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, 2005
-------------
[ ] 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
The number of shares of the issuer's common equity outstanding as of March 18,
2005 was approximately 25,386,891 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
INDEX TO FORM 10-QSB FILING
FOR THE PERIOD ENDED JANUARY 31, 2005
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Page
Item 1. Financial Statements............................................. 1
Balance Sheet as of January 31, 2005....................... 1-2
Statements of Operations
for the Three and Six Month Periods
Ended January 31, 2005 and January 31, 2004........... 3
Statements of Cash Flows
for the Three and Six month periods ended January 31,
2005 and January 31, 2004............................. 4-5
Notes to the Condensed Financial Statements................ 6-14
Item 2. Management's Discussion and Analysis............................. 15
Item 3. Controls and Procedures........................................ 30
PART II
OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 31
Item 2. Changes in Securities .......................................... 32
Item 6. Exhibits and Reports on Form 8-K................................ 35
SIGNATURES
35
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEGIS ASSESSMENTS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
JANUARY 31, 2005
(Unaudited)
ASSETS
Current Assets
Cash $ 164,014
Accounts Receivable 18,545
Inventory 406,488
------------
TOTAL CURRENT ASSETS
589,047
Property and equipment, net of accumulated
depreciation of $52,497 236,334
U.S. Treasury Bonds - Restricted (see Note 4) 5,000,000
Other Assets 14,616
------------
TOTAL ASSETS $ 5,839,997
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 72,307
Accrued Payroll 112,567
Deferred Revenue 350,000
Notes Payable 55,714
------------
TOTAL CURRENT LIABILITIES 590,588
------------
1
AEGIS ASSESSMENTS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
JANUARY 31, 2005
(Unaudited)
(CONTINUED)
Series A 8% convertible preferred stock
$.001 par value; 200,000 shares
authorized
Shareholders' equity:
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; 26,450,003 shares
issued and outstanding
at January 31, 2005 26,451
Additional paid-in capital 19,882,153
Stock subscription receivable - related party (67,500)
Stock subscription receivable (175,000)
Deficit accumulated during the development stage (14,416,695)
------------
TOTAL SHAREHOLDERS' EQUITY 5,249,409
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,839,997
============
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 three For the three For the six For the six from
months ended months ended months ended months ended January 16,2002
January January January January (inception) to
31,2005 31,2004 31,2005 31,2004 January 31,2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------- ------------
Revenue $ 6,000 -- $ 6,000 -- $ 18,545
Cost of equipment sold 4,500 4,500 8,100
General and administrative expenses - other $ 3,350,751 $ 434,843 3,893,651 $ 829,583 14,139,275
Consulting fees - related party 53,588 287,065
----------------------------------------------------------------------------
Loss before provision for income taxes (3,349,251) (434,843) (3,892,151) (883,171) $(14,415,895)
Provision for income taxes -- 800
----------------------------------------------------------------------------
NET LOSS $ (3,349,251) $ (434,843) $ (3,892,151) $ (883,171) $(14,416,695)
============================================================================
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
PER COMMON SHARE - BASIC AND DILUTED $ (0.14) $ (0.03) $ (0.19) $ (0.07) $ (1.08)
----------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES - BASIC
AND DILUTED 23,112,141 13,035,883 20,875,174 12,553,770 13,379,163
============================================================================
The accompanying notes are an integral part of the condensed financial
statements
3
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
For the period from
For the six For the six January 16,2002
months ended months ended (inception) to
January 31,2005 January 31,2004 January 31,2005
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- -------------------
Cash flows from operating activities:
Net loss $ (3,892,151) $ (883,171) $(14,416,695)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Non-cash items included in the net
loss:
Depreciation 34,505 3,739 52,498
Amortization and expenses related to
stock and stock options 2,824,565 364,927 11,053,125
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 Assets
Accounts Receivable (6,000) (18,545)
Inventory (210,088) (406,488)
Increase in Other Assets (9,250) (14,616)
Increase in Liabilities:
Accrued payroll 96,148 (43,163) 112,567
Accounts payable 18,993 (7,243) 72,307
Accrued interest - officers (1,906)
Deferred Revenue 350,000
Note Payable 53,381 55,714
----------------- ----------------- --------------------
Net cash used in operating activities (1,080,647) (574,883) (3,147,067)
The accompanying notes are an integral part of the condensed financial
statements
4
(CONTINUED)
Aegis Assessments, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
For the period from
For the six For the six January 16,2002
months ended months ended (inception) to
January 31,2005 January 31,2004 January 31,2005
(Unaudited) (Unaudited) (Unaudited)
--------------- --------------- ----------------
Cash flows from operating activities:
Cash flows used in investing activities:
Payments to acquire property
and equipment $ (30,475) $ (46,473) $ (288,831)
Net cash flows used in investing activities (30,475) (46,473) (288,831)
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 554,405 556,175 2,774,407
Proceeds from exercise of warrants 184,654 103,708 630,405
Proceeds from exercise of options 38,500 38,500
Proceeds from issuance of debenture - 17,000
Proceeds from notes payable and
advances - related parties 583 17,000
Stock subscription receivable - 10,000
------------- --------------- ----------------
Net cash provided financing activities 777,559 660,466 3,599,912
Net increase in cash and cash equivalents (333,563) 39,110 164,014
Cash and cash equivalents, beginning of period 497,577 32,932 -
------------- --------------- ---------------
Cash and cash equivalents, end of period $ 164,014 $ 72,042 $ 164,014
============= =============== ===============
Exercise of options applied against notes $ 17,000 $ 17,000
========= ===============
Payment of accounts payable with stock $ 12,025 $ 12,025
========= ===============
Conversion of preferred stock to common stock
$ 27,500 $ 27,500
========= ===============
Issuance of common stock for services $ 8,095,206
===============
Issuance of common stock for
U.S. Treasury Bonds $5,000,000
-------------
Issuance of common stock for note - related party $ 67,500
===============
The accompanying notes are an integral part of the condensed financial
statements
5
Aegis Assessments, Inc.
(A Development Stage Company)
Notes To Financial Statements (unaudited)
For The Six And Three Months Ended January 31, 2005
(Unaudited) and January 31, 2004 (Unaudited), For
The Period January 16, 2002 (inception) Through
January 31, 2005
This Quarterly Report on Form 10-QSB, including the Notes to the Condensed
Financial Statements, 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 processes 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. 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.
6
1. Basis of Presentation
The accompanying unaudited condensed financial statements include all
adjustments management believes are necessary for a fair presentation of the
Company's financial position at January 31, 2005 and results of operations for
the periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America 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, 2004, included in
our Annual Report on Form 10-KSB.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("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.
2. Summary of Significant Accounting Policies
New Accounting Pronouncements
In November 2004, the Financial Accounting Standard board issued FAS 151
- -"Inventory Costs-an amendment of ARB No. 43, Chapter 4." This Statement amends
the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement requires that those items
be recognized as current-period charges in all cases. In addition, this
Statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
adoption of FAS 151 is not expected to have a material impact on the Company.
Development Stage Operations
Aegis Assessments, Inc. (a Development Stage Company) (the "Company") is a
development stage company and has limited operating history with insignificant
revenues. The Company was incorporated under the laws of the State of Delaware
on January 16, 2002. As of July 31, 2004 the Company completed development of
its core product, a specialized emergency response and communication systems for
law enforcement agencies at all levels, the U.S. Department of Defense, and
select commercial firms. The Company refers to this product as the "Aegis
SafetyNet Radio Bridge or "Radio Bridge" system. The Company is now engaged in
producing the systems and establishing sales distribution channels.
