-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NvaoqlVv7ayM2MVkfu/xDwgdgKGUEEa7cFTQHh1McF5ZUgmSmr3rHiV5iClTkCJk 8dedfIXysPrd/IqSyBhqRQ== 0001157523-04-005716.txt : 20040616 0001157523-04-005716.hdr.sgml : 20040616 20040616151817 ACCESSION NUMBER: 0001157523-04-005716 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEGIS ASSESSMENTS INC CENTRAL INDEX KEY: 0001183075 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 721525702 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-50213 FILM NUMBER: 04866214 BUSINESS ADDRESS: STREET 1: 4100 NEWPORT PLACE STREET 2: SUITE 660 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 877.718.7599 10QSB 1 a4661375.txt AEGIS ASSESSMENTS, INC. 10-QSB 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, 2004 ------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to _____________ Commission file number 000-50213 AEGIS ASSESSMENTS, INC. (Exact name of small business issuer as specified in its charter) Delaware 72-1525702 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 7975 N. Hayden Road, Suite D-363, Scottsdale, AZ 85258 (Address of principal executive offices) 480.778.9140 (Issuer's telephone number) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of the issuer's common equity outstanding as of June 15, 2004 was approximately 17,960,967 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 QUARTER ENDED APRIL 30, 2004 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Balance Sheet as of April 30, 2004 Statements of Operations...............................................3 for the Three and Nine Month Periods Ended April 30, 2004 and April 30, 2003...............................4 Statements of Cash Flows for the Nine month periods ended April 30, 2004 and April 30, 2003...............................................5 Notes to the Financial Statements......................................7 Item 2. Management's Discussion and Analysis..................................15 Item 3. Controls and Procedures...............................................28 PART II OTHER INFORMATION Item 1. Legal Proceedings.....................................................29 Item 2. Changes in Securities.................................................29 Item 6. Exhibits and Reports on Form 8-K......................................30 SIGNATURES ...................................................................31 2 PART I- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Aegis Assessments, Inc. (A Development Stage Company) Condensed Balance Sheet April 30, 2004 (Unaudited) Assets Current Assets Cash $ 213,897 Expense Advance 1,897 ------------ Total Current Assets 215,794 Property and equipment, net of accumulated depreciation of $10,380 146,437 Other Assets 14,616 ------------ Total Assets $ 376,847 ============ Liabilities and Shareholders' Equity Current Liabilities Accounts Payable $ 50,996 Accrued Payroll 145,778 Note Payable 2,358 ------------ Total Current Liabilities 199,132 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. 3 Common stock, $.001 par value; 100,000,000 shares authorized; 17,191,000 shares issued and outstanding at April 30, 2004 17,191 Additional paid-in capital 9,879,826 Stock subscription receivable - related party (67,500) Deficit accumulated during the development stage (9,651,802) ------------ Total shareholders' equity 177,715 ------------ Total liabilities and shareholders' equity 376,847 ============ The accompanying notes are an integral part of the condensed financial statements
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 30,2004 April 30,2003 April 30,2004 April 30,2003 April 30,2004 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) --------------- --------------- --------------- --------------- --------------------- Net revenue -- -- -- -- -- General and administrative expenses - other $ 7,212,665 $ 211,191 $ 8,042,248 $ 1,032,978 $ 9,363,937 General and administrative expenses - related party 86,947 $ 158,713 Consulting fees - related party 53,588 287,065 -------------------------------------------------------------------------------------- Loss before provision for income taxes (7,212,665) (298,138) (8,095,836) (1,191,691) (9,651,002) Provision for income taxes -- 800 -- 800 800 -------------------------------------------------------------------------------------- Net loss $ (7,212,665) $ (298,938) $ (8,095,836) $ (1,192,491) $ (9,651,802) ====================================================================================== Net loss available to common shareholders per common share - basic and diluted $ (0.49) $ (0.03) $ (0.61) $ (0.11) $ (0.86) Weighted average common shares - basic -------------------------------------------------------------------------------------- and diluted 14,759,026 11,051,876 13,278,124 10,669,048 11,221,312 ====================================================================================== 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 (Unaudited) For the period from For the nine For the nine January 16,2002 months ended months ended (inception) to April 30,2004 April 30,2003 April 30,2004 (Unaudited) (Unaudited) (Unaudited) ------------- -------------- ---------------- Net loss $ (8,095,836) $ (1,192,491) $ (9,651,802) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash items included in the net loss: Depreciation 8,031 1,600 10,380 Amortization and expenses related to stock and stock options 7,131,469 783,172 8,066,535 The intrinsic value of non-detachable conversion rights of the Series A 8% preferred stock 9,800 9,800 Issuance of stock for payment of interest 1,184 3,266 Increase in Expense Advance (1,896) (1,896) Increase in Other Assets (14,616) (14,616) Increase in Liabilities: (107,993) 145,778 Accrued payroll 2,022 10,425 63,021 Accounts payable (1,906) Accrued interest officers Advances from officers Accrued expenses - related parties 184,284
5
Note Payable 2,358 2,358 ----------- --------- ---------- (1,077,183) (203,210) (1,367,176) (continued) The accompanying notes are an integral part of the condensed financial statements 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 30,2004 April 30,2003 April 30,2004 (Unaudited) (Unaudited) (Unaudited) ------------- ------------- -------------------- Cash flows used in investing activities: Payments to acquire property $ (130,226) $ (48,219) $ (156,818) and equipment Net cash flows used in investing activities (130,226) (48,219) (156,818) Cash flows provided by financing activities: Proceeds from issuance of preferred stock - 88,000 90,100 Proceeds from issuance of common stock - related party 22,500 22,500 Proceeds from issuance of common stock 1,104,293 53,500 1,307,793 Proceeds from exercise of warrants 283,498 - 283,498 Proceeds from issuance of debenture - 17,000 17,000 Proceeds from notes payable and advances - related parties 583 36,000 17,000 Stock subscription receivable - 30,000 - -------------------------------------------------------- Net cash provided financing activities 1,388,374 247,000 1,737,891 Net increase in cash and cash equivalents 180,965 (4,429) 213,897 Cash and cash equivalents, beginning of 32,932 9,481 - period -------------------------------------------------------- Cash and cash equivalents, end of period $ 213,897 $ 5,052 $ 213,897 ========================================================
6
Exercise of options applied against notes $ 17,000 $ -- ============= ============= Payment of accounts payable with stock $ 12,025 $ -- ============= ============= Conversion of preferred stock to common stock $ 27,500 $ -- ============= ============= Issuance of 104,000 shares of common stock for $ $ 104,000 conversion of accrued officer ============= ============= compensation Issuance of common stock for services $ 7,131,469 $ 1,065,486 ============= ============= Beneficial conversion feature on preferred stock $ $ 9,800 ============= ============= The accompanying notes are an integral part of the condensed financial statements
Aegis Assessments, Inc. (A Development Stage Company) Notes To Financial Statements (unaudited) For The Nine And Three Months Ended April 30, 2004 (Unaudited) and April 30, 2003 (Unaudited), For The Period January 16, 2002 (inception) Through April 30, 2004 1. Basis of Presentation --------------------- The accompanying unaudited condensed financial statements include all adjustments which management believes are necessary for a fair presentation of the Company's financial position at April 30, 2004 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. 7 Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying condensed financial statements should be read in conjunction with our audited financial statements and footnotes as of and for the year ended July 31, 2003, included in our Annual Report on Form 10-KSB. 2. Summary of Significant Accounting Policies ------------------------------------------ New Accounting Pronouncements On May 31, 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not have any financial instruments that fall under the guidance of SFAS 150 and, therefore, the adoption did not have any effect on its financial position or results of operations. Development Stage Operations Aegis Assessments, Inc. (a Development Stage Company) (the "Company") is a development stage company and has limited operating history with no revenues. The Company was incorporated under the laws of the State of Delaware on January 16, 2002. The Company is engaged in the development of a specialized emergency response and communication systems for law enforcement agencies at all levels, the U.S. Department of Defense, and select commercial firms. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 8 Costs of Promotional Materials The cost of promotional materials is expensed as incurred, and includes such items as the cost to produce a corporate capabilities video. The Company incurred promotional costs totaling $261 and $37,050 in the three and nine months ended April 30, 2004 respectively. 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, 2004, 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, 2004, the Company had 6,338,200 outstanding stock options, and warrants that can be converted into approximately 161,332 shares of common stock. Under the treasury stock method, 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: 9 Computer hardware and equipment 7 years Shop equipment 7 years Office furniture 7 years Stock-Based Compensation The Company accounts for its two stock option plans and other stock-based employee compensation using the intrinsic value method and related interpretations, as described more fully in the Company's annual report on Form 10-KSB for the year ended July 31, 2003. Accordingly, compensation expense is recorded on the date of grant only to the extent the current market price of the underlying stock exceeds the option exercise price. During the three months ended April 30, 2004 the Company recorded $600,000 in stock based compensation to employees, and an additional $200,000 in director's fees, both in the form of restricted common shares, valued a $1 per share. In addition two employees were issued three-year options to purchase 2.45 million shares at $3.05 per share, the market value of the shares on the date the options were issued. 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, 2004 2003 2004 2003 ------------- ----------- ------------- ------------ Net loss, as reported $ (7,212,665) $(298,938) $ (8,095,836) $(1,192,491) Add: Stock-based compensation expense included in reporting net loss - - - - Deduct: Stock based employee compensation expense determined under fair value based (4,581,500) (33,260) (4,581,500) (37,826) method ------------- ----------- ------------- ------------ Pro forma net loss $(11,794,165) (332,198) $(12,677,336) (1,230,317) Net loss per share, as reported (0.49) (0.03) (0.61) (0.11) Net loss per share, pro forma (0.80) (0.03) (0.96) (0.12) 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 96% Dividend yield 0
10 Software Development Research and development costs are charged to expense as incurred. However, the costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Costs that are capitalized include direct labor and related overhead. Amortization of capitalized software development costs begins when the product is available for general release. 3. Related Party Transactions In October 2003 two officers who are also major shareholders exercised their options to acquire 170,000 shares for $.10 per share. On July 31, 2003 the Company owed two officers and major shareholders a total of $18,323 for funds advanced the Company and for accrued interest. During the quarter ended October 31, 2003 these amounts were repaid. During October 2002, the Company issued 50,000 shares of its common stock to a related party (the brother of an officer and major shareholder), in exchange for future consulting services valued at $1.00 per share, the fair value per share of the Company's common stock at the date of issuance. The value of the services has been amortized over the term of the agreement, including the final $10,417 in the quarter ended October 31, 2003. During December 2002, the Company issued 50,000 shares of its common stock to a related party (the brother of an officer and major shareholder) in exchange for future consulting services valued at $1.00 per share, the fair value per share of the Company's common stock at the date of issuance. The value of the services has been amortized over the term of the agreement, including the final $7,197 in the quarter ended October 31, 2003. During October 2002, the Company issued options to purchase 225,000 shares of the Company's common stock to a related party (the brother of an officer and major shareholder) in exchange for future consulting services. The fair value of the common stock on the date of issuance was $.25 per share. The fair value of these options amounted to $187,065, which has been amortized over the service period, including the final $35,974 in the quarter ended October 31, 2003. 4. Stock Transactions Common Stock In July 2003, through a private placement the Company authorized 300,000 equity units, each of which consisted of one share of the Company's common stock, one warrant to acquire one share of the Company's common stock at $.50 per share, with an exercise period that expires six months after the purchase, and one warrant to acquire one share of the Company's common stock at $1.50 per share, with an exercise period that expires 18 months after purchase. A total of 254,667 equity units were sold at $1.50 per unit (the "units") and 221,667 of the warrants were exercised during the nine months ended April 30, 2004. Of these amounts, 97,500 warrants were exercised during the quarter ended April 30, 2004. 11 In August 2003, preferred shareholders converted the remaining 5,500 shares of the preferred stock along with related accrued interest into 28,684 shares of common stock. In October 2003, through a private placement the Company authorized the sale of 2,000,000 equity units for $1.50 per unit. Each unit consists of one share of common stock and one warrant to purchase a share of common stock for $.50, with an exercise period that expires six months after the unit is purchased. No units were sold prior to October 31, 2003. As of April 30, 2004 the Company had sold 473,661 units for a total of $710,492, and 345,329 of the warrants were exercised for a total of $172,665. Of these amounts, 365,411 of the units were sold and 262,079 of the warrants were exercised during the quarter ended April 30, 2004. In December 2003 an employee exercised options to acquire 1,800 shares for $1.00 per share. In January 2004 a former consultant exercised options to acquire 10,000 shares for $1.00 per share. In September 2003, 912,500 shares of the Company's common shares were issued to four consultants in exchange for current and future services totaling $ 900,475 based on $1.00 per share, which was the fair value of the Company's common stock on the date of issuance. In addition, the Company was relieved of debt owed one of the consultants in the amount of $12,025. In December 2003, 250,000 restricted shares of the Company's common shares were issued to a consultant in exchange for current and future services totaling $ 250,000 based on $1.00 per share, which was the fair value of the Company's restricted common stock on the date of issuance. In January 2004, 205,000 shares of the Company's common shares were issued to consultants in exchange for current and future services totaling $ 800,500 based on the fair value of the Company's common stock on the dates of issuance. In March 2004, 1,100,000 shares of the Company's common shares were issued to consultants in exchange for current and future services totaling $ 3,080,000 based on the fair value of the Company's common stock on the dates of issuance. In April 2004, 1,122,000 shares of the Company's common shares were issued to consultants in exchange for current and future services totaling $ 1,166,250 based on the fair value of the Company's common stock on the dates of issuance. The Company has issued stock for services since its inception as a means of financing development stage activities. In May 2004 the Company received initial purchase orders for its communication products, and anticipates recording revenues prior to the July 31, 2004 fiscal year end. With the commencement of commercial operations, and with funds from sale of the Company's stock now sufficient to pay for services, the Company revised its estimate of the period to be benefited from the consulting services and expensed the entire amount of the remaining deferred compensation in April 2004. 