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, 2003
----------------
[ ] 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
of incorporation or organization) Identification No.)
4100 Newport Place, Suite 660, Newport Beach, CA 92660
(Address of principal executive offices)
877.718.7599
------------
(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 [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 14, 2003, approximately
10,033,000(1) shares of our common stock were issued and outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
(1) The issuer canceled 1,000,000 shares previously issued to Eric Peacock and
Vernon Briggs. The accompanying financial statements reflect that the issuer has
11,033,000 shares issued and outstanding because generally accepted accounting
principals require that the canceled shares be included as issued and
outstanding.
1
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
CONTENTS
Page
Condensed Financial Statements:
Balance Sheets 1
Statements of Operations 2
Statement of Stockholders' Deficit 3
Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-17
2
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
January 31, July 31,
2003 2002
------------------ -------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,451 $ 9,481
Stock subscription receivable 10,000 30,000
------------------ -------------------
Total current assets 14,451 39,481
Property and equipment, net of 30,349 -
accumulated depreciation of $0 ------------------ -------------------
Total assets $ 44,800 $ 39,481
================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 27,373 $ 16,200
Accrued expenses - related parties 39,933 48,292
8% Notes payable - related parties - due on demand 37,500 -
------------------ -------------------
Total current liabilities 104,806 64,492
------------------ -------------------
Redeemable Series A 8% Convertible preferred stock
$0.001 par value; 200,000 shares authorized,
17,600 shares issued or outstanding 88,000 -
Stockholders' deficit:
Common stock, $0.001 par value; 100,000,000 shares
authorized; 10,933,000 and 10,070,000 shares issued and
outstanding, respectively 10,933 10,070
Additional paid-in capital 1,131,136 92,284
Deferred compensation (269,157) -
Deficit accumulated during development stage (1,020,918) (127,365)
------------------ -------------------
Total stockholders' deficit (148,006) (25,011)
------------------ -------------------
Total liabilities and stockholders' deficit $ 44,800 $ 39,481
================== ===================
See accompanying notes which form an integral part of
these financial statements.
3
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the period from For the period from For the period
For the six January 16, 2002 For the three January 16, 2002 from January 16,
months ended (inception) to months ended (inception) to 2002 (inception)
January 31, to January 31, January 31, to January 31, to January 31,
2003 2002 2003 2002 2003
------------- ------------------ --------------- ------------------ -----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net revenue $ - $ - - $ - $ -
General and administrative expenses 893,553 8,350 695,175 8,350 1,020,918
------------- ------------------ -------------- ----------------- -----------------
Loss before provision for income taxes (893,553) (8,350) (695,175) (8,350) (1,020,918)
Provision for income taxes - - - - -
------------- ------------------ -------------- ----------------- -----------------
Net loss $ (893,553) $ (8,350) $ (695,175) $ (8,350) $ (1,020,918)
============= ================== ============== ================= =================
Net loss available to common stockholders
per common share - basic and diluted:
Loss per common share - basic
and diluted $ (0.09) $ - $ (0.06) $ - $ (0.10)
============= ================== ============== ================= =================
Weighted average common shares
outstanding - basic and diluted 10,505,000 8,350,000 10,726,000 8,350,000 9,812,000
============= ================== ============== ================= =================
See accompanying notes which form an integral part of
these financial statements.
4
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
Deficit
accumulated
Common stock Additional during Total
----------------------- paid-in Deferred development stockholders'
Shares Amount capital compensation stage deficit
---------- ----------- ----------- ------------- ------------- -------------
Balance at January 16, 2002,
date of incorporation - $ - $ - $ - $ - $ -
Issuance of Founders Shares at
$0.001 per share for services 8,350,000 8,350 - - - 8,350
(February 2002)
Issuance of common stock for
services at $0.01 per share 400,000 400 3,604 - - 4,004
(April 2002)
Issuance of common stock for
services at $0.01 per share 1,000,000 1,000 9,000 - - 10,000
(April 2002)
Issuance of common stock for
cash at $0.25 per share 20,000 20 4,980 - - 5,000
(May 2002)
Issuance of common stock for
cash at $0.25 per share 80,000 80 19,920 - - 20,000
(June 2002)
Issuance of common stock for
cash at $0.25 per share 220,000 220 54,780 - - 55,000
(July 2002)
Net loss - - - - (127,365) (127,365)
---------- ----------- ----------- ------------ ------------- -------------
Balance at July 31, 2002 10,070,000 10,070 92,284 - (127,365) (25,011)
Issuance of common stock for
cash at $0.25 per share (August 2002) 20,000 20 4,980 - - 5,000
Issuance of common stock for
cash at $0.25 per share (September 2002) 284,000 284 70,716 - - 71,000
Issuance of 100,000 common stock shares for
software at $1.00 per share (October 2002),
subsequently rescinded (December 2002) - - - - - -
Issuance of common stock for future services
at $1.00 per share (October 2002) 200,000 200 199,800 (200,000) - -
Issuance of stock options to consultants at
fair value for services (October 2002) - - 311,775 (311,775) - -
Amortization of deferred compensation (October 2002) 50,000 - 50,000
Issuance of stock options to consultants at
fair value for services (November 2002) - - 83,140 (83,140) - -
Issuance of common stock for services at $1.00
per share to consultants (December 2002) 55,000 55 54,945 (50,000) - 5,000
Beneficial conversion feature recognized on Series A
Preferred stock for conversion terms below market 9,800 9,800
Issuance of stock at $1.00 for accrued
officer compensation (December 2002) 104,000 104 103,896 - - 104,000
Issuance of common stock as inducement to extend
compensation payments at $1.00 per share
to an officer (January 2003) 200,000 200 199,800 - - 200,000
Amortization of deferred compensation (January 2003) 325,758 - 325,758
Net loss (unaudited) - - - - (893,553) (893,553)
---------- ----------- ----------- ------------ ------------- -------------
Balance at January 31, 2003 (unaudited) 10,933,000 $ 10,933 $ 1,131,136 $ (269,157)$ (1,020,918)$ (148,006)
========== =========== =========== ============ ============= =============
See accompanying notes which form an integral part of
these financial statements.