Initial Production and Sales Activity
In May 2004 the Company received its first purchase order for the Aegis
SafetyNet Radio Bridge system and began production. The initial $2.4 million
purchase order was accompanied by a progress payment of $350,000 against the
first units. The progress payment was recorded as deferred revenue. The Company
anticipates significant involvement in the distributor's resale activities and
will not record revenue related to the units until they are sold to end-users.
7
An additional Radio Bridge was sold to the U.S. government for evaluation in
June 2004. The sale was recorded and the receivable remains outstanding at
January 31, 2005. Because the Company expects collection of this receivable, it
does not believe an allowance for doubtful accounts is necessary at January 31,
2005.
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 January 31, 2005, 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, 2005, the Company had 6,068,200 outstanding stock options, and
warrants that can be converted into 634,142 shares of common stock. The options
and warrants would have an anti-dilutive effect and, therefore, are not included
in diluted loss per share.
8
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:
Office equipment 3 years
Shop equipment 5 years
Office furniture 7 years
Product Demonstration Equipment 5 years
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, 2004. 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.
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:
Three Months Ended Six Months Ended
January 31, January 31,
2005 2004 2005 2004
------------ ----------- ------------ ----------
Net loss, as reported $ (3,349,251) $ (434,843) $ (3,892,151) $ (883,171)
Add: Stock-based compensation expense
included in reporting net loss
Deduct: Stock based employee compensation
expense determined under fair value based (231,000) (7,609) (231,000) (26,633)
method
------------ ---------- ------------ ---------------
Pro forma net loss $ (3,580,251) $ (442,452) $ (4,123,151) $ (909,804)
Net loss per share, as reported (0.14) (0.03) (0.19) (0.07)
Net loss per share, pro forma (0.15) (0.03) (0.20) (0.07)
9
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:
Expected life (years) 3
Interest rate 3.00%
Volatility 0%
Dividend yield 0
Research And Development And Software Development
Research and development costs are charged to expense as incurred. 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 will be subject to an ongoing assessment of
recoverability based on anticipated future revenues and changes in hardware and
software technologies. Costs that will be capitalized include direct labor and
related overhead. Amortization of capitalized software development costs will
begin when the product is available for general release. No computer software
costs are currently capitalized.
Derivative Swap Transaction
On November 23, 2004, the Company received $5,000,000 in U.S. Treasury
bonds in a private placement of the Company's common stock. Subsequently, the
Company entered into a derivative swap transaction in which the bonds, including
the interest earned on the bonds during the 24-month period of the swap
agreement, have been pledged as security. See Note 4 below. The accrued net
obligation due under the agreement, if any, is periodically recorded as a
liability. However, because accrued net amounts due the Company are not fully
secured, a reserve for 100% of the net amount due the Company under the
agreement in excess of the amount of the bonds has been established. As of
January 31, 2005, the net amount due the Company, and the amount of the reserve,
was $2,736,375.
3. Related Party Transactions
In September 2004, a member of the board of directors exercised his option to
acquire 20,000 shares for $.30 per share.
On September 14, 2004, Ken Edge resigned as officer and director. Under
terms of the Company's stock option plan, options held by employees expire if
not exercised prior to termination of employment. Mr. Edge did not exercise his
option and his 1.2 million options expired on September 14, 2004.
On November 29, 2004, the Company borrowed $80,000 from a shareholder pursuant
to a promissory note, with an interest rate of 10%. As additional consideration
for entering into the note, the Company issued the shareholder 30,000 restricted
shares of its common stack.
On December 10, 2004, the Company issued options to acquire 2,310,000
common shares to a group including officers, directors, and employees. The
option price is $1.20, the market price of the stock on the date of issue.
10
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. As of
January 31, 2005, a total of 254,667 of the units were sold for a total of
$382,000, and 221,667 of the warrants were exercised for a total of $110,834.
No units were sold and no warrants were exercised during the six months ended
January 31, 2005.
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, 2005 the Company had sold
1,279,969 units for a total of $1,919,955, and 1,039,146 of the warrants were
exercised for a total of $519,574. Of these amounts, 16,242 of the units were
sold and 146,833 of the warrants were exercised during the three months ended
January 31, 2005.
In November 2004, the Company authorized through a private placement the
sale of 2,000,000 equity units for $1.00 per unit. Each unit consists of one
share of common stock and one warrant to purchase a share of common stock for
$.50, with an exercise period that expires six months after the unit is
purchased. As of January 31, 2005, the Company has sold 251,150 units for a
total of $251,150. No warrants have been exercised to date.
On November 23, 2004, the Company entered into a private placement of the
Company's common stock. Under terms of the agreement the Company sold 5,000,000
shares of stock in exchange for $5,000,000 in U.S. Treasury Bonds. A security
agreement covering the bonds was subsequently granted another party incidental
to a separate transaction. (See paragraph below).
On November 23, 2004, the Company entered into an equity swap transaction
with Cogent Capital Corporation (Cogent). Under terms of the agreement the
Company paid Cogent $50,000 in cash, and agreed to pay an amount equal to the
interest on $5 million, at LIBOR plus 1.25%, for the next 24 months. In
addition, the Company agreed to pay Cogent an amount equal to the decrease in
value of 4,000,000 shares of the Company's common stock below $1.00 per share,
its fair market value at the date of the agreement. Cogent agreed to pay the
Company an amount equal to the increase in value of 4,000,000 shares of the
Company's common stock above $1.00 per share. The agreement is for 24 months,
and the settlement between the Company and Cogent is to be paid in cash at the
termination of the agreement. The Company's potential obligation under the swap
transaction is secured with U.S. Treasury Bonds received in a private placement
of the Company's stock (see paragraph above), including all interest earned on
the bonds. The Company also received from Cogent a call option on 4,000,000
shares of Aegis' common stock. The option is callable only on November 23, 2006,
for the market price on that date.
11
On December 22, 2004 the Company terminated the employment of its vice
president. Under terms of the Company's stock option plan, options held by
employees expire if not exercised prior to termination of employment. This
employee did not exercise his option and his 1.25 million options expired on
December 22, 2004.
In December 2004, 770,000 shares of the Company's restricted common shares were
issued to a consultant in exchange for a $77,000 note due in 90 days and future
services totaling $ 693,000, based on $1.00 per share, which was the fair value
of the Company's common stock on the date of issuance.
In December 2004, the Company granted an option to acquire 500,000 shares
of the Company's unrestricted common shares for $.10 a share to a consultant in
exchange for future services totaling $825,000, based on $1.75 per share, which
was the fair value of the Company's common stock on the date of issuance. The
option was also exercised in December 2004 via a note for $50,000 payable 90
days from the date of issue.
In January 2005, the Company granted an option to acquire 480,000 shares of
the Company's unrestricted common shares for $.10 a share to a consultant in
exchange for future services totaling $744,000, based on $1.65 per share, which
was the fair value of the Company's common stock on the date of issuance. The
option was also exercised in January 2005 via a note for $48,000 payable 90 days
from the date of issue.
In January 2005, the Company granted an option to acquire 115,000 shares of
the Company's unrestricted common shares for $.13 a share to a consultant in
exchange for future services totaling $169,050, based on $1.60 per share, which
was the fair value of the Company's common stock on the date of issuance.
In January 2005, the Company granted an option to acquire 103,500 shares of
the Company's unrestricted common shares for $.13 a share to a consultant in
exchange for future services totaling $133,515, based on $1.42 per share, which
was the fair value of the Company's common stock on the date of issuance.
In January 2005, a former consultant exercised his option to acquire 10,000
shares for $1.00 per share.
In January 2005, 260,000 shares of the Company's restricted common shares were
issued to consultants in exchange for future services totaling $ 260,000, based
on $1.00 per share, which was the fair value of the Company's common stock on
the date of issuance.
5. Lease Agreements
In October 2003, the Company entered into a lease agreement for an industrial
building. The lease had 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. The Company arranged for
an early termination of the lease and vacated the facility in February 2005.