12 The Company had amortized $364,927 in the value of services received for stock in the six months ended January 31, 2004, leaving a capitalized value at the beginning of the quarter of $1,720,292. In the three months ended April 30, 2004 the Company expensed a total of $6,766,542 in the value of development stage services, including $1,720,292 of capitalized cost as of January 31, 2004, and $5,046,250 of cost incurred in the third quarter. 5. Lease Agreements ---------------- In October 2003, the Company entered into a lease agreement for an industrial building. The lease has an initial term of eighteen months with an option to extend the lease for an additional six-month term thereafter. The monthly payment under the lease is $2,250. Upon execution of the lease the Company paid the first and last months lease payment and a security deposit of $7,000. The facility is used for product research and development. 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 ----------------------------- New Employment Agreements In the quarter ended April 30, 2004 the Company entered into two new employment agreements. Under the terms of the these new agreements the employees are entitled to an aggregate compensation of up to twenty percent of gross margin on sales of Aegis' products through December 31, 2006, were issued 300,000 shares of restricted stock, and were issued 2.45 million options. The options have an exercise price of $3.05, expire is three years, and are fully vested. Financial Results, Liquidity and Management's Plan (Unaudited) The Company has incurred net losses since its inception in January 2002 and has no established sources of revenue. Despite its negative cash flows from operations the Company has been able to obtain additional operating capital through private funding sources. Management's plans include the continued development of the Company's SafetyNet MCP products and a client awareness program that it believes will enhance its ability to generate revenues from the sale of the Company's products. The Company has relied upon equity funding and loans from shareholders since inception. During the nine months ended April 30, 2004, the Company financed its operations through private equity funding. No assurances can be given that the Company can obtain sufficient working capital through the sale of the Company's securities and borrowing, or that the sale of the SafetyNet MCP products will generate sufficient revenues in the future to sustain ongoing operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 13 Preferred Stock From November 2002 through January 2003, the Company sold 18,020 shares of its Series A Preferred Stock (the "preferred stock"). A question arose as to the propriety of the Company's reliance upon a section of the Securities Act of 1933 that the preferred stock was exempt from registration. The potential consequence of the shares not being subject to the exemption created a right of rescission for each investor amounting to the total of their investment. As of October 31, 2003 all the preferred shareholders had exercised their right to convert their preferred shares into common shares. It is possible that their right of rescission may survive the conversion. However, no provision for this contingency has been made in the accompanying financial statements. Litigation In September 2003, the Company filed a complaint in California Superior Court against two former officers of the Company and a related company (the "defendants"), alleging fraud, deceit, conspiracy, breach of contract and seeking rescission of agreements made in April and August 2002 and the return of the cancelled stock certificates representing 1,000,000 cancelled shares of the Company's common stock. In a preliminary ruling, the court ordered that the disputed stock certificates be held at two brokerage firms until the matter is resolved. The parties are working on a stipulation to deposit the disputed share certificates with the court pending the final resolution of the matter. If the Company prevails in this action, the stock will be considered cancelled. Until the court resolves this matter, the shares are included in common shares outstanding although the Company's position is that the stock has been validly cancelled. The Company believed that if they brought suit against the defendants, a cross-complaint would be filed in retaliation. The defendants have filed an amended cross complaint alleging conversion, breach of duty to transfer securities, breach of contract, defamation, and unfair business practices. The Company intends to vigorously prosecute its complaint and defend the cross-complaint. In the event of an unfavorable outcome of the defense against the cross-complaint, the award of damages to defendants could be material. The Company does not have director and officer insurance or some other form of insurance covering the period that gave rise to these events. The Company 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. 14 7. Subsequent Events In October 2003, the Company authorized through a private placement the sale of 2,000,000 equity units for $1.50 per unit. Each unit consists of one share of common stock and one warrant to purchase a share of common stock for $.50, with an exercise period that expires six months after the unit is purchased. As of June 10, 2004 the Company has sold 909,993 units for a total of $1,364,990. In addition, shareholders have exercised 549,329 warrants for a total of $274,665. On May 24, 2004 the Company entered into a distribution agreement with JAD Corporation of America and received an initial $2.4 million purchase order for Aegis' communication products. On June 1, 2004 the Company received a first progress payment of $350,000 from JAD Corporation of America pursuant to the May 24, 2004 purchase order. On May 25, 2004 the Company entered into an agreement with Lark Investments, Inc. to provide services incidental to listing the Company's stock on the American Stock Exchange. Lark received 50,000 shares of restricted common stock for their services. On May 25, 2004 the Company entered into an agreement with Market Byte, LLC to provide financial marketing and public relations services. Market Byte received 100,000 shares of restricted common stock for their services. 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 three and nine months ended April 30, 2004, 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 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) belief that there is a national market for its products; (ii) belief that if the trend of various agencies receiving grant funds for interoperable equipment throughout the United States by the DHS continues, that it will have a significant positive impact on the Company's ability to sell SafetyNet Radio Bridges to public safety agencies; (iii) belief that grant funds are now being disbursed to local public safety agencies throughout the United States by the DHS for interoperable communications equipment; (iv) belief that the growing trend of governments passing in-building ordinances will create a market for the Wireless Life Safety System and that his product will meet the specific requirements; (v) anticipation that further cash resources will accrue over the next 12 months from sales of its products; and (vi) expectation of generating revenues in the fourth fiscal quarter of 2004. 15 Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include, without limitation, (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 "Certain Risk Factors Affecting Our Business," as well as other factors that we are currently unable to identify or quantify, but may exist in the future. In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Executive Overview Business Summary We develop and sell leading-edge wireless and security technologies for the U.S. government, public safety agencies, and private corporations for Homeland Security applications through our SafetyNet(TM) suite of products. Our goal is to be the standard in secure interoperable communication systems that improve emergency response capabilities. 16 Our Technologies We have developed patent-pending products for public safety agencies and commercial end-users. These include our SafetyNet Radio Bridge(TM) and SafetyNet Mobile Command Post(TM) for public safety agencies and our SafetyNet Wireless Life Safety System(TM) for commercial applications. The SafetyNet systems can be used in a broad array of applications, such as security and life safety systems for high-rise buildings; portable video and data for special event security; mobile surveillance tool for private security; added security for construction sites, shipping yards, etc.; command and control oversight for large multi-jurisdictional emergency response; coordinating clean up of hazardous material spills on highways; organizing and controlling collapse search and rescue units; and surveillance. o SafetyNet Radio Bridge. A major problem for first responders to the scene of an emergency situation is the absence of interoperable radio equipment between various agencies and jurisdictions. Local law enforcement, fire departments, and emergency medical personnel often are in a situation where they are equipped with hand-held radios that cannot communicate with one another. These devices typically operate on different frequencies or use different modulation schemes. The SafetyNet Radio Bridge interconnects these radios instantly, bridging these devices beyond their normal capabilities. As a result, the emergency personnel can more efficiently communicate with one another at the scene, which can speed up rescue efforts and reduce the risk of injury or death to emergency personnel. o SafetyNet Mobile Command Post. This product provides real-time streaming video, audio, secure messaging, and other data from the emergency scene so commanders or outside subject matter experts can see exactly what is happening, eliminating the need to relay large amounts of verbal information. This information sharing allows decision-makers to access the most up-to-the-second information available from the crisis site itself and also promotes coordination between police, firefighters and emergency medical personnel. The Mobile Command Post has built-in sensors that allow first responders to monitor and analyze nuclear, biological and chemical events. o SafetyNet Wireless Life Safety System. This product is designed primarily to be used inside buildings or other large commercial structures to provide facility managers and emergency responders with a reliable emergency management and communications system that includes broadband video, audio, two-way radio, and other data from life safety devices that can be used to monitor, direct, communicate and share with public safety agencies. Critical Accounting Policies We have identified the following policies as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout the Management's Discussion and Analysis where such policies affect our reported and expected financial results. 17 o Revenue Recognition. Our revenue recognition policy will be significant because our revenue will be a key component of our results of operations. We will recognize revenues when evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and collectability is reasonably assured. Our products are delivered F.O.B. origin at the manufacturing facility and are shipped by a freight forwarder specified by our distributor at the distributor's expense. o Warranty Costs. We warrant our products from manufacturing defects for a period of one year from the date of shipment to the end-user (i.e., police department, fire department or other public safety agency or commercial customer). After the warranty period expires, we will repair our products on a time and materials basis. We track historical data related to returns and related warranty costs on a quarterly basis. o Concentration of Credit Risk. Our accounts receivable potentially subject us to concentrations of credit risk. We typically make sales on credit and we generally do not require collateral. We perform ongoing credit evaluations of our customers' financial condition and maintain an allowance for estimated potential losses. Uncollectible accounts are written off when deemed uncollectible, and accounts receivable are presented net of an allowance for doubtful accounts. Recent Events We demonstrated our SafetyNet Radio Bridge to various United States government representatives on March 25, 2004 at the Space and Naval Warfare Systems Center in San Diego, California, or "SPAWAR." SPAWAR provides technical support for the Office of Domestic Preparedness, which is the program office within the Department of Homeland Security, or "DHS," that is responsible for enhancing the capacity of state and local jurisdictions to respond to, and mitigate the consequences of, incidents of domestic terrorism. SPAWAR agreed to purchase the SafetyNet Radio Bridge for further testing and evaluation. On May 7, 2004, SSC-San Diego issued a purchase order for an 8-channel SafetyNet Radio Bridge. On May 21, 2004, we entered into an exclusive distribution agreement with JAD Corporation of America, headquartered in New York City, which included an initial order for $2.4 million for SafetyNet Radio Bridge units. We received the initial progress payment of $350,000 pursuant to that agreement on June 1, 2004. During the week of June 7 through 9, 2004 we participated in Weapons of Mass Destruction Civil Support Team, or "WMD-CST," exercises hosted by the Kauai Civil Defense Agency. The exercises simulated various Weapon of Mass Destruction, or "WMD," scenarios. Participants included the 93D WMD-CST Hawaii National Guard and WMD-CST Alaska National Guard; the Kauai Police Department; the Kauai Fire Department; the American Red Cross; Kauai Department of Health and the Department of Land & Natural Resources. These exercises gave us an opportunity to use the SafetyNet Radio Bridge in a large mock exercise and work with National Guard, police and fire communications teams in simulated WMD incidents and responses. 