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 January 31, 2004 -------------
[ ] 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 [ ]
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 January 31, 2004, 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
January 31, 2004
(Unaudited)
Current Assets
Cash $72,042
-------------------------
Total Current Assets 72,042
Property and equipment, net of accumulated
depreciation of $6,087 66,978
Other Assets 9,250
-------------------------
Total Assets $148,270
=========================
Liabilities and Shareholders' Deficit
Current Liabilities
Accounts Payable $41,731
Accrued Payroll 210,608
-------------------------
Total Current Liabilities 252,339
Series A 8% convertible preferred stock $.001 par
value; 200,000 shares authorized. -
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; 13,443,238 shares issued and outstanding
at January 31, 2004 13,444
Additional paid-in capital 4,109,416
Stock and options issued for future services (1,720,292)
Stock subscription receivable - related party (67,500)
Deficit accumulated during the development stage (2,439,137)
-------------
Total shareholders' deficit (104,069)
-------------------------
Total liabilities and shareholders' deficit 148,270
=============
The accompanying notes are an integral part of the condensed
financial statements
2
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the period
For the from
For the three three For the six For the six January 16,2002
months ended months ended months ended months ended (inception) to
January January January January
31,2004 31,2003 31,2004 31,2003 January 31,2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------------
Net revenue -- -- -- -- --
General and administrative
expenses - other $434,843 $695,175 $829,583 $893,553 $2,151,272
Consulting fees - related
party 53,588 287,065
--------------------------------------------------------------------
Loss before provision for
income taxes (434,843) (695,175) (883,171) (893,553) (2,438,337)
Provision for income
taxes -- -- -- -- 800
--------------------------------------------------------------------
Net loss $(434,843) $(695,175) $(883,171) $(893,553) $(2,439,137)
====================================================================
Net loss available to common
shareholders
per common share - basic and
diluted $(0.03) $(0.06) $(0.07) $(0.09) $(0.23)
Weighted average common shares -
basic
--------------------------------------------------------------------
and diluted 13,035,883 10,726,000 12,553,770 10,505,000 10,794,510
====================================================================
The accompanying notes are an integral part of the condensed
financial statements
3
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statement of Cash Flows
(Unaudited)
For the period
from
For the six For the six January 16,2002
months ended months ended (inception) to
January 31,2004 January 31,2003 January 31,2004
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------
Net loss $(883,171) $(893,553) $(2,439,137)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Non-cash items included in the net
loss:
Depreciation 3,739 -- 6,088
Amortization and expenses related to
stock and stock options 364,927 580,758 1,299,993
The intrinsic value of non-detachable
conversion rights of the Series A 8%
preferred stock -- 9,800 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 (43,163) -- 210,608
Accounts payable (7,243) 11,173 53,756
Accrued interest officers (1,906)
Advances form officers 95,641
----------------------------------------------------
(574,883) (196,181) (864,876)
The accompanying notes are an integral part of the condensed
financial statements
4
Aegis Assessments, Inc.
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
For the period
from
For the six For the six January 16,2002
months ended months ended (inception) to
January
January 31,2004 31,2003 January 31,2004
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------
Cash flows used in investing activities
Payments to acquire property $(46,473) $(30,349) $(73,065)
----------------------------------------------
and equipment
Net cash flows used in investing activities (46,473) (30,349) (73,065)
Cash flows provided by financing activities
Proceeds from issuance of preferred stock 78,000 90,100
Proceeds from issuance of common
stock - related party 22,500
Proceeds from issuance of common stock 556,175 106,000 759,675
Proceeds from exercise of warrants 103,708 103,708
Proceeds from issuance of debenture 17,000
Proceeds from notes payable and
advances - related parties 583 37,500 17,000
----------------------------------------------
Net cash provided by financing activities 660,466 221,500 1,009,983
----------------------------------------------
Net increase in cash and cash equivalents 39,110 (5,030) 72,042
Cash and cash equivalents, beginning of 32,932 9,481 -
period
----------------------------------------------
Cash and cash equivalents, end of period $72,042 $4,451 $72,042
==============================================
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
================
Issuance of 104,000 shares of common stock
for 104,000
==============
5
conversion of accrued officer compensation
Issuance of common stock for services 849,915
==============
Beneficial conversion feature on preferred
stock 9,800
==============
The accompanying notes are an integral part of the condensed
financial statements
Aegis Assessments, Inc.