12
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.
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 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 January 31, 2005, the Company financed its
operations through private equity funding and negligible revenues. No assurances
can be given that the Company can obtain sufficient working capital through the
sale of the Company's securities and borrowing, or that the sale of the
SafetyNet products will generate sufficient revenues in the future to sustain
ongoing operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
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. 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.
13
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
In May 2004, we entered into an exclusive distribution agreement with JAD
Corporation of America to serve as our domestic distributor based on JAD's
representations to us that it had sufficient resources, manpower and expertise
to market the SafetyNet(TM) RadioBridge(TM) nationally. JAD's marketing efforts
did not result in sales to end-users and we entered into discussions with JAD
about reducing the size of the territory covered by the distribution agreement
and amending other provisions of that agreement. On December 30, 2004 JAD
notified the company that it intended to rescind the distribution agreement by
filing a complaint against the company in Los Angeles County Superior Court,
which included causes of action to terminate and rescind the distribution
agreement, and for breach of contract. The principal of JAD, Joseph Dussich,
also appeared as a plaintiff in a separate cause of action in the complaint to
rescind and terminate his consulting agreement with the Company. There were also
additional causes of action arising from the business relationship between the
parties. The Company believes the case should be heard in Arizona and not
California and has filed a motion to quash service of the complaint. We were
also granted a protective order by the Los Angeles County Superior Court
limiting discovery in the case to jurisdictional issues.
The company further reserves the right to assert that the notices of termination
were not in compliance with the respective agreements between the parties and
were a negotiation tool to induce a modification of the agreements favorable to
JAD and Dussich. In the interim, to mitigate any adverse consequences that may
result from a termination of our relationship with JAD, we have begun
negotiating agreements with new dealers and potential distributors that we
believe will result in increased sales of our products to our end-users.
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 March 21, 2005 the Company had sold
1,279,969 units for a total of $1,919,955; and 1,039,146 of the warrants were
exercised for a total of $519,574. Of these amounts, 16,242 of the units were
sold and 146,833 of the warrants were exercised during the three months ended
January 31, 2005.
In November 2004, the Company authorized through a private placement the sale
of 2,000,000 equity units for $1.00 per unit. Each unit consists of one share of
common stock and one warrant to purchase a share of common stock for $.50, with
an exercise period that expires six months after the unit is purchased. As of
March 21, 2005 the Company has sold 266,150 units for a total of $266,150. No
warrants have been exercised to date.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
For a description of our significant accounting policies and an understanding of
the significant factors that influenced our performance during the period ended
January 31, 2005, this "Management's Discussion and Analysis" should be read in
conjunction with the Financial Statements, including the related notes,
appearing in Item 1 of this Quarterly Report. The preparation of this Quarterly
Report on Form 10-QSB requires us to make estimates and assumptions that affect
the reported amount of assets and liabilities, disclosure of contingent assets
and liabilities at the date of our financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results reported in the future will not differ from those
estimates or that revisions of these estimates may not become necessary in the
future.
Forward Looking Statements
This portion of this Quarterly Report on Form 10-QSB, includes statements
that constitute "forward-looking statements." These forward-looking statements
are often characterized by the terms "may," "believes," "projects," "expects,"
or "anticipates," and do not reflect historical facts. Specific forward-looking
statements contained in this portion of the Quarterly Report include, but are
not limited to the Company's (i) expectation that the private placement and
related transactions will facilitate its attempt to obtain a listing of its
common stock on the American Stock Exchange; (ii) expectation that it will begin
generating significant revenues from the sale of its products rather than equity
or debt financings; (iii) plan to allocate any funds it receives to expanding
production capabilities, establishing a distribution channel for products,
hiring additional personnel for a sales ramp-up, and meeting requirements to
secure acceptance for listing its stock on the American Stock Exchange; (iv)
belief that its client awareness program will enhance its ability to generate
revenues from the sale of its products; and (v) belief that as a result of
developments with the Department of Homeland Security, it will be easier to sell
RadioBridge units to state and municipal public safety agencies.
Forward-looking statements involve risks, uncertainties and other factors, which
may cause our actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking statements.
Factors and risks that could affect our results and achievements and cause them
to materially differ from those contained in the forward-looking statements
include, but are not limited to (i) market acceptance of our products; (ii)
establishment and expansion of our direct and indirect distribution channels;
(iii) attracting and retaining the endorsement of key opinion-leaders in the law
enforcement, fire, rescue and other emergency response communities; (iv) the
level of product technology and price competition for our products; (v) the
degree and rate of growth of the markets in which we compete and the
accompanying demand for our products; (vi) potential delays in international and
domestic orders; (vii) risks associated with rapid technological change and
execution and implementation risks of new technology; (viii) new product
introduction risks; (ix) ramping manufacturing production to meet demand; (x)
future potential litigation resulting from alleged product related injuries;
(xi) potential fluctuations in quarterly operating results; (xii) financial and
budgetary constraints of prospects and customers; (xiii) fluctuations in
component pricing; (xiv) adoption of new or changes in accounting policies and
practices, including pronouncements promulgated by standard setting bodies; (xv)
changes in legislation and governmental regulation; and (xvi) publicity that may
adversely impact our business and/or industry.
15
Forward-looking statements involve risks, uncertainties and other factors, which
may cause our actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking statements.
factors and risks that could affect our results and achievements and cause them
to materially differ from those contained in the forward-looking statements
include those identified in the section titled "Risk Factors", as well as other
factors that we are currently unable to identify or quantify, but that may exist
in the future.
In addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.
Executive Overview.
Through our SafetyNet(TM) line of products, we supply wireless security
solutions to public safety agencies and commercial end users for homeland
security and life safety applications. Our current product is the SafetyNet(TM)
RadioBridge(TM), which allows most two-way radios to be interconnected
regardless of the radio's frequency, modulation or encryption scheme. We have
also modified and improved the technologies that comprised our Wireless Life
Safety System (WLSS) and now anticipate marketing products using that technology
under the name "SafetyNet(TM) Guardian(TM) System," which allows video
transmissions and voice communications from the stairwells inside buildings for
commercial safety applications.
16
RECENT TRENDS. The DHS has adopted new measures to expedite the flow of
fund to equip, train and prepare first responders and local law enforcement to
prevent incidents and to be ready should one occur. On December 3, 2004 the
Department of Homeland Security (DHS) announced the recipients of $1.66 billion
in grants to states and an additional $855 million in grants to urban areas to
fund first responders and support state and local resources necessary to
prevent, respond and recover from acts of terrorism and other disasters. The DHS
also announced the implementation of a national strategy for homeland security
that includes shared responsibility and accountability in equipping first
responders with the resources they need to protect American citizens. The DHS
cited the continuing maturation of its grants programs, streamlined distribution
process and greater accountability measures as evidence that equipment necessary
for first responders to mitigate acts of terrorism will be funded by the DHS.
The DHS also announced that state and local jurisdictions can expect even more
support in the coming months from the DHS. We believe these trends will make it
easier for our public safety customers to purchase our products.
According to recent announcements by the DHS, state and local governments may
now have up to 120 days to draw down funds in advance of purchase and
investments, as compared to the three to five days allowed previously, so that
even small localities have the buying power to purchase expensive or backordered
equipment. The DHS also has hosted training seminars and coordination calls with
states and urban areas to ensure that they are coordinating to prevent delays in
the funding flow.