5
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the period
For the period from from January 16,
For the six January 16, 2002 2002 (inception)
months ended (inception) to to January 31,
January 31, 2003 January 31, 2002 2003
--------------------- -------------------- ---------------------
(unaudited) (unaudited) (unaudited)
Cash flows used for operating activities:
Net loss $ (893,553) $ (8,350) $ (1,020,918)
--------------------- -------------------- ---------------------
Adjustments to reconcile net loss to net cash
used for operating activities:
Non-cash issuance of common stock for services 580,758 8,350 603,112
Beneficial conversion feature 9,800 - 9,800
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 11,173 - 27,373
Accrued expenses - related parties 95,641 - 119,641
--------------------- -------------------- ---------------------
Total adjustments 697,372 8,350 759,926
--------------------- -------------------- ---------------------
Net cash used for operating activities (196,181) - (260,992)
--------------------- -------------------- ---------------------
Cash flows used for investing activities -
payments to acquire property and equipment (30,349) - (30,349)
--------------------- -------------------- ---------------------
Cash flows provided by financing activities:
Proceeds from issuance of preferred stock 78,000 78,000
Proceeds from issuance of common stock 76,000 - 126,000
Accounts payable - related parties - - 24,292
Proceeds from issuance of notes payable - related parties 37,500 - 37,500
Stock subscriptions receivable 30,000 - 30,000
--------------------- -------------------- ---------------------
Net cash provided by financing activities 221,500 - 295,792
--------------------- -------------------- ---------------------
Net increase in cash and cash equivalents (5,030) - 4,451
Cash and cash equivalents, beginning of period 9,481 - -
--------------------- -------------------- ---------------------
Cash and cash equivalents, end of period $ 4,451 $ - $ 4,451
===================== ==================== =====================
Supplemental disclosure of cash flow information:
Income taxes paid $ - $ - $ -
===================== ==================== =====================
Interest paid $ - $ - $ -
===================== ==================== =====================
Supplemental disclosure of non-cash financing activity:
Issuance of 104,000 shares of common stock for conversion
of accrued officer compensation $ 104,000 $ - $ 104,000
===================== ==================== =====================
Issuance of common stock for services $ 455,000 $ - $ 455,000
===================== ==================== =====================
Issuance of common stock options for services $ 394,915 $ - $ 394,915
===================== ==================== =====================
Beneficial conversion feature on preferred stock $ 9,800 $ - $ 9,800
===================== ==================== =====================
See accompanying notes which form an integral part of
these financial statements.
6
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies:
Nature of Business:
Aegis Assessments, Inc. (the "Company") is currently a
development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7 and was
incorporated under the laws of the State of Delaware on
January 16, 2002. During December 2002, the Company changed
its fiscal year end to July 31. The Company plans to design
and develop specialized equipment for law enforcement
agencies and the Department of Defense.
Basis of Presentation:
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in
the United States of America, which contemplate continuation
of the Company as a going concern. However, the Company has no
established source of revenue. This matter raises substantial
doubt about the Company's ability to continue as a going
concern. These financial statements do not include any
adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management plans to take the following steps that it believes
will be sufficient to provide the Company with the ability to
continue in existence:
o Management intends to continue to raise additional
financing through private equity financing or other means
and interests that it deems necessary, with a view to
moving forward and sustain a prolonged growth in its
strategy phases.
o The Company plans to raise additional operating funds
through equity or debt financings or through loans from
banks or other lending institutions. The Company plans on
applying to have its securities quoted on the
Over-the-Counter Bulletin Board maintained by the
National Association of Securities Dealers, Inc. The
Company believes that should it be successful in causing
its securities to be so quoted, it will improve its
chances of raising funds through either equity or debt
financings.
7
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies, Continued:
Basis of Presentation, Continued:
o The Company has not yet negotiated with any banks or
other lending institutions nor has the Company arranged
for any specific equity or debt financings. The Company
may not be able to arrange for loans or financings on
favorable terms. The Company intends to raise working
capital from a variety of sources, including from
investors who are associates of the Company's management,
or through a bank or Small Business Administration loan,
or from venture capital sources, or by waiting until a
public market develops for shares of the Company's common
stock. There is no assurance that the Company will be
able to arrange for financing and has not, to date, had
any substantive discussions with any third parties
regarding such financing.
Interim Financial Statements:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals), which, in the
opinion of management, are necessary for a fair presentation
of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results
to be expected for a full year. The financial statements
should be read in conjunction with the audited financial
statements for the period from inception on January 16, 2002
to July 31, 2002, which is included in the Form SB-2/A, filed
with the Securities and Exchange Commission on or around March
14, 2003.
Use of Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America 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. Actual results could materially differ from those
estimates.
8
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies, Continued:
Comprehensive Income:
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. For the
period from January 16, 2002 (inception) to January 31, 2003,
the Company has no items that represent other comprehensive
income and, accordingly, has not included a schedule of
comprehensive income in the financial statements.
Basic and Diluted Loss Per Share:
In accordance with SFAS No. 128, "Earnings Per Share," the
basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted average
number of common shares outstanding. Diluted loss per common
share is computed similar to basic loss per common share
except that the denominator is increased to include the number
of additional common shares that would have been outstanding
if the potential common shares had been issued and if the
additional common shares were dilutive. As of January 31,
2003, the Company has 3,085,000 outstanding stock options and
17,600 Series A convertible preferred stock that can all be
converted into 3,185,000 shares of common stock (unaudited).
