In October 2003, the Company entered into a lease agreement for an industrial
building. The lease has an initial term of eighteen months with an option to
extend the lease for an additional six-month term thereafter. The monthly
payment under the lease is $2,250. Upon execution of the lease the Company paid
the first and last months lease payment and a security deposit of $7,000.
9
6. Commitments and Contingencies
- ---------------------------------
Financial Results, Liquidity and Management's Plan (Unaudited)
The Company has incurred net losses since its inception in January 2002 and has
no established sources of revenue. Despite its negative cash flows from
operations 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 MCP 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 October 31, 2003, the Company financed its operations
through private equity funding. 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 MCP 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.
Preferred Stock
From November 2002 through January 2003, the Company sold 18,020 shares of its
Series A Preferred Stock (the "preferred stock"). A question arose as to the
propriety of the Company's reliance upon a section of the Securities Act of 1933
that the preferred stock was exempt from registration. The potential consequence
of the shares not being subject to the exemption created a right of rescission
for each investor amounting to the total of their investment. This right of
rescission of the preferred stock caused the shares to assume characteristics of
debt and, as such, were presented between liabilities and shareholders' deficit
on the balance sheet. As of October 31, 2003 all the preferred shareholders had
exercised their right to convert their preferred shares into common shares. It
is possible that their right of rescission may survive the conversion. However,
no provision for this contingency has been made in the accompanying financial
statements.
Litigation
In September 2003, the Company filed a complaint in California Superior Court
against two former officers of the Company and a related company (the
"defendants"), alleging fraud, deceit, conspiracy, breach of contract and
seeking rescission of agreements made in April and August 2002 and the return of
the cancelled stock certificates representing 1,000,000 cancelled shares of the
Company's common stock. In a preliminary ruling, the court ordered that the
disputed stock certificates be held at two brokerage firms until the
10
matter is resolved. The parties are working on a stipulation to deposit the
disputed share certificates with the court pending the final resolution of the
matter. If the Company prevails in this action, the stock will be considered
cancelled. Until the court resolves this matter, the shares are included in
common shares outstanding although the Company's position is that the stock has
been validly cancelled. The Company believed that if they brought suit against
the defendants, a cross-complaint would be filed in retaliation. In October
2003, a cross complaint was filed alleging conversion, breach of duty to
transfer securities, breach of contract, a derivative shareholder action for
breach of directors and officers fiduciary duty, defamation, and unfair business
practices.
The Company intends to vigorously prosecute its complaint and defend the
cross-complaint. In the event of an unfavorable outcome of the defense against
the cross-complaint, the award of damages to defendants could be material. The
Company does not have director and officer insurance or some other form of
insurance covering the period that gave rise to these events. The Company
believes that the merits of its case are substantial and that the Company will
prevail in the matter. If the Company prevails in the pending litigation, there
is the potential of a contingent gain of an amount not to exceed $10,000
7. Subsequent Events
- --------------------
In October 2003, through a private placement the Company authorized the sale of
2,000,000 equity units for $1.50 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. No units
were sold prior to October 31, 2003. As of December 16, 2003 the Company has
sold 66,584 units of the October 2003 offering for a total of $99,875. In
addition, shareholders exercised 33,250 warrants for a total of $16,625.
ITEM 2. PLAN OF OPERATION.
Development of the Company
Company Background
We were founded in January 2001 to provide vulnerability assessments and
emergency communications systems to schools and government facilities. Our goal
was to improve public safety emergency communications and allow seamless
communication between police, fire and emergency medical personnel responding to
an emergency at a school or other government facility. Unfortunately, prior to
the events of the last two years, there were limited funds available in school
budgets for emergency communications systems.
Most major public safety incidents, whether arising from terrorism or more
common threats such as fires, take place at large buildings. Preparing for those
threats is as much a part of homeland security as preparing to respond to
terrorism. Public safety officials and facilities managers have now recognized
that the ability of first responders to access information and communicate as
soon as they arrive at an emergency site is vital. Fires,
11
earthquakes, major electrical power interruptions, floods, blizzards, tornados,
and other natural disasters can disrupt emergency life safety and communications
systems and interfere with the ability of first responders to protect lives and
property. Our SafetyNet(TM) products and technologies can be used to provide
first responders with immediate on-site access to information. In addition to
working with public safety agencies and the military, we are actively pursuing
the emerging market for wireless commercial life safety communications systems.
