UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended April 30, 2005
-------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THEEXCHANGE 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 June 9,
2005 was approximately 27,313,191 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 APRIL 30, 2005
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements................................................ 2
Balance Sheet as of April 30, 2005................................. 2
Statements of Operations for the Three-month and
Nine-month Periods Ended April 30, 2005 and April 30, 2004...... 3
Statements of Cash Flows for the Nine-month Periods Ended
April 30, 2005 and April 30, 2004..............................4-5
Notes to the Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis................................16
Item 3. Controls and Procedures.............................................22
Part II
Other Information
Item 1. Legal Proceedings..................................................23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........23
Item 6. Exhibits...........................................................24
SIGNATURES ..................................................................25
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AEGIS ASSESSMENTS, INC.
(A Development Stage Company)
Condensed Balance Sheet
April 30, 2005
(Unaudited)
Assets
Current Assets
Cash $ 40,299
Accounts Receivable 49,269
Inventory 404,488
------------
Total Current Assets 494,056
Property and equipment, net of accumulated
depreciation of $70,774 221,906
U.S. Treasury Bonds - Restricted (see Note 4) 5,000,000
Other Assets 14,616
------------
Total Assets $ 5,730,578
============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 101,926
Accrued Payroll 159,832
Deferred Revenue 350,000
------------
Total Current Liabilities 611,758
------------
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; 28,999,443 shares issued and outstanding
at April 30, 2005 29,001
Additional paid-in capital 21,782,872
Stock subscription receivable - related party (67,500)
Stock subscription receivable (205,000)
Deficit accumulated during the development stage (16,420,553)
------------
Total shareholders' equity 5,118,820
------------
Total liabilities and shareholders' equity $ 5,730,578
============
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 from
For the three For the three For the nine For the nine January 16,2002
months ended months ended months ended months ended (inception) to
April 30,2005 April 30,2004 April 30,2005 April 30,2004 April 30,2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------ ------------ ------------
Revenue $ 52,447 -- $ 58,447 70,992
-
Cost of equipment sold 27,000 31,500 35,100
General and administrative expenses - other $ 2,572,205 $ 7,212,665 5,922,956 $ 8,042,248 16,168,580
Consulting fees - related party 53,588 287,065
-------------------------------------------------------------------------
Loss before provision for income taxes (2,546,758) (7,212,665) (5,896,009) (8,095,836) $(16,419,753)
Provision for income taxes -- 800
-------------------------------------------------------------------------
Net loss $ (2,546,758) $ (7,212,665) $ (5,896,009) $ (8,095,836) $(16,420,553)
=========================================================================
Net loss available to common shareholders
per common share - basic and diluted $ (0.09) $ (0.49) $ (0.26) $ (0.61) $ (1.07)
Weighted average common shares - basic -------------------------------------------------------------------------
and diluted 27,447,574 14,759,026 23,017,825 13,278,124 14,421,702
=========================================================================
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 nine For the nine January 16,2002
months ended months ended (inception) to
April 30,2005 April 30,2004 April 30,2005
(Unaudited) (Unaudited) (Unaudited)
-------------- ------------- ----------------
Cash flows from operating activities:
Net loss $ (5,896,009) $ (8,095,836) $(16,420,553)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Non-cash items included in the net
loss:
Depreciation 52,782 8,031 70,775
Amortization and expenses related to
stock and stock options 4,349,565 7,131,469 12,578,125
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 (36,724) (1,896) (49,269)
Inventory (208,088) -- (404,488)
Increase in Other Assets -- (14,616) (14,616)
Increase in Liabilities:
Accrued payroll 143,413 (107,993) 159,832
Accounts payable 48,612 2,022 101,926
Accrued interest - officers (1,906)
Deferred Revenue 350,000
Other Payable (2,333) 2,358
----------------------------------------------------
Net cash used in operating activities (1,548,782) (1,077,183) (3,615,202)
The accompanying notes are an integral part of the condensed financial
