UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


  FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported)
September 29, 2011
   
ACQUIRED SALES CORP.
(Exact name of registrant as specified in its charter)
 
Nevada
 
87-0479286
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
31 N. Suffolk Lane, Lake Forest, Illinois
 
60045
(Address of principal executive offices)
 
(Zip Code)
 
847-915-2446
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

 
 
 
 


Item 1.01                      Entry into a Material Definitive Agreement.

On September 29, 2011, Acquired Sales Corp., a Nevada corporation (sometimes “Acquired Sales”, the “Corporation”, “Company”, “we”, “us” or “our”) entered into a definitive Agreement and Plan of Merger with Cogility Software Corporation, a Delaware corporation (“Cogility”) whereby Acquired Sales formed a new wholly-owned subsidiary in Delaware (the “Cogility Acquisition Sub”), the single purpose of which was to acquire Cogility. Cogility was then merged with and into the Cogility Acquisition Sub, with Cogility being the survivor of such merger (“Merger”).  Prior to the effectuation of the Merger, Acquired Sales was required to do the following:
 
·  
Amend Acquired Sales’ Articles of Incorporation with the Nevada Secretary of State to increase the Corporation’s authorized shares of common stock, 50,000,000 shares to 100,000,000 shares.

·  
Execute a 1-for-20 reverse stock split of the shares of our common stock resulting in 291,624 post-split shares of Acquired Sales common stock outstanding.

·  
Change Acquired Sales’ fiscal year from September 30 to a December 31 year end.

In the Merger:

·  
the current stockholders of Cogility received 2,175,564 shares of our common stock (88.2% of the shares of Acquired Sales’ common stock outstanding post-Merger.)

·  
 the current optionholders of Cogility received options to purchase an aggregate of 1,080,126 shares of our common stock at exercise prices ranging from $0.001 to $5.00 per share; and

·  
directors, officers, employees and consultants to Cogility received options to purchase an aggregate of 1,500,000 shares of Acquired Sales’ common stock at an exercise price of $5.00 per share.

2.01           Completion of Acquisition or Disposition of Assets.

Closing under the Merger described in Item 1.01 of this Current Report on Form 8-K, was completed effective as of September 29, 2011.  As a result, Cogility became a wholly-owned subsidiary of the Company.  In conjunction with closing under the Merger, the following occurred:

·  
(1) the exchange of 11,530,493 outstanding shares of Cogility common stock for 2,175,564 shares of post-reverse split common stock of Acquired Sales, which Acquired Sales shares had, as of the end of the prior quarter, an aggregate fair value of $4,351,128 based on the pre-split market value of $0.10 per share, or $2.00 per share post-split;

·  
(2) the exchange of 5,724,666 outstanding options to purchase shares of Cogility common stock for 1,080,126 options to purchase post-reverse split common stock of Acquired Sales at exercise prices ranging from $0.001 to $5.00 per share. These Acquired Sales options had an aggregate fair value, as of the end of the prior quarter, of $938,283 computed using the Black-Scholes option pricing model and the following weighted-average assumptions: post-split exercise price of $1.06  per share, estimated term of 4.3 years, estimated volatility of 80%, estimated yield of 0% and estimated risk-free interest rate of 2.0%;

·  
(3) the existing Cogility bonus plan was eliminated, and was replaced by options to purchase 1,500,000 post-reverse split common stock of Acquired Sales at an exercise price of $5.00 per share. These Acquired Sales options have an aggregate fair value of $1,144,786, as of the end of the prior quarter,  computed using the Black-Scholes option pricing model and the weighted average assumptions listed in (2) above except the weighted-average post-split exercise price is $5.00 per share and the estimated term is 4.0 years;

 
 
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·  
(4) in November 2010, Acquired Sales granted stock options to the members of management and directors that participated in structuring the financing and the merger with Cogility; those stock options are for the purchase of 12,600,000 pre-split common shares at $0.10 per share, or 630,000 post-split common shares at $2.00 per share, and vested upon the occurrence of the merger. These Acquired Sales options have an aggregate fair value of $801,762, as of the end of the prior quarter,  computed using the Black-Scholes option pricing model and the following weighted-average assumptions: estimated term of 5.2 years, estimated volatility of 78%, estimated yield of 0% and estimated risk-free interest rate of 1.1%; and

·  
(5) the issuance of Acquired Sales stock options to purchase 75,000 post-reverse split Acquired Sales common stock to a consultant with 25,000 options exercisable at $0.001 per share and 50,000 options exercisable at $2.00 per share. These Acquired Sales options had an aggregate fair value of $113,421 computed using the Black-Scholes option pricing model and the following weighted average assumptions: post-split exercise price of $1.34 per share, estimated term of 5.0 years, estimated volatility of 77%, estimated yield of 0% and estimated risk-free interest rate of 2.0%.

·  
The total acquisition consideration for Cogility was $7,349,380.

The Terms of the Cogility Software Transaction

For the past many years, Acquired Sales was a non-operating public shell corporation with no significant assets. The Cogility transaction allowed us to improve our operations, expand our assets and advance our management team. During the first quarter of 2011 in order to benefit Cogility’s business, Acquired Sales issued notes payable and warrants in a private placement offering and loaned most of the proceeds to Cogility.

The transactions required to accomplish the merger are recognized as follows: (1) the recapitalization of Cogility by recognizing the Acquired Sales common shares issued in exchange for the Cogility shares in a manner equivalent to a 1-for-5.3 reverse stock split, (2) the Acquired Sales common shares that remain outstanding, on a 1-for-20 reverse split basis, are recognized as the issuance of common shares by Cogility for the net liabilities of Acquired Sales at their fair values, (3) the issuance of stock options to the members of management of the combined company are recognized as compensation expense based on the fair value of the stock options, and (4) the issuance of notes payable and warrants by the combined company. All references hereafter are to Acquired Sales post-split common shares unless stated otherwise. The specific transactions and their effects on the unaudited pro forma condensed consolidated financial statements are as follows:

Cogility shareholders owning the outstanding 11,530,493 Cogility common shares receive 2,175,564 Acquired Sales common shares, or one Acquired Sales common share for each 5.3 Cogility common shares outstanding. The historical Cogility financial statements are restated on a retroactive basis for all periods presented for the effects of this 5.3-for-1 reverse stock split.

Acquired Sales reverse splits its common shares outstanding on a 1-for-20 basis, which results in the 5,832,482 Acquired Sales pre-split common shares currently outstanding becoming 291,624 Acquired Sales common shares. For financial reporting purposes, the 291,624 common shares are effectively issued in exchange for the assumption of the $175,293 of net assets of Acquired Sales and are recorded at the fair value of the net assets of $175,293.

Prior to the merger, Cogility had stock options outstanding that permit the holders thereof to purchase 5,724,666 Cogility common shares at prices ranging from $0.001 to $1.40 per share. In the merger transaction, the Cogility option holders exchange these stock options for 1,080,126 Acquired Sales stock options exercisable at prices ranging from $0.001 to $5.00 per share. The exchange of these stock options is considered to be part of the recapitalization of Cogility and is not a modification of the Cogility stock options. There are 3,295,000 of these Cogility stock options that are exchangeable for 621,698 Acquired Sales stock options that vested during 2011 upon Acquired Sales obtaining at least $500,000 of financing and the remaining Cogility stock options vest upon occurrence of the merger with the Acquired Sales subsidiary.
 

 
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In November 2010, Acquired Sales granted stock options to the members of management and directors that participated in structuring the financing and the merger with Cogility. Those stock options were for the purchase of 12,600,000 pre-split common shares at $0.10 per share, or 630,000 post-split common shares at $2.00 per share. The options vest upon the occurrence of the merger.

Cogility and Acquired Sales have authorized the grant, at the closing of the merger, of stock options for the purchase of 1,500,000 common shares at $5.00 per share. At that date, 750,000 of the stock options will be granted and the remaining 750,000 stock options are to be granted within twelve months of the closing of the merger. The stock options will vest to employees, directors or consultants that remain employed for three years from the date of the merger and the Company has earnings, before interest, taxes, depreciation and amortization expenses, of at least $1,000,000 in each of four consecutive calendar quarters during the first twelve calendar quarters following the closing date of the merger.

Cogility and Acquired Sales have authorized the grant to a consultant of stock options for the purchase of 75,000 common shares, with 25,000 options exercisable at $0.001 per share and 50,000 options exercisable at $2.00 per share. These options vest immediately and are exercisable until November 4, 2020.

During 2011, Acquired Sales issued $920,000 of 3% promissory notes and warrants to purchase 460,000 post-split shares of common stock at $2.00 per share to accredited investors in a private placement offering. The notes payable and the warrants were issued in exchange for $700,000 in cash, the exchange and settlement of a $200,000 note payable to an entity related to the sole officer of Acquired Sales, which note payable had previously been assumed from Cogility Software Corporation (Cogility), and the transfer and assignment from an unrelated third party of a $20,000 note receivable from Cortez Systems. Of the cash proceeds received in the offering, $400,000 was from related parties. The promissory notes accrue interest at the rate of 3% per annum payable quarterly on the last day of each calendar quarter beginning March 31, 2011, mature on December 31, 2014 and are secured by all of the assets of Acquired Sales and Cogility. The warrants are exercisable through March 31, 2016. During 2011, Cogility used approximately $500,000 of the proceeds to reduce accounts payable and accrued expenses and Cogility and Acquired Sales collectively retained approximately $200,000 of the proceeds, which was subsequently used in Cogility’s current operations mainly to pay compensation expense.

In addition to receiving the 3% promissory notes and the warrants described above, at any time during the first 90 days following the date of the completion of the merger, each investor in the private placement offering has the right to make a second loan to Acquired Sales in the same amount and on the same terms as the 3% promissory notes and warrants described above. Under current accounting guidance, none of the consideration received was allocated to the investors’ rights to make additional loans.

On September 22, 2010, the majority shareholder of Cogility signed an agreement that in the event of the merger, $69,943 of accrued compensation payable would be forgiven. The accompanying pro forma financial statements recognize this transaction as the conversion of the $69,943 of accrued compensation to officers to additional paid-in capital without the issuance of additional common shares.

Source of Funds for the Cogility Software Transaction

The source of funds for the acquisition of Cogility Software and its assets through the Merger was Acquired Sales’ authorized common stock. Funds to cover professional costs in connection with the transaction were sourced through loans to Acquired Sales which were accompanied by warrants “kickers”.
 

 
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Company Approval of the Cogility Software Transaction, Shareholder Rights and Accounting Treatment

The vote required for approval of the Cogility acquisition transaction was a majority of the Board voting in favor of the Cogility Software Transaction and majority stockholder approval by written consent.  There are no material differences in the rights of the Company’s shareholders as a result of the Cogility Software Transaction as the nature of the common stock shares did not change. However, there was stockholder dilution.  

The accounting treatment of the transaction is as follows: As of December 31, 2010, Acquired Sales has been a non-operating public shell corporation with no significant assets. During the first quarter of 2011, Acquired Sales issued notes payable and warrants in a private placement offering and loaned most of the proceeds to Cogility. Under current accounting guidance Acquired Sales is not a business for purposes of determining whether a business combination would occur upon the merger of Cogility into a newly-formed subsidiary of Acquired Sales. The shareholders and management of Cogility gained operating control of the combined company after the transaction. Accordingly, Cogility is, under current accounting guidance, considered the accounting acquirer and the results of its operations will be the historical results of operations of the combined company, restated for the effects of the restructured capital structure discussed herein.

The federal income tax consequences of the transaction are as follows: The transaction is expected to be booked as a tax free exchange of stock pursuant to Internal Revenue Code Section 368, resulting in no federal income tax consequences of the transaction.
       
Regulatory Approvals of the Cogility Software Transaction

There are no federal or state regulatory requirements that must be complied with or approvals that must be obtained in connection with the Cogility Software Transaction.

Reports, Opinions and Appraisals Relating to the Cogility Software Transaction

No report, opinion or appraisal materially relating to the Cogility Software Transaction has been received from an outside party.

Past Contacts, Transactions or Negotiations Relating to the Acquisition of Cogility.

In late March 2010, Roger S. Greene, a shareholder of Cogility and one of our directors, contacted Gerard M. Jacobs, our Chief Executive Officer, to discuss a possible acquisition of Cogility by Acquired Sales. On April 1, 2010, Mr. Ghourdjian said that he would like Mr. Jacobs to become the President and Chief Executive Officer of Cogility, and to take Cogility public by merging Cogility into Acquired Sales. On April 7-8, April 27-28, and May 25-26, 2010, Mr. Jacobs met variously with Mr. Ghourdjian, other Cogility employees, Mr. Greene, and Vincent J. Mesolella, one of our directors, at Cogility’s office in Alexandria, Virginia, to discuss a possible acquisition of Cogility by Acquired Sales, and for Mr. Jacobs to begin his “due diligence” investigation of Cogility.

During the Summer of 2010, Mr. Jacobs discussed with Mr. Greene, Mr. Mesolella and Mr. Ghourdjian potential terms and conditions of a possible letter of intent pursuant to which Acquired Sales would acquire Cogility, and also discussed certain items of concern relating to Cogility that were discovered during Mr. Jacobs’ “due diligence” investigation of Cogility, including certain line items shown on Cogility’s balance sheet, and certain provisions contained in Cogility’s agreements with a company called Defense & Security Technology Group, LLC (“DSTG”), controlled by Mr. Minh Le. Deborah Sue Ghourdjian, the trustee of the Deborah Sue Ghourdjian Separate Property Trust (“DSGSPT”), Cogility’s majority stockholder, did not participate in these discussions.

On or about August 24, 2010, in anticipation of a possible deal between Cogility and Acquired Sales, Mr. Ghourdjian appointed Mr. Jacobs as Cogility’s President, so that the process of obtaining a s ecurity clearance for Mr. Jacobs could begin as soon as possible. On August 25-26, 2010, Mr. Jacobs again met with Mr. Ghourdjian and other Cogility employees at Cogility’s office in Alexandria, Virginia. On August 31, 2010, the board of directors of Acquired Sales had a telephonic meeting.  The independent members of the board of directors of Acquired Sales voted unanimously to authorize Mr. Jacobs to sign a potential agreement with Cogility, including a letter of intent pursuant to which Acquired Sales would acquire Cogility, provided that, as a condition to such signing, Mr. Jacobs and Mr. Mesolella needed to be satisfied that certain line items on Cogility’s balance sheet, and Mr. Le’s involvement with Cogility, were satisfactorily resolved.
 

 
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On September 26-24, 2010, Mr. Jacobs met with Mr. Mesolella, Mr. Ghourdjian and other Cogility employees at Cogility’s office in Alexandria, Virginia, and with Mr. Le. On October 4-7, 2010, Mr. Jacobs variously met with Mr. Ghourdjian and other Cogility employees, Mr. Greene, and Mr. Le, at or near Cogility’s office in Anaheim, California.

On October 21, 2010, Mr. Jacobs met with Mr. Le at the Hyatt Hotel near O’Hare Airport in Chicago. By November 4, 2010, all of Mr. Jacobs’ concerns regarding certain line items on Cogility’s balance sheet, and concerning Mr. Le’s and DSTG’s involvement with Cogility, were resolved, and an Agreement among the DSGSPT, Mr. Ghourdjian, Cogility, Acquired Sales, and all of the members of the board of directors of Acquired Sales, was fully signed. A Written Consent of Board of Directors of Acquired Sales Corp. in Lieu of Special Meeting was signed by all of the members of the board of directors of Acquired Sales as of November 15, 2010, approving seven resolutions including the acquisition of Cogility and related matters, and a Written Consent of the Stockholders of Acquired Sales Corp. to those seven resolutions was signed by the holders of a majority of the common stock of Acquired Sales as of December 1, 2010.

The Company was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately prior to closing under the terms of the Merger.  As a result of closing under the Merger, Cogility became a wholly-owned subsidiary of the Company and the Company’s operations are now focused in Software as well as targeting other acquisitions in related and unrelated industries.  Consequently, the Company believes that as a result of closing under the Merger, it has ceased to be a shell company because it no longer has nominal operations.

Caution Regarding Forward-Looking Statements

This Current Report on Form 8-K of Acquired Sales, Inc. and its subsidiaries contains forward-looking statements.  All statements in this Current Report on Form 8-K, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding the Company’s future financial results, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends.  These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements.  Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology.  Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in this report, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Other risks and uncertainties are disclosed in the Company’s prior Securities and Exchange Commission filings. These and many other factors could affect the Company’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.  The Company undertakes no obligation to revise or update any forward-looking statements.  The following information should be read in conjunction with the financial statements included in this Current Report on Form 8-K.

Except as otherwise indicated by the context, references in this Current Report on Form 8-K  to “we,” “us” and “our” are to the consolidated business of the Company and Cogility Software Corp.
 

 
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Description of Business of Acquired Sales

Acquired Sales Corp. (hereinafter sometimes referred to as “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986. In August 2001, we ceased all of our prior operations and remained dormant from then until May 27, 2004 when we began our current development stage activities. We had no material operations in the past three years.

In addition to our acquisition of Cogility, we propose to seek, investigate and, if warranted, acquire an interest in one or more businesses. As of the date hereof, we have some business opportunities or ventures under contemplation for acquisition or merger. We propose to investigate potential opportunities, particularly focusing upon existing privately held businesses whose owners are willing to consider merging their businesses into our company in order to establish a public trading market for their common stock, and whose managements are willing to operate the acquired businesses as divisions or subsidiaries of our company. The businesses we acquire may or may not need an injection of cash to facilitate their future operations.

We are interested in mortgage lending companies, unsecured lending companies, defense industry companies, software companies, manufactured housing communities, oil & gas services and production companies, and medical supply and diagnostic companies, but we currently do not intend to restrict our search for investment opportunities to any particular industry or geographical location and may, therefore, engage in essentially any business. Our executive officers will review material furnished to them by the proposed merger or acquisition candidates and will ultimately decide if a merger or acquisition is in our best interests and the interests of our shareholders. We intend to source business opportunities through our officers and directors and their contacts.  Those contacts include professional advisors such as attorneys and accountants, securities broker dealers, venture capitalists, members of the financial community, other businesses and others who may present solicited and unsolicited proposals. Management believes that business opportunities and ventures may become available to it due to a number of factors, including, among others: (1) management’s willingness to consider a wide variety of businesses; (2) management’s contacts and acquaintances; and (3) our flexibility with respect to the manner in which we may be able to structure, finance, merge with or acquire any business opportunity.

The analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our management, such potential business opportunities or ventures by conducting a so-called “due diligence investigation”.

In a so-called “due diligence investigation”, we intend to obtain and review materials regarding the business opportunity. Typically such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our officers or agents to meet personally with management and key personnel of target businesses, ask questions regarding our prospects, tour facilities, and conduct other reasonable investigation of the target business to the extent of our limited financial resources and management and technical expertise.

There is no guarantee that we can obtain the funding needed for our operations, including the funds necessary to search for and investigate acquisition candidates, and to close an acquisition including paying the substantial costs of legal, accounting and other relevant professional services.

We presently have very little cash on hand, approximately $0 as of the date of this filing, and our payables are typically greater than our cash on hand. Moreover, we recently received on September 13, 2011 and September 30, 2011 an aggregate of $8,000 in loans from a company affiliated with our chief executive officer in order to meet certain expenses. We have no income generating ability and are therefore reliant on raising money from loans or stock sales. These conditions raise substantial doubt about our ability to continue as a going concern.
 

 
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Nevertheless, our financial statements are presented on the assumption that we will continue as a going concern.

Business Acquisition

The structure of our participation in a business opportunity or venture will be situational. We may structure our acquisitions as an asset purchase, merger, or an acquisition of securities. It is likely that the anticipated value of the business and/or assets that we acquire relative to the current value of our securities will result in the issuance of a relatively large number of shares and, as a result, substantial additional dilution to the percentage ownership of our current stockholders. Moreover, our present management and shareholders may not have control of a majority of our voting shares following a business acquisition or other reorganization transaction. It is possible that the shareholders of the acquired entity will gain control of our voting stock and our directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace our officers without stockholder vote.

We are not an "investment adviser" under the Federal Investment Advisers Act of 1940, which classification would involve a number of negative considerations. Accordingly, we will not furnish or distribute advice, counsel, publications, writings, analysis or reports to anyone relating to the purchase or sale of any securities within the language, meaning and intent of Section 2(a)(11) of the Investment Advisers Act (15 U.S.C. 80b2(a)(11)).

We may become involved in a business opportunity through purchasing or exchanging the securities of such business. We do not intend, however, to engage primarily in such activities and we are not registered as an "investment company" under the Federal Investment Company Act of 1940. We believe such registration is not required.

We must conduct our activities so as to avoid becoming inadvertently classified as a transient "investment company" under the Federal Investment Company Act, which classification would affect us adversely in a number of respects. Section 3(a) of the Investment Company Act provides the definition of an "investment company" which excludes an entity which does not engage primarily in the business of investing, reinvesting or trading in securities, or which does not engage in the business of investing, owning, holding or trading "investment securities" (defined as "all securities other than United States government securities or securities of majority-owned subsidiaries",) the value of which exceeds 40% of the value of its total assets (excluding government securities, cash or cash items). We intend to implement our business plan in a manner which will result in the availability of this exemption from the definition of "investment company." We propose to engage solely in seeking an interest in one or more business opportunities or ventures.

Effective January 14, 1981, the SEC adopted Rule 3a-2 which deems that an issuer is not engaged in the business of investing, reinvesting, owning, holding or trading in securities for purposes of Section 3(a)(1) cited above if, during a period of time not exceeding one year, the issuer has a bona fide intent to be engaged primarily, or as soon as reasonably possible (in any event by the termination of a one year period of time), in a business other than that of investing, reinvesting, owning, holding or trading in securities and such intent is evidenced by our business activities.

Offices

Our corporate headquarters are located at 31 N. Suffolk Lane, Lake Forest, Illinois 60045. We do not have a dedicated corporate office for our parent company; however, our subsidiary Cogility has several offices as described in the Management's Discussion and Analysis of Financial Condition and Results of Operations of Cogility Software. There are no agreements or understandings with respect to any office facility subsequent to the completion of an acquisition. We may relocate our corporate headquarters in connection with a change in the management of our company, or in connection with the completion of a merger or acquisition.


 
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Employees
 
We currently have no salaried employees. However, we intend to begin paying Gerard M. Jacobs, our chief executive officer, Matthew Ghourdjian, our chief technology officer and Daniel F. Terry, Jr., our president and chief operating officer  salaries when we are financially able to do so. We expect to address our need for employees in connection with money raising and acquisitions. We expect to use attorneys and accountants as necessary.

Description of Business of Cogility

Introduction

Cogility has developed unique, patent-pending software tools that quickly provide solutions to complicated data management and analysis problems, sometimes referred to as “Complex Event Processing” or “Big Data” management.  Cogility’s software tools automate many mundane tasks in order to reduce the number of programmers required, and allow a user to focus on solving complex problems at a higher level of abstraction using “models”, sometimes referred to as “Model-Driven Architecture”.

Cogility’s software tools, first, allow a user to identify all of the data that the user needs to be managed and analyzed, and then second, to create rules, which can be easily changed, that specify what happens to the data which is being managed and analyzed.  Cogility’s software tools automatically perform the complex tasks involved in implementing these rules, including creating and distributing all necessary changes within the software processing code.  This typically reduces the upfront and downstream time/cost involved in developing software applications by 50% or more.

Cogility provides Model Driven Complex Event Processing software technology for the U.S. defense and intelligence communities and private sector corporations with complex information management requirements. Cogility's website can be reviewed at www.cogility.com . Cogility delivers a comprehensive offering that melds the complexities inherent in a multi-vendor enterprise integration solution into a single, yet sophisticated product. Cogility's software technology reaches beyond the promise of current composite application solutions to deliver an advanced, end-to-end solution for the design, deployment, execution, testing, monitoring and maintenance of complex, enterprise-wide composite applications.

History

Cogility was incorporated in Delaware in 2002 under the name Ceira Software, Inc. Ceira Software, Inc. changed its name to Cogility Software Corporation in 2003. Soon after its incorporation, a related company called Ceira Technologies Inc., which had the same Chief Executive Officer and the same shareholders as Cogility, contributed certain software and other intellectual property rights to Cogility.

Management

Cogility’s management team is led by Matthew Ghourdjian, its founder and chief technology officer and Daniel F. Terry, Jr., its chief executive officer. Daniel F. Terry, Jr. and Matthew Ghourdjian each have years of experience in the technology industry. Daniel F. Terry, Jr. was a founder and former CEO of Mission 1 st Group, Inc., and held executive positions at NetFRAME, Micron, PCR and ConnectedSupport.com. Matthew Ghourdjian was a founder of CoderCard, Digital Convergence, Ceira Technologies Inc., and Cogility. Matthew Ghourdjian is a former partner at KPMG Consulting and Arthur Andersen.

Offices and Employees

Cogility company currently has offices in San Jose, California, in Anaheim, California, and in Alexandria, Virginia. Cogility has a total of 10 full-time and 4 part-time employees, including 9 software engineers. None of these employees are covered by collective bargaining agreements. We believe that relations with our employees are good.
 

 
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Software Technology Products

(1) Cogility Studio™

Cogility Studio™ is Cogility's flagship product. Cogility Studio™ is an object-oriented, model driven, integrated development environment for creating complex, service oriented and event-driven composite applications (applications that include a high degree of integration with existing or external applications) that solve difficult problems. Cogility Studio ™ is 100% standards based, deploying on any database or application server. Cogility Studio ™ has been deployed in high volume, mission-critical applications since 2003.

Using Cogility Studio™, organizations can more easily expand enterprise applications to leverage existing information and business logic that is currently locked within legacy applications. IT teams can deliver robust and scalable business solutions more quickly, giving an organization the foundation it needs to operate efficiently and competitively over time.

Cogility Studio™ allows the creation of anything from simple composite applications to unprecedented systems while keeping the focus of all stakeholders on the business/mission objectives. The revolutionary Dynamic Model Driven Architecture™  technology allows continuous updates and maintenance from the system model while reducing IT administration and management costs. The system model allows technical and non-technical stakeholders to collaborate on system definition and logic

Cogility Studio™ is three tightly integrated applications: Cogility Modeler, Cogility Manager and Cogility Insight. Cogility Modeler’s standards based UML modeling environment enables one to author a business process in an easy to use visual programming environment. One can deploy that model as an application on any J2EE application server by “pushing” it into the Cogility Manager run-time environment and managing and analyzing that running application using Cogility Insight.

(a) Cogility Modeler

Cogility Modeler is an integrated development environment (IDE) for the collaborative authoring of an enterprise system model. Like an IDE for developing code and code objects, it provides a single tool for working with many types of system artifacts. Unlike a typical IDE concerned only with individual entities, Cogility Modeler provides visibility over an entire system and semantic consistency checking between artifacts of a system. That system may include any or all business processes that span the enterprise, the messages between components of that system, and the data and operations of that system. All of these are described as artifacts of an enterprise model created in Cogility Modeler. The model may be developed collaboratively with contributions from people at both the high-level, conceptual end and the low-level, implementation end. The model becomes fully executable when deployed as a J2EE application.

An enterprise model consists of artifacts grouped in the following areas:

·  
Information Modeling - The artifacts of the information model describe the business objects of the enterprise. A customer, for example, is represented as a class artifact with such attributes as first name, last name, customer ID, address and so forth.
·  
Message modeling - The message model is concerned with the communication between the application and the outside world (other applications). Message artifacts represent JMS messages, which are connected to conversion artifacts that isolate the model from the physical communication and enforce the abstractions. This allows the business logic to deal with “events” that are separate from the technology concerns.
·  
Behavior modeling – Objects in the Cogility system have behavior and respond to events (external and internal). This

 
 
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·  
allows the system to be dynamic, and to localize changes to the part of the model directly affected by a change. The behavior modeling also includes the inclusion of human users into the process logic of the system for consultation or information presentation purposes. The synergy of automation and human control is a key enabler of complex event driven process based systems.
·  
Transformation modeling - At the heart of an integration model, transformation objects describe the way data from an application gets mapped to another application. Transformation maps, classifier maps and feature maps are all examples of transformation artifacts defined by the CWMM standard and implemented in the Cogility transformation engine. Cogility is unique in allowing transformations to be embedded in a process allowing automation or manual interaction as part of the transformation process or to control the timing of the transformation.
·  
Web service modeling - Web service modeling artifacts provide for communication between the model's J2EE application and other systems and applications. Both SOAP and HTTP web services are support and can be supported simultaneously for the same business logic. Just like message modeling, web service modeling can generate events that are fed to the behavior model unifying the treatment of external communications.

(b) Cogility Manager

Cogility Manager is the run-time environment in which the deployed composite application runs. It enables a model created in Cogility Modeler to run as a composite application on a specific application server with a specific database for the run-time repository.

Cogility Manager includes the libraries and routines that run the composite application on a specific J2EE application server, which provides system security and enables system messaging and database transactions.

The Cogility Manager metadata layer is running on the J2EE application server machine and provides the process, business logic, and integration support expected by the generated model-driven application

The model-driven business logic and data repository layer is the Java application generated from the project model.

(c)  Cogility Insight

Cogility Insight is the model execution visualization environment for review and analysis of system performance. It permits users to immediately execute and visualize deployed models without the need for custom user-interface programming. This saves significant time and assures compatibility with running processes.

Cogility Insight's features include:

·  
An authentication layer that restricts access to critical information based on user account and password;
·  
Access to business data through the web Services layer, supporting easy access from across and outside a user's
 

 
 
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·  
enterprise with standard security features that are provided through web server technology;
·  
Access to business web service interfaces permitting service invocation for testing purposes;
·  
Auditing of executing as well completed processes, with full access to runtime state data;
·  
Display of accumulated usage and trend analysis of the relevant key performance indicators (KPI’s) defined by the user in the Cogility system model;
·  
Automatic updating as the model is updated and redeployed without the need for additional manual steps;
·  
Access to configuration management version numbers for all deployed artifacts, including business process definitions, encapsulated business logic, business web services, queries, to facilitate configuration identification throughout the system development and maintenance life cycle.

Cogility Insight is a web application that runs on your J2EE application server. As such, Cogility Studio must be deployed to that application server and the server must be running in order to run Cogility Insight.

(2) Dynamic Template Event Processing Language

Cogility's Dynamic Template Event Processing Language (TEPL) allows projects to continuously monitor large data sets and direct analyst attention. The system is designed to find activity that might be missed by manual inspection. By grouping relevant information together around detected pattern matches the system can optimize analyst time, and reduce the chance of missed cues. Analysts are provided a wealth of information about each hit including all the information matching templates, the information surrounding the match that may have relevance, and tools to expand or narrow the focus of the investigation from the match. Analysts can further register interest in activities that may support their role without those matches implying elevation of the event to other analysts. This supports analysts that are performing special analysis across areas of responsibility, or across functional boundaries.

The Cogility TEPL provides a visual language for defining templates that match against streams of events. The system involves separating events into streams based on criteria defined by the project, and then matching templates to those streams. This allows great flexibility in detecting meaningful activity within a large set of data or observations.

The full range of Cogility Studio features is available to collect and aggregate the data to be processed. It is presented to the TEPL runtime by the project model. Once TEPL is presented with an event it goes through grouping then template matching, then analysis.

Event grouping allows template matching on pre-filtered content. This supports scalability and reduces clutter. Criteria are project specific and can include geospatial boxing, use of cultural or linkage data held by the project, or other criteria applicable to the data set.

Once events are grouped templates are matched against the group to lay the groundwork for analysis. Templates are project specific and can be shared between projects. Templates allow matching of events both in terms of temporal ranking, geospatial proximity, and project specific criteria applicable to the template. The full range of Cogility Studio capabilities can support template matching and is our Dynamic Matching Logic.

Once templates have been matched to groups the results are ranked and tested against analyst thresholds to allow notifications, warnings, and updates to all levels of authority.

 
 
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In addition to basic matching of events to template steps based on type categorizations the TEPL language provides for open ended matching logic using OCL scripting. This feature allows any criteria or related data item to be tested in the matching process. This dynamic logic allows such things as matching a person based on known associates, known travel patterns, or doing a database lookup to check status in an external system. This also provides an opportunity to have the matching logic consider several events or related events as part of the matching criteria constituting support for complex event processing as tests can require temporal, geospatial, or other connections between events to cause a match.

Cogility’s model driven, visual approach allows the solution to be expressed closer to the problem domain. Whereas code based solutions do nothing more than mechanical syntax checks at design time, Cogility’s holistic model additionally allows more meaningful semantic checks to be performed at design time. This increases confidence in the solution and reduces the testing cycle. Domain analysts are able to participate more directly in the development process and the development teams are smaller. The traditional barriers between domain analysts and coders are removed. Solutions are easier to create but more importantly, easier to evolve and maintain over time.

(3) Cogility Intel Framework

The Intel Framework provides integration with the Cogility Template Event Processing Language to perform pattern-based searches of collected information, collection guidance, and differentiation of suspect activity patterns. The Intel Framework is built on top of Cogility Studio and relies on that product for integration with existing and legacy systems and information sources, and for workflow features.

The Cogility Intel framework provides a pre-built set of tools for jump-starting intelligence or investigative projects. The framework provides the following key components:

(a) Case File Management .   The central component of the Cogility Intel Framework is case file management. Case files can be created and formed manually by analysts to track information and evidence related to an incident, a suspect, or a combination of events and targets. Case files can also be created automatically with the use of the Cogility Template Event Processing Language component.

(b) Web User Interface .   The Intel Framework is server based and includes a web user interface for accessing and directing component activity. The web user interface is analyst centric focusing on the workflow, tasks, and activities analysts engage in during investigations.

(c) Evidence Accrual .   There is a large difference between information and evidence, limits on what collection methods can be used, and evidence can come in physical form needing identification and tracking. The Intel Framework provides tracking, identification, and support for processes related to Evidence Accrual.

(d) Geospatial-Temporal Mapping .   Information within the Intel Framework is tracked in Geospatial and Temporal dimensions. The information and the connections between it can be displayed geospatial on a map, temporally on a time line, and in several forms to highlight linkages and clustering.

(e) Link Discovery, Mapping, and Evaluation.   A central part of tracking an investigation is working with links between people, suspects, witnesses, and victims. The Intel Framework tracks linkages, types of links, information substantiating links, and supports entity extraction (using an external tool).

(f) Human-in-the-loop Tasking and Collaboration .   The Intel Framework includes a component for human in the loop tasking and collaboration. This component allows workflow within the organization to be automated and support the investigation process. The collaboration can reach outside the organization to experts and other supporting organizations that are routinely involved in support activities (through the web user interface, email, SMS, and other methods), or to those occasionally involved (through email and similar contact methods).
 

 
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Technology Differentiators

The Cogility solution treats process execution, web service orchestration and data synchronization simultaneously. Cogility’s pre-architected data environment supports horizontal process and data integration, cuts across all databases, and leverages existing “standards compliant” J2EE application server technologies. Cogility is cost effective, easy to support and can scale to support even the largest and most complex requirements. Cogility Studio allows one to create, modify and maintain very complex systems with much lower resource commitments.

We believe that Cogility's software technology products can be differentiated from our principal competitors' products such as Rational Rose and NetBeans for the following reasons:

(1)   Direct Execution. What makes Cogility Studio™ significantly different than other visual programming environments is that the models created by Cogility directly execute as specified. In other words, Cogility’s high-level UML based models are deployed to an executable platform with a single button “push” and are directly executed without further coding or translation. During deployment, Cogility Modeler creates the Java beans, deployment descriptors, routines and other Java run-time utilities. A user does not have to write any Java code to complete the deployment because deploying a model not only creates the Java application, but the run-time environment that manages interactions between the composite application, the specific application server and the database for the run-time repository. Pushing the model creates the tables on the run-time repository for the model objects (such as the M2E conversions, events, web services, and so on), and for the business objects that are created at run-time (such as Customers, Addresses and Products); it also creates the Java beans, deployment descriptors, routines and libraries that manage the communication between the composite application, the J2EE application server and the run-time repository. Without service interruption, modified or new modeling artifacts (objects) are “re-pushed” to execution creating a holistic lifecycle that reduces system development, maintenance and enhancement costs by 50% to 70% over the life of the application.

(2) Elimination of Technical Barriers

Cogility’s innovative approach allows solutions to be rapidly prototyped using visual modeling techniques to create solutions that are extremely change-tolerant and highly responsive to the needs of the organization. Intense research and development efforts have gone into creating an environment that eliminates the technical barriers to entry for creating complete high performing solutions, thus ensuring that business needs -- not the complexities of the technical platform -- define the complexity of the solution.

Cogility Studio changes the software development paradigm by allowing programmers to directly encode the business user’s requirements into a model, so work can begin with minimal requirements. Cogility’s powerful and elegant multi-user modeling and deployment environment supports rapid and continuous changes, so development can be highly iterative since changes and modifications are made in the model and “pushed” to execution with almost no cost penalty.

In addition, Cogility provides frameworks aimed at several verticals to further reduce the development effort for new projects. These frameworks provide an integrated web user interface, basic abstractions for the vertical, and a set of standard processes that can be a starting point for a project while leveraging past project experience. All frameworks are tightly integrated into Cogility’s Modeler environment providing vertical specific consistency checks, visual treatment of key abstractions, and tailored modeling presentation for the vertical’s domain concepts.

(3)  Integration Infrastructure.   A suite of integration features such as automatic database persistence, web service and messaging connectivity, XML document handling, and background task management are built into the system and exposed at the modeling layer so low level coding isn’t required.

(4)  Composite Application .   Cogility’s long running visually modeled processes aren’t used just to create automatic processes by stringing a series of web services together. They are used to create arbitrary combinations of automated and human assisted processes. The domain specific application that is being supported by these processes is itself in the model creating a seamless composite application that is easy to extend. A Composite application goes beyond simple integration of data, by typically subsuming the operations and interfaces of other applications by providing a unified set of functions, often removing the need to directly access the integrated applications for typical tasks. For example in a telco environment a composite application might integrate the billing, order entry, and workforce management functions into one integrated customer care and self service web interface. This would require that the new application not just exchange data with the existing systems, but add new functions such as the custom self service portal, and often means having integrated interfaces for call center agents that would in the past be accessing each system separately.
 

 
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(5) Rapid Prototyping .  The combination of model driven development along with the fact that the entire application (the domain specific logic as well as the integration aspects) lives in the same model, allows for rapid prototyping.

(6) Parallel Execution .   The Cogility approach leverages concurrency in processes and can utilize multiple processors or multiple servers to execute the concurrency modeled into the system. Concurrency is addressed using transactional programming, proven over the last 30 years, rather than difficult to use low-level techniques like threads, locks, and semaphores required by code based solutions to utilize multi-core systems.

(7) Development Methodology .   An iterative development process is a natural complement to the rapid model driven prototyping approach. Thin, end-to-end solutions are quickly created to allow the end user, early visibility into the system. This allows the system to be modified and corrected early on and reduces later more costly rewrites. Cogility typically delivers a project or the first phase of a longer project within 2-4 months of the project start.

(8)  Operates on Standards Based Infrastructure .   Rather than creating esoteric systems, Cogility’s innovative model driven approach is layered on top of existing technologies, thereby reducing personnel training time and risk of maintaining the running system. Cogility’s dependencies are limited to Java, J2EE compliant application servers and JDBC compliant relational databases.

(9) Adaptability.   Cogility’s built-in artifacts provide a powerful set of capabilities that can be adapted to a wide range of problem types. This flexibility, coupled with the model driven approach, allows domain specific solutions to be created quickly. Cogility has created solutions for the finance, telecommunication and health industries. More recently, the same techniques have been applied to defense industry problems like Time Sensitive Effect Operations and Counter IED projects.

(10) Rapid Deployment.   Once the design time modeling activities are completed, the model can be deployed to the execution platform with a single button push. Re-push of modified models can take as little as 15 seconds and typically takes no more than 30 to 60 seconds, depending on the number of changes. Cogility has developed processes to allow hot deployment of models, eliminating the need to stop the running application while a new version of the application is being deployed.

(11)  Runtime Scalability .   Cogility applications run inside J2EE application servers but they are meta-data based, instead of code based. This allows the application server to be a simple caching, computing device and all the data and application state changes are preserved in the database. A theoretically unlimited number of app-servers can be pooled together to increase processing throughput without requiring special design on the modelers’ part. The other part of the running applications is standard relational databases. These can also be maintained and scaled using traditional techniques.

(12) Integration Infrastructure .   A suite of integration features such as automatic database persistence, web service and messaging connectivity, XML document handling, and background task management are built into the system and exposed at the modeling layer so low level coding is not required.

 
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Patents Pending

Cogility's software technology is in a nearly continuous process of improvement, and is currently the subject of two pending applications for U.S. patents.

Licensing

Cogility typically licenses its software technology for specific customer projects. Depending upon the customer's needs, Cogility currently offers production and deployment server appliances, storage, workstation software, and other products, at list prices ranging between $9,950 for a Cogility Event Matching Template Editor, up to $2,195,000 for a Cogility Enterprise-T Production Server Appliance and Storage with Database Clustering.

Consulting Support

In addition to Cogility’s industry leading tool set, their thought leadership in key projects and problem approaches has supported clients with critical consulting support on difficult problems.

On some projects Cogility has chosen to enter into contracting arrangements with larger consulting and technology organizations that already have prime contracts with certain agencies within the U.S. defense and intelligence communities, such as the U.S. Army Research Laboratories and the Johns Hopkins Applied Physics Laboratory. These relationships allow Cogility to meet customer needs while retaining a focus on solid proven products and frameworks that provide leverage, and allow addressing unprecedented systems needs.
 
Benefits to Customers

We believe that Cogility's ground-breaking approach to composite application development enables its clients to make informed decisions about the structure and strategy of their enterprise-wide application planning, and allows them to quickly realize system-wide, cross-organizational benefits, including:

·  
Optimization of existing IT investments
·  
Reduced IT costs and complexity
·  
Faster development schedules
·  
Improved enterprise-wide data management and data integration
·  
Definition and adherence to sound business practices

Organizations can create complex applications without the need for specialized Java code to specify custom business logic. This allows project teams to focus more fully on important business issues. Cogility's model-based approach defines complex business logic within the model, which then executes within any scalable, commercially available and vendor independent J2EE Application Server environment.

Sales and  Marketing

Cogility markets its products and services primarily through direct marketing, and through Cogility's website. To date Cogility has lacked the financial resources to engage in any advertising or promotional campaigns.

On some projects Cogility has chosen to partner with larger consulting and technology organizations that already have contracts with certain agencies within the U.S. defense and intelligence communities.

Cogility is also working with two minority-controlled businesses to market advanced software products both to the U.S. defense and intelligence communities, and to state, county and local governments:
 

 
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·  
Cogility has entered into a Strategic Alliance Agreement and related agreements with privately owned and controlled Defense & Security Technology Group, LLC, South Riding, Virginia ("DSTG"). DSTG is pursuing a number of potential consulting and software technology projects with the U.S. defense and intelligence communities that may result in the deployment of Cogility software technology. Cogility holds options to purchase membership interests in DSTG; those options are subject to the prior fulfillment of certain contingencies.
·  
Cogility has entered into an Agreement with privately controlled Cortez Systems, Chino Hills, California. Cortez Systems is developing and marketing certain technological solutions developed by Cogility to municipal, county, and state government agencies, initially within California. Cogility owns 49% of the shares of common stock of Cortez Systems, and holds an option to purchase the other 51% of the shares of common stock of Cortez Systems.

Clients

Cogility sells its products both to governmental and non-governmental clients.

On the governmental side, Cogility's primary sales efforts have been directed toward the federal government's defense and intelligence communities. Cogility's Dynamic Template Event Processing Language (TEPL) is helping Department of Defense clients to continuously monitor large data sets from disparate systems while providing the warfighter and intelligence analyst with information organized in such a manner as to help them understand the adversaries' actions and intent.

During the past two years -- without any advertising or promotional campaigns -- Cogility has gained significant traction within the U.S. defense and intelligence communities, as evidenced by its most recent contract with the Joint IED Defeat Organization (JIEDDO), which leads U.S. Department of Defense actions to rapidly provide Counter Improvised Explosive Device capabilities to U.S. troops.

On the private sector side, Cogility's clients include corporations involved in finance, healthcare and telecommunications such as CashCall, Apria Healthcare, and Australian satellite based subscription television SelecTV.

Competition

Cogility faces intense competition in the sale of software technology to the U.S. defense and intelligence communities. This competition is expected to continue to intensify in the future as a result of industry consolidation and the slowdown or reduction in federal spending for defense and intelligence.

Cogility competes with a large group of companies that sell software to the U.S. defense and intelligence communities, many of which companies have longer operating histories, greater name recognition and have greater financial, technical, sales, and marketing resources than we have. These competitors include but are not limited to Oracle, IBM, Microsoft, Northrop Grumman, Lockheed Martin, Raytheon, SAIC, and The Boeing Company.

Cogility's ability to compete depends upon several factors, including the following: (1) the capabilities of Cogility's software technology to perform Complex Event Processing (or “Big Data” management) easier, faster, more comprehensively, in real time, more reliably, and at a lower cost than its competitors' products; (2) Cogility's ability to educate, persuade and verify such capabilities to skeptical federal decision-makers; (3) Cogility's ability to sell into the federal space, which includes issues such as: security clearances; sales and marketing; bidding processes; contract vehicles; pricing of products, associated training, services, support and maintenance; availability and timing of funding; implementation timetables; resistance from entrenched competitors; and other considerations. Additional competitive factors include, but are not limited to, Cogility's reputation, knowledge of the federal defense and intelligence communities, and responsiveness to clients.

Dependence on one or a few major customers
 

 
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Cogility previously relied on two major government contracts with the United States Department of Defense, both of which ended December 31, 2010.  The two government contracts accounted for 86.0% of total revenue. Of the remaining 14.0% of revenue, 12.0% was made to one commercial customer, as compared to the year ended December 31, 2009 with one government contract with two phases accounted for 96.0% of total revenue. In the future Cogility may again become reliant on one or a few major customers.

Patents, trademarks, licenses, etc.

We rely on a combination of intellectual property laws, as well as confidentiality procedures and contractual provisions, to protect our proprietary technology. We are in the process of patenting our software and, to that end, have filed two U.S. patent applications. We also have other intellectual property rights. Although we attempt to protect our proprietary technology, any significant impairment of, or third-party claim against, our intellectual property rights could harm our business or our ability to compete.

Need for and status of any government approval of principal products or services

Not-applicable.

Effect of existing or probable governmental regulations on business

Cogility’s businesses may be affected by numerous laws and regulations relating to the award, administration and performance of U.S. defense and intelligence community contracts. The U.S. Government generally has the ability to terminate defense related contracts, in whole or in part, without prior notice, for convenience or for default based on performance. It also controls security clearances which, in some cases, could be necessary for performance under contracts. Where security clearances are not granted to key employees, our ability to perform under contracts and, therefore, our business may suffer.  In addition, the defense industry is a highly regulated environment and is subject to audit and review by the U.S. Government and its agencies. These agencies are entitled to review Cogility’s performance under its contracts, its cost structure and compliance with applicable laws, regulations and standards, as well as the adequacy of, and its compliance with, its internal control systems and policies, including accounting, billing and control systems. If an audit uncovers improper or illegal activities, Cogility may be subject to civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspension, or prohibition from doing business with the U.S. Government. Whether or not illegal activities are alleged, the U.S. Government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.

R&D expenditures

Cogility’s research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and services. Cogility spent $66,000 on research and development efforts over the past two years. Research and development costs are expensed as they are incurred.

Costs and effects of compliance with environmental laws

Not-applicable.

Description of Property

Neither Acquired Sales nor   Cogility own principal plants, mines or other materially important physical properties.
 
Description of legal proceedings
 
Neither Acquired Sales nor   Cogility are subject to any material pending legal proceedings, other than ordinary routine litigation incidental to their respective businesses.

 

 
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Management's Discussion and Analysis of Financial Condition and Results of Operations of Cogility Software

As used in this Form 8-K, references to the “Company,” “Cogility,” “we,” “our” or “us” refer to Cogility Software Corporation, unless the context otherwise indicates.

At June 30, 2011 our current liabilities exceeded our current assets by $1,869,493 and Cogility had a capital deficiency of $2,579,730; accordingly, Cogility was insolvent at June 30, 2011. The Company completed its last significant government contractual arrangement in September of 2010. The Company has recently signed four additional government contracts for total anticipated billings of $1,900,000.  The Company has billed $206,571 on these contracts through June 30, 2011 and expects the remainder to be realized through the third and fourth quarters of 2011 and the first quarter of 2012.   Because there was little to no revenue generated between September 30, 2010 and June 30, 2011 the Company continues to be insolvent. Cogility currently has operating liabilities that it cannot pay and without an additional infusion of cash it is unlikely that the Company will be able to continue as a going concern. During the six months ended June 30, 2011, the Company received $600,000 in loans from Acquired Sales Corp., through a private placement, $225,000 in loans from an individual, an additional $25,000 loan from Acquired Sales Corp. and a $25,000 loan from a lending company.  Subsequent to June 30, 2011 the Company issued an additional note payable in the amount of $100,000 to that same individual, which has continued to fund operations through the date of this filing. The Acquired Sales Corp. private placement is discussed elsewhere in this report, including the “Liquidity and Capital Resources” include herein. Without additional capital or the generation of profits through sales, there can be no assurance whatsoever that Cogility will be able to overcome its current financial problems, and bankruptcy is a distinct possibility.
 

 
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This Management’s Discussion and Analysis or Plan of Operations (“MD&A”) section discusses our results of operations, liquidity and financial condition, contractual relationships and certain factors that may affect our future results. You should read this MD&A in conjunction with our financial statements and accompanying notes included for Cogility Software Corporation.

Forward-Looking Statements

This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report, including the “Risk Factors” included herein.

Certain information included herein contains statements that may be considered forward-looking statements, such as statements relating to our anticipated revenues and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include the “Risk Factors” included in herein, such as those relating to our present condition of insolvency with risk of bankruptcy, failure of our marketing and sales activities to obtain new paying contracts during the past few months, vigorous competition in the software industry, dependence on existing management, leverage and debt that cannot be served at current income levels, budgetary constraints affecting the U.S. defense and intelligence communities, negative domestic and global economic conditions, and other Risk Factors.

Overview

Cogility Software Corporation is incorporated under the laws of the State of Delaware. Cogility has developed software technology that is solving mission-critical problems facing the US defense and intelligence communities and many corporations today. Our software technology allows our customers to quickly access and analyzes the avalanche of data being generated by disparate sources and stored in many different databases. Cogility provides Model Driven Complex Event Processing (or “Big Data” management) software technology for the U.S. defense and intelligence communities and private sector corporations with complex information management requirements.  Cogility addresses the pressing organizational need for speed, agility and competitive differentiation. Cogility's website can be reviewed at www.cogility.com .

Cogility’s Software Technology is so uniquely capable, that during the past two years -- without any advertising or promotional campaigns -- Cogility has gained significant traction within the U.S. defense and intelligence communities, as evidenced by its most recent contract with the Joint IED Defeat Organization (JIEDDO), which leads U.S. Department of Defense actions to rapidly provide Counter Improvised Explosive Device capabilities to U.S. troops.

However, the Company has continued to realize operating losses and negative working capital because of its inability to generate significant revenue through closing new contracts in the fourth quarter 2010 and into the first months of 2011. The Company has  recently signed  four additional government contracts for  total anticipated billings of $1,900,000.  The Company has billed $206,571 on these contracts through June 30, 2011 and expects the remainder to be realized through the third and fourth quarters of 2011 and the first quarter of 2012. Although the Company has signed these contracts there are still several factors the Company must continue to address in generating additional  revenue .
 

 
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Because of the complex and sophisticated nature of Cogility’s applications, the Company has found that there is a significant lead time in the sales cycle because the Cogility product requires substantial education of, and conceptual buy-in from a potential customer’s executive operations and information technology professionals.  This long sales cycle adversely affected Cogility during the latter part of 2010 and into the first half of 2011, in regards to closing sales to the government and commercial markets.

Potential customers frequently require us to build demonstration systems to assist the potential customers' executive, operations and information technology professionals in understanding how Cogility's software might change their business processes and how the software might integrate with their existing systems. These factors add significant costs and time to complete a potential sale.  During the fourth quarter 2010 and into the first half of 2011, we were required to build multiple demonstration systems for potential customers.

An additional factor that has adversely affected the Company marketing to the governmental sector has been the fact that the federal government had taken an extended period of time to pass a budget for its fiscal year. Instead, the government had relied on continuing resolutions to fund the on-going activities of the federal government and this makes it difficult for potential buyers of our product to know when or how much funding they will ultimately receive in the future. During the year ended 2010 and the first half of 2011, this had a materially adverse effect on business, as buyers were unsure of what funds would be available, the timing of funds, and what projects would be funded.

Cogility is new to the government sector and we do not yet have the experience or qualifications to act as a prime contractor in the federal contracting arena, and as a result, we must expend considerable time and effort trying to find organizations or companies that will act as the prime contractor or partner on Cogility’s projects. The prime contractor collects and distributes funding and communicates with the end user.   This adds risk and uncertainty, as we lose control over the projects and do not typically have direct communication with the customer.  This inability to act as the prime contractor also can delay the closing of potential contracts and further lengthen the sales cycle.