17
Recent Developments
In May 2004, we entered into an exclusive distribution agreement with JAD
Corporation of America to serve as our domestic distributor based on JAD's
representations to us that it had sufficient resources, manpower and expertise
to market the SafetyNet RadioBridge nationally. JAD's marketing efforts did not
result in sales to end-users and we entered into discussions with JAD about
reducing the size of the territory covered by the distribution agreement and
amending other provisions of that agreement. On December 30, 2004, JAD notified
us that it intended to rescind the distribution agreement by filing a complaint
against the Company in Los Angeles County Superior Court, which included causes
of action to terminate and rescind the distribution agreement, and for breach of
contract. JAD's principal, Joseph Dussich, also appeared as a plaintiff in a
separate cause of action in the complaint to rescind and terminate his
consulting agreement with the Company. There were also additional causes of
action arising from the business relationship between the parties. We believe
the case should be heard in Arizona and not California and have filed a motion
to quash service of the complaint. We were also granted a protective order by
the Los Angeles County Superior Court limiting discovery in the case to
jurisdictional issues.
We further reserved the right to assert that the notices of termination
were not in compliance with the respective agreements between the parties and
were a negotiation tool to induce a modification of the agreements favorable to
JAD and Dussich.
In July 2004 we began a production run of the first one hundred RadioBridge
units at a third-party assembly facility located in Marysville, California. We
are now shifting our RadioBridge(TM) production from Marysville, California to a
larger manufacturer, CirTran Corporation, with manufacturing facilities in West
Valley, Utah, in the greater Salt Lake City area. CirTran is a full-service
electronics contract manufacturer and has an International Organization for
Standardization or "ISO", 9002 registration. CirTran builds printed circuit
board assemblies, cables, and plastic injection molding systems and has a 40,000
square foot facility capable of mass-production of our products with a high
level of quality control and material management.
18
Sales and Marketing Progress
To mitigate any adverse consequences that may result from a termination of
our relationship with JAD, we have begun negotiating agreements with new dealers
and potential distributors that we believe will result in increased sales of our
products to our end-users. Additionally, we are currently in negotiations for a
distribution agreement in the State of Arizona with an established radio
products dealer with offices throughout the state. We believe establishing a
dealer network is important to provide our end-users with customer support and
to allow us to access existing distribution channels for commercial applications
of the RadioBridge.
We recently sold our RadioBridge to and entered into distribution agreements
with the following parties:
o WinTec Arrowmaker, Inc., located in Tampa, Florida for use by the United
States Special Operations Command, or "USSOCOM." WinTec Arrowmaker provides
a full range of services to USSOCOM and supports an assortment of
Department of Defense organizations;
o St. Augustine, Florida Fire Department;
o Office for Domestic Preparedness, the principal component of the DHS
responsible for preparing the United States for acts of terrorism, for
further testing and evaluation; and
o Fortis Networks, Inc., for Central America, which included an initial order
for one RadioBridge. Fortis began its marketing activities in Panama and
has demonstrated the RadioBridge to the Panamanian National Police.
We are currently working with the United States Department of Commerce to
obtain the appropriate authorizations to export our products to Mexico and
Central America.
We have also made the following marketing efforts:
o On January 20, 2005, we demonstrated the RadioBridge to first responders at
the Benicia Refinery at the Valero Refining Company;
o On February 10, 2005, we demonstrated the RadioBridge to the San Manuel
Indian Fire Department and the California Tribal National Emergency
Management Council; a representative of the Federal Emergency Management
Agency was also present;
o On February 15, 2005, we demonstrated the RadioBridge to a regional
co-operative in the greater Chicago area consisting of the Darien Police
Department, Village of Burr Ridge Police Department, and Illinois Tri-State
Fire Protection District; and
o We are currently negotiating with major channel partners in Virginia and
Arizona to establish a national distribution network for the RadioBridge in
the United States to replace JAD.
Results of Operations
We have incurred losses since our inception in 2002 and have relied on the sale
of our equity securities and on loans from our officers to fund our operations.
Until very recently, we did not generate any revenues from operations. However,
we have begun filling purchase orders for our Radio Bridge product and we are
recording revenues.
Revenues for the three month period ended January 31, 2005 were $6,000 compared
to no revenues in the comparable period in 2004. This increase in revenue is due
to the sale of a RadioBridge during the period.
Our general and administrative expenses other than for related parties for the
three month period ended January 31, 2005 were $3,350,751, as compared to
$434,843 for the comparable period during the prior year. Our operating expenses
have increased as a result of the costs of developing our products, hiring
additional employees and contracting with outside consultants, who are usually
compensated with equity. Now that we have a finished product ready for delivery
to end-users, our marketing activities have increased significantly, and we are
incurring increased marketing costs, including costs associated with
demonstrating our products to public safety agencies and government officials,
19
major law enforcement officials, fire department officials, federal agencies,
the United States Army, and potential commercial channel partners, including
distributors, dealers and independent sales representatives. We have also
incurred increased costs associated with the design, preparation, and printing
of marketing and product informational material, courier costs and mailing
costs. Moreover, we continue to incur legal and accounting expenses and other
expenses incidental to our reporting obligations as a public company and to the
increase in our requirements for transactional legal and accounting services.
We did not have any consulting cost - related party expense for the three month
period ended January 31, 2005, nor did we incur any such costs for the
three-month period ended January 31, 2005.
Our loss before provision for income taxes was $(3,349,251) for the three
month period ended January 31, 2005, as compared to a loss of $(434,843) for the
same period for the prior year. Our net loss for the three month period ended
January 31, 2005 after provision for income taxes was $(3,349,251), as compared
to a loss of $(434,843) for the comparable period for the prior year. The
increase was the result of an increase in the number of employees and
consultants, as well as increased office and operating expenses.
Liquidity and Capital Resources
At January 31, 2005, we had $164,014 in cash, as compared with $72,042 in cash
during the equivalent period ended January 31, 2004. The increase is due to the
sale of our equity in private placement transactions and revenues from the sale
of our products.
On November 23, 2004, we entered into a private placement of our common stock.
Under terms of the agreement we sold 5,000,000 shares of stock in exchange for
$5,000,000 in U.S. Treasury Bonds.
20
On November 23, 2004, we entered into an equity swap transaction with
Cogent Capital Corporation (Cogent). Under terms of the agreement we paid Cogent
$50,000 in cash, and agreed to pay an amount equal to the interest on
$5,000,000, at LIBOR plus 1.25%, for the next 24 months. In addition, the
Company agreed to pay Cogent an amount equal to the decrease in value of four
million shares of our common stock below $1.25 per share, its fair market value
at the date of the agreement. Cogent agreed to pay us an amount equal to the
increase in value of 4,000,000 shares of our common stock above $1.25 per share.
The agreement is for 24 months, and the settlement between the Company and
Cogent is to be paid in cash at the termination of the agreement. The Company
also received from Cogent a call option on four million shares of Aegis' common
stock. The option is callable on November 23, 2006, for the market price on that
date.
We have the ability to borrow against the Treasury Bonds from lenders that agree
to take a subordinate position to Cogent, which currently has a first position
security interest on the Bonds. In November 2004, we borrowed $80,000 from one
of our existing shareholders using the Bonds as collateral.
At January 31, 2005 we had accrued payroll liability of $112,567, as compared
with $210,608 at January 31, 2004. The decrease is attributed to paying down
amounts due employees from prior periods. Accounts payable, deferred revenue and
notes payable totaled $478,021 at January 31, 2005, as compared to $41,731 in
accounts payable at January 31, 2004. This increase was due to increased costs
of operations and the deferred revenue arising from transactions with JAD
Corporation of America.
We held property and equipment at January 31, 2005, which was valued, net of
depreciation of $52,497, at $236,334, as compared with property valued, net of
depreciation of $6,087, at $66,978 at January 31, 2004. The increase is
attributed to the acquisition of components for our demonstration and production
products and product models, as well as the acquisition of computer equipment,
office equipment, and other assets necessary and incidental to our operations.
Our total assets at January 31, 2005 were $5,839,997, as compared with $148,270
at January 31, 2004.
