-----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, C59DSPPiuXrHq+s24F0cTv0Z0uR14SG6Hi8HN+poJXJlWCaG6+rK4wQpbDt94g3/ pDyAJEVDAwFUjMBILD1XnQ== 0001157523-05-010883.txt : 20051216 0001157523-05-010883.hdr.sgml : 20051216 20051216150540 ACCESSION NUMBER: 0001157523-05-010883 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20051216 DATE AS OF CHANGE: 20051216 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: 051269529 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 a5041413.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 October 31, 2005 ------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______________ to ______________ Commission file number 000-50213 AEGIS ASSESSMENTS, INC. (Exact name of small business issuer as specified in its charter) Delaware 72-1525702 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 7975 N. Hayden Road, Suite D-363, Scottsdale, AZ 85258 (Address of principal executive offices) 480.778.9140 (Issuer's telephone number) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of the issuer's common equity outstanding as of December 1, 2005 was approximately 30,000,000 shares of common stock, par value $.001. Transitional Small Business Disclosure Format (Check one): Yes [X] No [ ] INDEX TO FORM 10-QSB FILING FOR THE PERIOD ENDED OCTOBER 31, 2005 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements...................................................1 Balance Sheet as of October 31, 2005...................................1 Statements of Operations for the three month periods ended October 31, 2005 and October 31, 2004........................2 Statements of Cash Flows for the three month periods ended October 31, 2005 and October 31, 2004..........................................3 Notes to the Financial Statements......................................5 Item 2. Management's Discussion and Analysis..................................11 Item 3. Controls and Procedures...............................................23 PART II OTHER INFORMATION Item 1. Legal Proceedings ....................................................24 Item 2. Changes in Securities ................................................24 Item 6. Exhibits and Reports on Form 8-K......................................25 SIGNATURES PART I- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Aegis Assessments, Inc. (A Development Stage Company) Condensed Balance Sheet October 31, 2005 (Unaudited)
Assets Current Assets Cash and cash equivalents $ 7,573 Advance 1,750 Prepaid expense 18,072 Inventory 404,488 ------------ Total Current Assets 431,883 Property and equipment, net of accumulated depreciation of $108,323 at October 31, 2005 213,357 U.S. Treasury Bonds - Restricted (see Note 2) 4,942,487 Other Assets 7,616 ------------ Total Assets $5,595,343 ============ Liabilities and Shareholders' Equity Current Liabilities Accounts Payable $ 242,015 Accrued Payroll 100,683 Deferred Revenue 350,000 Note payable - related party 34,303 Note payable 125,000 ------------ Total Current Liabilities 852,001 Commitments and contingencies (notes 2 and 5) Contingent loss on derivative and equity swap 3,563,013 Series A 8% convertible preferred stock $.001 par value; 200,000 shares authorized. Shareholders' equity: Preferred stock, $.001 par value, 10,000,000 shares authorized for issuance in one or more series. Common stock, $.001 par value; 100,000,000 shares authorized; 29,878,175 shares issued and outstanding at October 31, 2005 29,898 Additional paid-in capital 22,283,496 Stock subscription receivable - related party (67,500) Stock subscription receivable (103,015) Unrealized loss on marketable securities (81,034) Deficit accumulated during the development stage (20,881,516) ------------ Total shareholders' equity 1,180,329 ------------ Total liabilities and shareholders' equity 5,595,343 ------------
The accompanying notes are an integral part of the condensed financial statements 1 Aegis Assessments, Inc. (A Development Stage Company) Condensed Statements of Operations (Unaudited)
For the period from For the three For the three January 16,2002 months ended months ended (inception) to October 31,2005 October 31,2004 October 31,2005 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- Revenue $ 70,992 Operating expense Cost of equipment sold $ 35,100 General and administrative expenses - other 419,871 $ 542,900 17,066,529 Consulting fees - related party 287,065 ----------------------------------------------------------------- Total Operating expenses $ 419,871 $ 542,900 $ 17,388,694 Loss on interest rate derivative swap $ 19,564 $ 63,014 Loss on equity swap 3,000,000 3,500,000 Loss before provision for income taxes (3,439,435) (542,900) (20,880,716) Provision for income taxes - 800 ----------------------------------------------------------------- Net loss $ (3,439,435) $ (542,900) $(20,881,516) ================================================================= Unrealized loss on marketable securities $ 4,678 $ 81,034 Total comprehensive loss $ (3,444,113) $ (542,900) $(20,962,550) ================================================================= Net loss available to common shareholders per common share - basic and diluted $ (0.12) $ (0.03) $ (1.30) Weighted average common shares - basic and diluted ----------------------------------------------------------------- 28,866,083 18,638,207 16,181,498 ========== ========== ==========
The accompanying notes are an integral part of the condensed financial statements 2 Aegis Assessments, Inc. (A Development Stage Company) Condensed Statements of Cash Flows (Unaudited) (continued)
For the period from For the three For the three January 16,2002 months ended months ended (inception) to October 31,2005 October 31,2004 October 31,2005 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- Cash flows from operating activities: Net loss $ (3,439,435) $ (542,900) $(20,881,516) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash items included in the net loss: Depreciation 19,272 16,387 108,324 Amortization and expenses related to stock and stock options 20,000 12,884,625 Loss on interest rate derivative swap 19,563 63,013 Loss on equity swap 3,000,000 3,500,00 The intrinsic value of non-detachable conversion rights of the Series A 8% preferred stock 9,800 Issuance of stock for payment of interest 3,266 Change in Assets Accounts Receivable - Inventory (164,588) (404,488) Other Assets (7,616) Advance (1,750) (1,750) Prepaid expense (18,072) (18,072) Change in Liabilities: Accrued payroll 27,468 26,137 100,683 Accounts payable 74,231 21,978 242,015 Accrued interest officers - Deferred Revenue 350,000 Note Payable - officer (59,697) 34,303 Note Payable 125,000 (2,333) 125,000 ----------------------------------------------------------------- Net cash used in operating activities (233,420) (645,319) (3,892,413)
The accompanying notes are an integral part of the condensed financial statements 3 Aegis Assessments, Inc. (A Development Stage Company) Condensed Statements of Cash Flows (Unaudited)
For the period from For the three For the three January 16,2002 months ended months ended (inception) to October 31,2005 October 31,2004 October 31,2005 (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- Cash flows used in investing activities: Payments to acquire property and equipment $ (30,475) $ (321,680) ---------------------------------------------------------------- Net cash flows used in investing activities - (30,475) (321,680) Cash flows provided by financing activities: Proceeds from issuance of preferred stock - 90,100 Proceeds from issuance of common stock - related party 22,500 Proceeds from issuance of common stock 185,485 278,891 3,197,517 Proceeds from exercise of warrants 111,238 630,405 Proceeds from exercise of options 237,144 Proceeds from issuance of debenture - 17,000 Proceeds from notes payable and advances - related parties 17,000 - Stock subscription receivable - 10,000 Advances from officers - ---------------------------------------------------------------- Net cash provided by financing activities 185,485 390,129 4,221,666 Net increase in cash and cash equivalents (47,935) (285,665) 7,573 Cash and cash equivalents, beginning of period 55,508 497,577 - ---------------------------------------------------------------- Cash and cash equivalents, end of period $ 7,573 $ 211,912 $ 7,573 ================================================================ Supplemental Disclosure of Non-Cash Investing and Financing Activities Exercise of options applied against notes $ 17,000 =========== Payment of accounts payable with stock 12,025 =========== Conversion of preferred stock to common stock 27,500 =========== Issuance of common stock for services $ 20,000 $12,884,625 Issuance of stock for note - related party 67,500 Issuance of stock for notes 133,000