These options and preferred stock would have an anti-dilutive
effect and, therefore, are not included in diluted loss per
share.
Stock-Based Compensation:
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and complies with the disclosure provisions of
SFAS 123, "Accounting for Stock-Based Compensation." Under APB
25, compensation cost is recognized over the vesting period
based on the excess, if any, on the date of grant of the
deemed fair value of the Company's shares over the employee's
exercise price. When the exercise price of the employee share
options is less than the fair value price of the underlying
shares on the grant date, deferred stock compensation is
recognized and amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the
individual options. Accordingly, because the exercise price of
the Company's employee options equals or exceeds the market
price of the underlying shares on the date of grant, no
compensation expense is recognized. Options or shares awards
issued to non-employees are valued using the fair value method
and expensed over the period services are provided.
9
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies, Continued:
Segment Reporting:
Based on the Company's integration and management strategies,
the Company operated in a single business segment. For the
period from January 16, 2002 (inception) to January 31, 2003,
the Company had no revenue.
New Accounting Pronouncements:
In July 2001, the FASB issued SFAS No. 141 "Business
Combinations." SFAS No. 141 supersedes Accounting Principles
Board ("APB") No. 16 and requires that any business
combinations initiated after June 30, 2001 be accounted for as
a purchase; therefore, eliminating the pooling-of-interest
method defined in APB 16. The statement is effective for any
business combination initiated after June 30, 2001 and shall
apply to all business combinations accounted for by the
purchase method for which the date of acquisition is July 1,
2001 or later. The adoption of FASB 141 did not have a
material impact to the Company's financial position or results
of operations since the Company has not participated in such
activities covered under this pronouncement.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and
Other Intangibles." SFAS No. 142 addresses the initial
recognition, measurement and amortization of intangible assets
acquired individually or with a group of other assets (but not
those acquired in a business combination) and addresses the
amortization provisions for excess cost over fair value of net
assets acquired or intangibles acquired in a business
combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1,
2001 for any intangibles acquired in a business combination
initiated after June 30, 2001. The adoption of FASB 142,
"Goodwill and Other Intangibles" did not have a material
impact to the Company's financial position or results of
operations since the Company does not have any intangibles or
goodwill.
New Accounting Pronouncements:
In October 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations," which requires companies to
record the fair value of a liability for asset retirement
obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that
results from the acquisition, construction, and development or
through the normal operation of a long-lived asset. When a
liability is initially recorded, the company would capitalize
the cost, thereby increasing the carrying amount of the
related asset. The capitalized asset retirement cost is
depreciated over the life of the respective asset, while the
liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded
amount or the company incurs a gain or loss. The statement is
effective for fiscal years beginning after June 30, 2002. The
Company did not have a material impact to the Company's
financial position or results of operations from the adoption
of this pronouncement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Statement
144 addresses the accounting and reporting for the impairment
or disposal of long-lived assets. The statement provides a
single accounting model for long-lived assets to be disposed
of. New criteria must be met to classify the asset as an asset
held-for-sale. This statement also focuses on reporting the
effects of a disposal of a segment of a business. This
statement is effective for fiscal years beginning after
December 15, 2001. The Company has implemented this
pronouncement and has concluded that the adoption has no
material impact to the financial statements.
In April 2002, the FASB issued Statement No. 145, "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." This Statement
rescinds FASB Statement No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements" and FASB Statement
No. 44, "Accounting for Intangible Assets of Motor Carriers."
This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The
Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
10
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies, Continued:
New Accounting Pronouncements, Continued:
In June 2002, the FASB issued Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This
Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The provisions of
this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early
application encouraged. The Company did not to have a
material impact to the Company's financial position or
results of operations from the adoption of this pronouncement.
In October 2002, the FASB issued Statement No. 147,
"Acquisitions of Certain Financial Institutions-an amendment
of FASB Statements No. 72 and 144 and FASB Interpretation No.
9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in
accordance with Statements No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its
scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions
of financial institutions is effective for acquisitions for
which the date of acquisition is on or after October 1, 2002.
The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this
Statement did not have a material impact to the Company's
financial position or results of operations as the Company has
not engaged in either of these activities.
11
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(1) Summary of Significant Accounting Policies, Continued:
New Accounting Pronouncements, Continued:
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and
Disclosure", which amends FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition
guidance and annual disclosure provisions of Statement 148 are
effective for fiscal years ending after December 15, 2002,
with earlier application permitted in certain circumstances.
The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods
beginning after December 15, 2002. The adoption of this
statement is not expected to have a material impact on the
Company's financial position or results of operations as the
Company has not elected to change to the fair value based
method of accounting for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities." Interpretation
46 changes the criteria by which one company includes another
entity in its consolidated financial statements. Previously,
the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates
a variable interest entity is called the primary beneficiary
of that entity. The consolidation requirements of
Interpretation 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company did not have a
material impact to the Company's financial position or results
of operations from the adoption of this pronouncement.
12
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(2) Related-Party Transactions:
Accrued Expenses - Related Parties
----------------------------------
During the period from January 16, 2002 (inception) to July 31, 2002,
the Company was advanced $22,792 for various expenses from its
President and Chief Executive Officer ("CEO"). During the six months
ended January 31, 2003, the Company repaid $14,370 (unaudited).
During the period from January 16, 2002 (inception) to July 31, 2002,
the Company was advanced $1,500 for various expenses from its Secretary
and Chief Operations Officer ("COO"). During the six months ended
January 31, 2003, the Company repaid $1,500 (unaudited).
During the three months ended January 31, 2003, the Company has
accrued a signing bonus of $30,000 for an employee.