statements
4
AEGIS ASSESSMENTS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
For the period from
For the nine For the nine January 16,2002
months ended months ended (inception) to
April 30,2005 April 30,2004 April 30,2005
(Unaudited) (Unaudited) (Unaudited)
--------------- -------------- ---------------------
Cash flows used in investing activities:
Payments to acquire property $ (34,324) $ (130,226) $ (292,680)
and equipment
Net cash flows used in investing activities (34,324) (130,226) (292,680)
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 704,030 1,104,293 2,924,032
Proceeds from exercise of warrants 184,654 283,498 630,405
Proceeds from exercise of options 237,144 237,144
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 1,125,828 1,388,374 3,948,181
Net increase in cash and cash equivalents (457,278) 180,965 40,299
Cash and cash equivalents, beginning of 497,577 32,932 -
period
--------------------------------------------------------
Cash and cash equivalents, end of period $ 40,299 $ 213,897 $ 40,299
========================================================
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
For The Nine And Three Months Ended April 30, 2005 (Unaudited) and
April 30, 2004 (Unaudited), For The Period January 16, 2002
(inception) Through April 30, 2005
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB, including the Notes to the Condensed
Financial Statements and this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements. The
words "believe," "expect," "anticipate," "intends," "projects," and similar
expressions identify forward-looking statements. Such statements may include,
but are not limited to, projections regarding demand for the Company's products,
the impact of the Company's development and manufacturing process on its
research and development costs, future research and development expenditures,
and the Company's ability to obtain new financing as well as assumptions related
to the foregoing. Such forward-looking statements are within the meaning of that
term in Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements include all
adjustments management believes are necessary for a fair presentation of the
Company's financial position at April 30, 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.
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.
6
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
A Radio Bridge was sold to the U.S. government for evaluation in June 2004. The
sale was recorded and the receivable remains outstanding at April 30, 2005.
Because the Company expects collection of this receivable, it does not believe
an allowance for doubtful accounts is necessary at April 30, 2005.
USE OF ESTIMATES
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.
7
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 April 30, 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 April 30, 2005, the Company had 5,926,760 outstanding stock options, and
warrants that can be converted into 14,992 shares of common stock. The options
and warrants would have an anti-dilutive effect and, therefore, are not included
in diluted loss per share.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method
for financial statement purposes. The Company uses other depreciation methods,
generally accelerated depreciation, for tax purposes where appropriate. The
estimated useful lives for significant property and equipment categories are as
follows:
Office equipment 3 years
Shop equipment 5 years
Office furniture 7 years
Product Demonstration Equipment 5 years
8
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 Nine Months Ended
April 30, April 30,
2005 2004 2005 2004
------------------------------------ ------------------------------
Net loss, as reported $ (2,546,758) $ (7,212,665) $ (5,896,009) $ (8,095,836)
Add: Stock-based compensation expense
included in reporting net loss
Deduct: Stock based employee compensation
expense determined under fair value based (12,500) (4,581,500) (356,000) (4,581,500)
method
------------------------------------ ------------------------------
Pro forma net loss $ (2,559,258) $ (11,794,165) $ (6,252,009) $(12,677,336)
Net loss per share, as reported (0.09) (0.49) (0.26) (0.61)
Net loss per share, pro forma (0.09) (0.80) (0.27) (0.96)
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 April 30, 2005 the net amount
due the Company, and the amount of the reserve, was $198,266.
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.
9
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 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.
On March 1, 2005 two officers exercised options to acquire 341,440 shares for
$.10 per share. The options were exercised in exchange for $34,144 in accrued
salary owed the officers.