18 We presented our Wireless Life Safety System in New York City at the Associated Builders and Owners of Greater New York, Inc., or "ABO," Trade Show on June 8 and 9, 2004. ABO membership encompasses a broad spectrum of the real estate industry. Members include the region's most prominent builders, developers, owners and entrepreneurs, as well as architects, engineers, planners, building materials suppliers, contractors, managing agents, bankers, and other allied professionals. In addition, ABO maintains strong relationships with other real estate industry associations. Future Outlook Over the course of the next twelve months, we will focus our attention on marketing and mass-producing Radio Bridge units while we complete development of our Wireless Life Safety System. We intend to outsource sales, distribution and manufacturing functions so that we leverage our fixed costs. We anticipate increasing revenues over the next 12 months as our products are distributed to end-users. We believe that there is a national market for our SafetyNet Radio Bridge. The lack of radio interoperability for first responders to emergency situations has received tremendous recent media attention as a new report by the federal commission investigating the September 11 terrorist attacks found that rescuers were forced to make rapid-fire, life-and-death decisions based on incomplete communications, contributing to the World Trade Center death toll. To address this problem, the DHS is launching a new office for interoperability and compatibility that will coordinate communications interoperability, equipment and training compatibility between federal, state, and local governments. In 2003, the DHS awarded $79 million for communication interoperability pilot projects in 17 communities. In order to reduce the time and effort spent by first responders and state and local governments, the DHS also announced that it has streamlined the grant process by eliminating multiple applications and consolidating various administrative procedures into a single process. This greatly reduces the time in which funding can be made available. In 2004, five distinct programs, the State Homeland Security Grant Program, the Law Enforcement Terrorism Prevention Grant Program, the Citizen Corps Grant Program, the Urban Areas Security Initiative, and the Mass Transit Security Program, were integrated into two consolidated grant programs. We have been informed that many of the agencies we have been working with for the last two years have received grant funds for interoperable equipment and we believe that grant funds are now being disbursed to local public safety agencies throughout the United States by the DHS for interoperable communications equipment. If this trend continues, we believe it will have a significant positive impact on our ability to sell SafetyNet Radio Bridges to public safety agencies. 19 However, notwithstanding the foregoing, due to our long sales cycles and the uncertainty of grant funding, we do not depend materially on grant funds being available. Our wireless products, including the SafetyNet Radio Bridge and the Wireless Life Safety System, have significant commercial applications and we are marketing these products to the private sector. Although most of our research and development on the Wireless Life Safety System has been completed, during the next twelve months we anticipate beta-testing the system in test sites on the east and west coasts. We currently are reviewing potential beta-test sites. Initially we will be targeting Class-A type high-rises and campus-style facilities. However, we think a market for retrofitting Wireless Life Safety Systems in Class-B type high-rises and commercial facilities also will develop as regulatory authorities address the need for interoperable wireless communications inside structures. There is a growing trend toward establishing in-building communications ordinances to regulate both indoor wireless public safety communications and wireless life safety systems. In November 2002, the Public Safety Wireless Network, or "PSWN," released a report regarding in-building ordinances and their benefits to interoperability. The PSWN report stated that one specific area of wireless communications that has become increasingly important to public safety professionals is the need to provide adequate wireless communications to these professionals while they operate inside buildings. The commercial real estate market has recognized that a key homeland security initiative throughout the United States is provision for reliable inside wireless coverage for first responders to emergency situations. Post 9/11, the number of ordinances passed has dramatically increased as government funding has become more readily available to support this initiative at the local, city, and state level. For example, local governments in California, Arizona, Colorado, Nevada, Texas, Florida, Illinois, Rhode Island, Massachusetts, Connecticut, Utah and Nebraska have passed in-building ordinances to address this issue. We believe the Wireless Life Safety System will meet existing and proposed requirements in this emerging market and that this trend will assist us in marketing our Wireless Life Safety System to commercial and residential facilities. We also plan to apply for product liability protections under the SAFETY Act. As part of the Homeland Security Act of 2002, Public Law 107-296, Congress enacted the SAFETY Act to provide "risk management" and "litigation management" protections for sellers of qualified anti-terrorism technologies and others in the supply and distribution chain. The aim of the Act is to encourage the development and deployment of anti-terrorism technologies that will substantially enhance the protection of the nation. Specifically, the SAFETY Act creates certain liability limitations for "claims arising out of, relating to, or resulting from an act of terrorism" where qualified anti-terrorism technologies have been deployed. It also confers other benefits. We are preparing an application to be awarded SAFETY Act protections; however, there can be no assurance that we will receive a designation and certification under the Act. 20 Now that we have commercialized our technologies, we plan to apply for listing on the American Stock Exchange. AMEX is a centralized exchange that utilizes specialists to maintain a fair and orderly market. In addition to certain quantitative standards, AMEX considers the nature of a company's business, the market for its products, the reputation of its management, its historical record and pattern of growth, its financial integrity, its demonstrated earning power and its future outlook. We believe a listing on AMEX would increase our ability to reach an expanded shareholder base and increase our exposure to the investment community. In conjunction with our listing application, we intend to obtain analyst and research coverage of our Company. Over the last quarter, we have received significant media coverage and we plan to continue publicizing our progress in providing interoperable and wireless life safety products to public safety agencies and the commercial sector. Results of Operations We have incurred losses since our inception and have, until recently, relied on the sale of our equity securities and on loans from our officers to fund our operations. During the most recent completed fiscal quarter ended April 30, 2004, we did not generate any revenues from operations. However, as specified above, we have subsequent to the end of the quarter received initial purchase orders and anticipate recording revenues by our July 31, 2004 fiscal year end. We have historically been amortizing stock grants to consultants based on the contractual term of each consulting agreement. The consultants were primarily engaged to help bring our products to market and to assist us with exiting the development stage. In the quarter ending April 30, 2004, all remaining deferred compensation was therefore expensed. Liquidity and Capital Resources At April 30, 2004, we had $213,897 in cash and cash equivalents, as compared with $5,052 in cash and cash equivalents at the end of the equivalent period ended April 30, 2003. The increase was due to the sale of our equity securities, including common stock and warrants to purchase common stock, during the period. As of April 30, 2004, we had current liabilities, inclusive of accounts payable, accrued payables and a note payable, in the amount of $199,132. We are continuing to raise funds for operations through a private placement of our equity securities. Proceeds from the issuance of common stock during the three month period ended April 30, 2004 totaled $548,117, with an additional $179,790 in proceeds raised from the exercise of warrants. On May 21, 2004, we entered into an exclusive distribution agreement with JAD Corporation of America, headquartered in New York City, which included an initial order for $2.4 million for SafetyNet Radio Bridge units. We received the initial progress payment of $350,000 pursuant to that agreement on June 1, 2004. Now that we have begun generating revenues from the sale of our products, we expect to conclude the offering of our equity securities in the near future. 21 From inception (January 16, 2002) to April 30, 2004, we have accumulated a total net loss of $9,651,802. However, now that we have recently commenced commercial operations, we expect to begin decreasing that deficit. We intend to focus on generating revenues by marketing our commercially viable products and technology to both the public and private sectors. We presently have cash and cash equivalents sufficient to satisfy our cash requirements for the next 12 months. We anticipate further cash resources will accrue over the next 12 months from sales of our products. However, we plan to raise an additional $3 to $5 million in order to fund our cost of sales and meet the asset requirements for a listing on AMEX. Employees In January and February 2004 we opened a national sales office in Scottsdale, Arizona, where we have consolidated our sales, marketing, administrative, and executive offices. We currently have 9 full-time employees. In addition to our full-time employees, we have consultants who currently provide administrative and advisory services similar to those that would be provided by full and part-time employees. We have also entered into consulting agreements to obtain counsel and services relating to marketing, product development, financial matters, media relations and business development. We anticipate hiring additional employees over the next twelve months to augment our administrative infrastructure, as we plan to expand our staff due to our anticipated increase in sales of our products and the resulting increased infrastructure and product support requirements. Because we have entered into a distribution agreement with JAD Corp. of America, we do not anticipate employing a large sales force. Moreover, because we presently are outsourcing our manufacturing operations, we do not anticipate hiring a significant number of employees for assembling our products. 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 not yet recorded any revenue, although we expect to generate revenues in the fourth quarter. 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. 22 Certain Risk Factors Affecting Our Business Our business involves a high degree of risk. Potential investors should carefully consider the risks and uncertainties described below and the other information in this report before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected. This could cause the trading price of our common stock to decline, with the loss of part or all of an investment in the common stock. We have a limited operating history and there is no assurance that our company will achieve profitability. Until recently, we have had no significant operations with which to generate profits or greater liquidity. Although we have recently entered into a distribution agreement that is expected to provide some amount of revenues, we have not yet generated a sufficient amount of operating revenue to sustain our projected operations. We have a very limited current operating history on which investors can evaluate our potential for future success. Our ability to generate revenue is uncertain and we may never achieve profitability. Potential investors should evaluate our company in light of the expenses, delays, uncertainties, and complications typically encountered by early-stage businesses, many of which will be beyond our control. These risks include: o lack of sufficient capital, o unproven business model, o marketing difficulties, o competition, and o uncertain market acceptance of our products and services. As a result of our limited operating history, our plan for growth, and the competitive nature of the markets in which we may compete, our company's historical financial data are of limited value in anticipating future revenue, capital requirements, and operating expenses. Our planned capital requirements and expense levels will be based in part on our expectations concerning capital investments and future revenue, which are difficult to forecast accurately due to our current stage of development. We may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenue. Our product development, marketing and general administrative expenses may increase significantly as we begin to ramp up our sales and expand operations. To the extent that these expenses precede or are not rapidly followed by a corresponding and commensurate increase in revenue or additional sources of financing, our business, operating results, and financial condition may be materially and adversely affected. We may need significant infusions of additional capital. To date, we have relied exclusively on outside financing to obtain the funding necessary to operate the business. Based upon our current cash reserves and forecasted operations, we may need to obtain additional outside funding in the future in order to further satisfy our cash requirements. Our need for additional capital to finance our business strategy, operations, and growth will be greater should, among other things, revenue or expense estimates prove to be incorrect. We cannot predict the timing or amount of our capital requirements at this time. If we fail to arrange for sufficient capital on a timely basis in the future, we may be required to reduce the scope of our business activities until we can obtain adequate financing. We may not be able to obtain additional financing in sufficient amounts or on acceptable terms when needed, which could adversely affect our operating results and prospects. Debt financing must be repaid regardless of whether or not we generate profits or cash flows from our business activities. Equity financing may result in dilution to existing shareholders and may involve securities that have rights, preferences, or privileges that are senior to our common stock. 23 We may face significant competition. There are existing companies that offer or have the ability to develop products and services that will compete with those that we currently offer or may offer in the future. These include large, well-recognized companies which have substantial resources and established relationships in the markets in which we compete. Their greater financial, technical, marketing, and sales resources may permit them to react more quickly to emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion, and sale of competing products and services. Emerging companies also may develop and offer products and services that compete with those that we offer. We depend materially upon acceptance of our products by specific agencies and markets and if these agencies and markets do not purchase or are not receptive to our products, our revenues will be adversely affected and we may not be able to expand into other markets. Our business and results of operations will be materially and adversely affected if a substantial number of law enforcement, fire, rescue, other emergency response and public safety agencies, as well as commercial end users for homeland security and life safety applications, do not purchase our SafetyNet products, including the SafetyNet Radio Bridge, the SafetyNet Mobile Command Post and the SafetyNet Wireless Life Safety System. In addition, we may not be able to expand sales of our products into other markets if our products are not widely accepted by these agencies or markets. This also would have an adverse affect on our business and results of operations. Our growth prospects will be diminished if our SafetyNet products, including the SafetyNet Radio Bridge, the SafetyNet Mobile Command Post and the SafetyNet Wireless Life Safety System are not widely accepted. We have not yet generated any revenue from the sale of our SafetyNet products. Our funding came primarily from the sale of equity securities in the Company. However, we expect to generate revenues from the sale of our SafetyNet products, including the SafetyNet Radio Bridge, the SafetyNet Mobile Command Post and the SafetyNet Wireless Life Safety System. We expect some revenue related to the SafetyNet Radio Bridge to be generated in the fourth quarter. We expect to depend on sales of these products for the foreseeable future. A decrease in the prices of or demand for these product lines, or their failure to achieve broad market acceptance, would significantly harm our growth prospects, operating results and financial condition. 