We believe we have sufficient funds currently available to satisfy our cash
requirements for the next six months. Our goal is to raise an additional
$3,000,000 in equity financing during the next six months, to be allocated to
expanding our production capabilities, establishing a distribution channel for
our products and hiring additional personnel for our sales ramp-up. We also
anticipate revenues from the sale of Radio Bridges during the next 12 months;
however, because sales are dependent on establishing a dealer network and
customer support infrastructure to support such sales, it is difficult to
project a specific sales timeline.
Going Concern
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States applicable to a going concern
that contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Our general business strategy
is unproven, and we have just begun to record revenues. To date, we have relied
solely on loans from shareholders and officers and the sale of our equity
securities to fund our operations. We have incurred losses since our inception
and we continue to incur legal, accounting, and other business and
administrative expenses. Our auditor has therefore recognized that there is
substantial doubt about our ability to continue as a going concern.
21
Risk Factors
An investment in our common stock involves a substantial degree of risk. Before
making an investment decision, you should give careful consideration to the
following risk factors in addition to the other information contained in this
report. The following risk factors, however, may not reflect all of the risks
associated with our business or an investment in our common stock only if you
can afford to lose your entire investment.
Risks Related to Our Business
We have a limited operating history and there is no assurance that our company
will achieve profitability.
Until recently, we have had no significant operations or revenues with
which to generate profits or sustain our projected operations. We have a very
limited current operating history on which investors can evaluate our potential
for future success. Our ability to generate revenue is uncertain and we may
never achieve profitability. Potential investors should evaluate our company in
light of the expenses, delays, uncertainties, and complications typically
encountered by early-stage businesses, many of which will be beyond our control.
These risks include:
o lack of sufficient capital,
o unproven business model,
o marketing difficulties,
o competition, and
o uncertain market acceptance of our products and services.
As a result of our limited operating history, our plan for growth, and the
competitive nature of the markets in which we may compete, our historical
financial data are of limited value in anticipating future revenue, capital
requirements, and operating expenses. Our planned capital requirements and
expense levels will be based in part on our expectations concerning capital
investments and future revenue, which are difficult to forecast accurately due
to our current stage of development. We may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in revenue. Our product
development, marketing and general administrative expenses may increase
significantly if we begin to increase our sales and expand operations. To the
extent that these expenses precede or are not rapidly followed by a
corresponding and commensurate increase in revenue or additional sources of
financing, our business, operating results, and financial condition may be
materially and adversely affected.
22
We may need significant infusions of additional capital.
To date, we have relied almost exclusively on outside financing to obtain the
funding necessary to operate the business. Based upon our current cash reserves
and forecasted operations, we may need to obtain additional outside funding in
the future in order to further satisfy our cash requirements. Our need for
additional capital to finance our business strategy, operations, and growth will
be greater should, among other things, revenue or expense estimates prove to be
incorrect. We cannot predict the timing or amount of our capital requirements at
this time. If we fail to arrange for sufficient capital on a timely basis in the
future, we may be required to reduce the scope of our business activities until
we can obtain adequate financing. We may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed, which could
adversely affect our operating results and prospects. Debt financing must be
repaid regardless of whether or not we generate profits or cash flows from our
business activities. Equity financing may result in dilution to existing
shareholders and may involve securities that have rights, preferences, or
privileges that are senior to our common stock.
We may face significant competition, including from companies with greater
resources, which could adversely affect our revenues, results of operations and
financial condition.
There are existing companies that offer or have the ability to develop products
and services that will compete with those that we currently offer or may offer
in the future. These include large, well-recognized companies that have
substantial resources and established relationships in the markets in which we
compete. Their greater financial, technical, marketing, and sales resources may
permit them to react more quickly to emerging technologies and changes in
customer requirements or to devote greater resources to the development,
promotion, and sale of competing products and services. Emerging companies also
may develop and offer products and services that compete with those that we
offer. Increased competitive pressure could lead to reduced market share, as
well as lower prices and reduced margins for our products, which would adversely
affect our results of operations and financial condition. We cannot assure you
that we will be able to compete successfully in the future.
We depend materially upon acceptance of our products by specific agencies and
markets and if these agencies and markets do not purchase or are not receptive
to our products, our revenues will be adversely affected and we may not be able
to expand into other markets.
Our business and results of operations will be materially and adversely affected
if a substantial number of law enforcement, fire, rescue, other emergency
response and public safety agencies, as well as commercial end users for
homeland security and life safety applications, do not purchase our
SafetyNet(TM) products. In addition, we may not be able to expand sales of our
products into other markets if our products are not widely accepted by these
agencies or markets. This also would have an adverse affect on our business and
results of operations.
Our growth prospects will be diminished if our SafetyNet products are not widely
accepted.
We have generated minimal revenue to date from the sale of our SafetyNet
products. Until recently, our funding came primarily from the sale of our equity
and debt securities. However, we expect to generate greater revenues from the
sale of our SafetyNet products. We expect to depend on sales of these products,
primarily the SafetyNet Radio Bridge, for the foreseeable future. A decrease in
the prices of or demand for these product lines, or their failure to achieve
broad market acceptance, would significantly harm our growth prospects,
operating results and financial condition.
23
If we are unable to manage our projected growth, our growth prospects may be
limited and our future profitability may be adversely affected.
We expect our business to grow in the near future. Rapid expansion may strain
our current managerial, financial, operational, and other resources. If we are
unable to manage our growth, our business, operating results, and financial
condition could be adversely affected. We will need to continually improve our
operations and our financial, accounting, and other internal control systems in
order to manage our growth effectively. Any failure to do so may lead to
inefficiencies and redundancies, and result in reduced growth prospects and
profitability.
We may face personal injury and other liability claims that could harm our
reputation and adversely affect our sales and financial condition.
Our products will be depended upon in emergency, rescue and public safety
situations that may involve physical harm or even death to individuals, as well
as potential loss or damage to real and personal property. Our products may be
associated with these injuries or other losses. A person who sustains injuries,
the survivors of a person killed, the owner of damaged or destroyed property in
a situation involving the use of our products, or the owner of a facility at
which such injury, death or loss occurred may bring legal action against us to
recover damages on the basis of theories including personal injury, wrongful
death, negligent design, dangerous product or inadequate warning. We may also be
subject to lawsuits involving allegations of misuse of our products. If
successful, such claims could have a material adverse effect on our operating
results and financial condition. Significant litigation could also result in a
diversion of management's attention and resources, negative publicity and an
award of monetary damages in excess of our insurance coverage.
Our future success will depend on our ability to expand sales through
distributors, dealers, and independent sales representatives and our inability
to take advantage of our existing distribution network or recruit new
distributors, dealers, or independent sales representatives would negatively
affect our sales.
Our distribution strategy is to pursue sales through multiple channels with an
emphasis on independent distributors, dealers, and sales representatives. We are
in litigation with JAD Corporation of America, our original distributor, and
both we and JAD clearly wish to terminate that relationship. Although we are now
negotiating agreements with new potential dealers and distributors, and have
entered into a distribution agreement for Central America, the distributors'
inability to successfully sell our products or our inability to retain other
distributors, dealers, and sales representatives who can successfully sell our
products would adversely affect our sales. In addition, if we do not
competitively price our products, meet the requirements of our current
distributor or end-users, provide adequate marketing support, or comply with the
terms of our distribution arrangement, a distributor may fail to aggressively
market our products or may terminate its relationship with us. These
developments would likely have a material adverse effect on our sales. Our
reliance on others to sell our products also makes it more difficult to predict
our revenues, cash flow and operating results.
24
We expend significant resources in anticipation of a sale due to our lengthy
sales cycle and may receive no revenue in return.