Our business. We develop leading edge wireless and security technologies for the
U.S. Government, public safety agencies, and private corporations for Homeland
Security applications, including life safety applications for commercial
facilities. Having worked with public safety agencies to develop our wireless
communication products, we are now actively marketing our products and
technologies to exploit the emerging commercial life safety markets, while
continuing marketing to public safety agencies. Integrating the public and
private emergency communications systems available to first responders and
commercial facilities personnel (including management and security personnel) is
the new challenge in homeland security that our products and technology address.
Our goal is to be the standard in secure interoperable communication systems
that improve emergency response capabilities for both the public and private
sector. The development of new technologies has enabled companies to link life
safety devices to security systems. Integrating these systems will improve the
ability of first responders at skyscrapers, airports, hospitals, schools, power
plants, and government facilities.
The effectiveness of first responders to an emergency at a high-rise building or
other commercial facility is highly dependent upon the integration of the life
safety communications systems at the facility and the type and quality of the
information immediately available at the scene. Using SafetyNet(TM) products and
technologies, commercial facilities can provide first responders with
communications interoperability and enhanced emergency response capabilities.
The Market. According to the Homeland Security Research Corp., an industry
research group, the homeland security industry is projected to grow to more than
$170 billion in 2006, from an expected $100 billion in 2003. According to Peter
Michel, chair of the Security Industry Association's Homeland Security Advisory
Council, there are four distinct markets in the homeland security industry: the
federal government, state and local governments, infrastructure companies and
private companies. These are emerging markets for new technology, equipment
upgrades and increased systems integration. We are marketing our products to all
of these emerging markets.
In the December 2003 online issue of Security Distributing and Marketing
magazine, Mr. Michel was quoted as saying that the best way to sell into these
markets "...is not to say we are the homeland security guys or the
anti-terrorism guys, but we are the security and life safety industry and we
have procedures, systems, products and services that can substantially reduce
the likelihood of an event. There is a lot that we can do as an industry to be
helpful here." Mr. Michel also said that one of the greatest expectations in
12
the state and local market is related to communication and software-oriented
activities. Of particular need are technologies that link these agencies with
each other so that they have communications interoperability and database
access, which would allow them to do their work more efficiently. Because of our
work developing our products and technologies with both the public and private
sector, we are directing our marketing efforts to commercial end-users, with
particular emphasis on facilities managers and life safety purchasers, as well
as continuing our marketing efforts to public safety agencies.
Our products. We have developed two patent-pending products for emergency
responders and commercial security and life safety applications: the
SafetyNet(TM) Mobile Command Post and the EKHO(TM) Radio Bridge. We have also
developed a military application, the Caleb(TM) Remote Reconnaissance System.
The SafetyNet(TM) Mobile Command Post (MCP)
SafetyNet(TM) is a wireless broadband communication system for emergency
response. Because of the mobile nature of their assignments, police,
firefighters and other first responders have been unable to quickly access
wireless, high-speed data communications networks. SafetyNet(TM) provides the
solution and allows communication between agencies and departments that, until
now, have not been able to communicate effectively with each other.
The SafetyNet(TM) MCP provides real-time streaming video, audio, secure
messaging, and other data from the emergency scene so commanders or outside
subject matter experts can see exactly what is happening, eliminating the need
to relay large amounts of verbal information. This information sharing allows
decision-makers to access the most up-to-the-second information available from
the crisis site itself and also promotes coordination between police,
firefighters and emergency medical personnel. The MCP has built-in sensors that
allow first responders to monitor and analyze NBC (Nuclear, Biological and
Chemical) events.
How SafetyNet(TM) operates
First responders to an emergency deploy the SafetyNet? MCP, creating an
independent wireless wide area network (WAN). Video, audio, and other data from
the emergency scene are transmitted directly through the SafetyNet? MCP. The MCP
can record over 500 hours of video and provide time and location information
through an on-board Global Positioning System (GPS). Real time data can be
accessed remotely so event commanders or outside subject matter experts miles
from the emergency scene can effectively direct incident management protocols.