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 nine months ended April 30, 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 April 30, 2005 the Company had sold
1,279,969 units for a total of $1,919,955, and 1,054,146 of the warrants were
exercised for a total of $527,074. Of these amounts, 15,000 of the warrants were
exercised during the three months ended April 30, 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
April 30, 2005 the Company has sold 432,400 units for a total of $377,400, and
31,750 of the warrants were exercised for a total of $15,875. Of these amounts,
181,250 of the units were sold and 31,750 of the warrants were exercised during
the three months ended April 30, 2005.
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 five
million shares of stock in exchange for $5 million in U.S. Treasury Bonds. A
security agreement covering the bonds was subsequently granted another party
incidental to a separate transaction. (See paragraph below).
10
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 four
million shares of Aegis' 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 four million shares of Aegis' 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 four million
shares of Aegis' common stock. The option is callable only on November 23, 2006,
for the market price on that date.
On December 22, 2004 the Company terminated Mauro Scigliano's employment. Under
terms of the Company's stock option plan, options held by employees expire if
not exercised prior to termination of employment. Mr. Scigiano 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.
11
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
In March 2005 the Company granted an option to acquire 250,000 shares of the
Company's unrestricted common shares for $.15 a share to a consultant in
exchange for future services totaling $252,500, based on $1.16 per share, which
was the fair value of the Company's common stock on the date of issuance. All
the options were exercised at the time of grant.
In April 2005 the Company granted an option to acquire 250,000 shares of the
Company's unrestricted common shares for $.10 a share to a consultant in
exchange for future services totaling $300,000, based on $1.30 per share, which
was the fair value of the Company's common stock on the date of issuance. All
the options were exercised at the time of grant.
In April 2005 the Company granted an option to acquire 250,000 shares of the
Company's unrestricted common shares for $.10 a share to a consultant in
exchange for future services totaling $262,500, based on $1.15 per share, which
was the fair value of the Company's common stock on the date of issuance. All
the options were exercised at the time of grant.
In April 2005 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 $550,000, based on $1.20 per share, which
was the fair value of the Company's common stock on the date of issuance. The
consultant elected to exercise 300,000 of the options at the time of grant.
In March 2005 a former consultant exercised his option to acquire 500,000
shares for $.10 per share.
In April 2005 a former consultant exercised his option to acquire 270,000 shares
for $.10 per share.
In March 2005, 160,000 shares of the Company's restricted common shares were
issued to consultants in exchange for future services totaling $ 160,000, based
on $1.00 per share, which was the fair value of the Company's common stock on
the date of issuance.
12
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. LEASE AGREEMENTS
In October 2003, the Company entered into a lease agreement for an industrial
building to be used for product research and development. 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 was
$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 Company vacated the facility
on February 15, 2005, and terminated the lease effective March 15, 2005.
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 April 30, 2005, the Company financed its operations
through private equity funding. No assurances can be given that the Company can
obtain sufficient working capital through the sale of the Company's securities
and borrowing, or that the sale of the SafetyNet 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.
13
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
LITIGATION
In September 2003, the Company filed a complaint in California Superior Court
against two former officers of the Company and a related company (the
"defendants"), alleging fraud, deceit, conspiracy, breach of contract and
seeking rescission of agreements made in April and August 2002 and the return of
the cancelled stock certificates representing 1,000,000 cancelled shares of the
Company's common stock. In a preliminary ruling, the court ordered that the
disputed stock certificates be held at two brokerage firms until the matter is
resolved. The parties are working on a stipulation to deposit the disputed share
certificates with the court pending the final resolution of the matter. If the
Company prevails in this action, the stock will be considered cancelled. Until
the court resolves this matter, the shares are included in common shares
outstanding although the Company's position is that the stock has been validly
cancelled. The Company believed that if they brought suit against the
defendants, a cross-complaint would be filed in retaliation. The defendants have
filed an amended cross complaint alleging conversion, breach of duty to transfer
securities, breach of contract, defamation, and unfair business practices.