Notes Payable - Related Parties
-------------------------------
The Company entered into a promissory note in the amount of $28,000,
dated August 14, 2002, with its CEO. The note bears interest at the
rate of 8% per annum, is due on demand and the proceeds were used for
operating purposes. During the six months ended January 31, 2003, the
Company accrued $1,120 for unpaid interest and is included in accrued
expenses - related parties (unaudited).
The Company entered into a promissory note in the amount of $10,000
dated August 14, 2002, with its COO. The Company repaid $500. The note
bears interest at the rate of 8% per annum, is due on demand and the
proceeds were used for operating purposes. During the six months ended
January 31, 2003, the Company accrued $390 for unpaid interest and is
included in accrued expenses - related parties (unaudited).
(3) Stockholders' Deficit:
Preferred Stock
---------------
The Company is authorized to issue 10,000,000 shares of preferred
stock, par value at $.001 per share. The Company previously authorized
the issuance of a Series A and Series B preferred stock. As of July 31,
2002, the Company rescinded its authorization of the preferred Series A
and B classes. No shares were ever issued relating to those classes. As
of July 31, 2002, no shares of preferred stock were issued or
outstanding.
13
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(3) Stockholders' Deficit, Continued:
Preferred Stock, Continued
--------------------------
On October 31, 2002, the Company designated a new series of preferred
stock, Series A 8% Convertible Preferred Stock, and authorized the
issuance of 200,000 shares. Each share can be converted one or more
times from its face amount ($5.00 per Share) plus any prorated 8%
interest accrued at the time of conversion into shares of common stock.
The common stock will be issued at the lesser of either (i) $1.00 per
share, or (ii) a price that equals 90% of the volume weighted average
price of our common stock for the 5 trading days immediately preceding
the date of conversion, but under this option, in no event shall the
common stock be issued at less than $0.60 per share. In summary, the
preferred shares will convert to common stock at a ratio of 5 to 1
unless the market value is less. These transactions have been accounted
for in a manner similar to redeemable preferred stock and is presented
on the balance sheet after liabilities and before stockholders'
deficit. During November 2002 to January 2003, the Company sold 17,600
shares of Series A preferred stock for $88,000 (unaudited). The Company
has recognized an expense for the beneficial conversion feature in the
current period of $9,800.
Common Stock
------------
a) In February 2002, the Company issued 10,000,000 shares of
its common stock in exchange for services to incorporate
the Company. In July 2002, the Board of Directors
declared that the Company had not received consideration
for the issuance of 1,650,000 shares of the previously
issued shares and canceled those shares leaving 8,350,000
shares totaling $8,350. The founder shares were valued at
a $0.001 par value of the Company's common stock, which
represented its fair market value on the date of
issuance. The Company has not recognized the issuance of
the cancelled shares in the financial statements.
b) During April 2002, the Company issued 400,000 shares of
its common stock in exchange for legal services rendered
totaling $4,004, which was fair market value of the
services received by the Company on the date the services
were performed.
c) In April 2002, 1,000,000 shares of common stock were
issued at $0.01 per share in exchange for services
rendered totaling $10,000, which was the fair market
value of the Company's common stock on the date of
issuance.
14
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(3) Stockholders' Deficit, Continued:
Common Stock, Continued
-----------------------
d) During May, June and July 2002, the Company conducted a
private placement offering and issued 320,000 shares of
its common stock at $0.25 per share for an aggregate
total of $80,000. As of July 31, the Company received
$50,000 of these proceeds. During August 2002, the
Company received an additional $30,000.
e) During August and September 2002, the Company conducted a
private placement offering and issued 304,000 shares of
its common stock at $0.25 per share for an aggregate
total of $76,000.
f) During October 2002, 200,000 shares of common stock were
issued at $1.00 per share in exchange for future services
totaling $200,000, which was determined to be the fair
market value of the Company's common stock on the date of
issuance. As of January 31, 2003, the Company has
amortized and recorded an expense of $164,583.
g) During October 2002, 100,000 shares of common stock were
issued at $1.00 per share in exchange for software
package acquired totaling $100,000, which was determined
to be the fair market value of the Company's common stock
on the date of issuance (unaudited). On December 27,
2002, the Company rescinded the software purchase
agreement, cancelled the 100,000 shares of common stock,
which had previously been issued, and returned the RAD
Tool computer software to Iocene Technology Corporation.
h) During December 2002, 55,000 shares of common stock were
issued at $1.00 per share to consultants in exchange for
expediting the development of the corporate website and
for future services totaling $55,000, which was
determined to be the fair market value of the Company's
common stock on the date of issuance. As of January 31,
2003, the Company has amortized and recorded an expense
of $19,583.
i) During December 2002, 104,000 shares of common stock were
issued, in lieu of cash compensation, to two officers at
$1.00 per share in exchange for accrued compensation
expense for prior services totaling $104,000, which was
determined to be the fair market value of the Company's
common stock on the date of issuance.
j) During January 2003, 200,000 shares of common stock were
issued to an employee at $1.00 per share as an inducement
to extend compensation payments for past services and
signing bonus totaling $200,000, which was determined to
be the fair market value of the Company's common stock on
the date of issuance. As of January 31, 2003, the Company
has recorded an expense of $200,000.
15
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(3) Stockholders' Deficit, Continued:
Common Stock Options
--------------------
The Company has elected to follow APB Opinion No. 25 (Accounting for
Stock Issued to Employees) in accounting for its employee stock
options. Accordingly, no compensation expense is recognized in the
Company's financial statements related to options issued to employees
because the exercise price of the Company's employee stock options
equals the market price of the Company's common stock on the date of
grant. For options issued to consultants, pursuant to Financial
Accounting Standards Board Statement No. 123 (Accounting for
Stock-Based Compensation) the Company has recorded compensation costs
based on the fair value at the grant date for its stock options.
a) During April 2002, the Company issued 750,000 options to
consultants exercisable at $0.10 per share during the
exercise period from January 1, 2003 to January 1, 2006.