Generally, law enforcement, fire, rescue, other emergency response and public
safety agencies, as well as commercial end users for homeland security and life
safety applications consider a wide range of issues before committing to
purchase our products, including product benefits, training costs, the cost to
use our products in addition to or in place of other products, product
reliability and budget constraints. The length of our sales cycle may range from
a few weeks to as long as several years. We may incur substantial selling costs
and expend significant effort in connection with the evaluation of our products
by potential customers before they place an order. If these potential customers
do not purchase our products, we will have expended significant resources and
received no revenue in return. This could adversely affect our operating results
and financial condition.
Many of our end-users are subject to budgetary and political constraints that
may delay or prevent sales.
Many of our end-user customers currently are military, government agencies or
entities or para-military or quasi-government entities or agencies. These
entities and agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In addition, these
entities and agencies experience political pressure that may dictate the manner
in which they spend money. As a result, even if an entity or agency wants to
acquire our products, it may be unable to purchase them due to budgetary or
political constraints. Some orders also may be canceled or substantially delayed
due to budgetary, political or other scheduling delays that frequently occur in
connection with the acquisition of products by such entities or agencies.
Many of our end-users rely on state and federal grants to obtain the necessary
funding to purchase our products, the delay or unavailability of which could
adversely affect our sales and results of operations.
The Department of Homeland Security currently awards funding grants for the
purchase of communications equipment that provides interoperability to first
responders. These funds are granted through the State Homeland Security Grant
Program, the Urban Area Security Initiative, and other grants administered by
the Office of Domestic Preparedness, the Federal Emergency Management Agency,
and the Transportation Security Administration. Other Federal agency programs
include Department of Justice grants for counter-terrorism and general-purpose
law enforcement activities through the Office of Community Oriented Policing
Services, which distributes funding through a wide range of programs, both as
grants and cooperative agreements. Additionally, many grants are administered
directly through state agencies and administrative offices. Budgetary, political
or other constraints or delays in providing or the availability of funding
through these grant programs could preclude many of our end-users from being
able to purchase our products, which would have an adverse impact on our
revenues, results of operations and financial condition.
25
If we are unable to protect our intellectual property, we may lose a competitive
advantage or incur substantial litigation costs to protect our rights.
Our success depends both on our internally developed technology and our third
party technology. We rely on a variety of trademarks, service marks, and designs
to promote our brand names and identity. We also rely on a combination of
provisional patents, contractual provisions, confidentiality procedures,
trademarks, copyrights, trade secrecy, unfair competition, and other
intellectual property laws to protect the proprietary aspects of our products.
The steps we take to protect our intellectual property rights may not be
adequate to protect our intellectual property and may not prevent our
competitors from gaining access to our intellectual property and proprietary
information. In addition, we cannot provide assurance that courts will always
uphold our intellectual property rights or enforce the contractual arrangements
that we have entered into to protect our proprietary technology.
Third parties may infringe or misappropriate our copyrights, trademarks, service
marks, trade dress, and other proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on our business,
prospects, financial condition, and results of operations. In addition, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear.
We may decide to initiate litigation in order to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of our proprietary rights. Any such litigation could result in substantial
expense, may reduce our profits, and may not adequately protect our intellectual
property rights. In addition, we may be exposed to future litigation by third
parties based on claims that our products or services infringe their
intellectual property rights. Any such claim or litigation against us, whether
or not successful, could result in substantial costs and harm our reputation. In
addition, such claims or litigation could force us to do one or more of the
following:
o cease selling or using any of our products that incorporate the
challenged intellectual property, which would adversely affect our
revenue;
o obtain a license from and/or make royalty payments to the holder of the
intellectual property right alleged to have been infringed, which
license may not be available on reasonable terms, if at all;
o divert management's attention from our business;
o redesign or, in the case of trademark claims, rename our products or
services to avoid infringing the intellectual property rights of third
parties, which may not be possible and in any event could be costly and
time-consuming.
o Even if we were to prevail, such claims or litigation could be
time-consuming and expensive to prosecute or defend, and could result
in the diversion of our management's time and attention. These expenses
and diversion of managerial resources could have a material adverse
effect on our business, prospects, financial condition, and results of
operations.
Defects in our products could reduce demand for our products and result in a
loss of sales, delay in market acceptance and injury to our reputation.
Complex components and assemblies used in our products may contain undetected
defects that are subsequently discovered at any point in the life of the
product. Defects in our products may result in a loss of sales, delay in market
acceptance, injury to our reputation, increased warranty costs, recalls and
costs associated with such recall efforts. In addition, defects in our products
could result in personal injuries or death, as well as significant property
damage. Any of these events could have a material adverse affect on our
revenues, results of operations and financial condition.
26
Component shortages could result in our inability to produce sufficient volume
to adequately sustain customer demand. This could result in a loss of sales,
delay in deliveries and injury to our reputation.
Components used in the manufacture of our products may become unavailable or may
be discontinued. Delays caused by industry allocations, or obsolescence may take
weeks or months to resolve. In some cases, parts obsolescence may require a
product re-design to ensure quality replacement parts. These delays could cause
significant delays in manufacturing and loss of sales, leading to adverse
effects significantly impacting our financial condition.
Our revenues and operating results may fluctuate unexpectedly from quarter to
quarter, which may cause our stock price to decline.
Our revenues and operating results may vary significantly in the future due to
various factors, including, but not limited to increased sales, increased raw
material expenses, changes in our operating expenses, market acceptance of our
products and services, regulatory changes that may affect the marketability of
our products, and budgetary cycles of our targeted customer base. As a result of
these and other factors, we believe that period-to-period comparisons of our
operating results may not be meaningful in the short term and that you should
not rely upon our performance in a particular period as indicating of our
performance in any future period.
We depend upon our executive officers and key personnel.
Our performance depends substantially on the performance of our executive
officers and other key personnel. The success of our business in the future will
depend on our ability to attract, train, retain and motivate high quality
personnel, especially highly qualified technical and managerial personnel. The
loss of services of any executive officers or key personnel could have a
material adverse effect on our business, revenues, results of operations or
financial condition. We maintain key person life insurance on the lives of our
CEO and President.
Competition for talented personnel is intense, and there is no assurance that we
will be able to continue to attract, train, retain or motivate other highly
qualified technical and managerial personnel in the future. In addition, market
conditions may require us to pay higher compensation to qualified management and
technical personnel than we currently anticipate. Any inability to attract and
retain qualified management and technical personnel in the future could have a
material adverse effect on our business, prospects, financial condition, and
results of operations.
We may face risks as we expand our business into international markets.
We currently are exploring opportunities to offer our products in foreign
markets. We have limited experience in developing and marketing our services
internationally, and we may not be able to successfully execute our business
model in markets outside the United States. We will face a number of risks
inherent in doing business in international markets, including the following:
27
o changing regulatory requirements;
o fluctuations in the exchange rate for the United States dollar;
o the availability of export licenses;
o unexpected changes in regulatory requirements;
o potentially adverse tax consequences;
o political and economic instability;
o changes in diplomatic and trade relationships;
o difficulties in staffing and managing foreign operations, tariffs and
other trade barriers; o complex foreign laws and treaties;
o changing economic conditions;
o difficulty of collecting foreign account receivables;
o exposure to different legal standards, particularly with respect to
intellectual property and distribution of products;
In addition, we would be subject to the Foreign Corrupt Practices Act, which
prohibits us from making payments to government officials and others in order to
influence the granting of contracts we may be seeking. Our non-U.S. competitors
are not subject to this law and this may give them a competitive advantage over
us.
To the extent that international operations represent a significant portion of
our business in the future, our business could suffer if any of these risks
occur.
Failure to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on
our business and stock price.