All of the above factors have materially affected Cogility’s business in the latter part of 2010 and beginning of 2011. Our lack of any substantial revenue in the fourth quarter 2010 and the first half of 2011 has caused the Company to continue to be insolvent. We currently have operating liabilities that we cannot pay and without an additional infusion of cash it is unlikely that the Company will be able to continue as a going concern. There can be no assurance whatsoever that the Company will be able to overcome its current financial problems and bankruptcy is a distinct possibility unless additional capital is raised promptly.

In addition to our focus on the government sector, we continue to market our product to the commercial sector.  We believe that some of our commercial projects will result in the creation of software work product that can be re-sold multiple times within the same industries. We are currently exploring commercial projects in the insurance, banking, and legal industries that we believe may have such re-sale potential.

On November 4, 2010 management signed a letter of intent to merge Cogility into a wholly-owned subsidiary of Acquired Sales Corp. on terms and conditions described in the letter of intent.  In conjunction with this merger the Company has raised $820,000 of capital through a series of Promissory Notes payable with Acquired Sales Corp. See the “Liquidity and Capital Resources” section below for further discussion. There can be no assurance whatsoever that the Company will be able to raise sufficient capital through the private placement to sustain operations.

Liquidity and Capital Resources
 

 
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The following table summarizes the Company’s cash and cash equivalents, working capital and long-term debt as of June 30, 2011 and December 31, 2010, as well as cash flows for the six months ended June 30, 2011 and 2010.
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Cash and cash equivalents
  $ 90,396     $ 279,532  
Working capital
    (1,869,493 )     (1,310,416 )
Long-term debt
    820,000       200,000  
                 
                 
   
For the Six Months
Ended June 30,
 
      2011       2010  
Cash used in operating activities
  $ (1,045,807 )   $ (164,958 )
Cash used in investing activities
    (18,329 )     (109,091 )
Cash provided by ( used in ) financing activities
    875,000       (581,365 )
 
At June 30, 2011 the Company had cash of $90,396 and $0 of accounts receivable.  Total current assets at June 30, 2011 were $92,510 an amount far below what is necessary to fund operations and fulfill corporate obligations.  Current liabilities at June 30, 2011 included $398,775 of accounts payable; $197,408 of accrued liabilities;$119,678 of billings in excess of costs on uncompleted contract; $705,216 of notes payable; $98,588 of notes payable to related parties and $419,183 of accrued employee compensation.

Included in long-term debt are amounts borrowed of $820,000 from Acquired Sales Corp.  The notes bear interest at 5% per annum, payable quarterly and are due December 31, 2014 (See following paragraph). Without an immediate additional capital infusion the Company is in danger of becoming insolvent and filing for bankruptcy.

On January 31, 2011, Cogility and Acquired Sales Corp. agreed upon a financing strategy to provide Cogility with the capital infusion needed to continue operations.  Acquired Sales Corp. would conduct a private placement (the “Private Placement”) to accredited investors of up to $2,000,000 of Bridge Offering units (individually a “Bridge Unit”). Each Bridge Unit consists of $1 principal amount of a Promissory Note bearing interest at 3% per annum and due December 31, 2014 (individually a “Bridge Note”, and collectively the “Bridge Notes”) and warrants to purchase 10 shares of common stock of Acquired Sales Corp. at an exercise price of $0.10 per share (which shall convert into warrants to purchase 0.5 shares of common stock of Acquired Sales Corp. at an exercise price of $2.00 per share after the completion of the planned 1-for-20 reverse split of Acquired Sales Corp.’s common stock), with an alternate cashless exercise provision (“Warrants”). In addition, at any time within the first 90 calendar days following the date of the completion of the Merger with Cogility, if any such Merger occurs, the investors, in their sole discretion, shall have the right, but not the obligation, to make a second loan investment in Bridge Units, provided that such second investment in Bridge Units shall be in the same amount and on the same terms, conditions and documentation described above as such investor’s initial investment in Bridge Units.  Investments in the Private Placement shall be in the form of cash, excepting only that an entity related to an officer of the Company (“RJFT”) shall be permitted to invest in the Bridge Units by assigning to Acquired Sales Corp. a $200,000 note payable from Cogility to RJFT (“the RJFT $200,000 Note”) instead of by paying cash, and an unrelated individual shall be permitted to invest in the Bridge Units by assigning to Acquired Sales Corp. his $20,000 loan to Cortez Systems, a company 49% owned by Cogility, instead of by paying cash. The Bridge Notes are jointly secured by a first lien security interest in all of the assets of Cogility.
 

 
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The financing strategy contemplated that a significant portion of the cash proceeds of the Private Placement will be loaned by Acquired Sales Corp. to Cogility, evidenced by a series of Promissory Notes bearing interest at 5% per annum and due December 31, 2014 (collectively the “Cogility Notes”). The Cogility Notes are jointly secured by a first lien security interest in all of the assets of Cogility.

As of June 30, 2011, the aggregate investment in the Private Placement is $920,000 evidenced by an aggregate of $920,000 of Bridge Notes and Warrants to purchase an aggregate of 9,200,000 shares of common stock of Acquired Sales Corp. at an exercise price of $0.10 per share (which shall convert into Warrants to purchase 460,000 shares of common stock of Acquired Sales Corp. at an exercise price of $2.00 per share after the completion of the planned 1-for-20 reverse split of Acquired Sales Corp. common stock), and of that amount an aggregate of $820,000 (including the $200,000 evidenced by the RJFT $200,000 Note) has been loaned by Acquired Sales Corp. to Cogility, and a note receivable of $20,000 from Cortez Systems was assigned to Cogility.

In addition, during the six months ended June 30, 2011 the Company issued notes payable in the amounts of $225,000 to an individual, an additional $25,000 to Acquired Sales Corp. and $25,000 to a lending company, which has funded operations through the date of this filing.

Despite these borrowings, the Company still has not solved its lack of liquidity and capital resource problems.  Although the Company has closed four contracts during the second and third quarters of 2011, these contracts have yet to generate significant cash flow and the Company has had to rely on financing arrangements to fund operations for the first half of 2011 and into the third quarter of 2011. In addition, subsequent to June 30, 2011 the Company issued a note payable in the amounts of $100,000 to an individual, which has funded operations through the date of this filing There can be no assurance whatsoever that Cogility will be able to permanently overcome its financial problems. Unless and until Cogility is able to permanently overcome its financial problems, Cogility will remain at risk of going bankrupt.

Comparison of June 30, 2011 and June 30, 2010

The Company incurred a net loss of $1,796,437 for the six months ended June 30, 2011 mainly due to the lack of revenues generated for the period.  The nature of the Company’s operations makes it difficult to scale back costs in periods of reduced revenue. The Company’s labor force is our largest cost, the employees are specifically trained and extremely difficult to replace.   At June 30, 2011, the Company had current liabilities in excess of current assets of $1,869,493, an accumulated deficit of $6,632,126 and a shareholders’ deficit of $2,579,730.

The Company utilized cash from operations of $1,045,807 during the six months ended June 30, 2011 compared to utilizing cash from operations of $164,958 during the six months ended June 30, 2010. This was primarily due to a loss from operations due to the lack of revenue for the six months ended June 30, 2011 and reduction of accounts payable of $147,984.

The Company utilized cash for investing activities of $18,329 for the purchases of $12,399 of property and equipment, and $5,930 of advances on related party notes receivable. This is compared to $109,091 of cash used in investing activities for the six months ended June 30, 2010.

The Company borrowed $620,000 from related parties and $250,000 from an individual during the six months ended June 30, 2011 for net cash provided by financing activities of $875,000. This as compared to $581,365 of cash used in financing activities during the six months ended June 30, 2010.

During the six months ended June 30, 2011, cash decreased by $189,136 leaving the Company with $90,396 in cash at June 30, 2011. This is compared to an $855,414 decrease in cash during the six months ended June 30, 2010.

The Company incurred a net loss for the six months ended June 30, 2011 of $1,796,437 as compared to a net loss of $288,540 for that same period ended June 30, 2010. While the Company closed four contracts during the second and third quarters of 2011, with anticipated billings of $1,900,000, there can be no assurance whatsoever that the Company will generate significant income in the future. The Company continues to pursue  new contracts from both the U.S. defense and intelligence communities and from commercial customers, however, there can be no assurance whatsoever that such effort will be successful or will result in revenues to Cogility on any particular timetable or in any particular amounts. The Company has a history of losses as evidenced by the accumulated deficit at June 30, 2011 of $6,632,126.
 

 
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Comparison of December 31, 2010 and 2009

The Company incurred a net loss of $200,724 for the year ended December 31, 2010 mainly due to the lack of revenues generated for the fourth quarter 2010. The nature of the Company’s operations makes it difficult to scale back costs in periods of reduced revenue. The Company’s labor force is our largest cost, the employees are specifically trained and extremely difficult to replace.   At December 31, 2010, the Company had current liabilities in excess of current assets of $1,310,416, an accumulated deficit of $4,835,690 and a shareholders’ deficit of $1,424,042. At December 31, 2009, the Company had current liabilities in excess of current assets of $1,852,663, an accumulated deficit of $4,634,966 and a shareholders’ deficit of $1,766,701.

The Company utilized cash from operations of $181,118 during the year ended December 31, 2010 compared to generating cash from operations of $547,971 during the year ended December 31, 2009. This was primarily due to the recognition of billings in excess of costs on contracts accounted for under the completed contract method that were in process at December 31, 2009 and completed during the year ended December 31, 2010.  During the year ended December 31, 2010 the Company completed two government contracts which accounted for 86.0% of total revenue. Of the remaining 14.0% of revenue, 12.0% was made to one commercial customer. The change in cash from operations from billings in excess of cost was offset partially by the collection of accounts receivable on those contracts as well as the Company accruing significant employee costs and incurring share based compensation expense from option grants during 2010.

The Company utilized cash for investing activities of $121,913 for the purchases of $42,855 of  property and equipment, $78,532 of  advances or loans to certain key employees and $526 on an deposits and other assets.  This is compared to $138,108 of cash used in investing activities for the year ended December 31, 2009

The Company borrowed $427,000 from related and unrelated parties during the year ended December 31, 2010 and utilized cash of $725,445 to repay notes payable to related and unrelated parties for net cash used in financing activities of $298,445 for the year ended December 31, 2010. This is compared to $39,957 of cash provided by financing activities during the year ended December 31, 2009.

During the year ended December 31, 2010, cash decreased by $601,476 leaving the Company with $279,532 in cash at December 31, 2010. This is compared to a $449,820 increase in cash during the year ended December 31, 2009.

The Company incurred a net loss for the year ended December 31, 2010 of $200,724 as compared to a net loss of $769,332 for that same period ended December 31, 2009. There can be no assurance whatsoever that the Company will generate income in the future. While the Company is currently pursuing new contracts from both the U.S. defense and intelligence communities and from commercial customers, there can be no assurance whatsoever that such effort will be successful or will result in revenues to Cogility on any particular timetable or in any particular amounts. The Company has a history of losses as evidenced by the accumulated deficit at December 31, 2010 of $4,835,690.

Results of Operations

The Company enters into contractual arrangements with end-users of its products to sell software licenses, hardware, consulting services and maintenance services, either separately or in various combinations thereof. For each arrangement, revenue is recognized when persuasive evidence of an arrangement exists, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, and delivery of the product or services has occurred. See additional revenue recognition disclosure under “Critical Accounting Policies.”
 

 
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Cost of revenue consists primarily of the cost of hardware and software and the cost of services provided to customers. Cost of services includes direct costs of labor, employee benefits and related travel.
Selling, general and administrative expenses primarily consist of professional fees, salaries and related costs for accounting, administration, finance, human resources, information systems and legal personnel.

Comparison of the three and six months ended June 30, 2011 to June 30, 2010

Revenue – Revenue was $18,387 and $1,127,510 for the three months ended June 30, 2011 and 2010, respectively, representing a decrease of $1,109,123, or 98.4%. Revenue net of costs on contracts in progress are deferred until such time the contracts are completed.  At June 30, 2011 the Company has one contract in progress whose billings in excess of cost are being deferred. During the three months ended June 30, 2010 the Company had completed a single contract and as such had recognized the revenue at that time.

Revenue was $36,775 and $1,167,678 for the six months ended June 30, 2011 and 2010, respectively, representing a decrease of $1,130,903, or 96.9%. Revenue net of costs on contracts in progress are deferred until such time the contracts are completed.  At June 30, 2011 the Company has one contract in progress whose billings in excess of cost are being deferred. During the six months ended June 30, 2010 the Company had completed a single contract and as such had recognized the revenue at that time.

Cost of Revenue – Our cost of services was $0 for the three months ended June 30, 2011, compared to $576,006 for the three months ended June 30, 2010, representing a decrease of $576,006 or 100%.  The decrease in our cost of services was due to sales for the three months ended June 30, 2011 relating to maintenance and support services which have a very high profit margin due to very few costs and little to no labor allocable to those services.  Costs associated with the contract in process were deferred and will be recognized at such time the contract is completed. Cost of services for the three months ended June 30, 2010, represent direct labor and travel on the contract completed during the three months then ended.

Our cost of services was $88 for the six months ended June 30, 2011, compared to $597,213 for the three months ended June 30, 2010, representing a decrease of $597,125 or 100%.  The decrease in our cost of services was due to sales for the six months ended June 30, 2011 relating to maintenance and support services which have a very high profit margin due to very few costs and little to no labor allocable to those services.  Costs associated with the contract in process were deferred and will be recognized at such time the contract is completed. Cost of services for the six months ended June 30, 2010, represent direct labor and travel on the contract completed during the six months then ended.

The changes and percent changes with respect to our revenues and our cost of revenue for the three and six months ended June 30, 2011 and 2010 are summarized as follows:

 
 
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For the Three Months
             
   
Ended June 30,
             
   
2011
   
2010
   
Change
   
Percent
Change
 
REVENUE
                       
Consulting Services
    -       1,081,260       (1,081,260 )     -100.0 %
Maintenance and support services
    18,387       46,250       (27,863 )     -60.2 %
Total Revenue   
  $ 18,387     $ 1,127,510     $ (1,109,123 )     -98.4 %
                                 
COST OF REVENUE
                               
Cost of Services
    -       576,006       (576,006 )     -100.0 %
Total Cost of Revenue    
    -       576,006       (576,006 )     -100.0 %
Gross Profit
  $ 18,387     $ 551,504     $ (533,117 )     -96.7 %
                                 
   
For the Six Months
                 
   
Ended June 30,
                 
      2011       2010    
Change
   
Percent
Change
 
REVENUE
                               
Consulting Services
    -       1,100,178       (1,100,178 )     -100.0 %
Maintenance and support services
    36,775       67,500       (30,725 )     -45.5 %
Total Revenue   
  $ 36,775     $ 1,167,678     $ (1,130,903 )     -96.9 %
                                 
COST OF REVENUE
                               
Cost of Services
    88       597,213       (597,125 )     -100.0 %
Total Cost of Revenue    
    88       597,213       (597,125 )     -100.0 %
Gross Profit
  $ 36,687     $ 570,465     $ (533,778 )     -93.6 %
 
Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the three and six months ended June 30, 2011 and 2010, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.

Selling, General and Administrative Expense – Selling, general and administrative expense, including non-cash compensation expense, was $607,937 for the three months ended June 30, 2011, compared to $239,512 for the three months ended June 30, 2010, representing an increase of $368,425, or 154%. The increase in our selling, general and administrative expense related to an increase in salaries and wages not allocable to contracts, an increase in stock based compensation expense, and an increase in rental expense.

Selling, general and administrative expense, including non-cash compensation expense, was $1,805,765 for the six months ended June 30, 2011, compared to $821,205 for the six months ended June 30, 2010, representing an increase of $984,560, or 119%. The increase in our selling, general and administrative expense related to an increase in salaries and wages not allocable to contracts, an increase in stock based compensation expense, and an increase in rental expense.
 
Net Loss – We realized a net loss of $606,533 for the three months ended June 30, 2011, compared to a net income of $292,692 during the three months ended June 30, 2010. The change of $(899,225) or 307% was primarily related to the decrease in revenue recognized on completed contracts as well as an increase in compensation relating to issuance of stock options. We may continue to incur losses in the future as contracts close and new contracts are not entered into.

We realized a net loss of $1,796,437 for the three months ended June 30, 2011, compared to a net loss of $288,540 during the six months ended June 30, 2010. The resulting increase in the net loss of $1,507,897 or 522% was primarily related to the decrease in revenue recognized on completed contracts as well as an increase in compensation relating to issuance of stock options. We may continue to incur losses in the future as contracts close and new contracts are not entered into.
 

 
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Comparison of the year ended December 31, 2010 and 2009

Revenue – Software licensing and hardware sales were $524,527 for the year ended December 31, 2010, compared to $1,100,000 for the year ended December 31, 2009, representing a decrease of $575,473, or 52.3%,  due  to a large, one-time software licensing sale to a single government contract customer in the year ended December 31, 2009.

Revenue from consulting services was $4,215,775 for the year ended December 31, 2010, compared to $2,598,431 for year ended December 31, 2009, representing an increase of $1,617,344, or 62.2%. The increase in consulting services revenue was primarily due to the completion of two government contracts that were closed and accounted for under the completed contract method during the year ended December 31, 2010.  The two government contracts accounted for 86.0% of total revenue. Of the remaining 14.0% of revenue, 12.0% was made to one commercial customer, as compared to the year ended December 31, 2009 where one government contract with two phases accounted for 96.0% of total revenue.

Cost of Revenue – Our cost of software licensing and hardware sales was $510,427 for the year  ended December 31, 2010, compared to $312,470 for the year  ended December 31, 2009, representing an increase of $197,957, or 63.4%. The increase in our cost of software licensing and hardware sales was due to an increase in the cost of hardware sold, which was partially offset by a decrease in the cost of software sold.  Traditionally, software sales have a higher gross profit margin while hardware sales have a lower gross profit margin. The cost of hardware in some instances is passed through to the customer at cost or very close to cost.

Our cost of consulting, maintenance and support services for the year  ended December 31, 2010 was $1,996,982 compared to $2,829,189 for the year  ended December 31, 2009, a decrease of $832,207, or 29.4%. The decrease in cost of services resulted in an increase in profitability on contracts entered into and completed for year ended December 31, 2010. The gross profit increased as management became more familiar with the government contracting process and was able to factor in the costs of involving prime contractors when bidding on the government contracts closed during the year ended December 31, 2010.
 
The changes and percent changes with respect to our revenues and our cost of revenue for the year ended December 31, 2010 and 2009 are summarized as follows:
 
   
For the Year
             
   
Ended December 31,
             
   
2010
   
2009
   
Change
   
Percent
Change
 
REVENUE
                       
Software licensing and hardware sales
    524,527       1,100,000       (575,473 )     -52.3 %
Consulting Services
    4,215,775       2,598,431       1,617,344       62.2 %
Hosting, Maintenance and support services
    110,888       77,500       33,388       43.1 %
Total Revenue   
  $ 4,851,190     $ 3,775,931     $ 1,075,259       28.5 %
                                 
COST OF REVENUE
                               
Hardware and software sales
    510,427       312,470       197,957       63.4 %
Cost of Services
    1,996,982       2,829,189       (832,207 )     -29.4 %
Total Cost of Revenue    
    2,507,409       3,141,659       (634,250 )     -20.2 %
Gross Profit
  $ 2,343,781     $ 634,272     $ 1,709,509       269.5 %
 
Although the preceding table summarizes the net changes and percent changes with respect to our revenues and our cost of revenue for the year ended December 31, 2010 and 2009, the trends contained therein are limited and should not be viewed as a definitive indication of our future results. The Company completed its last government contractual arrangement in September of 2010 and since that time has not generated any significant new revenue.
 

 
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Selling, General and Administrative Expense – Selling, general and administrative expense, including non-cash compensation expense, was $2,467,872 for the year  ended December 31, 2010, compared to $1,284,645 for the year ended December 31, 2009, representing an increase of $1,183,227, or 92.1%. The increase in our selling, general and administrative expense related to an increase in salaries and wages not allocable to contracts, an increase in stock based compensation expense, an increase in rental expense as well as the write-off of certain uncollectible accounts and employee loans that took place during the year ended December 31, 2010.
 
Net Loss – We realized a net loss of $200,724 for the year ended December 31, 2010, compared to a net loss of $769,332 during the year ended December 31, 2009. The decrease in the net loss of $568,608 or 73.9% was primarily related to the increase in contract profitably realized in the year ended December 31, 2010. The gross profit increased as management became more familiar with the government contracting process and was able to factor in the costs of involving prime contractors when bidding on the government contracts closed during the year ended December 31, 2010.   We may continue to incur losses in the future as existing contracts have closed and new contracts are not entered into.

Critical Accounting Policies

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Significant estimates include share-based compensation forfeiture rates and the potential outcome of future tax consequences of events that have been recognized for financial reporting purposes. Actual results and outcomes may differ from management’s estimates and assumptions.

Accounts Receivable   – Accounts receivable are stated at the amount billed to customers, net an allowance for doubtful accounts. The Company evaluates the collectability of the amount receivable from each customer and provides an allowance for those amounts estimated to be uncertain of collection. Accounts determined to be uncollectible are written off against the allowance for doubtful accounts.

Property and Equipment – Property and equipment are recorded at cost less accumulated depreciation.  Maintenance, repairs, and minor replacements are charged to expense as incurred. When depreciable assets are retired, sold, traded in or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which are six to five years. Depreciation expenses for the six months ended June 30, 2011 and 2010 was $19,773 and $18,583, respectively.  Depreciation expense for the years ended December 31, 2010 and 2009 was $42,649, and $32,673, respectively.

Software Development Costs    – Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and enhance the Company's current products and fees paid to outside consultants. Software development costs incurred subsequent to the determination of technological feasibility and marketability of a software product are capitalized. Capitalization of costs ceases and amortization of capitalized software development costs commences when the products are available for general release. For the six months ended June 30, 2011 and 2010 and the years ended December 31, 2010, and 2009, no software development costs were capitalized because the time period and cost incurred between technological feasibility and general release for all software product releases was insignificant.

Revenue Recognition – The Company enters into contractual arrangements with end-users of its products to sell software licenses, hardware, consulting services and maintenance services, either separately or in various combinations thereof. For each arrangement, revenue is recognized when persuasive evidence of an arrangement exists, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, and delivery of the product or services has occurred. When the Company is the primary obligor or bears the risk of loss, revenue and costs are recorded on a gross basis. When the Company receives a fixed transactional fee, revenue is recorded under the net method based on the net amount retained.
 

 
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In contractual arrangements where services are essential to the functionality of the software or hardware, or payment of the license fees are dependent upon the performance of the related services, revenue for the software license, hardware and consulting fees are recognized on the completed-contract method when the contract is substantially completed and all related deliverables have been provided to and accepted by the customer. This method is used because the Company is unable to accurately estimate total cost of individual contracts until the contracts are substantially complete. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Claims for additional compensation are recognized during the period such claims are resolved and collected.

Costs of software, hardware and costs incurred in performing the contract services are deferred until the related revenue is recognized. Contract costs include all purchased software and hardware, subcontract and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, equipment, and travel costs as well as depreciation on equipment used in performance of the contractual arrangements. Depreciation on administrative assets and selling, general and administrative costs are charged to expense as incurred.

Costs in excess of amounts billed are classified as current assets under the caption Costs in excess of billings on uncompleted contracts . Billings in excess of costs are classified as current liabilities under the caption Billings in excess of costs on uncompleted contracts . Contract retentions are included in accounts receivables.

Software Licensing and Hardware Sales: When software licensing and/or hardware functionality are not dependent upon performance of services, the amount of revenue under the arrangement is allocated to the deliverable elements based on prices the Company sells the separate elements, if objectively determinable. If so determinable, the amounts allocated to the software licensing are recognized as revenue at the time of shipment of the software to the customer. Such sales occur when the Company resells third-party software and hardware systems and related peripherals as part of an end-to-end solution to its customers.  The Company considers delivery to occur when the product is shipped and title and risk of loss have passed to the customer.

Consulting Services: Consulting services are comprised of consulting, implementation, software installation, data conversion, building interfaces to allow the software to operate in integrated environments, training and applications. Consulting services are sold on a fixed-fee and a time-and-materials basis, with payment normally due upon achievement of specific milestones. Consulting services revenue is recognized under the completed-contract method as described above.

Maintenance and Support Services : Maintenance and support services consist primarily of fees for providing unspecified software upgrades on a when-and-if-available basis and technical support over a specified term, which is typically twelve months. Maintenance revenues are recognized ratably over the term of the related agreement.

Concentration of Significant Customers –At December 31, 2009, accounts receivables from two customers accounted for 91% of total accounts receivable.  In 2009, revenue from one customer was 95% of total revenue. In 2010, revenue from two customers totaled 86% of total revenue. For the six months ended June 30, 2011 and 2010 revenue from one customer was 100% of total revenue and revenue from two customers totaled 94% of total revenue, respectively.

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.
 

 
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Basic and Diluted Loss Per Share –The computation of basic loss per share is determined by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method.

Share-Based Compensation Plan – Stock-based compensation to employees and consultants is recognized as a cost of the services received in exchange for an award of equity instruments and is measured based on the grant date fair value of the award or the fair value of the consideration received, whichever is more reliably measureable. Compensation expense is recognized over the period during which service is required to be provided in exchange for the award (the vesting period).

Contractual Cash Obligations and Commercial Commitments
 
The Company leases three facilities under the terms of operating leases.  The Company is currently leasing office space in San Jose for $3,826 per month through November 30, 2011. The Company is also leasing office space for $3,400 per month through a lease agreement that ended June 30, 2011. The Company is currently leasing the facility on a month to month basis. Lastly, the Company was leasing temporary housing space for $4,250 per month through April 15, 2011. The Company vacated that space on March 31, 2011. As of June 30, 2011, future minimum lease payments under the terms of the lease agreements are $11,478, which are all due during the year ending December 31, 2011.

On December 14, 2010, the Company issued a Promissory Note (the RJFT $200,000 Note) to an entity related to an officer of the Company (RJFT) in the amount of $200,000 to finance working capital needs. The note bore interest at 5% per annum, was due December 31, 2013 and was unsecured. Interest payments were due quarterly starting March 2011. On January 31, 2011, Cogility and Acquired Sales Corp. agreed upon a financing strategy pursuant to which Acquired Sales Corp. would conduct a private placement (the “Private Placement”) to accredited investors of $2,000,000 of Bridge Offering units (individually a “Bridge Unit”). Each Bridge Unit consists of $1 principal amount of a Promissory Note bearing interest at 3% per annum and due December 31, 2014 (individually a “Bridge Note”, and collectively the “Bridge Notes”) and warrants to purchase 10 shares of common stock of Acquired Sales Corp. at an exercise price of $0.10 per share (which shall convert into warrants to purchase 0.5 shares of common stock of Acquired Sales Corp. at an exercise price of $2.00 per share after the completion of the planned 1-for-20 reverse split of Acquired Sales Corp.’s common stock), with an alternate cashless exercise provision (“Warrants”). In addition, at any time within the first 90 calendar days following the date of the completion of the Merger with Cogility, if any such Merger occurs, the investors, in their sole discretion, shall have the right, but not the obligation, to make a second loan investment in Bridge Units, provided that such second investment in Bridge Units shall be in the same amount and on the same terms, conditions and documentation described above as such investor’s initial investment in Bridge Units.  Investments in the Private Placement shall be in the form of cash, excepting only that the RJFT shall be permitted to invest in the Bridge Units by assigning to Acquired Sales Corp. the RJFT $200,000 Loan instead of by paying cash, and an unrelated individual shall be permitted to invest in the Bridge Units by assigning to Acquired Sales Corp. his $20,000 Note loan to Cortez Systems, a company 49% owned by Cogility, instead of by paying cash. The Bridge Notes are jointly secured by a first lien security interest in all of the assets of Cogility.

The financing strategy contemplates that a significant portion of the cash proceeds of the Private Placement will be loaned by Acquired Sales Corp. to Cogility evidenced by a series of Promissory Notes bearing interest at 5% per annum and due December 31, 2014 (collectively the “Cogility Notes”). The Cogility Notes are jointly secured by a first lien security interest in all of the assets of Cogility. In addition to the $200,000 Note assigned by RJFT and the $20,000 Loan assigned to Acquired Sales Corp., Cogility has received $600,000 under this agreement.
 

 
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The Company entered into an agreement with a consultant on February 18, 2011 whereby the Company has agreed to pay the consultant a fee based on net revenue received from two potential new software products. The fee would be equal to 5% of the net revenue received, after deducting software licensing and equipment costs from third parties, from two potential contracts and, for a period of five years, any subsequent revenue from reselling the work product that may result from providing software and services under either of the two potential contracts.

At June 30, 2011, the Company is obligated to pay $450,376 of notes payable. A note payable to an individual of $318,000 bears interest at 5.75% and is due October 15, 2012. An additional note payable to that same individual in the amount of $18,728, bearing interest at 5.75% per annum, is unsecured and is due October 25, 2012. These notes are classified as current liabilities in the financial statements due to a provision that accelerates the due date of the notes upon the completion of certain future fundraising events. A  Non-interest bearing note payable to a finance company of $105,070 is due on demand. On September 16 and 29, 2010, the Company signed letters agreeing to pay two executive  officers $47,000 and $168,967, respectively, in one-time commissions, with payment deferred until 30 days after the closing of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. The amounts have been included in the financial statements as accrued compensation.

On June 13, 2011, a key executive resigned his position and entered into a severance agreement with the Company.  On September 16, 2010 the Company had signed a letter agreeing to pay the executive officer $47,000 in one-time commissions, with payment deferred until 30 days after the closing of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. Under the severance agreement the executive will receive a onetime bonus of $35,000 and deferred compensation of $18,432 upon completion of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. The executive shall be paid additional deferred compensation of $9,662 upon the earlier of the completion of the $2,000,000 private placement or September 30, 2011.  In addition, the executive holds options to acquire 66,666 shares of stock that have vested but have not been exercised, under the option plan these options must be exercised within 30 days of an employee’s termination of employment. The severance agreement modifies the options by extending the exercise date to June 14, 2012 after which time the options will expire if not exercised. Stock options for the purchase of 133,334 common shares were forfeited.

On June 24, 2011 an employee resigned and entered into a severance agreement with the Company.  Under the severance agreement, the former employee deferred vacation pay in the amount of $8,224 until the earlier of the completion of a $2,000,000 private placement offering or September 23, 2011. In addition, the severance agreement modified the terms of stock options held by the former employee for the purchase of 133,000 common shares such that the stock options will not expire until June 24, 2012.  Stock options for the purchase of 67,000 common shares were forfeited or expired.

On April 15, 2011, an individual loaned the Company $100,000 for working capital needs.  The loan is unsecured, non interest bearing and is due upon demand. On June 29, 2011 and September 1, 2011, that same individual loaned the Company an additional $125,000 and $100,000 respectively, for working capital needs. The loans are unsecured, non interest bearing, and are due upon demand.

On June 16, 2011 Acquired Sales Corp. loaned the Company $25,000 for working capital needs.  The loan is unsecured, bears interest at 5% per annum, and is due upon demand.
 
On June 21, 2011 a lending company loaned the Company $25,000 for working capital needs.  The loan is unsecured, is non interest bearing and is due upon demand.

Off Balance Sheet Arrangements – We have no off-balance sheet arrangements.

Post-Merger transaction operations – No significant elements of historical income or loss in connection with the Company’s operations will change or discontinue as a result of the Merger between Acquired Sales and Cogility.
 

 
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Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

Cogility hired Hansen, Barnett and Maxwell as its auditor in 2010 in connection with the pending merger with Acquired Sales.
 
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
 
Common Stock
 
The Merger did not cause changes to any of the rights or privileges associated with our Common Stock.  The following summarizes the rights of holders of our Common Stock before and after the filing of the Amendment relating to the capitalization change:
 
 
·   Each holder of shares of Common Stock is entitled to one vote per share on all matters to be voted on by our stockholders generally, including the election of directors;
 
 
·   There are no cumulative voting rights;
 
 
·   The holders of our Common stock are entitled to dividends and other distributions as may be declared from time to time by the Board out of funds legally available for that purpose, if any, subject to any dividend rights of the preferred stock, if any;
 
 
·   Upon our liquidation, dissolution or winding up, the holders of shares of Common Stock will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction  of all our liabilities and the payment of the liquidation preference of any outstanding preferred stock; and
 
 
·   The holders of Common Stock have no preemptive or other subscription rights to purchase shares of our stock, and are not entitled to the benefits of any redemption or sinking fund provisions.
 
Dividends
 
We have not declared or paid cash dividends or made distributions in the past, and we do not anticipate paying cash dividends or making distributions in the foreseeable future.  We currently intend to retain and reinvest future earnings, if any, in order to finance our operations.
 
Outstanding Shares And Voting Rights

Currently, our only class of securities entitled to vote on the matters to be acted upon is common stock, of which the total amount presently outstanding is 2,467,188 shares, each share being entitled to one vote.   As of the date of this 8-K, the Company has authorized capital stock of 110,000,000 shares, of which 100,000,000 are shares of Common Stock and 10,000,000 are shares of preferred stock with 2,467,188 of Common Stock and no shares of preferred stock are outstanding on such date.
 
Pursuant to Chapter 78 of the NRS, the approval of a majority of the Company's voting power is required in order to effectuate the Amendment and Corporate Actions.  Chapter 78 of the NRS eliminates the need to hold a special meeting of the Company's stockholders to approve the Corporate Actions, including the Amendment and related capitalization change by providing that, unless the Company's Articles of Incorporation or Bylaws state otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if, before or after the action, a written consent is signed by stockholders holding at least a majority of the Company's voting power in favor of such action.  Neither the Articles of Incorporation nor the Bylaws of the Company state otherwise and a majority of the Corporation’s common stock have voted in favor of the Amendment and other Corporate Actions.
 

 
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The Company, without further stockholder approval, may issue shares from time to time as may be required for proper business purposes, such as raising additional capital for ongoing operations, business and asset acquisitions, stock splits and dividends, present and future employee benefit programs and other corporate purposes.
 
DIRECTORS AND EXECUTIVE OFFICERS

Our articles of incorporation and bylaws authorize a board of directors comprised of a number of not less than one.  Set forth below for each person who has been elected or appointed director, based on information supplied by him, are his name, age as of the date of this 8-K, any presently held positions with us, his principal occupation now and for the past five years, other directorships in public companies and his tenure of service with us as a director.  Each shall hold office until their successors are elected and qualify. The information has been provided by the nominees without independent verification by our management.

         
Name
 
Age
 
Position
         
Gerard M. Jacobs
 
56
 
Co-Chairman of the Board, chief executive officer, chief development officer, secretary, and treasurer
         
Daniel F. Terry, Jr.
 
56
 
President and chief operating officer
         
Matthew Ghourdjian
 
55
 
Co-Chairman of the board and chief technology officer
         
James S. Jacobs, MD
 
57
 
Director
         
Michael D. McCaffrey
 
65
 
Director
         
Richard E. Morrissy
 
56
 
Director
         
Vincent J. Mesolella
 
62
 
Director
         
Roger S. Greene
 
56
 
Director
         
Joshua A. Bloom, M.D.
 
   55 
 
Director
         
 
Our Directors serve in such capacity until the next annual meeting of our shareholders and until their successors have been elected and qualified. Our officers serve at the discretion of our Board of Directors, until their death, or until they resign or have been removed from office.

Gerard M. Jacobs, co- chairman of the board of directors, chief executive officer, chief development officer, secretary, and treasurer, age 56,   has served as chairman of our board of directors, chief executive officer, president, secretary, treasurer since July 2007 and became co-chairman following our acquisition of Cogility in September 2011. Mr. Jacobs has been a private investor since 2006. In 2001, Gerard M. Jacobs took control of CGI Holding Corporation, and served as its CEO and member of its board of directors until 2006. Under Gerard M. Jacobs' guidance, CGI Holding Corporation changed its name to Think Partnership Inc., made 15 acquisitions primarily of businesses involved in online marketing and advertising, and succeeded in having its common stock listed on the American Stock Exchange. The company is now known as Inuvo Inc. (NYSE:AMEX: INUV). Previously, in 1995, Mr. Jacobs took control of General Parametrics Corporation, and served as its CEO and member of its board of directors until 1999. Under Mr. Jacobs' guidance, General Parametrics changed its name to Metal Management Inc., made 37 acquisitions primarily of businesses involved in scrap metal recycling, and succeeded in building one of the largest scrap metal recycling companies in the world. The company is now part of Sims Metal Management Ltd. (NYSE: SMS). Mr. Jacobs is currently a director of Patient Home Monitoring Corp. (TSXV: PHM). We believe that Gerard M. Jacobs’ experience serving as the CEO of three publicly traded companies and as a director of two other publicly traded companies, his work as an investment banker and as an attorney, and his intelligence and educational background, qualifies him to serve as a director of the Corporation.
 

 
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Gerard M. Jacobs received a law degree from the University of Chicago Law School, which he attended as a Weymouth Kirkland Law Scholar, in 1978; and an A.B from Harvard College, in 1976, where he was elected to Phi Beta Kappa. Gerard M. Jacobs’ brother James S. Jacobs, M.D. is also a member of our board of directors.

Matthew Ghourdjian , co- chairman of the board of directors and Chief Technology Officer, and wholly owned subsidiary  Cogility's Chief Technology Officer, age 56, is the founder and former chief executive officer of Cogility Software. Mr. Ghourdjian has 33 years of experience in the technology industry. Mr. Ghourdjian was a founder of CoderCard, Digital Convergence, Ceira Technologies Inc., and Cogility. Matt is a former partner at KPMG Consulting and Arthur Andersen.

Daniel F. Terry, Jr. President and Chief Operating Officer, and wholly owned subsidiary  Cogility's Chief Executive Officer , age 56,  is an entrepreneur who has been involved with marketing and operations in startups as well as with Fortune 500 companies. Mr. Terry was a founder and former Chief Executive Officer of Mission1st Group, Inc., a company that provides engineering, project design and implementation of mission-critical telecommunications systems worldwide. Mr. Terry has held executive positions in several technology firms including NetFRAME, Micron, ConnectedSupport.com, and PCR, as well as having been a partner in the Hong Kong consultancy CentrePoint Ltd. Mr. Terry is involved with the Fisher House Foundation in support of U.S. wounded and their families and is the founder of the Call-Force Project, to support employment of disabled veterans of the Iraq and Afghanistan conflicts. Mr. Terry is on the Board of Directors of the Metropolitan Opera, New York, and is a member of AFCEA and AUSA. Mr. Terry is a resident of Nevada.

James S. Jacobs, M.D., member of the board of directors,   age 57, has been a member of our board of directors since July 2007. He is a Physician in the Department of Radiation Oncology, at St. Joseph Hospital in Denver, Colorado. He was previously the Resident Physician in Radiation Oncology at Rush Medical Center in Chicago, Illinois. We believe that James S. Jacobs, M.D.’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.

Dr. Jacobs did a residency in Radiation Oncology at Rush Medical Center in Chicago, Illinois and an internal medicine internship and residency at the University of Colorado Medical Center in Denver, Colorado. Dr. Jacobs received a BA in Neuroscience from Amherst College in Amherst, Massachusetts in 1976.

Michael D. McCaffrey, member of the board of directors,   age 65, has been a member of our board of directors since July 2007. He is an attorney practicing in Irvine, California and specializing in commercial and business litigation. Mr. McCaffrey has tried more than 100 jury and non-jury trials, representing numerous large companies, institutional lenders, real estate developers, contractors and various public and private corporations, partnerships and sole proprietorships. He has had sole or primary responsibility for defense and prosecution of significant matters including real property secured transactions; real estate syndication/fraud; partnership disputes/accounting/dissolution actions; corporate control; insurance (policyholders’ interests and insurers’ interests); employment litigation; prosecution, defense and expert witness on professional liability claims involving attorneys and accountants; construction, including prosecution and defense of major defect cases; and various business tort cases. We believe that Michael D. McCaffrey’s experience serving as a litigator and advisor to corporations, and his intelligence and educational background, qualifies him to serve as a director of the Corporation.

Mr. McCaffrey received his Juris Doctor in 1974 from the University of Denver College of Law where he was a member of the University of Denver Law Review (qualified by class rank, top 5%) and received a B.S. in Engineering from UCLA in 1968.
 

 
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Richard E. Morrissy, member of the board of directors,   age 56, has been a member of our board of directors since July 2007. He is the Senior Research Specialist and project coordinator in the Pharmaceutical Sciences, School of Pharmacy, University of Illinois at Chicago. Mr. Morrissy is a project coordinator for the School of Pharmacy. His duties include serving as project coordinator on four clinical trial research projects funded by the National Institutes of Health’s National Cancer Institute. The School of Pharmacy projects have involved multiple research projects utilizing Lycopene in restoring DNA damage in men’s prostates. The project at UIC’s internationally acclaimed Occupational Therapy School involved the setup and running of focus groups with impaired individuals to create a movement and activity computer survey for the World Health Organization. During his tenure, Mr. Morrissy has managed clinical research trials including the submission of institutional review board documents and grant proposals, recruitment of subjects and data management and storage. He has also designed and led focus groups, designed and critiqued research surveys, edited manuscripts and scientific journals. We believe that Richard E. Morrissy’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.  He received a B.A. in History from Western Illinois University in 1976.

Vincent J. Mesolella, member of the board of directors,   age 62, has been a member of our board of directors since October 2009. He has served for the last fifteen years as the Chairman of the Narragansett Bay Commission, Providence, Rhode Island, one of the largest wastewater treatment utilities in the U.S. Mr. Mesolella also served for over twenty years as a member of the Rhode Island House of Representatives, including serving as the Majority Whip. Mr. Mesolella is the founder and Chief Executive Officer of REI, Inc., a diversified real estate investment firm. Mr. Mesolella has served on the board of directors of Think Partnership Inc., an American Stock Exchange company. Mr. Mesolella has raised a great deal of money for charities including the Make-A-Wish Foundation. Mr. Mesolella resides in Rhode Island. We believe that Vincent J. Mesolella’s experience serving as a director of two publicly traded companies including service as Chairman of the Audit Committee of both, his work as a developer and business owner, his experience as an elected public official, his Chairmanship of a major wastewater treatment organization that has been nationally recognized for its excellence, his intelligence and educational background, and his familiarity with the real estate industry which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.

Joshua A. Bloom, M.D., member of the board of directors,   age 55, has been a member of our board of directors since July 2007. He has been a practicing physician in Kenosha Wisconsin since completion of his training in 1988. He is board Certified in Internal Medicine, Pulmonary Diseases and in Critical Care Medicine. He has been employed by United Hospital System (formerly known as Kenosha Hospital and Medical Center) in the Clinical Practice Division from 1995 to present. He had been in private practice at the same address from 1988 to 1995. Dr. Bloom has served on the board of directors of Kenosha Health Services Corporation since 1993 and the board of Hospice Alliance, Inc since 1994 and Medical Director there since 1998. He has also served on the board of the Beth Israel Sinai Congregation since 1998 where he served as the President from 2004 until earlier this year. We believe that Joshua A. Bloom, M.D.’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.

Dr. Bloom received a medical degree from the University of Illinois in 1982 and completed his residency in internal medicine in 1985 and fellowship in Respiratory & Critical Care Medicine in 1988; both at the University of Illinois. He received an MS in Organic Chemistry from the University of Chicago in 1978 and a BS in Chemistry from Yale College in 1977.

Roger S. Greene, member of the board of directors,   age 56, has been a member of our board of directors since July 2007. He is the Managing Director and co-founder of Stanmore Capital Partners, LLC, a merchant banking firm that focuses upon the acquisition of small cash flow positive private companies, primarily in the health care services business. He is also owner and CEO of Marquette Advisors, Inc., a firm that provides consulting in the same areas. Projects have included a roll up of sleep diagnostic centers,

 
 
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acquisitions of companies in the blood plasma collection business and specialty medical education field. Mr. Greene is currently a director of Patient Home Monitoring Corp. (TSXV: PHM). Previously, he has worked with Brazos Fund and Lone Star Fund as general counsel. For Lone Star, Mr. Greene was responsible for negotiation and structuring of asset acquisitions from foreign entities. Prior to that time, he also worked on resolution and management of the assets of American Savings and Loan Association after the acquisition of American Savings Bank by the Robert M. Bass Group. Mr. Greene has also acted as a principal in real estate and operating company acquisitions. Mr. Greene resides in California. We believe that Roger S. Greene’s experience serving as a director of two publicly traded companies, his work in mergers and acquisitions as an investment banker, his work as an attorney, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.

There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person. Directors are elected until their successors are duly elected and qualified. In the future, we intend to add additional members to the board of directors, including  two new board members designated by Mr. Ghourdjian and acceptable to Mr. Jacobs, as contemplated by the Merger.

Management Post Merger

Board Leadership Structure

Our board of directors has eight members. Gerard M. Jacobs is serving as both our principal executive officer and as the co-Chairman of our board of directors. Mr. Jacobs, who is a Phi Beta Kappa graduate of Harvard College and attended the University of Chicago Law School as a Weymouth Kirkland Law Scholar, has extensive experience serving as the Chief Executive Officer of several publicly traded companies, and as an independent member of the board of directors of other publicly traded companies, in several industries.

The leadership structure of our board of directors changed following the closing of our acquisition of Cogility. Our board of directors expanded adding Matthew Ghourdjian, the former chief executive officer of Cogility who is now our chief technology officer. Gerard M. Jacobs will continue to serve as our principal executive officer, but he now shares the role of Chairman of our board of directors with Mr. Ghourdjian. Mr. Ghourdjian has a very different background than Mr. Jacobs, having spent years as a partner in the major consulting firms of Arthur Andersen and KPMG Consulting, with his focus being on technology and automation of business processes. We expect that Mr. Jacobs and Mr. Ghourdjian will spend a significant portion of their time and efforts collaborating with each other in regard to the evaluation and negotiation of potential acquisition candidates, and in regard to the planning for the growth and management of Cogility and subsequent acquisitions. We believe that this leadership collaboration by our Co-Chairmen is appropriate and needed to address challenges in regard to the anticipated future growth of our company. In this context, Mr. Jacobs and Mr. Ghourdjian expect to rely upon several of our independent directors for careful advice, especially Mr. Mesolella, Mr. Greene, and additional independent directors expected to be added. Mr. Jacobs also expects to heavily rely on Daniel F. Terry, our new president and chief operating officer.

Mr. Jacobs regularly consults with several of our independent directors, and especially with Vincent J. Mesolella and Roger S. Greene, in regard to all aspects of our company’s affairs. Mr. Mesolella has served on the boards of directors of publicly traded companies, and for the past twenty years has served as the Chairman of the Narragansett Bay Commission, a large wastewater treatment agency in Rhode Island that has won national awards under his leadership. Mr. Mesolella has been actively involved in our evaluation of Cogility as a potential acquisition candidate, and in our negotiations of the terms of our pending acquisition of Cogility. For example, Mr. Mesolella has met twice with Mr. Jacobs, Matthew Ghourdjian and other Cogility employees at Cogility’s office in Alexandria, Virginia. Mr. Mesolella also receives and reviews a copy of each of our monthly bank statements. Mr. Greene, who is a Phi Beta Kappa graduate of Harvard College and attended Harvard Law School, has also served on the boards of publicly traded companies and has extensive experience with mergers and acquisitions, capital raising, and
 

 
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operations. Mr. Greene introduced Cogility to us, and has been actively involved in our evaluation of Cogility as a potential acquisition candidate, and in our negotiations of the terms of our pending acquisition of Cogility. For example, Mr. Greene has met once with Mr. Jacobs and Mr. Ghourdjian at Cogility’s office in Alexandria, Virginia, and once with Mr. Jacobs and Mr. Ghourdjian at Cogility’s office in Anaheim, California.

We believe that our current leadership structure is appropriate given the extensive experience of our directors, and the collaborative decision-making style of Mr. Jacobs. The board of directors’ role in the risk oversight of our company involves periodic telephonic board meetings, and one-on-one and conference telephone calls and email correspondence questioning Mr. Jacobs regarding his decision-making thought process, reviewing available financial and other documents as appropriate, and brainstorming with Mr. Jacobs as to how to best advance and protect our shareholders’ interests in regard to potential acquisitions and capital raises.

If we decide to make a future acquisition in the medical industry, which we are considering, Mr. Jacobs and Mr. Ghourdjian will also look for advice from our independent directors Dr. Joshua A. Bloom and Richard E. Morrissy, and from non-independent director Dr. James S. Jacobs. At the present time, we do not anticipate formally designating any of our independent directors as our lead outside director, and instead expect to draw upon the knowledge, experience and contacts of all of them. We believe that this anticipated leadership structure, with two Co-Chairmen and several strong independent directors providing counsel to them, is appropriate given the experience of our directors and the collaborative decision-making style of Mr. Jacobs and Mr. Ghourdjian. It is anticipated that, following the closing of our acquisition of Cogility, the board of directors’ role in the risk oversight of our company will involve periodic telephonic board meetings, and one-on-one and conference telephone calls and email correspondence questioning Mr. Jacobs and Mr. Ghourdjian, as the co-leaders of our company, regarding their decision-making thought process, reviewing available financial and other documents as appropriate, and brainstorming with Mr. Jacobs and Mr. Ghourdjian as to how to best advance and protect our shareholders’ interests in regard to potential acquisitions and capital raises, and in regard to operational and growth issues that may face Cogility.

Holding Company and Control Arrangements

We intend to enter into employment agreements with the principal executive officers of Cogility and other subsequently acquired subsidiaries, to provide substantially as follows:

The subsidiary executives shall have the general responsibility and authority to manage the business of Cogility, including but not limited to business strategy and planning; budgeting and finances; human resources; marketing; managing contracts; operations; and legal compliance; provided, however, that subsidiary executives will be required to expressly agree and acknowledge in their employment agreements that this general responsibility and authority to manage the business of their respective subsidiary shall at all times be limited. For instance, subsidiary executives shall not cause nor permit the parent or any of its subsidiary companies  to take any of the following actions without the express prior written approval of the Board of Directors of the parent company Acquired Sales Corp.:

(1) amend its articles of incorporation or bylaws;

(2) change its industry, expand into another industry, commit not to compete in any industry, or commit not to compete against any person or entity;

(3) issue any capital stock, including but not limited to common stock, preferred stock, convertible securities, or other equity-based or equity-linked securities including but not limited to phantom stock, tracking stock, profit-sharing plans or similar securities;

(4) borrow money or issue any notes, debentures, or other evidence of short-term or long-term indebtedness;
 

 
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(5) sell any of its capital stock or assets, or acquire any of the capital stock or assets of any other entity or business;

(6) hire or consult with any accountants other than the firm of independent certified public accountants that is engaged to audit the financial statements of the parent company Acquired Sales Corp.;

(7) attempt to register any securities with any federal, state or local governmental authority including the U.S. Securities Exchange Commission, or otherwise make any filings therewith;

(8) issue any press releases, or hire or consult with any investor relations or public relations person or firm other than the person or firm that is engaged by Acquired Sales Corp. to provide investor relations or public relations services;

(9) enter into any employment agreements, consulting agreements, or other agreements or contracts for services that are not cancelable by Cogility without payment or penalty upon 30 days notice;

(10) establish any subsidiaries;

(11) guarantee the indebtedness or the performance of any person or entity;

(12) file or settle any litigation or arbitration;

(13) institute, amend or terminate any pension plan or other employee benefit plans;

(14) pay any aggregate bonuses, or make any aggregate capital expenditures, during any year that are in excess of the aggregate bonuses and capital expenditures, respectively, contained in an annual budget for such year that has been approved by the Board of Directors of the parent company Acquired Sales Corp.;

(15) purchase any real estate, or enter into any leases of real estate that are not cancelable by Cogility without payment or penalty upon 30 days notice;

(16) deposit any funds into, hold any funds in, or distribute any funds from, any accounts except those designated by the Board and under the control of the chief financial officer of the parent company Acquired Sales Corp.;

(17) enter into any collective bargaining agreement or other union contract;

(18) grant any security interest in or to any of the real or intangible assets of Cogility, or pledge, hypothecate or deliver any collateral to any creditor excepting only the parent company Acquired Sales Corp.; or

(19) sell or license any of its intellectual property.

Family Relationships

Gerard M. Jacobs and James S. Jacobs, MD are brothers. There is no other family relationship among any of our officers or directors.

Certain Relationships And Related Transactions

The following describes all transactions executed or performed in 2010 and 2011 and currently proposed transactions in which we are a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.

Subsequent to December 31, 2010, the Company issued promissory notes totaling $920,000 accruing interest at a rate of 3% per year in a private placement, $400,000 of which notes were issued to related parties. The Company’s private placement offering documents said that investors would have to put up their investment money in the form of cash, excepting only that (a) Michael Ottele would be permitted to exchange the $20,000 loan which he made to Cortez Systems on December 1, 2010 for a $20,000 investment in the private placement, and (b) The Roberti Jacobs Family Trust, an affiliate of Gerard M. Jacobs, our chief executive officer and a director,  would be permitted to exchange its $200,000 note from Cogility dated December 13, 2010 for a $200,000 investment in the private placement.
 