(A Development Stage Company)
Notes To Financial Statements
For The Six And Three Months Ended January 31, 2004 (Unaudited) and
January 31, 2003 (Unaudited), For The Period January 16, 2002 (inception)
Through January 31, 2004
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 January 31, 2004 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.
6
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 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.
Development Stage Operations
Aegis Assessments, Inc. (a Development Stage Company) (the "Company") is a
development stage company and has limited operating history with no revenues.
The Company was incorporated under the laws of the State of Delaware on January
16, 2002. The Company is engaged in the development of a specialized emergency
response and communication systems for law enforcement agencies at all levels,
the U.S. Department of Defense, and select commercial firms.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("US GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Management bases its estimates and assumptions on
historical experience and on various other assumptions that it believes are
reasonable under the circumstances. However, future events are subject to change
and the best estimates and assumptions routinely require adjustment. US GAAP
requires management to make estimates and judgments in several areas including
those related to the capitalization of development costs of the Company's
software, the valuation of the recoverability of those costs, and the fair value
of stock-based compensation. Actual results in these particular areas could
differ from those estimates.
Costs of Promotional Materials
The cost of promotional materials is expensed as incurred, and includes such
items as the cost to produce a corporate capabilities video. The Company
incurred promotional costs totaling $8,289 and $36,789 in the three and six
months ended January 31, 2004 respectively (unaudited).
7
Income Taxes
The Company accounts for income taxes under the asset and liability method,
whereby, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period the enactment occurs. A valuation allowance is provided for certain
deferred tax assets if it is more likely than not that the Company will not
realize tax assets through future operations. As of October 31, 2002, the
Company has provided a 100% valuation allowance for the deferred tax asset,
since management has not been able to determine that the realization of that
asset is more likely than not.
Basic and Diluted Loss 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 January 31, 2004, the Company had 3,888,200 outstanding stock options, and
warrants that can be converted into 265,501 shares of common stock. The options
and warrants would have an anti-dilutive effect and, therefore, are not included
in diluted loss per share.
Property, Plant and Equipment
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method
for financial statement purposes. The Company uses other depreciation methods,
generally accelerated depreciation, for tax purposes where appropriate. The
estimated useful lives for significant property and equipment categories are as
follows:
Computer hardware and equipment 7 years
Shop equipment 7 years
Office furniture 7 years
8
Stock-Based Compensation
The Company accounts for its two stock option plans and other stock-based
employee compensation using the intrinsic value method and related
interpretations, as described more fully in the Company's annual report on Form
10-KSB 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 six months ended January 31, 2004
and 2003.
Had compensation expense been determined based on the fair values at dates of
grant for its stock options under the fair value approach, 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):
Three Six
Months Months
Ended Ended
January 31, January 31,
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Net loss, as reported $(434,843) $(695,175)$(883,171)$(893,553)
Add: Stock-based compensation expense
included in reporting net loss - - - -
Deduct: Stock based employee compensation
expense determined under fair value
based (7,609) (33,260) (26,633) (37,826)
method
------------------------------------------
Pro forma net loss $(442,452) (728,435)$(909,804) (931,379)
==========================================
Net loss per share, as reported (0.03) (0.06) (0.07) (0.09)
Net loss per share, pro forma (0.03) (0.07) (0.07) (0.09)
The fair value for options granted were estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
Expected life (years) 2.5
Interest rate 1.40%
Volatility 75%
Dividend yield 0
9
Software Development
Research and development costs are charged to expense as incurred. However, the
costs incurred for the development of computer software that will be sold,
leased, or otherwise marketed are capitalized when technological feasibility has
been established. These capitalized costs are subject to an ongoing assessment
of recoverability based on anticipated future revenues and changes in hardware
and software technologies. Costs that are capitalized include direct labor and
related overhead.
Amortization of capitalized software development costs begins when the product
is available for general release.
3. Related Party Transactions
In October 2003 two officers who are also 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
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,
10
with an exercise period that expires 18 months after purchase. A total of
254,667 equity units were sold at $1.50 per unit (the "units") and 124,167 of
the warrants were exercised during the six months ended January 31, 2004. Of
these amounts, 5,000 units were sold and 31,667 warrants were exercised during
the quarter ended January 31, 2004.