The fair market value of the common stock on date of
issuance was $0.01 per share. These options were
subsequently cancelled by the Company (See Note 5).
b) During April 2002, the Company issued 1,500,000 options
to employees exercisable at $0.10 per share during the
exercise period from January 1, 2003 to January 1, 2006.
The fair market value of the common stock on date of
issuance was $0.01 per share. During December 2002,
750,000 options were cancelled upon termination of the
employees.
c) During July 2002, the Company issued 650,000 options to
employees exercisable at $0.30 per share during the
exercise period from June 1, 2003 to June 1, 2006. The
fair market value of the common stock on date of issuance
was $0.25 per share.
d) During September 2002, the Company issued 300,000 options
to officers/employees exercisable at $0.30 per share
during the exercise period from June 1, 2003 to June 1,
2006. The fair market value of the common stock on date
of issuance was $0.25 per share.
e) During September and October 2002, the Company issued an
aggregate of 375,000 options to consultants exercisable
at $0.30 per share during the exercise period from
January 1, 2003 to June 1, 2006. The fair market value of
the common stock on date of issuance was $1.00 per share.
Using the Black-Scholes Option pricing model, total value
of these options amounted to $311,775, which will be
amortized over the service period. During the six months
ended January 31, 2003, the Company amortized and
recorded an expense of $179,271 for options granted to
these consultant.
16
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(3) Stockholders' Deficit, Continued:
Common Stock Options, Continued
-------------------------------
f) During November 2002, the Company issued 100,000 options
to a consultant, exercisable at $0.30 per share during
the exercise period from February 15, 2003 to November
15, 2005. The fair market value of the common stock on
date of issuance was $1.00 per share. Using the
Black-Scholes Option pricing model, total value of these
options amounted to $83,140, which will be amortized over
the service period. During the six months ended January
31, 2003, the Company amortized and recorded an expense
of $17,321 for options granted to this consultant.
During January 2003, the Company issued to an employee 150,000
options to purchase 150,000 shares of common stock at $1.10 per
share during an exercise period which begins on June 1, 2003 and
expires on June 1, 2006.
During January 2003, the Company issued to an employee 10,000
options to purchase 10,000 shares of common stock at $0.30 per
share during an exercise period which begins on January 1, 2003
and terminates on January 1, 2006.
(4) Subsequent Events:
In February 2003, 100,000 shares of common stock were issued to a
consultant in exchange for future services at $1.00 per share, which
was the fair market value of the Company's common stock on the date of
issuance.
(5) Commitments and Contingencies:
The Company entered into a month-to-month lease agreement for its
office space.
Legal Matters
-------------
On April 20, 2002, the Company entered into a consulting agreement with
Vernon Briggs III for software development services. The agreement
allowed the Company to pay Mr. Briggs 500,000 shares of the Company's
common stock and options to purchase additional common stock as
consideration. On September 15, 2002, the Company agreed with Mr.
Briggs to terminate his employment agreement and supersede that
consulting agreement. The Company also entered into a settlement
agreement with Mr. Briggs. The settlement agreement provided, among
other things, that Mr. Briggs would (i) receive $8,000 in cash over 60
days; (ii) retain 200,000 shares of common stock; (iii) accept the
cancellation of all his stock options; and (iv) agree that the Company
had the right, but not the obligation, to redeem Mr. Briggs' remaining
300,000 shares of common stock at $0.17 per share within the 6 month
period immediately following the execution of the settlement agreement.
Subsequent to executing the settlement agreement, the Company
discovered that Mr. Briggs had fraudulently induced the Company to
enter into the settlement agreement by, among other things,
intentionally misrepresenting that certain financial projections
provided by Mr. Briggs were his work product and that such projections
had taken a significant number of hours to prepare.
17
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(5) Commitments and Contingencies, Continued:
Legal Matters, Continued
------------------------
The Company recently rescinded the settlement agreement and cancelled
Mr. Briggs' remaining shares. As the Company believes that Mr. Briggs
has received more than adequate compensation for the extremely limited
services provided by him, the Company does not believe that Mr. Briggs
will institute legal action against the Company. It is possible,
however, that the Company could institute legal action to recover the
damages caused by Mr. Briggs. Such an action could lead to a
countersuit by Mr. Briggs.
On April 20, 2002, the Company entered into a consulting agreement with
Eric Peacock for software development services. The agreement allowed
the Company to pay Mr. Peacock 500,000 shares of the Company's common
stock and options to purchase additional common stock in lieu of cash.
On August 1, 2002, the Company entered into an employment agreement
with Mr. Peacock, which provided for annual cash compensation of
$96,000 for his services as the Company's chief technology officer. On
that same date, he became a director. The Company believes that Mr.
Peacock intentionally deceived the Company in that he convinced the
Company that he was performing significant software development
services for the Company. On the contrary, we believe that Mr. Peacock
was not taking his obligations to the Company seriously and did not
perform the agreed upon services. As a result, the Company recently
terminated Mr. Peacock's employment agreement and cancelled all shares
issued to Mr. Peacock. The Company also cancelled all options granted
to Mr. Peacock. Moreover, Mr.
Peacock was removed from the Company's board of directors by the
affirmative vote of the requisite percentage of shares entitled to vote
on such matters.
Given the significant consideration paid to Mr. Peacock and his
obvious non-performance, the Company does not believe that Mr. Peacock
will institute legal action against the Company. It is possible,
however, that the Company could institute legal action to recover the
Company's damages caused by Mr. Peacock. Such an action could lead to
a countersuit by Mr. Peacock.