24 If we are unable to manage our projected growth, our growth prospects may be limited and our future profitability may be adversely affected. We expect our business to grow significantly in the near future. Rapid expansion may strain our current managerial, financial and other resources. If we are unable to manage our growth, our business, operating results, and financial condition could be adversely affected. We will need to continually improve our operations and our financial and other internal systems in order to manage our growth effectively. Any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability. We may face personal injury and other liability claims that could harm our reputation and adversely affect our sales and financial condition. Our products will be depended upon in emergency, rescue and public safety situations that may involve physical harm or even death to individuals, as well as potential loss or damage to real and personal property. Our products may be associated with these injuries or other losses. A person who sustains injuries, the survivors of a person killed, or the owner of damaged or destroyed property in a situation involving the use of our products or the owner of a facility at which such injury, death or loss occurred may bring legal action against us to recover damages on the basis of theories including personal injury, wrongful death, negligent design, dangerous product or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our products. If successful, such claims could have a material adverse effect on our operating results and financial condition. Significant litigation could also result in a diversion of management's attention and resources, negative publicity and an award of monetary damages in excess of our insurance coverage. Our future success will depend on our ability to expand sales through distributors and our inability to take advantage of our existing distribution network or recruit new distributors would negatively affect our sales. Our distribution strategy is to pursue sales through multiple channels with an emphasis on independent distributors. We currently have one existing distribution partner with which we have entered into an exclusive distribution arrangement in the United States. This distributor's inability to successfully sell our products or our inability to retain other distributors who can successfully sell our products would adversely affect our sales. In addition, if we do not competitively price our products, meet the requirements of our current distributor or end-users, provide adequate marketing support, or comply with the terms of our distribution arrangement, our distributor may fail to aggressively market our products or may terminate its relationships with us. These developments would likely have a material adverse effect on our sales. Our reliance on others to sell our products also makes it more difficult to predict our revenues, cash flow and operating results. 25 We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in return. Generally, law enforcement, fire, rescue, other emergency response and public safety agencies, as well as commercial end users for homeland security and life safety applications consider a wide range of issues before committing to purchase our products, including product benefits, training costs, the cost to use our products in addition to or in place of other products, product reliability and budget constraints. The length of our sales cycle may range from a few weeks to as long as several years. We may incur substantial selling costs and expend significant effort in connection with the evaluation of our products by potential customers before they place an order. If these potential customers do not purchase our products, we will have expended significant resources and received no revenue in return. This could adversely affect our operating results and financial condition. Many of our end-users are subject to budgetary and political constraints that may delay or prevent sales. Many of our end-user customers currently are military, government agencies or entities or para-military or quasi-government entities or agencies. These entities and agencies often do not set their own budgets and therefore have little control over the amount of money they can spend. In addition, these entities and agencies experience political pressure that may dictate the manner in which they spend money. As a result, even if an entity or agency wants to acquire our products, it may be unable to purchase them due to budgetary or political constraints. Some orders also may be canceled or substantially delayed due to budgetary, political or other scheduling delays that frequently occur in connection with the acquisition of products by such entities or agencies. Many of our end-users rely on state and federal grants to obtain the necessary funding to purchase our products, the delay or unavailability of which could adversely affect our sales and results of operations. The Department of Homeland Security currently awards funding grants for the purchase of communications equipment that provides interoperability to first responders. These funds are granted through the State Homeland Security Grant Program, the Urban Area Security Initiative, and other grants administered by the Office of Domestic Preparedness (ODP), the Federal Emergency Management Agency (FEMA), and the Transportation Security Administration (TSA). Other Federal agency programs include Department of Justice grants for counter-terrorism and general-purpose law enforcement activities through the Office of Community Oriented Policing Services (COPS), which distributes funding through a wide range of programs, both as grants and cooperative agreements. Additionally, many grants are administered directly through state agencies and administrative offices. Budgetary, political or other constraints or delays in providing or the availability of funding through these grant programs could preclude many of our end-users from being able to purchase our products, which would have an adverse impact on our revenues, results of operations and financial condition. 26 If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights. Our future success depends in part upon our proprietary technology. Our protective measures, including patents, trademarks and trade secret laws, may prove inadequate to fully protect our proprietary rights. The scope of any patent to which we have or may obtain rights may not prevent others from developing and selling competing products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, lengthy and expensive. In addition, our patents may be held invalid upon challenge, or others may claim rights in or ownership of our patents. We may be subject to intellectual property infringement claims, which will cause us to incur litigation costs and divert management attention from our business. Any intellectual property infringement claims against us, with or without merit, could be costly and time-consuming to defend and could divert our management's attention from our business. If our products were found to infringe a third party's proprietary rights, we could be required to enter into royalty or licensing agreements in order to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all. Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and injury to our reputation. Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product. Defects in our products may result in a loss of sales, delay in market acceptance, injury to our reputation, increased warranty costs, recalls and costs associated with such recall efforts. In addition, defects in our products could result in personal injuries or death, as well as significant property damage. Any of these events could have a material adverse affect on our Company. Component shortages could result in our inability to produce sufficient volume to adequately sustain customer demand. This could result in a loss of sales, delay in deliveries and injury to our reputation. Components used in the manufacture of our products may become unavailable or may be discontinued. Delays caused by industry allocations, or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement parts. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition. 27 Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to decline. Our revenues and operating results may vary significantly in the future due to various factors, including, but not limited to increased sales, increased raw material expenses, changes in our operating expenses, market acceptance of our products and services, regulatory changes that may affect the marketability of our products, and budgetary cycles of our targeted customer base. As a result of these and other factors, we believe that period-to-period comparisons of our operating results may not be meaningful in the short term and that you should not rely upon our performance in a particular period as indicating of our performance in any future period. Use of estimates may cause actual financial results to differ. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 reporting period. Actual results could differ from those estimates. Our common stock may be subject to the "penny stock" rules as promulgated under the Exchange Act. In the event that no exclusion from the definition of "penny stock" under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is available, then any broker engaging in a transaction in our company's common stock will be required to provide its customers with a risk disclosure document, disclosure of market quotations, if any, disclosure of the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market values of our company's securities held in the customer's accounts. The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer's confirmation of sale. Certain brokers are less willing to engage in transactions involving "penny stocks" as a result of the additional disclosure requirements described above, which may make it more difficult for holders of our company's common stock to dispose of their shares. ITEM 3. CONTROLS AND PROCEDURES Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-QSB, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls also are designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures. 28 The evaluation of our disclosure controls by our principal executive officer and principal financial officer included a review of the controls' objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our chief executive officer, chief operating officer and chief financial officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on their review and evaluation as of the end of the period covered by this Form 10-QSB, and subject to the inherent limitations all as described above, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective as of the end of the period covered by this report. They are not aware of any significant changes in our disclosure controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. During the period covered by this Form 10-QSB, there have not been any changes in our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION Items 3-5 are not applicable and have been omitted. ITEM 1. LEGAL PROCEEDINGS. Other than as described in our previously filed Quarterly 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 in our previously filed Quarterly Reports, there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. ITEM 2. CHANGES IN SECURITIES. In November 2003, we authorized a private placement of equity units, each of which consisted of one share of our common stock and one warrant to acquire one share of our common stock at $.50 per share, with an exercise period that expires six months after the purchase. During the period February 1, 2004 through April 30, 2004, a total of 365,411 equity units were sold at $1.50 per unit (the "units") for total funds to the Company of $548,117.50. During the same period warrants for 262,079 shares were exercised at $.50 per share for total funds to the company of $131,039.50. 29 The units were offered and sold in a private placement, pursuant to the provisions of Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. The units were offered to purchasers whom the company or its authorized agents believe are "accredited investors", as that term is defined in Rule 501 of Regulation D, and to no more than 35 "non-accredited" investors who had the qualifications necessary to permit the shares of preferred stock to be offered and sold in reliance upon an exemption from the registration requirements of the Act in a transaction not involving any public offering. In March 2004, the Company issued 1,100,000 common shares to consultants for services. In April 2004, the Company issued 1,122,000 shares of the Company's common stock to consultants. 1,100,000 of those shares were issued pursuant to the consulting agreement with Joe A. Dussich, Jr. filed as an exhibit to this quarterly report. The remaining shares were issued to consultants for services. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are either attached hereto or incorporated herein by reference as indicated: Exhibit - ------- Number Description - ------ ----------- 10.1 Employment Agreement with H. Kenneth Edge 10.2 Employment Agreement with Mauro Scigliano 10.3 Consulting Agreement with Joseph Dussich 31 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) The Registrant filed the following Current Reports on Form 8-K during the three-month period covered by this Quarterly Report: o On March 22, 2004, referencing a press release dated March 15, 2004 regarding the appointment of H. Kenneth Edge as President and a director, Michael McBride as a director and David Smith as Chief Financial Officer. The Current Report also referenced a press release dated March 16, 2004, announcing that the U.S. Department of Justice/NIJ Office of Law Enforcement Technology Commercialization (OLETC) is working with the Company to bring the Company's SafetyNet Radio Bridge technology to the law enforcement market. 30 o On April 6, 2004, announcing that the Office for Domestic Preparedness had agreed to purchase the SafetyNet Radio Bridge for further testing and evaluation. 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 15, 2004 By: /s/ David Smith -------------------------------- Chief Financial Officer (Principal Financial Officer and Authorized Officer) 31 EXHIBIT INDEX Exhibit - ------- Number Description - ------ ----------- 10.1 Employment Agreement with H. Kenneth Edge 10.2 Employment Agreement with Mauro Scigliano 10.3 Consulting Agreement with Joseph Dussich 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 32 EX-10.1 2 a4661375ex101.txt AEGIS ASSESSMENTS, INC. EXHIBIT 10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT - PRESIDENT This EMPLOYMENT AGREEMENT - PRESIDENT ("Agreement") is made and entered into in duplicate and shall be effective on April 1, 2004 ("Effective Date"), by and between Aegis Assessments, Inc., a Delaware corporation (sometimes referred to herein as the "Corporation" or "Aegis"), and Harold Kenneth Edge ("President"). RECITALS A. It is the desire of the Corporation to employ a President who will assume the day-to-day operational management of the Corporation, assist the Chief Executive Officer in managing the general business of the Corporation, and establish a National Sales Office in Scottsdale, Arizona to commercially exploit the Corporation's products and technologies for commercial facility security and life safety applications throughout the world, beginning in North America and Europe. B. It is further the desire of the Corporation to employ the President to promote and manage the sales, marketing, development and implementation of the Corporation's products and technologies, including but not limited to (i) the Aegis SafetyNet(TM)Mobile Command Post ("Aegis MCP"), a mobile wireless communication solution and information-sharing platform for emergency responders, (ii) the Aegis SafetyNet(TM)Radio Bridge, a stand-alone product in the process of development which creates a "bridge" between radios operating on different frequencies, and (iii) new wireless life safety and commercial security products (for purposes of this Agreement, the Aegis MCP, the SafetyNet(TM)Radio Bridge, and new products developed from the Corporation's wireless technology and software, may be collectively referred to herein as the "Products" or the "SafetyNet(TM)"). NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS AND UNDERTAKINGS HEREIN SPECIFIED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND EQUITABLY, THE PARTIES AGREE AS FOLLOWS: 1. Term of Agreement. The respective duties and obligations of the parties shall commence on the Effective Date and shall continue until and terminate on December 31, 2006. 