The accompanying notes are an integral part of the condensed financial statements 4 Aegis Assessments, Inc. (A Development Stage Company) Notes to Financial Statements For The Three Months Ended October 31, 2005 (Unaudited) and October 31, 2004 (Unaudited), For The Period January 16, 2002 (inception) Through October 31, 2005 ------------------------------------------------------------------------ 1. Basis of Presentation --------------------- The accompanying condensed financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles for complete financial statements generally accepted in the United States of America. In the opinion of management, the accompanying financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of October 31, 2005. There has not been any change in the significant accounting policies of Aegis Assessments, Inc. ("The Company"), for the periods presented. The results of operations for the three months ended October 31, 2005 and 2004 are not necessarily indicative of the results for a full year period. It is suggested that these unaudited condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 2005 filed with the Securities and Exchange Commission (the "SEC"). The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States for interim period financial information, which contemplate continuation of Aegis Assessments, Inc. (a Development Stage Company) as a going concern. However, the Company is subject to the risks and uncertainties associated with a new business, has no established source of revenue and has limited sources of equity capital. These matters raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 2. Summary of Significant Accounting Policies ------------------------------------------ Development Stage Operations Aegis Assessments, Inc. is a development stage company and has limited operating history with insignificant revenues. The Company was incorporated under the laws of the State of Delaware on January 16, 2002. As of July 31, 2005 the Company completed development of its core product, a specialized emergency response and communication systems for law enforcement agencies at all levels, the U.S. Department of Defense, and select commercial firms. The Company refers to this product as the "Aegis SafetyNet Radio Bridge, or "Radio Bridge," system. The Company is now engaged in producing the systems and establishing sales distribution channels. 5 Cash and cash equivalents - The Company considers all highly liquid cash investments with original maturities of 90 days or less to be cash equivalents. The Company periodically maintains cash balances in excess of FDIC limits. Inventory - Inventory is stated at lower of cost or market (average cost method) and consists of units completed and deposits made with an outsourced manufacturer. Marketable securities - Marketable securities are stated at the lower of cost or market value and consists of U.S. Treasury Bonds. Initial Production and Sales Activity In May 2004, the Company received its first purchase order for the Aegis SafetyNet Radio Bridge system and began production. The initial $2.4 million purchase order was accompanied by a progress payment of $350,000 against the first units. As of October 31, 2005, the Company had delivered 52 units to the distributor. The progress payment was recorded as deferred revenue. The Company anticipates significant involvement in the distributor's resale activities and will not record revenue related to the units until they are sold to end-users. An additional eight Radio Bridge units have been sold directly by the Company to end-users. Full payment for these sales was received by October 31, 2005. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Management bases its estimates and assumptions on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and assumptions routinely require adjustment. US GAAP requires management to make estimates and judgments in several areas including those related to the capitalization of development costs of the Company's software, the valuation of the recoverability of those costs, and the fair value of stock-based compensation. Actual results in these particular areas could differ from those estimates. Costs of Promotional Materials The cost of promotional materials is expensed as incurred, and includes such items as the cost to produce a corporate capabilities video. The Company incurred no promotional costs in the quarter ended October 31, 2005. Income Taxes The Company accounts for income taxes under the asset and liability method, whereby, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements 6 carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. As of October 31, 2005 the Company has provided a 100% valuation allowance for the deferred tax asset, since management has not been able to determine that the realization of that asset is more likely than not. Basic and Diluted Loss Per Share The basic loss per common share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed in the same way as basic loss per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive. As of October 31, 2005 the Company had 5,926,760 outstanding stock options, and warrants that could be converted into 1,181,732 shares of common stock. (using 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 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, and the costs incurred by category, are as follows: Office equipment 3 years Shop equipment 5 years Office furniture 7 years Product Demonstration Equipment 5 years Automobiles 5 years The Company recorded depreciation expense of $19,272 for the quarter ended October 31, 2005. 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 7 interpretations. 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 quarter ended October 31, 2005 the Company recorded no stock based compensation to employees. Research and Development and Software Development Research and development costs are charged to expense as incurred. For the quarter ending October 31, 2005 the Company expensed approximately $33,000 in research and development cost. The costs incurred for the development of computer software that will be sold, leased, or otherwise marketed will be capitalized when technological feasibility has been established. These capitalized costs will be subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Costs that will be capitalized include direct labor and related overhead. Amortization of capitalized software development costs will begin when the product is available for general release. No computer software costs are currently capitalized. Derivative and Equity Swap Transaction On November 23, 2004 the Company received $5,000,000 in U.S. Treasury bonds in a private placement of the Company's common stock. Subsequently, the Company entered into a derivative swap transaction in which the bonds, including the interest earned on the bonds during the 24-month period of the swap agreement, have been pledged as security. The swap contract calls for a single settlement date between the parties on November 23, 2006. See Note 4 below. The accrued net obligation due under the agreement, if any, is periodically recorded as a contingent liability and a corresponding loss on the activity. The amount of the contingent liability due Cogent as of October 31, 2005 is $3,563,013. Amortization of Deferred Compensation The Company has issued stock and options, including below market options, for services since its inception as a means of financing development stage activities. Although in most cases the period of service for shares and options issued extends beyond the fiscal year end, the actual period of service is ultimately in doubt. For this reason the Company expenses such services when the shares or options are issued. The total amount expensed in the quarter ended October 31, 2005 was $20,000. 