18
AEGIS ASSESSMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE SIX AND THREE MONTHS ENDED JANUARY 31, 2003,
FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2002,
AND FOR THE PERIOD FROM JANUARY 16, 2002 (INCEPTION) TO JANUARY 31, 2003
(UNAUDITED)
(5) Commitments and Contingencies, Continued:
Preferred Stock
---------------
In the period November 19, 2002 through January 30, 2003, the Company
sold 17,600 shares of its Series A 8% Convertible Preferred Stock. The
aggregate amount of the securities sold was $88,000. Specifically, the
Company sold, and issued shares of its Series A 8% Convertible
Preferred Stock to 14 investors in Utah, 3 investors in Washington, 1
investor in Arizona and 1 investor in Indiana pursuant to Rule 506 of
Regulation D. The Securities and Exchange Commission notified the
Company that they consider the convertible preferred stock to be
equivalent to the Company's common stock and that the filing of a
Registration Statement on Form SB-2 appears to render unavailable the
Company's reliance upon the Rule 506 exemption from the registration
and prospectus delivery requirements of the Securities Act of 1933. As
a result, the Company may be exposed to potential rescission liability
for the return of each purchaser's investment plus 8% per annum from
the date of their investment. Depending on the state within which the
particular investor resides, the Company will remain at risk for one to
five years after either the date the purchaser knew or reasonably
should have known about the facts that are the basis for the rescission
or from the date of the alleged violation. These transactions were
accounted for in a manner similar to redeemable preferred stock and
are presented on the balance sheet after liabilities and before
stockholders' equity.
19
ITEM 2. PLAN OF OPERATION.
Development of the Company
We incorporated the business on January 16, 2002 as a Delaware corporation. Our
principal business address is 4100 Newport Place, Suite 660, Newport Beach,
California 92660. Our telephone number is 877.718.7599. Although the company was
not incorporated until January 2002, our co-founders, Eric Johnson, our
president, chief executive officer and a member of our board of directors, and
Joseph King, a member of our board of directors, first discussed the possibility
of forming a company to provide vulnerability assessments and emergency
communications systems to schools and government facilities in January 2001. The
original goal was to improve public safety emergency communications and allow
seamless communication between police, fire fighters and emergency medical
personnel responding to an emergency at a school or other government facility.
Mr. Johnson and Mr. King spent approximately one year conducting research to
determine whether their business idea was viable. Mr. King and Mr. Johnson
determined that developing a system that could be utilized by law enforcement
and the military was a more workable alternative.
We have designed a mobile wireless communication solution and information
sharing platform for emergency responders, the Aegis SafetyNet,(TM) which we
believe can be used by law enforcement in their day-to-day operations, as well
as by specially trained hazardous material teams, collapse search and rescue
units, bomb squads, and police tactical units such as Special Weapons Teams. The
Aegis SafetyNet(TM) creates a unique platform allowing law enforcement and
emergency response teams compatible communications during crisis situations.
Military applications include providing common situational awareness and
interoperable data communications for special operations teams. We have also
been approached by Smith & Wesson to co-brand a commercial application of
components of the Aegis SafetyNet(TM) which would be targeted to private
security companies and for special event and other commercial applications.
Our plan of operation for the next twelve months
During the next twelve months we intend to focus on completing our prototype
SafetyNet(TM) and to continue beta testing our system with two county sheriff's
departments in Southern California, the Los Angeles County Sheriff's Department
and the Orange County Sheriff's Department, to improve, refine and adapt the
software and hardware components to meet law enforcement requirements. We have
an operational prototype of the SafetyNet(TM) system which demonstrates our
system's ability to receive wireless video transmissions and other data from an
emergency site, transmit that video and data to a mobile command post, and relay
that information via satellite to an emergency operations center miles distant
from the emergency site.
20
We plan to continue to develop commercial applications of our technologies,
including developing a commercial application of the SafetyNet(TM) system to be
targeted to private security companies and for special event and other
commercial applications.
We also plan to combine the use of our technologies with vulnerability
assessments under the Aegis STAT(TM) (Security Threat Assessment Technologies)
program to conduct on-site vulnerability assessments for corporate and
commercial facilities, energy infrastructure, transportation infrastructure,
public works, amusement parks, and other high-profile targets. Our assessments
will allow our clients to better understand threats and vulnerabilities,
determine acceptable levels of risk, and identify steps to mitigate
vulnerabilities.
Results of Operations. We have no revenues and minimal assets and we have
incurred losses since our inception. To date we have relied on the sale of our
equity securities and on loans from our officers to fund our operations.
Liquidity and capital resources. We were incorporated on January 16, 2002 and
two of our officers and directors, Eric Johnson and Richard Reincke, have paid
many of the expenses incurred by the company and have also partially deferred
their salaries. However, we have not received any commitments or guarantees from
Mr. Johnson, Mr. Reincke or any of our other officers or directors to fund any
additional capital needs we may have in the future. Our other material cash
expenditures have been general and administrative expenses, legal and accounting
expenses, equipment purchases, employee expenses and office lease expenses. For
the three months ended January 31, 2003 we accumulated a deficit of $695,175 and
we expect that deficit to continue to increase during the next quarter as we
incur legal and accounting expenses incidental to our reporting obligations as a
public company. Our accountants have expressed concern that we will not be able
to continue as a going concern because of our continuing losses.
At January 31, 2003, we had total assets of $44,800 compared to total assets of
$39,481 at July 31, 2002. At January 31, 2003, we had total current
liabilities of $104,806 compared to total current liabilities of $64,492 at
July 31, 2002. Our total stockholders' deficit at January 31, 2003, was
$148,006 compared to a total stockholders' deficit of $25,011 at July 31,
2002.