2. Duties. Employee shall serve as President of Employer. In his capacity as President of Employer, Employee shall do and perform all services, acts, or things necessary or advisable to manage and conduct the business of Employer, subject to consultation and approval from the Chief Executive Officer and the Board of Directors. It is contemplated by the parties that the services to be performed hereunder shall require substantially all of the President's time during a 40-hour business week. However, provided the President shall devote such time as is necessary to fulfill his obligations to the Corporation specified in this Agreement, he may represent, perform services for, and be employed by, other parties; further provided, however, that such performance by the President does not interfere with his performance of services to the Corporation specified in this Agreement. The President shall, among other things: 1 |X| Consult with the Chief Executive Officer (CEO) to devise a short term (first 3 to 6 months) sales and business development strategy for SafetyNet(TM) products and technologies. During the first 3 to 6 months, he shall work closely with the CEO to identify and close initial sales in order to keep overhead low. |X| Consult with the CEO to devise an overall long term (3 to 5 year) sales and business development strategy for SafetyNet(TM) products and technologies |X| Assist in collecting past due accounts |X| Assist in establishing and managing a National Sales Office in Arizona, including identifying appropriate leaseholds, geographic areas, enterprise zones, and other local incentive programs for setting up new businesses/business relocation |X| Assist the CEO in preparing a National Sales Office Operating Budget |X| Advise the CEO on competing or complementary technologies and/or businesses |X| Work with existing points of contact ("POCs") for public safety agencies, including but not limited to state and federal government agencies, which have a need for Aegis technologies in homeland defense, environmental protection, and other applications, and co-ordinate joint public/private purchases |X| Identify potential product distributors in geographic areas specified by Aegis management |X| Assist the company to develop and maintain distribution, reseller, joint venture, or similar agreements for the products |X| Assist the Corporation to modify existing Aegis technology to develop new products |X| Increase the company's profile and name recognition in various geographic areas by sponsoring, hosting or participating in the corporate sponsorship of various promotional and civic events designed to market and promote the company and its products 2 |X| Consult with the CEO (or an officer or employee of Aegis designated by the CEO) regarding initiatives with the Department of Homeland Security (DHS) and any agencies consolidated with the DHS |X| Consult with the CEO regarding new products and technologies |X| Assist in special projects, as directed by the CEO or Aegis |X| Perform such other duties as are customarily performed by a President and such other duties as reasonably arise from the obligations of the President position specified in this Agreement. 3. Management Power of President. The business affairs of the Corporation and the operation of the business of the Corporation shall be conducted by the officers and administrative staff and employees of the Corporation, including the President, who shall have such power and obligation of direction, management, supervision or control of the officers, administrative staff or other employees of the Corporation and otherwise be involved with the management of the business of the Corporation as determined by the CEO and the Board of Directors. 4. Authority to Contract; Warranties and Representations. The President shall not obligate the Corporation to any contract, agreement, undertaking, commitment or other obligation in excess of $5,000.00 without the advance express approval and consent of the CEO; and shall not obligate the Corporation to any contract, agreement, undertaking, commitment or other obligation in excess of $10,000.00 without the advance express approval and consent of the Board of Directors. 5. Compensation. As compensation hereunder, the Corporation has issued and delivered 300,000 shares of its common stock to the President, and shall grant the President options to purchase up to 1,200,000 additional shares of the Corporation's common stock, at an exercise price of $3.05 per share, pursuant to the Aegis Assessments, Inc. 2002 Stock Option Plan ("Options"), which Options shall vest immediately. Moreover, the Corporation shall allocate a commission of up to twenty percent (20%) of the gross margin on all sales of its products (with the gross margin defined as the revenues derived from the sale of products minus all expenses associated with the cost of goods sold). As additional compensation for the services to be performed hereunder, the President shall be entitled to an allocation of all or part of the total commission specified in this paragraph, as allocated by the Chief Executive Officer of the Corporation at his sole discretion; provided, however, that such allocation must be commercially reasonable and consistent with industry practices. Payment of any commission hereunder is due when the Corporation realizes revenue from the sale of the products and remains subject to any terms of sale, including chargebacks, returns, credits. Moreover, such commission shall not be due and payable until the Corporation has received payment for all such sales in full. 3 6. Reimbursement of expenses. The Corporation shall reimburse the President all reasonable expenses incurred in travel for the Corporation, including attending client meetings, board meetings and educational courses; provided, however, that such expenses have been authorized by the CEO. 7. Ability to Enter into Agreement. The President represents that he is free to enter into this Agreement, and that this engagement does not violate the terms of any agreement between him and any third party. 8. New Developments. The President agrees that all designs, plans, reports, specifications, drawings, inventions, processes, and other information or items produced by the President concerning the development and implementation of the Products or any new or successor products or technologies (whether relating to the Aegis MCP, the SafetyNet(TM) radio bridge, the SafetyNet(TM) software, new products relating to life safety systems, building facility security, or otherwise) will be assigned to the Corporation as the sole and exclusive property of the Corporation and the Corporation's assigns, nominees and successors, as will any copyrights, patents or trademarks obtained by the President while performing services under this Agreement. On request and at the Corporation's expense, the President agrees to help the Corporation obtain patents and copyrights for any new developments. This includes providing data, plans, specifications, descriptions, documentation, and other information, as well as assisting the Corporation in completing any required application or registration. 9. Non-Disclosure of Proprietary and Confidential Information. During the term of this Agreement, the President may have access to Corporation Proprietary Information (as used in this Agreement, the term "Corporation Proprietary Information" shall mean and include, without limitation, any and all marketing and sales data, plans and strategies, financial projections, client lists, prospective client lists, promotional ideas, data concerning the Corporation's services, designs, methods, inventions, improvements, discoveries, designs whether or not patentable, "know-how", training and sales techniques, and any other information of a similar nature disclosed to the President or otherwise made known to the President as a consequence of or through this Agreement during the term hereof. The term Corporation Proprietary Information shall not include any information that (i) at the time of the disclosure or thereafter is or becomes generally available to and known by the public, other than as a result of a disclosure by the President or any agent or representative of the President in violation of this Agreement, or (ii) was available to the President on a non-confidential basis from a source other than the Corporation, or any of the Corporation's officers, directors, employees, agents or other representatives) or other information and data of a secret and proprietary nature which the Corporation desires to keep confidential. The President (and any of his affiliates, related entities, partners, agents and/or employees) agrees and acknowledges that the Corporation has exclusive proprietary rights to all Corporation Proprietary Information, and the President hereby assigns to the Corporation all rights that he might otherwise possess in any Corporation Proprietary Information. Except as required in the performance of the President's duties to the Corporation, the President will not at any time during or after the term hereof, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Corporation Proprietary Information. The President agrees to deliver to the Corporation any and all copies of Corporation Proprietary Information in the possession or control of the President upon the expiration or termination of this Agreement, or at any other time upon request by the Corporation. The provisions of this section shall survive the termination of this Agreement. 4 10. Non-Competition and Non-Circumvention by President. In consideration and recognition of the fact that the President has access to Corporation Proprietary Information under the terms and provisions of this Agreement and that the Corporation will be introducing the President to various customers and potential customers, product manufacturers, retailers and distributors, the President represents, warrants and covenants to the Corporation as follows: (a) The President shall at no time disclose to any person, without the Corporation's prior written consent, any of the terms, conditions or provisions specified in this Agreement unless such disclosure is lawfully required by any federal governmental agency or is otherwise required to be disclosed by law or is necessary in any legal proceeding regarding the subject matter of this Agreement. (b) During the term of this Agreement, the President shall not circumvent the Corporation for the purpose of transacting any business with any person or entity which business shall interfere with any relationship whatsoever between such person or entity and the Corporation, or use any Corporation Proprietary Information to compete with the business of the Corporation. The President shall not, directly or indirectly hire, solicit, or encourage to leave the Corporation's employment, any employee, executive or contractor of the Corporation or hire any such employee, executive or contractor who has left the Corporation's employment or contractual engagement within one year of such employment or engagement. The President shall not hire or engage in any way, any enterprise or person that competes with, or is engaged in a business substantially similar to, the business of the Corporation. (c) The President shall not for a period of one (1) year immediately following the termination of this Agreement with the Corporation, either directly or indirectly (i) make known to any person, firm or corporation the names or addresses of any of the Corporation's clients or any other information pertaining to them or the Corporation's products or services; (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the Corporation's clients either on President's behalf or that of another person, firm or corporation. 5 (d) The President shall not, during the term hereof or for a period of one (1) year following such term, enter into an agreement or contract directly with any manufacturer, retailer or distributor introduced to President by the Corporation for any services provided by the Corporation herein or for any similar services. (e) The President acknowledges and agrees that the representations, warranties and covenants made by the President and set forth in this section are material and that the Corporation would not enter into this Agreement without the President's making such representations, warranties and covenants to the Corporation. (f) The President acknowledges and agrees that any breach by the President of the representations, warranties and covenants contained herein will cause irreparable harm and loss to the Corporation, which harm and loss cannot be reasonably or adequately compensated in damages in an action at law. Therefore, the President expressly agrees that, in addition to any other rights or remedies which the Corporation may possess, the Corporation shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of the representations, warranties and covenants made by the President herein. (g) The terms and provisions of this section shall survive the termination of this Agreement for a period of one (1) year. 11. Termination. This employment contract may be terminated by: (a) Mutual agreement of both parties. (b) Material breach. Either party may terminate this Agreement by transmitting written notice of termination to the other party following a material breach of this Agreement. Such termination shall occur if defaulting party fails to cure such breach within thirty (30) days of such written notice. (c) Disability of the President. If the President is permanently disabled or is otherwise unable to perform his duties because of sickness, injury, or mental incapacity for a period of ninety (90) working days, the Corporation shall have the option to terminate this Agreement. (d) Discharge for cause. In the event the President commits (i) gross misconduct, (ii) fraud, or (iii) other acts of criminal conduct, Aegis may terminate this Agreement immediately upon written notice. (e) Death of the President. 6 12. Sums Due Upon Death of President. If the President dies prior to the expiration of the term of this Agreement, any sums that may be due him under this Agreement as of the date of his death shall be paid to his executors, administrators, heirs, personal representatives, successors, and assigns as soon as reasonably practicable, and the appropriate representative(s) of his estate shall have up to sixty (60) days to exercise any unexercised stock options. 13. Indemnification. Each party shall defend and hold the other party harmless from and against, and shall indemnify the other party for, any loss, liability, damage, judgment, penalty or expense (including administrative costs and expenses, attorney's fees and costs of defense) suffered or incurred by any person, or to any property, in relation to any action or inaction taken by such party, whether intentional, negligent or otherwise, or by any of such party's affiliates, directors, officers, employees, representatives or agents (including attorneys, accountants and financial advisors). 14. Governmental Rules and Regulations. The provisions of this Agreement are subject to any and all present and future statutes, orders, rules and regulations of any duly constituted authority having jurisdiction of the relationship and transactions defined by this Agreement. 15. Notices. All notices, requests, demands or other communications pursuant to this Agreement shall be in writing or by facsimile transmission and shall be deemed to have been duly given (i) on the date of service, if delivered in person, by a nationally recognized courier service, or by facsimile transmission (with the facsimile confirmation of transmission receipt serving as confirmation of service); or (ii) 48 hours after mailing by first class, registered or certified mail, postage prepaid, and properly addressed as follows: If to the Corporation: Aegis Assessments, Inc. 7975 N. Hayden Road, Suite D363 Scottsdale, AZ 85258 If to the President: Harold Kenneth Edge P.O. Box 5214 Scottsdale, AZ 85261 or at such other address as the party affected may designate in a written notice to such other party in compliance with this paragraph. 