 
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Here is a summary of the Company’s private placement, subsequent to December 31, 2010, and the re-loaning of a portion of the proceeds of the Company’s private placement to Cogility:

(1) On January 31, 2011:

(a) the Roberti Jacobs Family Trust invested $225,000 in the private placement: $25,000 in the form of cash, plus $200,000 in the form of an assignment of its $200,000 note from Cogility dated December 13, 2010; this $225,000 investment was evidenced by a Company 3% Secured Promissory Note dated January 31, 2011, plus the Company Warrant No. 1 to purchase 2,250,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 112,500 and increases the exercise price to $2.00);

(b) Roger S. Greene, one of our directors, invested $25,000 in the private placement: $25,000 in the form of cash; this $25,000 investment was evidenced by a Company 3% Secured Promissory Note dated January 31, 2011, plus the Company Warrant No. 2 to purchase 250,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 12,500 and increases the exercise price to $2.00); and

(c) the Company loaned Cogility $50,000 in cash, and received from Cogility its Secured Promissory Note No. 1 payable to the Company in the principal amount of $250,000, covering the $50,000 loaned in cash plus the $200,000 note from  Cogility dated December 13, 2010  that had been assigned to the Company by the Roberti Jacobs Family Trust;

(2)  On February 11, 2011:

(a) Vincent J. Mesolella, one of our directors,  invested $25,000 in the private placement: $25,000 in the form of cash; this $25,000 investment was evidenced by a Company 3% Secured Promissory Note dated February 11, 2011, plus the Company Warrant No. 3 to purchase 250,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 12,500 and increases the exercise price to $2.00);  and

(b) the Company loaned Cogility $25,000 in cash, and received from Cogility its Secured Promissory Note No. 2 payable to the Company in the principal amount of $25,000, covering the $25,000 loaned in cash;

(3)  On February 15, 2011:

(a) the Roberti Jacobs Family Trust invested $50,000 in the private placement: $50,000 in the form of cash; this $50,000 investment was evidenced by a Company 3% Secured Promissory Note dated February 11, 2011, plus the Company Warrant No. 4 to purchase 500,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 25,000 and increases the exercise price to $2.00);  and

(b) the Company loaned Cogility $50,000 in cash, and received from Cogility its Secured Promissory Note No. 3 payable to the Company in the principal amount of $50,000, covering the $50,000 loaned in cash;

(4)  On February 28, 2011:
 

 
38
 

 
(a) the Roberti Jacobs Family Trust invested $75,000 in the private placement: $75,000 in the form of cash; this $75,000 investment was evidenced by a Company 3% Secured Promissory Note dated February 28, 2011, plus the Company Warrant No. 5 to purchase 750,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 37,500 and increases the exercise price to $2.00); and

(b) the Company loaned Cogility $75,000 in cash, and received from Cogility its Secured Promissory Note No. 4 payable to the Company in the principal amount of $75,000, covering the $75,000 loaned in cash;

(5)  On March 1, 2011:

(a) Nicholas M. Keller III invested $50,000 in the private placement: $50,000 in the form of cash; this $50,000 investment was evidenced by a Company 3% Secured Promissory Note dated March 1, 2011, plus the Company Warrant No. 6 to purchase 500,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 25,000 and increases the exercise price to $2.00);  and

(b) the Company loaned Cogility $50,000 in cash, and received from Cogility its Secured Promissory Note No. 5 payable to the Company in the principal amount of $50,000, covering the $50,000 loaned in cash;

(6)  On March 11, 2011:

(a) Joseph S. Keller invested $250,000 in the private placement: $250,000 in the form of cash; this $250,000 investment was evidenced by a Company 3% Secured Promissory Note dated March 11, 2011, plus the Company Warrant No. 7 to purchase 2,500,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 125,000 and increases the exercise price to $2.00);

(b) Michael Ottele invested $20,000 in the private placement: $20,000 in the form of an assignment of the $20,000 loan which he made to Cortez Systems on December 1, 2010; this $20,000 investment was evidenced by a Company 3% Secured Promissory Note dated March 11, 2011, plus the Company Warrant No. 8 to purchase 200,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 10,000 and increases the exercise price to $2.00);  and

(c) the Company loaned Cogility $200,000 in cash, and received from Cogility its Secured Promissory Note No. 7 payable to the Company in the principal amount of $220,000, covering the $200,000 loaned in cash plus the $20,000 loan to Cortez Systems that had been assigned to the Company by Michael Ottele (to balance the transaction, Cogility received $20,000 in notes from Cortez Systems); and

(7)  On March 15, 2011:

(a) John and Susan Heider invested $150,000 in the private placement: $150,000 in the form of cash; this $150,000 investment was evidenced by a Company 3% Secured Promissory Note dated March 15, 2011, plus the Company Warrant No. 9 to purchase 1,500,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 75,000 and increases the exercise price to $2.00);

(b) Glendenning Capital, Inc. invested $50,000 in the private placement: $50,000 in the form of cash; this $50,000 investment was evidenced by a Company 3% Secured Promissory Note dated March 15, 2011, plus the Company Warrant No. 10 to purchase 500,000 shares of the Company common stock at $0.10 per share (subject to the 1-for-20 reverse split which decreases the number of shares to 25,000 and increases the exercise price to $2.00); and
 

 
39
 


(c) the Company loaned Cogility $150,000 in cash, and received from Cogility its Secured Promissory Note No. 7 payable to the Company in the principal amount of $150,000, covering the $150,000 loaned in cash.

Other Transactions

On September 13 and September 30, 2011, the Company issued demand promissory notes to Miss Mimi Corporation, an affiliate of our chief executive officer, in the aggregate amount of $8,000.  These notes bear interest at 10% per annum and are unsecured.

The Roberti Jacobs Family Trust loaned $200,000 to Cogility on December 13, 2010, evidenced by a Cogility note payable to the Roberti Jacobs Family Trust dated December 13, 2010.

Michael Ottele loaned $20,000 to Cortez Systems on December 1, 2010. No note was ever prepared.

In the November 4, 2010, Agreement which contains the letter of intent for the Company to acquire Cogility, the following options were granted to related parties: (1) The Company issued 12,100,000 options at $0.10 per share of the Company's common stock to Gerard M. Jacobs, our Chief Executive Officer and a director, with vesting contingent upon the closing of the Company's acquisition of Cogility (subject to the 1-for-20 reverse split which decreases the number of shares to 605,000 and increases the exercise price to $2.00); (2) The Company issued 100,000 options at $0.10 per share of the Company's common stock to each of five of our directors (subject to the 1-for-20 reverse split which decreases the number of shares to 5,000 and increases the exercise price to $2.00): Joshua A. Bloom, Roger S. Greene, Michael D. McCaffrey, Vincent J. Mesolella and Richard E. Morrissy, with vesting contingent upon the closing of the Company's acquisition of Cogility; (3) Cogility issued 2,500,000 options at $0.377 per share of Cogility's common stock, and 530,000 options at $0.001 per share of Cogility's common stock, to Gerard M. Jacobs, with vesting contingent upon the closing of a $500,000 private placement by the  Company and/or Cogility, which closing occurred in March, 2011; and (4) Cogility issued 132,500 options at $0.001 per share of Cogility's common stock to each of Roger S. Greene and Vincent J. Mesolella, with vesting contingent upon the closing of a $500,000 private placement by the Company and/or Cogility, which closing occurred in March, 2011.

The November 4, 2010, Agreement which contains the letter of intent for the Company to acquire Cogility also provides that, contingent upon the closing of the Company's acquisition of Cogility, the Company will issue an aggregate of 1,500,000 options at $5.00 per post-reverse split share of the Company's common stock to directors, officers, employees and consultants of Cogility, which may include one or more of the Company's directors or officers.

On October 12, 2010, the Company issued a demand promissory note to The Roberti Jacobs Family Trust in the amount of $20,000. This note bears interest at 10% per annum and is unsecured.

During April 2010, the Company issued a demand promissory note to Miss Mimi Corporation, an affiliate of our chief executive officer, in the amount of $4,000. This note bears interest at 10% per annum and is unsecured. During the year ended December 31, 2010, the Company incurred interest expense of $181 and made cash payments for interest in the same amount.  This note was repaid in full on June 2, 2011.
 
During January 2009 and November 2009, we issued demand promissory notes to CEO and Director Gerard M. Jacobs’ spouse in the amount of $10,000 each. The notes bear interest at 10% per annum and are unsecured. During the three months ended December 31, 2010 and the years ended September 30, 2010 and 2009, the Company incurred interest expense of $504, $1,892 and $667, respectively, and made cash payments for interest in the amounts of $504, $1,974 and $585, respectively.

During December 2006, we borrowed $100,000 pursuant to an unsecured promissory note due on demand and bearing interest at 10% per annum, from the Roberti Jacobs Family Trust, an entity related to Mr. Jacobs. During the same month, we repaid $95,000 of the principal due under the note. During July 2007, we sold 1,166,497 shares of our common stock at $0.086 per share, which was equal to the market value at that date, to the lender. The lender paid $95,000 of the purchase price of these shares in cash; the other shares were issued in full satisfaction of the remaining $5,000 principal due under the note, and the lender waived the $42 of interest that had accrued on this debt.
 

 
40
 


Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement.  Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions, and Director Independence,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
 
  Board Composition and Committees

Our board of directors is currently composed of 8 members: Messrs. G. Jacobs, Bloom, Greene, J. Jacobs, McCaffrey, Morrissy, Mesolella and Ghourdjian.  Our board of directors has determined that Messrs. Bloom, Greene, McCaffrey, Morrissy and Mesolella are independent directors at this time, under the rules of the American Stock Exchange Company Guide, or the AMEX Company Guide, because they do not currently own a significant percentage our shares, are not currently employed by the Company, have not been actively involved in the management of the Company and do not fall into any of the enumerated categories of people who cannot be considered independent directors under the AMEX Company Guide.

Audit Committee and Audit Committee Financial Expert

We have an audit committee consisting of Joshua A. Bloom, Roger S. Greene, Michael D. McCaffrey, Vincent J. Mesolella and Richard E. Morrissy as members. We have not adopted an Audit Committee charter. Vincent J. Mesolella serves as our audit committee chairman and financial expert. Our audit committee performs the following functions including:  (1) selection and oversight of our independent accountant; (2)  establishing  procedures for the receipt, retention and treatment of complaints regarding  accounting, internal controls and auditing matters; and (3) engaging outside advisors. Our Board of Directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's financial sophistication.  Accordingly, the Board of Directors believes that each of its members has the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee member should have for a business such as the Company.

Board Meetings; Nominating and Committee

Due to the current size and scope of our operations and size and geographic diversity of our Board of Directors, much of the Board’s decision making is made through telephone calls and intermittent informal meetings; when formalization is necessary, the Board conducts formal meetings or acts by written consent.  In the three month transitional period and the year ended December 31, 2010, we held only telephonic Board Meetings and there were no on ground Board Meetings attended by all directors.

We have a nominating committee consisting of Joshua A. Bloom, Roger S. Greene, Michael D. McCaffrey, Vincent J. Mesolella and Richard E. Morrissy as members.  Mr. McCaffrey is the nominating committee Chairman.
 

 
41
 

 
Code of Ethics

We currently have not adopted a code of ethics due to our limited size and operations. Due to the increased operations of our Company resulting from the Cogility acquisition, we have proposed a Code of Business Conduct and Ethics (the “Code”), attached as Exhibit 99.1 to this Report. We expect to adopt the Code in the coming weeks. The purpose of the Code is to assist the Company and its employees, officers and directors with the Company’s goals of conducting its business and affairs in accordance with applicable laws, rules and regulations and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. The Company expects that any consultants or other service providers it retains will adhere to the Code.

Section 16(a) Beneficial Ownership Compliance.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2010, or written representations from certain reporting persons, we believe all of our directors, executive officers and 10% holders have met all applicable filing requirements, except as described in this paragraph:

The following persons are holders of 10% of our common stock and have not filed a Form 3: Deborah Sue Ghourdjian Separate Property Trust, Matthew Ghourdjian and the Roberti Jacobs Family Trust. The following persons are directors of the Company and have been awarded options which will vest upon acquisition of Cogility which ownership may have already triggered a requirement to file Form 3s or Form 4s which are not known to have been filed: Gerard M. Jacobs, Joshua Bloom, M.D., Roger Greene, Michael McCaffrey, Richard Morrissy, Matthew Ghourdjian, and Vincent Mesolella. The following persons are directors of the Company and hold warrants to purchase shares of our common stock and have not filed Form 3s or Form 4s, as applicable: Roger Greene and Vincent Mesolella.
 

 
42
 


COMPENSATION OF DIRECTORS AND OFFICERS

As a result of its continued status as a shell corporation and the non-completion of the Cogility acquisition as of December 31, 2010, we did not experience any cash flow event as a result of any payment to an executive.   We have not provided retirement benefits or severance or change of control benefits to our named executive officer, Gerard M. Jacobs.  Unexercised options or warrants were held by our executive officers at the three month transitional period and year ended 2010 are set out in the following table. Other than the options issuance described herein, no equity awards were made during the three month transitional period and year ended December 31, 2010.

Name and Principal Position
(a)
 
 
Year
(b)
 
 
 
Salary
($) (c)
 
 
 
Bonus
($) (d)
 
 
 
Stock
Awards
($) (e)
 
 
Option
Awards
($) (f)
 
 
NonEquity
Incentive
Plan
Compensation
($) (g)
Nonqualified
Deferred
Compensation
Earnings
($)(h)
All
Other
Compensation
($)(i)
 
Total
($) (j)
 
 
 
Gerard M. Jacobs, CEO(1)
 
2010
2009
$   -
$   -
$   -
$   -
$   -
$   -
$769,560(2)
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$769,560
$ -
Matthew Ghourdjian, CTO(3)(4)
2010
2009
$112,500
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$112,500
$ -
Daniel F. Terry, Jr., COO(5)
2010
2009
$   -
$   -
$   -
$   -
$   -
$   -
$-
$   -
$   -
$   -
$   -
$   -
$   -
$   -
$ -
$ -

(1)  
Mr. Jacobs has been issued options to purchase 12,100,000 shares of our common stock at a purchase price of $0.10 per share. These options will vest upon closing of the Cogility acquisition and expire on November 4, 2020.
(2)  
The weighted-average grant-date fair value of options granted during the three months ended December 31, 2010 was $0.0636 per share. The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.
(3)  
Mr. Ghourdjian served as the CEO of Cogility Software until September 2011 when he became co-chairman of Acquired Sales’ board of directors and chief technology officer. As of the date of this report, Mr. Ghourdjian has not been paid a salary by Acquired Sales, but is expected to be paid a salary in the future.
(4)  
The salary amounts were paid by Cogility and prior to the acquisition of Cogility by Acquired Sales.
(5)  
Prior to effectuation of the Merger, Mr. Terry has not previously served as an officer or director of Cogility Software or Acquired Sales Corp. In connection with the Merger, Mr. Terry became chief executive officer of Cogility and president and chief operating officer of Acquired Sales.

 
 
43
 


Compensation of Directors

The table below sets forth the compensation of our directors for the three month transitional period and fiscal year ended December 31, 2010.

Name
Fees earned or paid in cash ($)
Stock awards ($)
Option awards
($) (1)(2)
Non-equity incentive plan compensation ($)
Nonqualified deferred
compensation earnings
($)
All other compensation ($)
Total
($) (3)
Gerard M. Jacobs(4)
-
-
-
-
-
-
-
Joshua A. Bloom
-
-
$6,360
-
-
-
$6,360
Roger S. Greene
-
-
$6,360
-
-
-
$6,360
Michael McCaffrey
-
-
$6,360
-
-
-
$6,360
Vincent J. Mesolella
-
-
$6,360
-
-
-
$6,360
Richard E. Morrissy
-
-
$6,360
-
-
-
$6,360
Matthew Ghourdjian
-  
- 
- 
- 
- 
- 
- 
 
James S. Jacobs
-
-
-
-
-
-
-
                 
                 
(1)  
These options entitle the holder to purchase shares of our common stock at a purchase price of $2.00 per share (previously $0.10 prior to the 1-for-20 reverse split). These options vest upon closing of the Cogility acquisition and expire on November 4, 2020.
(2)  
The weighted-average grant-date fair value of options granted during the three months ended December 31, 2010 was $0.0636 per share. The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.
(3)  
The current market price of the underlying common stock shares as of the date of this filing is approximately $2.00 per common share.
(4)  
Mr. Jacobs’ option compensation described in the preceding table is deemed to be executive compensation.

Compensation Discussion and Analysis

The Company does not have any paid employees and has not yet entered into long term executive or non-executive employment agreements, so as to limit the Company’s exposure and liability. As indicated elsewhere in this Report, the Company regularly engages outside consultants, accountants and other professional service providers for purposes of providing services to the Company.  The Company endeavors, where able, to issue options in lieu of cash compensation, so as to preserve capital where needed and limit cash risk exposure.

Historically, funding for the Company was sourced from management affiliates which have loaned $44,000 during the past years ($4,000 of which was repaid) and $8,000 during the current year.  The Corporation limits cash compensation to outside or internal directors and does not have a cash compensation policy.  The Corporation believes that, given the extensive experience of Mr. Jacobs and the rest of the board of directors, and the current opportunity cost factor for each of them, as combined with the fact that each of them has continued to provide services without cash compensation, that the amount of compensation provided in the form of options, which must be purchased for cash, is fair and reasonable for the Corporation. Additionally, the Corporation has, in the past, sought to retain management, which would require that the Corporation enter into long term, inflexible employment arrangements with persons that may have a limited stake in the Corporation’s success as compared to our principals.
 

 
44
 
 
 
The Company endeavors to enter into performance based compensation consulting packages with members of the Company’s board of directors.  Performance based compensation tends to be conditioned on achieving milestones such as achieving certain minimum net revenue streams from sources introduced by the director, securing contracts or other specific activities or items for which a particular board member may have skills.

Compensation Committee

Our directors and officers do not receive remuneration from us unless approved by the
Board of Directors, but we intend to enter into employment agreements Gerard M. Jacobs, Matthew Ghourdjian and Daniel F. Terry, Jr. in the near future.  No such payment shall preclude any director from serving us in any other capacity and receiving compensation in connection with that service. Notwithstanding the foregoing, in the three month transitional period and year ended December 31, 2010, no remuneration was paid any of our directors for services as director. We have a compensation committee consisting of Joshua A. Bloom, Roger S. Greene, Michael D. McCaffrey, Vincent J. Mesolella and Richard E. Morrissy as members.  Roger Greene as serves as the committee’s chairman.

Aggregate Option Exercise of Last Fiscal year and Fiscal Year-End Option Values

No shares of common stock were acquired upon the exercise of options during the three month transitional period and fiscal year ended December 31, 2010. The table below sets forth unexercised options, stock that has not yet vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2010.  The post 1-for-20 reverse split 605,000 options are exercisable at $2.00 per share. They expire on November 4, 2020. The market value of the options based the weighted-average grant-date fair value of options granted during the three months ended December 31, 2010 was $0.0636 per share ($1.27 per share post 1-for-20 reverse split) or $769,560.

Outstanding Equity Awards At Fiscal Year End
(see description of columns (a) through (j) below)
 
Option Awards                                                                                                                         Stock Awards
 
      (a)                               (b)           (c)           (d)            (e)           (f)            (g)                (h)            (i)          (j)
Gerard M. Jacobs         605,000         -               -          $2.00      11/4/20   605,000      $769,560         -             -
CEO
 
Description of Columns (a) through (j):
 
(a)  
The name of the named executive officer (column (a));
 
(b)  
On an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are exercisable and that are not reported in column (d) (column (b));
 
(c)  
On an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are unexercisable and that are not reported in column (d) (column (c));
 
(d)  
On an award-by-award basis, the total number of shares underlying unexercised options awarded under any equity incentive plan that have not been earned (column (d));
 
(e)  
For each instrument reported in columns (b), (c) and (d), as applicable, the exercise or base price (column (e)); (this $0.10 exercise price as of December 31, 2010 does not reflect the 1-for-20 reverse stock split which resulted in an increased exercise price of $2.00)
 

 
45
 

 
(f)  
For each instrument reported in columns (b), (c) and (d), as applicable, the expiration date (column (f));
 
(g)  
The total number of shares of stock that have not vested and that are not reported in column (i) (column (g));
 
(h)  
The aggregate market value of shares of stock that have not vested and that are not reported in column (j) (column (h));
 
(i)  
The total number of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned, and, if applicable the number of shares underlying any such unit or right (column (i)); and
 
(j)  
The aggregate market or payout value of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned (column (j)).

INDEPENDENT PUBLIC ACCOUNTANTS

Registered Independent Public Accounting Firm

Hansen, Barnett & Maxwell, P.C. have served as our auditors since 2007. Representatives of Hansen, Barnett & Maxwell, P.C.  are expected to be present at our next Annual Meeting of Shareholders with the opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions from shareholders.

The following table presents fees for all professional services provided by Hansen, Barnett & Maxwell, P.C.  for the audit of our consolidated financial statements for the years ended September 30, 2010 and 2009 and the transitional period ended December 31, 2010, and fees billed for other services rendered by Hansen, Barnett & Maxwell, P.C.  during those periods.
 
Audit Fees . Fees for audit services totaled $20,439 in 2010 and $5,630 in 2009, including fees associated with the annual audit, the review of our quarterly reports on Form 10-Q, comfort letters, consents, assistance with and review of documents to be filed with the SEC and Section 404 consultation services.
 
Tax Fees . Fees for tax services, including tax compliance, tax advice and tax planning totaled $0 in 2010 and $0 in 2009.

COMPENSATION PLANS

In connection with the letter of intent with Cogility, during the three months ended December 31, 2010 the Company issued to its director and sole officer and five of its non-officer directors, options to purchase an aggregate of 630,000 shares of its common stock at an exercise price of $2.00 per share (previously 12,600,000 shares at a $0.10 per share exercise price prior to the 1-for-20 reverse stock split).  The options vested upon the acquisition of Cogility and expire on November 4, 2020. The consideration paid for the options is deemed to be a compensation expense. The market value of the options based on the current stock price is $0 due to the fact that the exercise price is $2.00 per share and current market price of the Company’s common stock is also $2.00. There was no income tax benefit recognized by Acquired Sales in connection with the granting (or exercise) of the options. The options may trigger taxable income to the option holders both as a result of issuance and upon exercise.

[table follows on next page]
 

 
46
 


Equity Compensation Plan Information
 
Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
 
     1,176,698 (1)
$1.20
546,227 (2)(5)
Equity compensation plans not approved by security holders
-
-
-
 
Total
     1,176,698 (3)(4)
$1.20
546,227
 
-
-
 

1.  
In November 2010, Acquired Sales granted these stock options to the members of management and directors that participated in structuring the financing and the merger with Cogility. Those stock options were for the purchase of 12,600,000 pre-split common shares at $0.10 per share, or 630,000 post-split common shares at $2.00 per share. The options vested upon the effectuation of the merger, which occurred on September 29, 2011. The grant-date fair value of these stock options of $801,762 less $308,787 already included in Acquired Sales’ operations is recognized as compensation expense.
2.  
Prior to the merger, Cogility had stock options outstanding that permit the holders thereof to purchase 5,724,666 Cogility common shares at prices ranging from $0.001 to $1.40 per share. In the merger transaction, the Cogility option holders exchanged these stock options for 1,080,126 Acquired Sales stock options exercisable at prices ranging from $0.001 to $5.00 per share. The exchange of these stock options is considered to be part of the recapitalization of Cogility and is not a modification of the Cogility stock options. There are 3,295,000 of these Cogility stock options that are exchangeable for 621,698 Acquired Sales stock options that vested during 2011 upon Acquired Sales obtaining at least $500,000 of financing and the remaining Cogility stock options vest upon occurrence of the merger with the Acquired Sales subsidiary.
3.  
Gerard M. Jacobs is the chief executive officer of the Company. He has received 605,000 post 1-for-20 reverse split options.
4.  
The current directors who are not executive officers have collectively received an aggregate of 25,000 post 1-for-20 reverse split options.
5.  
Of the 1,080,126 Cogility options, Gerard M. Jacobs holds options that were exchanged for 571,698 Acquired Sales in connection with the Cogility acquisition. This increased the number of post-reverse split Acquired Sales options held by Mr. Jacobs to 1,176,698. Roger S. Greene and Vincent J. Mesolella each hold Cogility options that were exchanged for 25,000 Acquired Sales options post Cogility acquisition. This increased the number of post-reverse split Acquired Sales options held by each of Mr. Greene and Mr. Mesolella to 30,000 from 5,000 previously held.

Option Plan

The letter of intent date November 4, 2010 and stockholder resolution dated November 11, 2010 authorized Acquired Sales to adopt a stock option plan or plans contemplating, among other things, the issuance of the options to purchase Acquired Sales Stock. Since November 2010, Acquired Sales previously issued 630,000 options (post reverse split) with an exercise price of $2.00 per share to members of Acquired Sales board and executive team, and issued 1,080,126 options in connection with, and in
 

 
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exchange for, outstanding Cogility options in connection with the Merger. In addition, Acquired Sales may issue 1,500,000 options exercisable at $5.00 per share as compensation to employees, consultants, executives, and/or directors of Cogility. However, Acquired Sales has not adopted a formal option or equity compensation plan as of the date of this filing.

DESCRIPTION OF SECURITIES

General

We are authorized to issue 100,000,000 shares of common stock, par value $0.001 per share, of which 2,467,188 shares are issued and outstanding.  We are authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share. Approximately 2,415,758 shares of the 2,467,188 shares of common stock presently issued and outstanding are "restricted securities" as that term is defined in Rule 144 adopted under the Securities Act.  The remaining 51,430 shares are believed to be free-trading.

Common Stock

Holders of common stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders.  Shares of common stock do not carry cumulative voting rights and, therefore, holders of a majority of the outstanding shares of common stock will be able to elect the entire board of directors, and, if they do so, minority stockholders would not be able to elect any members to the board of directors.  Our board of directors has authority, without action by the stockholders, to issue all or any portion of the authorized but unissued shares of common stock, which would reduce the percentage ownership of the stockholders and which may dilute the book value of the common stock.

Shareholders have no pre-emptive rights to acquire additional shares of common stock.  The common stock is not subject to redemption and carries no subscription or conversion rights.  In the event of liquidation, the shares of common stock are entitled to share equally in corporate assets after satisfaction of all liabilities.  The shares of common stock, when issued, will be fully paid and non-assessable. We currently do not accumulate money on a regular basis in a separate custodial account, commonly referred to as a sinking fund, to be used to redeem debt securities.

Holders of common stock are entitled to receive dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends.  We have not paid dividends on common stock and do not anticipate that we will pay dividends in the foreseeable future.

Preferred Stock

We are authorized to issue preferred stock, but no shares of preferred stock have been designated or issued.  The authorized but unissued shares of preferred stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors.  The Directors in their sole discretion shall have the power to determine the relative powers, preferences, and rights of each series of preferred stock.  In the event we designate shares of preferred stock, we intend that such shares will be entitled to preference over the common stock with respect to the distribution of our assets in the event of our liquidation, dissolution, or winding-up, whether voluntarily or involuntarily, or in the event of any other distribution of our assets of among our shareholders for the purpose of winding-up our affairs.

We may consider it desirable to have one or more classes of preferred stock to provide us with greater flexibility in the future in the event that we elect to undertake an additional financing and in meeting corporate needs that may arise.  If opportunities arise that would make it desirable to issue preferred stock through either public offerings or private placements, the provision for these classes of stock in our certificate of incorporation would avoid the possible delay and expense of a stockholders’ meeting, except as may be required by law or regulatory authorities.  Issuance of the preferred stock would result, however, in a series of securities outstanding that may have certain preferences with respect to dividends, liquidation, redemption, and other matters over the common stock which would result in dilution of the income per share and net book value of the common stock.  Issuance of additional common stock pursuant to any conversion right that may be attached to the preferred stock may also result in the dilution of the net income per share and net book value of the common stock.  The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance.  As a result, it is not possible at this time to determine the respects in which a particular series of preferred stock will be superior to our common stock.  The board of directors does not have any specific plan for the issuance of preferred stock at the present time and does not intend to issue any such stock on terms which it deems are not in our best interest or the best interests of our stockholders.
 

 
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MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has been quoted under the symbol AQSP on the OTC market.  Our shares generally do not trade and the trading price of our shares is not necessarily of the existence of a trading market for our securities or indicative of our value.  The following table sets forth, for the periods indicated, the high and low closing prices of our common stock.  These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  As of September 30, 2011, there was not a bid and ask price of our common stock available, the most recent trading price of $2.00 (1-for-20 reverse split adjusted) on May 13, 2009.

   
Closing Bid Prices(1)
 
   
High
   
Low
 
             
Year Ended December 31, 2011
           
4th Quarter
  $  TBD     $     TBD  
3rd Quarter (through September 26)
  $ 2.00     $ 2.00  
2nd Quarter
  $ 2.00     $ 2.00  
1st  Quarter
  $ 2.00     $ 2.00  
                 
Year Ended December 31, 2010
               
4th Quarter
  $ 2.00     $ 2.00  
3rd Quarter
  $ 2.00     $ 2.00  
2nd Quarter
  $ 2.00     $ 2.00  
1st Quarter
  $ 2.00     $ 2.00  
                 
Year Ended December 31, 2009
               
4th Quarter
  $ 2.00     $ 2.00  
3rd Quarter
  $ 2.00     $ 2.00  
2nd Quarter
  $ 2.00     $ 2.00  
1st  Quarter
  $ 2.00     $ 2.00  

(1)              The above table sets forth the range of high and low closing bid prices per share of our common stock as reported by Google Finance for the periods indicated. All prices are 1-for-20 reverse split adjusted.
 

 
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FINANCIAL AND OTHER INFORMATION
 
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

None.

Management Discussion and Analysis

Please refer to the section of this 8-K entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations of Cogility” for an analysis of our business post-merger with Cogility. For a Management Discussion and Analysis of Acquired Sale’s business pre-merger, please refer to the Company’s transitional report on Form 10-K filed on or about March 31, 2011.

Financial Statements

The full text of the Cogility financial statements and our   pro forma financial statements begin s on page F-1 of this 8-K and include the following:

Acquired Sales Corp. And Subsidiaries
Unaudited Pro Forma
Condensed Consolidated Financial Information
 
Cogility Software Corporation
Report Of Independent Registered Public Accounting Firm
And Financial Statements
December 31, 2010 And 2009

RISK FACTORS

Our business is subject to numerous risks and uncertainties. These risks and uncertainties may cause our operations to vary materially from those contemplated by our forward-looking statements. These risk factors include:

Risk Factors Relating to Our Company and Our Stock

Our balance sheet is weak and we lack liquidity

Our balance sheet is weak. We have very little cash on hand and our payables are greater than our cash on hand. We can give no assurance that our working capital will be adequate to meet all of our short-term liquidity requirements include payroll. During the past few months, we have restructured over $500,000 of overdue debt and bonuses owed to our employees, in order to try to give us breathing room to raise additional capital. There is no guarantee that we can obtain the funding needed for our operations on acceptable terms, if at all, and neither our directors, officers, or any third party is obligated to provide any financing. A failure to pay our debts and payroll obligations when they become due and payable could materially adversely affect our company and the trading price of our Stock.

We may not be profitable in the future

We have not been profitable during most of our years of operation. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable in the future. In the Merger, we acquired Cogility. Cogility has a very limited history of operations, and has been unprofitable in all but one year of its operations. Our acquisition of Cogility involves significant risk, as there can be no assurance that the business of Cogility will be successful or generate any profit. A failure to achieve profitability could materially adversely affect our company and the trading price of our Stock.
 

 
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Our Stock lacks a meaningful public market

At present no active market exists for our Stock and there is no assurance that a regular trading market will develop and if developed, that it will be sustained. An owner of our Stock may, therefore, be unable to sell our Stock should he or she desire to do so. Or, if an owner of our Stock decides to sell our Stock, such sales could drive the price of our Stock significantly lower. Furthermore, it is unlikely that a lending institution will accept our Stock as pledged collateral for loans. This lack of liquidity could materially adversely affect our company and the trading price of our Stock.

Our Stock may never be listed on a national exchange

Our Stock may never meet the listing requirements of a national exchange. You should not assume that an effort to list our Stock would be successful, or if successful, that such listing requirements will be maintained, including but not limited to requirements associated with maintenance of a minimum net worth, minimum stock price, and ability to establish a sufficient number of market makers.

Our Stock may be considered a "penny stock" and may be difficult to trade

The U.S. Securities and Exchange Commission ("SEC") has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions.  The market price of our Stock may be less than $5.00 per share and, therefore, may be designated as a “penny stock” according to SEC rules.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, to obtain a written agreement from the purchaser, and to determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our Stock and may adversely affect the ability of investors to sell our Stock, and may materially adversely affect our business and the trading price of our Stock.

Our Stock lacks institutional or analyst support

Our company has limited if any institutional support. In addition, investment banks with research capabilities do not currently follow our Stock. This lack of institutional or analyst support lessens the trading volume and general market interest in our Stock, and may adversely affect an investor's ability to trade a significant amount of our Stock. This lack of institutional or analyst support could materially adversely affect our company and the trading price of our Stock.

The public float of our Stock is small

The public float of our Stock is small, which may limit the ability of some institutions to invest in our Stock. This lack of liquidity could materially adversely affect our company and the trading price of our Stock.

The trading price of our Stock may be volatile and could drop quickly and unexpectedly

The stocks of micro-cap and small-cap companies, especially technology companies, have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macro-economic developments in North America and globally, and market perceptions of the attractiveness of particular industries. This volatility could materially adversely affect our company by making it more difficult to raise capital or complete acquisitions. In addition, securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. Our company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert our management’s attention and resources away from our business. For these reasons and others, quick and unexpected drops in the trading price of our Stock are likely from time to time. Volatility in our Stock price could materially adversely affect our company and the trading price of our Stock.
 

 
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It may be difficult to predict our financial performance because our quarterly operating results may fluctuate

Our revenue and operating results may vary significantly from quarter to quarter due to a variety of factors, some of which are beyond our control. The factors that may affect our quarterly operating results include, but are not limited to, the following:  (1) fluctuations in customer demand for our products and services; (2) the timing and nature of future sales transactions and the accounting treatment with respect to customer contracts; (3) the timing and nature of future capital raises and acquisitions;  (4) the introduction of new products or services and the market responses to those introductions;  (5) customer budgetary pressures and the timing of availability of funding for purchases, or delays in processing or making payments for products or services that have been delivered; (6) changes in pricing policies or service offerings;  (7) changes in the level of administrative costs, sales, marketing and other operating expenses to support future growth; (8) fluctuations in the cost of marketing and advertising; (9) competitive factors; (10) fluctuations in our Stock price which may impact the amount of stock-based compensation expense we are required to record; (11) possible impairments of the recorded amounts of goodwill, intangible assets, or other long-lived assets; (12) the timing and amount of expenses associated with future litigation or restructuring activities; (13) new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; (14) deterioration in the credit quality of our accounts receivable and an increase in the related provision; (15) disputes or disagreements with our customers; (16) changes in our customers' strategies, budgets or priorities for developing, acquiring, deploying, or evaluating software or other technology; (17) new software or other technologies; (18) changes in laws, rules and regulations; (19) changes in our effective income tax rate; (20) costs related to the development or acquisition of software, other technology, or businesses; (21) increases in the costs of software licenses or other intellectual property-related costs; and (22) general economic conditions.

Consequently, period-to-period comparisons of our results of operations will not necessarily be meaningful, and you should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of acquisition candidates, of research analysts (if any), of investors, or of our own forecasts in some future periods, which may have a material adverse effect on our company and the trading price of our Stock.

We are adversely affected by the difficult economy and by turmoil in the financial markets

Our business and our clients' businesses are materially adversely affected by periods of significant economic slowdown or recession, fears of inflation or deflation, rising interest rates, declining demand for our products or our clients' products, or a public perception that any of these events are occurring or may occur, which could adversely affect our revenues, results of operations, and cash flow. In addition, the capital and credit markets have been experiencing, and continue to experience, volatility and disruption. Current national and global financial and business conditions have been very difficult, and numerous financial institutions and businesses either have gone into bankruptcy or have had to be rescued by governmental authorities. Access to financing has been negatively impacted by both sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market. Credit remains tight.  In many cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. These factors could materially adversely affect our company and the trading price of our Stock.

We may not be able to raise needed capital

We need to raise substantial amounts of additional capital, both for our existing operations, for organic growth and for acquisitions. In addition to the $700,000 raised in the first three months of 2011, we  hope to raise additional capital for our Cogility Software Corporation subsidiary over the next few months, and potentially more for other acquisitions. However, our aggregate future capital requirements are uncertain. The amount of capital that we will need in the future will depend on many factors that we cannot predict with any certainty, including: the market acceptance of our products and services; the levels of promotion and advertising that will be required to launch our new products and services and achieve and maintain a competitive position in the marketplace; our business, product, capital expenditures and technology plans, and product and technology roadmaps; technological advances; our competitors’ responses to our products and services; our pursuit of mergers and acquisitions; and our relationships with our customers.
 

 
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We cannot assure you that we will be able to raise the needed capital on commercially acceptable terms, or at all. Delay, disruption, or failure to obtain sufficient financing may result in the delay or failure of our business plans. Our inability to raise sufficient capital on commercially acceptable terms, or at all, could have a material adverse effect on our company and the trading price of our Stock.

Our Stock may be subject to significant dilution

Our capital raising may include the sale of significant numbers of shares of our Stock or other securities convertible into our Stock. We also may issue significant numbers of shares of our Stock, or options, warrants, or other securities convertible into shares of our Stock, as a portion of the consideration for acquisitions. Such transactions may significantly increase the number of outstanding shares of our Stock, and may be highly dilutive to our existing Stockholders. In addition, the securities that we issue may have rights, preferences or privileges senior to those of the holders of our outstanding Stock. This dilution could have a material adverse effect on our company and the trading price of our Stock. In addition, we have options and warrants outstanding to purchase 3,745,126 shares of our Stock, post reverse split. If all of these 3,745,126 options and warrants were to be exercised, the number of outstanding shares of our Stock would increase significantly. Moreover, additional shares may be issued in connection with Cogility acquisition and business operations. This dilution could have a material adverse effect on our company and the trading price of our Stock.

Raising capital by selling our Stock is difficult to accomplish

Selling equity is difficult to accomplish in the current market. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. This could materially adversely affect our company and the trading price of our Stock.

Raising capital by selling our Stock could be expensive

If we were to raise capital by selling common stock or securities convertible into common stock, it could be expensive. We may be required to pay fees equal to 7% or more of the gross sales proceeds raised, in addition to legal, accounting and other fees and expenses. In addition, when it becomes known within the investment community that an issuer is seeking to raise equity capital, it is common for the common stock of that issuer to be sold off in the market, lowering the trading price of the issuer's common stock in advance of the pricing of the issue. This could make our raising capital by selling equity securities significantly more expensive and materially adversely affect the trading price of our Stock.

Debt financing is difficult to obtain

Debt financing is difficult to obtain in the current credit markets. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. This could materially adversely affect our company and the trading price of our Stock.

Raising capital by borrowing could be risky

If we were to raise capital by borrowing to fund our operations or acquisitions, it could be risky. Borrowing typically results in less dilution than in connection with equity financings, but it also would increase our risk, in that cash is required to service the debt, ongoing covenants are typically employed which can restrict the way in which we operate our business, and if the debt comes due either upon maturity or an event of default, we may lack the resources at that time to either pay off or refinance the debt, or if we are able to refinance, the refinancing may be on terms that are less favorable than those originally in place, and may require additional equity or quasi equity accommodations. These risks could materially adversely affect our company and the trading price of our Stock.
 

 
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Our financing decisions may be made without Stockholder approval

Our financing decisions and related decisions regarding levels of debt, capitalization, distributions, acquisitions and other key operating parameters, are determined by our board of directors in its discretion, in many cases without any notice to or vote by our Stockholders. This could materially adversely affect our company and the trading price of our Stock.

We lack investor relations, public relations and advertising resources

We lack the resources to properly support investor relations, public relations, and advertising efforts. This puts us at a disadvantage with potential acquisition candidates, investors, research analysts, customers, and job applicants. These disadvantages could materially adversely affect our company and the trading price of our Stock.

Sales of our Stock could cause the trading price of our Stock to fall

Sellers of our Stock might include our existing stockholders who have held our Stock for years, former stockholders of Cogility who now own our Stock, or our directors, officers or employees who might exercise stock options and simultaneously sell our Stock. Since the trading volume of our Stock is very low and the amount of our Stock in the public float is very small, any sales or attempts to sell our Stock, or the perception that sales or attempts to sell our Stock could occur, could adversely affect the trading price of our Stock.

An increase in interest rates may have an adverse effect on the trading price of our Stock

An increase in market interest rates may tend to make our common stock less attractive relative to other investments, which could adversely affect the trading price of our common stock.

Increases in taxes and regulatory compliance costs may reduce our revenue

Costs resulting from changes in or new income taxes, value added taxes, service taxes, or other taxes, may not be able to be passed along to clients and consequently may adversely affect our margins. This could materially adversely affect our company and the trading price of our Stock.

We are adversely affected by regulatory uncertainties

Regulatory uncertainties regarding potential adverse changes in federal and state laws and governmental regulations materially adversely affect our business, our clients' businesses, and the trading price of our Stock.

A small number of stockholders have significant influence over us

A small number of our stockholders and members of our board of directors and management acting together would be able to exert significant influence over us through their ability to influence the election of directors and all other matters that require action by our Stockholders. The voting power of these individuals could have the effect of preventing or delaying a change in control of our company which they oppose even if our other stockholders believe it is in their best interests. Gerard M. Jacobs and Matthew Ghourdjian collectively beneficially own a substantial majority of our shares of common stock. They have agreed to vote all of the shares of our Stock that are legally or beneficially owned by them or their affiliates in favor of the election of slates of directors which have been mutually selected by them, and as to certain other matters. In addition, our shareholders have authorized Gerard M. Jacobs to seek similar shareholders agreements and/or proxies from other parties, including potential future capital sources and the owners of potential future acquisition candidates. Accordingly, Gerard M. Jacobs and Matthew Ghourdjian have substantial influence over our policies and management.  We may take actions supported by Gerard M. Jacobs and Matthew Ghourdjian that may not be viewed by some stockholders to be in our best interest, or Gerard M. Jacobs and Matthew Ghourdjian could prevent or delay a change in our control which they oppose even if our other stockholders believe it is in their best interests. This could materially adversely affect our company and the trading price of our Stock.
 

 
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State law and our articles of incorporation and bylaws help preserve insiders' control over us

Provisions of Nevada state law, our articles of incorporation and by-laws may discourage, delay or prevent a change in our management team that stockholders may consider favorable.  These provisions may include: (1) authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; (2) permitting stockholder action by written consent; and (3) establishing advance notice requirements for nominations for election to the board of directors, or for proposing matters that can be acted on by stockholders at stockholder meetings. These provisions, if included in our articles of incorporation or by-laws, could allow our board of directors to affect an investor’s rights as a stockholder since our board of directors could make it more difficult for preferred stockholders or common stockholders to replace members of the board of directors.  Because the board of directors is responsible for appointing the members of the management team, these provisions could in turn affect any attempt to replace the current or future management team. These factors could adversely affect our company or the trading price of our Stock.

Retaining and attracting directors and officers may be expensive

We cannot make any assurances regarding the future roles of our current   directors and officers. While our current executive officers intend and expect to spend all of their time on Acquired Sales and its subsidiaries, some of our executives, including our chief executive officer Gerard M. Jacobs, reserve the right to work on transactions and companies that Acquired Sales chooses not to pursue. Some of our current directors are and will in the future be involved in other businesses, and are not required to, and do not, commit their full time to our affairs, thereby causing conflicts of interest in allocating their time   between our operations and the operations of other businesses. We have no employment agreements with any of our existing directors or officers, but we expect to soon sign employment agreements with Gerard M. Jacobs, our chief executive officer, Daniel F. Terry, Jr., our president and chief operating officer, and Matthew Ghourdjian, our chief technology officer. Some or all of our current directors and officers may resign upon our raising money, upon our consummation of a business combination, or otherwise. Attracting and retaining our directors and officers may be expensive, and may require that we enter into long term employment agreements, issue stock options, and otherwise incentivize our directors and officers. The costs of these incentives could materially adversely affect our company and the trading price of our Stock.

We indemnify our directors and officers, and certain other parties

Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The Bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. We may also agree to indemnify former officers, directors and employees of acquired companies in connection with the acquisition of such companies. Such indemnification agreements may not be subject to maximum loss clauses. It is not possible to determine the maximum potential amount of exposure in regard to these obligations to indemnify, due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. Use of our capital or assets for such indemnification would reduce amounts available for the operations or for distribution to our investors, which could materially adversely affect our company and the trading price of our Stock.
 

 
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We do not expect to pay dividends

For the foreseeable future, it is anticipated that earnings, if any, which may be generated from our operations will be used to finance our growth and that dividends may not be paid to the holders of our Stock, which may have a material adverse effect on our company and the trading price of our Stock.

Our cost of being a publicly traded company will increase significantly once we own a business

While we were a shell corporation, our costs of being a publicly traded company were limited. Now that we have taken ownership of Cogility, our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company, will increase significantly. These additional costs are expected to be material and to include the hiring of a qualified full-time Chief Financial Officer, as well as additional employees and/or the retention of additional consultants and professionals, in order to have appropriate internal financial controls and accurate financial reporting, and otherwise to comply with the requirements of the Sarbanes-Oxley Act.  While we cannot state with certainty what all of these costs will be, we believe that our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company, will increase by at least $250,000 per year.

RISK FACTORS RELATING TO COGILITY'S BUSINESS

We are heavily dependent upon federal defense spending

We derive a majority of our revenue from the federal government, including agencies within the U.S. defense and intelligence communities. Any decline in our business with the federal government would materially adversely affect our business and the trading price of our Stock.

Federal defense spending may decrease

There is tremendous pressure on the federal government today to reduce spending because of the large federal budget deficits. These pressures are particularly acute on the U.S. Defense Department, which has begun to make statements and to take actions in this regard. Reduced federal government spending on defense contracting, including new software initiatives such as those proposed by our Cogility Software Corporation subsidiary, could materially adversely affect our business and the trading price of our Stock.

Federal contracts frequently have long lead times and are subject to delays

Due to the importance, sensitivity and complexity of the federal projects that we typically pursue, such project frequently have long lead times and are subject to delays beyond our control. Often, projects require that we produce a demo to show the functionalities of our product. Delays may be caused by factors within our control, such as possible software coding issues, as well as those outside our control, such as clients’ budgetary constraints, internal acceptance reviews, functionality enhancements, lack of trained client personnel to implement our applications, and the complexity of particular clients' needs. Also, failure to deliver product features consistent with delivery commitments could result in a delay in revenue recognition or cancellation of a project contract. In some cases, potential future federal projects are under the jurisdiction of, or are reviewed by, multiple federal agencies or communities, which sometimes causes further delays. These long lead times and delays can subject us to situations where important and highly paid personnel are not as productive or efficient as they could be, which can significantly reduce both our revenues and margins. As a result, we can give you no assurance that our current or potential future federal projects will be profitable, or at any particular margins. This situation could materially adversely affect our company and the trading price of our Stock.
 

 
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Many of our competitors are larger and better capitalized

The market for software and related products and services is highly competitive. We expect this competition to continue to increase. Increased competition may result in price reductions, reduced margins and loss of our market share. If existing or future competitors develop or offer products or services that provide significant performance, price, creative or other advantages over those offered by us, our business, results of operations and financial condition would be negatively affected.

Many of our competitors are much larger and better capitalized than we are. These companies have longer operating histories, greater name recognition, larger customer bases, and have greater financial, technical, sales, and marketing resources than we have. Larger companies also have the ability to enter into select market segments and subsidize the cost of operations in order to gain market share through a variety of strategies which include price wars, advertising campaigns, the ability to cross-market brands and services, and the ability to develop better software and functionalities.  Their access to greater amounts of capital may enable them to attract top talent, and to promote national brands. These larger competitors frequently can offer a wider scope of products and services to their customers than we can.  In addition, these competitors often have many years of experience and established relationships with the major U.S. defense and intelligence agencies. These competitors include such companies as Oracle, IBM, Microsoft, Northrop Grumman, Lockheed Martin, Raytheon, SAIC, and The Boeing Company. As a result, we may not be able to compete successfully. Such a failure could materially adversely affect our business and the trading price of our Stock.

We rely upon relationships with larger and better established defense contractors

In order to grow our business in the federal defense and intelligence sectors, we must cultivate, retain and strengthen successful business relationships and marketing alliances with larger and better established defense contractors. We depend, and expect to continue to depend, on our business relationships and marketing alliances, which are companies with which we have written or oral agreements to work together to jointly pursue projects within the federal defense and intelligence communities. If companies with which we have business relationships and marketing alliances do not work together with us to jointly pursue projects within the federal defense and intelligence communities, it could materially adversely affect our company and the trading price of our Stock.

There is resistance to new software technology

There is significant resistance to new software technology. Typically there has been a substantial investment in legacy software, equipment, and training, which people are reluctant to abandon. New software technology is also resisted due to its perceived cost and due to a lack of certainty as to its benefits. Often we do not have enough champions of the capabilities and benefits of our software technology to overcome this resistance to new software technology. This resistance to new software technology can materially adversely affect our business and the trading price of our Stock.

Our software technology is difficult to understand and explain

Our software technology is complex and is often difficult to understand if you are not a highly qualified software engineer. In addition, much of our work involves dealing with classified defense and intelligence data that limits our ability to clearly explain what we do to potential investors. The difficulty involved in understanding and explaining our software technology materially adversely affects our business and the trading price of our Stock.

Our software technology may suffer from design or performance defects

If our software technology suffers from design or performance defects, we could become subject to significant liability claims. Technologies as complex as our software technology may contain design and/or performance defects which are not detectable even after extensive internal testing. Such defects may become apparent only after widespread commercial use. Our contracts with our customers currently do not contain provisions to completely limit our exposure to liabilities resulting from liability claims. A product liability claim brought against us could cause significant damage to our reputation, and could cost us financially in terms of legal fees, damages or fines, and costs to cure the defects. This could materially adversely affect our company and the trading price of our Stock.
 

 
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Our brand awareness is extremely limited and we have no advertising

Our software subsidiary has very limited brand awareness, and developing adequate brand awareness may not be possible or may be too costly to achieve.  Many of our competitors have much more widespread brand awareness and much more financial ability to promote their brands.  In addition, our brand and reputation are closely associated with the business and personal reputations of our key personnel. Any damage to the business or personal reputation of our key personnel could have a material adverse effect on our business and the trading price of our Stock.

We may not be able to protect our intellectual property from unauthorized use

Our success depends in part on our proprietary software technology. The protection of our intellectual property using patents may be critical to our success. We will likely rely on a combination of patents, licensing arrangements, trade secret laws, contractual restrictions, and confidentiality procedures to establish and attempt to protect our proprietary software technology and rights that we may acquire. Despite our efforts to protect those proprietary software technology and rights, we may not be able to prevent misappropriation of those proprietary software technology and rights, nor be able to deter independent development of software technologies that compete with us. Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently which may infringe upon our proprietary rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technologies or develop competing technologies, and unauthorized parties may attempt to disclose, obtain or use our products and services or technologies. Intellectual property protection may also be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States. We may be required to spend significant resources to monitor and police our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Further, it is likely that we will have to protect patents in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer. These factors could materially adversely impact our company and the trading price of our Stock.

We may face intellectual property actions that are costly or could hinder or prevent our ability to deliver our products and services

We may be subject to legal actions alleging intellectual property infringement (including patent, trademark, copyright or other proprietary rights infringement), unfair competition or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of our technologies or businesses. Any litigation alleging intellectual property infringement by us, with or without merit, could result in substantial costs and diversions of resources,  could require us to change our business practices, could potentially hinder or prevent our ability to deliver our products and services, and could divert management’s attention. This could materially adversely affect our company or the trading price of our Stock.

We use database and application server software provided by others

Cogility requires a database and application server to operate. Cogility currently sells its products bundled with database and application server software from Oracle under an Embedded Software License (ESL) agreement. Cogility's software operates equally well with similar offerings from IBM and other vendors. However, a change from Oracle may affect potential customers' acceptance of Cogility's products.
 

 
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Our operations are not all in one location

We have offices in San Jose and Anaheim, California, and in Alexandria, Virginia. Matthew Ghourdjian, the chief technology officer of Acquired Sales Corp. and of Cogility, is a resident of Colorado, and two of our key software engineers live in Colorado and Ohio, respectively. Gerard M. Jacobs, our chief executive officer, is a resident of Illinois. Daniel F. Terry, Jr., our president and chief operating officer is a resident of Nevada. As a result of this situation, we may not be able to function as cohesively and efficiently as we could if all of our key personnel were located in one location. This could materially adversely affect our company and the trading price of our Stock.