As disclosed in our prior filings we intend to change our fiscal year from
July 31 to June 30. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
beginning with our Annual Report on Form 10-KSB for the fiscal year ending June
30, 2007, we will be required to furnish a report by our management on our
internal control over financial reporting. The internal control report must
contain (i) a statement of management's responsibility for establishing and
maintaining adequate internal control over financial reporting, (ii) a statement
identifying the framework used by management to conduct the required evaluation
of the effectiveness of our internal control over financial reporting, (iii)
management's assessment of the effectiveness of our internal control over
financial reporting as of the end of our most recent fiscal year, including a
statement as to whether or not internal control over financial reporting is
effective, and (iv) a statement that the Company's independent auditors have
issued an attestation report on management's assessment of internal control over
financial reporting.
In order to achieve compliance with Section 404 of the Act within the
prescribed period, we will need to engage in a process to document and evaluate
our internal control over financial reporting, which will be both costly and
challenging. In this regard, management will need to dedicate internal
resources, engage outside consultants and adopt a detailed work plan to (i)
assess and document the adequacy of internal control over financial reporting,
(ii) take steps to improve control processes where appropriate, (iii) validate
through testing that controls are functioning as documented and (iv) implement a
continuous reporting and improvement process for internal control over financial
reporting. We can provide no assurance as to our, or our independent auditors',
conclusions at the prescribed periods with respect to the effectiveness of our
internal control over financial reporting under Section 404 of the Act. There is
a risk that neither we nor our independent auditors will be able to conclude at
the prescribed period that our internal controls over financial reporting are
effective as required by Section 404 of the Act.
28
During the course of our testing we may identify deficiencies which we may not
be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we fail
to achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping prevent financial fraud. If we
cannot provide reliable financial reports or prevent fraud, our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.
Risks Related to Our Securities
Stock prices of technology companies have declined precipitously at times in the
past and the trading price of our common stock is likely to be volatile, which
could result in substantial losses to investors.
The trading price of our common stock has risen and fallen significantly over
the past few months and could continue to be volatile in response to factors
including the following, many of which are beyond our control:
o variations in our operating results;
o announcements of technological innovations or new services by us or our
competitors;
o changes in expectations of our future financial performance, including
financial estimates by securities analysts and investors;
o our failure to meet analysts' expectations;
o changes in operating and stock price performance of other technology
companies similar to us; o conditions or trends in the technology
industry;
o additions or departures of key personnel; and
o future sales of our common stock.
Domestic and international stock markets often experience significant price and
volume fluctuations that are unrelated to the operating performance of companies
with securities trading in those markets. These fluctuations, as well as
political events, terrorist attacks, threatened or actual war, and general
economic conditions unrelated to our performance, may adversely affect the price
of our common stock. In the past, securities holders of other companies often
have initiated securities class action litigation against those companies
following periods of volatility in the market price of those companies'
securities. If the market price of our stock fluctuates and our stockholders
initiate this type of litigation, we could incur substantial costs and
experience a diversion of our management's attention and resources, regardless
of the outcome. This could materially and adversely affect our business,
prospects, financial condition, and results of operations.
29
Provisions in our corporate charter and under Delaware law are favorable to our
directors.
Pursuant to our certificate of incorporation, members of our management and
board of directors will have no liability for violations of their fiduciary duty
of care as officers and directors, except in limited circumstances. This means
that you may be unable to prevail in a legal action against our officers or
directors even if you believe they have breached their fiduciary duty of care.
In addition, our certificate of incorporation allows us to indemnify our
officers and directors from and against any and all expenses or liabilities
arising from or in connection with their serving in such capacities with us.
This means that if you were able to enforce an action against our directors or
officers, in all likelihood we would be required to pay any expenses they
incurred in defending the lawsuit and any judgment or settlement they otherwise
would be required to pay.
Certain provisions of Delaware General Corporation Law and in our charter, as
well as our current stockholder base may prevent or delay a change of control of
our company.
Under the Delaware General Corporation Law, which we are subject to, it will be
more difficult for a third party to take control of our company and may limit
the price some investors are willing to pay for shares of our common stock.
Furthermore, our certificate of incorporation authorizes the issuance of
preferred stock without a vote or other stockholder approval. Finally, a
majority of our outstanding common stock is held by insiders. Without a
disparate stockholder base or a fluid aggregation of stockholders, it will be
more difficult for a third-party to acquire our company without the consent of
the insiders.
Our common stock may be subject to the "penny stock" rules as promulgated under
the Exchange Act.
In the event that no exclusion from the definition of "penny stock" under the
Securities Exchange Act of 1934, as amended is available, then any broker
engaging in a transaction in our company's common stock will be required to
provide its customers with a risk disclosure document, disclosure of market
quotations, if any, disclosure of the compensation of the broker-dealer and its
sales person in the transaction, and monthly account statements showing the
market values of our company's securities held in the customer's accounts. The
bid and offer quotation and compensation information must be provided prior to
effecting the transaction and must be contained on the customer's confirmation
of sale. Certain brokers are less willing to engage in transactions involving
"penny stocks" as a result of the additional disclosure requirements described
above, which may make it more difficult for holders of our company's common
stock to dispose of their shares.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed with an objective of ensuring
that information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Quarterly Report on Form
10-QSB, is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission. Disclosure controls also
are designed with an objective of ensuring that such information is accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, in order to allow timely consideration regarding
required disclosures.
30
The evaluation of our disclosure controls by our principal executive officer and
principal financial officer included a review of the controls' objectives and
design, the operation of the controls, and the effect of the controls on the
information presented in this Quarterly Report. Our management, including our
chief executive officer, chief operating officer and chief financial officer,
does not expect that disclosure controls can or will prevent or detect all
errors and all fraud, if any. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Also, projections of any evaluation of
the disclosure controls and procedures to future periods are subject to the risk
that the disclosure controls and procedures may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Based on their review and evaluation as of the end of the period covered by this
Form 10-QSB, and subject to the inherent limitations described above, our
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective as of the end
of the period covered by this report. They are not aware of any significant
changes in our disclosure controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. During the period covered by this Form 10-QSB, there have not been
any changes in our internal control over financial reporting that have
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
PART II - OTHER INFORMATION
Items 3-5 are not applicable and have been omitted.
ITEM 1. LEGAL PROCEEDINGS.
In May 2004, we entered into an exclusive distribution agreement with JAD
Corporation of America to serve as our domestic distributor based on JAD's
representations to us that it had sufficient resources, manpower and expertise
to market the RadioBridge(TM) product nationally. JAD's marketing efforts did
not result in sales to end-users and we entered into discussions with JAD about
reducing the size of the territory covered by the distribution agreement and
amending other provisions of that agreement. On December 30, 2004, JAD notified
us that it intended to rescind the distribution agreement by filing a complaint
against us in Los Angeles County Superior Court, which included causes of action
to terminate and rescind the distribution agreement, and for breach of contract.
JAD's principal, Joseph Dussich, also appeared as a plaintiff in a separate
cause of action in the complaint to rescind and terminate his consulting
agreement with the Company. There were also additional causes of action arising
from the business relationship between the parties. The company believes the
case should be heard in Arizona and not California. We have filed a motion to
quash service of the complaint. We were also granted a protective order by the
Los Angeles County Superior Court limiting discovery in the case to
jurisdictional issues.
31
We further reserved the right to assert that the notices of termination
were not in compliance with the respective agreements between the parties and
were a negotiation tool to induce a modification of the agreements favorable to
JAD and Dussich.
The litigation against Eric Peacock and Vernon Briggs III, and their
cross-complaint in Orange County Superior Court has been stayed pending the
retirement from the military of our co-founder and former director, Master
Sergeant Joseph King; and a trial date has been set for February 2006. We plan
to vigorously pursue our claims against the defendants when the stay is lifted.