16. Right to Injunction. The parties hereto acknowledge that the services to be rendered by the President under this Agreement and the rights and privileges granted to the Corporation under the Agreement are of a special, unique, unusual, and extraordinary character which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated by damages in any action at law, and the breach by the President of any of the provisions of this Agreement will cause the Corporation irreparable injury and damage. The President expressly agrees that the Corporation shall be entitled to injunctive and other equitable relief in the event of, or to prevent, a breach of any provision of this Agreement by him. Resort to such equitable relief, however, shall not be construed to be a waiver of any other rights or remedies that the Corporation may have for damages or otherwise. The various rights and remedies of the Corporation under this Agreement or otherwise shall be construed to be cumulative, and no one of the them shall be exclusive of any other or of any right or remedy allowed by law. 7 17. Entire Agreement. This Agreement constitutes the final, complete, and exclusive agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written, and all contemporaneous oral negotiations, agreements, and understandings. This Agreement may be amended only by an instrument in writing that expressly refers to this Agreement and specifically states that such instrument is intended to amend this Agreement and is signed on behalf of both parties. 18. Execution in Counterparts. This Agreement many be executed in several counterparts and by facsimile, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 19. Choice of Law and Consent to Jurisdiction. All questions concerning the validity, interpretation or performance of any of the terms, conditions and provisions of this Agreement or of any of the rights or obligations of the parties, shall be governed by, and resolved in accordance with, the laws of the State of Arizona. Any and all actions or proceedings, at law or in equity, to enforce or interpret the provisions of this Agreement shall be litigated in courts having situs within the State of Arizona. 20. Assignability. Except for those portions of this Agreement which are specifically non-assignable and non-transferable, the attempted assignment or transfer of which shall constitute a material breach of this Agreement, the President shall not assign any of his rights under this Agreement, or delegate the performance of any of his duties hereunder, without the prior written consent of the Corporation. 21. Consent to Agreement. By executing this Agreement, each party, for himself, represents such party has read or caused to be read this Agreement in all particulars, and consents to the rights, conditions, duties and responsibilities imposed upon such party as specified in this Agreement. 22. Attorney's Fees. In the event of a legal proceeding between the parties to enforce a provision under this Agreement, the prevailing party to such action shall be entitled to recover from the other party its reasonable attorney's fees and costs for participating in the legal action. 8 23. Severability. To the extent any provision of this Agreement shall be determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement, and this Agreement shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible. In the absence of such reformation, such part of such provision shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. In furtherance and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. To the extent any provision of this Agreement shall be declared invalid or unenforceable for any reason by any Governmental or Regulatory Authority in any jurisdiction, this Agreement (or provision thereof) shall remain valid and enforceable in each other jurisdiction where it applies. Both parties acknowledges the uncertainty of the law in this respect and expressly stipulate that this Agreement shall be given the construction that renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law. IN WITNESS WHEREOF the parties have executed this Agreement in duplicate and in multiple counterparts, each of which shall have the force and effect of an original, on the date specified in the preamble of this Agreement. CORPORATION: PRESIDENT: Aegis Assessments, Inc., a Delaware corporation By: /s/ Eric Johnson /s/ Harold Kenneth Edge ---------------- ----------------------- Eric Johnson Harold Kenneth Edge Its: President 9 EX-10.2 3 a4661375ex102.txt AEGIS ASSESSMENTS, INC. EXHIBIT 10.2 Exhibit 10.2 EMPLOYMENT AGREEMENT - EXECUTIVE VICE PRESIDENT OF SALES AND MARKETING This Employment Agreement for an Executive Vice President of Sales and Marketing ("Agreement") is made and entered into in duplicate and shall be effective on April 1, 2004 ("Effective Date"), by and between Aegis Assessments, Inc., a Delaware corporation (sometimes referred to herein as the "Corporation" or "Aegis"), and Mauro Scigliano ("Executive Vice President"). RECITALS A. It is the desire of the Corporation to employ an Executive Vice President of Sales and Marketing who will assist the President of the Corporation to commercially exploit the Corporation's products and technologies for public safety, commercial facility security and life safety applications. It is further the desire of the Corporation that the Executive Vice President prepare and effectuate a comprehensive sales and marketing plan to extend sales opportunities for the Products (as that term is defined in Recital B below) into those markets. B. It is further the desire of the Corporation to employ the Executive Vice President to promote, sell, market and commercially exploit the Corporation's products and technologies, including but not limited to (i) the Aegis SafetyNet(TM) Wireless Life Safety System ("WLSS"), (ii) the SafetyNet(TM) Radio Bridge(TM), which creates a "bridge" between radios operating on different frequencies, and (iii) new wireless life safety and commercial security products (for purposes of this Agreement, the WLSS, the SafetyNet(TM) Radio Bridge(TM), and new products developed from the Corporation's wireless technology and software, may be collectively referred to herein as the "Products" or the "SafetyNet(TM)"). NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS AND UNDERTAKINGS HEREIN SPECIFIED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND EQUITABLY, THE PARTIES AGREE AS FOLLOWS: 1. Term of Agreement. The respective duties and obligations of the parties shall commence on the Effective Date and shall continue until and terminate on December 31, 2006. 2. Duties. The Executive Vice President shall be an employee of the Corporation and it is contemplated by the parties that the services to be performed hereunder shall require substantially all of the Executive Vice President's time during a 40-hour business week. The Executive Vice President shall, among other things: 1 |X| Consult with the President to devise a short-term (first 3 to 6 months) sales and business development strategy for SafetyNet(TM) products and technologies. During the first 3 to 6 months, he shall work closely with the President to identify and close initial sales in order to keep overhead low. |X| Consult with the President to devise an overall long term (3 to 5 year) sales and business development strategy for SafetyNet(TM) products and technologies |X| Solicit orders for the Products and services relating to the Products |X| Forward such orders to the Corporation |X| Co-ordinate delivery of the Products to fill such orders with Aegis and the end-users |X| Assist in collecting past due accounts |X| Assist the President in budgeting and operational matters, as directed by the President; provided, however, that the Executive Vice President is not authorized to disburse funds so budgeted, and shall not obligate the Corporation in any manner whatsoever to the payment of any monies whatsoever, whether by contract, agreement, undertaking, commitment, purchase order, lease, or other obligation |X| Assist the Corporation in recruiting, when and as directed, independent sales representatives to effect a national, commission-based sales force for the Products |X| Work with facilities management organizations such as National Association of College and University Business Officers (NACUBO) and Associated Builders and Owners of Greater New York, Inc. (ABO) to promote Aegis Products |X| Develop commercial high-rise retrofitting markets for Aegis Products |X| Identify regional contractors qualified to install and maintain the products in commercial facilities |X| Co-ordinate security association marketing efforts, promotion and trade publication coverage of the SafetyNet(TM) products with the Security Industry Association (SIA) when so directed by Aegis management |X| Advise the President on competing or complementary technologies and/or businesses |X| Work with existing points of contact ("POCs") for public safety agencies, including but not limited to state and federal government agencies, which have a need for Aegis technologies in homeland defense, environmental protection, and other applications, and co-ordinate joint public/private purchases |X| Maintain a database of customers and develop a marketing plan and contact schedule to educate customers on the SafetyNet(TM)products |X| Manage sales relationships with existing customers and develop relationships with new customers |X| Assist the Corporation in preparing sales literature and sales aids; provided, however, that all prices and terms of sale shall be established exclusively by the Corporation |X| Identify potential product distributors in geographic areas specified by Aegis management |X| Assist the company to develop and maintain distribution, reseller, joint venture, or similar agreements for the products |X| Assist the company to modify existing Aegis technology to develop new products |X| After approval from Aegis management, increase the company's profile and name recognition in various geographic areas by sponsoring, hosting or participating in the corporate sponsorship of various promotional and civic events designed to market and promote the company and its products 2 |X| Consult with the President (or an officer or employee of Aegis designated by the President) regarding initiatives with the Department of Homeland Security (DHS) and any agencies consolidated with the DHS |X| Consult with the President regarding new products and technologies |X| Assist in special projects, as directed by Aegis management |X| Perform such other duties as are customarily performed by a Executive Vice President and such other duties as reasonably arise from the obligations of the Executive Vice President position specified in this Agreement. 3. Authority to Contract; Warranties and Representations. The Executive Vice President shall have no power to, and the Executive Vice President shall not, obligate the Corporation in any manner whatsoever to any contract, agreement, undertaking, commitment or other obligation, unless specifically authorized and directed to do so, in advance, by the Corporation's Board of Directors. The Executive Vice President shall not, without specific approval of and direction by the Corporation's Board of Directors, borrow on behalf of the Corporation, purchase capital equipment, or sell any capital assets of the Corporation. 4. Compensation. 4.01 Percentage of Gross Sales. The Corporation shall allocate a commission of up to twenty percent (20%) of the gross margin on all sales of its products (with the gross margin defined as the revenues derived from the sale of products minus all expenses associated with the cost of goods sold). As compensation for the services to be performed hereunder, the Executive Vice President shall be entitled to an allocation of all or part of the total commission specified in the paragraph above, as allocated by the President of the Corporation, at the President's sole discretion; provided, however, that such allocation must be commercially reasonable and consistent with industry practices. Payment of any commission hereunder is due when the Corporation realizes revenue from the sale of the products and remains subject to any terms of sale, including charge-backs, returns, and credits. Moreover, such commission shall not be due and payable until the Corporation has received payment for all such sales in full. 4.02. Stock Options. As additional compensation hereunder, the Corporation shall grant the Executive Vice President options to purchase up to 1,250,000 shares of the Corporation's common stock, at an exercise price of $3.05 per share, pursuant to the Aegis Assessments, Inc. 2002 Stock Option Plan ("Options"), which Options shall vest on the Effective Date hereof. 4.03 Reimbursement of expenses. The Corporation shall reimburse the Executive Vice President all reasonable expenses incurred in travel for the Corporation, including attending client meetings, board meetings and educational courses; provided, however, that such travel expenses have been authorized by the Corporation in advance. 3 5. Promotional Material. The Corporation shall furnish the Executive Vice President with sales, promotional, instructional and related material (including but not limited to electronic literature) necessary for the promotion and sale of the Corporation's products, technology and services, which material shall be exclusively created, authored, approved and provided by the Corporation. Any such materials or sales aids shall be returned to the Corporation at its request. 6. Ability to Enter into Agreement. The Executive Vice President represents that he is free to enter into this Agreement, and that this engagement does not violate the terms of any agreement between him and any third party. 7. New Developments. The Executive Vice President agrees that all designs, plans, reports, specifications, drawings, inventions, processes, and other information or items produced by the Executive Vice President concerning the development and implementation of the Products or any new or successor products or technologies (whether relating to the WLSS, the SafetyNet(TM) Radio Bridge(TM), the SafetyNet(TM) software, new products relating to life safety systems, building facility security, or otherwise) will be assigned to the Corporation as the sole and exclusive property of the Corporation and the Corporation's assigns, nominees and successors, as will any copyrights, patents or trademarks obtained by the Executive Vice President while performing services under this Agreement. On request and at the Corporation's expense, the Executive Vice President agrees to help the Corporation obtain patents and copyrights for any new developments. This includes providing data, plans, specifications, descriptions, documentation, and other information, as well as assisting the Corporation in completing any required application or registration. 8. Non-Disclosure of Proprietary and Confidential Information. During the term of this Agreement, the Executive Vice President may have access to Corporation Proprietary Information (as used in this Agreement, the term "Corporation Proprietary Information" shall mean and include, without limitation, any and all marketing and sales data, plans and strategies, financial projections, client lists, prospective client lists, promotional ideas, data concerning the Corporation's services, designs, methods, inventions, improvements, discoveries, designs whether or not patentable, "know-how", training and sales techniques, and any other information of a similar nature disclosed to the Executive Vice President or otherwise made known to the Executive Vice President as a consequence of or through this Agreement during the term hereof. The term Corporation Proprietary Information shall not include any information that (i) at the time of the disclosure or thereafter is or becomes generally available to and known by the public, other than as a result of a disclosure by the Executive Vice President or any agent or representative of the Executive Vice President in violation of this Agreement, or (ii) was available to the Executive Vice President on a non-confidential basis from a source other than the Corporation, or any of the Corporation's officers, directors, employees, agents or other representatives) or other information and data of a secret and proprietary nature which the Corporation desires to keep confidential. The Executive Vice President (and any of his affiliates, related entities, partners, agents and/or employees) agrees and acknowledges that the Corporation has exclusive proprietary rights to all Corporation Proprietary Information, and the Executive Vice President hereby assigns to the Corporation all rights that he might otherwise possess in any Corporation Proprietary Information. Except as required in the performance of the Executive Vice President's duties to the Corporation, the Executive Vice President will not at any time during or after the term hereof, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Corporation Proprietary Information. The Executive Vice President agrees to deliver to the Corporation any and all copies of Corporation Proprietary Information in the possession or control of the Executive Vice President upon the expiration or termination of this Agreement, or at any other time upon request by the Corporation. The provisions of this section shall survive the termination of this Agreement. 