Some of our directors lack security clearances

Some of our directors lack the security clearances needed in order for them to have access to classified information regarding Cogility's business. Unless and until such security clearances are obtained, such directors will be limited in regard to their ability to fully understand and evaluate Cogility's business and the opportunities and risks associated therewith.

We could be negatively impacted if the Internet were destroyed or seriously damaged

Our business and our clients' business partly depend upon continued use of the Internet. Internet usage may be inhibited for a number of reasons, such as: inadequate network infrastructure; security concerns; inconsistent quality of service; unavailability of cost-effective, high-speed service; sabotage; or terrorism. If for any reason the Internet were destroyed or seriously damaged, that could materially adversely affect our company and the trading price of our Stock.

We could be subject to claims in regard to our or our clients' failure to comply with privacy, consumer protection, and other laws and regulations

We may be subject to governmental investigations, claims or fines, or private lawsuits, from persons who may claim that our software technology was used by us or by our claims in a manner that failed to comply with applicable privacy, consumer protection, patent, copyright, trademark, or tax  laws or regulations. Such claims or suits could materially adversely affect our company or the trading price of our Stock.

We may not be able to adapt to changes in technology and regulation

The software industry is characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions, and changing customer demands. The introduction of new products and services embodying new technologies and the emergence of new industry standards and practices could render our existing products and services obsolete and unmarketable or require unanticipated technology or other investments. In addition, we operate under a myriad of applicable federal, state and local laws, rules and regulations governing governmental procurement, bidding, contracting procedures, and many other salient matters, any of which could change at any time. Our failure to adapt successfully to changes in technology, the competitive landscape, or governmental laws and regulations, could materially adversely affect our company and the trading price of our Stock.

We depend on key personnel, the loss of whom could harm our business

Our future success is substantially dependent on the continued service of our key personnel, including particularly key software engineers and sales executives. We do not have key-person insurance on any of our personnel. We do not have employment contracts with any of our key personnel, nor do we maintain any "key man" life insurance policies on these key personnel. We may not be able to retain and motivate our key personnel, many of whom could easily obtain other jobs if they were dissatisfied with our company. The loss of the services of any of our key personnel could materially adversely affect our company and the trading price of our Stock.
 

 
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We may not be able to attract highly skilled new personnel

Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees. Highly qualified software engineers with the intelligence, creativity and experience we need are not easy to find, hire and assimilate into our company. We have experienced difficulty from time to time in attracting or retaining the personnel necessary to support the growth of our business, and may experience similar difficulties in the future. The failure to attract highly skilled new personnel could adversely affect our ability to conduct our business, and our Stock price could be materially adversely affected.

RISK FACTORS RELATING TO FUTURE ACQUISITIONS

We may not be able to identify, negotiate, finance or close future acquisitions

A significant component of our growth strategy focuses on acquiring additional companies or assets.  We may not, however, be able to identify or acquire companies or assets on acceptable terms if at all.  Additionally, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness.  There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire additional companies or assets in the future.  Failure to acquire additional companies or assets on acceptable terms, if at all, would have a material adverse effect on our ability to increase assets, revenues and net income and on the trading price of our common stock.

We may acquire businesses without any apparent synergies with Cogility

In an effort to diversify our sources of revenue and profits, we may decide to acquire businesses without any apparent synergies with Cogility. For example, we believe that the acquisition of oil & gas properties and/or manufactured housing communities across the U.S. may be an important way for us to enhance our Stockholder value. Notwithstanding the critical importance of diversification, some members of the investment community and research analysts would prefer that micro-cap or small-cap companies restrict the scope of their activity to a single line of business, and may not be willing to make an investment in, or recommend an investment in, a micro-cap or small-cap company that undertakes multiple lines of business. This situation could materially adversely impact our company and the trading price of our Stock.

We may not be able to properly manage multiple businesses

We may not be able to properly manage multiple businesses. Managing multiple businesses would be more complicated than managing a single line of business, and would require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses could materially adversely affect our company and the trading price of our Stock.

We may not be able to successfully integrate new acquisitions

Even if we are able to acquire additional companies or assets, we may not be able to successfully integrate those companies or assets. For example, we may need to integrate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, compensation schemes, business plans and growth potential requiring significant management time and attention.  In addition, the successful integration of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated company, resulting in disruption of operations, loss of key information, expertise or know-how, unanticipated additional recruitment and training costs, and otherwise diminishing anticipated benefits of these acquisitions, including loss of revenue and profitability. Failure to successfully integrate acquired businesses could have a material adverse effect on our company and the trading price of our Stock.
 

 
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Our acquisitions of businesses may be extremely risky and we could lose all of our investments

We may invest in software companies, other technology businesses, mortgage lending companies, unsecured lending companies, defense industry companies, software companies, manufactured housing communities, oil & gas services and production companies, and medical supply and diagnostic companies, or other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on:  (1) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (2) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (3) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (4) may have less predicable operating results; (5) may from time to time be parties to litigation; (6) may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence; and  (7) may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. Our failure to make acquisitions efficiently and profitably could have a material adverse effect on our business, results of operations, financial condition and the trading price of our Stock.

Future acquisitions may fail to perform as expected

Future acquisitions may fail to perform as expected. We may overestimate cash flow, underestimate costs, or fail to understand risks. This could materially adversely affect our company and the trading price of our Stock.

Competition may result in overpaying for acquisitions

Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. This could materially adversely affect our company and the trading price of our Stock.

We may have insufficient resources to cover our operating expenses and the expenses of raising money and consummating acquisitions

We have limited cash to cover our operating expenses and to cover the expenses incurred in connection with money raising and a business combination. It is possible that we could incur substantial costs in connection with money raising or a business combination. If we do not have sufficient proceeds available to cover our expenses, we may be forced to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. This could have a negative impact on our company and our Stock price.

The nature of our proposed future operations is speculative and will depend to a great extent on the businesses which we acquire

While management typically intends to seek a merger or acquisition of privately held entities with established operating histories, there can be no assurance that we will be successful in locating an acquisition candidate meeting such criteria. In the event we complete a merger or acquisition transaction, of which there can be no assurance, our success if any will be dependent upon the operations, financial condition and management of the acquired company, and upon numerous other factors beyond our control.
 

 
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If the operations, financial condition or management of the acquired company were to be disrupted or otherwise negatively impacted following an acquisition, our company and our Stock price would be negatively impacted.

We may make actions that will not require our stockholders' approval

The terms and conditions of any acquisition could require us to take actions that would not require your approval.  In order to acquire certain companies or assets, we may issue additional shares of common or preferred stock, borrow money or issue debt instruments including debt convertible into capital stock.  Not all of these actions would require your approval even if these actions dilute your economic or voting interest as a shareholder.

Our investigation of potential acquisitions will be limited

Our analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our management, such potential business opportunities or ventures by conducting a so-called “due diligence investigation”. In a so-called “due diligence investigation”, we intend to obtain and review materials regarding the business opportunity. Typically such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our officers or agents to meet personally with management and key personnel of target businesses, ask questions regarding the company’s prospects, tour facilities, and conduct other reasonable investigation of the target business to the extent of our limited financial resources and management and technical expertise. Any failure of our typical “due diligence investigation” to uncover issues and problems relating to potential acquisition candidates could materially adversely affect our company and the trading price of our Stock.
 
We will have only a limited ability to evaluate the directors and management of potential acquisitions

We may make a determination that our current directors and officers should not remain, or should reduce their roles, following money raising or a business combination, based on an assessment of the experience and skill sets of new directors and officers and the management of target businesses. We cannot assure you that our assessment of these individuals will prove to be correct. This could have a negative impact on our company and our Stock price.

We will be dependent on outside advisors to assist us

  In order to supplement the business experience of management, we may employ accountants, technical experts, appraisers, attorneys or other consultants or advisors. The selection of any such advisors will be made by management and without any control from shareholders. Additionally, it is anticipated that such persons may be engaged by us on an independent basis without a continuing fiduciary or other obligation to us.

We may be unable to protect or enforce the intellectual property rights of any target business that we acquire or the target business may become subject to claims of intellectual property infringement

After completing a business combination, the   procurement and protection of trademarks, copyrights, patents, domain names, and trade secrets may be critical to our success.   We will likely rely on a combination of copyright, trademark, trade secret laws and contractual restrictions to protect any proprietary technology and rights that we may acquire. Despite our efforts to protect those proprietary technology and rights, we may not be able to prevent misappropriation of those proprietary rights or deter independent development of technologies that compete with the business we acquire. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. It is also possible that third parties may claim we have infringed their patent, trademark, copyright or other proprietary rights. Claims or litigation, with or without merit, could result in substantial costs and diversions of resources, either of which could have an adverse effect on our competitive position and business. Further, depending on the target business or businesses that we acquire, it is likely that we will have to protect trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. These factors could negatively impact our company and the trading price of our Stock.
 

 
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Integrating acquired businesses may divert our management's attention away from our day-to-day operations and harm our business

Acquisitions generally involve significant risks, including the risk of overvaluation of potential acquisitions and risks in regard to the assimilation of personnel, operations, products, services, technologies, and corporate culture of acquired companies. Dealing with these risks may place a significant burden on our management and other internal resources. This could materially adversely affect our business and the trading price of our Stock.

We may fail to manage our growth effectively

Future growth through acquisitions and organic expansion would place a significant strain on our managerial, operational, technical, training, systems and financial resources. We can give you no assurance that we will be able to manage our expanding operations properly or cost effectively.  A failure to properly and cost-effectively manage our expansion could materially adversely affect our company and the trading price of our Stock.

The management of companies we acquire may lose their enthusiasm or entrepreneurship after the sale of their businesses

We can give no assurance that the management of future companies we acquire will have the same level of enthusiasm for the operation of their businesses following their acquisition by us, or if they cease performing services for the acquired businesses that we will be able to install replacement management with the same skill sets and determination. There also is always a risk that management will attempt to reenter the market and possibly seek to recruit some of the former employees of the business, who may continue to be key employees of ours. This could materially adversely affect our business and the trading price of our Stock.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination

We believe we will not be subject to regulation under   the Investment Company Act insofar as we will not be engaged in the business of investing or trading in securities. However, in the event that we engage in business   combinations which result in us holding passive investment interests in a number of entities, we may become subject to regulation under the Investment Company Act. In such event, we may be required to register as an investment company and may incur significant registration and compliance costs. We have obtained no formal determination from the government as to our status under the Investment Company Act, and consequently, any violation of such Act might subject us to material adverse consequences.

RISK FACTORS RELATING TO ACCOUNTING AND INTERNAL FINANCIAL CONTROLS

We do not currently employ a qualified full time Chief Financial Officer

We do not currently employ a qualified full time Chief Financial Officer.  There is no assurance that we will be able to promptly find and hire such a qualified full time Chief Financial Officer, nor at a compensation level acceptable to us. This could materially adversely affect our company and the trading price of our Stock.
 

 
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We may be required to record a significant charge to earnings if our goodwill or amortizable intangible assets become impaired

We are required under accounting principles generally accepted in the United States to review our amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of such assets may not be recoverable. We are also required to review goodwill for impairment on an annual basis, or between annual tests whenever events and circumstances indicate that the carrying value of goodwill may not be recoverable. Events and circumstances considered in determining whether the carrying value of amortizable intangible assets and goodwill may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the trading price of our Stock for a sustained period of time; and changes in our business strategy. We may be required to record a significant charge to earnings in a period in which any impairment of our goodwill or amortizable intangible assets is determined. Such a charge could materially adversely affect our company and the trading price of our Stock.

We may incur liabilities to tax authorities in excess of amounts that have been accrued

The preparation of our consolidated financial statements requires estimates of the amount of income tax that will become payable in each of the jurisdictions in which we operate. We may be challenged by the taxing authorities in these jurisdictions and, in the event that we are not able to successfully defend our position, we may incur significant additional income tax liabilities which may have an adverse impact on our results of operations and financial condition. Such tax liabilities could materially adversely affect our company and the trading price of our Stock.

New accounting standards could adversely impact us

From time to time, the Financial Accounting Standards Board, the SEC and other regulatory bodies may issue new and revised standards, interpretations and other guidance that change Generally Accepted Accounting Principles in the United States (GAAP). The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the acceptability of a current method and replacing it with an entirely different method, among others. Such changes to GAAP could adversely impact our results of operations, financial condition and other financial measures. Such changes could materially adversely affect our company and the trading price of our Stock.

If we fail to maintain an effective system of internal financial controls, we may not be able to accurately report our financial results or prevent fraud

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal controls over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. In the event that we acquired Cogility, we will be subject together to these internal control procedures and must include an assessment of Cogility’s internal controls no later than one year from the acquisition date. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal controls over financial reporting are effective. A failure to fully comply with the requirements of the Sarbanes-Oxley Act could materially adversely affect our business and the trading price of our Stock.
 

 
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Decreased effectiveness of stock options could adversely affect our ability to attract and retain employees

We expect to use stock options as a key component of our employee compensation program in order to align employees’ interests with the interests of our Stockholders, encourage employee retention, and provide competitive compensation packages. Volatility or lack of positive performance in our Stock price may adversely affect our ability to retain key employees or to attract additional highly-qualified personnel. At any given time, a portion of our outstanding employee stock options may have exercise prices in excess of our then-current stock price, or may have expired worthless. To the extent these circumstances occur, our ability to retain employees may be adversely affected. As a result, we may have to incur increased compensation costs, change our equity compensation strategy, or find it difficult to attract, retain and motivate employees. Any of these situations could materially adversely affect our company and the trading price of our Stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

           The following table sets forth certain information regarding the beneficial ownership of common stock of the Company by (i) each person who, to the Company’s knowledge, owns more than 5% of its Common Stock, (ii) each of the Company’s named executive officers and directors, and (iii) all of the Company’s named executive officers and directors as a group.  Shares of the Company’s Common Stock subject to options, warrants, or other rights currently exercisable, or exercisable within 60 days of the date hereof, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. As of the date hereof, the Company has 2,467,188 shares of Common Stock issued and outstanding.

Name and Address
 
Amount and Nature of Beneficial Ownership
 
Percent of Voting Securities
         
Gerard M. Jacobs (1)
 
         2,950,393
 
119.6%
Matthew Ghourdjian (2)
 
         1,382,136
 
56.0%
Joshua A. Bloom, M.D. (3)
 
                5,000
 
0.2%
Roberti Jacobs Family Trust (4)
 
            340,899
 
13.8%
Roger S. Greene (5)
 
            155,708
 
6.3%
Michael D. McCaffrey (6)
 
                5,000
 
0.2%
Richard E. Morrissy (7)
 
                5,000
 
0.2%
Vincent J. Mesolella (8)
 
              42,500
 
1.7%
Joseph S. Keller (9)
 
            150,000
 
6.1%
Lincolnshire Associates II, Ltd (10)
 
            142,453
 
5.7%
Deborah Sue Ghourdjian Separate Property Trust (11)
 
         1,287,796
 
52.2%
Total Officers and Directors as group (7 persons)
 
         3,091,903(12)
 
125.3%
         
(1)  
The address for Mr. Jacobs is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Jacobs, our co-chairman, chief executive officer, chief development officer, secretary, and treasurer has voting control over 1,662,597 shares, consisting of: (a) 165,899 Company shares owned by the Roberti Jacobs Family Trust, over which Mr. Jacobs has voting control via a 2007 shareholders agreement; (b) 145,000 Company shares owned by unrelated shareholders of the Company, over which Mr. Jacobs has voting control via a 2007 shareholders agreement; (c) 605,000 options at $2.00 per share, the vesting of which occurred upon the closing of the merger with Cogility; (d) 471,698 options at $0.377 per share and 100,000 options exercisable at $0.001 per share (originating from Cogility); and (e)  175,000 warrants at $2.00 per share, owned by the Roberti Jacobs Family Trust, over which Mr. Jacobs has voting control via a 2007 shareholders agreement. The Deborah Sue Ghourdjian Separate Property Trust has signed a shareholder agreement that commits it to vote its shares consistent with the vote of Gerard M. Jacobs and Matthew Ghourdjian. As such, for the purposes of this disclosure, 1,287,796 shares held by the Trust are deemed beneficially owned by Gerard M. Jacobs for the purposes of voting.

 
 
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(2)  
Prior to the Merger, Mr. Ghourdjian owned 500,000 shares of Cogility common stock which was acquired in the Merger in exchange for 94,340 common shares of Acquired Sales common stock. The Deborah Sue Ghourdjian Separate Property Trust held 6,825,314 shares in Cogility, which was acquired in the Merger in exchange for 1,287,796 shares of Acquired Sales common stock.  Mr. Ghourdjian is a beneficiary of the Deborah Sue Ghourdjian Separate Property Trust in the event of Ms. Ghourdjian’s death, but has no dispositive power over the Trust’s shares. The address for Mr. Ghourdjian is 111 S. Patrick Street, Alexandria, Virginia 22314. The Deborah Sue Ghourdjian Separate Property Trust has signed a shareholder agreement that commits it to vote its shares consistent with the vote of Gerard M. Jacobs and Matthew Ghourdjian.  For the purposes of this disclosure, 1,287,796 shares held by the Deborah Sue Ghourdjian Separate Property Trust are deemed beneficially owned by Matthew Ghourdjian for the purposes of voting.
(3)  
The address for Dr. Bloom is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Dr. Bloom does not own any shares of stock. However, he holds options to purchase 5,000 shares of our common stock.
(4)  
The address for the Roberti Jacobs Family Trust is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. The Roberti Jacobs Family Trust irrevocably conveyed all of its voting power to Gerard M. Jacobs pursuant to the 2007 shareholder agreement described above. Mr. Jacobs is one of the grantors of the trust corpus, Mr. Jacobs’ mother in law Joan B. Roberti is the trustee, and Mr. Jacobs’ children are the beneficiaries. The trust is irrevocable. The Trust’s 340,899 shares consist of (a) 165,899 shares owned, and (b) 175,000 warrants owned at $2.00 per share. The Trust has the right, for 90 days after the closing of the Cogility merger, to invest an additional $350,000 into the Company in accordance with the private placement in which it participated, and if it does so, it will acquire an additional 175,000 warrants at $2.00 per share.
(5)  
The address for Mr. Greene is 6 Joliet Drive, Coto de Caza, California 92679. Mr. Greene owns 113,208 shares of stock. In addition, he holds options and warrants to purchase a total of 155,708 shares of our common stock, consisting of (a) 5,000 options at $2.00 per share, the vesting of which is contingent upon the closing of the merger with Cogility, (b) 25,000 options exercisable at $0.001 per share and (c) 12,500 warrants at $2.00 per share. Mr. Greene has the right, for 90 days after the closing of the Cogility merger, to invest an additional $25,000 into the Company in accordance with the private placement in which he participated, and if he does so, he will acquire an additional 12,500 shares at $2.00 per share.
(6)  
The address for Mr. McCaffrey is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. McCaffrey does not own any shares of stock. However, he holds options to purchase 5,000 shares of our common stock.
(7)  
The address for Mr. Morrissy is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Morrissy does not own any shares of stock. However, he holds options to purchase 5,000 shares of our common stock.
(8)  
The address for Mr. Mesolella is 27 Paddock Drive, Lincoln, Road Island 02865. Mr. Mesolella does not own any shares of stock. However, he holds options and warrants to purchase a total of 42,500 shares of our common stock, consisting of (a) 5,000 options at $2.00 per share, the vesting of which is contingent upon the closing of the merger with Cogility,  (b) 25,000 options exercisable at $0.001 per share and (c)12,500 warrants at $2.00 per share. Mr. Mesolella has the right, for 90 days after the closing of the Cogility merger, to invest an additional $25,000 into the Company in accordance with the private placement in which he participated, and if he does so, he will acquire an additional 12,500 warrants at $2.00 per share.
(9)  
The address for Mr. Keller is 25991 W. Herman Ave., Antioch, IL 60002. Mr. Keller does not own any shares of stock. However, he holds warrants to purchase a total of 150,000 common stock shares, consisting of (a) 125,000 warrants at $2.00 per share, and (b) one of his affiliates, Glendenning Capital, Inc., has 25,000 warrants at $2.00 per share.  Mr. Keller has the right, for 90 days after the closing of the Cogility merger, to invest an additional $250,000 into the Company in accordance with the private placement in which he participated, and if he does so, he will acquire an additional125,000 warrants at $2.00 per share. Also, Glendenning Capital, Inc. has the right, for 90 days after the closing of the Cogility merger, to invest an additional $50,000 into the Company in accordance with the private placement in which it participated and if it does so, it will acquire an additional 125,000 warrants at $2.00 per share.

 
 
66
 

 
(10)  
The address for Lincolnshire Associates II, Ltd is 555 Skokie Blvd, Suite 555, Northbrook, IL 60062.
(11)  
The address for the Deborah Sue Ghourdjian Separate Property Trust is 111 S. Patrick Street, Alexandria, Virginia 22314. The Deborah Sue Ghourdjian Separate Property Trust has signed a shareholder agreement that commits it to vote its shares consistent with the vote of Gerard M. Jacobs and Matthew Ghourdjian.
(12)  
Due to the combination of proxies and a shareholder agreement, all of the shares of the Roberti Jacobs Family Trust, Gerard M. Jacobs, Matthew Ghourdjian, the Deborah Sue Ghourdjian Separate Property Trust, collectively total 2,978,695 shares (which total includes unexercised options and warrants which may be exercised at any time in the discretion of the holder) which may be voted together (without any double counting). The other directors hold a total of 213,208 shares which includes unexercised options and warrants which may be exercised at any time in the discretion of the holder.

Item 3.02 Unregistered Sales of Equity Securities.

Plan of Merger
 
In connection with our acquisition of Cogility Software, the stockholders of Cogility received 2,175,564 shares of our common stock in exchange for the retirement of their 11,530,493 shares of Cogility common stock. In addition, the holders of Cogility options received options to purchase an aggregate of 1,080,126 shares of our common stock at exercise prices ranging from $0.001 to $5.00 per share. Finally, as part of the acquisition of Cogility, its directors, officers, employees and consultants received options to purchase an aggregate of 1,500,000 shares of Acquired Sales’ common stock at an exercise price of $5.00 per share.

Private Placement of 3% Notes and Warrants

Commencing on January 31, 2011 through March 15, 2011, we issued warrants to purchase 9,200,000 pre-split shares of common stock at $0.10 to seven parties, two of which, Roger S. Greene and Vincent J. Mesolella, serve on our board of directors and one of which, the Roberti Jacobs Family Trust, is an affiliate of the Company as the holder of 20% of our outstanding common stock. No placement agent compensation has been paid in this financing.

The warrants are exercisable through March 31, 2016.   The warrants were an equity “kicker” in connection with $700,000 in loans to us at an interest rate of 3%, the exchange and settlement of a $200,000 note payable to the Roberti Jacobs Family Trust, which note payable had previously been assumed from Cogility Software Corporation (Cogility), and the transfer and assignment from an unrelated third party of a $20,000 note receivable from Cortez Systems.  The promissory notes accrue interest at the rate of 3% per annum payable quarterly on the last day of each calendar quarter beginning March 31, 2011, mature on December 31, 2014 and are secured by all of the assets of the Company.

In addition to the 3% promissory notes and warrants described above, at any time during the first 90 days following the date of the completion of the proposed merger with Cogility, each investor in the private placement offering has the right to make a second loan to the Company in the same amount and on the same terms as the 3% promissory notes and warrants described above. Under current accounting guidance, none of the consideration received was allocated to the investors’ rights to make additional loans.

The foregoing is a summary only of the 3% Note and Warrant, a copy of the forms of which, along with the form of subscription agreement entered into with investors in this offering, are each annexed as exhibits to this Annual Report, the provisions of which are incorporated herein.
 

 
67
 
 
 
All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.  Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities.  We made available to each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information.  All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.
 
Purchases of Equity Securities
 
No repurchases of our common stock were made during 2010 or through September 29, 2011.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Following the Merger: (1) Matthew Ghourdjian was appointed to serve as co-chairman of the board of directors and chief technology officer of the Company; and, (2) Daniel F. Terry, Jr. was appointed to serve as president and chief operating officer of Acquired Sales Corp. and chief executive officer of  Cogility Software. For additional information on these individuals, please see the sections entitled “Management” and “Executive Compensation” in Item 2.01 above.

Item 5.06 Change in Shell Company Status.

See Items 1.01 and 2.01 above.

Item 9.01 Financial Statements and Exhibits.
 
(a)  PRO FORMA FINANCIAL INFORMATION
   
Unaudited Pro Forma Condensed Consolidated Financial Information
 
F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet, June 30, 2011
 
F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Months Ended June 30, 2011
 
F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2010
 
F-5
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information
 
F-6
 
(b)  FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: COGILITY SOFTWARE CORPORATION
Condensed Balance Sheet, June 30, 2011 (Unaudited)
 
F-9
Condensed Statements of Operations for the Three Months Ended June 30, 2011 and 2010 (Unaudited)
 
F-10
Condensed Statement of Shareholders’ Deficit for the Three Months Ended June 30, 2011 (Unaudited)
 
F-11
Condensed Statements of Cash Flows for the Three Months Ended June 30, 2011 and 2010 (Unaudited)
 
F-12
Notes to Condensed Financial Statements (Unaudited)
 
F-13
Report of Independent Registered Public Accounting Firm
 
F-18
Balance Sheets, December 31, 2010 and 2009
 
F-19
Statements of Operations for the Years Ended December 31, 2010 and 2009
 
F-20
Statements of Shareholders’ Deficit for the Years Ended December 31, 2009 and 2010
 
F-21
Statements of Cash Flows for the Years Ended December 31, 2010 and 2009
 
F-22
Notes to Financial Statements
 
F-23
 

 
68
 

   
(d) Exhibits.
 
The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.

Form 10-SB
March 23, 2007
3.1
Articles of Incorporation dated December 12, 1985
3.2
Amended Articles of Incorporation Dated July 1992
3.3
Amended Articles of Incorporation Dated November 1996
3.4
Amended Articles of Incorporation Dated June 1999
3.5
Amended Articles of Incorporation Dated January 25, 2006
3.6
Amended Bylaws
   
Form 8-K
August 2, 2007
5.01
Shareholder Agreement
   
Form 10-Q
May 18, 2009
10.1
Private Merchant Banking Agreement-Anniston Capital, Inc.
10.2
Warrant Agreement #1-Anniston Capital, Inc.
10.3
Warrant Agreement #2-Anniston Capital, Inc.
10.4
$100,000 Promissory Note – December 1, 2007
10.5
$10,000 Promissory Note – January 30, 2008
10.6
$10,000 Promissory Note – November 9, 2008
   
Form 10-K
August 20, 2010
10.7
$4,000 Promissory Note – April 19, 2010
   
Form 8-K
November 5, 2010
10.1
Letter of Intent Agreement Cogility Software dated November 4, 2010
99.1
Press Release
 
 
 
69
 
 
 
   
Form 10-K
December 17, 2010
10.8
$20,000 Promissory Note – October 12, 2010
   
Form 10-Q
June 30, 2011
4.1
Form of Note 3%
4.2
Form of Warrant
10.10
Subscription Agreement
   
Schedule DEF 14-C
Information Statement
August 9, 2011
10.11 The Johns Hopkins University Applied Physics Laboratory Firm Fixed Price-Time And Material Contract No. 961420, dated October 20, 2009 (filed as Exhibit (E)(i) thereto)
10.12 The Analysis Corporation Task Order Subcontract Agreement, dated January 4, 2010 (filed as Exhibit (E)(ii) thereto)
10.13 Defense & Security Technology Group, LLC, Program Budget & Asset Management Tool Proof of Concept Pilot, dated June 27, 2011 (filed as Exhibit (E)(iii) thereto)
10.14 Defense & Security Technology Group, LLC, Command Information Center – Data Integration Proof of Concept, dated June 27, 2011 (filed as Exhibit (E)(iv) thereto)
   
This Form 8-K  
10.15 Agreement and Plan of Merger
10.16 NAVAIR PMA 265 contract, in regard to a Program Budget & Asset Management Tool Proof of Concept Pilot, dated July 15, 2011
10.17 NAVAIR 4.2 Cost Performance contract, in regard to Command Information Center - Data Integration (CIC-DI) Proof of Concept, dated July 15, 2011
10.18 Sotera Defense Solutions, Inc. subcontract number SOTERA-SA-FY11-040, dated June 20, 2011
10.19 $4,000 Promissory Note – September 13, 2011
10.20 CACI Prime Contract No.: W15P7T-06-D-E402 Prime Delivery Order No.:  0060, dated August 24, 2011
10.21 $4,000 Promissory Note – September 30, 2011
14.1 [Proposed] Code of Business Conduct and Ethics
 
 
 
70
 

 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ACQUIRED SALES CORP.


/s/ Gerard M. Jacobs
Gerard M. Jacobs
President, Chief Executive Officer

Dated:  October 3, 2011
 

 
71
 

 
(a)  PRO FORMA FINANCIAL INFORMATION
   
Unaudited Pro Forma Condensed Consolidated Financial Information
 
F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet, June 30, 2011
 
F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Months Ended June 30, 2011
 
F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2010
 
F-5
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information
 
F-6
 
(b)  FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: COGILITY SOFTWARE CORPORATION
Condensed Balance Sheet, June 30, 2011 (Unaudited)
 
F-9
Condensed Statements of Operations for the Three Months Ended June 30, 2011 and 2010 (Unaudited)
 
F-10
Condensed Statement of Shareholders’ Deficit for the Three Months Ended June 30, 2011 (Unaudited)
 
F-11
Condensed Statements of Cash Flows for the Three Months Ended June 30, 2011 and 2010 (Unaudited)
 
F-12
Notes to Condensed Financial Statements (Unaudited)
 
F-13
Report of Independent Registered Public Accounting Firm
 
F-18
Balance Sheets, December 31, 2010 and 2009
 
F-19
Statements of Operations for the Years Ended December 31, 2010 and 2009
 
F-20
Statements of Shareholders’ Deficit for the Years Ended December 31, 2009 and 2010
 
F-21
Statements of Cash Flows for the Years Ended December 31, 2010 and 2009
 
F-22
Notes to Financial Statements
 
F-23
 
 
 
 
F-1
 
 

 
ACQUIRED SALES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 
On November 4, 2010, Acquired Sales Corp. (“Acquired Sales”) entered into an agreement with Cogility Software Corporation (“Cogility”) that was closed on September 29, 2011, wherein Acquired Sales acquired Cogility in a stock-for-stock merger (the “transaction” or the “merger”). Cogility is a developer of Model-Driven Complex Event Processing software technology for the U.S. defense and intelligence communities and private sector corporations which have complex information management requirements. Acquired Sales was obligated to obtain financing and provide the related proceeds to Cogility. Closing of the transaction was subject to a number of conditions, including the completion of a 1-for-20 reverse split of Acquired Sales' common stock, an increase in the authorized common shares of Acquired Sales to 100,000,000 shares, obtaining certain financing, obtaining necessary third party approvals, and completion of all necessary securities filings.
 
The following unaudited pro forma financial information includes adjustments to the historical financial statements of Acquired Sales and Cogility that give effect to events that are directly attributable to the transaction and factually supportable.   The following unaudited pro forma condensed consolidated balance sheet has been prepared to present the effects on the historical financial position of Acquired Sales and Cogility as though the merger and the changes to Acquired Sales’ authorized capital had occurred on June 30, 2011. The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2011 and for the year ended December 31, 2010 have been prepared to present the effects on the historical results of operations of Acquired Sales and Cogility assuming the merger and obtaining the required financing had occurred at the beginning of each of those periods.
 
Acquired Sales intends to continue its private placement offering of 3% promissory notes with detachable warrants. The accompanying pro forma financial information includes only the issuance of such securities through September 29, 2011 and management has no obligation to update this pro forma information for events or transactions occurring after that date. However, if additional securities are issued, the effects of those issuances would affect the pro forma information included herein. The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the combined results of operations to be expected in any future period or the results that actually would have been realized had the entities been combined during the six months ended June 30, 2011 or the year ended December 31, 2010.

 
 
F-2
 

 
ACQUIRED SALES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2011
(UNAUDITED)

          Acquired     Pro Forma        
Pro Forma
 
   
Cogility
    Sales     Adjustments         Consolidated  
ASSETS
                           
Current Assets
                           
Cash
  $ 90,396     $ 3,356               $ 93,752  
Notes receivable - related party
    -       25,000     $ (25,000 )   D        
Interest receivable - related party
    -       10,273       (10,273 )   D        
Receivables from employees
    1,436       -                   1,436  
Prepaid expenses
    678       -                   678  
Total Current Assets
    92,510       38,629       (35,273 )         95,866  
Property and Equipment, net
    66,209       -                   66,209  
Note Receivable from Related Party
    31,019       820,000       (820,000 )    D     31,019  
Deposits
    12,535       -                   12,535  
Total Assets
  $ 202,273     $ 858,629     $ (855,273 )       $ 205,629  
LIABILITIES AND SHAREHOLDERS' DEFICIT
                     
Current Liabilities
                                   
Trade accounts payable
  $ 398,775     $ 11,302                 $ 410,077  
Accrued liabilities
    197,408       -     $ (10,273 )    D     187,135  
Billings in excess of costs on uncompleted contracts
    119,678       -                   119,678  
Unearned revenue
    23,185       -                   23,185  
Accrued compensation
    419,183       -                   419,183  
Notes payable, current portion
    705,216       -                   705,216  
Short-term notes payable to related parties
    98,558       40,000       (73,558 )    E        
                      (25,000 )    D     40,000  
Total Current Liabilities
    1,962,003       51,302       (108,831 )         1,904,474  
Long-Term Liabilities
                                   
Notes payable - related parties, net of $125,206
                     
  of unamortized discount
    820,000       274,797       (820,000 )    D     274,797  
Notes payable, net of $162,763 of unamortized discount
    -       357,237                   357,237  
Total Long-Term Liabilities
    820,000       632,034       (820,000 )         632,034  
Shareholders'  Deficit
                                   
Preferred stock, $0.001 par value; 10,000,000 shares
                     
  authorized, no shares outstanding
    -       -       -           -  
Common Stock, $0.001 par value 100,000,000 shares
                     
  authorized; 2,467,188 shares outstanding, pro forma
    11,530       5,833       (9,354 )   A        
                      (5,542 )   B     2,467  
Additional paid-in capital
    4,040,866       1,153,966       9,354     A        
                      (978,964 )   B        
                      73,558     E     4,298,780  
Deficit accumulated prior to the development stage
    -       (69,151 )     69,151     B     -  
Deficit accumulated during the development stage
    -       (915,355 )     915,355     B     -  
Accumulated deficit
    (6,632,126 )     -                   (6,632,126 )
Total Shareholders' Deficit
    (2,579,730 )     175,293       73,558           (2,330,879 )
Total Liabilities and Shareholders' Deficit
  $ 202,273     $ 858,629     $ (855,273 )       $ 205,629  

See the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
 
 
 
F-3
 
 
 
ACQUIRED SALES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2011
                           
          Acquired     Pro Forma       Pro Forma  
   
Cogility
    Sales     Adjustments       Results  
Revenue
                         
  Consulting Services
  $ 36,775     $ -             $ 36,775  
Total Revenue
    36,775       -               36,775  
Cost of Revenue
                               
  Cost of services
    88       -               88  
Total Cost of Revenue
    88       -               88  
Gross Profit
    36,687       -               36,687  
Selling, General and Administrative
                         
  Expenses
    1,805,765       449,643     $ 405,394   C     2,660,802  
Loss from Operations
    (1,769,078 )     (449,643 )     (405,394 )       (2,624,115 )
Interest Income
    -       14,194       (14,194 ) D     -  
Interest Expense
    (26,559 )     (32,563 )     14,194   D     (44,928 )
Loss before Income Taxes
    (1,795,637 )     (468,012 )     (405,394 )       (2,669,043 )
Provision for Income Taxes
    800       -                 800  
Net Loss
  $ (1,796,437 )   $ (468,012 )   $ (405,394 )     $ (2,669,843 )
                                   
Basic and Diluted Loss per Share
  $ (0.16 )   $ (0.08 )             $ (1.08 )
                                   
 
See the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
 
 
 
F-4
 

 
ACQUIRED SALES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
 
         
Acquired
   
Pro Forma
     
Pro Forma
 
   
Cogility
   
Sales
   
Adjustments
     
Results
 
Revenue
                         
  Software licensing and hardware sales
  $ 524,527     $ -             $ 524,527  
  Consulting Services
    4,215,775       -               4,215,775  
  Maintenance and support services
    110,888       -               110,888  
Total Revenue
    4,851,190       -               4,851,190  
Cost of Revenue
                               
  Hardware and software costs
    510,427       -               510,427  
  Cost of services
    1,996,982       -               1,996,982  
Total Cost of Revenue
    2,507,409       -               2,507,409  
Gross Profit
    2,343,781       -               2,343,781  
Selling, General and Administrative
                         
  Expense
    2,467,872       344,057     $ 1,504,509   C     4,316,438  
Loss from Operations
    (124,091 )     (344,057 )     (1,504,509 )       (1,972,657 )
Interest Expense
    63,110       2,715       88,978   D     154,803  
Loss before Income Taxes
    (187,201 )     (346,772 )     (1,593,487 )       (2,127,460 )
Provision for Income Taxes
    13,523       -                 13,523  
Net Loss
  $ (200,724 )   $ (346,772 )   $ (1,593,487 )     $ (2,140,983 )
                                   
Basic and Diluted Loss
                                 
  per Share
  $ (0.02 )   $ (0.06 )             $ (0.87 )
 
See the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.
 
 
 
F-5
 
 

ACQUIRED SALES CORP . AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
As of June 30, 2011, Acquired Sales has been a non-operating public shell corporation with no significant assets. During the first six months of 2011, Acquired Sales issued notes payable and warrants in a private placement offering and loaned most of the proceeds to Cogility. The shareholders and management of Cogility gained operating control of the combined company after the merger. Accordingly, Cogility is, under current accounting guidance, considered the accounting acquirer and the results of its operations will be the historical results of operations of the combined company, restated for the effects of the restructured capital structure discussed herein. Under current accounting guidance, Acquired Sales is not a business for purposes of determining whether a business combination occurred upon the merger of Cogility into a newly-formed subsidiary of Acquired Sales. Therefore the merger has been recognized as a reverse acquisition whereby Cogility was considered to have issued 291,624 shares of post-split common stock in exchange for the $175,293 of net assets of Acquired Sales, as further described below.

The transactions required to accomplish the merger were recognized as follows: (1) the recapitalization of Cogility by recognizing the Acquired Sales common shares issued in exchange for the Cogility shares in a manner equivalent to a 1-for-5.3 reverse stock split, (2) the Acquired Sales common shares that remain outstanding, on a 1-for-20 reverse split basis, are recognized as the issuance of common shares by Cogility for the net assets of Acquired Sales at their fair values, and (3) the issuance of stock options to the members of management of the combined company recognized as compensation expense based on the fair value of the stock options. All references hereafter are to Acquired Sales post-split common shares unless stated otherwise. The specific transactions and their effects on the unaudited pro forma condensed consolidated financial statements are as follows:

A – 
Cogility shareholders owning the outstanding 11,530,493 Cogility common shares receive 2,175,564 Acquired Sales common shares, or one Acquired Sales common share for each 5.3 Cogility common shares outstanding. The historical Cogility financial statements are restated on a retroactive basis for all periods presented for the effects of this 5.3-for-1 reverse stock split.

B –
Acquired Sales reverse splits its common shares outstanding on a 1-for-20 basis, which results in the 5,832,482 Acquired Sales pre-split common shares currently outstanding becoming 291,624 Acquired Sales common shares. For financial reporting purposes, the 291,624 common shares are effectively issued in exchange for the $175,293 of net assets of Acquired Sales and are recorded at the fair value of the net assets of $175,293.
 
 
C –  
Prior to the merger, Cogility had stock options outstanding that permit the holders thereof to purchase 5,724,666 Cogility common shares at prices ranging from $0.001 to $1.40 per share. In the merger transaction, the Cogility option holders exchange these stock options for 1,080,126 Acquired Sales stock options exercisable at prices ranging from $0.001 to $5.00 per share. The exchange of these stock options is considered to be part of the recapitalization of Cogility and is not a modification of the Cogility stock options. There are 3,295,000 of these Cogility stock options that are exchangeable for 621,698 Acquired Sales stock options that vested during 2011 upon Acquired Sales obtaining at least $500,000 of financing and the remaining Cogility stock options vested upon occurrence of the merger with the Acquired Sales subsidiary; accordingly, for purposes of these pro forma financial statements, the remaining $770 and $516,518 of compensation for the six months ended June 30, 2011 and for the year ended December 31, 2010, respectively, relating to the Cogility stock options is recognized as compensation expense.


 
F-6
 
 
 
In November 2010, Acquired Sales granted stock options to the members of management that participated in structuring the financing and the merger with Cogility. Those stock options were for the purchase of 12,600,000 pre-split common shares at $0.10 per share, or 630,000 post-split common shares at $2.00 per share. The options vest upon the occurrence of the merger; accordingly, for purposes of these pro forma financial statements, the remaining compensation of $100,405 for the six months ended June 30, 2011 and $492,975 for the year ended December 31, 2010 relating to these Acquired Sales stock options is recognized as compensation expense.

Cogility and Acquired Sales authorized the grant, at the closing of the merger, of stock options for the purchase of 1,500,000 common shares at $5.00 per share. On the date of the merger, 750,000 stock options were granted and the remaining 750,000 stock options are to be granted within twelve months of the closing of the merger. The stock options will vest to employees, directors and consultants that remain employed for three years from the date of the merger and the Company has earnings, before interest, taxes, depreciation and amortization expenses, of at least $1,000,000 in each of four consecutive calendar quarters during the first twelve calendar quarters following the closing date of the merger. For purposes of these pro forma financial statements, all 1,500,000 stock options are presumed to have been granted at the beginning of each period presented.

Cogility and Acquired Sales authorized the grant to a consultant of stock options for the purchase of 75,000 common shares, with 25,000 options exercisable at $0.001 per share and 50,000 options exercisable at $2.00 per share upon the closing of the merger. These options vested immediately and are exercisable until the tenth anniversary of the closing of the merger.

The fair value of the 1,575,000 stock option granted or presumed to be granted was estimated on the grant dates or presumed grant dates using the Black-Scholes option pricing model, using the following assumptions. Expected volatilities are based on the historical volatility of an appropriate industry sector index, comparable companies in the index and other factors. The expected term of each option is based on the midpoint between the date the option vests and the contractual term of the option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected term of the related option. Forfeitures due to employee termination are estimated based on historical experience rates. The weighted-average fair value was $0.80 per share, or $1,258,207 in total, and was based on the following weighted-average assumptions: 77.85% expected volatility; 0% expected dividend yield; 3.96 years expected term; and 2.04% risk-free interest rate. The related compensation expense is being recognized over the period the options vest and, for purposes of these pro forma financial statements, $304,219 of compensation expense was recognized during the six  months ended June  30, 2011 and  $495,016 of compensation expense was recognized during the year ended December 31, 2010.

D –
During the six months ended June 30, 2011, Cogility issued seven promissory notes payable to Acquired Sales Corp. in the aggregate principal amount of $820,000 in exchange for $600,000 in cash, the assumption of a $200,000 note payable by the Company to an entity related to an officer of the Company and a $20,000 note receivable from Cortez. The notes payable bear interest at 5% per annum payable quarterly beginning March 31, 2011, are due December 31, 2014 and are secured by all of Cogility's assets. At June 30, 2011, unpaid accrued interest on the notes amounted to $10,273.

 
 
F-7
 
 
 
During the six months ended June 30, 2011, Cogility borrowed an additional $25,000 from Acquired Sales. The related note payable bears interest at 5% per annum, is unsecured and is due upon demand.
 
At June 30, 2011, Acquired Sales had issued $400,000 of notes payable to related parties and had issued $520,000 of notes payable to unrelated third parties, all of which bear interest at 3% per annum, are due December 31, 2014 and are secured by all of the assets of Acquired Sales. The notes were issued with warrants to acquire 460,000 common shares of Acquired Sales at $2.00 per share
 
E –   
On September 22, 2010, the majority shareholder of Cogility signed an agreement that in the event of the merger, $73,558 of accrued compensation payable to the majority shareholder would be forgiven. The accrued compensation was included short-term notes payable to related parties in Cogility’s balance sheet at June 30, 2011. The accompanying pro forma financial statements recognize this transaction as the conversion of $73,558 of short-term notes payable to related parties  to additional paid-in capital without the issuance of additional common shares.
 
Pro Forma Loss per Share – Pro forma basic loss per common share is computed by dividing the pro forma net loss by the weighted-average number of common shares assumed to be outstanding during the period. Diluted loss per common share is computed by dividing the pro forma net loss by the weighted-average number of common shares and dilutive common share equivalents assumed to be outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method.

The Cogility common shares outstanding have been restated to reflect the 2,175,564 common shares that the Cogility shareholders received in the merger. For purposes of computing basic and diluted loss per share those common shares are considered to have been outstanding during the entire six months ended June 30, 2010 and during the year ended December 31, 2010. The 291,624 Acquired Sales common shares that remain outstanding are considered to have been issued on January 1, 2010 for purposes of computing basic loss per share. Pro forma basic and diluted loss per common share was computed as follows:

   
Six Months Ended
   
Year Ended
 
   
June 30, 2011
   
December 31, 2010
 
Pro forma net loss
  $ (2,669,843 )   $ (2,140,983 )
Weighted-average common shares outstanding
    2,467,188       2,467,188  
Pro forma basic and diluted loss per share
  $ (1.08 )   $ (0.87 )

Stock options to acquire 3,285,126 common shares and warrants to acquire 460,000 common shares were excluded from the calculation of pro forma diluted loss per share as their effects would have been anti-dilutive.
 
 
 
F-8
 
 
 
COGILITY SOFTWARE CORPORATION
CONDENSED BALANCE SHEET
June 30, 2011
(UNAUDITED)
 
     
ASSETS
   
Current Assets
   
Cash and cash equivalents
$ 90,396  
Receivables from employees
  1,436  
Prepaid expenses
  678  
Total Current Assets
  92,510  
Property and Equipment , net of accumulated depreciation of $2,212,059
  66,209  
Note receivable from related party
  31,019  
Deposits
  12,535  
Total Assets
$ 202,273  
       
LIABILITIES AND SHAREHOLDERS' DEFICIT
     
Current Liabilities
     
Trade accounts payable
$ 398,775  
Accrued liabilities
  197,408  
Billings in excess of costs on uncompleted contract
  119,678  
Unearned revenue
  23,185  
Accrued compensation
  419,183  
Notes payable
  705,216  
Short-term notes payable to related parties
  98,558  
Total Current Liabilities
  1,962,003  
Long-Term Liabilities
     
Notes payable to related party
  820,000  
Total Long-Term Liabilities
  820,000  
Shareholders' Deficit
     
Common stock,  $0.01 par value; 30,000,000 shares authorized;
     
11,530,493 shares outstanding
  11,530  
Additional paid-in capital
  4,040,866  
Accumulated deficit
  (6,632,126 )
Total Shareholders' Deficit
  (2,579,730 )
Total Liabilities and Shareholders' Equity
$ 202,273  
 
 
 
F-9
 

   
COGILITY SOFTWARE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
For theThree Months
 
For the Six Months
 
 
Ended June 30,
 
Ended June 30,
 
 
2011
 
2010
 
2011
 
2010
 
Revenue
               
Consulting Services
$ -   $ 1,081,260   $ -   $ 1,100,178  
Maintenance and Support Services
  18,387     46,250     36,775     67,500  
Total Revenue
  18,387     1,127,510     36,775     1,167,678  
Cost of Revenue
                       
Cost of Services
  -     576,006     88     597,213  
Total Cost of Revenue
  -     576,006     88     597,213  
Gross Profit
  18,387     551,504     36,687     570,465  
Selling, General and Administrative Expenses
  608,737     239,512     1,806,565     821,205  
Loss From Operations
  (590,350 )   311,992     (1,769,878 )   (250,740 )
Interest Expense
  16,183     18,500     26,559     37,000  
Loss Before Provision for Income Taxes
  (606,533 )   293,492     (1,796,437 )   (287,740 )
Provision for Income Taxes
  -     800     -     800  
Net Loss
$ (606,533 ) $ 292,692   $ (1,796,437 ) $ (288,540 )
Basic and Diluted Loss Per Share
$ (0.05 ) $ 0.03   $ (0.16 ) $ (0.03 )
Basic and Diluted Weighted Average Shares Outstanding
  11,530,493     11,530,493     11,530,493     11,530,493  
 

 
F-10
 


COGILITY SOFTWARE CORPORATION
CONDENSED STATEMENT OF SHAREHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2011
(UNAUDITED)
 
         
Additional
     
Total
 
 
Common Stock
 
Paid-in
 
Accumulated
 
Shareholders'
 
 
Shares
 
Amount
 
Capital
 
Deficit
 
Deficit
 
Balance, December 31, 2010
  11,530,493   $ 11,530   $ 3,400,119   $ (4,835,689 ) $ (1,424,040 )
Services contributed by shareholder,
                             
  no additional shares issued
  -     -     125,000     -     125,000  
Share-based compensation
  -     -     515,747     -     515,747  
Net loss
  -     -     -     (1,796,437 )   (1,796,437 )
Balance, March 31, 2011
  11,530,493   $ 11,530   $ 4,040,866   $ (6,632,126 ) $ (2,579,730 )
 

 
F-11
 

 
COGILITY SOFTWARE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
 
 
For the Six Months
 
 
Ended June 30,
 
 
2011
 
2010
 
Cash Flows from Operating Activities
       
Net loss
$ (1,796,437 ) $ (288,540 )
Adjustments to reconcile net loss to net cash used in operating activities:
       
  Services contributed by shareholder, no additional shares issued
  125,000     37,500  
  Share-based compensation
  515,747     7,802  
  Expenses paid by  increase in notes payable
  9,411     11,715  
  Expenses paid by  increase in notes payable to related party
  3,615     25,285  
  Depreciation
  19,773     18,583  
  Changes in operating assets and liabilities:
           
 Accounts receivable
  -     (278,969 )
 Prepaid expenses and deposits
  2,292     9,166  
 Accounts payable
  (147,984 )   (271,342 )
 Accrued liabilities
  26,288     9,579  
 Unearned revenue
  (36,775 )   (37,500 )
 Billings in excess of costs on uncompleted contract
  119,678     591,763  
 Accrued compensation
  113,585     -  
Net Cash Used in Operating Activities
  (1,045,807 )   (164,958 )
Cash Flows from Investing Activities
           
Increase in notes receivable from related party
  (5,930 )   (74,252 )
Purchase of property and equipment
  (12,399 )   (34,839 )
Net cash Flows Used In Investing Activities
  (18,329 )   (109,091 )
Cash Flow from Financing Activities
           
Proceeds from issuance of notes payable
  250,000     -  
Proceeds from issuance of notes payable to related party
  625,000     -  
Principal payments on notes payable to related party
  -     (406,365 )
Principal payments on notes payable
  -     (175,000 )
Net Cash Provided by (Used In) Financing Activities
  875,000     (581,365 )
Net Decrease in Cash
  (189,136 )   (855,414 )
Cash and Cash Equivanlents at Beginning of Period
  279,532     881,008  
Cash and Cash Equivalents at End of Period
$ 90,396   $ 25,594  
Supplemental Cash Flow Information
           
Cash paid for interest
$ 4,797   $ -  
Supplemental Schedule of Noncash Investing and Financing
           
  Activities
           
  Assignment of  note receivable to the Company from a related party
$ 20,000   $ -  
 
 
 
F-12
 

 
COGILITY SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UANAUDITED)
 
NOTE 1 – BASIS OF PRESENATION AND SIGNIFICANT ACCOUNTING POLICIES Condensed Financial Statements – The accompanying financial statements of Cogility Software Corporation (“Cogility” or the “Company”) are condensed and, therefore, do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the Company's annual financial statements for the fiscal year ended December 31, 2010. In particular, the Company's organization, nature of operations and significant accounting principles were presented in Note 1 to the annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying unaudited condensed financial statements and consist of only normal recurring adjustments. The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011.
 
Basic and Diluted Income (Loss) Per Common Share – Basic income (loss) per common share is determined by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method. Common share equivalents outstanding at both June 30, 2011 and 2010 consisted of employee stock options for the purchase of 5,724,666 and 2,635,000 common shares, respectively.  These common share equivalents were excluded from the computation of the diluted income (loss) per share for the three and six months ended June 30, 2011 and 2010 because their effects would have been anti-dilutive.

NOTE 2 - RISKS AND UNCERTAINTIES

The Company has a history of recurring losses which has resulted in an accumulated deficit of $6,632,126
at June 30, 2011. During the six months ended June 30, 2011 and 2010, the Company recognized $36,775 and $1,167,678 of revenue, respectively, and suffered losses of $1,796,437 and $288,540, respectively. During the six months ended June 30, 2011 and 2010, the Company used $1,045,807 and $164,958, respectively, of cash in its operating activities. At June 30, 2011, the Company had negative working capital of $1,869,493 and a stockholders’ deficit of $2,579,730. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain or replace present financing, to obtain additional capital from investors and to succeed in its future operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In order for the Company to remain as a going concern, it will need to secure additional financing as well as enter into and complete profitable contracts.