This information sharing allows decision-makers to access the most
up-to-the-second information available from the crisis site itself and also
promotes coordination between police, firefighters, emergency medical personnel,
and private security and commercial facilities management personnel.
In October 2003 we opened a production and development facility in Van Nuys,
California. We have purchased most of the significant equipment that we will
need to produce our first products and we do not expect to purchase any
significant equipment in
13
the next twelve months, although we anticipate we may have to obtain additional
production capability, either through leasing additional production space or
through contracting for manufacture of our products with third parties. We
anticipate hiring additional employees over the next twelve months to augment
our administrative infrastructure. We also intend to establish a National Sales
Office, enter into agreements for an independent executive sales director, and
recruit a national, commission-based sales force. At present, we anticipate the
sales force will be independent contractors.
Our production facility is located in a State of California enterprise zone.
Businesses operating in this enterprise zone can reduce their state tax burden
significantly through a variety of tax credits and related incentives. We will
also receive preference points on state contracts, an important advantage to us
in bidding on state-funded homeland security contracts. In October 2003, we
entered into a lease agreement for the industrial building housing this
facility. The lease has an initial term of eighteen months with an option to
extend the lease for an additional six-month term thereafter. The base rental
monthly payment under the lease is $2,250.
Since completion of our pre-production model of the MCP in September 2003 we
have been actively pursuing product sales to government agencies that need
mobile wireless technology. Major public safety agencies in Southern California
are finally receiving homeland security funds and we have been working with them
to promote the use of our products. These agencies include the Los Angeles
County Sheriff's Department, the Los Angeles Police Department, Anaheim Police
Department and Anaheim Fire Department. We are committed to capturing essential
early market share in the emerging public safety wireless communications market
and we will continue to work with major public safety agencies across the
country to demonstrate and promote the Aegis SafetyNet(TM) MCP. We are also
continuing our initiative with the Department of Homeland Security to implement
the SafetyNet(TM) system in California.
The Aegis SafetyNet(TM) MCP has been nominated as a new law enforcement product
to participate in the Office of Law Enforcement Technology Commercialization
(OLETC) program, which is sponsored by the National Institute of Justice's
Office of Science and Technology. The program is designed to assist in the
commercialization of innovative technology for use by the law enforcement
community. The program provides support through every stage of technology
transfer and commercialization, and includes providing assistance in marketing
assessments, product development, testing and evaluation, and financial
assistance.
We are presently working with the United States Army Research, Development and
Engineering Command on specifications and a delivery schedule for our first
Caleb(TM) Remote Reconnaissance System (RRS). We anticipate continuing our
development of wireless communications products for the U.S. Army over the next
12 months.
We are also continuing to improve our technology by collaborating with technical
and engineering experts to refine our products and reduce our production costs.
We have engaged the Redmond, Washington based 3Netics Corporation to engineer
certain
14
embedded components for our products. As we ramp up production, collaboration
with firms like 3Netics will be critical in reducing costs while maintaining our
state-of-the-art technologies.
Results of Operations. We have no revenues and minimal assets and we have
incurred losses since our inception. To date we have relied on the sale of our
equity securities and on loans from our officers to fund our operations.
Liquidity and capital resources. We were incorporated on January 16, 2002. Since
our inception, two of our officers and directors, Eric Johnson and Richard
Reincke, have paid many of the expenses incurred by the company and have also
partially deferred their salaries. However, we have not received any commitments
or guarantees from Mr. Johnson, Mr. Reincke or any of our other officers or
directors to fund any additional capital needs we may have in the future. Our
other material cash expenditures have been general and administrative expenses,
legal and accounting expenses, equipment purchases, employee expenses and office
lease expenses.
From inception (January 16, 2002) to October 31, 2003 we accumulated a total net
loss of $2,004,294. We expect that deficit to continue to increase during the
next quarter as we fund our continuing operations and incur legal and accounting
expenses incidental to our reporting obligations as a public company. Moreover,
our accountants have expressed concern that we will not be able to continue as a
going concern because we have not yet established a source of revenues. Now that
we have commercially viable products and technology, we intend to focus on
generating revenues by marketing our products and technology to both the public
and private sectors.