As of March 1, 2003, we had $22,238.76 in cash resources. We believe that we
need to raise approximately $1,550,000 over the next twelve months to fully fund
our business plan. We do not have any commitments for the $1,550,000 we will
need to fully implement our business plan over the next 12 months. We may
attempt to raise such funds through additional offerings of our common or
preferred stock. We may also attempt to raise the necessary funds through
entering into strategic business relationships or from venture capital
resources. We may also attempt to raise the necessary funds through applying for
government grants or attempting to negotiate sole source contracts directly with
federal, state or local government agencies, including but not limited to law
enforcement agencies, and we have begun the grant application process with the
National Institute of Justice. We have not obtained any government contracts at
the present time nor do we have any commitments for the funds we will need to
fully implement our business plan over the next 12 months. We cannot guarantee
that we will be able to raise any additional funds over the next 12 months.
21
The National Institute of Justice, a component of the Department of Justice's
Office of Justice Programs, provides technology assistance to state and local
criminal justice and public safety agencies by undertaking technology projects
that address a broad range of law enforcement needs. The National Institute of
Justice typically funds projects that involve applied research, development,
analysis, evaluation of technologies or their implementation, and the
demonstration of technologies with the intent to achieve the commercial
application of those technologies within criminal justice and public safety
agencies. We have been approved to apply for a science and technology grant
under this program and we are currently preparing our proposal, which must be
submitted by April 2, 2003. However, there is no guarantee that we will be able
to secure a grant although we believe that we qualify for such a grant.
Substantial Doubt About Our Viability as a Going Concern. Our financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a going concern which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business. We have no revenues and minimal assets and we have incurred losses
since our inception. To date we have relied solely on the sale of our equity
securities to fund our operations. Our general business strategy is unproven,
and we are not generating revenues; however, we continue to incur legal,
accounting, and other business and administrative expenses. Our auditor has
therefore recognized that there is substantial doubt about our ability to
continue as a going concern.
Employees. We currently have 4 full-time employees: three of our officers, Eric
Johnson, Richard Reincke and Robert Alcaraz; and a full-time software code
writer, whom we hired effective December 16, 2002. In addition to our full-time
employees, George Farquhar and Joseph King currently provide administrative and
advisory services similar to those which would be provided by part-time
employees but they do not receive any compensation from us for those services.
We have also entered into consulting agreements to obtain counsel and services
relating to marketing, product development, financial matters, media relations
and business development. Copies of consulting agreements and officers'
employment agreements have been filed as exhibits to our registration statement
on Form SB-2 filed with the Securities and Exchange Commission on October 9,
2002 and subsequent amendments thereto.
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of the Company's financial statements include estimates as to
the appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources, primarily accruals of overhead costs, and
the classification of net operating loss and tax credit carryforwards between
current and long-term assets. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
financial statements included in the Form SB-2/A filed on March 17, 2003.
ITEM 3. CONTROLS AND PROCEDURES.
Our principal executive officer, principal financial officer, and principal
operating officer have evaluated the effectiveness of our "disclosure controls
and procedures," as that term is defined in Rule 15d-14(c) of the Securities
Exchange Act of 1934 (the "Exchange Act"), within 90 days of the filing date of
this Quarterly Report on Form 10-QSB. Based on their evaluation, the principal
executive officer, principal financial and operating officer concluded that our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and include controls and procedures
designed to ensure that information required to be disclosed by us in those
reports is accumulated and communicated to our management, including our
principal executive officer, principal financial and operating officer as
appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
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.
22
ITEM 2. CHANGES IN SECURITIES.
During the period November 19, 2002 through January 30, 2003, we sold 17,600
shares of Series A 8% Convertible Preferred Stock to 16 investors at $5.00 per
share. The shares were offered and sold in transactions which we believe
satisfied the requirements of that exemption from the registration and
prospectus delivery requirements of the Securities Act of 1933, which exemption
is specified by the provisions of Rule 506 of Regulation D promulgated pursuant
to that act by the Securities and Exchange Commission. Specifically, the shares
were privately offered and sold to investors who had pre-existing family or
personal relationships with the shareholders, officers and directors of the
company. The value of the shares was arbitrarily set by us and had no
relationship to our assets, book value, revenues or other established criteria
of value. There were no commissions paid on the sale of these shares. The net
proceeds to us were $88,000. The Securities and Exchange Commission has notified
us that they consider the convertible preferred stock to be equivalent to common
shares of our stock and that the filing of a Registration Statement on Form SB-2
appears to render unavailable our reliance upon the Rule 506 exemption from the
registration and prospectus delivery requirements of the Securities Act of 1933.
As a result, we may be exposed to potential rescission liability for the return
of each purchaser's investment plus 8% per annum from the date of their
investment. Depending on the state within which the particular investor resides,
we remain at risk for one to five years after either the date the purchaser knew
or reasonably should have known about the facts that are the basis for the
rescission or from the date of the alleged violation.
On November 15, 2002 we entered into a consulting agreement for business
development with Gus Shouse, which our board of directors valued at $5,000. The
agreement allowed us to grant Mr. Shouse options to purchase 100,000 shares of
our common stock at $0.30 per share with an exercise period that began on
February 15, 2003 and expires November 15, 2005, in lieu of cash for his
services providing business development services to develop and promote our
software, hardware, and other technologies which constitute the Aegis
SafetyNet(TM). The options were granted in a transaction which we believe
satisfied the requirements of the exemption from the registration and prospectus
delivery requirements of the Securities Act of 1933 specified by the provisions
of Section 4(2) because Mr. Shouse had a pre-existing relationship with Richard
Reincke, a director of the company and possessed the requisite business acumen
and information which would permit the grant of options.
On December 6, 2002, our board of directors authorized the issuance of 5,000
shares of our common stock to Travis Rosser, an independent contractor who
provided website development services to the company in November and December,
2002, as additional compensation for his design and construction of our
corporate website. We valued the shares at $5,000. The stock was issued as an
23
incentive payment so that Mr. Rosser would complete his work for us on an
expedited basis. The shares were issued in a transaction which we believe
satisfied the requirements of the exemption from the registration and prospectus
delivery requirements of the Securities Act of 1933 specified by the provisions
of Section 4(2) because Mr. Rosser had a pre-existing relationship with the
company and possessed the requisite business acumen and information which would
permit the issuance of stock.