NOTE 3 – EARNINGS AND COSTS ON UNCOMPLETED CONTRACT

At June 30, 2011 the Company was in the process of providing a software license, hardware and services to a single customer. Revenue and costs on the uncompleted contract were deferred at June 30, 2011 and will be recognized upon completion of the contract. Contract billings in excess of contract costs on uncompleted contract at June 30, 2011 were as follows:
 
 
 
F-13
 

 
COGILITY SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UANAUDITED)
 
       
Billings to date
$ 206,571  
Less: Costs incurred on uncompleted contract
  (86,893 )
Billings in excess of costs on uncompleted contracts
$ 119,678  
 
NOTE 4 – INVESTMENT IN AND LOAN TO CORTEZ SYSTEMS

On October 1, 2010, the Company signed an investment agreement for the purchase of 49% of the common stock of Cortez Systems (Cortez) for $526, a recently formed company in the business of providing software project applications and related services to government and non-government clients. Pursuant to the agreement, the Company agreed to advance Cortez $5,000 each month during the period October 2010 through March 2011, for a total of $30,000 for working capital needs. Due to the Company’s own lack of liquidity, as of December 31, 2010, the Company had not made the required payments; however, an unrelated individual loaned Cortez $20,000 for working capital needs on December 1, 2010.

On March 11, 2011, the individual assigned his loan receivable from Cortez to Acquired Sales Corp. in exchange for the issuance of a promissory note and warrants issued by Acquired Sales Corp. to the individual. Cogility then issued a note payable to Acquired Sales Corp. and was assigned the loan receivable from Cortez. Interest accrued prior to the assignment, i.e. from December 1, 2010 to March 11, 2011, is payable by Cogility to the individual. On March 17, 2011, Cogility loaned Cortez an additional $10,000 in accordance with the October 1, 2010 investment agreement. The note receivable from Cortez bears interest at 5.75% per annum and is due September 30, 2012. The balance owed to Cogility by Cortez, including accrued interest, was $31,019.

NOTE 5 – RELATED PARTY TRANSACTIONS

Accrued Compensation – At June 30, 2011, the Company has recorded accrued compensation comprised of $193,138 in deferred payroll, $22,078 in employee reimbursements payable, and commissions payable to two directors in the amount of $203,967.  The accrued compensation portion primarily relates to a 25% payroll deferral program for all employees that began on January 26, 2011. The Company anticipates that the deferred salary will be remitted to the employees at such time that the Company’s financial position allows the Company to do so.

On June 13, 2011, a key executive resigned his position and entered into a severance agreement with the Company.  On September 16, 2010, the Company had signed a letter agreeing to pay the former executive officer $47,000 in one-time commissions, with payment deferred until 30 days after the closing of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. Under the severance agreement the former executive officer will receive a one-time bonus of $35,000 and deferred compensation of $18,432 payable upon the completion of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. The former executive officer will be paid additional deferred compensation of $9,662 upon the earlier of the completion of the $2,000,000 private placement or September 30, 2011. In addition, the severance agreement modified the terms of stock options held by the former executive officer for the purchase 66,667 common shares such that the stock options will not expire until June 14, 2012. Stock options for the purchase of 133,334 common shares were forfeited.
 

 
F-14
 

 
COGILITY SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UANAUDITED)
 
On June 24, 2011 an employee resigned and entered into a severance agreement with the Company.  Under the severance agreement, the former employee deferred vacation pay in the amount of $8,224 until the earlier of the completion of a $2,000,000 private placement offering or September 23, 2011.  In addition, the severance agreement modified the terms of stock options held by the former employee for the purchase of 133,000 common shares such that the stock options will not expire until June 24, 2012.  Stock options for the purchase of 67,000 common shares were forfeited or expired.

Short-Term Notes Payable to Related Party – During the six months ended June 30, 2011, the majority shareholder of the Company paid $3,615 of expenses on behalf of the Company under the terms of an unsecured promissory note agreement bearing interest at 10% per annum and due on demand. At June 30, 2011, the Company owed the majority shareholder of the Company $69,943 for cash advances to the Company and for the payment of expenses on behalf of the Company. The details of the transactions with the majority shareholder were as follows:

     
10% Note payable , payments made in behalf of the Company
$ 3,615  
Accrued consulting fees , balance beginning of period
  69,943  
Total short-term notes payable to related party
$ 73,558  
 
On September 22, 2010, the majority shareholder signed an agreement that, in the event of a potential merger with a specified third party, any loans from the shareholder would be forgiven. The shareholder further agreed to make no claims for amounts due to the shareholder under the consulting arrangement and such amounts would also be written off if the potential merger is completed. If the note payable to the majority shareholder is forgiven, the amount forgiven will be recognized on that date as a conversion of the liability to shareholders’ deficit.

On June 16, 2011 Acquired Sales Corp. loaned the Company $25,000 for working capital needs.  The loan is unsecured, bears interest at 5% per annum, and is due upon demand.

Long-Term Notes Payable to Related Parties – On December 14, 2010, the Company issued a promissory note to an entity related to an officer of the Company in the amount of $200,000 to finance working capital needs. The note bore interest at 5% per annum, was due December 31, 2013 and was unsecured. Interest payments were due quarterly starting in March 2011.  On January 31, 2011 this note was assumed by Acquired Sales Corp., an entity related to an officer of the Company.

During the six months ended June 30, 2011, the Company has issued seven promissory notes payable to Acquired Sales Corp. in the aggregate principal amount of $820,000 in exchange for $600,000 in cash, the assumption of a $200,000 note payable by the Company to an entity related to an officer of the Company (see the preceding paragraph) and a $20,000 note receivable from Cortez (see Note 4). The notes payable bear interest at 5% per annum payable quarterly beginning March 31, 2011, are due December 31, 2014 and are secured by all of Cogility's assets.

NOTE 6 – NOTES PAYABLE
 
During the year ended December 31, 2009, the Company borrowed $300,000 from an individual. The note was non-interest bearing if paid by the maturity date of February 15, 2010 or accrued interest at 12% per annum if not paid in full by the maturity date.  On October 15, 2010, the Company renegotiated the note and $18,000 of accrued interest was added to the principal balance due.  The new note bears interest at 5.75% per annum and is due on October 15, 2012; however, the note allows the lender to demand partial payment earlier than the maturity date upon the completion of a private placement financing by the Company of common stock or debt convertible into common stock of at least $1,000,000, and payment in full upon the completion of a private placement financing by the Company of common stock or debt convertible into common stock of at least $2,000,000.
 

 
F-15
 

 
COGILITY SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UANAUDITED)
 
During the year ended December 31, 2010, that same individual paid certain consulting fees on the Company’s behalf. On October 26, 2010 the Company issued a note payable to that individual in the amount of $18,728 as reimbursement for those consulting fees. The note is unsecured, bears interest at 5.75% per annum and is due October 25, 2012; however, the note allows the lender to demand partial or payment in full upon the occurrence of the same events described in the preceding paragraph.

The Company has borrowed cash from a lending company to finance working capital needs. The loans are unsecured, non-interest bearing and due on demand. The Company has not imputed interest on the loans as such imputed interest would not have been material to the accompanying financial statements.

On April 15, 2011, an individual loaned the Company $100,000 for working capital needs.  The loan is unsecured, non interest bearing and is due upon demand. On June 28, 2011, that same individual loaned the Company an additional $125,000 for working capital needs. The loan is unsecured, non interest bearing, and is due upon demand.

Notes payable at June 30, 2011 are summarized as follows:
 
     
5.75% $318,000 note payable to an individual; unsecured;
   
 due October 15, 2012; includes $12,682 of accrued interest
$ 330,682  
5.75% $18,728 note payable to an individual; unsecured;
     
 due October 25, 2012; includes $736 of accrued interest
  19,464  
Non-interest bearing notes payable to a lending company;
     
 unsecured; due on demand
  130,070  
Non-interest bearing note payable to an indivdual unsecured;
     
due on demand
  225,000  
Total notes payable
$ 705,216  
 
NOTE 7 – SHAREHOLDERS’ EQUITY
 
During the six months ended June 30, 2011, the chief executive officer and majority shareholder of the Company provided services to the Company, which services were determined by the board of directors to have had a fair value of $125,000. The Company did not compensate the executive officer during the six months ended June 30, 2011. The Company has recognized a capital contribution of $125,000 during the six months ended June 30, 2011 for the services provided by the executive officer.

In 2003, the board of directors and the shareholders approved and adopted a non-qualified employee stock option plan (the Plan). The Plan permits the grant of stock options to the Company’s employees for up to 6,000,000 common shares. The Company believes that such awards better align the interests of its employees with those of its shareholders. Options awarded are generally granted with an exercise price equal to the fair value of the Company’s common shares at the date of grant and vest from immediately to over a three-year period.

During the six months ended June 30, 2011 two executives resigned from the Company (see Note 5).  As part of the severance agreements, the term of the executives vested options were extended for a period of one year.  Included in compensation expense for the six months ended June 30, 2011 was $12,735 of  incremental compensation costs associated with the modification of the original option terms.  Following is a summary of stock option activity under the Plan as of June 30, 2011, and changes during the six months then ended:
 

 
F-16
 


COGILITY SOFTWARE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UANAUDITED)
 
       
Weighted-
 
     
Weighted -
Average
 
     
Average
Remaining
Aggregate
     
Exercise
Contractual
Instrinsic
 
Shares
 
Price
Term (Years)
Value
Outstanding, December 31, 2010
  5,925,000   $ 0.35    
Granted
  -     -    
Expired
  (333 )   0.40    
Forfeited
  (200,001 )   0.67    
Outstanding, June 30, 2011
  5,724,666   $ 0.32
5.14
 $      -
Exercisable, June 30, 2011
  5,364,666   $ 0.31
5.14
 $      -
 
Compensation expenses charged against operations during the six months ended June 30, 2011 and 2010 from stock options awarded prior to 2011 under the Company’s employee stock option plan was $515,747 and $7,802, respectively, and was included in selling, general and administrative expenses.  There was no income tax benefit recognized. As of June 30, 2011, there was $770 of total unrecognized compensation expense related to stock options granted under the Plan. That cost is expected to be recognized over the remaining six months of the year ending December 31, 2011.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company entered into an agreement with a consultant on February 18, 2011 whereby the Company has agreed to pay the consultant a fee based on net revenue received from a potential new software product. The fee would be equal to 5% of the net revenue received, after deducting software licensing and equipment costs from third parties, from two potential contracts and, for a period of five years, any subsequent revenue from reselling the work product that may result from providing software and services under either of the two potential contracts. No fees were paid or accrued under this agreement during the six months ended June 30, 2011.

NOTE 9 – SUBSEQUENT EVENTS

On June 28, 2011, an individual loaned the Company $125,000 for working capital needs.  The loan is unsecured, non interest bearing and is due upon demand. On September 1, 2011, that same individual loaned the Company an additional $100,000 for working capital needs. The loan is unsecured, non interest bearing, and is due upon demand.

On November 4, 2010, Cogility entered into letter of intent with Acquired Sales Corp. that was consummated on September 29, 2011 and resulted in a wholly-owned subsidiary of AQSP merging with and into Cogility.
 

 
F-17
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders
Cogility Software Corporation

We have audited the accompanying balance sheets of Cogility Software Corporation as of December 31, 2010 and 2009, and the related statements of operations, shareholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cogility Software Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, at December 31, 2010, the Company had negative working capital, a shareholders’ deficit and had an accumulated deficit. In addition, the Company suffered losses during the years ended December 31, 2010 and 2009 and used cash in its operating activities during the year ended December 31, 2010. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

HANSEN, BARNETT & MAXWELL, P.C.
Salt Lake City, Utah
March 22, 2011
 

 
F-18
 

 
COGILITY SOFTWARE CORPORATION
BALANCE SHEETS
 
   
December 31,
 
   
2010
   
2009
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 279,532     $ 881,008  
Accounts receivable, net of allowance for doubtful accounts
               
of $0 and $3,450, respectively
    -       505,299  
Receivable from employees
    6,526       57,277  
Prepaid expenses
    2,711       9,955  
Total Current Assets
    288,769       1,453,539  
Property and Equipment , net of accumulated depreciation of
               
$2,192,286 and $2,149,636, respectively
    73,583       73,377  
Deposits and Other Assets
    12,791       12,585  
Total Assets
  $ 375,143     $ 1,539,501  
LIABILITIES AND SHAREHOLDERS' DEFICIT
               
Current Liabilities
               
Trade accounts payable
  $ 546,759     $ 371,279  
Accrued liabilities
    171,120       121,164  
Billings in excess of costs on uncompleted contracts
    -       1,815,300  
Unearned revenue
    59,960       62,500  
Accrued compensation
    305,598       -  
Notes payable
    445,805       470,355  
Short-term notes payable to related party
    69,943       465,604  
Total Current Liabilities
    1,599,185       3,306,202  
Long-Term Liabilities
               
Note payable to related party
    200,000       -  
Total Long-Term Liabilities
    200,000       -  
Shareholders' Deficit
               
Common stock, $0.01 par value; 30,000,000 shares authorized;
         
11,530,493 shares outstanding
    11,530       11,530  
Additional paid-in capital
    3,400,118       2,856,735  
Accumulated deficit
    (4,835,690 )     (4,634,966 )
Total Shareholders' Deficit
    (1,424,042 )     (1,766,701 )
Total Liabilities and Shareholders' Deficit
  $ 375,143     $ 1,539,501  
 

 
F-19
 

 
COGILITY SOFTWARE CORPORATION
STATEMENTS OF OPERATIONS
 
   
For the Years Ended
 
   
December 31,
 
   
2010
   
2009
 
Revenue
           
Software licensing and hardware sales
  $ 524,527     $ 1,100,000  
Consulting services
    4,215,775       2,598,431  
Maintenance and support services
    110,888       77,500  
Total Revenue
    4,851,190       3,775,931  
Cost of Revenue
               
Cost of software and hardware sold
    510,427       312,470  
Cost of services
    1,996,982       2,829,189  
Total Cost of Revenue
    2,507,409       3,141,659  
Gross Profit
    2,343,781       634,272  
Selling, General and Administrative Expense
    2,467,872       1,284,645  
Loss from Operations
    (124,091 )     (650,373 )
Interest expense
    63,110       49,972  
Loss before Provision for Income Taxes
    (187,201 )     (700,345 )
Provision for Income Taxes
    13,523       68,987  
Net Loss
  $ (200,724 )   $ (769,332 )
                 
Basic and Diluted Loss per Share
  $ (0.02 )   $ (0.07 )
                 
Basic and Diluted Weighted-Average Shares Outstanding
    11,530,493       11,530,493  
                 

 
F-20
 

 
COGILITY SOFTWARE CORPORATION
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2010

               
Additional
         
Total
 
   
Common Stock
   
Paid-in
   
Accumulated
   
Shareholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
Balance, December 31, 2008
    11,530,493     $ 11,530     $ 2,727,429     $ (3,865,634 )   $ (1,126,675 )
Services contributed by shareholder,
                                       
  no additional shares issued
    -       -       112,500       -       112,500  
Share-based compensation
    -       -       16,806       -       16,806  
Net loss
    -       -       -       (769,332 )     (769,332 )
Balance, December 31, 2009
    11,530,493       11,530       2,856,735       (4,634,966 )     (1,766,701 )
Services contributed by shareholder,
                                       
  no additional shares issued
    -       -       137,500       -       137,500  
Share-based compensation
    -       -       405,883       -       405,883  
Net loss
    -       -       -       (200,724 )     (200,724 )
Balance, December 31, 2010
    11,530,493     $ 11,530     $ 3,400,118     $ (4,835,690 )   $ (1,424,042 )
                                         

 
F-21
 

 
COGILITY SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
 
   
For the Years Ended
 
   
December 31,
 
   
2010
   
2009
 
Cash Flows from Operating Activities
           
Net loss
  $ (200,724 )   $ (769,332 )
Adjustments to reconcile net loss to net cash provided by
               
(used in) operating activities:
               
Services contributed by shareholder, no additional shares issued
    137,500       112,500  
Share-based compensation
    405,883       16,806  
Accrued interest and expenses paid by increase in notes payable
    78,700       51,375  
Depreciation
    42,649       32,673  
Compensation from forgiveness of receivable from employees
    129,283       25,000  
Changes in operating assets and liabilities:
               
Accounts receivable
    505,299       (460,000 )
Prepaid expenses
    7,244       (8,437 )
Accounts payable
    175,800       249,709  
Accrued liabilities
    49,490       98,028  
Billings in excess of costs on uncompleted contracts
    (1,815,300 )     1,182,148  
Unearned revenue
    (2,540 )     17,501  
Accrued compensation
    305,598       -  
Net Cash Provided by (Used in) Operating Activities
    (181,118 )     547,971  
Cash Flows from Investing Activities
               
Increase in deposits and other assets
    (526 )     (7,550 )
Advances and loans to employees
    (78,532 )     (74,276 )
Payments on loans from employees
    -       10,985  
Purchase of property and equipment
    (42,855 )     (67,267 )
Net Cash Flows Used in Investing Activities
    (121,913 )     (138,108 )
Cash Flow from Financing Activities
               
Proceeds from borrowing under notes payable
    160,000       425,285  
Proceeds from borrowing under notes payable to related parties
    267,000       75,000  
Principal payments on notes payable
    (225,000 )     -  
Principal payments on notes payable to related parties
    (500,445 )     (435,328 )
Payment for redemption of common shares
    -       (25,000 )
Net Cash Provided by (Used in) Financing Activities
    (298,445 )     39,957  
Net Increase (Decrease) in Cash and Cash Equivalents
    (601,476 )     449,820  
Cash and Cash Equivalents at Beginning of Year
    881,008       431,188  
Cash and Cash Equivalents at End of Year
  $ 279,532     $ 881,008  
Supplemental Cash Flow Information
               
Cash paid for interest
  $ -     $ -  
Cash paid for income taxes
  $ 800     $ 800  

 
 
F-22
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations – Cogility Software Corporation (Cogility or the Company) is incorporated under the laws of the State of Delaware. Cogility has developed software technology that is used to quickly access and analyze data generated by disparate sources and stored in many different databases. Specifically, Cogility provides Model Driven Complex Event Processing software technology for the defense and intelligence branches of the U.S. federal government and private corporations with complex information management requirements.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Significant estimates include share-based compensation forfeiture rates and the potential outcome of future tax consequences of events that have been recognized for financial reporting purposes. Actual results and outcomes may differ from management’s estimates and assumptions.

Accounts Receivable   – Accounts receivable are stated at the amount billed to customers, net an allowance for doubtful accounts. The Company evaluates the collectability of the amount receivable from each customer and provides an allowance for those amounts estimated to be uncertain of collection. Accounts determined to be uncollectible are written off against the allowance for doubtful accounts.

Property and Equipment – Property and equipment are recorded at cost less accumulated depreciation.  Maintenance, repairs, and minor replacements are charged to expense as incurred. When depreciable assets are retired, sold, traded in or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which are three to five years. Depreciation expense for the years ended December 31, 2010 and 2009 was $42,649, and $32,673, respectively.

Software Development Costs    – Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and  enhance the Company's current products and fees paid to outside consultants. Software development costs incurred subsequent to the determination of technological feasibility and marketability of a software product are capitalized. Capitalization of costs ceases and amortization of capitalized software development costs commences when the products are available for general release. For the years ended December 31, 2010, 2009, no software development costs were capitalized because the time period and cost incurred between technological feasibility and general release for all software product releases was insignificant.

Revenue Recognition – The Company enters into contractual arrangements with end-users of its products to sell software licenses, hardware, consulting services and maintenance services, either separately or in various combinations thereof. For each arrangement, revenue is recognized when persuasive evidence of an arrangement exists, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, and delivery of the product or services has occurred. When the Company is the primary obligor or bears the risk of loss, revenue and costs are recorded on a gross basis. When the Company receives a fixed transactional fee, revenue is recorded under the net method based on the net amount retained.

In contractual arrangements where services are essential to the functionality of the software or hardware, or payment of the license fees are dependent upon the performance of the related services, revenue for the software license, hardware and consulting fees are recognized on the completed-contract method when the contract is substantially completed and all related deliverables have been provided to and accepted by the customer. This method is used because the Company is unable to accurately estimate total cost of individual contracts until the contracts are substantially complete. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Claims for additional compensation are recognized during the period such claims are resolved and collected.
 

 
F-23
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS


Costs of software, hardware and costs incurred in performing the contract services are deferred until the related revenue is recognized. Contract costs include all purchased software and hardware, subcontract and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, equipment, and travel costs as well as depreciation on equipment used in performance of the contractual arrangements. Depreciation on administrative assets and selling, general and administrative costs are charged to expense as incurred.

Costs in excess of amounts billed are classified as current assets under the caption Costs in excess of billings on uncompleted contracts . Billings in excess of costs are classified as current liabilities under the caption Billings in excess of costs on uncompleted contracts . Contract retentions are included in accounts receivables.

Software Licensing and Hardware Sales: When software licensing and/or hardware functionality are not dependent upon performance of services, the amount of revenue under the arrangement is allocated to the deliverable elements based on prices the Company sells the separate elements, if objectively determinable. If so determinable, the amounts allocated to the software licensing are recognized as revenue at the time of shipment of the software to the customer. Such sales occur when the Company resells third-party software and hardware systems and related peripherals as part of an end-to-end solution to its customers.  The Company considers delivery to occur when the product is shipped and title and risk of loss have passed to the customer.

Consulting Services: Consulting services are comprised of consulting, implementation, software installation, data conversion, building interfaces to allow the software to operate in integrated environments, training and applications. Consulting services are sold on a fixed-fee and a time-and-materials basis, with payment normally due upon achievement of specific milestones. Consulting services revenue is recognized under the completed-contract method as described above.

Hosting: During the year ended December 31, 2009, the Company provided remote management, monitoring, data processing, updating or administrative support of applications software, servers, operating systems and other automation tools to customers. Revenue was comprised of recurring fees for licensing access to and the use of the Company’s application software as a service, on a subscription or on-demand basis over a contractual term. Related recurring fees were recognized as the services were provided. Related one-time set up fees were recognized on a straight-line basis over the longer of the contractual term or the expected life of the relationship.
 
Maintenance and Support Services : Maintenance and support services consist primarily of fees for providing unspecified software upgrades on a when-and-if-available basis and technical support over a specified term, which is typically twelve months. Maintenance revenues are recognized ratably over the term of the related agreement.

Concentration of Significant Customers – At December 31, 2009, accounts receivables from two customers accounted for 91% of total accounts receivable.  In 2009, revenue from one customer was 95% of total revenue. In 2010, revenue from two customers totaled 86% of total revenue.

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.
 

 
F-24
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS


Basic and Diluted Loss Per Share –The computation of basic loss per share is determined by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options are determined by the treasury stock method.

Common stock equivalents outstanding at December 31, 2010 and 2009 consisted of employee stock options for the purchase of 5,925,000 shares and 2,635,000 shares that were excluded from the computation of diluted loss per share for the years ended December 31, 2010 and 2009, respectively, because their effects would have been anti-dilutive.

Share-Based Compensation Plan – Stock-based compensation to employees and consultants is recognized as a cost of the services received in exchange for an award of equity instruments and is measured based on the grant date fair value of the award or the fair value of the consideration received, whichever is more reliably measureable. Compensation expense is recognized over the period during which service is required to be provided in exchange for the award (the vesting period).

Recently Enacted Accounting Standards   – In January 2010, the FASB issued guidance requiring that for each class of assets and liabilities measured at fair value, reporting entities provide additional disclosures describing the reasons for transfers of assets in and out of Levels 1 and 2 of the three-tier fair value hierarchy.  For assets valued using the Level 3 method, entities will be required to separately present purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.  The guidance also states that an entity should provide fair value measurements for each class of asset or liability, and explain the inputs and techniques used in calculating Levels 2 and 3 fair value measurements. This guidance is effective for interim and annual filings for fiscal years beginning after December 15, 2010.  The Company expects that the adoption of this guidance will not have material impact on the financial statements.

In June 2009, the FASB issued accounting guidance on the consolidation of variable interest entities (VIEs). This new guidance revises previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate VIEs and by changing when it is necessary to reassess who should consolidate a VIE.  This guidance was effective for the Company on January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s financial statements.

NOTE 2 - RISKS AND UNCERTAINTIES

The Company has a history of recurring losses which has resulted in an accumulated deficit of $4,835,690 at December 31, 2010. During the years ended December 31, 2010 and 2009, the Company suffered losses of $200,724 and $769,332, respectively. During the year ended December 31, 2010, the Company used $181,118 of cash in its operating activities. At December 31, 2010, the Company had negative working capital of $1,310,416 and a stockholders’ deficit of $1,424,042. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
 

 
F-25
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain or replace present financing, to obtain additional capital from investors and to succeed in its future operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

In order for the Company to remain as a going concern, it will need to secure additional financing as well as enter into and complete profitable contracts. Subsequent to December 31, 2010, the Company entered into a series of borrowings from entities and persons affiliated with the Company or its officers and directors, as further described in Note 12.

NOTE 3 – UNCOMPLETED CONTRACTS

At December 31, 2010 the Company did not have any long term contracts in progress.  At December 31, 2009, the Company was in the process of providing software licenses, hardware and services to customers under two contracts. The first contract was in the amount of $1,042,552 to provide software and installation services. This contract was completed during the second quarter of 2010. The second contract was in the amount of $3,394,874 to provide hardware and services, which contract was also completed during the second quarter of 2010. Under the terms of these contracts, the Company billed the customers upon the completion of specified milestones.  Through December 31, 2009, the Company had billed $2,158,207 for the software licenses, hardware and services provided under these contracts. Revenue and costs on the uncompleted contracts were deferred at December 31, 2009 and were recognized upon completion of the contracts. Contract billings in excess of contract costs on uncompleted contracts at December 31, 2010 and 2009 were as follows:
 
   
December 31,
 
   
2010
   
2009
 
Billings on uncompleted contracts
  $ -     $ (2,158,207 )
Less: Costs incurred on uncompleted contracts
    -       342,907  
Billings in excess of costs on uncompleted contracts
  $ -     $ (1,815,300 )
 
NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31 2010 and 2009:

   
December 31,
 
   
2010
   
2009
 
Computer equipment
  $ 185,860     $ 148,770  
Computer software
    2,074,315       2,070,000  
Leasehold improvements
    2,019       2,019  
Funiture and fixtures
    3,674       2,224  
Total property and equipment
    2,265,869       2,223,013  
Less: accumulated depreciation
    (2,192,286 )     (2,149,636 )
Property and equipment, net
  $ 73,583     $ 73,377  

 
F-26
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
NOTE 5 – INVESTMENT IN AND LOAN TO CORTEZ SYSTEMS

On October 1, 2010, the Company signed an investment agreement for the purchase of 49% of the common stock of Cortez Systems (Cortez) for $526, a recently formed company in the business of providing software project applications and related services to government and non-government clients. Pursuant to the agreement, the Company agreed to advance Cortez $5,000 each month during the period October 2010 through March 2011, for a total of $30,000 for working capital needs. Due to the Company’s own lack of liquidity, as of December 31, 2010, the Company had not made the required payments; however, an unrelated individual loaned Cortez $20,000 for working capital needs on December 1, 2010.

On March 11, 2011 the individual assigned his loan receivable from Cortez to Acquired Sales Corp. in exchange for the issuance of a promissory note and warrants issued by Acquired Sales Corp. to the individual. Cogility then issued a note payable to Acquired Sales Corp. and was assigned the loan receivable from Cortez. Interest accrued prior to the assignment, i.e. from December 1, 2010 to March 11, 2011, is payable by Cogility to the individual. On March 17, 2011, Cogility loaned Cortez an additional $10,000 in accordance with the October 1, 2010 investment agreement, bringing the balance owed to Cogility by Cortez to $30,000. The note receivable from Cortez bears interest at 5.75% per annum and is due September 30, 2012.

NOTE 6 – RELATED PARTY TRANSACTIONS

Receivable from Employees – During the years ended December 31, 2008, 2009, and 2010 the Company advanced $18,986, $74,276, and $78,532, respectively to certain of its employees. Of these amounts $141,795 was represented by short-term, unsecured advances and the remaining $30,000 was advanced under the terms of a promissory note agreement with one employee. The note was unsecured, bore interest at 6% per annum and was due May 5, 2010. The agreement provided that should the employee remain employed by the Company the entire term of the note, the note would be forgiven on its maturity date. During the year ended December 31, 2009, the Company received payment of $10,985 against the advances and forgave $25,000 of the advances. During the year ended December 31, 2010, the Company forgave an additional $99,283 of unsecured advances and the note receivable of $30,000. The forgiveness of the receivable from employees was recorded as compensation expense. At December 31, 2010, the Company held $6,526 in the form of an unsecured advance to an employee; the advance is due on demand and bears no interest.

On September 16 and 29, 2010, the Company signed letters agreeing to pay two executive  officers $47,000 and $168,967, respectively, in one-time commissions, with payment deferred until 30 days after the closing of a private placement of common stock or debt convertible into common stock in the total amount of at least $2,000,000. At December 31, 2010, the Company had accrued the compensation related to these agreements as well as $89,631 of compensation currently payable to employees.

Short-Term Notes Payable to Related Party – At December 31, 2008, the Company owed the majority shareholder of the Company $439,557 for cash advances to the Company and for the payment of expenses on behalf of the Company. During the years ended December 31, 2010 and 2009, the majority shareholder made $67,000 and $75,000, respectively, of cash advances to the Company. The loans were made under the terms of unsecured promissory note agreements bearing interest at 10% per annum and due on demand.

Through December 31, 2008, the majority shareholder had provided $335,000 of consulting services to the Company that was accrued and remained unpaid at December 31, 2009. During the years ended December 31, 2010 and 2009, the Company made payments to the shareholder on the notes payable and the accrued consulting fees totaling $500,445 and $435,328, respectively.  The details of the transactions with the majority shareholder under the terms of the notes payable and the accrued consulting fees payable to the majority shareholder were as follows:
 

 
F-27
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
   
December 31,
 
   
2010
   
2009
 
10% Note payable
           
Balance, beginning of year
  $ 130,604     $ 439,557  
Cash advanced to the Company
    67,000       75,000  
Payments made in behalf of the Company
    -       1,403  
Interest accrued
    37,784       49,972  
Payments made
    (235,388 )     (435,328 )
Balance, end of year
    -       130,604  
Accrued consulting fees
               
Balance, beginning of year
    335,000       335,000  
Payments made
    (265,057 )     -  
Balance, end of year
    69,943       335,000  
Notes payable to related party
  $ 69,943     $ 465,604  
 
On September 22, 2010, the majority shareholder signed an agreement that, in the event of a potential merger with a specified third party, the loans from the shareholder would be forgiven. The shareholder further agreed to make no claims for amounts due to the shareholder under the consulting arrangement and such amounts would also be written off if the potential merger is completed. If the notes payable to the majority shareholder or the accrued consulting fees are forgiven by the shareholder, the amount forgiven will be recognized on that date as a conversion of the liability to shareholders’ equity.

Long-Term Note Payable to Related Party – On December 14, 2010, the Company issued a $200,000 promissory note to an entity related to an officer of the Company to finance working capital needs. The note bears interest at 5% per annum, is due December 31, 2013 and is unsecured. Interest payments are due quarterly starting in March 2011.

NOTE 7 – NOTES PAYABLE
 
During the year ended December 31, 2009, the Company borrowed $300,000 from an individual. The note was non-interest bearing if paid by the maturity date of February 15, 2010 or accrued interest at 12% per annum if not paid in full by the maturity date.  On October 15, 2010, the Company renegotiated the note and $18,000 of accrued interest was added to the principal balance due.  The new note bears interest at 5.75% per annum and is due on October 15, 2012; however, the note allows the lender to demand partial payment earlier than the maturity date upon the completion of a private placement financing by the Company of common stock or debt convertible into common stock of at least $1,000,000, and payment in full upon the completion of a private placement financing by the Company of common stock or debt convertible into common stock of at least $2,000,000.

During the year ended December 31, 2010, that same individual paid certain consulting fees on the Company’s behalf. On October 26, 2010 the Company issued a note payable to that individual in the amount of $18,728 as reimbursement for those consulting fees. The note is unsecured, bears interest at 5.75% per annum and is due October 25, 2012; however, the note allows the lender to demand partial or payment in full upon the occurrence of the same events described in the preceding paragraph.
 

 
F-28
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
The Company has borrowed cash from a lending company to finance working capital needs. The loans are unsecured, non-interest bearing and due on demand. The Company has not imputed interest on the loans as such imputed interest would not have been material to the accompanying financial statements.

Notes payable are summarized as follows:

   
December 31,
 
   
2010
   
2009
 
5.75% interesting bearing note payable to an individual; unsecured;
           
 due October 15, 2012; includes $3,809 and $0 of accrued interest
  $ 321,809     $ 300,000  
5.75% interesting bearing note payable to an individual; unsecured;
               
 due October 25, 2012; includes $198 of accured interest
    18,926       -  
Non-interest bearing notes payable to a lending company;
               
 unsecured; due on demand
    105,070       170,355  
Total Notes Payable
  $ 445,805     $ 470,355  
                 
 
The carrying amounts of the notes payable did not differ materially from their estimated fair values.

NOTE 8 – COMMON SHARES
 
During 2009 and 2010, the chief executive officer and majority shareholder of the Company provided services to the Company, which services were determined by the board of directors to have a fair value of $250,000 each year. The Company paid the executive officer $112,500 and $137,500 during the years ended December 31, 2010 and 2009 respectively. The Company has recognized a capital contributions of $137,500 and $112,500 during the years ended December 31, 2010 and 2009, respectively, for the services provided by the executive officer in excess of the amounts paid.

NOTE 9– EMPLOYEE STOCK OPTION PLAN

In 2003, the board of directors and the shareholders approved and adopted a non-qualified employee stock option plan (the Plan). The Plan permits the grant of stock options to the Company’s employees for up to 6,000,000 common shares. The Company believes that such awards better align the interests of its employees with those of its shareholders. Options awarded are generally granted with an exercise price equal to the fair value of the Company’s common shares at the date of grant and vest from immediately to over a three-year period.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. The Black-Scholes option pricing model incorporates ranges of assumptions for inputs. Expected volatilities are based on the historical volatility of an appropriate industry sector index, comparable companies in the index and other factors. The Company estimates expected life of each option based on the midpoint between the date the option vests and the contractual term of the option. The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related option. Forfeitures due to employee termination are estimated based on historical experience rates.
 

 
F-29
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

The following table presents the assumptions used in valuing the options granted during the years ended December 31, 2010 and 2009:

   
2010
   
2009
 
Weighted-average volatility
    78 %     76 %
Expected dividends
    0 %     0 %
Expected term (years)
    5.14       6.50  
Risk-free interest rate
    1.04 %     2.82 %
 
Following is a summary of stock option activity under the Plan as of December 31, 2010 and 2009, and changes during the years then ended:
 
             
Weighted-
 
         
Weighted -
 
Average
 
         
Average
 
Remaining
Aggregate
         
Exercise
 
Contractual
Instrinsic
   
Shares
   
Price
 
Term (Years)
Value
Outstanding, December 31, 2008
    2,070,000     $ 0.32      
Granted
    565,000       0.67      
Outstanding, December 31, 2009
    2,635,000       0.40      
Granted
    3,295,000       0.29      
Expired
    (1,667 )     0.50      
Forfeited
    (3,333 )     0.50      
Outstanding, December 31, 2010
    5,925,000     $ 0.33  
8.86
$      -
Exercisable, December 31, 2010
    2,015,000     $ 0.35  
7.51
$       -
 
The weighted-average grant-date fair value of options granted during the years ended December 31, 2010 and 2009 was $0.27 and $0.01 per share, respectively. Compensation expense charged against operations for these stock-based awards during the years ended December 31, 2010 and 2009 was $405,883 and $16,806, respectively, and was included in selling, general and administrative expense. There was no related income tax benefit recognized. As of December 31, 2010, there was $507,587 of total unrecognized compensation expense related to stock options granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.5 months.

NOTE 10–INCOME TAXES

During the year ended December 31, 2009, the Company incurred U.S. federal alternative minimum tax and during the years ended December 31, 2010 and 2009, the Company incurred state income tax due to the regulatory suspension of the use of net operating loss carry forwards in California. The components of the current provision for income taxes for the years ended December 31, 2010 and 2009 (there was no deferred tax provision or benefit) were as follows:
 
   
2010
   
2009
 
Current
           
Federal
  $ -     $ 10,923  
State and local
    13,523       58,064  
Provision for income taxes
  $ 13,523     $ 68,987  
 
 
 
F-30
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
At December 31, 2010, the Company has U.S. Federal net operating loss carry forwards of $3,934,471 that will expire in 2026 through 2031 if not used by those dates and California state net operating loss carry forwards of $4,838,775 that are currently suspended and not available to offset future taxable income until at least 2012 and that will expire in 2019 through 2031 if not used by those dates.

As of December 31, 2010, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next 12 months. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company’s tax returns are subject to examination for the years ended December 31, 2007 through 2010. A reconciliation of the amount of tax benefit computed using the U.S. federal statutory income tax rate to the provision for income taxes is as follows:
 
   
For the Years Ended
 
   
December 31,
 
   
2010
   
2009
 
Tax benefit at statutory rate (35%)
  $ (65,520 )   $ (245,121 )
State tax benefit, net of federal tax
    (8,518 )     (31,866 )
Non-deductible expenses
    75,427       19,773  
Benefit of operating loss carry forwards
    -       (323,517 )
U.S. Federal alternative minimun tax
    -       10,923  
Other
    (2,242 )     (16,665 )
Other changes in valuation allowance
    14,376       655,460  
Provision for income taxes
  $ 13,523     $ 68,987  

The tax effects of temporary differences and carry forwards that gave rise to the net deferred income tax asset as of December 31, 2010 and 2009 were as follows:
 
   
December 31,
 
   
2010
   
2009
 
Operating loss and alternative minimum tax credit carry forwards
  $ 1,608,152     $ 873,324  
Stock-based compensation
    182,489       11,317  
Billings in excess of costs on uncompleted contracts
    -       717,951  
Accrued liabilities and other items
    25,789       190,550  
Depreciation
    (19,082 )     (10,170 )
Less: Valuation allowance
    (1,797,348 )     (1,782,972 )
Net deferred income tax asset
  $ -     $ -  
 
NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Company leases three facilities under the terms of operating leases.  The Company leased office space for $4,903 per month through November 30, 2010 and is currently leasing office space for $3,826 per month through November 30, 2011. The Company is also leasing office space for $3,400 per month through March 31, 2011. Lastly, the Company is leasing temporary housing space for $4,250 per month through April 15, 2011. As of December 31, 2010, future minimum lease payments under the terms of the lease agreements were $73,536, which are all due during the year ending December 31, 2011. Rent expense for the years ended December 31, 2010 and 2009 was $146,850 and $100,097, respectively.

On November 4, 2010, Cogility entered into letter of intent with Acquired Sales Corp. (AQSP) whereby, if consummated, would result in a wholly-owned subsidiary of AQSP merging with and into Cogility.
 

 
F-31
 
COGILITY SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
Entering into and closing a definitive agreement with AQSP is contingent on due diligence by both parties, regulatory approval and AQSP effecting a 1-for-20 reverse stock split.

The Company entered into an agreement with a consultant on February 18, 2011 whereby the Company has agreed to pay the consultant a fee based on net revenue received from a potential new software product. The fee would be equal to 5% of the net revenue received, after deducting software licensing and equipment costs from third parties, from two potential contracts and, for a period of five years, any subsequent revenue from reselling the work product that may result from providing software and services under either of the two potential contracts.

NOTE 12- SUBSEQUENT EVENTS

Through March 17, 2011, the Company has issued seven promissory notes payable to Acquired Sales Corp. in the aggregate principal amount of $820,000 in exchange for $600,000 in cash, the assumption of a $200,000 note payable by the Company to an entity related to an officer of the Company (see Note 6) and a $20,000 note receivable from Cortez (see Note 5). The notes payable bear interest at 5% per annum payable quarterly beginning March 31, 2011, are due December 31, 2014 and are secured by all of Cogility's assets.

 
 
F-32
 

 
Exhibit 10.15
 
 
AGREEMENT AND PLAN OF MERGER


THIS AGREEMENT AND PLAN OF MERGER (the “ Agreement ”) is made and entered into as of September 29, 2011, by and among
 
ACQUIRED SALES CORP. , a Nevada corporation (“ AQSP ”), ACQUIRED SALES CORP. MERGER SUB, INC. , a Delaware corporation and wholly owned subsidiary of AQSP (“ AQSP Mergeco ”), and GERARD M. JACOBS , a resident of Illinois (“ Jacobs ”),
 
and
 
COGILITY SOFTWARE CORPORATION , a Delaware corporation (“ Cogility ”), MATTHEW GHOURDJIAN , a resident of Colorado (“ Ghourdjian ”), and DEBORAH SUE GHOURDJIAN SEPARATE PROPERTY TRUST , a trust whose sole trustee is Deborah Sue Ghourdjian, a resident of Colorado (“ DSGSPT ”).
 
DSGSPT, Ghourdjian and Jacobs are hereinafter collectively referred to as the “ Stockholders ”). AQSP, AQSP Mergeco, Cogility and the Stockholders are sometimes referred to herein each, individually, as a “ Party ” and, collectively, as the “ Parties .” The shareholders of Cogility are sometimes collectively referred to herein as the “ Cogility Shareholders ”. The shareholders of AQSP are sometimes collectively referred to herein as the “ AQSP Shareholders ”.
 
IN CONSIDERATION of the mutual agreements, covenants, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the Parties hereby agree as follows:
 
ARTICLE I
DEFINITIONS

In addition to terms defined elsewhere in this Agreement, the following terms when used in this Agreement shall have the respective meanings set forth below:
 
“ Action ” means any claim, demand, action, cause of action, chose in action, right of recovery, right of set-off, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority.
 
“ Affiliate ” means, with respect to a specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes, with respect to the specified Person:  (a) any other Person which beneficially owns or holds 10% or more of the outstanding voting securities or other securities convertible into voting securities of such Person, (b) any other Person of which the specified Person beneficially owns or holds 10% or more of the outstanding voting securities or other securities convertible into voting securities, or (c) any director, officer or employee of such Person.
 

 
1
 


“ Business Day ” means any day other than a Saturday, Sunday or other day on which banks are required or authorized to be closed in the city of Chicago, Illinois.
 
 “ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended through the date hereof and any regulations promulgated thereunder.
 
“ Closing ” shall mean the closing of the transactions contemplated by this Agreement.
 
“ Closing Date ” shall mean the day on which the Closing takes place.
 
“ COBRA ” means the provisions of Code section 4980B and Part 6 of Subtitle B of title I of ERISA.
 
“ Code ” shall mean the Internal Revenue Code of 1986, as amended.
 
“ Commonly Controlled Entity ” means any entity which is under common control with Cogility within the meaning of Section 414(b), (c), (m), (o) or (t) of the Code.
 
“ Contract ” means any contract, plan, undertaking, understanding, agreement, license, lease, note, mortgage or other binding commitment, whether written or oral, either involving payments of more than $10,000 per year or which are not terminable on 30 days written notice or less.
 
“ Copyrights ” mean all copyrights (registered or otherwise) and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions.
 
“ Court ” means any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision thereof.
 
“ Database ” means all data and other information recorded, stored, transmitted and retrieved in electronic form.
 
 “ Employee Plans ” means all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus, stock or other security option, stock or other security purchase, stock or other security appreciation rights, incentive, deferred compensation, retirement or supplemental retirement, severance, golden parachute, vacation, cafeteria, dependent care, medical care, employee assistance program, education or tuition assistance programs, insurance and other similar fringe or employee benefit plans, programs or arrangements, and any current or former employment or executive compensation or severance agreements, written or otherwise, which have ever been sponsored or maintained or entered into for the benefit of, or relating to, any present or former employee or director of Cogility, the Predecessor Entity, any Cogility Subsidiary or any trade or business (whether or not incorporated) which is a member of a controlled group or which is under common control with Cogility, within the meaning of Section 414 of the Code (an “ ERISA Affiliate ”), whether or not such plan is terminated.
 

 
2
 


“ Environmental Law ” means any Law or Regulation pertaining to: (a) the protection of health, safety and the indoor or outdoor environment; (b) the conservation, management or use of natural resources and wildlife; (c) the protection or use of surface water and ground water; (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, emission, discharge, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Substance; or (e) pollution (including any emission, discharge or release to air, land, surface water and ground water of any material); and includes, without limitation, CERCLA and the Solid Waste Disposal Act, as amended 42 U.S.C. § 6901 et seq.
 
“ Environmental Permits ” means all Permits required under any Environmental Law.
 
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
 
“ GAAP ” means United States generally accepted accounting principles and practices in effect from time to time consistently applied.
 
“ Governmental Authority ” means any governmental or legislative agency or authority (other than a Court) of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof, and includes any authority having governmental or quasi-governmental powers, including any administrative agency or commission.
 
“ Hardware ” means all mainframes, midrange computers, personal computers, laptops, iPads or similar, notebooks, servers, switches, printers, modems, drives, peripherals and any component of any of the foregoing.
 
“ Hazardous Substance ” means any Hazardous Substance, as defined in CERCLA, and any other chemical, compound, product, solid, gas, liquid, pollutant, contaminant or material which is regulated under any Environmental Law, and includes without limitation, asbestos or any substance containing asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof).
 
 “ HIPAA ” means the provisions of the Code and ERISA enacted by the Health Insurance Portability and Accountability Act of 1996.
 
“ Indebtedness ” means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of Cogility or a lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss and all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.
 

 
3
 

 
“ Information System ” means any combination of Hardware, Software and/or Database(s) employed primarily for the creation, manipulation, storage, retrieval, display and use of information in electronic form or media.
 
“ Intellectual Property ” means (a) inventions, whether or not patentable, whether or not reduced to practice or whether or not yet made the subject of a pending Patent application or applications, (b) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending Patent application or applications, (c) Patents, (d) Trademarks,  (e) Copyrights, (f) Software, (g) trade secrets and confidential, technical or business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice), (h) whether or not confidential, technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, Databases, Information Systems, pricing and cost information, business and marketing plans and customer and supplier lists and information, (i) copies and tangible embodiments of all the foregoing, in whatever form or medium, (j) all rights to obtain and rights to apply for Patents, and to register Trademarks and Copyrights, (k) all rights under any licenses, registered user agreements, technology or materials, transfer agreements, and other agreements or instruments with respect to items in (a) to (j) above; and (l) all rights to sue and recover and retain damages and costs and attorneys’ fees for present and past infringement of any of the Intellectual Property rights hereinabove set out.
 
 “ IRS ” shall mean the United States Internal Revenue Service.
 
 “ Knowledge ” means (a) in the case an individual, knowledge of a particular fact or other matter if such individual is actually aware of such fact or other matter, and (b) in the case of a Person (other than an individual) such Person will be deemed to have Knowledge of a particular fact or other matter if any individual who is serving, or has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter.
 
 
 
4
 
 
 
“ Law ” means all laws, statutes, ordinances and Regulations of any Governmental Authority including all decisions of Courts having the effect of law in each such jurisdiction.
 
“ Leased Real Property ” means the real property leased by Cogility as tenant, together with, to the extent leased by Cogility, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of Cogility attached or appurtenant thereto, and all easements, licenses, rights and appurtenances relating to the foregoing.
 
“ Liabilities ” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Order, Liabilities for Taxes and those Liabilities arising under any Contract.
 
“ Liens ” means any mortgage, pledge, security interest, attachment, encumbrance, lien (statutory or otherwise), option, conditional sale agreement, right of first refusal, first offer, termination, participation or purchase, or charge of any kind (including any agreement to give any of the foregoing), provided, however, that the term “Lien” shall not include: (a) Liens for Taxes, assessments and charges of any Governmental Authority due and being contested in good faith and diligently by appropriate proceedings (and for the payment of which adequate provision has been made); (b) servitudes, easements, restrictions, rights-of-way and other similar rights in real property or any interest therein, provided the same are not of such nature as to materially adversely affect the use of the property subject thereto; (c) Liens for Taxes either not due and payable or due but for which notice of assessments has not been given; (d) undetermined or inchoate Liens, charges and privileges incidental to current construction or current operations and statutory Liens, charges, adverse claims, security interests or encumbrances of any nature whatsoever claimed or held by any Governmental Authority which have not at the time been filed or registered against the title to the asset or served upon Cogility pursuant to Law or which relate to obligations not due or delinquent; (e) assignments of insurance provided to landlords (or their mortgagees) pursuant to the terms of any lease, and Liens or rights reserved in any lease for rent or for compliance with the terms of such lease; (f) security given in the ordinary course of Cogility’s business, as applicable, to any public utility, municipality or Government Authority in connection with the operations of Cogility’s business, as applicable, other than security for borrowed money; (g) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance, old age pension or other social security programs mandated under applicable Laws; and (h) restrictions on transfer of securities imposed by applicable state and federal securities Laws.
 
“ Litigation ” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, inquiry, demand letter, governmental or other administrative proceeding, whether at law or at equity, before or by any Court, Governmental Authority, arbitrator or other tribunal.
 
“ Material Adverse Effect ” means any circumstance, change in, or effect on, Cogility’s business or Cogility that, individually or in the aggregate with any other circumstances, changes in, or effects on, Cogility’s business or Cogility: (a) is, or could be, materially adverse to Cogility’s business, operations, assets or Liabilities (including, without limitation, contingent Liabilities), employee relationships, customer or supplier relationships, results of operations or the condition (financial or otherwise) of Cogility’s business, or (b) could materially adversely affect the ability of Cogility Surviving Corporation to operate or conduct Cogility’s business in the manner in which it is currently operated or conducted, or contemplated to be conducted.
 
 
 
5
 
 
 
“ Order ” shall mean any judgment, order, writ, injunction, ruling, stipulation, determination, award or decree of or by, or any settlement under the jurisdiction of, any Court or Governmental Authority.
 
“ Owned Real Property ” means the real property owned by Cogility, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of Cogility attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing.
 
“ Patents ” mean all national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications, including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations, and all rights therein provided by multinational treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application.
 
 “ Permits ” means any licenses, permits, pending applications, consents, certificates, registrations, approvals and authorizations.
 
“ Person ” means any natural person, corporation, limited liability company, unincorporated organization, partnership, association, joint stock company, joint venture, trust or any other entity.
 
“ Real Property ” means the Leased Real Property and the Owned Real Property.
 
“ Receivables ” means any and all accounts receivable, notes, book debts and other amounts due or accruing due to Cogility in connection with Cogility’s business whether or not in the ordinary course, together with any unpaid financing charges accrued thereon and the benefit of all security for such accounts, notes and debts.
 
“ Regulation ” means any rule or regulation of any Governmental Authority.
 
 “ Software ” means any and all (a) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (d) the technology supporting any Internet site(s) operated by or on behalf of Cogility and (e) all documentation, including user manuals and training materials, relating to any of the foregoing.
 
“ Subsidiary” or “Subsidiaries ” of a specified Person means any other Person in which such Person owns, directly or indirectly, more than 50% of the outstanding voting securities or other securities convertible into voting securities, or which may effectively be controlled, directly or indirectly, by such Person.
 
 
 
6
 
 
 
“ Tax ” or “ Taxes ” means any and all federal, state, local, or foreign taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or other taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, disability, social security, workers’ compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs’ duties, tariffs, and similar charges, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person, together with any interest or penalty, addition to tax or additional amount imposed by any governmental authority.
 
“ Tax Returns ” means returns, reports and information statements, including any schedule or attachment thereto, with respect to Taxes required to be filed with the IRS or any other Governmental Authority or other taxing authority or agency, domestic or foreign, including consolidated, combined and unitary tax returns.
 
“ Trademarks ” mean all trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, including all common law rights, and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, the Trademark Offices of the States and Territories of the United States of America, and the Trademark Offices of other nations throughout the world, and all rights therein provided by multinational treaties or conventions.
 
“ Web Sites ” means all websites, domain names, and associated internet properties, rights, titles and interests in any way directly or indirectly used in or associated with Cogility’s business, including but not limited to those certain web sites and domain names set forth on Cogility’s Disclosure Schedule (as hereafter defined).
 
ARTICLE II
THE MERGER

2.1             The November 4, 2010 .  Reference is hereby made to that certain Agreement (the “ November 4, 2010 Agreement ”) by and among AQSP, Cogility, the Stockholders, and the other members of the AQSP Board, that was fully executed on November 4, 2010. Words and terms defined in the November 4, 2010 Agreement are used herein with the same meaning. Except as set forth herein, the November 4, 2010 Agreement shall remain in full force and effect following the date hereof. Section 4 of the November 4, 2010 Agreement sets forth the terms and conditions of a Letter of Intent between AQSP and Cogility.
 