4 9. Non-Competition and Non-Circumvention by Executive Vice President. In consideration and recognition of the fact that the Executive Vice President has access to Corporation Proprietary Information under the terms and provisions of this Agreement and that the Corporation will be introducing the Executive Vice President to various customers and potential customers, product manufacturers, retailers and distributors, the Executive Vice President represents, warrants and covenants to the Corporation as follows: (a) Neither party shall disclose to any person, without the other party's prior written consent, any of the terms, conditions or provisions specified in this Agreement unless such disclosure is lawfully required by any federal governmental agency or is otherwise required to be disclosed by law or is necessary in any legal proceeding regarding the subject matter of this Agreement. (b) During the term of this Agreement, the Executive Vice President shall not circumvent the Corporation for the purpose of transacting any business with any person or entity which business shall interfere with any relationship whatsoever between such person or entity and the Corporation, or use any Corporation Proprietary Information to compete with the business of the Corporation. The Executive Vice President shall not, directly or indirectly hire, solicit, or encourage to leave the Corporation's employment, any employee, executive or contractor of the Corporation or hire any such employee, executive or contractor who has left the Corporation's employment or contractual engagement within one year of such employment or engagement. The Executive Vice President shall not hire or engage in any way, any enterprise or person that competes with, or is engaged in a business substantially similar to, the business of the Corporation. 5 (c) The Executive Vice President shall not for a period of two (2) years immediately following the termination of this Agreement with the Corporation, either directly or indirectly (i) make known to any person, firm or corporation the names or addresses of any of the Corporation's clients or any other information pertaining to them or the Corporation's products or services; (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the Corporation's clients either on Executive Vice President's behalf or that of another person, firm or corporation. (d) The Executive Vice President shall not, during the term hereof or for a period of two (2) years following such term, enter into an agreement or contract directly with any manufacturer, retailer or distributor introduced to Executive Vice President by the Corporation for any services provided by the Corporation herein or for any similar services. (e) The Executive Vice President acknowledges and agrees that the representations, warranties and covenants made by the Executive Vice President and set forth in this section are material and that the Corporation would not enter into this Agreement without the Executive Vice President's making such representations, warranties and covenants to the Corporation. (f) The Executive Vice President acknowledges and agrees that any breach by the Executive Vice President of the representations, warranties and covenants contained herein will cause irreparable harm and loss to the Corporation, which harm and loss cannot be reasonably or adequately compensated in damages in an action at law. Therefore, the Executive Vice President expressly agrees that, in addition to any other rights or remedies which the Corporation may possess, the Corporation shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of the representations, warranties and covenants made by the Executive Vice President herein. (g) The terms and provisions of this section shall survive the termination of this Agreement for a period of two (2) years. 10. Termination. This employment contract may be terminated by: (a) Mutual agreement of both parties. (b) Material breach. Either party may terminate this Agreement by transmitting written notice of termination to the other party following a material breach of this Agreement. Such termination shall occur if defaulting party fails to cure such breach within thirty (30) days of such written notice. 6 (c) Disability of the Executive Vice President. If the Executive Vice President is permanently disabled or is otherwise unable to perform his duties because of sickness, injury, or mental incapacity for a period of ninety (90) working days, the Corporation shall have the option to terminate this Agreement. (d) Discharge for cause. In the event the Executive Vice President commits (i) gross misconduct, (ii) fraud, or (iii) other acts of criminal conduct, Aegis may terminate this Agreement immediately upon written notice. (e) Death of the Executive Vice President. 11. Sums Due Upon Death of Executive Vice President. If the Executive Vice President dies prior to the expiration of the term of this Agreement, any sums that may be due him under this Agreement as of the date of his death shall be paid to his executors, administrators, heirs, personal representatives, successors, and assigns as soon as reasonably practicable. 12. Indemnification. Each party shall defend and hold the other party harmless from and against, and shall indemnify the other party for, any loss, liability, damage, judgment, penalty or expense (including administrative costs and expenses, attorney's fees and costs of defense) suffered or incurred by any person, or to any property, in relation to any action or inaction taken by such party, whether intentional, negligent or otherwise, or by any of such party's affiliates, directors, officers, employees, representatives or agents (including attorneys, accountants and financial advisors). 13. Governmental Rules and Regulations. The provisions of this Agreement are subject to any and all present and future statutes, orders, rules and regulations of any duly constituted authority having jurisdiction of the relationship and transactions defined by this Agreement. 14. Notices. All notices, requests, demands or other communications pursuant to this Agreement shall be in writing or by facsimile transmission and shall be deemed to have been duly given (i) on the date of service, if delivered in person, by a nationally recognized courier service, or by facsimile transmission (with the facsimile confirmation of transmission receipt serving as confirmation of service); or (ii) 48 hours after mailing by first class, registered or certified mail, postage prepaid, and properly addressed as follows: If to the Corporation: Aegis Assessments, Inc. 7975 N. Hayden Road, Suite D363 Scottsdale, AZ 85258 If to the Executive Vice President: Mauro Scigliano 8376 North Via Linda Scottsdale, AZ 85258 7 or at such other address as the party affected may designate in a written notice to such other party in compliance with this paragraph. 15. Right to Injunction. The parties hereto acknowledge that the services to be rendered by the Executive Vice President under this Agreement and the rights and privileges granted to the Corporation under the Agreement are of a special, unique, unusual, and extraordinary character which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated by damages in any action at law, and the breach by the Executive Vice President of any of the provisions of this Agreement will cause the Corporation irreparable injury and damage. The Executive Vice President expressly agrees that the Corporation shall be entitled to injunctive and other equitable relief in the event of, or to prevent, a breach of any provision of this Agreement by him. Resort to such equitable relief, however, shall not be construed to be a waiver of any other rights or remedies that the Corporation may have for damages or otherwise. The various rights and remedies of the Corporation under this Agreement or otherwise shall be construed to be cumulative, and no one of the them shall be exclusive of any other or of any right or remedy allowed by law. 16. Entire Agreement. This Agreement constitutes the final, complete, and exclusive agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written, and all contemporaneous oral negotiations, agreements, and understandings. This Agreement may be amended only by an instrument in writing that expressly refers to this Agreement and specifically states that such instrument is intended to amend this Agreement and is signed on behalf of both parties. 17. Execution in Counterparts. This Agreement many be executed in several counterparts and by facsimile, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 18. Choice of Law and Consent to Jurisdiction. All questions concerning the validity, interpretation or performance of any of the terms, conditions and provisions of this Agreement or of any of the rights or obligations of the parties, shall be governed by, and resolved in accordance with, the laws of the State of Arizona. Any and all actions or proceedings, at law or in equity, to enforce or interpret the provisions of this Agreement shall be litigated in courts having situs within the State of Arizona. 19. Assignability. Except for those portions of this Agreement which are specifically non-assignable and non-transferable, the attempted assignment or transfer of which shall constitute a material breach of this Agreement, the Executive Vice President shall not assign any of his rights under this Agreement, or delegate the performance of any of his duties hereunder, without the prior written consent of the Corporation. 8 20. Consent to Agreement. By executing this Agreement, each party, for himself, represents such party has read or caused to be read this Agreement in all particulars, and consents to the rights, conditions, duties and responsibilities imposed upon such party as specified in this Agreement. 21. Attorney's Fees. In the event of a legal proceeding between the parties to enforce a provision under this Agreement, the prevailing party to such action shall be entitled to recover from the other party its reasonable attorney's fees and costs for participating in the legal action. 22. Severability. To the extent any provision of this Agreement shall be determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement, and this Agreement shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible. In the absence of such reformation, such part of such provision shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. In furtherance and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. To the extent any provision of this Agreement shall be declared invalid or unenforceable for any reason by any Governmental or Regulatory Authority in any jurisdiction, this Agreement (or provision thereof) shall remain valid and enforceable in each other jurisdiction where it applies. Both parties acknowledges the uncertainty of the law in this respect and expressly stipulate that this Agreement shall be given the construction that renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law. IN WITNESS WHEREOF the parties have executed this Agreement in duplicate and in multiple counterparts, each of which shall have the force and effect of an original, on the date specified in the preamble of this Agreement. CORPORATION: EXECUTIVE VICE PRESIDENT: Aegis Assessments, Inc., a Delaware corporation By: /s/ Eric Johnson /s/ Mauro Scigliano ---------------- ------------------- Eric Johnson Mauro Scigliano Its: Chief Executive Officer 9 EX-10.3 4 a4661375ex103.txt AEGIS ASSESSMENTS, INC. EXHIBIT 10.3 Exhibit 10.3 CONSULTING AGREEMENT This CONSULTING AGREEMENT ("Agreement") is made and entered into in duplicate and shall be effective on April 12, 2004 ("Effective Date"), by and between Aegis Assessments, Inc., a Delaware corporation ("Corporation"), and Joe A. Dussich, Jr. ("Consultant"). RECITALS A. It is the desire of the Corporation to promote the use of the Corporation's products and technologies in homeland defense and other applications on the East Coast of the United States, generally, and the States of New York and Connecticut, specifically (hereinafter the "Territory"). B. It is further the desire of the Corporation to engage the services of the Consultant to consult with the Corporation regarding the sales, marketing, development and commercial exploitation of the Corporation's products and technologies, including but not limited to the Aegis SafetyNet(TM)Radio Bridge, a product which creates a "bridge" between radios operating on different frequencies, and the SafetyNet(TM)Wireless Life Safety System (WLSS), a commercial life safety product (for purposes of this Agreement, the Aegis SafetyNet(TM)Radio Bridge and the WLSS, as well as related wireless technology and software, may be collectively referred to herein as the "Products"). It is further the desire of the Corporation that Consultant assist the Corporation in developing points of contact with various public safety agencies located in the Territory; that Consultant identify companies as potential channel partners, distributors or subdistributors for inventorying, selling, servicing and distribution of the Products and related wireless technology and software (collectively, the "SafetyNet(TM)") in the Territory; and, further, that the Consultant contact law enforcement agencies and government agencies in the Territory to promote the use of the Products in homeland defense and other applications in the Territory. C. It is the desire of the Consultant to so consult with the Board of Directors of the Corporation ("Board") and the officers of the Corporation concerning the matters specified in Recital B above; and to further provide the Corporation with his expertise in sales, marketing, business development and public relations to promote the development and implementation of the SafetyNet(TM) with businesses and government agencies throughout the Territory. 1 NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS AND UNDERTAKINGS HEREIN SPECIFIED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND EQUITABLY, THE PARTIES AGREE AS FOLLOWS: 1. Term of Agreement. The respective duties and obligations of the parties shall commence on the Effective Date and shall continue until and terminate on April 12, 2006. 2. Consultations. The Consultant shall consult with the Board and the officers of the Corporation, at reasonable times, concerning any issue of importance regarding the matters specified in Recital B above. The parties agree that time is of the essence due to the nature of this Agreement and the consulting services to be provided to the Corporation by Consultant hereunder. Therefore, Consultant shall make his best efforts to remain accessible to the Corporation at all reasonable times and without regard to Consultant's physical location. Consultant therefore shall keep the Corporation supplied with Consultant's mobile telephone number, email address, current residence address, office address, residence telephone number, office telephone number, pager number, and all other reasonable means of contacting Consultant. Consultant recognizes and agrees that his failure to communicate with the Corporation at reasonable times will deprive the Corporation of the benefits of this Agreement and is cause for terminating this Agreement. 3. Office Facilities. During the term of this Agreement the Consultant shall, at his own expense, maintain physical office facilities located in the State of New York sufficient for the purposes contemplated by this Agreement. The Consultant shall bear his own costs related to leasing, maintaining and operating such office facilities. 