On December 10, 2002, our board of directors
addressed the fact that the company was in arrears in paying salaries to two of
our officers, and had deferred $52,500 of chief executive officer Eric Johnson's
salary and $51,500 of chief operating officer Richard Reincke's salary. In order
to settle that liability, the board resolved, and a majority of shareholders
approved, the issuance of 210,000 shares of our common stock to Eric Johnson and
206,000 shares of our common stock to Richard Reincke in lieu of that cash
compensation owed to them pursuant to their respective employment agreements.
Subsequent to December 10, 2002, we decided that the shares issued to Eric
Johnson and Richard Reincke should be valued at $1.00 per share and cancelled
157,500 of the shares issued to Eric Johnson and 154,500 shares issued to
Richard Reincke leaving a total of 52,500 shares issued for accrued salary to
Eric Johnson and 51,500 shares issued for accrued salary to Richard Reincke. The
shares were issued in a transaction which we believe satisfied the requirements
of the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933 specified by the provisions of Section 4(2) because
our officers had a pre-existing relationship with the company and possessed the
requisite business acumen and information which would permit the issuance of
stock.
On January 15, 2003, we entered into an addendum to the employment agreement of
Robert Alcaraz wherein Mr. Alcaraz agreed to accept 200,000 shares of our common
stock in exchange for allowing us up to and including March 15, 2003 to begin
paying Mr. Alcaraz his accrued salary and signing bonus.
On February 1, 2003 we entered into a consulting agreement for accounting and
bookkeeping services with David Smith, which our board of directors valued at
$100,000. The agreement allowed us to issue Mr. Smith 100,000 shares of our
common stock in lieu of cash for his services. On or about February 28, 2003, we
issued Mr. Smith the 100,000 shares. Specifically, David Smith has agreed to
provide us with bookkeeping and other corporate record keeping services related
to our financial affairs, as well as preparation of financial projections. The
shares were granted in a transaction which we believe satisfied the requirements
of the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933 specified by the provisions of Section 4(2) because
Mr. Smith had a pre-existing relationship with Eric Johnson, an officer and
director of the company, and possessed the requisite business acumen and
information which would permit the issuance of the shares.
On March 19, 2003 we entered into an employment agreement with Richard C.
Grosser, our new chief technology officer. His employment agreement, which is
filed concurrently herewith, specifies that he will receive options to purchase
50,000 shares of our common stock at $1.00 per share in lieu of cash for his
services during the first 60 days of the agreement.
24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On or about December 10, 2002, our board of directors addressed the fact that
the company was in arrears in paying salaries to two of our officers, and had
deferred $52,500 of chief executive officer Eric Johnson's salary and $51,500 of
chief operating officer Richard Reincke's salary. In order to settle that
liability, the board resolved, and a majority of shareholders approved, the
issuance of 210,000 shares of our common stock to Eric Johnson and 206,000
shares of our common stock to Richard Reincke in lieu of that cash compensation
owed to them pursuant to their respective employment agreements. Subsequent to
December 10, 2002, our board of directors decided that the shares issued to Eric
Johnson and Richard Reincke should be valued at $1.00 per share and cancelled
157,500 of the shares issued to Eric Johnson and 154,500 shares issued to
Richard Reincke leaving a total of 52,500 shares issued for accrued salary to
Eric Johnson and 51,500 shares issued for accrued salary to Richard Reincke. The
shares were issued in a transaction which we believe satisfied the requirements
of the exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933 specified by the provisions of Section 4(2) because
our officers had a pre-existing relationship with the company and possessed the
requisite business acumen and information which would permit the issuance of
stock.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
We filed a report on Form 8-K on March 19, 2003 specifying that the company had
entered into an employment agreement with Richard C. Grosser, our new chief
technology officer. A copy of that agreement is filed as exhibit 10.11 to this
quarterly report.
25
Exhibits Required by Item 601 of Regulation S-B
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation*
3.2 Bylaws*
4. Instruments Defining Rights of Security Holders
5. Opinion Re: legality*
8. Opinion Re: tax matters (not applicable)
10.1 Employment agreement with chief executive officer Eric
Johnson*
10.2 Employment agreement with chief operating officer
Richard Reincke*
10.3 Consulting agreement with Joseph Grillo*
10.4 Consulting agreement with Robert Alcaraz*
10.5 Employment agreement with Robert Alcaraz*
10.6 Stock option plan*
10.7 Consulting Agreement with Gus Shouse***
10.8 Consulting Agreement with Lars Johnson***
10.9 Consulting Agreement with David Smith***
10.10 Addendum to Robert Alcaraz Employment Agreement***
10.11 Employment Agreement with Richard C. Grosser
11. Statement Re: computation of per share earnings (loss)**
15. Letter on unaudited interim financial information
* Previously filed as exhibits to our Registration Statement on Form
SB-2 filed October 9, 2002.
** Included in financial statements
*** Included as exhibits to Amendment No. 4 to our registration
statement filed on February 19, 2003.
26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AEGIS ASSESSMENTS, INC.
By: /s/ Richard Reincke
--------------------
secretary, principal financial officer, principal accounting officer
and chief operating officer
Date: March 21, 2003
27
CERTIFICATIONS
I, Eric Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Aegis Assessments,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Eric Johnson
- ----------------------
Eric Johnson
Chief Executive Officer
28
CERTIFICATIONS
- --------------
I, Richard Reincke, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Aegis Assessments,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Richard Reincke
- ----------------------
Richard Reincke
Secretary and Chief Financial Officer