 
 
7
 
 
 
2.2             Reverse Stock Split . The Parties agree and acknowledge that the Reverse Stock Split referred to in Section 4A of the November 4, 2010 Agreement will be effected prior to the Closing Date (as hereinafter defined).
 
2.3             Private Placement .  The Parties agree and acknowledge that the first $920,000 of the Private Placement referred to in Section 4B of the November 4, 2010 Agreement was completed during March, 2011, and that as a result, the 3,295,000 Cogility Options granted pursuant to Section 2B of the November 4, 2010 Agreement have now fully vested.
 
2.4             The Merger . Consistent with Section 4C of the November 4, 2010 Agreement, at the Effective Time (as hereinafter defined), in accordance with the laws of the State of Delaware and the terms and conditions of the Certificate of Merger (as hereinafter defined) and the Definitive Documents, AQSP Mergeco shall be merged with and into Cogility (the “ Merger ”).  Pursuant to the Merger, Cogility shall continue to exist as the surviving corporation and the separate corporate existence of AQSP Mergeco shall cease. Cogility, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the “ Cogility Surviving Corporation .”
 
2.5             Effective Time .  Subject to the provisions of this Agreement, on the Closing Date or as soon thereafter as is practicable the Parties shall cause the Merger to become effective by executing and filing with the office of the Delaware Secretary of State Certificate of Merger which shall be prepared by counsel to Cogility and AQSP, and attached hereto as Exhibit 2.5 and made a part hereof (the “ Certificate of Merger ”), the date and time of such filings, or such later date and time as may be agreed upon by the Parties and specified therein, being hereinafter referred to as the “ Effective Time .”
 
2.6             Effect of the Merger .  At the Effective Time, the Merger shall have the effect set forth in the Certificate of Merger and the Definitive Documents and in the applicable provisions of law.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the assets, properties, rights, privileges, immunities, powers and franchises of Cogility and AQSP Mergeco shall vest in the Cogility Surviving Corporation, and all of the debts, liabilities and duties of Cogility and AQSP Mergeco shall become the debts, liabilities and duties of the Cogility Surviving Corporation.
 
2.7             Articles of Incorporation and Bylaws .  From and after the Effective Time and without further action on the part of the Parties, the Articles of Incorporation and Bylaws of Cogility immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of Cogility Surviving Corporation until amended in accordance with the respective terms thereof.
 
2.8             Directors and Officers .  For purposes of clarity, the Parties agree and acknowledge that consistent with Sections 4F and 4G of the November 4, 2010 Agreement:
 
(a)   From and after the Effective Time, the directors and officers of Cogility Surviving Corporation shall be those persons set forth on Exhibit 2.8(a) , respectively, each to hold office in accordance with the Articles of Incorporation and the Bylaws of Cogility Surviving Corporation, in each case, until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with Cogility Surviving Corporation’s Articles of Incorporation and Bylaws.
 
 
 
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(b)   From and after the Effective Time, the directors and officers of AQSP immediately following the Closing Date shall be those persons set forth on Exhibit 2.8(b) each to hold office in accordance with the Articles of Incorporation and the Bylaws of AQSP, in each case, until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with AQSP’s Articles of Incorporation and Bylaws.
 
(c)             The Stockholders agree and acknowledge that their Stockholder Agreements set forth in Section 5 of the November 4, 2010 Agreement are and shall remain in full force and effect following the execution of this Agreement and the closing of the Merger, and for purposes of clarity, the Stockholders agree and acknowledge that if at any time and if for any reason the Stockholders are unable to unanimously agree upon a new slate of nominees for election to the AQSP Board, then in such event the Stockholders shall nominate for election to the AQSP Board a slate of nominees consisting of the then-incumbent members of the AQSP Board unless and until the Stockholders unanimously agree upon a new slate of nominees.
 
2.9             Conversion of Cogility Stock and Cogility Options .  Cogility currently has 11,530,493 shares of Cogility Stock outstanding, rather than the 11,460,344 shares of Cogility Stock referenced in Section 4D(1) of the November 4, 2010 Agreement; and Cogility currently has 2,429,666 Cogility Options outstanding that were issued prior to November 4, 2010 rather than the 2,650,000 Cogility Options referenced in Section 4D(1) of the November 4, 2010 Agreement. At the Effective Time, by virtue of the Merger and without any action on the part of the Parties or the holders of the following securities:
 
(a)             The 11,530,493 shares of Cogility Stock outstanding shall be converted automatically into the right to receive, on a pro rata basis, in the aggregate, 2,175,564 shares of AQSP Stock, provided, however, that no fractional shares of AQSP Stock shall be issued;
 
(b)             The 2,429,666 Cogility Options outstanding that were issued prior to November 4, 2010 with exercise prices between $0.20 and $1.40 per share of Cogility Stock shall be converted automatically into the right to receive, on a pro rata basis, in the aggregate, 458,428 AQSP Options with exercise prices that are 5.3 times higher than their respective exercise prices prior to the closing of the Merger, provided, notwithstanding the foregoing, that the exercise price of each of such 458,428 AQSP Options shall in no event exceed $5.00 per share of AQSP Stock, and provided further, however, that no options to purchase fractional shares of AQSP Stock shall be issued. Such AQSP Options shall be fully vested, and shall have the same expiration dates as the Cogility Options from which they were converted, respectively;
 
(c)   The 2,500,000 Cogility Options issued on November 4, 2010 with an  exercise price of $0.377358 per share of Cogility Stock shall be converted automatically into the right to receive, on a pro rata basis, in the aggregate, 471,698 AQSP Options with an exercise price of $2.00 per share of AQSP Stock, provided, however, that no options to purchase fractional shares of AQSP Stock shall be issued. Such AQSP Options shall be fully vested, and shall have the same expiration dates as the Cogility Options from which they were converted, respectively;
 
 
 
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(d)   The 795,000 Cogility Options issued on November 4, 2010 with an exercise price of $0.000001 per share of Cogility Stock shall be converted automatically into the right to receive, on a pro rata basis, in the aggregate, 150,000 AQSP Options with an exercise price of $0.001 per share of AQSP Stock, provided, however, that no options to purchase fractional shares of AQSP Stock shall be issued. Such AQSP Options shall be fully vested and shall have the same expiration dates as the Cogility Options from which they were converted, respectively;
 
(e)   As of the Effective Time, all outstanding shares of Cogility capital stock, and any other contractual or other rights to purchase or otherwise acquire any rights, titles or interests in or to any Cogility capital stock or other equity of any nature in or to Cogility (collectively, “ Cogility Capital Stock ”), shall automatically be redeemed and canceled, and from and after the Effective Time, shall cease to exist, and each holder of a certificate that previously represented any such share of Cogility Capital Stock (collectively, the “ Cogility Certificates ”) shall cease to have any rights with respect thereto other than the right to receive, if any, their portion of the Merger consideration set forth in Section 2.9(a)-(d) above (the “ Merger Consideration ”). The foregoing Merger Consideration shall be deemed to have been issued in full satisfaction of all rights pertaining to the Cogility Capital Stock, and after the Effective Time, there shall be no further registration or transfers of Cogility Stock, Cogility Options or other Cogility Capital Stock. If after the Effective Time, any Cogility Certificates are presented to Cogility Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 2.9 .  If any Cogility Certificates shall have been lost, stolen or destroyed, AQSP shall pay the applicable Merger Consideration, if any, in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of such loss by the holder thereof.  In addition to the affidavit, AQSP may in its discretion and as a condition precedent to the payment of the applicable Merger Consideration, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as AQSP may reasonably direct as indemnity against any claim that may be made against AQSP or Cogility Surviving Corporation with respect to the Cogility Certificates alleged to have been lost, stolen or destroyed; and
 
2.10             Conversion of AQSP Mergeco Stock . Each share of common stock of AQSP Mergeco issued and outstanding immediately prior to the Effective Time shall be converted automatically into one fully paid and non-assessable share of common stock of the Cogility Surviving Corporation.  From and after the Effective Time, each stock certificate of AQSP Mergeco that previously represented shares of AQSP Mergeco shall evidence ownership of an equal number of shares of common stock of the Cogility Surviving Corporation.
 
2.11             AQSP Options .
 
(a)             The Parties agree and acknowledge that the AQSP Options granted pursuant to Section 1A of the November 4, 2010 Agreement will fully vest as of the Effective Time.
 
 
 
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(b)             On the day immediately prior to the Closing Date, Cogility’s existing bonus plan shall automatically terminate, without payment or penalty, and without the need for any further action by any Party. At the Effective Time, Cogility’s existing bonus plan shall be replaced by the issuance of an aggregate of 1,500,000 AQSP Options pursuant and subject to the terms and conditions of Section 4E of the November 4, 2010 Agreement, provided, however, that none of such 1,500,000 AQSP Options shall be issued without the prior written approval of both Ghourdjian and Jacobs, and provided further, that for purposes of clarity and further agreement the Parties agree and acknowledge (1) that the grantees of such AQSP Options may include persons who now or in the future serve as directors, officers, employees or consultants to Cogility or Cogility Surviving Corporation, and (2) the AQSP Board at all times shall retain the right, in its sole discretion, to reduce the exercise price of any or all of such 1,500,000 AQSP Options below $5.00 per share of AQSP Stock but not below $2.00 per share of AQSP Stock, and to change or eliminate the vesting requirements applicable to any or all of such 1,500,000 AQSP Options.
 
(c)             At the Effective Time, AQSP shall issue to Kathy Carter AQSP Options to purchase 25,000 shares of AQSP Stock at an exercise price of $0.001 per share, and AQSP Options to purchase 50,000 shares of AQSP Stock at an exercise price of $2.00 per share.
 
2.12             No registration .  All certificates representing AQSP Stock issued pursuant to this Agreement, and all certificates representing AQSP Stock issued upon the exercise of AQSP Options issued pursuant to this Agreement, shall bear a legend stating that such AQSP Stock has not been registered under the Securities Act of 1933, as amended, and may not be transferred or sold without such registration or an exemption therefrom.
 
2.13             Further Action .   If, at any time and from time to time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest in the Cogility Surviving Corporation full right, title and possession of all properties, assets, rights, privileges, powers and franchises of Cogility, the officers and directors of AQSP and the Cogility Surviving Corporation shall be and are fully authorized and directed, in the name of and on behalf of their respective corporations, to take, or cause to be taken, all such lawful and necessary action as is not inconsistent with this Agreement. AQSP shall cause AQSP Mergeco to perform all of its obligations relating to this Agreement and the transactions contemplated hereby.
 
ARTICLE II I
CLOSING
 
Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place on such date and at such time and location as Ghourdjian and Jacobs may mutually agree upon in writing (the day on which the Closing takes place being referred to as the “ Closing Date ”).
 
ARTICLE IV
ARTICLE IV ARTICLE
REPRESENTATIONS AND WARRANTIES – COGILITY

The Cogility Disclosure Schedule attached hereto (the “ Cogility Disclosure Schedule ”) identifies by Section and Subsection any exception to a representation or warranty in this Article III . In order to induce AQSP and AQSP Mergeco (together, the “ AQSP Entities ”) to enter into this Agreement and to consummate the transactions contemplated hereby, DSGSPT, Ghourdjian and Cogility each hereby jointly and severally represent and warrant to each of the AQSP Entities as follows:
 
 
 
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4.1             Organization and Qualification .  Cogility is a corporation duly organized, validly existing and in good standing under the laws of State of Delaware, and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed on the Cogility Disclosure Schedule, such jurisdictions being the only jurisdictions in which the failure to be so licensed or qualified could have a Material Adverse Effect on Cogility.
 
4.2             Capital Stock . All of the issued and outstanding Cogility Capital Stock was issued in compliance in all material respects with all applicable federal and state securities laws and is owned solely by the persons and entities listed in that certain letter dated the Closing Date from Ghourdjian to Jacobs (the “ Ghourdjian Letter to Jacobs ”).
 
4.3             Subsidiaries and Affiliates .  Cogility does not have any Subsidiaries, and, except as described on the Cogility Disclosure Schedule, Cogility does not have any Affiliates and does not otherwise own, directly or indirectly, any equity or other ownership interests of any Person.  Except pursuant to this Agreement, Cogility has no obligation to purchase any interest in, or make any investment in, or enter into any other extraordinary corporate transaction with, any Person.
 
4.4             Charter, By-Laws and Corporate Records .  True, correct and complete copies of each of (a) the Articles of Incorporation of Cogility as amended and in effect on the date hereof, (b) the By-Laws of Cogility as amended and in effect on the date hereof, and (c) the minute books of Cogility, have been previously made available to the AQSP Entities.  Such minute books contain complete and accurate records of all meetings and other corporate actions of the Cogility Board, committees of the Cogility Board, incorporators of Cogility, and the Cogility Shareholders, from the date of Cogility’s incorporation to the date hereof.
 
4.5             Authorization; Enforceability .  Cogility has the corporate power and authority to own, hold, lease and operate its respective properties and assets and to carry on its respective business as currently conducted. Cogility has the corporate power and authority to execute, deliver and perform this Agreement, the Certificate of Merger, and the other Definitive Documents to which it is a party. The execution, delivery and performance of this Agreement, the Certificate of Merger, and the other Definitive Documents to which Cogility or any of the Cogility Shareholders is a party and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by Cogility and by the Cogility Shareholders, and no other action on the part of Cogility, or any of the Cogility Shareholders is necessary in order to give effect thereto. This Agreement, the Certificate of Merger, and each of the other Definitive Documents to be executed and delivered by Cogility, and by each of the Cogility Shareholders, have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, Cogility and each of the Cogility Shareholders, respectively, enforceable against Cogility and each of the Cogility Shareholders in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.
 
 
 
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4.6             No Violation or Conflict .  Except as provided in the Cogility Disclosure Schedule, none of (a) the execution and delivery by Cogility, or by any of the Cogility Shareholders, of this Agreement, the Certificate of Merger, and the other Definitive Documents to be executed and delivered by Cogility or any of the Cogility Shareholders, (b) the consummation by Cogility or any of the Cogility Shareholders of the transactions contemplated by this Agreement, the Certificate of Merger, and the other Definitive Documents, or (c) the performance of this Agreement, the Certificate of Merger, and the other Definitive Documents required by this Agreement to be executed and delivered by Cogility or any of the Cogility Shareholders at the Closing, will (1) conflict with or violate the Articles of Incorporation or By-Laws of Cogility, (2) conflict with or violate any Law, Order or Permit applicable to Cogility or the Cogility Shareholders, or by which Cogility’s properties is bound or affected, or (3) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Cogility’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on any of the properties or assets of Cogility pursuant to, any Contract, Permit or other instrument or obligation to which Cogility is a party or by which Cogility or its properties are bound or affected except, in the case of clause (2) or (3) above, for any such conflict, breach, violation, default or other occurrence that would not individually or in the aggregate, have a Material Adverse Effect on Cogility.
 
4.7             Governmental Consents and Approvals .  The execution, delivery and performance of this Agreement, the Certificate of Merger, and the other Definitive Documents by Cogility and the Cogility Shareholders do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.
 
4.8             Capital Structure .  The authorized Cogility Capital Stock consists of Thirty Million (30,000,000) shares of Cogility Stock.  As of the date hereof, 11,530,493 shares of Cogility Stock are issued and outstanding, and no shares of Cogility Stock are held in treasury. As of the date hereof, 5,724,666 Cogility Options are issued and outstanding. Except as described above, there will be no shares of voting or non-voting capital stock, options, warrants, other equity interests or other Cogility Capital Stock authorized, issued, reserved for issuance or otherwise outstanding at the Closing. All of the outstanding shares of Cogility Stock are duly authorized, validly issued, fully paid and non-assessable, and not subject to, or issued in violation of, any kind of preemptive, subscription or any kind of similar rights. There are no bonds, debentures, notes or other Indebtedness of Cogility having the right to vote (or convertible into securities having the right to vote) on any matters on which stockholders of Cogility may vote. Except for the 5,724,666 Cogility Options referred to above, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind (contingent or otherwise) to which Cogility is a party or bound obligating Cogility to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of Cogility or obligating Cogility to issue, grant, extend or enter into any agreement to issue, grant or extend any security, option, warrant, call, right, commitment, agreement, arrangement or undertaking that will survive the Closing.  There are no outstanding contractual obligations of Cogility to repurchase, redeem or otherwise acquire any shares of capital stock (or options to acquire any such shares) or other security or equity interest of Cogility which will survive the Closing.
 
 
 
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4.9             Financial Statements .
 
(a)   Attached hereto as Exhibit 4.9(a) are copies of the audited balance sheet of Cogility as of December 31, 2010 and December 31, 2009, together with the related statements of operations and the statements of changes in stockholders equity and the statements of cash flow, for the year ended on such dates (collectively, the “ Annual Financial Statements ”).  The Annual Financial Statements are correct and complete and in accordance with the books and records of Cogility and fairly present, in accordance with GAAP, in all material respects the financial condition of Cogility as of the dates indicated therein and accurately reflect in the aggregate all material aspects of Cogility’s business.
 
(b)   Attached hereto as Exhibit 4.9(b) is a copy of the unaudited balance sheet of Cogility for the six month period ended as of June 30, 2011, together with the related statement of operations (unaudited), the statement of changes in stockholders’ equity (unaudited) and the statement of cash flows (unaudited) for the period ended June 30, 2011 (collectively, the “ Interim Financial Statements ” and, together with the Annual Financial Statements, the “ Financial Statements ”).  The Interim Financial Statements are correct and complete and in accordance with the books and records of Cogility and fairly present, in accordance with GAAP, in all material respects the financial condition of Cogility as of the dates indicated therein, are complete and correct in all material respects and accurately reflect any and all material aspects of Cogility’s business.
 
(c)   The Financial Statements have been prepared in accordance with GAAP and contain the information required to be contained in corporate financial statements under applicable rules and regulations of the U.S. Securities and Exchange Commission (the “ SEC ”).
 
4.10             Conduct in the Ordinary Course; Absence of Changes .  Since June 30, 2011, except as permitted by this Agreement and except as disclosed in the Cogility Disclosure Schedule, Cogility’s business has been conducted in the ordinary course of business, consistent with past practice, and there has been no change in Cogility’s business which has had, or could reasonably be anticipated to have a Material Adverse Effect on Cogility.
 
4.11             Real Property .
 
(a) Cogility owns no real estate.
 
(b)   The Cogility Disclosure Schedule lists (1) the street address of each parcel of Leased Real Property, (2) the identity of the lessor, lessee and current occupant (if different from lessee) of each such parcel of Leased Real Property, and (3) the term and rental payment terms of the leases (and any subleases) pertaining to each such parcel of Leased Real Property.
 
 
 
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(c)   Cogility has made available to the AQSP Entities, to the extent available, for each parcel of Leased Real Property, all title insurance policies, title reports, surveys, certificates of occupancy, environmental reports and audits, appraisals, other title documents and other documents relating to or otherwise affecting the Leased Real Property, or the operation of Cogility’s business thereon or any other uses thereof.
 
(d)   Cogility has delivered or made available to the AQSP Entities correct and complete copies of all leases and subleases listed in the Cogility Disclosure Schedule and any and all ancillary documents pertaining thereto (including, but not limited to, all amendments, consents for alterations and documents recording variations and evidence of commencement dates and expiration dates) (the “ Leases ”).  With respect to each such Lease:
 
(1)   such Lease is legal, valid, binding, enforceable and in full force and effect, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought, and represents the entire agreement between the respective landlord and tenant with respect to such property;
 
(2)   such Lease, together with the consent and/or estoppel certificate contemplated by Section 10.1(k) , will not cease to be legal, valid, binding, enforceable and in full force and effect, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought, on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such Lease or otherwise give the landlord or lessee a right to terminate such Lease;
 
(3)   neither Cogility nor any other party to such Lease is in breach or default in any material respect, and no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under such Lease; and
 
(4)   the rental set forth in each Lease is the actual rental being paid, and there are no separate agreements or understandings with respect to the same.
 
4.12             Personal Property .
 
(a)             The Cogility Disclosure Schedule lists each item or distinct group of machinery, equipment, tools, supplies, furniture, fixtures, vehicles, rolling stock and other tangible personal property used in Cogility’s business and owned or leased by Cogility (the “ Tangible Personal Property ”).
 
(b)   Cogility has delivered or made available to the AQSP Entities correct and complete copies of all leases for Tangible Personal Property (if any) and any and all material ancillary documents pertaining thereto.  With respect to each of such leases:
 
 
 
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(1)   such lease, together with all ancillary documents delivered pursuant to the first sentence of this Section, is legal, valid, binding, enforceable, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought, and in full force and effect and represents the entire agreement between the respective lessor and lessee with respect to such property; and
 
(2)   neither Cogility nor any other party to such lease is in breach or default in any material respect, and no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under, such lease; and
 
(3)   such lease will not cease to be legal, valid, binding, enforceable, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought, and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such lease or otherwise give the lessor a right to terminate such lease.
 
(c)   All Tangible Personal Property is adequate and usable for the use and purposes for which it is currently used, is in good operating condition, normal wear and tear excepted, subject to periodic maintenance and repair in accordance with good business practice.
 
4.13             Board and Shareholder Approvals .  The Cogility Board and the Cogility Shareholders have approved this Agreement, the Merger, the Certificate of Merger, and the other transactions contemplated hereby and by the other Definitive Documents.
 
4.14             Insurance .  Cogility has furnished or made available to the AQSP Entities true and complete copies of all insurance policies and fidelity bonds covering the assets, business, equipment, properties and operations of Cogility relating to Cogility’s business, a list of which (by type, carrier, policy number, limits, premium and expiration date) is set forth in the Cogility Disclosure Schedule. All such insurance policies are in full force and effect and will remain in full force and effect with respect to all events occurring prior to the Effective Time.
 
4.15             Permits .  The Cogility Disclosure Schedule lists all Permits used in or otherwise required for the conduct of Cogility’s business. Each of the Permits is valid and in full force and effect.
 
 
 
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4.16             Taxes .  Cogility has been a C corporation for all periods since its incorporation, and has been so classified for state purposes for the same periods and the jurisdictions in which Cogility does business listed in the Cogility Disclosure Schedule.  Except as set forth in the Cogility Disclosure Schedule:  (a) All Tax Returns and reports in respect of Taxes required to be filed with respect to Cogility or Cogility’s business have been timely filed; (b) all Taxes required to be shown on such returns and reports or otherwise due have been timely paid; (c) all such returns and reports are true, correct and complete in all material respects; (d) no adjustment relating to such returns has been proposed formally or informally by any Governmental Authority and no basis exists for any such adjustment; (e) there are no pending or threatened actions or proceedings for the assessment or collection of Taxes against Cogility or (insofar as either relates to the activities or income of Cogility or Cogility’s business or could result in Liability of Cogility on the basis of joint and/or several liability) any corporation that was includible in the filing of a return with Cogility on a consolidated or combined basis; (f) no consent under Section 341(f) of the Code has been filed with respect to Cogility; (g) there are no Tax Liens on any assets of Cogility or Cogility’s business; (h) Cogility has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed; (i) Cogility has not consented to extend the time in which any Taxes may be assessed or collected by any taxing authority; (j) Cogility has not requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing Date; (k) there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon Cogility’s assets; (l) Cogility will not  be required (1) as a result of a change in method of accounting for a taxable period ending on or prior to the Closing Date, to include any adjustment under Section 481(c) of the Code (or any corresponding provision of state, local or foreign law) in taxable income for any taxable period (or portion thereof) beginning after the Closing Date or (2) as a result of any “closing agreement,” as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign law), to include any item of income or exclude any item of deduction from any taxable period (or portion thereof) beginning after the Closing Date; (m) Cogility is not a party to or bound by any tax allocation or tax sharing agreement or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; (n) there is no basis for any assessment, deficiency notice, 30-day letter or similar notice with respect to any Tax to be issued to Cogility with respect to any period on or before the Closing Date; (o) Cogility has not made any payments, and neither will become obligated (under any contract entered into on or before the Closing Date) to make any payments, that will be nondeductible under Section 280G of the Code (or any corresponding provision of state, local or foreign law); (p) Cogility has not  been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code (or any corresponding provision of state, local or foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or foreign law); (q) no claim has ever been made in writing by a taxing authority in a jurisdiction where Cogility does not file Tax Returns that Cogility is or may be subject to Taxes assessed by such jurisdiction; (r) Cogility does not have any physical presence in any foreign country, as defined in the relevant tax treaty between the United States of America and such foreign country; (s) true, correct and complete copies of all income and sales Tax Returns filed by or with respect to Cogility for the past two (2) years have been furnished or made available to the AQSP Entities; and (t) Cogility will not be subject to any Taxes pursuant to Section 1374 or Section 1375 of the Code (or any corresponding provision of state, local or foreign law) with respect to the transactions contemplated by this Agreement.
 
 
 
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4.17             Labor Matters .
 
(a)             The Ghourdjian Letter to Jacobs lists the name, the place of employment, the current annual salary rates, bonuses, deferred or contingent compensation, pension, accrued vacation, “golden parachute” and other like benefits paid or payable (in cash or otherwise) in 2009, 2010 and 2011 to date, the date of employment and a description of position and job function of each current salaried employee, officer, director, manager, member, consultant or agent of Cogility.
 
(b)   Except as set forth in the Ghourdjian Letter to Jacobs, no employment, consulting, severance pay, continuation pay, termination or indemnification agreements or other similar agreements of any nature (whether in writing or not) exist between Cogility, on the one hand, and any of their respective current or former stockholders, officers, directors, members, managers, employees or consultants, on the other hand.
 
(c)    (1)   Cogility is not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Cogility;
 
(2)   There are no controversies, strikes, slowdowns or work stoppages pending or threatened between Cogility and any of its employees;
 
(3)   There are no unfair labor practice complaints pending against Cogility before the National Labor Relations Board or any other Governmental Authority or any current union representation questions involving employees of Cogility;
 
(4)   Cogility is currently in material compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority and has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of Cogility and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing;
 
(5)   Cogility has paid in full to all its employees or adequately accrued for in accordance with GAAP, consistently applied, all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees;
 
(6)   There is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Authority with respect to any Persons currently or formerly employed by Cogility;
 
(7)   There is no charge or proceedings with respect to a violation of any occupational safety or health standards that has been asserted or is now pending or threatened with respect to Cogility; and
 
(8)   There is no charge of discrimination in employment or employment practices, for any reason, including, without limitation, age, gender, race, religion or other legally protected category, which has been asserted and not settled or is now pending or threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which Cogility has employed or currently employs any Person.
 
 
 
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4.18             Employee Benefit Plans .  The Cogility Disclosure Schedule lists all Employee Plans of Cogility  (the “ Cogility Employee Plans ”).  Cogility has provided or made available to the AQSP Entities correct and complete copies of (where applicable) (a) all plan documents, summary plan descriptions, summaries of material modifications, amendments, and resolutions related to such plans, (b) the most recent determination letters received from the IRS, (c) the three most recent Form 5500 Annual Reports and summary annual reports, (d) the most recent audited financial statement and actuarial valuation, and (e) all related agreements, insurance contracts and other agreements which implement each such Cogility  Employee Plan. There are no restrictions on the ability of the sponsor of each Cogility Employee Plan to amend or terminate any Cogility Employee Plan and each Cogility Employee Plan may be transferred by Cogility or its respective ERISA Affiliate to the Cogility Surviving Corporation.   With respect to each Cogility Employee Plan, no event has occurred, and there exists no condition or set of circumstances in connection with which Cogility would reasonably be expected to, directly, or indirectly, subject the AQSP Entities to any liability under ERISA, the Code or any other applicable law, except liability for benefits claims and funding obligations payable in the ordinary course.  Each Cogility Employee Plan conforms to, and its administration is in compliance with, all applicable Laws.  No prohibited transaction within the meaning of ERISA section 406 or Code section 4975, or breach of fiduciary duty under Title I of ERISA has occurred with respect to any Cogility Employee Plan.   Cogility and each Commonly Controlled Entity has made all payments due from it to date with respect to each Benefit Plan.   With respect to each Cogility Employee Plan, there are no benefits obligations for which contributions have not been made or properly accrued and there are no unfunded benefits obligations that have not been accounted for by reserves, or otherwise properly footnoted in accordance with generally accepted accounting principles, on the Financial Statements.  No Cogility Employee Plan is a multiemployer plan.  There are no actions, liens, suits or claims pending or to the Knowledge of Cogility threatened (other than routine claims for benefits) with respect to any Cogility Employee Plan or against the assets of any Cogility Employee Plan.  Each Cogility Employee Plan which is intended to qualify under Code section 401(a) or 403(a) so qualifies and its related trust is exempt from taxation under Code section 501(a). Each Cogility Employee Plan that is not qualified under Code section 401(a) or 403(a) is exempt from Part 2, 3 and 4 of Title I of ERISA as an unfunded plan that is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, pursuant to ERISA sections 201(2), 301(a)(3) and 401(a)(1). No assets of Cogility are allocated to or held in a “rabbi trust” or similar funding vehicle.  Each Cogility Employee Plan that is a “group health plan” (as defined in ERISA section 607(1) or Code section 5001(b)(1) has been operated at all times in compliance with the provisions of COBRA, HIPAA and any applicable, similar state law.  Except as disclosed in the Cogility Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not: (i) entitle any current or former employee of Cogility to severance pay, unemployment compensation or any similar payment; (ii) accelerate the time of payment or vesting, or increase the amount of any compensation due to, or in respect of, any current or former employee of Cogility; (iii) result in or satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an “excess parachute payment” within the meaning of Code section 280G(b); or (iv) constitute or involve a prohibited transaction (as defined in ERISA section 406 or Code section 4975), constitute or involve a breach of fiduciary responsibility within the meaning of ERISA section 502(l) or otherwise violate Part 4 of Subtitle B of Title I of ERISA.
 
 
 
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4.19             Environmental Matters .  (a) Cogility has all Environmental Permits which are required under Environmental Laws, (b) Cogility is in material compliance with all terms and conditions of such Environmental Permits, (c) Cogility is in material compliance with all Environmental Laws and any other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such Environmental Laws or contained in any regulation, code, plan, governmental Order, notice or demand letter issued, entered, promulgated or approved thereunder, (d) there has not been any event, condition, circumstance, activity, practice, incident, action or plan which will interfere with or prevent continued compliance with the terms of such Environmental Permits or which would give rise to any liability under any Environmental Law or give rise to any common law or statutory liability, based on or resulting from Cogility’s or its agents’ manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, or release into the environment, of any Hazardous Substance, and (e) Cogility has taken all actions reasonably necessary under applicable requirements of Environmental Law to register any products or materials required to be registered by Cogility (or any of its agents) thereunder.
 
4.20             Certain Interests .
 
(a)             No officer, director, employee, consultant, advisory board member or Cogility Shareholder, and no spouse and no relative (or relative of such spouse) who resides with, or is a dependent of, any such person:
 
(1)             has any direct or indirect financial interest in any competitor, supplier or customer of Cogility, provided, however, that the ownership of securities representing no more than three percent (3%) of the outstanding voting power of any competitor, supplier or customer, and which are also listed on any national securities exchange or traded actively in the national over-the-counter market, shall not be deemed to be a “financial interest” so long as the Person owning such securities has no other connection or relationship with such competitor, supplier or customer;
 
(2)   owns, directly or indirectly, in whole or in part, or has any other interest in any tangible or intangible property which Cogility uses or has used in the conduct of Cogility’s business or otherwise; or
 
(3)   has outstanding any Indebtedness to Cogility.
 
(b)   Except as shown on the Cogility Disclosure Schedule, Cogility does not have any Indebtedness, Liabilities, nor any other obligation of any nature whatsoever to, any officer, director, employee, consultant, advisory board member or Cogility Shareholder, or to  any spouse thereof or to any relative (or relative of such spouse) who resides with, or is a dependent of, any such person.
 
4.21             Litigation .  Except as set forth in the Cogility Disclosure Schedule, there are no Actions or Litigation pending or threatened against, relating to or affecting Cogility or Cogility’s business before any Court, Governmental Agency or any arbitrator or mediator. Neither Cogility nor any Cogility Shareholder is subject to any Order that prohibits or restricts the consummation of the transactions contemplated hereby or restricts in any way the ownership or operations of Cogility or Cogility’s business.
 
 
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4.22             Intellectual Property and Web Sites .  Except for software, content, or other similar services/property licensed or purchased by Cogility on a non-exclusive basis through contracts with vendors, all of which contracts are in full force and effect and none of which contracts are currently subject to any contractual disputes nor have been threatened with cancellation or non-renewal by such vendors, Cogility has the exclusive rights, titles and interests in and to any and all Intellectual Property and all of the Web Sites used by, being developed by, or otherwise associated with the present or future operations of Cogility’s business, all of which are listed on the Cogility Disclosure Schedule. All Web Sites, Patents, and Patent applications pending associated with Cogility’s business are listed on the Cogility Disclosure Schedule.
 
4.23             Receivables .  The Receivables reflected in the Financial Statements consist solely of bona fide accounts receivable generated by Cogility’s business in the ordinary course, which can be collected in the ordinary course of Cogility’s business, subject to reserves for bad debt maintained consistently with the bad debt reserve reflected in the Annual Financial Statements.
 
4.24             Valid Lien . AQSP has a validly perfected and enforceable first priority lien and security interest in all of Cogility’s assets, including liens, recorded with the U.S. Patent and Trademark Office, on all Cogility patent applications identified in the Cogility Disclosure Schedule.   
 
4.25             Brokers .  Neither Cogility nor, to Ghourdjian’s Knowledge, any Cogility Shareholder has employed any financial advisor, broker or finder, and neither Cogility, nor, to Ghourdjian’s knowledge, any of the Cogility Shareholders has incurred nor will incur any broker’s, finder’s, investment banking or similar fees, or commissions in connection with the transactions contemplated by this Agreement.
 
4.26             Liabilities and Indebtedness . Except as listed on the Disclosure Schedule or a supplementary schedule provided in advance of the Closing Date, on the Closing Date, Cogility will be free and clear of all Indebtedness and Liabilities, including but not limited to liens, obligations, claims and encumbrances, actual or contingent, known or unforeseen, including but not limited to, bank loans, stockholder loans, payroll claims, bonus and commission claims, unpaid payroll taxes, other unpaid taxes, pension obligations, employment discrimination claims, sexual harassment claims, breach of contract claims, credit card chargebacks in excess of $1,000, lawsuits, stock options, stock warrants, phantom stock plans, stock appreciation rights or plans, deferred compensation agreements, purchase agreements that cannot be cancelled by Cogility at any time, consulting agreements, employment agreements other than the Employment Agreements referred to in Section 7.2 , severance agreements or “change of control” agreements of any nature, and any other liabilities of any nature whatsoever excepting only those ordinary course liabilities shown on the Interim Financial Statements, subject only to minor adjustments in liability line items incurred in the ordinary course of Cogility’s business between June 30, 2011 and the Closing Date.
 
 
 
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4.27             Contracts .  The Ghourdjian Letter to Jacobs contains a complete, current and correct list of all material Contracts of Cogility, including all amendments thereto, whether written or oral.  All such Contracts are in full force and effect, are enforceable in accordance with their terms and are not in default.
 
4.28             Material Information .  All material information concerning Cogility has been provided by Cogility to the AQSP Entities.
 
4.29             AQSP Loans and Security Interest .  As of the date of this Agreement, the aggregate principal amount of Cogility’s Secured Promissory Notes Numbers 1-7 payable to AQSP is $820,000. The obligations of Cogility under such Secured Promissory Notes Numbers 1-7 are jointly secured by a Security Agreement dated as of January 31, 2011, which Security Agreement and the UCC-1 filings thereunder have created a perfected first lien security interest in all of Cogility’s assets in favor of AQSP (the "AQSP Security Interest"). Cogility agrees, represents, warrants and covenants that such Secured Promissory Notes Numbers 1-7, such Security Agreement, such UCC-1 filings, and such AQSP Security Interest are and shall remain legally binding upon Cogility both before and after the Closing Date, and that Cogility has and shall have no claims or defenses whatsoever in regard thereto either before or after the Closing Date, it being the express agreement, acknowledgement and intention of the Parties that the Closing of the Merger shall not be deemed to terminate or otherwise adversely impact the legally binding nature and enforceability of such Secured Promissory Notes Numbers 1-7, such Security Agreement, such UCC-1 filings, or such AQSP Security Interest.
 
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
AQSP AND AQSP MERGECO
 
In order to induce Cogility, and the Shareholders to enter into this Agreement and to consummate the transactions contemplated hereby, the AQSP Entities represent and warrant to Cogility and the Cogility Shareholders as follows:
 
5.1             Organization and Qualification .  Each of AQSP and AQSP Mergeco is a corporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation.  Each of AQSP and AQSP Mergeco is duly qualified or licensed as a foreign corporation to conduct business, and is in good standing, under the laws of each jurisdiction where the character of the properties owned, leased or operated by it, or the nature of its activities, makes such qualification or licensing necessary, except where the failure to be so qualified, licensed or in good standing, individually or in the aggregate, has not had and would not have a Material Adverse Effect on AQSP or AQSP Mergeco.  Each of AQSP and AQSP Mergeco has made available to Cogility true, complete and correct copies of its Articles of Incorporation and Bylaws, each as amended to date. Neither AQSP nor AQSP Mergeco is in default under or in violation of any provision of its Articles of Incorporation or Bylaws.  All of the issued and outstanding shares of capital stock of, or other equity interests in, AQSP Mergeco are: (a) duly authorized, validly issued, fully paid, non-assessable; (b) owned, directly or indirectly by AQSP free and clear of all Liens; and (c) free of any restriction, including, without limitation, any restriction which prevents the payment of dividends to AQSP, or otherwise restricts the right to vote, sell or otherwise dispose of such capital stock or other ownership interest other than restrictions under the Securities Act and state securities laws.
 
 
 
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5.2             Capital Structure .  The authorized capital stock of AQSP consists of (a) 100,000,000 shares of AQSP Common Stock $0.001 par value per share and (b) 10,000,000 shares of “blank check” Preferred Stock, none of which has been issued (“ AQSP Preferred Stock ”).  As of the date of this Agreement: (1) 291,624 shares of AQSP Stock were issued and outstanding; (2) no shares of AQSP Preferred Stock were issued or outstanding; (3) 630,000 AQSP Options were issued and outstanding; and (4) 460,000 AQSP warrants were issued and outstanding (with the holders of such AQSP warrants having certain so-called “double down” rights in regard to their investment in AQSP notes and warrants pursuant to the terms and conditions of AQSP’s private placement, the first $920,000 of which closed in March, 2011.  Except as described above, there were no shares of voting or non-voting capital stock, equity interests or other securities of AQSP authorized, issued, reserved for issuance or otherwise outstanding. All outstanding shares of AQSP Stock are, and all shares of AQSP Stock to be issued in connection with the consummation of the transactions contemplated by this Agreement will be, when issued in accordance with the terms hereof, duly authorized, validly issued, fully paid and non-assessable, and not subject to, or issued in violation of, any kind of preemptive, subscription or any kind of similar rights.  Except as provided hereunder, neither AQSP nor AQSP Mergeco is subject to any obligation or requirement to provide funds for, or to make any investment (in the form of a loan or capital contribution) to or in any Person. All of the issued and outstanding shares of AQSP Stock were issued in compliance in all material respects with all applicable federal and state securities laws. AQSP Mergeco is a wholly-owned subsidiary of AQSP.
 
5.3             Authorization; Enforceability .  Each of the AQSP Entities has the corporate power and authority to execute, deliver and perform this Agreement, the Certificate of Merger and the other Definitive Documents to which it is a party. The execution, delivery and performance of this Agreement, the Certificate of Merger and the other Definitive Documents to which it is a party and the consummation of the transactions contemplated herein and therein have been duly authorized and approved by each of the AQSP Entities, and no other action on the part of any of them is necessary in order to give effect thereto. This Agreement, the Certificate of Merger and each of the other Definitive Documents to be executed and delivered by each of the AQSP Entities have been duly executed and delivered by, and constitute the legal, valid and binding obligations of, each of them, enforceable against each of them, in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and except that the availability of equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought.
 
5.4             No Violation or Conflict .  None of (a) the execution and delivery by the AQSP Entities of this Agreement, the Certificate of Merger and the other Definitive Documents to be executed and delivered by each of the AQSP Entities, (b) consummation by each of the AQSP Entities of the transactions contemplated by this Agreement, the Certificate of Merger and the other Definitive Documents, or (c) the performance of this Agreement, the Certificate of Merger and the other Definitive Documents required by this Agreement to be executed and delivered by each of the AQSP Entities at the Closing, will (1) conflict with or violate the Articles of Incorporation or By-Laws of any of them, (2) conflict with or violate any Law, Order or Permit applicable to any of them, or (3) conflict with or violate any loan or credit agreement, note, bond, mortgage, indenture, contract, agreement, lease or other instrument or obligation to which any of them is a party or by which any of their respective properties may be bound or affected.
 
 
 
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5.5             Governmental Consents and Approvals .  The execution, delivery and performance of this Agreement and the other Documents by each of the AQSP Entities do not and will not require any consent, approval, authorization, Permit or other order of, action by, filing with or notification to, any Governmental Authority.
 
5.6             Litigation .  There is no suit, Action, Litigation, arbitration, claim, governmental or other proceeding before any Governmental Authority pending or threatened, against AQSP or AQSP Mergeco.
 
5.7             Interim Operations .  AQSP Mergeco was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, and has engaged in no other business activities and has conducted its operations only as contemplated in this Agreement.
 
5.8             Brokers .  None of the AQSP Entities has employed any financial advisor, broker or finder, and neither AQSP nor AQSP Mergeco has incurred and will not incur any broker’s, finder’s, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement.
 
5.9             Board Approval . The AQSP Board and the shareholders of AQSP have approved this Agreement, the Merger, the Certificate of Merger, and the other transactions contemplated hereby and by the other Definitive Documents.
 
ARTICLE VI
COVENANTS
 
6.1             Performance .  Subject to the terms and conditions provided in this Agreement, each of the Parties shall use its respective reasonable best efforts in good faith to take or cause to be taken as promptly as practicable all reasonable actions that are within its power to cause to be performed and fulfilled those of the conditions precedent to its obligations to consummate the transactions contemplated by this Agreement that are dependent upon its actions, including obtaining all necessary approvals, to the end that the transactions contemplated hereby will be fully and timely consummated.
 
6.2             Regulatory and Other Authorizations; Notices and Consents .
 
(a) Each of the Parties will use its best efforts to obtain all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the other Documents and will cooperate fully with each of the Parties in promptly seeking to obtain all such authorizations, consents, orders and approvals.
 
(b)   Each of the Parties shall give promptly such notices to third parties and use its best efforts to obtain such third party consents and estoppel certificates as the Parties may deem necessary or desirable in connection with the consummation of the transactions contemplated by this Agreement, the Certificate of Merger and the other Definitive Documents. The Parties shall cooperate with each other and use all reasonable efforts to assist in giving such notices and obtaining such consents and estoppel certificates.
 
 
 
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6.3             Notification .  From the date this Agreement is signed by the Parties until the Closing, each Party to this Agreement shall promptly notify the other Parties in writing of the occurrence, or pending or threatened occurrence, of (a) any event that would constitute a breach or violation of this Agreement by any Party or that could reasonably be anticipated to cause any representation or warranty made by the notifying Party in this Agreement to be false or misleading in any respect (including without limitation, any event or circumstance which would have been required to be disclosed on the applicable disclosure Schedule if such event or circumstance occurred or existed on or prior to the date of this Agreement), and (b) all other material developments affecting the assets, Liabilities, business, financial condition, operations, results of operations, customer or supplier relations, employee relations, projections or prospects of such Party.  Any such notification shall not limit or alter any of the representations, warranties or covenants of the parties set forth in this Agreement or any rights or remedies a Party may have with respect to a breach of any representation, warranty or covenant.
 
6.4             Conduct of Business Pending Closing .
 
(a)             At all times prior to the Closing Date, Cogility covenants and agrees that it shall conduct Cogility’s business only in the ordinary course of its Business consistent with past practices, and Cogility shall use its commercially reasonable efforts consistent with past practices to preserve intact Cogility’s business and to keep available satisfactory relationships with suppliers, customers and others having business relationships with it.
 
(b)             From the date of this Agreement until the Closing Date there shall not be any material increases or decreases in compensation, capital expenditures, asset sales or affiliate transactions involving Cogility or any of the Cogility Shareholders, nor shall there be any unusual cash withdrawals, unusual payments, unusual contracts or contract provisions, or other unusual transactions or business practices involving Cogility or any of the Cogility Shareholders.
 
(c)   At all times prior to the Closing Date, except as otherwise set forth in this Agreement, AQSP Mergeco covenants and agrees that it will not, directly or indirectly, conduct any business or incur any Liabilities (contingent or otherwise).
 
(d)   Cogility and the Cogility Shareholders agree that during the period from the date of signing of this Agreement until the Closing Date, they shall each refrain from entering into, participating in, or responding to, any other negotiations, discussions, contracts, letters of intent, or other arrangements of any nature with any third parties (other than AQSP) regarding a disposition of Cogility’s business or assets, the sale of the stock or equity interests of Cogility, or any other actions which might have the effect of impeding, delaying or making more costly the Merger, provided , however , that this agreement shall no longer be legally binding upon Cogility, or the Cogility Shareholders if the Closing has not occurred by December 31, 2011.

 
 
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ARTICLE VII
EMPLOYMENT MATTERS AND MANAGEMENT OF THE SURVIVING
 CORPORATION POST-CLOSING
 

7.1             Employ ment Matters .  Except as provided in Exhibit 2.8(a) and in Section 7.2 , or except as may be mutually agreed upon by Ghourdjian and Jacobs, on the Closing Date, there will be no changes in the employment status, or in the terms and conditions of employment, of the employees of AQSP and Cogility Surviving Corporation that existed prior to the Merger.
 
7.2             Employment Agreements . On the Closing Date, AQSP and the Cogility Surviving Corporation shall enter into employment agreements with each of Ghourdjian and Jacobs, covering the period of time from the Closing Date through December 31, 2013 (the " Employment Agreements "). The Employment Agreements shall contain such terms and conditions as shall be mutually acceptable to Ghourdjian, Jacobs, and the Compensation Committee of the AQSP Board, provided, that the Employment Agreements shall be consistent with the following terms and conditions:
 
(a) Base Salaries :
 
(1)             Due to the current financial weaknesses of AQSP and Cogility, each of Ghourdjian and Jacobs initially shall not receive a monthly base salary from AQSP and/or any of its subsidiaries unless and until the Compensation Committee of the AQSP Board determines in its sole discretion that AQSP and/or its subsidiaries can afford to pay each of Ghourdjian and Jacobs a monthly base salary without jeopardizing the financial health of AQSP and its subsidiaries, and neither Ghourdjian nor Jacobs shall have any rights or claims for "back pay" or "accrued base salary" or other base salary-related compensation in regard to the period of time during the term of the Employment Agreements in which they receive no base salary; and
 
(2) If and when the financial weaknesses of AQSP and its subsidiaries are partially or completely overcome -- either as the result of increased revenue of AQSP or its subsidiaries, or the successful closing(s) by AQSP or its subsidiaries of additional acquisitions and/or of capital raise(s) -- then the Compensation Committee of the AQSP Board may determine in its sole discretion and is hereby authorized to cause AQSP and/or one of its subsidiaries to pay each of Ghourdjian and Jacobs a monthly base salary payable in accordance with the typical payroll practices of AQSP and its subsidiaries (which monthly base salary may be increased or decreased, as circumstances may dictate, from time to time in the sole discretion of the Compensation Committee of the AQSP Board), which monthly base salary shall not exceed $21,666.67 in regard to any month during calendar year 2011, 2012 or 2013, and neither Ghourdjian nor Jacobs shall have any rights or claims for "back pay" or "accrued base salary" or other base salary-related compensation in regard to the period of time during the term of the Employment Agreements in which they receive a monthly base salary of less than $21,666.67;
 
provided, however, that under no circumstances whatsoever shall any member of the senior management team of AQSP or any of its subsidiaries receive a monthly base salary higher than the monthly base salaries of each of Ghourdjian and Jacobs without the prior express written approval of both Ghourdjian and Jacobs;
 
 
 
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(b)             Annual Bonuses :  If and when the financial weaknesses of AQSP and its subsidiaries are partially or completely overcome -- either as the result of increased revenue of AQSP or its subsidiaries, or the successful closing(s) by AQSP or its subsidiaries of additional acquisitions and/or of capital raise(s) -- then the Compensation Committee of the AQSP Board may determine in its sole discretion and is hereby authorized to cause AQSP and/or one of its subsidiaries to pay each of Ghourdjian and Jacobs an annual bonus in regard to each calendar year during the term of the Employment Agreements, such annual bonus to be based upon the overall annual financial performance of AQSP and its subsidiaries during such calendar year and to not exceed $520,000, provided, however, that under no circumstances whatsoever shall any member of the senior management team of AQSP or any of its subsidiaries receive an annual bonus higher than the annual bonuses of each of Ghourdjian and Jacobs without the prior express written approval of both Ghourdjian and Jacobs;
 
(c)             Event-Triggered Bonuses : If following the Closing Date AQSP or one its subsidiaries successfully closes an acquisition of all or a portion of the stock or assets of a business, or successfully closes a capital raise, or successfully closes a sale of all or a portion of its stock or assets, then the Compensation Committee of the AQSP Board may determine in its sole discretion and is hereby authorized to cause AQSP and/or its subsidiaries to pay to Ghourdjian and Jacobs (or, at the joint election of Ghourdjian and Jacobs, to a group of employees of AQSP and its subsidiaries who are jointly designated by Ghourdjian and Jacobs) bonuses in the following aggregate amounts, respectively:
 
(1) an aggregate amount of up to 5.0% of the aggregate purchase price of such acquisition, as may be determined by the Compensation Committee of the AQSP Board in its sole discretion;
 
(2) an aggregate amount of up to 2.5% of the aggregate amount of such capital raise if such capital raise consists of straight debt such as loans, notes or bonds payable by AQSP and/or its subsidiaries, as may be determined by the Compensation Committee of the AQSP Board in its sole discretion;
 
(3) an aggregate amount of up to 7.5% of the aggregate amount of such capital raise if such capital raise consists of common stock, convertible debt, preferred stock, or other equity securities, as may be determined by the Compensation Committee of the AQSP Board in its sole discretion; and
 
(4) an aggregate amount of up to 10.0% of the aggregate profit in regard to such sale, as may be determined by the Compensation Committee of the AQSP Board in its sole discretion; provided that, in regard to the respective bonuses payable under Sections 7.2(c)(1) and 7.2(c)(4) above: The bonus shall be paid within 45 days of the closing, even if the entire aggregate purchase price of such acquisition, or the entire aggregate sale proceeds, as the case may be, are not paid at the closing. In determining the aggregate purchase price of such acquisition or the aggregate profit from such sale, as the case may be, the Compensation Committee of the AQSP Board will calculate the total consideration reasonably expected to be paid to the seller(s) in such acquisition, or to AQSP or its subsidiary in such sale, as the case may be, regardless of the timing of the payment or whether the payment is made in stock, cash or assumed debt. Where purchase price consideration or sale proceeds are paid in stock, now or in the future, the Compensation Committee of the AQSP Board may use the value of the stock recited in the acquisition or sale documents, as the case may be, or, in the absence of recited value, may use the volume weighted average closing price of the stock for the ten trading days prior to the close of such acquisition or sale, as the case may be, to calculate the value of stock paid at the closing and in the future. Where future payments to sellers, or to AQSP or its subsidiary, as the case may be, are contingent upon milestones, the Compensation Committee of the AQSP Board should expect reasonable milestones to be met, and that the company or assets acquired through such acquisition, or the stock or assets sold through such sale, as the case may be, will perform financially at least as well as prior to the acquisition or sale, as the case may be. The aggregate purchase price, or the aggregate profit, as the case may be, shall not be discounted because some or all payments are to be made in the future; and
 
 
 
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(d)             Reimbursements :  Ghourdjian and Jacobs shall each receive prompt dollar-for-dollar reimbursement of all legitimate expenses incurred or paid by him in the performance of his duties as a director and officer of AQSP and its subsidiaries, and each shall be provided with an AQSP and/or Cogility Surviving Corporation credit card that may be used to pay all such legitimate expenses. Without limiting the generality of the foregoing sentence, such expenses shall include, but shall not be limited to: travel expenses (including but not limited to airfare, bus, train, taxi, rental car, tolls, parking, mileage allowance on personal cars, other auto expenses and repairs, gasoline, etc.); lodging; corporate apartments away from the homes of Ghourdjian and Jacobs; meals; entertainment; postage; supplies and equipment; office phone and fax; mobile phone charges; office and home internet, and mobile internet; costs of attendance at and participation in investor conferences, trade shows, training courses, and other work-related events and functions; and such other benefits as are generally provided to employees of AQSP and/or its subsidiaries.
 
ARTICLE VIII
PRE-CLOSING ASSIGNMENTS
 
8.1             Sale and Assignment of Intellectual Property .  DSGSPT and Ghourdjian hereby sell, convey, give, grant, assign and transfer to Cogility any and all rights, titles and interests of any nature whatsoever that either of them may have in or to the ownership or use of any and all Intellectual Property and Web Sites used in or associated with Cogility or Cogility’s business.