The Company intends to vigorously prosecute its complaint and defend the
cross-complaint. In the event of an unfavorable outcome of the defense against
the cross-complaint, the award of damages to defendants could be material. The
Company does not have director and officer insurance or some other form of
insurance covering the period that gave rise to these events. The Company
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 Los
Angeles 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.
14
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 June 14, 2005 the Company had sold
1,279,969 units for a total of $1,919,955, and 1,061,146 of the warrants were
exercised for a total of $530,574. Of these amounts, 7,000 of the warrants were
exercised subsequent to April 30, 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
June 14, 2005 the Company has sold 474,900 units for a total of $412,400, and
44,250 of the warrants were exercised for a total of $22,125. Of these amounts,
42,500 of the units were sold and 12,500 of the warrants were exercised
subsequent to April 30, 2005.
On June 6, 2005 50,000 shares of the Company's restricted common shares were
issued to consultants in exchange for future services totaling $ 50,000, based
on $1.00 per share, which was the fair value of the Company's common stock on
the date of issuance.
On June 6, 2005 a consultant exercised his option to acquire 550,000 shares for
$.10 per share, paid via a note made in favor of the Company.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
For a description of our significant accounting policies and an understanding of
the significant factors that influenced our performance during the period ended
April 30, 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 it will begin generating
significant revenues from the sale of its products rather than from equity or
debt financings; (ii) plan to allocate any funds it receives to expanding
production capabilities, supporting our relationship with distribution channel
partners for our products, hiring additional personnel for product support, and
meeting requirements to secure acceptance for listing its stock on the American
Stock Exchange; and (iii) belief that as a result of working with the U.S.
Commerce Department, it will be easier to market our products in foreign
countries. Forward-looking statements involve risks, uncertainties and other
factors, which may cause our actual results, performance or achievements to be
materially different from those expressed or implied by such forward-looking
statements. Factors and risks that could affect our results and achievements and
cause them to materially differ from those contained in the forward-looking
statements include, but are not limited to (i) market acceptance of our
products; (ii) establishment and expansion of our direct and indirect
distribution channels; (iii) attracting and retaining the endorsement of key
opinion-leaders in the law enforcement, fire, rescue and other emergency
response communities; (iv) the level of product technology and price competition
for our products; (v) the degree and rate of growth of the markets in which we
compete and the accompanying demand for our products; (vi) potential delays in
international and domestic orders; (vii) risks associated with rapid
technological change and execution and implementation risks of new technology;
(viii) new product introduction risks; (ix) ramping manufacturing production to
meet demand; (x) future potential litigation resulting from alleged product
related injuries; (xi) potential fluctuations in quarterly operating results;
(xii) financial and budgetary constraints of prospects and customers; (xiii)
fluctuations in component pricing; (xiv) adoption of new or changes in
accounting policies and practices, including pronouncements promulgated by
standard setting bodies; (xv) changes in legislation and governmental
regulation; (xvi) publicity that may adversely impact our business and/or
industry; and (xvii) the other risks and uncertainties set forth below under
those identified in the Company's Annual Report on Form 10-KSB under the heading
"Risk Factors," as well as other factors that we are currently unable to
identify or quantify, but may exist in the future.
16
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 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 products are the SafetyNet RadioBridge, which
allows most two-way radios to be interconnected regardless of the radio's
frequency, modulation or encryption scheme, and the SafetyNet Guardian System,
which allows video transmissions and voice communications from the stairwells
inside buildings for commercial safety applications. Some of the components and
technology integrated into the Guardian System can also be sold, with certain
modifications, as stand-alone products.
The SafetyNet RadioBridge interconnects incompatible radios and bridges them to
provide radio interoperability at an emergency site in a matter of minutes. The
enhanced version features improvements in the sound quality of audio
transmissions, the addition of an internal storage compartment for cables,
headsets and other accessories, and improved bridging of trunked and non-trunked
radios.