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 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 January 31, 2004 the Company had sold
108,250 units for a total of $163,375, and 83,250 of the warrants were exercised
for a total of $41,625.
In December 2003 an employee exercised options to acquire 1,800 shares for $1.00
per share. In January 2004 a former consultant exercised options to acquire
10,000 shares for $1.00 per share.
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 December 2003, 250,000 restricted shares of the Company's common shares were
issued to a consultant in exchange for future services totaling $ 250,000 based
on $1.00 per share, which was the fair value of the Company's restricted common
stock on the date of issuance.
In January 2004, 205,000 shares of the Company's common shares were issued to
consultants in exchange for future services totaling $ 800,500 based on the fair
value of the Company's common stock on the dates of issuance.
The Company amortized $364,927 and $152,597 in the value of services received
for stock in the six and three months ended January 31, 2004 respectively. Of
these amounts, $123,831 and $11,271 relate to shares issued in the six and three
months ended January 31, 2004 respectively.
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. The
facility is used for product research and development.
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
11
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 six months ended January 31, 2004, 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. 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 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. The defendants have
filed an amended cross complaint alleging conversion, breach of duty to transfer
securities, breach of contract, 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
12
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, the Company authorized through a private placement 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. As of
March 10, 2004 the Company has sold 242,794 units for a total of $364,191. In
addition, shareholders have exercised 187,794 warrants for a total of $93,897.
On March 1, 2004 the Company moved its corporate headquarters to Scottsdale,
Arizona. The Company signed a three-year lease calling for monthly payments of
$4,963.13 beginning March 1, 2004.
- --------------------------------------------------------------------------------
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, 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
13
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.
Our products. We have developed patent-pending products for public safety
agencies and commercial end users: the SafetyNet(TM) Wireless Life Safety System
(WLSS) for commercial applications, the SafetyNet(TM) Mobile Command Post (MCP)
for public safety agencies and the SafetyNet(TM) Radio Bridge. Our radio bridge
was originally called the "EKHO(TM)". We are now marketing all of our wireless
life safety products under the "SafetyNet(TM)" brand.
The effectiveness of public safety agencies responding to an emergency at a
high-rise building or other commercial facility is highly dependent upon the
integration of public and private emergency systems. Our products provide
facility managers with a reliable emergency management system that includes
broadband video, audio, and other data from life safety devices that can be
shared with public safety agencies. Our portable wireless products allow police,
firefighters, and other public safety personnel to communicate effectively with
each other for a coordinated, effective response at any multi-jurisdictional
emergency. The SafetyNet(TM) line of products provides decision-makers with
access to the most up-to-the-second information available from the emergency
scene and with an interoperable communication solution.
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.
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. Although we have been concentrating on developing our commercial sales
force, we continue to pursue our initiatives with the Department of Homeland
14
Security (DHS). In November 2003 we responded to a solicitation by the Office
for Domestic Preparedness (ODP), the program office within the DHS responsible
for enhancing the capacity of state and local jurisdictions to respond to, and
mitigate the consequences of, incidents of domestic terrorism. The Space and
Naval Warfare Systems Center, San Diego (SPAWAR) provides support for ODP in
that mission and is seeking a communications control system capable of handling
anti-terrorism activities that are conducted jointly by local and state law
enforcement agencies and first responders. After reviewing our technologies,
SPAWAR selected us to demonstrate the SafetyNet(TM) Mobile Command Post and
SafetyNet(TM) Radio Bridge to various United States government representatives
at SPAWAR in San Diego. We believe our products and technologies will be a big
part of the solution to the communication problems faced by public safety
agencies and first responders.
Major public safety agencies 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) line of products.
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 attended the first program session from March 8 through March 12,
2004 in Albuquerque, New Mexico.
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 we have incurred 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 January 31, 2004 we accumulated a total net
loss of $2,439,137. 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
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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 assets at January 31, 2004 included $72,042 in cash as well as $66,978 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 $148,270. Our
liabilities at January 31, 2004 were $41,731 in accounts payable and $210,608 in
accrued payroll, for total current liabilities at the end of the period of
$252,339. The increase in liabilities resulted from the increased costs of our
operations.