Our current assets at October 31, 2003 included $194,107 in cash as well as
$41,437 in property and equipment (net of accumulated depreciation), and $9,250
in other miscellaneous assets, for total assets at the end of the period of
$244,794. Our liabilities at the end of the three month period ended October 31,
2003 were $63,218 in accounts payable and $242,533 in accrued payroll, for total
current liabilities at the end of the period of $305,751. The increase in
liabilities resulted from the increased costs of our operations.
At the end of the three-month period ended October 31, 2003, we had $194,107 in
cash and cash equivalents, as compared with $10,070 in cash and cash equivalents
at the end of the equivalent period ended October 31, 2002. The increase was due
to sale of our equity during the period. We are currently raising funds through
a private placement of equity interest in the company to raise capital to
continue to fund our operations. Proceeds from the issuance of common stock
during the three month period ended October 31, 2003 totaled $374,500, with an
additional $46,250 in proceeds raised from the exercise of warrants.
Our general and administrative expenses for the three-month period ended October
31, 2003 increased to $394,740, as compared to $198,378 for the three-month
period ended October 31, 2002. Consulting fees for the three month period ended
October 31, 2003
15
were $53,588; there were no consulting fees incurred during the corresponding
period ended October 31, 2002. We incurred payments to acquire property and
equipment of $18,536 during the three months ended October 31, 2003, as compared
to $1,293 during the corresponding period ended October 31, 2002, the increase
again attributable to the increase in our product development activities.
Our net loss from operating activities for the three month period ended October
31, 2003 was $448,328, an increase from the $160,878 from operating activities
during the corresponding period ended October 31, 2002. This increase was a
result of our increased activities developing our products and technology.
We believe that we need to raise approximately $2.8 million over the next twelve
months to fully fund our business plan. We presently have cash and cash
equivalents sufficient to satisfy our cash requirements for approximately the
next 3 to 4 months. We are attempting to raise such funds through a private
equity offering. We may also attempt to raise the necessary funds through
entering into strategic business relationships or from venture capital
resources.
Substantial Doubt About Our Viability as a Going Concern. Our financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a going concern that contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business. We have no revenues and minimal assets and we have incurred losses
since our inception. To date we have relied solely on loans from shareholders
and officers and the sale of our equity securities to fund our operations. Our
general business strategy is unproven, and we are not generating revenues;
however, 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.
Employees. We currently have 5 full-time employees. In addition to our full-time
employees, we have consultants who currently provide administrative and advisory
services similar to those that would be provided by full and part-time
employees. We have also entered into consulting agreements to obtain counsel and
services relating to marketing, product development, financial matters, media
relations and business development. Copies of consulting agreements and
employment agreements have been filed as exhibits to our registration statement
on Form SB-2 filed with the Securities and Exchange Commission on October 9,
2002 and subsequent amendments thereto; as exhibits to our previous quarterly
reports on Form 10-QSB; and as exhibits to registration statements on Form S-8
filed with the Securities and Exchange Commission on April 22, 2003 and
September 4, 2003.
ITEM 3. CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive officer
evaluated the Company's disclosure controls and procedures on December 11, 2003.
Based on this evaluation, the chief executive officer concluded that the
disclosure controls and
16
procedures are effective in connection with Company's filing of its quarterly
report on Form 10-QSB for the quarter ended October 31, 2003. Subsequent to
December 11, 2003 through the date of this filing of Form 10-QSB for the quarter
ended October 31, 2003, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls, including any significant deficiencies or material weaknesses of
internal controls that would require corrective action.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than as specified in this section, 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 disclosed below, 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.
On September 18, 2003, we filed a complaint in the Superior Court of the State
of California, Orange County, Case No. 03CC11547, against Eric Peacock
("Peacock"), Vernon M. Briggs III ("Briggs") and Iocene Technology Corporation,
a Nevada corporation ("Iocene), for, among other things, fraud, deceit,
conspiracy, breach of contract and conversion. As disclosed in previous filings,
we believed that if we brought suit against Briggs and Peacock ("Defendants"),
they would file a cross-complaint in retaliation. On October 1, 2003, they filed
a cross complaint alleging several causes of action. Eric Johnson, our president
and CEO, was also named personally in some of those causes of action. Also on
October 1, 2003, Defendants filed a motion for a temporary restraining order and
order to show cause re: preliminary injunction. We opposed that motion. The
Honorable Steven Perk of the Superior Court agreed with us and denied
Defendants' motion, in total.