DISTRIBUTION AND SALES
Our sales and marketing efforts during the last quarter have been extensive. A
limiting factor for the sale of our RadioBridge product has been the
time-consuming process associated with government purchasing cycles and
procurement practices of our products' end-users. Entering into a reseller
agreement with GTSI Corporation ("GTSI") has allowed the RadioBridge to qualify
for participation in existing contract vehicles, which we believe will lower our
average cost of sales per RadioBridge and which will make it easier for
participating public safety agencies to purchase our products.
We have continued to attend trade shows to showcase our products. From April 6
through April 8, 2005 we exhibited the SafetyNet RadioBridge and Guardian System
at the International Wireless Communications Expo (IWCE) held at the Las Vegas
Convention Center. The IWCE is North America's largest annual wireless
communications technology show and is dedicated to dealers, public safety
professionals and end-users of wireless communications equipment including
transportation and utilities. The 2005 IWCE conference program included
technology workshops and conference tracks focusing on emerging technologies and
interoperability solutions.
17
On March 31, 2005, we entered into an agreement with government IT leader GTSI,
granting GTSI the right to act as a reseller of the Aegis SafetyNet RadioBridge
to its diverse base of federal, state and local government customers.
Headquartered in Chantilly, Va., GTSI holds a wide range of government
contracts, including multimillion dollar, multi-year contracts with the
Department of Defense ("DoD") and certain civilian agencies, as well as several
multiple award schedules and blanket purchasing agreements with a variety of DoD
and civilian agencies. GTSI also serves as a subcontractor, providing products
and services to other companies holding government contracts. GTSI has offices
throughout the United States as well as overseas in Germany and Korea.
In 2003, GTSI was awarded the U.S. Communities program, a multi-state contract
available to cities, counties, special districts (such as airports), state
agencies, schools and large non-profits such as hospitals and clinics.
Multi-state contracts enable individual states to utilize the buying power of
multiple states, which results in lower costs based on volume purchasing.
Sponsored by the National League of Cities, the National Association of
Counties, the U.S. Conference of Mayors, the Association of School Business
Officials, the National Institute of Government Purchasing, and a national
network of city, county and state associations, U.S. Communities provides a
purchasing forum for public agencies nationwide. There are currently over 7,000
public agencies in 50 states participating in the program. Through GTSI, the
SafetyNet RadioBridge can now be purchased through the U.S. Communities program.
GTSI has dedicated a sales group to offer the SafetyNet RadioBridge to
government agencies and other end-users seeking an affordable solution to the
current communication problem caused by not having radio interoperability at the
scene of an emergency. In support of GTSI's comprehensive marketing campaign,
during the last week in April 2005 we conducted technical training for GTSI's
sales and technology practice professionals at GTSI's Chantilly, Virginia
headquarters. GTSI made over $1 billion in sales in 2004, the bulk of that in
direct contracts with the federal government. Now more than 20 years old, GTSI
was recently called a "government powerhouse" by VARBusiness.
On May 1, 2005, we entered into an employment agreement with Jeffrey L. Bemoras
as Executive Vice President of Sales and Marketing. The agreement has a two-year
term. Mr. Bemoras was instrumental in introducing us to GTSI and is managing
that relationship for the Company by, among other things, providing customer and
sales support for GTSI.
From May 10 through May 13, 2005, we provided a marketing and technical support
team to GTSI in Puerto Rico to demonstrate the SafetyNet RadioBridge to a wide
range of police and public safety officials, including the Governor. On May 24
through May 27, 2005, GTSI showcased the SafetyNet RadioBridge at the 29th
Annual International Association of Chiefs of Police (IACP) Training Conference
and Exposition in Greensboro, North Carolina. The IACP is the world's oldest and
largest nonprofit membership organization of police executives, with over 19,000
members in over 100 different countries.
18
During the quarter, we continued working with the U.S. Commerce Department to
qualify the SafetyNet RadioBridge for export. We believe there is a significant
market for the SafetyNet RadioBridge in Central America, South America, Asia and
Europe, particularly in Germany, which is widely reported to have significant
radio interoperability problems similar to those in the United States.