Other than as described above and in our previously filed Quarterly Reports and
Annual Reports, we know of no material, active or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceedings or
pending litigation. Other than as described above and in our previously filed
Annual Report, there are no proceedings in which any of our directors, officers
or affiliates, or any registered or beneficial shareholder, is an adverse party
or has a material interest adverse to our interest.
ITEM 2. CHANGES IN SECURITIES.
We are continuing to raise funds for operations through a private placement of
our equity securities. Proceeds from the issuance of 267,392 shares of common
stock during the three month period ended January 31, 2005 totaled $275,514.26,
with an additional $73,416.50 in proceeds raised from the exercise of 146,833
warrants.
The common stock was offered and sold in a private placement, pursuant to the
provisions of Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D. The common stock was offered and sold to purchasers whom the
company or its authorized agents believe are "accredited investors," as that
term is defined in Rule 501 of Regulation D in reliance upon an exemption from
the registration requirements of the Securities Act in a transaction not
involving any public offering. Each of the investors represented to Aegis that:
o such investor is an "accredited investor";
o the shares of common stock were purchased by such investor for its own
account, for investment and without any view to the distribution,
assignment or resale to others other than pursuant to a registered
offering;
o such investor understood that the shares of common stock issued to the
investor have not been registered under the Securities Act of 1933 or
any state securities laws; and
o such investor acknowledged that it may not transfer the shares unless
the shares are registered under Federal and applicable state securities
laws or unless, in the opinion of counsel satisfactory to Aegis, an
exemption from such laws is available.
32
We will arrange for the certificates representing such securities to be legended
and subject to stop transfer restrictions. We did not engage in any form of
general solicitation or general advertising in connection with these issuances.
On November 23, 2004, we entered into common stock subscription agreements with
four accredited investors: Potente Capital, Inc., Ellenallhatatlan, Inc.,
Nieodparty Inc., and Krachtig Inc., each of which is a Delaware corporation.
Pursuant to these subscription agreements, each accredited investor acquired
1,250,000 shares of Aegis' common stock in an unregistered private placement. In
exchange, Aegis received payment in a United States Treasury Note and stripped
interest security ("Bonds") with an aggregate value of $5,000,000. This private
placement is the first in a series of related concurrent transactions that are
intended to facilitate Aegis' attempt to obtain a listing for its common stock
on the American Stock Exchange.
These related and concurrent transactions are among and between Aegis, the
investors, Cogent Capital Corp., the party that facilitated the private
placement and Investors Bank & Trust Company, which is serving as escrow agent
in the transactions pursuant to an Escrow Agreement which the parties entered
into in connection with the arrangements specified herein. The Escrow Agreement
provides that Investors Bank & Trust acted as the escrow agent in the private
placement transaction, and further provides that the Bonds, the private
placement stock and the cash premium of $50,000 were to be deposited with the
escrow agent at the closing. Additionally, the agreement specified that the
Bonds will be held in an account at Investors Bank & Trust after the closing.
Concurrently with the execution and acceptance of the subscription agreements by
Aegis, the Registrant purchased from Cogent a call option for $1, which entitles
Aegis to repurchase 80% of the shares of common stock it sold in the private
placement at the then current market price. The option expires in two years and
may only be exercised on the expiration date.
Also concurrent with the private placement, Aegis entered into an equity swap
arrangement with Cogent that entitles Aegis to receive or obligates Aegis to pay
the price return on 80% of the shares issued in the private placement based upon
a base price of $1.00 per share in two years, or sooner if the shares are
registered for sale under the Securities Act of 1933. Aegis paid a premium of
$50,000 to enter into this contract and secured the transaction by placing the
$5 million of Bonds in a collateral account. These securities are restricted
from being used during the contract period but may be borrowed against, as
specified below.
The Bonds will serve as collateral in this equity swap transaction with Cogent
Capital Corp. These Bonds will remain in this collateral account for two years
and can be used with a call option that Aegis may exercise. At the end of this
two year period, assuming Aegis' stock price has not declined below the value as
of the date the transaction closed, the Bonds would be released from the
collateral account and made available to Aegis for working capital purposes. In
the interim, while the Bonds reside in the collateral account, Aegis may borrow
against the value of the bonds from a party that is willing to take a
subordinate position to Cogent Capital Corp. In order to facilitate and
memorialize these transactions, Aegis and Cogent also entered into the standard
form International Swaps and Derivative Association, Inc. ("ISDA") ISDA 2002
Master Agreement & Schedule and ISDA 1994 Credit Support Annex.
33
The equity swap agreement also provides that Aegis and Cogent Capital will
exchange certain defined cash flows. Under terms of the agreement, Aegis will
periodically pay Cogent interest on the value of Aegis' Bond account (the
interest rate will be LIBOR + 1.25%) and an amount equal to the decrease in
Aegis' stock price over the price at closing times 80% of the number of shares
included in the private placement specified above. Similarly, Cogent agreed to
pay Aegis, periodically, an amount equal to the increase in Aegis' stock price
over the price at closing times 80% of the number of shares included in the
private placement specified above. Both parties agreed that any required payment
resulting from the increase or decrease of Aegis' stock price as of a
measurement date will be made in the form of Bonds similar to those already in
Aegis' account with Investors Bank & Trust.
Aegis's Bond account will be subject to a security agreement executed in favor
of Cogent. However, Cogent agrees and understands that Aegis will hold title to
the bonds at all times. Aegis may, and in fact intends to, secure borrowing
against the bond account, provided such borrowing is subordinate to Cogent's
security interest. This agreement will commence at the date of closing and will
continue for a period of 24 months, at which point Cogent's security interest in
Aegis' bond account will expire.
The common stock was offered and sold in a private placement, pursuant to the
o provisions of Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D. The common stock was offered and sold to purchasers
whom the company or its authorized agents believe are "accredited
investors," as that term is defined in Rule 501 of Regulation D in
reliance upon an exemption from the registration requirements of the
Securities Act in a transaction not involving any public offering. Each
of the investors represented to Aegis that:
o such investor is an "accredited investor";
o the shares of common stock were purchased by such investor for its own
account, for investment and without any view to the distribution,
assignment or resale to others other than pursuant to a registered
offering;
o such investor understood that the shares of common stock issued to the
investor have not been registered under the Securities Act of 1933 or
any state securities laws; and
o such investor acknowledged that it may not transfer the shares unless
the shares are registered under Federal and applicable state securities
laws or unless, in the opinion of counsel satisfactory to Aegis, an
exemption from such laws is available.
Aegis will arrange for the certificates representing such securities to be
legended and subject to stop transfer restrictions. Aegis did not engage in any
form of general solicitation or general advertising in connection with these
issuances.
34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are attached to this Quarterly Report:
Exhibit
Number Description
- ------- -----------
10.1 ISDA Credit Support Annex
10.2 ISDA 2002 Master Agreement
10.3 ISDA Schedule to 2002 Master Agreement
10.4 Equity Option Transaction
10.5 Equity Swap Transaction
31 Certification pursuant to SEC Release No. 33-8238,
as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) The company filed two Current Reports on Form 8-K during the period
ended January 31, 2005. On November 1, 2004, the company filed a report
announcing the change in its fiscal year from year-end July 31 to year-end June
30. On November 30, 2004, the company filed a current report announcing the sale
of unregistered equity securitites and entry into common stock subscription
agreements with four accredited investors.
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.
Date: March 18, 2005 /s/ David Smith
-------------------------------------
Chief Financial Officer
(Principal Financial Officer and
Authorized Officer)
35
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 ISDA Credit Support Annex
10.2 ISDA 2002 Master Agreement
10.3 ISDA Schedule to 2002 Master Agreement
10.4 Equity Option Transaction
10.5 Equity Swap Transaction
31 Certification pursuant to SEC Release No. 33-8238,
as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
36