Both the company and Mr. Johnson believe the cross-complaint is entirely without
merit and was filed in bad faith, and that naming Mr. Johnson personally was
improper and a bad-faith pressure-tactic by Defendants. Mr. Johnson retained his
own attorneys and filed a motion seeking that the Court order Defendants to post
a bond so that, if Defendants lost the shareholder derivative action, he could
recover the costs of defending against it. We joined in that motion. Before the
motion could be heard, the Defendants dropped the derivative shareholder action
by amending the cross-complaint with that cause of action deleted. Mr. Johnson's
attorneys intend to vigorously challenge the remaining causes of action against
him and the company intends to vigorously prosecute the complaint against
Briggs, Peacock and Iocene and oppose the cross-complaint. We further believe
that we will prevail in this action.
The amended cross-complaint included Iocene as a cross-complainant. Current
public records evidence that Iocene has lost all corporate rights and powers in
the State of California for failure to meet statutory filing requirements in
either the Secretary of
17
State's office or the Franchise Tax Board. We believe that Iocene is a sham
corporation formed by Briggs and Peacock to shield themselves from personal
liability and perpetrate fraud. We are challenging Iocene's right to appear in
this action and we believe we will prevail on this issue as well.
ITEM 2. CHANGES IN SECURITIES.
On June 25, 2003 we entered into a second consulting agreement with David Smith,
to become effective August 1, 2003, for corporate bookkeeping, accounting, and
business development services. The agreement allowed us to issue Mr. Smith
400,000 shares of Aegis common stock in lieu of cash for his services, with up
to a maximum of 200,000 additional shares to be issued over the term of the
agreement, based on satisfactory performance of services thereunder. The shares
were granted in a transaction which we believe satisfied the requirements of the
exemption from the registration and prospectus delivery requirements of the
Securities Act of 1933 specified by the provisions of Section 4(2) because Mr.
Smith had a pre-existing relationship with management of the company, and
possessed the requisite business acumen and information which would permit the
issuance of the shares.
On August 1, 2003 we entered into a consulting agreement with Brian Quinn for
marketing our products and developing business with public safety agencies and
the private commercial security sector. The agreement allowed us to issue Mr.
Quinn 200,000 shares of Aegis common stock in lieu of cash for his services,
with up to a maximum of 500,000 additional shares to be issued over the term of
the agreement, based on satisfactory performance of services thereunder. The
shares were granted in a transaction which we believe satisfied the requirements
of the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933 specified by the provisions of Section 4(2) because
Mr. Quinn had a pre-existing relationship with management of the company, and
possessed the requisite business acumen and information which would permit the
issuance of the shares.
On August 12, 2003 we entered into a consulting agreement with Louis Alonzi for
the sale and marketing of our products in the State of Colorado, and thereafter
throughout the western United States. The agreement allowed us to issue Mr.
Alonzi 12,500 shares of Aegis common stock in lieu of cash for his services,
with up to an additional 137,500 shares to be issued under over the term of the
agreement, based on satisfactory performance of services thereunder. The shares
were granted in a transaction which we believe satisfied the requirements of the
exemption from the registration and prospectus delivery requirements of the
Securities Act of 1933 specified by the provisions of Section 4(2) because Mr.
Alonzi had a pre-existing relationship with management of the company and
possessed the requisite business acumen and information which would permit the
issuance of the shares.
In June 2003 the Company authorized a private placement of equity units, each of
which consisted of one share of the Company's common stock, one warrant to
acquire one share of the Company's common stock at $.50 per share, with an
exercise period that expires
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six months after the purchase, and one warrant to acquire one share of the
Company's common stock at $1.50 per share, with an exercise period that expires
18 months after purchase. During the period August 1, 2003 through October 31,
2003, a total of 249,667 equity units were sold at $1.50 per unit (the "units")
for total revenues to the company of $374,500. Additionally, during the same
period warrants for 92,500 shares were exercised at $.50 per share for total
revenues to the company of $46,250.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
The company anticipates holding its first annual meeting of shareholders early
in 2004, at which a new Board of Directors shall be elected. Until that meeting
is held, Joseph Grillo has agreed to continue serving as the company's outside
director; Eric Johnson has agreed to continue serving as Chairman; and Richard
Reincke has agreed to continue serving as a director. Joseph King intended to
retire from the military after serving over twenty years of active duty.