3. Stock Transactions ------------------ Common Stock In November 2004, the Company authorized through a private placement the sale of 2,000,000 equity units for $1.00 per unit. Each unit consists of one share of common stock and one warrant to purchase a share of common stock for $.50, with an exercise period that expires six months after the unit is purchased. As of October 31, 2005 the Company has sold 1,626,632 units for a total of $559,150, and 44,250 of the warrants were exercised for a total of $22,125. In addition, as of October 31, 2005 400,650 of the warrants had expired and 1,181,732 remain outstanding. 8 In September 2005, the Company authorized through a private placement the sale of 150,000 shares of common stock for $.33 per share. In October 2005, 200,000 shares of the Company's restricted common shares were issued to a consultant in exchange for future services totaling $ 20,000, based on $.10 per share, which was the fair value of the Company's common stock on the date of issuance. Stock Options During April 2002, the Company adopted the 2002 Stock Option Plan (the "Plan") to retain the services of persons now serving in certain capacities and to secure the services of persons capable of serving in similar capacities. The total number of shares of common stock that may be purchased pursuant to the exercise of options shall not exceed, in the aggregate, 10,000,000 shares of the Company's authorized common stock. However, at no time, shall the number of shares of common stock issuable upon exercise of all issued and outstanding options pursuant to the Plan, or any similar plan adopted by the Company's Board of Directors, exceed a number of shares which is equal to 30% of the then outstanding shares of common stock of the Company. The Plan shall be administered by an option committee (the "Committee") consisting of no fewer than two and no more than three members designated by the Board. The termination date of the Plan is December 31, 2007. The purchase price of each share purchasable pursuant to any incentive option shall be determined by the Committee at an exercise price not less 100% of the fair market value of the common stock on the date of issue. For options granted to individuals or entities possessing greater than 10% of the total combined voting power of all classes of capital stock, the exercise price shall not be less than 110% of the fair market value of the Company's common stock upon the date of issuance. Options shall be exercisable for a period not to exceed five years from date of grant. For options issued to an individual or entity possessing greater than 10% of the total combined voting power of all classes of capital stock, the options shall be exercisable for a period not to exceed three years. Should the term of services of the optionee terminate or expire, the options will expire no later than one year after the date of termination or expiration. The Company has elected to follow APB Opinion No. 25, Accounting for Stock Issued to Employees in accounting for its employee stock options. Accordingly, no compensation expense is recognized in the Company's financial statements related to options issued to employees because the exercise price of the Company's employee stock options equals the market price of the Company's common stock on the date of grant. For options issued to consultants, pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company has recorded compensation costs based on the fair value at the grant date for its stock options. No options were issued in the quarter ended October 31, 2005. 9 4. Lease Agreements ---------------- 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. 5. Commitments and Contingencies ----------------------------- Financial Results, Liquidity and Management's Plan The Company has incurred net losses since its inception in January 2002 and has no established sources of revenue. The net losses were $3,439,435, $542,900 and $20,881,516 for the quarters ended October 31, 2005 and October 31, 2004 and for the period from January 16, 2002 (inception) to October 31, 2005, respectively. Despite its negative cash flows from operations of $233,420, $645,319, and $3,892,413 for the quarters ended October 31, 2005 and October 31, 2004 and for the period from January 16, 2002 (inception) to October 31, 2005, respectively, the Company has been able to obtain additional operating capital through private funding sources. Management's plans include the continued development of the Company's SafetyNet products and a client awareness program that it believes will enhance its ability to generate revenues from the sale of the Company's products. The Company has relied upon equity funding and loans from shareholders since inception. During the quarter ended October 31, 2005, the Company financed its operations through private equity funding and loans from officers and others. The Company may offer shares of its common stock during the year ended July 31, 2006. No assurances can be given that the Company can obtain sufficient working capital through the sale of the Company's securities and borrowing, or that the sale of the SafetyNet products will generate sufficient revenues in the future to sustain ongoing operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Preferred Stock From November 2002 through January 2003, the Company sold 18,020 shares of its Series A Preferred Stock (the "preferred stock"). A question arose as to the propriety of the Company's reliance upon a section of the Securities Act of 1933 that the preferred stock was exempt from registration. The potential consequence of the shares not being subject to the exemption created a right of rescission for each investor amounting to the total of their investment. During the year ended July 31, 2003, a preferred shareholder who is a related party converted 12,520 shares of the preferred stock along with accrued interest into 64,172 shares of common stock. There were 5,500 preferred shares outstanding at July 31, 2003 representing a balance of $27,500. As of July 31, 2003, the Company had received requests for conversion for all of the remaining 5,500 preferred shares. 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. 10 6. Subsequent Events ----------------- No significant events or transactions occurred between October 31, 2005 and December 16, 2005, the date of this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the period ended October 31, 2005, this "Management's Discussion and Analysis" should be read in conjunction with the Financial Statements, including the related notes, appearing in Item 1 of this Quarterly Report. The preparation of this Quarterly Report on Form 10-QSB requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results reported in the future will not differ from those estimates or that revisions of these estimates may not become necessary in the future. Forward Looking Statements This portion of this Quarterly Report on Form 10-QSB, includes statements that constitute "forward-looking statements." These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Specific forward-looking statements contained in this portion of the Quarterly Report include, but are not limited to the Company's (i) expectation that it will begin generating significant revenues from the sale of its products rather than from equity or debt financings; (ii) plan to allocate any funds it receives to expanding production capabilities, and establishing a distribution channel for products (iii) belief that its client awareness program will enhance its ability to generate revenues from the sale of its products; and (iv) belief that as a result of developments with the Department of Homeland Security, it will be easier to sell RadioBridge units to state and municipal public safety agencies. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include, but are not limited to (i) market acceptance of our products; (ii) establishment and expansion of our direct and indirect distribution channels; (iii) attracting and retaining the endorsement of key opinion-leaders in the law enforcement, fire, rescue and other emergency response communities; (iv) the level of product technology and price competition for our products; (v) the degree and rate of growth of the markets in which we compete and the accompanying demand for our products; (vi) potential delays in international and domestic orders; (vii) risks associated with rapid technological change and execution and implementation risks of new technology; (viii) new product introduction risks; (ix) ramping manufacturing production to meet demand; (x) future potential litigation resulting from alleged product related injuries; (xi) potential fluctuations in quarterly operating results; (xii) financial and budgetary constraints of prospects and customers; (xiii) fluctuations in component pricing; (xiv) adoption of new or changes in accounting policies and practices, including pronouncements promulgated by standard setting bodies; (xv) changes in legislation and governmental regulation; (xvi) publicity that may adversely impact our business and/or industry; and (xvii) the other risks and uncertainties set forth below under those identified in the section below titled "Risk Factors," as well as other factors that we are currently unable to identify or quantify, but may exist in the future. 11 In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Executive Overview. Through our SafetyNet(TM) line of products, we supply wireless security solutions to public safety agencies and commercial end users for homeland security and life safety applications. Our current products are the SafetyNet RadioBridge(TM) which allows most two-way radios to be interconnected regardless of the radio's frequency, modulation or encryption scheme; and the SafetyNet Guardian(TM) System, which allows video transmissions and voice communications from the stairwells inside buildings for commercial safety applications. Some of the components and technology integrated into the Guardian System can also be sold, with certain modifications, as stand-alone products. Distribution and Sales. A limiting factor for the sale of our RadioBridge product has been the time-consuming process associated with government purchasing cycles and procurement practices of our products' end-users. Entering into a reseller agreement with GTSI Corp. has allowed the RadioBridge to qualify for participation in existing contract vehicles, which we believe will lower our average cost of sales per RadioBridge and which will make it easier for participating public safety agencies to purchase our products. We have also applied for participation on the U.S. General Services Administration schedules. We are planning to develop a national network of independent dealers and distributors to sell RadioBridges throughout the United States. During the last quarter the need for radio interoperability was dramatically exposed by the problems federal, state and local officials encountered while responding to a series of major tropical storms and hurricanes, the most on record in a single season. According to the DHS, in the days and weeks following Katrina, more than 49,000 people were rescued and hundreds of thousands more were safely evacuated. Law enforcement forces on the ground assisted mightily in these efforts. However, the lack of radio interoperability hampered these rescue efforts, and tremendous national attention was again directed to this problem. In September 2005, hurricanes Maria, Nate, Ophelia, Philippe and Rita strucke the Gulf region. The federal government response, particularly the response of FEMA, was the subject of extensive criticism in the media and in government circles. As the public's interest in emergency communications systems has risen, we have raised our profile in the public safety community significantly by a combination of media appearances and participation in national public safety associations. In August 2005 we became the newest member of COMCARE, a national non-profit alliance of over 100 members dedicated to improving emergency response. COMCARE promotes the adoption of modern, interoperable emergency systems and the development of new procedures, training, and tools to maximize their value for emergency responders. The organization allows collaboration between emergency response professionals, government, the public, and private industry. We are working with COMCARE and its members to actively foster and promote the adoption of interoperable emergency systems, standards, and forward-thinking policies and procedures. 12 On October 18, 2005, Homeland Security Secretary Michael Chertoff announced increased funding and changes to the DHS's organization during a ceremony at the White House where President Bush signed the FY 2006 Homeland Security Appropriations Act. In addition to certain organizational adjustments, the Department's fiscal year 2006 Appropriations provides increased funding for 1,000 new Border Patrol Agents, greater explosive detection technology across transportation networks, and an integrated Preparedness Directorate to enhance coordination and deployment of preparedness assets and training. During the last quarter we began increased communications with various influential elected officials who are strong supporters of increased interoperability for first responders. We plan to increase our lobbying efforts to promote the RadioBridge as one of the key elements to solving the problem of radio interoperability. Production. We contracted to develop the next generation SafetyNet RadioBridge with new features for enhanced performance with CirTran Corporation located in West Valley, Utah. CirTran Corporation is a full-service electronics contract manufacturer and has an ISO (International Organization for Standardization) 9002 registration. We contemplate contracting with CirTran for the next mass production runs of RadioBridge units. Now that this next generation RadioBridge has been completed, we are planning to contract for a first production run during the next quarter. The RadioBridge interconnects incompatible radios and bridges them to provide radio interoperability at an emergency site. The enhanced version features improvements in the sound quality of audio transmissions, the addition of an internal storage compartment for cables, headsets and other accessories, and improved bridging of trunked and non-trunked radios. Results of Operations We have incurred losses since our inception in 2002 and have relied on the sale of our equity securities and on loans from our officers to fund our operations. Until very recently, we did not generate any revenues from operations. However, we have begun filling purchase orders for our Radio Bridge product and we are recording revenues. There were no revenues for the three month periods ended October 31, 2005 and 2004. Our general and administrative expenses other than for related parties for the three month period ended October 31, 2005 were $419,871, as compared to $542,900 for the comparable period during the prior year. Our operating expenses have decreased as a result of reduction in equity-based compensation paid to employees, outside consultants, and business partners. Now that we have a finished product ready for delivery to end-users, our marketing activities have increased significantly, and we are incurring increased marketing costs, including costs associated with demonstrating our products to public safety agencies and government officials, major law enforcement officials, fire department officials, federal agencies, the United States Army, and working with GTSI, our major channel partners. We have also incurred increased costs associated with the design, preparation, and printing of marketing and product informational material, courier costs and mailing costs. Moreover, we continue to incur legal and accounting expenses and other expenses incidental to our reporting obligations as a public company and to the increase in our requirements for transactional legal and accounting services. 