ARTICLE IX
REGISTRATION RIGHTS

9.1             Piggyback Registration Rights .  The holders of all of the AQSP Options outstanding at the Effective Time, and the holders of all of the warrants to purchase AQSP Stock issued or to be issued pursuant to the private placement of AQSP notes and warrants the first $920,000 of which private placement closed in March 2011, shall enjoy so-called “piggyback registration rights” in regard to the registration of all AQSP Stock issuable upon the exercise of any of such AQSP Options or warrants, in regard to any registration statement filed by AQSP during the period from the Effective Time through December 31, 2016. AQSP shall bear all of the legal, accounting, filing, and other costs and expenses in regard to such registration statement.

 
 
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ARTICLE X
CONDITIONS PRECEDENT TO CLOSING

10.1             Conditions Precedent to the Obligations of the Parties .  The obligation of each of the Parties to consummate the transactions described in this Agreement shall be subject to the fulfillment on or before the Closing of the following conditions precedent, each of which may be waived by a Party in its sole discretion:

(a)             Representations, Warranties and Covenants of Cogility .  The representations and warranties of Cogility, DSGSPT and Ghourdjian contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing, with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, and the covenants and agreements contained in this Agreement to be complied with by Cogility, DSGSPT and Ghourdjian on or before the Closing shall have been complied with, and AQSP and AQSP Mergeco shall have received a certificate from Cogility, DSGSPT and Ghourdjian to such effect signed by DSGSPT and by Ghourdjian, on behalf of Cogility and on behalf of himself as an individual.

(b)             Representations, Warranties and Covenants of AQSP and AQSP Mergeco .  The representations and warranties of each of AQSP and AQSP Mergeco contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing, with the same force and effect as if made as of the Closing Date, other than such representations and warranties that are expressly made as of another date, and the covenants and agreements contained in this Agreement to be complied with by AQSP and AQSP Mergeco on or before the Closing shall have been complied with, and Cogility shall have received a certificate to such effect signed by Gerard M. Jacobs on behalf of AQSP and AQSP Mergeco.

(c)             No Adverse Change of Cogility .  No events or conditions shall have occurred which individually or in the aggregate, have had, or may reasonably be anticipated to give rise to any Material Adverse Effect on Cogility.

(d)             No Adverse Change of AQSP or AQSP Mergeco .  No events or conditions shall have occurred which individually or in the aggregate, have had, or may reasonably be anticipated to give rise to any Material Adverse Effect on AQSP or AQSP Mergeco.

(e)             Governmental Approvals .  Any and all approvals from Governmental Authorities required for the lawful consummation of the transactions contemplated by this Agreement, the Certificate of Merger, and the other Definitive Documents shall have been obtained.  The Certificate of Merger shall have been filed with the Secretary of State of the State of Delaware.
 
 
 
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(f)             Consents .  Any and all needed consents and approvals from third parties for the consummation of the transactions contemplated by this Agreement, the Certificate of Merger and the other Definitive Documents, and the transfer of all of Cogility’s business, assets and agreements of Cogility to Cogility Surviving Corporation shall have been obtained.

(g)             No Actions, Suits or Proceedings .  No Order of any Court or Governmental Authority shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement, the Certificate of Merger and the other Definitive Documents.  No Action or Litigation shall be pending or threatened, before any Court or Governmental Authority to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement, the Certificate of Merger, the other Definitive Documents, or the consummation of the transactions contemplated hereby.  No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting Cogility shall be pending, and Cogility shall not have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.

(h)             Cogility Capital Stock .  The Cogility Shareholders shall have delivered Cogility Certificates evidencing all of the Cogility Capital Stock to AQSP, provided that AQSP may choose to proceed forward with the Closing notwithstanding the delivery to AQSP of Cogility Certificates evidencing less than all of the Cogility Capital Stock to AQSP but shall not be obligated to deliver any AQSP Stock or AQSP Options to any person or entity which fails to deliver his or its Cogility Certificates to AQSP except as may be required by applicable law.

(i)             AQSP Stock . AQSP shall have delivered to its stock transfer agent an irrevocable instruction letter in a form reasonably acceptable to AQSP and Cogility.

(j)             Closing Documents .  Each Party shall have delivered to the other Parties fully signed originals of this Agreement, the Certificate of Merger, and the other Definitive Documents, and such other documents and instruments as a Party or its counsel may reasonably request in regard to the Closing.

(k)             Consent and/or Estoppel Certificates . Cogility shall deliver to AQSP a consent and/or estoppel certificate executed by each landlord of any Leased Real Property, in form and substance satisfactory to AQSP.

(l)             Mutual Due Diligence . Cogility and AQSP each shall have completed its “due diligence” investigation of the other (including without limitation an examination of the corporate books and records, financials, historical operations, management, business practices, computer systems, prospects, legal, tax, ERISA and other matters), and the results of such investigation shall be satisfactory to each of them, in its sole discretion.

(m)             Financial Statements .  AQSP shall have received from Cogility such the Financial Statements and such other audited financial statements, reviewed financial statements and corresponding auditor’s opinions as shall enable AQSP to file a form 8-K within four business days following the Closing Date satisfying all SEC reporting requirements.
 
 
 
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(n)             Reverse Stock Split .  The 1-for-20 Reverse Stock Split of AQSP Stock shall have been completed.

(o)             Securities Filings . All necessary securities filings, including but not limited to the Section 14 Filing, shall have been made with the SEC and other governmental agencies, as required by applicable laws, rules and regulations, in regard to the Merger and related matters.

ARTICLE XI
INDEMNIFICATION

11.1             Survival of Representations, Warranties and Covenants .  The representations and warranties contained in this Agreement shall survive until the first anniversary of the Closing Date, except for Cogility’s representations and warranties under Section 4.16 which shall survive until the expiration of the applicable statute of limitations. All covenants and agreements contained in this Agreement (and in the corresponding covenants and agreements set forth in the Certificate of Merger and any of the Definitive Documents) shall survive the Closing and continue in full force until fully performed in accordance with their terms.
 
11.2             Indemnification .

(a)             Cogility, DSGSPT and Ghourdjian agree to indemnify and hold harmless AQSP and AQSP Mergeco, the AQSP Shareholders, and each of their respective successors and assigns, together with all of their officers and directors, from and against any and all losses, damages, liabilities, obligations, costs or expenses which are caused by or arise out of (1) any breach or default in the performance by Cogility of any covenant or agreement of Cogility contained in this Agreement; (2) any material breach of warranty or inaccurate or erroneous representation made by Cogility, DSGSPT or Ghourdjian herein, in this Agreement or in any Exhibit or Schedule (including the Cogility Disclosure Schedule) delivered to AQSP or AQSP Mergeco pursuant hereto or in any certificate or other instrument delivered by or on behalf of Cogility, DSGSPT or Ghourdjian  pursuant hereto; (3) any infringement actions relating to the trademarks or service marks used by Cogility or any other loss arising out of a determination that Cogility is not entitled to use such trademarks or service marks; and (4) any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees) arising out of the foregoing (any one such item being herein called a “ Loss ” and all such items being herein collectively called “ Losses ”), if and to the extent that such aggregate Losses exceed an aggregate of One Hundred Thousand Dollars ($100,000); provided, however, that neither DSGSPT nor Ghourdjian shall be liable for a proportionate share of any Loss in excess of its or his proportionate share of his stock in Cogility as of the Closing, and that the total cumulative liability of DSGSPT and Ghourdjian for Losses shall be satisfied from shares in Cogility or AQSP with a fair market value of One Million Dollars ($1,000,000.00).
 
(b)   AQSP and AQSP Mergeco jointly and severally agree to indemnify and hold harmless Cogility and the Cogility Shareholders and their respective successors and assigns, from and against any and all Losses which are caused by or arise out of (1) any material breach or default in the performance by AQSP or AQSP Mergeco of any covenant or agreement of AQSP or AQSP Mergeco contained in this Agreement; (2) any material breach of warranty or inaccurate or erroneous representation made by AQSP or AQSP Mergeco herein, in this Agreement or in any Exhibit or Schedule delivered to Cogility pursuant hereto or in any certificate or other instrument delivered by or on behalf of AQSP or AQSP Mergeco pursuant hereto; and (3) any and all actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees) arising out of the foregoing, if and to the extent that such aggregate Losses exceed an aggregate of One Hundred Thousand Dollars ($100,000).
 
 
 
31
 
 
 
(c)   Any indemnified party seeking indemnification hereunder shall give to the party obligated to provide indemnification to such indemnified party a notice describing in reasonable detail the facts giving rise to any claim for indemnification hereunder and shall include in such notice the amount or the method of computation of the amount of such claim, and a reference to the provision of this Agreement or any other agreement, document or instrument executed pursuant hereto or in connection herewith upon which such claim is based.  After the giving of any notice pursuant hereto, the amount of indemnification to which an indemnified party shall be entitled under this Article shall be determined by the written agreement between the indemnified party and the indemnifying party or by a final judgment or decree of any Court of competent jurisdiction.
 
(d)   No party hereunder shall be obligated under this Section 11.2 to pay any amounts for indemnification hereunder relating to a claim to the extent of (1) any tax benefit to the indemnified party therefrom, or (2) any insurance proceeds and any indemnity, contribution or similar payment paid to the indemnified party or any affiliated entity from any third party with respect thereto.
 
11.3             Third Party Claim .  If any third person asserts a claim against an indemnified party hereunder that, if successful, might result in a claim for indemnification against any indemnifying party hereunder, the indemnifying party shall be given prompt written notice thereof and shall have the right (a) to participate in the defense thereof and be represented, at his or its own expense, by advisory counsel selected by it, and (b) to approve any settlement if the indemnifying party is, or will be, required to pay any amounts in connection therewith.  Notwithstanding the foregoing, if within ten (10) Business Days after delivery of the indemnified party’s notice described above, the indemnifying party indicates in writing to the indemnified party that, as between such parties, such claims shall be fully indemnified for by the indemnifying party as provided herein, then the indemnifying party shall have the right to control the defense of such claim, provided that the indemnified party shall have the right (1) to participate in the defense thereof and be represented, at his or its own expense, by advisory counsel selected by it, and (2) to approve any settlement if the indemnified party’s interests are, or would be, affected thereby, which approval shall not be unreasonably withheld, conditioned or delayed.

ARTICLE XII
TERMINATION
 
12.1             Termination .
 
(a)             A Party shall have the right to terminate this Agreement in the event that one of the conditions precedent to the obligation of such Party to close the transaction hereunder set forth in Section 10.1 have not been met by a scheduled Closing Date that is mutually agreed upon by AQSP and Cogility, as extended by mutual agreement of the Parties.
 
(b)   This Agreement shall terminate if the Closing does not occur by December 31, 2011, unless such date is extended by mutual agreement of the Parties.
 
 
 
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ARTICLE XIII
MISCELLANEOUS
 
13.1             Notices .  All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (a) delivered by hand, (b) made by facsimile transmission, (c) sent by recognized overnight courier, or (d) sent by certified mail, return receipt requested, postage prepaid.
 
If to AQSP, AQSP Mergeco, or Jacobs to:
 
Gerard M. Jacobs
31 N. Suffolk Lane
Lake Forest, IL  60045

If to Cogility, DSGSPT, or Ghourdjian to:

Matthew Ghourdjian
Cogility Software Corporation
2967 Michelson Dr STE G528
Irvine CA 92612-0657

All notices, requests, consents and other communications hereunder shall be deemed to have been delivered (1) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (2) if sent by facsimile transmission, at the time receipt has been acknowledged by electronic confirmation or otherwise, (3) if sent by overnight courier, on the next Business Day following the day such notice is delivered to the courier service, or (4) if sent by certified mail, on the fifth (5th) Business Day following the day such mailing is made.
 
13.2             Entire Agreement .  The November 4, 2010 Agreement, this Agreement, the Certificate of Merger and the other Definitive Documents embody the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all other oral or written discussions, drafts, proposals, agreements, contracts and understandings of any nature whatsoever relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in the November 4, 2010 Agreement, this Agreement, the Certificate of Merger and the other Definitive Documents shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.
 
 
 
33
 
 

13.3             Binding Effect .  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns.
 
13.4             Assignment .  Neither this Agreement, nor any right hereunder, may be assigned by any of the Parties without the prior written consent of the other Parties.
 
13.5             Modifications and Amendments .  The terms and provisions of this Agreement may be modified, changed or amended only by written agreement executed by all Parties hereto.
 
13.6             Waivers .  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the Party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.  No failure or delay by a Party in exercising any right, power or remedy under this Agreement, and no course of dealing between the Parties hereto, shall operate as a waiver of any such right, power or remedy of the Party.  No single or partial exercise of any right, power or remedy under this Agreement by a Party, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such Party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.  The election of any remedy by a Party shall not constitute a waiver of the right of such Party to pursue other available remedies.  No notice to or demand on a Party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Party giving such notice or demand to any other or further action in any circumstances without such notice or demand.
 
13.7             No Third Party Beneficiary .  Except in regard to the so-called piggyback registration rights provided under Section 9.1 , nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any Person other than the Parties and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.
 
13.8             Severability .  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.
 
13.9             Publicity .  Neither Cogility nor any of the Cogility Shareholders shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of AQSP, except as may be required by Law.
 
 
 
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13.10             Governing Law .  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the Law of the State of Delaware without giving effect to the conflict of law principles thereof.
 
13.11             Counterparts; Signatures .  This Agreement may be executed in any number of counterparts, either manually, or via facsimile transmission or electronic transmission of signatures, each of which shall be deemed an original, no other counterpart needing to be produced and all of which, when taken together, shall constitute but one and the same instrument and agreement.
 
13.12             Headings .  The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
 
13.13             Expenses .  Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs and expenses, whether or not the Closing shall have occurred.
 
13.14             Attorney’s Fees .  In the event that any Action or Litigation is filed to enforce any of the agreements, terms, conditions, representations, warranties, covenants, indemnification agreements, or other Sections of this Agreement, the prevailing Party in such action shall be entitled to payment from the losing Party all costs and expenses, including reasonable attorney’s fees, court costs and ancillary expenses incurred by such prevailing Party in connection with such Action or Litigation.
 
13.15             Further Assurances .  At any time and from time to time after the Closing Date each Party shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation as may be reasonably requested in order to more effectively carry forth the terms and conditions of this Agreement, the Certificate of Merger and the other Definitive Documents.
 
13.16             Incorporation by Reference .  Each Exhibit and Schedule to this Agreement is hereby incorporated into this Agreement by reference thereto, with the same legally binding force and effect as if such Exhibit or Schedule were fully set forth herein.  Any disclosure made in this Agreement or in any Schedule or any document attached to any Schedule shall be deemed to be a disclosure for all Schedules. The Schedules shall not reveal any materially adverse conditions not otherwise disclosed in the Financial Statements.
 
[Remainder of Page Left Intentionally Left Blank]

 
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written.
 

ACQUIRED SALES CORP.
 
   
By:
   
Name:
Gerard M. Jacobs
 
Title:
President
 
   
ACQUIRED SALES CORP. MERGER SUB, INC.
 
   
By:
   
Name:
Gerard M. Jacobs
 
Title:
President
 
   
COGILITY SOFTWARE CORPORATION
 
   
By:
   
Name:
Matthew Ghourdjian
 
Title:
President
 
   
DEBORAH SUE GHOURDJIAN SEPARATE
PROPERTY TRUST
 
By:
   
Name:
Deborah Sue Ghourdjian
 
Title:
Trustee
 
   
   
   
Gerard M. Jacobs
 
   
   
Matthew Ghourdjian
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
36
 
 
 
Exhibit 1.5       Certificate of Merger
 
 
 
 
37
 

 
Exhibit 2.8(a)      Directors and Officers of Cogility Surviving Corporation

Directors of Cogility Surviving Corporation:
Matthew Ghourdjian, Co-Chairman
Gerard M. Jacobs, Co-Chairman
Joshua A. Bloom, M.D.
Roger S. Greene
James S. Jacobs, M.D.
Michael D. McCaffrey
Vincent J. Mesolella
Richard E. Morrissy
Two additional persons to be identified by Matthew Ghourdjian and approved by Gerard   M. Jacobs

Officers of Cogility Surviving Corporation:
President - Gerard M. Jacobs
Chief Executive Officer - Daniel F. Terry, Jr.
Chief Technology Officer - Matthew Ghourdjian
Treasurer - A person to be mutually designated by Matthew Ghourdjian and Gerard M.   Jacobs, and approved by the board of directors of Cogility Surviving Corporation
Secretary - Gerard M. Jacobs
 
 
 
38
 

 
Exhibit 2.8(b)                                             Directors and Officers of AQSP

Directors of AQSP:
Matthew Ghourdjian, Co-Chairman
Gerard M. Jacobs, Co-Chairman
Joshua A. Bloom, M.D.
Roger S. Greene
James S. Jacobs, M.D.
Michael D. McCaffrey
Vincent J. Mesolella
Richard E. Morrissy
Two additional persons to be identified by Matthew Ghourdjian and approved by Gerard   Jacobs

Officers of AQSP:
Chief Executive Officer, Chief Development Officer, and Secretary - Gerard M. Jacobs
President and Chief Operating Officer - Daniel F. Terry, Jr.
Chief Technology Officer - Matthew Ghourdjian
Treasurer - A person to be mutually designated by Matthew Ghourdjian and Gerard M.   Jacobs, and approved by the AQSP Board


 
39
 
 
 
Exhibit 4.9(a)                                             Annual Financial Statements
To be attached, subject to approval by both Matthew Ghourdjian and Gerard M. Jacobs

 
 
40
 
 

Exhibit 4.9(b)                                             Interim Financial Statements
To be attached, subject to approval by both Matthew Ghourdjian and Gerard M. Jacobs

 
 
41
 


Exhibit 10.1(i)                                  Letter to Transfer Agent
To be attached, subject to approval by both Matthew Ghourdjian and Gerard M. Jacobs
 
 
 
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Cogility Disclosure Schedule
Cogility hereby discloses, represents and warrants to AQSP and AQSP Mergeco the following information in regard to the following Sections of the Agreement, respectively:

Section 4.1 :  Cogility is duly licensed and qualified to transact business as a foreign corporation and is in good standing in California.

Section 4.3 :  Cogility owns 49% of the common stock of Cortez Systems, a California corporation.

Section 4.11(b) :  The Leased Real Property is as follows:

Anaheim, CA:
(1) Street address: 1600 South Douglass, Suite 102, Anaheim, CA  92612
(2) Identity of lessor and lessee: Lessor is CashCall, Inc., Lessee is Cogility
(3) Term and rental payment: No rental payment and no written agreement guaranteeing any term for Cogility

San Jose, CA:
(1) Street address: 111 N. Market Street, Suite 815, San Jose, CA
(2) Identity of lessor and lessee: Lessor is Fleece Real Estate Co., Lessee is Cogility
(3) Term and rental payment: $3,826 per month through November 30, 2011.

Alexandria, VA:
(1) Street address: 111 S. Patrick, Alexandria, VA  22314
(2) Identity of lessor and lessee: Lessor is Guy Dresser, Lessee is Cogility
(3) Term and rental payment: Month to month, $3400 per month.

Section 4.12 :  The following is a list of Cogility’s tangible personal property:
Computers and office equipment

Section 4.15 :  The following is a list of all Permits used in or otherwise required for the conduct of Cogility’s business:

General Business Permits to conduct business in its municipal locations

Section 4.16 :  Cogility owes the following taxes:

California Franchise Tax Board                                                        $55,909                        Unpaid 2009 taxes
Cogility has filed an amended return claiming that the $55,909 in unpaid taxes is not due, but the Franchise Tax Board has not yet accepted that conclusion.

Cogility has not yet filed its 2010 federal or state tax returns, but has filed and received extensions to file the returns no later than September 15, 2011.  Cogility does not believe it owes state or federal income tax for business operations in 2010, with the exception of annual state franchise fees.

 
 
43
 
 
 
Cogility is late on making payroll tax payments for the period from February 15, 2011 to the present.  The estimated delinquency as of July 31, 2011 is $ 115,970.95, but that amount does not include any penalties or late fees.

Section 4.18

Cogility has a 401K plan with Securian Retirement.  Cogility does not match any employee contributions.

Section 4.20 (b):

On April 15, 2011, Daniel Terry made a loan to Cogility in the principal amount of $100,000, with interest accruing at a rate of 10% per annum. On June 29, 2011, Daniel Terry made a loan to Cogility in the principal amount of $125,000, with interest accruing at a rate of 10% per annum.  On July 29, 2011, Daniel Terry made a loan to Cogility in the principal amount of $125,000, with interest accruing at a rate of 10% per annum.

Section 4.21 :

The Watertower Group made a claim in January 2011 relating to a transaction with Cogility in 2005.  Cogility does not believe any sums are due to the Watertower Group.

Section 4.22 :

Cogility’s domain names and web sites are as follows:   www.cogility.com

Cogility’s Patents and Patent applications pending are as follows:
SYSTEM AND METHOD FOR TEMPORAL CORRELATION OF
OBSERVABLES Docket No.: 008889P002
STATE MACHINE WITH OUT-OF-ORDER PROCESSING FUNCTIONALITY AND
METHOD THEREOF Docket No.: 005255P003

Cogility does business under the following trade names, both of which are registered to Cogility:
Cogility Software, Registration No. 3006210, registration date 11/11/2005, subject to the lien of AQSP; and
Cogility, Registration No. 2977188, registration date 7/26/2005, subject to the lien of AQSP.

Section 4.26

Severance agreements with M. Hood and H. Desai call for payments under certain conditions after the Closing Date.  M. Artiano has a claim for a deferred bonus to be paid under certain conditions after the Closing Date.

 
 
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AQSP Disclosure Schedule

The AQSP Entities hereby disclose, represent and warrant to Cogility and the Shareholders the following information in regard to Article V of the Agreement:

AQSP's Section 14C information statement in regard to the Merger, its Form 10-K for the transitional period ended December 31, 2010, and its Form 10-Q for the quarterly period ended June 30, 2011, all filed with the U.S. Securities and Exchange Commission, are hereby incorporated herein by reference thereto.


 
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Exhibit 10.16



Issue Date: June 27, 2011
PO Number: COGPMA265P1-1
Customer: NAVAIR PMA265
Project: Program Budget & Asset Management Tool (B&AMT)
         Proof of Concept Pilot
Start Date: July 15, 2011
End Date: October 31, 2011

NAVAIR PMA265 is designing, building and deploying a new Program, Budget & Asset Management Tool.  PMA265 requires technical expertise to configure, test and deploy an enhanced integrated Program Budget & Asset Management Tool capability.

Defense & Security Technology Group, LLC has been selected to provide System Integration services and solutions.

Phase 1 Task 1:  Cogility Complex Event Process and Data Integration Pilot and Test

PMA 265 has approved a 120-day pilot project to evaluate Cogility’s complex event processing and data integration capabilities.  The deliverables for this stage include a functional single threaded stand-alone to be used for test and analysis of budget artifacts and aviation assets.  Selection of the single threaded scenarios will be performed with PMA265 input and direction in the initial weeks of this stage.

To meet the objectives described above, for this limited scope, stand-alone unconnected system, Cogility shall:

·  
Provide a limited scope management toolset to enable centralized planning, budgeting and asset management. Provide the ability to run up to 5 fixed and dynamic service life excursion types
·  
Provide an integrated budget master information data model for a single product or functional area of responsibility (e.g., E/F/G Air Vehicle)
·  
Provide a single enterprise process thread through the B&AMT initial system to show budget and asset management data and process integration capability across 2-3 input sources (initially with structured data source(s); data sources to be provided by Microsoft Excel)
·  
Provide event-driven integration of 2 dynamic operational process templates (templates shall include demonstration of business rules management)
·  
Provide rapid iterative changes to process templates to proof-of-concept system


 
1 of 2
 


 
Cogility shall provide resources to support the following deliverables for Phase I Task 1.0:

Milestone
REPORT/DELIVERABLE
Due Date
1.1 & 1.2
·   Initial Configuration Approach
·   B&AMT Initial Configuration Master Information Model Architecture
·   Single-Thread Scenario Definition
·   Scope and Acceptance Criteria
Contract Award + 30 Days
1.3
·   Process and Business Use Case Test Documentation
·   Data Integration Architecture
Contract Award + 60 Days
 
1.4
·   Version .01 Demo Test Scenarios & Acceptance
Contract Award + 90 Days
1.5
·   Monthly Status Report
·   Version .01 Delivery
·   Final System Summary
·   Executive Summary and Key Findings
Contract Award + 120 Days

Resources (Time & Materials)

Resource
Role
Rate
Himansu Desai
·   Senior Architect
$163.46 per hour
Alex Jiang
·   Modeler and Developer
$122.60 per hour
Thien Pham
·   User Interface
·   Modeler and Developer
$122.60 per hour
 
 
 
Buyer:
  P.O. Acknowledged by:
     
  6/27/211  
Minh Le Date Date
 

 
2 of 2
 

 
Exhibit 10.17


Issue Date: June 27, 2011
PO Number: COGNA42P1-1
Customer: NAVAIR 4.2 Cost Performance
Project: Command Information Center – Data Integration (CIC-DI)
                Proof of Concept
Start Date: July 15, 2011
End Date: September 30, 2011

NAVAIR 4.2 Cost Performance Directorate is designing, building and deploying an integrated Command Information Center for Data Integration supporting the Naval Aviation System Command NAVAIR.

Defense & Security Technology Group, LLC has been selected to provide System Integration services and solutions.

Cogility Complex Event Process and Data Integration Proof of Concept and Test

NAVAIR 4.2 requires an 120-day evaluation of Cogility’s complex event processing and data integration capabilities.  For this limited scope proof-of-concept evaluation, Cogility shall:

·  
Demonstrate a single thread through the CIC-DI prototype to show data and process integration capability across 1-2 input sources (initially with structured data source(s))
·  
Demonstrate event-driven system to system integration of 2 dynamic operational process templates (templates shall include business rules)
·  
Demonstrate rapid iterative changes to process templates to proof-of-concept system

Cogility shall provide resources to support the following deliverables for Phase I Task 1.0:

Milestone
REPORT/DELIVERABLE
Due Date
1.1
·   Proof-of-Concept (PoC) Approach
·   Proof-of-Concept Master Information Model Architecture
·   Single-Thread Scenario Definition
·   PoC Scope and Acceptance Criteria
Contract Award + 30 Days
1.2
·   Process and Business Use Case Test Documentation
·   Data Integration Architecture
Contract Award + 60 Days
 
 
1.3
·   PoC Version .01 Demo Test Scenarios & Acceptance
Contract Award + 90 Days
 
1.4
·   PoC Version .01 Demo
·   Final PoC Evaluation Summary
Contract Award + 120 Days

 
 
1 of 2
 



Resources (Time & Materials)

Resource
Role
Rate
Alex Jiang
·    Modeler and Developer
$122.60 per hour
Thien Pham
·   User Interface
·   Modeler and Developer
$122.60 per hour
 
 
 
 
Buyer:
  P.O. Acknowledged by:
     
  6/27/211  
Minh Le Date Date

 
2 of 2
 

 
 
Exhibit 10.18


 
AWARD/SUBCONTRACT
 
1.  This o  is x  is not a rated order under DPAS (15 CFR 700)
2.  Rating
 
3.  SUBCONTRACT NUMBER
SOTERA-SA-FY11-040
4.  Effective Date:
June 20, 2011
5.  Prime Contract Number:
GS00T11AJC0005
6.  Purchase Req:
 
7.  Project No.
8.   Subcontract Issued By:
The Analysis Corporation, the Intelligence Solutions
Business of Sotera Defense Solutions, Inc.
(Formerly GTEC)
1501 Farm Credit Drive, Suite 2300
McLean, VA 22102
Buyer:     Teri J. Smith, Sr. Subcontracts Manager
 
9.  Submit Invoices To:
Sotera Defense Solutions, Inc.
2420 Mall Drive, Suite 201
North Charleston, SC 29406
 Attn:  Teri J. Smith
Phone: 843.202.2506
Email: teri.smith@soteradefesne.com
9.   Name and address of Subcontractor:
Cogility Software Corporation
111 N. Market Street, Suite 815
San Jose, CA 95113
Subcontractor POC: Matthew Ghourdjian
Phone:    949.752.4694
Fax:
Email:  mghourdjian@cogility.com
10.  Subcontract Type:
 
Indefinite Delivery/Indefinite Quantity
11. Subcontract Amount:
 
                 TBD by Task Order
13.  Description of Supplies/Services:     Provide support to SOTERA under The Federal Systems Integration and Management Center (FEDSIM) Technology and Systems Engineering (TSE), Joint Improvised Explosive Device Defeat Organization (JIEDDO) Counter-IED Operations Integration Center (COIC) Program.
14.  TABLE OF CONTENTS
PART I – THE SCHEDULE
PART II – SUBCONTRACT CLAUSES
SEC
DESCRIPTION
SEC
DESCRIPTION
A
AWARD/SUBCONTRACT
I
GENERAL PROVISIONS
B
SUPPLIES OR SERVICES AND PRICES/COSTS
PART III – LIST OF DOCUMENTS, EXHIBITS, AND OTHER ATTACHMENTS
C
DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK
J
LIST OF ATTACHMENTS
D
PACKAGING AND MARKING
PART IV – REPRESENTATIONS
E
INSPECTION AND ACCEPTANCE
K
REPRESENTATIONS AND CERTIFICATIONS
F
DELIVERIES OR PERFORMANCE
 
G
SUBCONTRACT ADMINISTRATION DATA
H
SPECIAL PROVISIONS
15. SOTERA (“the Prime”) has a prime contract (“Prime Contract”) with FEDSIM to provide Technology and Systems Engineering (TSE), Joint Improvised Explosive Device Defeat Organization (JIEDDO) Counter-IED Operations Integration Center (COIC) . Cogility Software Corporation (“the Subcontractor”) agrees to provide the supplies/perform the services set forth in the Schedule of this Subcontract for the Prices stated therein.  The rights and obligations of the parties to the Subcontract are subject to and governed by the Schedule and Attachments and any specifications or other provisions which are made part of this Subcontract, by reference or otherwise.  This Subcontract integrates, merges, and supersedes any prior offers, negotiations, and agreements, whether verbal or written, concerning the subject matter hereof, and comprises the entire agreement between the parties hereto.  Any modification, revision, change or waiver of the Subcontract terms and conditions, clauses, provisions or specifications, shall not be considered valid unless executed in writing by both the Buyer and the Subcontractor.
 
16.  Buyer:   Sotera Defense Solutions, Inc.
 
17.  Subcontractor :  Cogility Software Corporation
 
 
  (Signature of person authorized to sign and date of signature)
 
 
       (Signature of person authorized to sign and date of signature)
NAME AND TITLE OF SIGNER     (Type or Print)
 
Teri J. Smith
Senior Subcontracts Manager
 
NAME AND TITLE OF SIGNER     (Type or Print)
 
 
 

 
 
 
 

 
SECTION B - SUPPLIES OR SERVICES, AND PRICES:

B-1             SUPPLIES OR SERVICES AND PRICES.   The Subcontractor shall provide all supplies, services and data described in Section C and any applicable Statement of Work (Section J, Attachment 1):

B.1.1
The purpose of this Agreement is to provide SOTERA support in the performance of their work on the prime contract. Technical operations support and special projects will be defined for performance within the scope of any or all of the technical requirements or tasks of any individual Task Order Statement of Work. Specific areas of support may include classified and unclassified security environments with a workforce that is government and contractor.

B.1.2
The Subcontractor shall furnish qualified personnel, materials, facilities, services, management resources, and equipment as necessary for the performance of work, unless otherwise specified herein, to provide services as an independent Subcontractor and not as an agent of SOTERA, in conformance with the terms and conditions set forth herein.  These services will be provided when ordered by SOTERA during the specified period stated in this Agreement. No Subcontractor personnel shall begin performance under this agreement, or arrive on-site until final written approval is received by the SOTERA Subcontracts Manager.  

B.1.3
SOTERA will determine order types for each individual task order, based upon individual task order award to SOTERA by the Government, as well as the nature of the work. The labor categories in this IDIQ subcontract shall apply to all TSE task orders.

B.2
  PRICING

B.2.1
Performance under this Subcontract shall be directed by Task Orders issued hereunder. Subcontractor’s pricing will be specified in individual Task Orders.

B-3
  HOURLY RATES

The ceiling price proposed shall apply uniformly regardless of actual utilization (i.e., even if only 5 hours of the estimated hours are ordered, the hourly ceiling rate shall be the same.)

All line items shall be separately orderable. Pricing for all line items must stand-alone and not be dependent upon the ordering of any other line items.

The labor categories and rates will be negotiated on an individual Task Order basis. The specific amount/percentage of fee for labor under this TSE subcontract will be negotiated at the task order level.
 

 
 
 

 
B-4           TYPE OF SUBCONTRACT.
 
X             This Subcontract includes Indefinite Delivery/Indefinite Quantity (IDIQ) Provisions.   The Prime Contractor may issue task orders of a fixed price, cost-reimbursable, or time and material type in accordance with the clause entitled Task Orders in Section H.

B-5             OVERTIME.   The Subcontractor’s personnel may be required to work more than 40 hours a week and on weekends. Overtime may be requested either by the Prime Contractor or the Subcontractor. In such instances, when overtime is requested, the Subcontractor shall obtain written approval by the SOTERA Program Manager prior to working overtime. If the Subcontractor fails to obtain written pre-approval for overtime, the SOTERA Sr. Subcontracts Manager may disapprove payment of overtime. The Subcontractor shall submit evidence of written overtime approval with the appropriate invoice.  If overtime work is approved in advance in writing by the Prime Contractor, an estimated cost for overtime or specific overtime rates shall be negotiated.  Failure to agree upon the cost adjustment for overtime shall be treated as a dispute under the Disputes clause of this Subcontract.

B-6             TRAVEL.  Applicable only where authorized travel is reimbursed at cost. No costs associated with travel shall be allowable unless funding is identified in a specific Travel CLIN in the Task Order or unless the Subcontractor has requested and Prime Contractor has provided advance written approval.  Prime Contractor shall reimburse the cost of travel authorized in conjunction with performance of this Subcontract in accordance with FAR 31.205-46, Travel Costs.  Reimbursement for travel is limited to that required in the performance of the Statement of Work (Section C).  Reimbursable per diem rates (lodging, meals, and incidentals) can be viewed at the following e-mail address:
https://secureapp2.hqda.pentagon.mil/perdiem .
Local travel costs  o will  x will not be reimbursed by Prime Contractor unless approved in advance in writing by the Contracts Manager.  For purposes of initial award under this subcontract or award of delivery orders if this is an IDIQ type subcontract, written approval required by this clause shall be considered requested and approved in writing if proposed by Subcontractor and funded by Prime Contractor.
In such instances, where travel outside of the metropolitan area (greater than 50 miles) is required, the Subcontractor shall obtain written authorization from the SOTERA Program Manager prior to traveling. Approved travel outside the Washington, DC area will be reimbursed in accordance with the General Services Administration’s Federal Travel regulations (FTR). Approval may be given by email. If the Subcontractor fails to obtain pre-approval for travel, the SOTERA Sr. Subcontracts manager may disapprove payment. A report shall be submitted for each trip no later than five (5) working days after completion of travel.

B-7           OPTIONS

SOTERA reserves the right  exercise the below options any time prior to the expiration date of the Subcontract, provided, however that 30 days prior to the exercise of the option, SOTERA has notified the Subcontractor in writing of its intent to do so.

The period of performance for each order shall be stated within such order.  Task orders may be issued up until the final day of the subcontract period of performance; however, any task order issued under the subcontract cannot be longer than five (5) years in length. Furthermore, any task order issued under the subcontract shall not extend beyond one-year of the IDIQ subcontract end date.
 

 
 
 

 
The period of performance to extend the term of the subcontract is as follows:

Base Year: 6/20/11 – 6/19/2013
Option Year 1:  6/20/2013 – 6/16/2014
Option Year 2: 6/20/2014 – 6/16/2015
Option Year 3:  6/20/2015 – 6/19/2016

The above period(s) of performance for the option(s) to extend the term of the subcontract shall apply only if the Government exercises the option(s) as stated in Section B in accordance with the clause at FAR 52.217-9 “Option to Extend the Term of the Contract”.

B-8            FUNDING:

o    FULLY FUNDED.   This Subcontract is fully funded.
 
x   FUNDED BY TASK ORDER. The amount available for payment shall be specified in each individual delivery order subject to the provisions of the clause entitled “Limitation of Funds” (FAR 52.232-22) incorporated by reference in this subcontract, no legal liability on the part of the Prime Contractor for payment in excess of the amount funded in the individual delivery order shall arise unless additional funds are made available and are incorporated by modification to the individual delivery order.

The estimated value of each Task Order Request (TOR) will be established at the time of its execution based on Independent Government Cost Estimates.  Based on mission needs and operations tempo, performance under this Subcontract could result in changes to the original TOR not to exceed cost estimates.  To the extent that the effort remains consistent with the tasks identified in this Subcontract and individual TO Statement of Work (SOW), SOTERA reserves the right to increase the task value up to twenty-five percent (25%) of the accepted proposal cost within scope of the existing Subcontract.  SOTERA reserves the right to de-scope, or reduce the level of effort for any TOR at its discretion.
 
x   MAXIMUM LIABILITY.  If this Subcontract is incrementally funded, the Prime Contractor shall not be obligated to pay the Subcontractor any amount in excess of the funded amount specified in the “Funding Available” paragraph above, (or in the individual delivery order if this is an IDIQ subcontract) and the Subcontractor shall not be obligated to continue performance if to do so would exceed the funded amount stated, unless and until the Prime Contractor shall have notified the Subcontractor in writing that the funded amount has been increased and shall have specified in the notice a revised funded amount that shall constitute the funded amount for performance under this Subcontract (or delivery order if this is an IDIQ subcontract.)  When the Subcontract (or delivery order) has been increased, any hours expended and costs incurred by the Subcontractor in excess of the funded amount before the increase shall be allowable to the same extent as if the hours expended and costs had been incurred after the increase in the funded amount.

B-9            NOTICE.   If this is a time and material, labor hour or cost reimbursable Subcontract and at any time the Subcontractor has reason to believe that the payments that will accrue in performing a specific Task Order in the next succeeding 30 days, if added to all other payments and costs previously accrued, will exceed 75 percent of the funded amount, the Subcontractor shall notify the Prime Contractor giving an estimate of the additional funding required for performing this Subcontract.  If at any time during performing this Subcontract, the Subcontractor has reason to believe that the total price to the Prime Contractor for performing this Subcontract will be substantially greater or less than the then stated ceiling price, the Subcontractor shall so notify the Prime Contractor, giving a revised estimate of the total price for performing this Subcontract, with supporting reasons and documentation.  If at any time during performing this Subcontract, the Prime Contractor has reason to believe that the work to be required in performing this Subcontract will be substantially greater or less than the stated ceiling price, the Prime Contractor will so advise the Subcontractor, giving the then revised estimate of the total amount of effort to be required under the Subcontract.  If the time and material, labor hour, or cost reimbursable Subcontract includes IDIQ provisions, then the requirements of this clause shall be applied to each individual delivery order in addition to the total Subcontract.
 
 
 
 
 

 
SECTION C - DESCRIPTION/SPECIFICATIONS

C.1            WORK PRODUCTS

Subcontractor shall provide supplies and services to SOTERA under this Subcontract by being awarded specific Task Orders that are consistent with this Subcontract SOW, attached to this agreement in Attachment 1, Overall Subcontract SOW, specific SOW’s will be provided with each individual Task Order.  All Work Products shall be delivered in the format requested by SOTERA at a destination designated by SOTERA.  For all Work Products that are computer software, Subcontractor shall provide the applicable source and executable code on a computer-readable magnetic medium (or other medium designated by SOTERA) and a human-readable listing of such source code, and Subcontractor shall create and provide technical documentation and such other materials as necessary to permit SOTERA’s personnel to use, maintain and modify such software without the aid of Subcontractor.

C.2            TASK ORDER REQUEST

A Task Order specifies and authorizes delivery of the work to be accomplished by the Subcontractor to satisfy a requirement. A Task Order Request (Request for Quote(RFQ)) may be issued to the Subcontractor by the SOTERA Sr. Subcontracts Manager for review and preparation of a proposal. The Task Request will describe the items and circumstances for which the Subcontractor is to provide a quote. The request will include the established closing date and any other data necessary, such as, required delivery date and delivery location. The Subcontractor shall provide the SOTERA Sr. Subcontracts Manager both a technical proposal (if requested) and a price quote detailing the labor categories to be utilized, the skill mix of service, materials pricing under this subcontract. The SOTERA Sr. Subcontracts Manager may then accept the proposal, and incorporate its contents into SOTERA’s proposal to the Government, if applicable. Once the Government has provided formal approval to SOTERA, SOTERA will in turn issue a Task Order to Subcontractor which incorporates the Statement of Work, specifications, schedule and prices, as well as applicable invoicing instructions.
 
All RFQs will incorporate all terms and conditions of the IDIQ subcontract.  In addition, the proposed RFQ will normally include the following to the extent applicable to individual Task Orders (TOs):
 
A SOW or PWS describing the work to be performed, the deliverables, the period of performance, SOTERA Point(s) of Contact, description of marking information, data rights, inspection and acceptance of services, security requirements, and Government Furnished Information / Property, as applicable.
 
The submission date/time and the method of delivery for proposals.
 
Specific instructions on what to include in the proposal submission. This may include, but is not limited to, oral presentations and written responses summarizing technical and price approaches.

Evaluation factors and their relative order of importance.
 
Other information deemed appropriate by the Contracting Officer.
 

 
 
 

 
C.2.1         Orders Placed Under This Agreement

Task Orders under this Agreement will be awarded as follows:

(A)           SOTERA may issue Task Orders to Subcontractor as follows:

The SOTERA Sr. Subcontracts Manager will order by means of Task Orders with specifically defined scopes and schedules.

Performance under the Subcontract shall be directed through authorized Task Orders (“Task Orders”) from SOTERA to the Subcontractor, subject to the terms and conditions herein. SOTERA shall submit to the Subcontractor a RFQ which includes:

·  
Statement of Work, identifying the services requested by SOTERA and any other requirements not set forth hereunder;
·  
Date of Order
·  
Type of Order
·  
List of Government furnished equipment, material, and information
·  
Labor categories and hourly rates;
·  
Level of performance (labor hours required);
·  
List of materials, fabrication costs;
·  
Delivery schedules and/or completion dates;
·  
List of deliverables;
·  
Acceptance criteria for work performed; and
·  
Travel and other direct costs, if applicable.

The Subcontractor shall submit a technical and/or cost proposal (“Task Proposal”) within the specified time frame identified in each RFQ after receipt of each RFQ from SOTERA. Task Proposals submitted to SOTERA shall constitute a valid offer which may be accepted by SOTERA without negotiation. Subcontractor shall be capable of providing a proposal within two (2) work days for urgent requirements. For non-urgent requirements, the Subcontractor shall submit proposals within fifteen (15) work days of issuance of the RFQ, unless otherwise specified. The Task Proposal shall specify:

·  
Subcontractor’s understanding of the Statement of Work and acceptance criteria;
·  
Personnel to be assigned; and overtime as proposed and formally accepted and incorporated into the individual Task Order;
·  
Detailed cost breakout of all labor required to accomplish the tasks set forth in the RFQ or be a fixed price proposal (when required/requested) with sufficient information to substantiate the price proposed;
·  
Schedule of performance;
·  
Organizational Conflict of Interest Statement disclosing any known or expected conflicts of interest pursuant to FAR 9.5;
·  
Corporate experience or TSE Contract Past Performance;

 
 
 
 
 
 
·  
Proposed Key personnel
·  
Estimated cost, which shall include direct labor, overhead, general and administrative costs (“G&A”). (Such costs shall be consistent with the Subcontractor’s costs incorporated in SOTERA’s proposal.);
·  
Costs of material, paint and plating

Oral orders may be placed only in emergency circumstances. Only the SOTERA Sr. Subcontracts Manager has the authority to place oral orders.  Information described above shall be furnished to the contractor at the time of placing an oral order and shall be confirmed by issuance of a written order within two working days.

Modifications of Orders: Orders may be modified only by the SOTERA Sr. Subcontracts Manager and may be modified orally by the SOTERA Sr. Subcontracts Manager in emergency circumstances. Oral modifications shall be confirmed by issuance of a written modification within two working days from the time of the oral communication modifying the order.

The Ceiling Price for each Order may not be changed except when authorized by a fully executed modification to the Task Order.

Unilateral Orders. Task Orders under this contract will ordinarily be issued after both parties agree on all terms. If the parties fail to agree, the SOTERA Sr. Subcontracts Manager may require the contractor to perform and any disagreement shall be deemed a dispute within the meaning of the "Disputes" clause.

If any negotiations are required between the parties and after final acceptance by SOTERA of the Task Proposal, SOTERA shall issue a Task Order. In the event of any conflict between the terms and conditions of a Task Order and the Subcontract, the Subcontract shall govern.

C.3           Subcontractor’s Performance Requirements

The Subcontractor shall be obligated to perform within the maximum order limitations as set forth in this agreement and the Task Order.

C.4           Task Issuance
 
The Task Order will authorize the Subcontractor to proceed based upon the agreed technical requirements, milestones and deliverable schedules. Payment concurrence from SOTERA will not be made for unauthorized costs.
 
A task order is considered issued when it is transmitted to the subcontractor, and signed by the SOTERA Sr. Subcontracts Manager.  The SOTERA Sr. Subcontracts Manager is responsible for issuing any TOs placed hereunder.  The SOW / PWS, labor mix and hours (if applicable), and proposed costs / price for the RFQ may be incorporated into any resulting task order.  The proposed technical solution may also be incorporated in the task order.  At any time during the duration of the IDIQ subcontract, the SOTERA Sr. Subcontracts Manager reserves the right to revise the procedures pertaining to Task Order issuance.  The SOTERA Sr. Subcontracts Manager is the only individual that is authorized to issue TOs and obligate SOTERA for TOs awarded under this IDIQ subcontract. TOs and modifications shall be made in writing and be
signed by the SOTERA Sr. Subcontracts Manager and an authorized individual to bind the Subcontractor.  Each TO shall, as appropriate:
 

 
 
 

 
(1) Set forth a pricing schedule.

(2)   Set forth the specific level of effort and/or performance outcomes desired to be fulfilled under the task order based on the estimated dollar value and complexity of the Government‘s requirement.

(3)   Designate the Task Order  Program Manager/Task Lead who will perform inspection and acceptance.

(4) Set forth any payment provisions (e.g., progress payments, milestone billings).

(5)   Be dated.

(6) Set forth the property, if any, to be furnished by the Government and the date(s) such property is to be delivered to the Subcontractor.

(7) Set forth administration data (i.e. invoicing instructions).

(8)   Set forth the Government‘s technical data rights.

(9) Set forth any other pertinent information.
 
Unauthorized Work: The Subcontractor is not authorized to commence task order performance prior to award of a task order.
 
Ordering Period: The Ordering Period shall be commensurate with the period of the IDIQ subcontract.  Accordingly, Task Orders for services specified in the PWS of the IDIQ subcontract may be issued by the SOTERA Sr. Subcontracts Manager until the final day of the IDIQ subcontract. Task order periods of performance shall not be longer than 5 years total and shall not extend beyond 365 days of the IDIQ subcontract period of performance.

C.5           Task Order Changes

Due to the dynamic nature of this program and its requirements, modifications to the Subcontract SOW during the Subcontract period of performance may be required. Changes within the scope of the Subcontract SOW shall be executed unilaterally in accordance with FAR Subpart 52.243-3. Changes that materially affect the scope of the Subcontract/Task Order change must be issued in writing by the SOTERA Subcontracts Manager. The Subcontractor is required to sign or respond to all supplement modifications received from SOTERA requiring signature within three (3) workdays.

C.5.1         Delivery

Unless otherwise agreed to, all deliveries under this Agreement must be accompanied by delivery tickets such as a SOTERA Task Order Form or similar document that must contain, at a minimum, the following information:
 

 
 
 


·  
Name of Subcontractor Agreement/Prime Contractor (SOTERA)
·  
Task Order Number
·  
Description of Goods or Services
·  
Date of Task Order
·  
Quantity, unit price and extension of each item
·  
Date of Shipment
·  
Customer identification, including name, agency, department address, phone, etc.

C.5.2         Nonpersonal Services

The services provided by this Agreement constitute professional and management services within the definition of FAR 37.201.  SOTERA will neither supervise Subcontractor employees nor control the method by which the Subcontractor performs the required tasks.  Under no circumstance shall SOTERA assign tasks to, or prepare work schedules for individual Subcontractor employees.  It shall be the responsibility of the Subcontractor to manage their employees and to guard against any actions that are of the nature of personal services, or give the perception of personal services.  If the Subcontractor believes that any actions constitute, or are perceived to constitute personal services, the Subcontractor must notify SOTERA immediately.

C.5.3         Quality Assurance

The Subcontractor shall ensure overall quality of all work performed under this Agreement.
All support and related activities performed under Task Orders shall be carefully planned, controlled, and documented.  All documentation shall provide traceability to enable Government review and verification.  At specific milestones, the Subcontractor shall provide interim reviews of the work accomplished to permit determination of the quality of the effort or to receive SOTERA/ Government guidance.  If deficiencies are found, the Subcontractor shall provide for timely and corrective action.
 

 
 
 

 
SECTION D - PACKAGING AND MARKING


D.1           PRESERVATION, PACKAGING, PACKING, AND MARKING
 
Preservation, packaging, packing and marking of all deliverables must conform to normal commercial packing standards to assure safe delivery at destination.
 
D.2           DELIVERABLES MEDIA
 
The Subcontractor shall provide virus-free deliverables to addresses identified in Section H using the current version of the Microsoft Office Suite and Adobe via email, CD-ROM or subcontractor‘s secure portal for those deliveries that cannot be emailed.
 
D.3           MARKINGS FOR ELECTRONIC DELIVERY
 
Electronic copies shall be delivered via email attachment.  The subcontractor shall label each electronic delivery with the IDIQ subcontract and Task Order Number and Project Title in the subject line of the email transmittal.
 
Packing, marking and storage costs shall not be billed to SOTERA unless specifically authorized in an order.
 
D.4            552.211-73 MARKING (FEB 1996)
 
(a) General requirements. Interior packages, if any, and exterior shipping containers shall be marked as specified elsewhere in the Subcontract (See Section D.3).  Additional marking requirements may be specified on Orders issued under this Subcontract.  If not otherwise specified, interior packages and exterior-shipping containers shall be marked in accordance with the following standards:
(1) Deliveries to civilian activities. Supplies shall be marked in accordance with Federal
Standard 123, edition in effect on the date of issuance of the solicitation.
(2) Deliveries to military activities. Supplies shall be marked in accordance with Military
Standards 129, edition in effect on the date of issuance of the solicitation.
(b) Improperly marked material. When SOTERA/Government inspection and acceptance are at destination, and delivered supplies are not marked in accordance with subcontract requirements, SOTERA/the Government has the right, without prior notice to the Subcontractor, to perform the required marking, by subcontract or otherwise, and charge the Subcontractor therefore the reasonable actual cost of that performance. This right is not exclusive, and is in addition to other rights or remedies provided for in this contract.
 
D.5            552.211-75 PRESERVATION, PACKAGING, AND PACKING (FEB 1996)
 
Unless otherwise specified, all items shall be preserved, packaged, and packed in accordance with normal commercial practices, as defined in the applicable commodity specifications. Packaging and packing shall comply with the requirements of the Uniform Freight Classification and the National Motor Freight Classification (issue in effect at time of shipment) and each shipping container of each item in a shipment shall be of uniform size and content, except for residual quantities. Where special packing is specified in an order, but not specifically provided for by the contract, such packing details must be the subject of an agreement independently arrived at between the ordering agency and the Contractor.
 

 
 
 
 
 
 D.6           552.211-77 PACKING LIST (FEB 1996)
 
(a) A packing list or other suitable shipping document shall accompany each shipment and shall include:
(1) Name and address of the consignor;
(2) Name and complete address of the consignee;
(3) Government Order or requisition number
(4) Government bill of lading number covering the shipment (if any); and
(5) Description of the material shipped, including item number, quantity, number of containers, and packaging number (if any).
 

(b) When payment will be made by Government commercial credit card, in addition to the information in (a) above, the packing list or shipping document shall include:
(1) Cardholder name and telephone number and
(2) The term ― Credit Card.
 

 
 
 

 
SECTION E - INSPECTION AND ACCEPTANCE
 
E.1             52.252-2 Contract Clauses Incorporated by Reference (Feb 1998)
 
This subcontract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the SOTERA Sr. Subcontracts Manager will make their full text available. Also, the full text of a clause may be accessed electronically at this address: ht t ps: / /ww w . ac quis i t i on .g ov/f a r .
 