However, due to Operation Enduring Freedom and Operation Iraqi Freedom, the
Department of the Army has implemented Stop-Loss action for all Army Special
Operators, which includes Mr. King. As a result, Mr. King is unable to retire
from the Army until Stop-Loss is repealed and has therefore resigned as a
director effective November 24, 2003. He intends to seek renomination to the
Board of Directors at such time as the Department of the Army repeals Stop-Loss
and permits his retirement from active service. Messrs. Grillo, Johnson and
Reincke are nominees for the 2004 Board of Directors. The company also intends
to solicit nominations for directorships from its shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
We filed a report on Form 8-K on September 8, 2003, referencing our press
release dated September 5, 2003, which reported that we had announced that our
common stock was approved by the NASD for quotation on the OTC Bulletin Board
electronic quotation system under the trading symbol "AGSI".
We filed a report on October 8, 2003 referencing our press release dated October
8, 2003 which reported that we were pursuing an initiative with the Department
of Homeland Security; our press release dated October 6, 2003 which reported
that our director, Joseph Grillo, had become president of the Security Industry
Association at the National Summit on Security in Washington, D.C; our press
release dated September 29, 2003 which
19
reported that we had presented our wireless communication technologies at the
International Conference on Advanced Technologies for Homeland Security; and our
press release dated September 15, 2003 which reported that we had completed
development of our SafetyNet(TM) Mobile Command Post. The report also included a
disclosure regarding our filing of a complaint on September 18, 2003, in the
Superior Court of the State of California, Orange County, Case No. 03CC11547,
against former officers of the company and a Nevada corporation they controlled,
for, among other things, fraud, deceit, conspiracy, breach of contract and
conversion; the subsequent filing of a cross-complaint; and our having prevailed
in a motion filed by those defendants/cross-complainants.
We filed a report on October 30, 2003, which referenced our press release dated
October 13, 2003, which reported the opening of our new production facility and
our collaboration with 3Netics Corporation of Redmond, Washington to further
develop our EKHO(TM) Radio Bridge technology; and our press release dated
October 21, 2003, which reported that, as part of our ongoing initiative to
deploy the Aegis SafetyNet(TM) Mobile Command Post (MCP) and EKHO(TM) Radio
Bridge technologies in California, we conducted a demonstration for the Los
Angeles Police Department's Emergency Operations Section in the LAPD's technical
center in Los Angeles, and agreed to participate in a larger LAPD training
exercise which will simulate an actual emergency situation in order to field
test the SafetyNet(TM)'s ability to provide real-time streaming video, audio,
secure messaging, and NBC (Nuclear, Biological and Chemical) detection data from
an emergency site.
We filed a report on December 15, 2003, which specified that, effective December
8, 2003, the company decided to replace Kelly & Company, which audited the
Company's financial statements for the fiscal year ended July 31, 2003, with
Hein & Associates, LLP to act as the Company's independent auditors.
Exhibits Required by Item 601 of Regulation S-B
Exhibit No.
- ----------
3.1 Amended and Restated Certificate of Incorporation*
3.2 Bylaws*
5. Opinion Re: legality*
10.1 Stock option plan*
10.2 Consulting Agreement with Louis Alonzi**
10.3 Consulting Agreement with Brian Quinn**
10.4 Consulting Agreement with David Smith (2nd) **
11. Statement Re: computation of per share earnings (loss)***
31.1 Rule 13a-14(a)/15d-14(a) Certification of Eric Johnson
31.2 Rule 13a-14(a)/15d-14(a) Certification of Richard Reincke
32.1 Section 1350 Certification of Eric Johnson
32.2 Section 1350 Certification of Richard Reincke
20
*Previously filed as exhibits to our Registration Statement on Form SB-2 filed
October 9, 2002.
**Filed as an exhibit to a Registration Statement on Form S-8 on September 4,
2003 and incorporated herein by this reference.
***Included in financial statements
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.
AEGIS ASSESSMENTS, INC.
By: /s/ Richard Reincke
--------------------
Secretary and Chief Operating Officer
Date: December 18, 2003
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