13 Our loss before provision for income taxes was $(3,439,435) for the three month period ended October 31, 2005, as compared to $(542,900) for the same period for the prior year. Our net loss for the three month period ended October 31, 2005 after provision for income taxes was $(3,439,435), as compared to $(542,900) for the comparable period for the prior year. The increase was the result primarily of the loss on the derivative and equity swap transaction entered into with Cogent Capital. Liquidity and Capital Resources At October 31, 2005, we had $7,573 in cash, as compared with $211,912 in cash during the equivalent period ended October 31, 2004. The decrease is due primarily to the reduction in the sale of our equity in private placement transactions. At October 31, 2005 we had accrued payroll liability of $100,683, as compared with $42,556 at October 31, 2004. The increase is attributed to an increase in accrued salary owed three officers and directors. Accounts payable totaled $242,015 at October 31, 2005, as compared to $75,292 in accounts payable at October 31, 2004. This increase was due to increased costs of operations. We held property and equipment at October 31, 2005, which was valued, net of depreciation of $108,323, at $213,357, as compared with property valued, net of depreciation of $34,380, at $254,451 at October 31, 2004. The decrease is attributed to the periodic depreciation charged against the asset balances. Our total assets at October 31, 2005 were $5,595,343, as compared with $854,512 at October 31, 2004. We believe we have sufficient funds currently available to satisfy our cash requirements for the next 3 months. Our goal is to raise an additional $1 million in equity financing during the next 6 months, to be allocated to production of RadioBridge units for inventory and customer support, providing customer supporting for GTSI and its end-users, and hiring additional personnel for product support. We also anticipate increased revenues from the sale of RadioBridges during the next 12 months, but it is difficult to project a sales timeline because we believe significant sales are dependent on public safety end-users acquisition practices and our establishment of a customer support infrastructure to support such sales. We believe our relationship with GTSI will increase our sales volume and decrease these procurement time cycles. Going Concern Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our general business strategy is unproven, and we have just begun to record revenues. To date, we have relied solely on loans from shareholders and officers and the sale of our equity securities to fund our operations. We have incurred losses since our inception and we continue to incur legal, accounting, and other business and administrative expenses. Our auditor has therefore recognized that there is substantial doubt about our ability to continue as a going concern. 14 Risk Factors An investment in our common stock involves a substantial degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors in addition to the other information contained in this report. The following risk factors, however, may not reflect all of the risks associated with our business or an investment in our common stock only if you can afford to lose your entire investment. Risks Related to Our Business We have a limited operating history and there is no assurance that our company will achieve profitability. Until recently, we have had no significant operations or revenues with which to generate profits or create liquidity, and 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 historical financial data are of limited value in anticipating future revenue, capital requirements, and operating expenses. Our planned capital requirements and expense levels will be based in part on our expectations concerning capital investments and future revenue, which are difficult to forecast accurately due to our current stage of development. We may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenue. Our product development, marketing and general administrative expenses may increase significantly if we begin to increase our sales and expand operations. To the extent that these expenses precede or are not rapidly followed by a corresponding and commensurate increase in revenue or additional sources of financing, our business, operating results, and financial condition may be materially and adversely affected. We may need significant infusions of additional capital. To date, we have relied almost exclusively on outside financing to obtain the funding necessary to operate the business. Based upon our current cash reserves and forecasted operations, we may need to obtain additional outside funding in the future in order to further satisfy our cash requirements. Our need for additional capital to finance our business strategy, operations, and growth will be greater should, among other things, revenue or expense estimates prove to be 15 incorrect. We cannot predict the timing or amount of our capital requirements at this time. If we fail to arrange for sufficient capital on a timely basis in the future, we may be required to reduce the scope of our business activities until we can obtain adequate financing. We may not be able to obtain additional financing in sufficient amounts or on acceptable terms when needed, which could adversely affect our operating results and prospects. Debt financing must be repaid regardless of whether or not we generate profits or cash flows from our business activities. Equity financing may result in dilution to existing shareholders and may involve securities that have rights, preferences, or privileges that are senior to our common stock. We may face significant competition, including from companies with greater resources, which could adversely affect our revenues, results of operations and financial condition. There are existing companies that offer or have the ability to develop products and services that will compete with those that we currently offer or may offer in the future. These include large, well-recognized companies that have substantial resources and established relationships in the markets in which we compete. Their greater financial, technical, marketing, and sales resources may permit them to react more quickly to emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion, and sale of competing products and services. Emerging companies also may develop and offer products and services that compete with those that we offer. Increased competitive pressure could lead to reduced market share, as well as lower prices and reduced margins for our products, which would adversely affect our results of operations and financial condition. We cannot assure you that we will be able to compete successfully in the future. We depend materially upon acceptance of our products by specific agencies and markets and if these agencies and markets do not purchase or are not receptive to our products, our revenues will be adversely affected and we may not be able to expand into other markets. Our business and results of operations will be materially and adversely affected if a substantial number of law enforcement, fire, rescue, other emergency response and public safety agencies, as well as commercial end users for homeland security and life safety applications, do not purchase our SafetyNet products. In addition, we may not be able to expand sales of our products into other markets if our products are not widely accepted by these agencies or markets. This also would have an adverse affect on our business and results of operations. Our growth prospects will be diminished if our SafetyNet products are not widely accepted. We have generated minimal revenue to date from the sale of our SafetyNet products. Until recently, our funding came primarily from the sale of our equity and debt securities. However, we expect to generate revenues from the sale of our SafetyNet products. We expect to depend on sales of these products, primarily the SafetyNet RadioBridge, 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. 