PRODUCTION
We have contracted to develop the next generation SafetyNet RadioBridge with new
features for enhanced performance with CirTran Corporation ("CirTran"), located
in West Valley, Utah. CirTran is a full-service electronics contract
manufacturer and has an ISO (International Organization for Standardization)
9002 registration. We contemplate contracting with CirTran for the next mass
production runs of RadioBridge units.
RECENT DEVELOPMENTS
Now that the SafetyNet RadioBridge is qualified for purchase through the U.S.
Communities program, GTSI is initiating a nationwide marketing campaign designed
to increase customer awareness of the RadioBridge and its availability through
that program. Local governments nationwide spent approximately $500 million on
products through the U.S. Communities program last year. We believe that
participating in this program and working with GTSI, our major reseller, will
significantly shorten our sales cycles, reduce our cost of sale per unit, and
dramatically increase our sales of RadioBridges during the next year.
However, this potential increase in sales will require us to manage our
projected growth effectively, and if we fail to do so it would harm our
business. Rapid expansion may strain our current managerial, financial,
operational, and other employee resources, as well as require additional
financing. We are in the process of trying to improve our financial, accounting,
inventory, and other internal control systems to accommodate our projected sales
and manage our anticipated growth effectively. In light of these increased sales
and marketing activities, management of the Company has spent considerable time
in the last two months meeting with representatives of GTSI and CirTran to set
quality control, inventory, and shipping protocols. Moreover, management of the
Company has been required to travel to West Valley, Utah and Chantilly, Virginia
to meet with management, sales, marketing, quality control, engineering and
logistics personnel of our reseller and manufacturer, respectively.
This has resulted in an increased workload for virtually all of our management.
In addition to providing significant customer support to GTSI, during the last
two months both company management and sales and technical personnel have
participated in sales calls in support of various major GTSI customers
nationally, including to first responders in Puerto Rico, California, Arizona
and North Carolina. This has required significant travel on the part of our
employees, which in today's climate is stressful, time consuming and expensive.
While we believe that employee morale is high and that we are managing our
projected growth successfully at this time, any failure to do so could lead to
inefficiencies and redundancies, and result in reduced growth prospects and
profitability.
19
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 RadioBridge product and we are
recording revenues.
Revenues for the three-month and nine month periods ended April 30, 2005 were
$52,447 and $58,447 compared to no revenues in the comparable periods in 2004.
This increase in revenue is due to the sale of six RadioBridges during the
period.
Our general and administrative expenses, other than for consultants/related
parties, for the three-month period ended April 30, 2005 were $2,572,205, as
compared to $7,212,665 for the comparable period during the prior year. Our
operating expenses have decreased as a result of reduction in equity based
compensation paid to employees, outside consultants, and business partners.
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, major law
enforcement officials, fire department officials, federal agencies, the United
States Army, and working with GTSI, our major channel partners. 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.
Our loss before provision for income taxes was $(2,546,758) for the three-month
period ended April 30, 2005, as compared to $(7,212,665) for the same period for
the prior year. Our net loss for the three-month period ended April 30, 2005
after provision for income taxes was $(2,546,758), as compared to $(7,212,665)
for the comparable period for the prior year. The decrease was the result
primarily of a decrease in equity based compensation paid to employees, outside
consultants, and business partners.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2005, we had $40,299 in cash, as compared with $213,897 in cash
during the equivalent period ended April 30, 2004. The decrease is due primarily
to the reduction in the sale of our equity in private placement transactions.
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 (the "Bonds").
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
4,000,000 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. We also
received from Cogent a call option on 4,000,000 shares of our common stock. The
option is callable on November 23, 2006, for the market price on that date.