At January 31, 2004, we had $72,042 in cash and cash equivalents, as compared
with $4,451 in cash and cash equivalents at January 31, 2003. 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 six month period ended January 31, 2004 totaled $556,175, with an
additional $103,709 in proceeds raised from the exercise of warrants.
Our general and administrative expenses for the three-month period ended January
31, 2004 decreased to $434,843, as compared to $695,175 for the three-month
period ended January 31, 2003. Consulting fees paid in cash for the three month
period ended January 31, 2004 were $5,604; there were no consulting fees
incurred during the corresponding period ended January 31, 2003. We incurred
payments to acquire property and equipment of $27,938 during the three months
ended January 31, 2004, as compared to $30,349 during the corresponding period
ended January 31, 2003.
Our net loss from operating activities for the three month period ended January
31, 2004 was $434,843, a decrease from the $695,175 net loss from operating
activities during the corresponding period ended January 31, 2003. Our net loss
from operating activities for the six month period ended January 31, 2004 was
$883,171, a decrease from the $893,553 net loss from operating activities during
the corresponding period ended January 31, 2003.
We believe that we need to raise approximately $2.8 million over the next twelve
months to fully fund our operations. We presently have cash and cash equivalents
sufficient to satisfy our cash requirements for approximately the next three to
four 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 accounting principles generally
accepted in the United States of America 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,
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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. In January and February 2004 we opened a national sales office in
Scottsdale, Arizona where we have consolidated our sales, marketing,
administrative and executive offices. We currently have 9 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. We
anticipate hiring additional employees over the next twelve months to augment
our administrative infrastructure, as we plan to expand our National Sales
Office staff. We also anticipate recruiting a national, commission-based sales
force. At present, we anticipate the sales force will be independent
contractors. Additionally, we may hire a significant number of employees for
assembling our products unless we are able to enter into satisfactory production
out-source arrangements.
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
(a) Evaluation of disclosure controls and procedures. As of the date of this
quarterly report, we believe our disclosure controls and procedures are
effective.
(b) Changes in internal controls. There were not any significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation.
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,
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we believed that if we brought suit against Briggs and Peacock, they would file
a cross-complaint in retaliation. On October 1, 2003, they filed a
cross-complaint against the Company and its directors.
Both the Company and its directors believe the cross-complaint is entirely
without merit and was filed in bad faith, and that naming the Company's
directors personally was improper and a bad-faith pressure-tactic by Briggs and
Peacock. We intend 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.
ITEM 2. CHANGES IN SECURITIES.
In November 2003 the Company authorized a private placement of equity units,
each of which consisted of one share of the Company's common stock and 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. During the
period November 1, 2003 through January 31, 2004, a total of 113,250 equity
units were sold at $1.50 per unit (the "units") for total funds to the company
of $169,875. During the same period warrants for 114,917 shares were exercised
at $.50 per share for total funds to the Company of $57,459. Additionally,
options to purchase 11,800 shares were exercised for total funds to the company
of $11,800
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
We filed a report on Form 8-K on January 23, 2004 referencing our press release
dated January 5, 2004, which reported the appointment of H. Kenneth Edge as
Executive Director of Sales and Mauro Scigliano as National Director of Sales
and the opening of our new National Sales Office in Scottsdale, Arizona. That
report also detailed our significant progress in preparing our products for
national distribution and mass production and the selection of the Aegis
SafetyNet(TM) Mobile Command Post, a mobile wireless broadband communication
system for emergency responders, as a new law enforcement product to participate
in the Office of Law Enforcement Technology Commercialization (OLETC) program
sponsored by the National Institute of Justice's Office of Science and
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Technology. The program is designed to identify and commercialize innovative
technology for use by the law enforcement community. The program provides
support through every stage of technology transfer and commercialization,
including marketing assessments, commercialization planning and capital access.
We filed a report on Form 8-K 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)***
15. Letter on unaudited interim financial information***
31.1 Section 302 Certification of Eric Johnson
31.2 Section 302 Certification of Richard Reincke
32.1 Section 1350 Certification of Eric Johnson
32.2 Section 1350 Certification of Richard Reincke
*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
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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: March 17, 2004
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