16 If we are unable to manage our projected growth, our growth prospects may be limited and our future profitability may be adversely affected. We expect our business to grow in the near future. Rapid expansion may strain our current managerial, financial, operational, and other resources. If we are unable to manage our growth, our business, operating results, and financial condition could be adversely affected. We will need to continually improve our operations and our financial, accounting, and other internal control systems in order to manage our growth effectively. Any failure to do so may lead to inefficiencies and redundancies, and result in reduced growth prospects and profitability. We may face personal injury and other liability claims that could harm our reputation and adversely affect our sales and financial condition. Our products will be depended upon in emergency, rescue and public safety situations that may involve physical harm or even death to individuals, as well as potential loss or damage to real and personal property. Our products may be associated with these injuries or other losses. A person who sustains injuries, the survivors of a person killed, the owner of damaged or destroyed property in a situation involving the use of our products, or the owner of a facility at which such injury, death or loss occurred may bring legal action against us to recover damages on the basis of theories including personal injury, wrongful death, negligent design, dangerous product or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our products. If successful, such claims could have a material adverse effect on our operating results and financial condition. Significant litigation could also result in a diversion of management's attention and resources, negative publicity and an award of monetary damages in excess of our insurance coverage. Our future success will depend on our ability to expand sales through channel partners, which may include distributors, dealers, and independent sales representatives; our inability to take advantage of our existing distribution network or recruit new distributors, dealers, or independent sales representatives may negatively affect our sales. Our distribution strategy is to pursue sales through multiple channels with an emphasis on major value-added resellers such as GTSI Corp. Because our relationship with GTSI is non-exclusive, we also retain the right to develop sales through independent distributors, dealers, and sales representatives. Our inability to successfully sell our products through value-added resellers or our inability to retain other distributors, dealers, and sales representatives who can successfully sell our products would adversely affect our sales. In addition, if we do not competitively price our products, meet the requirements of our end-users, provide adequate marketing support, or comply with the terms of our distribution arrangement, GTSI may fail to aggressively market our products or may terminate its relationship with us. These developments would likely have a material adverse effect on our sales. Our reliance on others to sell our products also makes it more difficult to predict our revenues, cash flow and operating results. 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. 17 Many of our end-users are subject to budgetary and political constraints that may delay or prevent sales. Many of our end-user customers currently are military, government agencies or entities or para-military or quasi-government entities or agencies. These entities and agencies often do not set their own budgets and therefore have little control over the amount of money they can spend. In addition, these entities and agencies experience political pressure that may dictate the manner in which they spend money. As a result, even if an entity or agency wants to acquire our products, it may be unable to purchase them due to budgetary or political constraints. Some orders also may be canceled or substantially delayed due to budgetary, political or other scheduling delays that frequently occur in connection with the acquisition of products by such entities or agencies. Many of our end-users rely on state and federal grants to obtain the necessary funding to purchase our products, the delay or unavailability of which could adversely affect our sales and results of operations. The Department of Homeland Security currently awards funding grants for the purchase of communications equipment that provides interoperability to first responders. These funds are granted through the State Homeland Security Grant Program, the Urban Area Security Initiative, and other grants administered by the Office of Domestic Preparedness, the Federal Emergency Management Agency, and the Transportation Security Administration. Other Federal agency programs include Department of Justice grants for counter-terrorism and general-purpose law enforcement activities through the Office of Community Oriented Policing Services, which distributes funding through a wide range of programs, both as grants and cooperative agreements. Additionally, many grants are administered directly through state agencies and administrative offices. Budgetary, political or other constraints or delays in providing, or the availability of funding through, these grant programs could preclude many of our end-users from being able to purchase our products, which would have an adverse impact on our revenues, results of operations and financial condition. If we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights. Our success depends both on our internally developed technology and on third party technology. We rely on a variety of trademarks, service marks, and designs to promote our brand names and identity. We also rely on a combination of provisional patents, contractual provisions, confidentiality procedures, trademarks, copyrights, trade secrecy, unfair competition, and other intellectual property laws to protect the proprietary aspects of our products. The steps we take to protect our intellectual property rights may not be adequate to protect our intellectual property and may not prevent our competitors from gaining access to our intellectual property and proprietary information. In addition, we cannot provide assurance that courts will always uphold our intellectual property rights or enforce the contractual arrangements that we have entered into to protect our proprietary technology. 18 Third parties may infringe or misappropriate our copyrights, trademarks, service marks, patents, and other proprietary rights. Any such infringement or misappropriation could have a material adverse effect on our business, prospects, financial condition, and results of operations. In addition, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may decide to initiate litigation in order to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of our proprietary rights. Any such litigation could result in substantial expense, may reduce our profits, and may not adequately protect our intellectual property rights. In addition, we may be exposed to future litigation by third parties based on claims that our products or services infringe their intellectual property rights. Any such claim or litigation against us, whether or not successful, could result in substantial costs and harm our reputation. In addition, such claims or litigation could force us to do one or more of the following: o cease selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; o obtain a license from and/or make royalty payments to the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonable terms, if at all; o divert management's attention from our business; o redesign or, in the case of trademark claims, rename our products or services to avoid infringing the intellectual property rights of third parties, which may not be possible and in any event could be costly and time-consuming. Even if we were to prevail, such claims or litigation could be time-consuming and expensive to prosecute or defend, and could result in the diversion of our management's time and attention. These expenses and diversion of managerial resources could have a material adverse effect on our business, prospects, financial condition, and results of operations. Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and injury to our reputation. Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product. Defects in our products may result in a loss of sales, delay in market acceptance, injury to our reputation, increased warranty costs, recalls and costs associated with such recall efforts. In addition, defects in our products could result in personal injuries or death, as well as significant property damage. Any of these events could have a material adverse affect on our revenues, results of operations and financial condition. 19 Component shortages could result in our inability to produce sufficient volume to adequately sustain customer demand. This could result in a loss of sales, delay in deliveries and injury to our reputation. Components used in the manufacture of our products may become unavailable or may be discontinued. Delays caused by industry allocations, or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement parts. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition. Our revenues and operating results may fluctuate unexpectedly from quarter to quarter, which may cause our stock price to decline. Our revenues and operating results may vary significantly in the future due to various factors, including, but not limited to increases or decreases in 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 indicative of our performance in any future period. We depend upon our executive officers and key personnel. Our performance depends substantially on the performance of our executive officers and other key personnel. The success of our business in the future will depend on our ability to attract, train, retain and motivate high quality personnel, especially highly qualified technical and managerial personnel. The loss of services of any executive officers or key personnel could have a material adverse effect on our business, revenues, results of operations or financial condition. We maintain key person life insurance on the lives of our CEO and President. Competition for talented personnel is intense, and there is no assurance that we will be able to continue to attract, train, retain or motivate other highly qualified technical and managerial personnel in the future. Our senior management currently defers a large percentage of their annual salaries and there can be no assurance that they will continue to perform services for the company without receiving full compensation. In addition, market conditions may require us to pay higher compensation to qualified management and technical personnel than we currently anticipate. Any inability to attract and retain qualified management and technical personnel in the future could have a material adverse effect on our business, prospects, financial condition, and results of operations. We may face risks as we expand our business into international markets. We currently are exploring opportunities to offer our products in foreign markets. We have limited experience in developing and marketing our services internationally, and we may not be able to successfully execute our business model in markets outside the United States. We will face a number of risks inherent in doing business in international markets, including the following: o changing regulatory requirements; o fluctuations in the exchange rate for the United States dollar; o the availability of export licenses; o unexpected changes in regulatory requirements; 20 o potentially adverse tax consequences; o political and economic instability; o changes in diplomatic and trade relationships; o difficulties in staffing and managing foreign operations, tariffs and other trade barriers; o complex foreign laws and treaties; o changing economic conditions; o difficulty of collecting foreign accounts receivable; and o exposure to different legal standards, particularly with respect to intellectual property and distribution of products. In addition, we would be subject to the Foreign Corrupt Practices Act, which prohibits us from making payments to government officials and others in order to influence the granting of contracts we may be seeking. Our non-U.S. competitors are not subject to this law and this may give them a competitive advantage over us. To the extent that international operations represent a significant portion of our business in the future, our business could suffer if any of these risks occur. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 ("Act'), beginning with our Annual Report on Form 10-KSB for the fiscal year ending June 30, 2007, we will be required to furnish a report by our management on our internal control over financial reporting. The internal control report must contain (i) a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting, (ii) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, (iii) management's assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective, and (iv) a statement that the Company's independent auditors have issued an attestation report on management's assessment of internal control over financial reporting. In order to achieve compliance with Section 404 of the Act within the prescribed period, beginning in our next fiscal year, we will need to engage in a process to document and evaluate our internal control over financial reporting, which will be both costly and challenging. In this regard, management will need to dedicate internal resources, engage outside consultants and adopt a detailed work plan to (i) assess and document the adequacy of internal control over financial reporting, (ii) take steps to improve control processes where appropriate, (iii) validate through testing that controls are functioning as documented and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. We can provide no assurance as to our, or our independent auditors', conclusions at the prescribed periods with respect to the effectiveness of our internal control over financial reporting under Section 404 of the Act. There is a risk that neither we nor our independent auditors will be able to conclude at the prescribed period that our internal controls over financial reporting are effective as required by Section 404 of the Act. 21 During the course of our testing we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. Risks Related to Our Securities Stock prices of technology companies have declined precipitously at times in the past and the trading price of our common stock is likely to be volatile, which could result in substantial losses to investors. The trading price of our common stock has risen and fallen significantly over the past few months and could continue to be volatile in response to factors including the following, many of which are beyond our control: o variations in our operating results; o announcements of technological innovations or new services by us or our competitors; o changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; o our failure to meet analysts' expectations; o changes in operating and stock price performance of other technology companies similar to us; o conditions or trends in the technology industry; o additions or departures of key personnel; and o future sales of our common stock. Domestic and international stock markets often experience significant price and volume fluctuations that are unrelated to the operating performance of companies with securities trading in those markets. These fluctuations, as well as political events, terrorist attacks, threatened or actual war, and general economic conditions unrelated to our performance, may adversely affect the price of our common stock. In the past, securities holders of other companies often have initiated securities class action litigation against those companies following periods of volatility in the market price of those companies' securities. If the market price of our stock fluctuates and our stockholders initiate this type of litigation, we could incur substantial costs and experience a diversion of our management's attention and resources, regardless of the outcome. This could materially and adversely affect our business, prospects, financial condition, and results of operations. 