20
We have the ability to borrow against the 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 April 30, 2005 we had accrued payroll liability of $159,832, as compared with
$145,778 at April 30, 2004. The increase is attributed to an increase in accrued
salary owed three officers and directors. Accounts payable and deferred revenue
totaled $451,926 at April 30, 2005, as compared to $53,354 in accounts payable
and notes payable at April 30, 2004. This increase was due to increased costs of
operations.
We held property and equipment at April 30, 2005, which was valued, net of
depreciation of $70,774, at $221,906, as compared with property valued, net of
depreciation of $10,380, at $146,437 at April 30, 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 April 30, 2005 were $5,730,578, as compared with $376,847 at
April 30, 2004.
We believe we have sufficient funds currently available to satisfy our cash
requirements for the next three months. Our goal is to raise an additional $3
million in equity financing during the next six months, to be allocated to
expanding our production capabilities, supporting our relationship with GTSI as
a distribution channel for our products, hiring additional personnel for product
support, and meeting requirements to secure acceptance for listing our stock on
the American Stock Exchange. We also anticipate increased revenues from the sale
of RadioBridges during the next 12 months, but it is difficult to project a
sales timeline because we believe significant sales are dependent on public
safety end-users acquisition practices and our establishment of a customer
support infrastructure to support such sales. We believe our relationship with
GTSI will increase our sales volume and decrease associated procurement time
cycles.
GOING CONCERN
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States applicable to a going concern
that contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Our general business strategy
is unproven, and we have just begun to record revenues. To date, we have relied
solely on loans from shareholders and officers and the sale of our equity
securities to fund our operations. We have incurred losses since our inception
and we continue to incur legal, accounting, and other business and
administrative expenses. Our auditor has therefore recognized that there is
substantial doubt about our ability to continue as a going concern.
21
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.
The evaluation of our disclosure controls by our principal executive officer and
principal financial officer included a review of the controls' objectives and
design, the operation of the controls, and the effect of the controls on the
information presented in this Quarterly Report. Our management, including our
chief executive officer, president and chief financial officer, does not expect
that disclosure controls can or will prevent or detect all errors and all fraud,
if any. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Also, projections of any evaluation of the disclosure controls
and procedures to future periods are subject to the risk that the disclosure
controls and procedures may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Based on their review and evaluation as of the end of the period covered by this
Form 10-QSB, and subject to the inherent limitations described above, our
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) 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.
22
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 ("JAD") 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 filed a complaint 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. We
filed a motion to quash service of the complaint because we believed the case
should be heard in Arizona. The Court denied the motion on or about April 6,
2005, which means that the case will be litigated in Los Angeles County. We
intend to assert appropriate cross-claims and affirmative defenses against
Plaintiffs when we respond to the complaint.
We have scheduled an arbitration regarding the consulting and employment
relationship we had with Robert Alcaraz that began on or about October 1, 2002
and terminated in or about July 2003. The parties are disputing the total
compensation that accrued during those relationships and certain cross-claims by
the company. The hearing date is scheduled for September 2005.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We are continuing to raise funds for operations through a private placement of
our equity securities. Proceeds from the issuance of 181,250 shares of common
stock during the three-month period ended April 30, 2005 totaled $133,750, with
an additional $15,875 in proceeds raised from the exercise of 31,750 warrants.
During the period the company also raised $164,500 from the exercise of options,
resulting in 1,520,000 shares issued.
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, as amended (the
"Securities Act"), 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 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.
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.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are attached to this Quarterly Report:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Emerging Technologies Interim Relationship Agreement, dated March
31, 2005, by and between Aegis Assessments, Inc. and GTSI
Corporation
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
24
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: June 13, 2005 /S/ DAVID SMITH
-------------------------------------
Chief Financial Officer
(Principal Financial Officer
and Authorized Officer)
25
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Emerging Technologies Interim Relationship Agreement, dated March
31, 2005, by and between Aegis Assessments, Inc. and GTSI
Corporation
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
26