4. No Management Power of Consultant. The business affairs of the Corporation and the operation of the business of the Corporation shall be conducted by the officers and administrative staff and employees of the Corporation. The Consultant shall not have any power or obligation of direction, management, supervision or control of the officers, administrative staff or other employees of the Corporation or otherwise be involved with the management of the business of the Corporation during the term of this Agreement. 5. Authority to Contract. The Consultant shall have no power to, and the Consultant shall not, obligate the Corporation in any manner whatsoever to any contract, agreement, undertaking, commitment or other obligation. 6. Compensation. In lieu of cash compensation, the Corporation shall issue to Consultant one million one hundred thousand (1,100,000) shares of the Corporation's common stock on the Effective Date and, provided Consultant performs his obligations hereunder, the Corporation shall register one hundred thousand (100,000) of such shares with the Securities and Exchange Commission for resale by the Consultant. The Corporation shall register and deliver such shares to the Consultant within ninety (90) days. Consultant shall make a monthly report to the Corporation's Board of Directors, specifying the services performed in the preceding month. 2 7. Services of Consultant Not Exclusive. The Consultant shall devote such time as is necessary to fulfill his obligations to the Corporation specified in this Agreement. The Consultant may represent, perform services for, and be employed by, any additional persons as the Consultant, in the Consultant's sole discretion, determines to be necessary or appropriate; provided, however, that such performance by Consultant does not interfere with Consultant's performance of services to the Corporation specified in this Agreement. 8. Relationship Created. The Consultant is not an employee of the Corporation for any purpose whatsoever, but is an independent contractor. The Corporation is interested only in the results obtained by the Consultant. The Consultant shall have the sole and exclusive control of the manner and means of performing. Accordingly, and without limitation, the Corporation shall not have the right to require the Consultant to collect accounts, investigate customer or shareholder complaints, attend meetings, periodically report to the Corporation, follow prescribed itineraries, keep records of business transacted, make adjustments, conform to particular policies of the Corporation, or do anything else outside of requiring the Consultant to consult with the Corporation concerning the matters specified in this Agreement. All expenses and disbursements, including, but not limited to, those for travel and maintenance, entertainment, office, clerical and general administrative expenses, that may be incurred by the Consultant in connection with this Agreement shall be borne and paid wholly and completely by the Consultant, and the Corporation shall not be in any way responsible or liable therefor. 9. New Developments. Consultant agrees that all designs, plans, reports, specifications, drawings, inventions, processes, and other information or items produced by Consultant concerning the development and implementation of the Products or any new or successor products or technologies will be assigned to the Corporation as the sole and exclusive property of the Corporation and the Corporation's assigns, nominees and successors, as will any copyrights, patents or trademarks obtained by Consultant while performing services under this Agreement. On request and at the Corporation's expense, Consultant agrees to help the Corporation obtain patents and copyrights for any new developments. This includes providing data, plans, specifications, descriptions, documentation, and other information, as well as assisting the Corporation in completing any required application or registration. 10. Non-Disclosure of Proprietary and Confidential Information By Consultant. During the term of this Agreement, Consultant may have access to Corporation Proprietary Information (as used in this Agreement, the term "Corporation Proprietary Information" shall mean and include, without limitation, any and all marketing and sales data, plans and strategies, financial projections, client lists, prospective client lists, promotional ideas, data concerning the Corporation's services, designs, methods, inventions, improvements, discoveries, designs whether or not patentable, "know-how", training and sales techniques, and any other information of a similar nature disclosed to Consultant or otherwise made known to Consultant as a consequence of or through this Agreement during the term hereof. The term Corporation Proprietary Information shall not include any information that (i) at the time of the disclosure or thereafter is or becomes generally available to and known by the public, other than as a result of a disclosure by Consultant or any agent or representative of Consultant in violation of this Agreement, or (ii) was available to Consultant on a non-confidential basis from a source other than the Corporation, or any of the Corporation's officers, directors, employees, agents or other representatives) or other information and data of a secret and proprietary nature which the Corporation desires to keep confidential. Consultant (and any of his affiliates, related entities, partners, agents and/or employees) agrees and acknowledges that the Corporation has exclusive proprietary rights to all Corporation Proprietary Information, and Consultant hereby assigns to the Corporation all rights that he might otherwise possess in any Corporation Proprietary Information. Except as required in the performance of Consultant's duties to the Corporation, Consultant will not at any time during or after the term hereof, directly or indirectly use, communicate, disclose, disseminate, lecture upon, publish articles or otherwise put in the public domain, any Corporation Proprietary Information. Consultant agrees to deliver to the Corporation any and all copies of Corporation Proprietary Information in the possession or control of Consultant upon the expiration or termination of this Agreement, or at any other time upon request by the Corporation. The provisions of this section shall survive the termination of this Agreement. 3 11. Non-Competition and Non-Circumvention by Consultant. In consideration and recognition of the fact that Consultant has access to Corporation Proprietary Information under the terms and provisions of this Agreement and that the Corporation will be introducing Consultant to various customers and potential customers, product manufacturers, retailers and distributors, Consultant represents, warrants and covenants to the Corporation as follows: (a) Consultant shall at no time disclose to any person, without the Corporation's prior written consent, any of the terms, conditions or provisions specified in this Agreement unless such disclosure is lawfully required by any federal governmental agency or is otherwise required to be disclosed by law or is necessary in any legal proceeding regarding the subject matter of this Agreement. (b) During the term of this Agreement, Consultant shall not circumvent the Corporation for the purpose of transacting any business with any person or entity which business shall interfere with any relationship whatsoever between such person or entity and the Corporation, or use any Corporation Proprietary Information to compete with the business of the Corporation. Consultant shall not solicit any of the Corporation's employees, independent contractors or agents for employment. Consultant shall not hire or engage in any way, any enterprise or person that competes with, or is engaged in a business substantially similar to, the business of the Corporation. 4 (c) Consultant shall not for a period of two (2) years immediately following the termination of this Agreement with Corporation, either directly or indirectly (i) make known to any person, firm or corporation the names or addresses of any of the Corporation's clients or any other information pertaining to them or the Corporation's products or services; (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the Corporation's clients either on Consultant's behalf or that of another person, firm or corporation. (d) Consultant shall not, during the term hereof or for a period of two (2) years following such term, enter into an agreement or contract directly with any manufacturer, retailer or distributor introduced to Consultant by the Corporation for any services provided by the Corporation herein or for any similar services. (e) Consultant acknowledges and agrees that the representations, warranties and covenants made by Consultant and set forth in this section are material and that the Corporation would not enter into this Agreement without Consultant's making such representations, warranties and covenants to the Corporation. (f) Consultant acknowledges and agrees that any breach by Consultant of the representations, warranties and covenants contained herein will cause irreparable harm and loss to the Corporation, which harm and loss cannot be reasonably or adequately compensated in damages in an action at law. Therefore, Consultant expressly agrees that, in addition to any other rights or remedies which the Corporation may possess, the Corporation shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of the representations, warranties and covenants made by Consultant herein. (g) The terms and provisions of this section shall survive the termination of this Agreement for a period of two (2) years. 12. Indemnification. Each party shall defend and hold the other party harmless from and against, and shall indemnify the other party for, any loss, liability, damage, judgment, penalty or expense (including administrative costs and expenses, attorney's fees and costs of defense) suffered or incurred by any person, or to any property, in relation to any action or inaction taken by such party, whether intentional, negligent or otherwise, or by any of such party's affiliates, directors, officers, employees, representatives or agents (including attorneys, accountants and financial advisors). 5 13. Governmental Rules and Regulations. The provisions of this Agreement are subject to any and all present and future statutes, orders, rules and regulations of any duly constituted authority having jurisdiction of the relationship and transactions defined by this Agreement. 14. Notices. All notices, requests, demands or other communications pursuant to this Agreement shall be in writing or by facsimile transmission and shall be deemed to have been duly given (i) on the date of service, if delivered in person or by facsimile transmission (with the facsimile confirmation of transmission receipt serving as confirmation of service); or (ii) 48 hours after mailing by first class, registered or certified mail, postage prepaid, and properly addressed as follows: If to the Corporation: Aegis Assessments, Inc. 7975 N. Hayden Road, Suite D363 Scottsdale, AZ 85258 If to the Consultant: Joe A. Dussich, Jr. 20-48 119th Street College Point, NY 11246 or at such other address as the party affected may designate in a written notice to such other party in compliance with this paragraph. 15. Entire Agreement. This Agreement constitutes the final, complete, and exclusive agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written, and all contemporaneous oral negotiations, agreements, and understandings. This Agreement may be amended only by an instrument in writing that expressly refers to this Agreement and specifically states that such instrument is intended to amend this Agreement and is signed on behalf of both parties. 16. Execution in Counterparts. This Agreement many be executed in several counterparts and by facsimile, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 17. Choice of Law and Consent to Jurisdiction. All questions concerning the validity, interpretation or performance of any of the terms, conditions and provisions of this Agreement or of any of the rights or obligations of the parties, shall be governed by, and resolved in accordance with, the laws of the State of California. Any and all actions or proceedings, at law or in equity, to enforce or interpret the provisions of this Agreement shall be litigated in courts having situs within the State of California. 6 18. Assignability. Neither party shall sell, assign, transfer, convey or encumber this Agreement or any right or interest in this Agreement or pursuant to this Agreement, or suffer or permit any such sale, assignment, transfer or encumbrance to occur by operation of law without the prior written consent of the other party. 19. Consent to Agreement. By executing this Agreement, each party, for himself, represents such party has read or caused to be read this Agreement in all particulars, and consents to the rights, conditions, duties and responsibilities imposed upon such party as specified in this Agreement. 20. Attorney's Fees. In the event of a legal proceeding between the parties to enforce a provision under this Agreement, the prevailing party to such action shall be entitled to recover from the other party its reasonable attorney's fees and costs for participating in the legal action. 21. Severability. To the extent any provision of this Agreement shall be determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement, and this Agreement shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible. In the absence of such reformation, such part of such provision shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. In furtherance and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. To the extent any provision of this Agreement shall be declared invalid or unenforceable for any reason by any Governmental or Regulatory Authority in any jurisdiction, this Agreement (or provision thereof) shall remain valid and enforceable in each other jurisdiction where it applies. Both parties acknowledges the uncertainty of the law in this respect and expressly stipulate that this Agreement shall be given the construction that renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law. 7 IN WITNESS WHEREOF the parties have executed this Agreement in duplicate and in multiple counterparts, each of which shall have the force and effect of an original, on the date specified in the preamble of this Agreement. CORPORATION: CONSULTANT: Aegis Assessments, Inc., a Delaware corporation By: /s/ H. Kenneth Edge /s/ Joe A. Dussich, Jr. ------------------- ----------------------- H. Kenneth Edge Joe A. Dussich, Jr. Its: President 8 EX-31 5 a4661375ex31.txt AEGIS ASSESSMENTS, INC. EXHIBIT 31 Exhibit 31 CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES-OXLEY I, Eric Johnson, Chief Executive Officer of Aegis Assessments, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Aegis Assessments, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have; a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function); a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 15, 2004 /s/ Eric Johnson ------------------ Eric Johnson Chief Executive Officer (Principal Executive Officer) I, David Smith, Chief Financial Officer of Aegis Assessments, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Aegis Assessments, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have; a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function); a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: June 15, 2004 /s/ David Smith --------------------------- David Smith Chief Financial Officer (Principal Financial Officer) EX-32 6 a4661375ex32.txt AEGIS ASSESSMENTS, INC. EXHIBIT 32 Exhibit 32 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Eric Johnson, the CEO of Aegis Assessments, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aegis Assessments, Inc. on Form 10-QSB for the quarter ended April 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Aegis Assessments, Inc. Date: June 15, 2004 /s/ Eric Johnson ------------------------------- Eric Johnson Chief Executive Officer I, David Smith, the CFO of Aegis Assessments, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aegis Assessments, Inc. on Form 10-QSB for the quarter ended April 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Aegis Assessments, Inc. Date: June 15, 2004 /s/ David Smith ------------------------------ David Smith Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----