22 Provisions in our corporate charter and under Delaware law are favorable to our directors. Pursuant to our certificate of incorporation, members of our management and board of directors will have no liability for violations of their fiduciary duty of care as officers and directors, except in limited circumstances. This means that you may be unable to prevail in a legal action against our officers or directors even if you believe they have breached their fiduciary duty of care. In addition, our certificate of incorporation allows us to indemnify our officers and directors from and against any and all expenses or liabilities arising from or in connection with their serving in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Certain provisions of Delaware General Corporation Law and in our charter, as well as our current stockholder base may prevent or delay a change of control of our company. Under the Delaware General Corporation Law, which we are subject to, it will be more difficult for a third party to take control of our company and may limit the price some investors are willing to pay for shares of our common stock. Furthermore, our certificate of incorporation authorizes the issuance of preferred stock without a vote or other stockholder approval. Finally, a majority of our outstanding common stock is held by insiders. Without a disparate stockholder base or a fluid aggregation of stockholders, it will be more difficult for a third-party to acquire our company without the consent of the insiders. Our common stock may be subject to the "penny stock" rules as promulgated under the Exchange Act. In the event that no exclusion from the definition of "penny stock" under the Securities Exchange Act of 1934, as amended is available, then any broker engaging in a transaction in our company's common stock will be required to provide its customers with a risk disclosure document, disclosure of market quotations, if any, disclosure of the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market values of our company's securities held in the customer's accounts. The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer's confirmation of sale. Certain brokers are less willing to engage in transactions involving "penny stocks" as a result of the additional disclosure requirements described above, which may make it more difficult for holders of our company's common stock to dispose of their shares. ITEM 3. CONTROLS AND PROCEDURES Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-QSB, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls also are designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures. 23 The evaluation of our disclosure controls by our principal executive officer and principal financial officer included a review of the controls' objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our chief executive officer, president and chief financial officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on their review and evaluation as of the end of the period covered by this Form 10-QSB, and subject to the inherent limitations described above, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 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 above and in our previously filed Quarterly Reports and Annual Reports, we know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. Other than as described above and in our previously filed Annual Report, there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. ITEM 2. CHANGES IN SECURITIES. We are continuing to raise funds for operations through a private placement of our equity securities. Proceeds from the issuance of 1,227,500 shares of common stock during the three month period ended October 31, 2005 totaled $155,500. The common stock was offered and sold in a private placement, pursuant to the provisions of Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D. The common stock was offered and sold to purchasers whom the company or its authorized agents believe are "accredited investors," as that term is defined in Rule 501 of Regulation D in reliance upon an exemption from the registration requirements of the Securities Act in a transaction not involving any public offering. Each of the investors represented to Aegis that: 24 o such investor is an "accredited investor;" o the shares of common stock were purchased by such investor for its own account, for investment and without any view to the distribution, assignment or resale to others other than pursuant to a registered offering; o such investor understood that the shares of common stock issued to the investor have not been registered under the Securities Act of 1933 or any state securities laws; and o such investor acknowledged that it may not transfer the shares unless the shares are registered under federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to Aegis, an exemption from such laws is available. We will arrange for the certificates representing such securities to be legended and subject to stop transfer restrictions. We did not engage in any form of general solicitation or general advertising in connection with these issuances. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are attached to this Quarterly Report: Exhibit - ------- Number Description - ------ ----------- 31 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) The company filed three Current Reports on Form 8-K during the period ended October 31, 2005. On August 23, 2005, the company filed a report providing Regulation FD disclosure and containing three press releases, dated August 9, 2005; July 28, 2005; and July 13, 2005, respectively. The press releases announced sales and marketing activity relating to the company's RadioBridge(TM) and the listing of the company's common stock on the Frankfurt Stock Exchange in Germany under the trading symbol "DKT". On September 8, 2005, the company filed a report providing Regulation FD disclosure and containing a press release dated September 7, 2005, which announced that the company was sending a training crew and the RadioBridge to assist first responders in hurricane relief efforts in Louisiana. On October 3, 2005, the company filed a report specifying a change in the company's fiscal year from year-end July 31 to year-end July 30. The effective date of the change shall be December 31, 2005. 25 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: December 15, 2005 /s/ David Smith --------------------------------- Chief Financial Officer (Principal Financial Officer and Authorized Officer) 26 EXHIBIT INDEX Exhibit - ------- Number Description - ------ ----------- 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 27 EX-31 2 a5041413ex31.txt 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 1 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: December 15, 2005 /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 2 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: December 15, 2005 /s/ David Smith -------------------------- David Smith Chief Financial Officer (Principal Financial Officer) 3 EX-32 3 a5041413ex32.txt 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 October 31, 2005 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 Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Aegis Assessments, Inc. Date: December 15, 2005 /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 October 31, 2005 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 Quarterly Report on Form 10-QSB fairly presents in all material respects the financial condition and results of operations of Aegis Assessments, Inc. Date: December 15, 2005 /s/ David Smith ------------------------ David Smith Chief Financial Officer 4 -----END PRIVACY-ENHANCED MESSAGE-----