52.246-2 INSPECTION OF SUPPLIES – FIXED PRICE (AUG 1996)
52.246-3 INSPECTION OF SUPPLIES – COST-REIMBURSEMENT (MAY 2001)
52.246-4 INSPECTION OF SERVICES – FIXED PRICE (AUG 1996)
52.246-5 INSPECTION OF SERVICES – COST-REIMBURSEMENT (APR 1984)
52.246-15 CERTIFICATE OF CONFORMANCE (APR 1984)
52.246-16 RESPONSIBILTY FOR SUPPLIES (APR 1984)
 
E.2            RIGHTS TO INSPECTION
 
The SOTERA Program Manager (PM) and/or the Government, through its authorized representative, has the right, at all reasonable times, to inspect, or otherwise evaluate the work performed, or being performed, hereunder and shall notify the Subcontractor of unsatisfactory performance.  All inspections and evaluations shall be performed in such a manner as will not unduly delay the work.
 
It will be the responsibility of individual task order SOTERA JIEDDO Technical Point of Contacts (TPOCs) to ensure that adequate records of the inspection or evaluation are kept to support acceptance or rejection of work performed or being performed.
 
Acceptance will be made by the SOTERA PM or designated representative(s); the SOTERA Sr. Subcontracts Manager, if necessary, will make rejections in written form to the Subcontractor.
 
E.3            PLACE OF INSPECTION AND ACCEPTANCE
 
Inspection and acceptance of all work performance, reports and other deliverables under this Subcontract shall be performed at destination.
 
E.4            SCOPE OF INSPECTION
 
All deliverables will be inspected for content, completeness, accuracy and conformance to subcontract requirements by the SOTERA JIEDDO PM and FEDSIM COR.  SOTERA will use a Performance Requirements Summary (PRS) as a basis for acceptance of performance and deliverables under task orders.  The PRS may be updated throughout the task order period of performance in cooperation with the subcontractor.   Inspection may include validation of information through the use of automated tools, testing or inspections of the deliverables, as specified in the task orders.  The scope and nature of this inspection will be sufficiently comprehensive to ensure the completeness, quality, and adequacy of all deliverables.
 

 
 
 

 
Unless otherwise specified in individual task orders, SOTERA and/or the Government requires a period not to exceed 15 work days after receipt of final deliverable items for inspection and acceptance or rejection.
 
E.5            BASIS OF ACCEPTANCE
 
The basis for acceptance shall be in compliance with the requirements, terms, and conditions set forth in this Subcontract, the individual task order, and the Subcontractor‘s proposal.  Deliverable items rejected shall be corrected in accordance with the applicable clauses in Section E.1.
 
For software development, the final acceptance of the software program will occur when all discrepancies, errors or other deficiencies identified in writing by SOTERA have been resolved, either through documentation updates, program correction or other mutually agreeable methods.
 
Reports, documents and narrative type deliverables will be accepted when all discrepancies, errors or other deficiencies identified in writing by SOTERA have been corrected.
 
If the draft deliverable is adequate, SOTERA may accept the draft and provide comments for incorporation into the final version.
 
All of SOTERA’s comments to deliverables must either be incorporated in the succeeding version of the deliverable or the Subcontractor must demonstrate to SOTERA’s satisfaction why such comments should not be incorporated.
 
If SOTERA finds that a draft or final deliverable contains spelling errors, grammatical errors, improper format, or otherwise does not conform to the requirements stated within this subcontract, the document may be immediately rejected without further review and returned to the Subcontractor for correction and resubmission.  If the Subcontractor requires additional SOTERA guidance to produce an acceptable draft, the Subcontractor shall arrange a meeting with the SOTERA Program Manager and the SOTERA Task Lead.
 
E.6            DRAFT DELIVERABLES
 
Unless otherwise specified in individual task orders, SOTERA will provide written acceptance, comments and/or change requests, if any, within 15 work days from SOTERA receipt of the draft deliverable.  Upon receipt of SOTERA comments, the Subcontractor shall have 8 work days to incorporate SOTERA’s comments and/or change requests and to resubmit the deliverable in its final form.
 
E.7            WRITTEN ACCEPTANCE/REJECTION BY SOTERA

Unless otherwise specified in individual task orders, the SOTERA Sr. Subcontracts Manager/ Program Manager/Task Lead shall provide written notification of acceptance or rejection of all final deliverables within 20 work days.  All notifications of rejection will be accompanied with an explanation of the specific deficiencies causing the rejection.  If written notification of acceptance or rejection is not received by the Subcontractor within 20 work days, the Subcontractor shall not automatically assume that the deliverable is accepted.
 
E.8            NON-CONFORMING PRODUCTS OR SERVICES
 

 
 
 

 
Non-conforming products or services will be rejected.  Unless otherwise specified in individual task orders, the Subcontractor shall correct deficiencies within 10 work days of the rejection notice. If the deficiencies cannot be corrected within ten (10) work days, the Subcontractor shall immediately notify the SOTERA Sr. Subcontracts Manger of the reason for the delay and provide a proposed corrective action plan.

E.9             MATERIAL AND WORKMANSHIP

(a)  
All material incorporated in the work shall be new and the work shall be performed in a skillful and workman like efficient manner. Both materials and workmanship shall be subject to the inspection of the SOTERA Program Manager, or his duly authorized representative who may require the Subcontractor to correct defective workmanship or materials without cost to SOTERA.

(b)  
Delivery of material and/or performance of services shall be made as specified in this Subcontract, associated Task Orders and any applicable Statement of Work. Any changes to the delivery and/or performance schedule shall be subject to mutual agreement between the Subcontractor and SOTERA, except that SOTERA reserves the right to unilaterally issue Change Orders to adjust the scheduling (subject to subparagraph (c) and (d) below), if SOTERA and Subcontractor cannot mutually agree on any revised schedule, and the Subcontractor may submit an equitable adjustment proposal.

(c)  
In the event that:

(i)
 
(ii)
SOTERA issues a unilateral Change Order to the Subcontractor, such change order having being issued in the same form, or substantially the same form, by the Government on SOTERA ; and,
 
the Subcontractor establishes to the satisfaction of the Contracting Officer or of a court of competent jurisdiction and with capacity to hear a dispute under this subcontract, that the work the subject of such Change Order was, in the circumstances, impossible to perform, or so impractical, as to be impossible of performance, by force of this provision, the Subcontractor shall be deemed not to have breached any of its obligations stipulated under this Agreement as a consequence of the Subcontractor’s non-compliance with such Change Order. Further, any rights of termination or other remedies enforced or purportedly enforced (whether under this contract or otherwise) by SOTERA in reliance upon the Subcontractor’s non-compliance, shall be deemed void ab initio and the Subcontractor shall be entitled to claim all direct costs, penalties and damages sustained as a consequence of the enforcement or purported enforcement of such remedies by SOTERA.
 
(d)  
Without in any way derogating the rights and obligations vested in the Subcontractor in subparagraph (c) above, in the event that the Subcontractor receives a unilateral Change Order from SOTERA (whether such Change Order originated with the Contracting Officer or client representative operating under the law of agency and possessing the legal capacity to contractually commit and bind the U.S. Government) and it appears to the Subcontractor that the change specified therein is incapable of performance or so impractical as to be incapable of performance, the Subcontractor shall notify SOTERA in writing of such fact and shall identify the particulars of the proposed change which give rise to the incapacity of performance or potential incapacity of performance. Upon receipt of such notice issued by the Subcontractor under this paragraph (d), SOTERA shall, if it sees fit, provide the Client with notification of the receipt of such notice and the specific matters raised therein and shall diligently work to revise the change order.
 
(e)  
For the avoidance of doubt, all Change Orders not fulfilling the requirements set out in subparagraph (c) above, shall be by mutual agreement only.
 

 
 
 
 
 
SECTION F - DELIVERIES OR PERFORMANCE
 
F.1             52.252-2 Contract Clauses Incorporated by Reference (Feb 1998)
 
This Subcontract incorporates one or more clauses by reference with the same force and effect as if they were given in full text. Upon request, the SOTERA Sr. Subcontracts Manager will make their full text available. Also, the full text of a clause may be accessed electronically at this address: ht t ps: / /ww w . ac quis i t i on .g ov/f a r .
 
52.242-15 STOP-WORK ORDER (AUG 1989)
52.242-17 GOVERNMENT DELAY OF WORK (APR 1984)
 
F.2             PLACE OF PERFORMANCE
 
Current operational needs require that this support be provided at the JIEDDO-COIC in the Washington, DC area, at nearby Subcontractor/Contractor facilities, and in forward deployed positions in Iraq, Afghanistan, and other regions of the world.

Specific requirements will be defined in potential future task orders.  Generally, work shall be performed at JIEDDO-COIC facilities in Northern Virginia.  With oversight from proper SOTERA authorities, the Subcontractor may be required to operate secure facilities in designated anonymous locales.  Unclassified and classified telecommunications support and maintenance will be provided by the government.
 
F.2.1           ROTATI O N A L   D U TY   LOC A TIONS
 
Duty locations shall be rotational between forward deployed conventional and special operations forces in the Central Command Area of Operations, Unit CONUS or OCONUS home base locations, JIEDDO facility locations in the metro-Washington D.C. area, or other home work site locations as the Government may designate in the future.  During periods of duty in CONUS, Subcontractor personnel shall operate from the JIEDDO-COIC or JIEDDO Headquarters, both in
the Washington, D.C. area, in analytical and training support roles, as directed by the SOTERA PM/TL. During periods of duty in CONUS, subcontractor personnel will travel TDY to and work from Unit home base CONUS or OCONUS locations to support pre-deployment training as agreed upon between JIEDDO-COIC and the unit when scheduling unit pre-deployment training.  This is in order to support Unit pre-deployment training and team building.  The Subcontractor may be required to work at one or more alternative work sites outside the metro-Washington, D.C. area as the ― home locations for CONUS.
 
F.2.2          DE P LOY M ENT   L OCATI O NS
 
During deployments, the Subcontractor shall normally operate from a U.S. established Forward Operating Base (FOB) under operational control (OPCON) of forward deployed JIEDDO field team commanders and tactical control (TACON) to the supported command.  Subcontractor personnel may be required to move from the initially supported Unit to another FOB or Task Force during a deployment to meet operational requirements.   The standard deployed periods shall be four to six consecutive months.  The Government may modify deployment periods.  All schedules shall include the requirement for no less than five days of face-to-face turnover between departing and replacement Subcontractor personnel at the supported Unit headquarters. Each period of deployment shall be followed by a period of duty at the specified CONUS ― home location.  Time at the ― home location should be no less than the time deployed approximately equal to twice the period of deployment, before another period of deployment begins.  The range for the lengths of a deployment and the period between deployments can be adjusted by mutual agreement between SOTERA and the Subcontractor.
 

 
 
 


F.2.3          WORK   H O U R S
 
The work profile expected from this subcontract is different for CONUS and OCONUS.  The Subcontractor shall comply with the work profile as follows.
 
CO N US - While on duty in the United States, a standard 40 hour work week shall be applied.
Normal work hours are from 8:00 to 17:00.  However, as directed by the SOTERA PM/TL, the Subcontractor may be required to provide labor hours in excess of 40-hours per work week to include holiday, weekends, and/or during irregular times and shifts based upon operations and exercises which may require 24/7 support.  The Subcontractor shall provide work beyond 40 hours per week only when directed by the SOTERA PM/TL. All overtime work must be approved in advance by the SOTERA PM/TL IAW FAR 22.103-3.  The Subcontractor shall request overtime in writing and the SOTERA PM/TL must approve.
 
OCO N US - While on periods of deployed duty with U.S. forces, a standard 84-hour work week is observed as required by the supported unit commander.
 
On - C a ll   Du t y   o r E x tend e d Ho u r s - The Subcontractor shall be available to work "on-call" to perform mission essential tasks as directed by the SOTERA PM/TL and/or Sr. Subcontracts Manager.  The SOTERA PM/TL and/or Sr. Subcontracts Manager, will identify the parameters of "on-call" duty.  The Subcontractor shall be available to work extended hours to perform mission essential tasks as directed by the SOTERA PM/TL and/or Sr. Subcontracts Manager.
 
F.3             PERIOD OF PERFORMANCE
 
The period of performance (POP) will be 24 months from date of award with the ability to exercise (3), one-year options.  The period of performance for task orders will be specified in individual task orders.  Task orders may be issued up until the final day of the contract period of performance; however, any task order issued under the contract cannot be longer than 5 years in length.  Furthermore, any task order issued under the contract shall not extend beyond one-year of the IDIQ contract end date.  The Government will follow a competitive process to determine the terms and conditions of all task orders awarded under this IDIQ contract.
 
F.4             TASK ORDER SCHEDULE AND MILESTONE DATES
 
Each task order shall specifically set forth the items to be delivered, the associated delivery date(s) and/or period of performance.
 

 
 
 


F.5             DELIVERABLES MEDIA
 
The Subcontractor shall deliver all virus-free electronic versions by email and CD-ROM as well as placing in the JIEDDO designated repository.  Unless otherwise specified in individual task orders, identified below are the required electronic formats, whose versions must be compatible with the latest (MS Office 2003 or later) available version on the market.
 
 Text  Microsoft Word
 Spreadsheets  Microsoft Excel
 Briefings  Microsoft PowerPoint
 Drawings  Microsoft Visio
 Schedules  Microsoft Project
                                        
F.6             PLACE(s) OF DELIVERY
 
Unclassified deliverables and correspondence shall be delivered to the SOTERA Pm/TL specified in individual task orders.  Classified deliverables shall be delivered to the SOTERA PM/TL and notice of the delivery shall be provided to the SOTERA Sr. Subcontracts Manager.
 
F.7             NOTICE REGARDING LATE DELIVERY/ PROBLEM NOTIFICATION REPORT

The Subcontractor shall notify the SOTERA PM and/or SOTERA Task Lead as stated in each individual  task order via a Problem Notification Report [PNR] (See L ist   of A t t a c hm e nt s , Attachment 4) as soon as it becomes apparent to the Subcontractor that a scheduled delivery will be late.  The Subcontractor shall include in the PNR the rationale for late delivery, the expected date for the delivery and the project impact of the late delivery.  The SOTERA PM and/or SOTERA Task Lead will review the new schedule and provide guidance to the subcontractor.  Such notification in no way limits any SOTERA contractual rights or remedies including but not limited to termination.

F.8             RE-REPRESENTATION of SMALL BUSINESS SIZE STATUS (If applicable)

Subcontractor is required to re-represent small business size status according to the following table:

Due Dates
Following:
Within thirty (30) days
Approval of Contract Novation Agreement
Within thirty (30) days
Merger or acquisition where a novation agreement is not required
No more than 120 days prior to the end of the base period
 
No more than 120 days prior to exercising any option period
 


 
 
 

 
If the size of the Subcontractor changes due to any of the above at any point during the life of this subcontract, it must re-represent within 30 days. If it is deemed that the Subcontractor is no longer a small business, the Subcontractor will however, be able to complete the work on its current task orders.
 
Penalties and remedies for misrepresentation of business size as a small business (to include, small disadvantaged, woman-owned, service disabled veteran owned or veteran owned) Provide notice to subcontractors concerning penalties and remedies for misrepresentations of business status as small, veteran-owned small business, HUBZone small, small disadvantaged, or women-owned small business may include fines, imprisonment, or both, as well as administrative remedies to include possible suspension and debarment as per 15 U.S.C. 645(d).

 
 
 
 

 
SECTION G - CONTRACT ADMINISTRATION

1.  
All original correspondence pertaining to this Agreement shall be addressed to:

SOTERA
2420 Mall Drive, Suite 201
North Charleston SC   29406
Attention:    Teri J. Smith

2.
Payments:

2.2
Invoices submitted directly to SOTERA for Task Orders issued to Subcontractors by SOTERA:

 
a.
Subcontractor shall be paid for performance hereunder, upon submission of proper invoices or vouchers, the price stipulated in the Task Order for supplies delivered and accepted or services rendered and accepted, less applicable deductions, if any.  Unless otherwise specified, payment will be made upon delivery and acceptance of any portion of the work delivered or rendered for which a price is separately stated in the Task Order.

 
b.
The Subcontractor shall maintain separate accounting of costs for its work performed in support of each Task Order line item and in accordance with any additional requirements as may be outlined in each Task Order. In no case will the billing for a line item exceed the amount on the Task Order for that line item.

 
c.
Each invoice shall be certified as to its accuracy by an authorized representative of the Subcontractor. Each invoice shall specify this Agreement and Task Order number, the period of performance being billed, the amount due by line item, and the current and cumulative amount being billed.  All back up data (DD Form 250 or commercial ticket for deliverables, if applicable) will be included.

 
d.
Invoices shall be submitted monthly for costs incurred during the billing period. There shall be a lapse of no more than thirty (30) calendar days between performance and submission of invoices. Invoices not received by the 5 th of the month shall be included in SOTERA’S next billing cycle. Payment for the actual performance in each individual Task Order shall be at the labor rate(s) established and included in that Task Order. The Subcontractor shall be paid only for actual hours performed.

 
e.
Notwithstanding any other provision, the Subcontractor shall maintain sufficient accounting records for verification of costs to include the hours and categories of labor incurred in the performance of this Agreement.  It is further understood and agreed that these accounting records shall be available for Government review during the performance of this Agreement and until three years after final payment of this Agreement.

2.2.1.
Payments to the Subcontractor shall be made upon receipt of properly completed and approved invoices for items under this Agreement provided by the Subcontractor. Payment terms are net thirty (30) days after receipt of an approved proper invoice by SOTERA.



 
 
 


2.2.2.
The Subcontractor shall forward invoices to the individual identified below.

SOTERA
2420 Mall Drive, Suite 201
North Charleston, SC 29406
Attn:  Teri J. Smith

IN V OICE   REQUI R E M ENTS
 
G.1.1.1       Cost   P l u s   A w a r d   F e e   ( CP A F ) CLINS
 
Unless otherwise specified in individual task orders, for CPAF tasks, the subcontractor may invoice monthly on the basis of cost incurred for the CPAF CLINs.  The invoice shall include the period of performance covered by the invoice and the CLIN number and title.  All hours and costs shall be reported by CLIN element and subcontractor employee and shall be provided for the current billing month and in total from project inception to date.  The subcontractor shall provide the invoice data in spreadsheet form with the following detailed information.  The listing shall include separate columns and totals for the current invoice period and the project to date.
 
Employee name (current and past employees)
Employee TSE labor category
Monthly and total cumulative hours worked
Monthly and accumulated employee labor costs, associated overhead and G&A (if applicable)
Cost incurred not billed
 
SOTERA will make payment of any award fee upon the submission, by the subcontractor to the SOTERA Sr. Subcontracts Manager, of a public voucher or invoice in the amount of the total fee earned for the period evaluated.  Payment may be made without issuing a Task Order modification if funds have been obligated for the award fee amount.  The subcontractor shall attach the SOTERA determination letter to the public voucher and/or invoice.
 
G.1.1.2       Cost   P l u s   F ixed F e e   ( C PFF)   CLINS
 
Unless otherwise specified in individual task orders, for CPFF tasks, the subcontractor may invoice monthly on the basis of cost incurred for the CPFF CLINs.  Term or completion type will be determined at the task order level.  The invoice shall include the period of performance covered by the invoice and the CLIN number and title.  All hours and costs shall be reported by CLIN element and subcontractor employee and shall be provided for the current billing month and in total from project inception to date.  The subcontractor shall provide the invoice data in spreadsheet form with the following detailed information.  The listing shall include separate columns and totals for the current invoice period and the project to date.
 
Employee name (current and past employees)
Employee TSE labor category
Monthly and total cumulative hours worked
 

 
 
 

 
Monthly and accumulated employee labor costs, associated overhead, and G&A (if applicable)
Cost incurred not billed
Fixed fee
 
G.1.1.3       Cost   P l u s   I n ce n tive   F e e   ( C P I F )   CLINS
 
Unless otherwise specified in individual task orders, for CPIF tasks, the subcontractor may invoice monthly on the basis of cost incurred for the CPIF CLINs.  The invoice shall include the period of performance covered by the invoice and the CLIN number and title.  All hours and costs shall be reported by CLIN element and subcontractor employee and shall be provided for the current billing month and in total from project inception to date.  The subcontractor shall provide the invoice data in spreadsheet form with the following detailed information.  The listing shall include separate columns and totals for the current invoice period and the project to date.
 
Employee name (current and past employees) Employee TSE labor category
Monthly and total cumulative hours worked
Monthly and accumulated employee labor costs, associated overhead, and G&A (if applicable)
Cost incurred not billed

SOTERA will make payment of any incentive fee upon the submission, by the subcontractor to the SOTERA Sr. Subcontracts Manager, of a public voucher or invoice in the amount of the total fee earned for the period evaluated.  Payment may be made without issuing a Task Order modification if funds have been obligated for the incentive fee amount.  The subcontractor shall attach the SOTERA determination letter to the public voucher and/or invoice.
 
G.1.1.4       F i r m   F ixed   P r ice ( FF P )   CLINS
 
Unless otherwise specified in individual task orders, for FFP tasks, the subcontractor may invoice as stated in the task order proposal for the FFP CLINs.  The invoice shall include the period of performance/deliverable or progress payment period covered by the invoice and the CLIN number and title.  All costs shall be reported by CLIN element and shall be provided for the current invoice and in total from project inception to date.  The subcontractor shall provide the invoice data in spreadsheet form with the following detailed information.  The listing shall include separate columns and totals for the current invoice period and the project to date.
 
G.1.1.5      Time and Material   ( T&M )   CLINS
 
The Government uses FAR Clause 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, to set forth the requirements of time and material payment requirements.  The Contractor modified this clause for use in this subcontract.  The words “Government” and “Contracting Officer” were replaced by “Contractor.”   Likewise the word “Contractor” was replaced by “Subcontractor.”
 
Unless otherwise specified in individual task orders, for T&M tasks, the subcontractor may invoice monthly on the basis of cost incurred for the T&M CLINs.  The invoice shall include the period of performance covered by the invoice and the CLIN number and title.  All hours and

 
 
 
 

 
costs shall be reported by CLIN element and subcontractor employee and shall be provided for the current billing month and in total from project inception to date.  The subcontractor shall provide the invoice data in spreadsheet form with the following detailed information.  The listing shall include separate columns and totals for the current invoice period and the project to date.

(a) Hourly rate.
(1) The amounts shall be computed by multiplying the appropriate hourly rates prescribed in the Schedule by the number of direct labor hours performed. The rates shall include wages, indirect costs, general and administrative expense, and profit. Fractional parts of an hour shall be payable on a prorated basis. Vouchers may be submitted once each month (or at more frequent intervals, if approved by the Contractor), to the subcontract administrator or designee. The Subcontractor shall substantiate vouchers by evidence of actual payment and by individual daily job timecards, or other substantiation approved by the Contractor. Promptly after receipt of each substantiated voucher, the Contractor shall, except as otherwise provided in this contract, and subject to the terms of (e) of this section, pay the voucher as approved by the Contractor.
 
Employee name (current and past employees) Employee TSE labor category
Monthly and total cumulative hours worked
Monthly and accumulated employee labor costs, associated overhead, and G&A (if applicable)
Cost incurred not billed
G.1.1.6                       Tools a n d   Other   Di re c t   Cos t s (OD C s)   CLINS
 
Unless otherwise specified in individual task orders, for tools and ODCs, the subcontractor may invoice monthly on the basis of cost incurred.  The invoice shall include the period of performance covered by the invoice, the CLIN number and title.  In addition, the subcontractor shall provide the following detailed information for each invoice submitted, as applicable.
Spreadsheet submissions are required.
 
Tools and/or ODCs purchased
Hardship and Danger Pay
Consent to Purchase number or identifier
Date accepted by SOTERA and/or the Government
Associated CLIN
Project to date totals by CLIN
Cost incurred not billed
Remaining balance of the CLIN
 
All cost presentations provided by the subcontractor shall also include Overhead Charges, General and Administrative Charges (if applicable).
 
G.1.1.7                       T r av e l   CLINS
 

 
 
 

 
The subcontractor may invoice monthly on the basis of cost incurred for cost of travel comparable with the JTR.  Long distance travel is defined as travel over 50 miles and does not include considerations for subcontractor staff members‘ daily commute.  The invoice shall include the period of performance covered by the invoice, the CLIN number and title.  Separate worksheets, in MS Excel format, shall be submitted for travel.
 
C LI N/ T a sk   Tot a l Tr a v e l : This invoice information shall identify all c umu l a t ive travel costs billed by CLIN/Task.  The c u r r e nt invoice period‘s travel detail shall include separate columns and totals and include the following:
 
Travel Authorization Request number or identifier
Current invoice period
Names of persons traveling
Number of travel days
Dates of travel
Number of days per diem charged
Per diem rate used
Total per diem charged Transportation costs Total charges
 
All cost presentations provided by the subcontractor shall also include Overhead Charges and
General and Administrative Charges (if applicable).

3.
TECHNICAL REPRESENTATIVE (TR)

 
a.
SOTERA may appoint one or more SOTERA employees (SOTERA/Program/Task Managers) as technical representatives for technical purposes applicable to this Agreement.  "Technical" is restricted to scientific, engineering, or field-of-discipline matters directly applicable to the work performed by the Subcontractor under the requirements of this Agreement.

 
b.
The technical representatives are authorized to act within the limitations specified in paragraph (a) herein and written restrictions specifically imposed under the terms of this Agreement and by Subcontractor.  This authority shall extend to cover the following:  inspection, acceptance, or rejection of work.
 
 
c.
This designation does not include authority to direct changes in scope, price, terms or conditions of this Agreement or Task Orders.  The authority herein also does not include authority to execute modifications to the Agreement or Task Orders, or to bind SOTERA by agreement in terms of a proposed change.
 
4.      CONSTRUCTIVE CHANGE ORDERS

 
No order, statement, or conduct of SOTERA employees shall constitute a change under the "Changes" clause of this Agreement or entitle the Subcontractor to an equitable adjustment of this Agreement/Task Order price or delivery schedule under the "Changes" clause or any other clause of this Agreement, unless such change is issued in writing and signed by an authorized representative from SOTERA’s Contracts Department.

 
 
 
 

 
5.      DISPUTES

Notwithstanding any other provisions of this Agreement, if a dispute should arise hereunder which cannot be resolved by agreement of the parties, the following procedure shall be followed:

 
a.
If the dispute is one which falls within the “Disputes” clause of SOTERA’s prime contract with the United States Government, SOTERA will request promptly a final decision of the Contracting Officer for such prime contract, which decision, if, and to the extent, it is finally binding upon SOTERA under such prime contract, shall in turn be binding upon SOTERA and the Subcontractor under this Agreement; provided, however, that (1) SOTERA shall provide the Subcontractor with a copy of such decision within twenty (20) days from the date of its receipt by SOTERA, and (2) if the Subcontractor disagrees with such decision, and if SOTERA elects not to appeal such decision on its own behalf, the Subcontractor shall have the right to take a timely appeal of such decision in SOTERA’s name either to the appropriate Board of Contract Appeals or to the United States Claims Court.  SOTERA will lend reasonable assistance in connection with such appeal by the Subcontractor, at the Subcontractor’s request, and the Subcontractor shall control the prosecution of such appeal and shall bear all costs thereof.  The Subcontractor shall keep SOTERA informed of the progress of any such appeal by forwarding to SOTERA copies of all pertinent documents.

 
b.
If SOTERA elects to appeal a decision made by the Contracting Officer under such prime contract, which decision is related to this Agreement, the Subcontractor shall, upon SOTERA’s request, provide such information as is reasonably required in support of SOTERA’s appeal.

 
c.
For all appeals, whether taken by SOTERA or by the Subcontractor in SOTERA’s name, in which the Subcontractor seeks to recover for itself fifty thousand dollars ($50,000.00) or more, the Subcontractor will certify that (i) the claim is made in good faith, (ii) the supporting data is accurate and complete to the best of the Subcontractor's knowledge and belief, and (iii) the amount requested accurately reflects the price adjustment for which the Subcontractor believes the Government is liable.

 
d.
Pending final adjudication of any such appeal or dispute, the Subcontractor shall proceed diligently with its performance hereunder.

 
e.
Any dispute not disposed of in accordance with the preceding provisions, if not resolved by agreement of the parties, may be settled by recourse to appropriate legal remedies.
 
The Subcontractor agrees to indemnify SOTERA for any direct damages or penalties incurred by SOTERA by reason of the Subcontractor’s failure to deliver material and/or perform services herein or in any Task Order, due to the Subcontractor’s willful misconduct and gross negligence.
 
 
 
 
 

 
6.  PRIVITY OF CONTRACT

In order to properly perform and/or execute this agreement, the Subcontractor may require frequent interface with the Contractor’s client (the Client).  However, no privity of contract exists between the Subcontractor and the Client.  The Subcontractor may neither take direction from, nor discuss any terms and conditions of this agreement with the Client unless the Contractor is present and authorizes the discussion.  Subcontractor shall immediately notify Contractor if at any time he believes the Client is effecting a change to this subcontract


 
 
 

 
SECTION H - SPECIAL PROVISIONS
 
H.1.           INCORPORATION BY REFERENCE

All specifications, exhibits, drawings or other documents which are referenced in this Agreement, but are not attached hereto, are hereby incorporated by reference.
 
H.2.           NON-PERSONAL SERVICES
 
In performance of this subcontract, the subcontractor will provide support in the form of services required by program offices to support management of their overall mission. This will be based upon the order’s performance work statement for the specific effort. Orders will be formally issued to the subcontractor as opposed to individual subcontractor employees.
 
The services required under the Agreement constitute professional and management services within the definition provided by FAR 37.201. Under this Agreement SOTERA will obtain professional services, which are essential to the mission but not otherwise available within.
 
SOTERA will neither supervise Subcontractor employees nor control the method by which the Subcontractor performs the required tasks. Under no circumstances shall SOTERA assign tasks to, or prepare work schedule for, individual Subcontractor employees. It shall be the responsibility of the Subcontractor to manage their employees and to guard against any actions that are of the nature of personnel services, or give the perception of personal services. If the Subcontractor feels that any actions constitute, or are perceived to constitute personal services, it shall be the Subcontractor’s further responsibility to notify the SOTERA Contracts Manager immediately.
 
These services shall not be used to perform work of a policy/decision making or management nature. Any decisions relative to programs supported by the Subcontractor will be the sole responsibility of SOTERA. Support services will not be ordered to circumvent personnel ceilings, pay limitations, or competitive employment procedures.
 
H.3.          EMPLOYEE IDENTIFICATION

All Subcontractor employees shall obtain a Government-furnished picture identification card.  The Subcontractor shall ensure that all Subcontractor personnel display at all times while in a work status some method of identifying the personnel as an employee of that Subcontractor.  The Subcontractor shall ensure all personnel identify themselves as a Subcontractor employee with the name of their company when using the email system, and when attending meetings.  JIEDDO Operational Security policy requires that all Government employees and contractors state n a me on l y when answering the phone.

The Subcontractor assumes full responsibility for the proper use of the identification badge and automobile decal, and shall be responsible for the return of the badge and/or destruction of the automobile decal upon termination of personnel or expiration or completion of the Subcontract.
 

 
 
 

 
At the completion of the Subcontract, the Subcontractor shall forward to the Base Activity Security Office a list of all unreturned badges with a written explanation of any missing badges.

H.4.           ORDERS

a.           Order Accounting:  The Subcontractor’s order accounting system shall provide traceability of all labor hour and cost reimbursable elements (e.g., travel, material, other authorized direct costs) ordered by each program.  Otherwise, traceability shall be at the CLIN level, set forth in the order.  Under no circumstances will any invoice exceed the period of performance, hours or dollar amount (ceiling price) for any funded order.  All invoices submitted for payment shall clearly identify:
 
1.           SOTERA order number.
2.           Period of Performance
3.           Amount due by CLIN
4.           Labor hours provided per labor category
b.           Closeout Procedures:  To facilitate closeout of individual orders placed under this Subcontract, within sixty (60) days of completion of any individual order, the Subcontractor shall present a final invoice to the SOTERA Contracts Manager that contains a complete accounting of hours expended by category, the prices associated with those hours, any cost reimbursable expenses, and a proposed final price.  If SOTERA concurs with the invoice and the proposed final price is within the ceiling price of the order, SOTERA will issue an order modification converting the order to a firm fixed price order at the proposed final price.

H.5.           PERFORMANCE
 
The following terms and conditions are applicable:
 
a. The Subcontractor will be familiar with Federal Government and acquisition regulations, directives and instructions. If a particular document is required in a specific order, it will be cited within the order’s Performance Work Statement.
 
b. All direction of the Subcontractor shall be through the SOTERA Subcontracts Manager specified in each individual order. Technical “tasking” assignments for the Subcontractor will be transmitted by the SOTERA Program Manager to the Subcontractor’s Task Leader.

H.6.           SUBCONTRACTING

The Subcontractor shall identify to SOTERA in writing any company to which it intends to award a sub-tier contract.  It may be necessary for SOTERA to obtain U.S. Government approval before any sub-tier contractor can begin work under this Agreement.  The Subcontractor shall identify the sub-tier contractor’s name, address, description of work, period of performance, and total dollar amount. No sub-tier contract may be awarded without SOTERA’s express written consent.

H.7.           GOVERNING LAW
 
This Agreement shall be governed by, interpreted, construed and enforced in accordance with the law of U.S. Government contracts as set forth by statute, applicable regulations and decisions by the appropriate courts and the Boards of Contract Appeals. To the extent that the  law referred to in the foregoing sentence is not determinative of an issue arising out of the clauses of this Agreement, recourse shall be to the laws of the Commonwealth of Virginia, without reference to the principles of conflict of laws. With the exception of suits brought solely for injunctive relief (suits solely for injunctive relief may be brought in any court of competent jurisdiction), suit under this Agreement shall only be brought in a court of competent jurisdiction in the Commonwealth of Virginia.

 
 
 
 


H.8.           APPROVALS BY SOTERA
 
Unless expressly stipulated elsewhere in this Agreement as being exempted from this provision, wherever this Agreement provides for submittal of designs, components, materials, processes, or other items for approval of SOTERA or other authorized SOTERA representative, such approvals shall not be construed as a complete check as to the adequacy of said design, materials, processes, components or items, nor as an agreement that the design, materials, processes, components or items will meet the requirements of this Agreement.  Such approvals are for the purpose of insuring SOTERA knowledge of Subcontractor’s plans and progress and will indicate only that Subcontractor’s general approach toward meeting contractual requirements is satisfactory.  Such approvals shall in no way relieve Subcontractor of the responsibility for any error or deficiency which may exist in the submitted design, component materials, processes, or other item, and Subcontractor shall be responsible for meeting all the requirements of this Agreement.
 
H.9.           TERMINATION

This Agreement may be terminated by SOTERA for any reasonable cause, at any time subject to the conditions set forth below. In the event of a written termination notice from SOTERA, the Subcontractor shall:

a.  
Stop work under the Agreement on the date specified in the Notice of Termination.

b.  
Submit a termination claim within 3 months after date of termination incorporating all claims of the Subcontractor.  The amount to which the Subcontractor shall be entitled upon complete termination of the Agreement shall be determined by the parties hereto as being a fair and reasonable amount for the effort performed prior to the date of termination including an allowance for reasonable settlement expenses with respect to the termination portion.  Failure to agree shall be submitted to arbitration.
 
In the event payment has been made by SOTERA in excess of the amount determined as being the entitlement of the Subcontractor under the provisions of this Article, Subcontractor shall repay such excess amounts.  In the event payments made by SOTERA are less than the amount determined as being the entitlement of the Subcontractor under the provisions of this Article, SOTERA shall pay Subcontractor such difference.

Whenever the Subcontractor shall default in performance of this Agreement in accordance with the terms (including under the term “default” any such failure by Subcontractor to make progress in the execution of the work herein specified or to endanger such performance), and shall fail to cure such default within a period as SOTERA may reasonably allow, but in any event less than ten (10) days after receipt from SOTERA of a notice specifying the default, SOTERA may, in addition to any other remedies afforded by law, terminate the Agreement.
 

 
 
 


H.10.         SPECIFIC REMEDIES FOR DEFAULT

(a)  
Should SOTERA determine that the Subcontractor is not performing in a satisfactory manner or is otherwise in default under this agreement, then SOTERA may: (i) withhold payment to Subcontractor until Subcontractor complies with the terms of this Agreement, (ii) cancel, terminate, or suspend efforts under this Agreement in whole or in part and seek the services of another provider as Subcontractor necessary to fulfill the requirements of the Prime Contract effort in a timely fashion.

(b)  
Liability of the Subcontractor under this Agreement shall not exceed the total compensation which would have been paid to Subcontractor by SOTERA had Subcontractor satisfactorily performed their obligations as specified herein. Any such cancellation, termination, or suspension of this Agreement or part thereof shall be effective upon Subcontractor’s receipt of written notice thereof from SOTERA.

 (c)
Subcontractor shall be entitled to receive the contract price for completed work, and partial payment for partially completed work, which is accepted by SOTERA on the effective date of any such cancellation, termination, or suspension. SOTERA may withhold from amounts otherwise due to Subcontractor such as sums as may be necessary to protect SOTERA against loss because of outstanding licensor claims. Subcontractor shall immediately transfer and deliver to SOTERA all completed or partially completed work, performed to date, including all contract, ownership and copyright rights therein, upon its receipt of notice of the cancellation or termination of the Agreement.

 (d)
SOTERA’s remedies under this Agreement shall be cumulative under applicable law, shall be available to SOTERA’s successors and assigns, shall be in addition to all other remedies, and may be exercised concurrently and consecutively.

H.11.         NON WAIVER OF RIGHTS
 
The failure of SOTERA to insist upon strict performance of any of the terms and conditions in this Agreement, or to exercise any rights or remedies, shall not be construed as a waiver of its right to assert any of same or to rely on any such terms and conditions at any time thereafter. The invalidity in whole or in part of any term or conditions of this Agreement shall not affect the validity of other parts hereof.

H.12.         CLOSEOUT

Task Orders will be closed out on an individual basis, upon completion.  The Subcontractor shall forward the final voucher directly to the SOTERA Sr. Subcontracts Manager, subject to the terms and conditions of paragraph G.4 (b) of this Subcontract.


 
 
 

 
H.13.         GOVERNMENT FURNISHED PROPERTY/INFORMATION (GFP/GFI)
 
A list of applicable Government documents with guidance is provided in L ist   of Attach me nts, Attachment 6.  It is expected that information will be provided to Contractors via a secure JIEDDO portal for classified information.

H.13.1       GOVERNMENT FURNISHED WORKSPACE
 
Unless otherwise specified in an individual task order, all Subcontractor work must be performed on-Government site and in most cases either all or a significant part of the work shall be performed in Sensitive Compartmented Information facilities (SCIFs).  For on-Government site work, the Government will provide Subcontractor personnel with workstations equipped with telephones, and computers and monitors which are connected to networks that provide access to data required to perform their work.  On-Government site personnel will also have printers and scanners provided for official project use.  Subcontractor access to this Government furnished computer related equipment and networks is contingent on the individual possessing clearances at the appropriate level.
 
H.13.2       TRANSPORTATION OF GOVERNMENT FURNISHED PROPERTY
 
The Subcontractor shall be responsible for transporting all GFP between the Government site(s) and the Subcontractor's place of performance.  Pickup and delivery of all materials shall be in accordance with the schedule defined for each specific requirement.  The Subcontractor shall be liable for any Government-furnished property not returned to the Government.

H.13.3       HANDLING OF GOVERNMENT FURNISHED ITEMS
 
The Subcontractor shall protect from unauthorized disclosure any materials or information made available by the Government, or that the Subcontractor has access to by virtue of the provisions of this subcontract, that are not intended for public disclosure.
 
The material and information made available to the Subcontractor by the Government, or that the Subcontractor comes into contact with in completing this subcontract, are the exclusive property of the Government.  Any information or materials developed by the Subcontractor in performance of this subcontract are also the exclusive property of the Government.  Upon completion or termination of this subcontract, the Subcontractor shall turn over to the Government all materials (copies included) that were furnished to the Subcontractor by the Government and all materials that were developed by the Subcontractor in the performance of this subcontract.
 
The Subcontractor shall be responsible for the configuration management and maintenance of all GFE/GFI received for the execution of this subcontract until received back by the Government.  The Subcontractor shall be responsible for safeguarding all Government information and property provided for use in the performance of this subcontract, including, but not limited to, those designated as classified, unclassified sensitive, For Official Use Only (FOUO), Operations Security (OPSEC) sensitive, and Privacy Act Information, in accordance with applicable Government directives.

 
 
 
 

 
The Subcontractor shall ensure that all Information Systems used by Subcontractor personnel are protected and accredited in accordance with applicable directives.  The Subcontractor and their employees shall comply with JIEDDO policies regarding acceptable use of Government-owned computer systems and networks.
 
H.14          CONTRACTOR PROVISION OF CONTRACT ADMINISTRATION, PERSONNEL, EQUIPMENT AND SUPPLIES
 
For any off-site work, the Subcontractor shall provide all contract administration functions, office equipment (including computers/ workstations used in daily operation in support of this subcontract) and consumable supplies required in the daily operation or performance of, or in support of this subcontract.  Special requirements, e.g., special workstations or unusual reproduction requirements required to complete task order requirements must be approved in advance by the SOTERA Sr. Subcontracts Manager.
 
H.15          TRAVEL
 
H.15.1       TRAVEL REGULATIONS
 
The Subcontractor may be reimbursed for travel costs to the extent stated in FAR 31.205-46 Travel costs, and in accordance with the travel regulations specified below.
 
Joint Travel Regulations (JTR), Volume 2, DoD Civilian Personnel, Appendix A, prescribed by the Department of Defense, for travel in Alaska, Hawaii, and outlying areas of the United States.
 
H.15.2       TRAVEL AUTHORIZATION REQUESTS
 
Prior to any long distance travel (greater than 50 miles and not related to daily commute), the Subcontractor shall prepare a Travel Authorization Request IAW JIEDDO travel SOPs for task order-specific SOTERA Pm/TL endorsement and FEDSIM COR approval.  The Subcontractor shall use only the minimum number of travelers and rental cars needed to accomplish the task(s). Travel shall be scheduled during normal duty hours whenever possible.  Notification shall include, at a minimum, the number of persons in the party, traveler name, and destination, duration of stay, purpose, and estimated cost.
 
Note:  To meet short notice and non-duty day travel requirements for task orders, the Subcontractor shall proceed with travel arrangements and perform the travel without prior SOTERA PM/TL and FEDSIM COR approval, provided the:
 
Subcontractor receives notice of a travel requirement from the SOTERA PM/TL and JIEDDO TPOC on a weekend or Government holiday;
Subcontractor receives less than 24 hours notice of a travel requirement from the SOTERA PM/TL and JIEDDO TPOC;
The SOTERA PM/TL and JIEDDO TPOC has concurred with the travel request;
Subcontractor and SOTERA PM/TL certify travel funding is available;
Subcontractor submits the travel request via email to the SOTERA PM/TL within 24 hours after receipt of SOTERA PM/TL and JIEDDO TPOC notice to travel.

 
 
 
 

 
H.15.2.1    Cont e n t of   T r av e l R e qu e sts
 
Requests for travel approval shall contain:

Date, time and points of departure; Destination, time and dates of arrival;
Name of each Subcontractor employee and position title;
Include a description of the travel proposed including a statement as to purpose; Estimated Cost
Be summarized by traveler;
Identify the subcontract and task order numbers;
Identify the CLIN(s) and Interagency Agreement number associated with the travel; Normally be submitted at least ten days in advance of the travel to permit review and approval.
 
H.15.3       TRIP REPORTS
 
A Trip Report is required after Subcontractor travel is completed and shall be submitted within 3 business days to the SOTERA PM/TL.  A trip report template will be accessible on the JIEDDO SIPRNet.  The Subcontractor shall keep a summary of all long-distance travel, to include, at a minimum, the name of the employee, location of travel, duration of trip, cost and POC at travel location.
 
H.16          TOOLS AND/OR ODCs
 
Tools and ODCs are defined as follows:
 
 
  Tools - Hardware and / or software critical and related to the services being acquired under the contract.
 
 
  ODCs - Ancillary supplies critical and related to the services being acquired under the contract.
 
SOTERA may require the Subcontractor to purchase Tools and / or ODCs during the subcontract.  Such requirements will be identified at the time a task order is issued or may be identified during the course of a task order, by SOTERA and/or the Government.  The Subcontractor shall follow JIEDDO-COIC procedures for establishing approval of a Material Action Request (MAR) for SOTERA/JIEDDO approval of tools and ODCS.  The Subcontractor shall submit the JIEDDO approved MAR to the SOTERA task order PM/TL with a Consent to Purchase (CTP).  The RIP and CTP shall include the purpose, specific items, estimated cost, cost comparison, and rationale.  The Subcontractor shall not make any purchases without an approved RIP and authorization from the SOTERA Sr. Subcontracts Manager.
 

 
 
 


H.17          TRANSFER OF HARDWARE/SOFTWARE MAINTENANCE AGREEMENTS
 
If the Subcontractor acquires hardware/software maintenance support during a task order, all licenses and/or contractual rights to receive title shall be turned over to the Government upon payment for the support.
 
The Government's liability to reimburse the Contractor for costs incurred from the acquisition of hardware/software maintenance support SHALL BE LIMITED to costs incurred during the period of the task order for which the Government received the hardware/software maintenance support acquired by the Subcontractor on a cost reimbursable basis.
 
H.18          PERSONNEL
 
H.18.1       KEY PERSONNEL
 
The Subcontractor shall propose appropriate personnel and labor categories for key personnel positions.  The Subcontractor shall propose appropriate levels of support for each task order and SOTERA will evaluate the proposed personnel on a task order basis to determine that the levels of support proposed are commensurate with the required work.
 
The Subcontractor has the ability to propose additional Contract-level key personnel.  However, the Subcontractor shall not directly bill any of its Contract-level key personnel to the TSE contract. Additional key personnel requirements may be specified in individual task orders.  Key Personnel may be replaced or removed subject to Section H.19.1.1, Special Contract Requirements, Key Personnel Substitution.
 
H.19.1.1    K e y   P er so nn e l Sub sti tu tion
 
The Subcontractor shall not replace any personnel designated as key personnel without the written concurrence of the SOTERA Sr. Subcontracts Manager.  Prior to utilizing other than personnel specified in the subcontract proposal, the Subcontractor shall notify the SOTERA Sr. Subcontracts Manager and the PM/TL no later than 10 calendar days in advance of any proposed substitution and shall include justification (including resume(s) and labor category of proposed substitution(s)) in sufficient detail to permit evaluation of the impact on contract performance.
 
Substitute personnel qualifications shall be equal to, or greater than those prescribed in Section H.19.1 or those proposed by the Subcontractor.  If the SOTERA Sr. Subcontracts Manager and the PM/TL determine that the proposed substitute personnel is unacceptable, or that the reduction of effort would be so substantial as to impair the successful performance of the work under the subcontract, the Subcontractor may be subject to default action as prescribed by FAR 52.249-6 Termination (Cost Reimbursement) or FAR 52.249-8, Default (Fixed-Price Supply and Service).
 
 
 
 
 

 
H.19.2       GENERAL PERSONNEL REQUIREMENTS
 
H.19.2.2    R e m oval of   P er so nn e l
 
SOTERA and/or The Government will require the Subcontractor to remove any employee from the job site for reasons of misconduct, safety / environmental / security violations, or any employee found to be, or suspected of being, under the influence of alcohol, drugs, or incapacitating agent.  Upon request, SOTERA and/or the Government may require the Subcontractor to test employees suspected of being under the influence of alcohol, drugs, or incapacitating agent.  The removal of a Subcontractor employee from the job site shall not alleviate the Subcontractor of the requirement to provide sufficient personnel to perform the services as required by this subcontract.
 
H.20          ORGANIZATIONAL CONFLICT OF INTEREST AND NON-DISCLOSURE REQUIREMENTS
 
H.20.1       ORGANIZATIONAL CONFLICT OF INTEREST
 
If the Subcontractor is currently providing support or anticipates providing support that creates or represents an actual or potential organizational conflict of interest (OCI), the Subcontractor shall immediately disclose this actual or potential OCI in accordance with FAR Subpart 9.5.  The Subcontractor shall draft and sign an Organizational Conflict of Interest Statement in which the Subcontractor (and any subcontractors, or consultants) agrees to disclose information concerning the actual or potential conflict with any proposal for any solicitation relating to any work in the TO. All actual or potential OCI situations shall be identified and addressed in accordance with FAR Subpart 9.5.
 
H.20.2       NON DISCLOSURE REQUIREMENTS
 
If this subcontract requires the Subcontractor to act on behalf of, or provide advice with respect to any phase of an agency procurement, as defined in FAR 3.104-4, then the Subcontractor shall ensure that all its personnel (to include Subcontractors and consultants) who will be personally and substantially involved in the performance of the subcontract:
 
 
1.   execute and submit a Corporate Non-Disclosure Agreement ( S e e   L ist   of Attach me nts, Attach me nt 9 )   prior to the commencement of any work on the contract and;
 
 
2.   are instructed in the FAR 3.104 requirements for disclosure, protection, and marking of contractor bid or proposal information, or source selection information.
 
All proposed replacement subcontractor personnel also must submit a Non-Disclosure agreement and be instructed in the requirements of FAR 3.104.  Any information provided by contractors in the performance of this Subcontract or obtained by the Government is only to be used in the performance of the Subcontract.  The Subcontractor shall put in place appropriate procedures for the protection of such information and shall be liable to the Government for any misuse or unauthorized disclosure of such information by its personnel, as defined above.
 

 
 
 
 
 
H.21          TRANSITION
 
H.21.1       TRANSITION-IN
 
The Subcontractor shall ensure that there will be minimum service disruption to vital Government business and no service degradation during and after transition-in for task orders issued under the subcontract.  The Subcontractor shall conduct the transition-in using the methodology provided in the Transition-In plan provided in the Prime Contractor‘s technical proposal for each task order. The transition-in will be coordinated with the SOTERA PM/TL.
 
H.21.2       TRANSITION-OUT
 
Specific timeframes for transition-out plan due dates will be communicated in individual task orders.
 
H.22          COST MANAGEMENT
 
H.22.1       COST ACCOUNTING SYSTEMS
 
Subcontractors are required to have an adequate cost accounting system for Cost Reimbursement type task orders in accordance with FAR 16.301-3(a)(1).  The Subcontractor must maintain a cost accounting system which is determined to be adequate by a cognizant auditing agency.  The Subcontractor shall notify the SOTERA Sr. Subcontracts Manager in writing, if there are any changes in the status of their cost accounting system and provide the reason(s) for the change.
 
H.22.2       COST ACCOUNTING STANDARDS
 
Unless exempt under 48 CFR 9903.201-1 and 9903.201-2, Contractors must comply with FAR  52.230-2, Cost Accounting Standards.
 
In accordance with FAR 52.230-1, Cost Accounting Standards Notices and Certification, Subcontractors shall notify the SOTERA Sr. Subcontracts Manager on individual task orders, in writing, if there are any changes to the Disclosure Statement and provide the reason(s) for the change.
 
In accordance with FAR 52.230-6, Administration of Cost Accounting Standards, and FAR 52.230-7, Proposal Disclosure-Cost Accounting Practice, Subcontractors shall notify the SOTERA Sr. Subcontracts Manager on individual task orders, in writing, if there are any changes to Cost Accounting Practices and provide the reason(s) for the change
 
H.23.3       EARNED VALUE MANAGEMENT (EVM)
 
When EVM is determined to be applicable to an individual task order, the provisions and clauses at FAR 52.234-2, 52.234-3, and 52.234-4 apply.
 
The Subcontractor shall employ EVM, as appropriate to the particular requirement, in accordance with the American National Standards Institute (ANSI)/Electronic Industries

 
 
 
 

 
Alliance (EIA) Standard-748-B-2007, Earned Value Management Systems.  A copy of the standard is available from Global Engineering Documents (1-800-854-7179).  SOTERA expects the Subcontractor to employ innovation in its proposed application of EVM techniques to this subcontract in accordance with best industry practices.
 
H.24          CONTRACTOR TRAINING
 
The Subcontractor shall provide fully trained and experienced technical and lead personnel required for performance.  Training of Subcontractor personnel shall be performed by the Subcontractor at the Subcontractor's own expense, except:  a) When SOTERA has given prior approval for training to meet special requirements that are peculiar to the Subcontract; b) Limited training of Subcontractor employee(s) may be authorized when the Government changes the hardware and/or software during performance of an on-going task and it is determined to be in the best interest of  SOTERA and/or the Government.  SOTERA will not authorize training for Subcontractor employees to attend seminars, Symposia, or User Group Conferences, unless certified by the Subcontractor and SOTERA and/or the GSA client agency/organization that attendance is mandatory for the performance of the subcontract‘s requirements. When training is authorized by the SOTERA PM/TL in writing under the conditions set forth above, SOTERA will reimburse the Subcontractor for tuition, travel, and per diem, if required.  Training at SOTERA/Government expense will not be authorized for replacement personnel or for the purpose of keeping Subcontractor personnel abreast of advances in the state-of-the-art or for training Subcontractor employees on equipment, computer languages, and computer operating systems that are available on the commercial market.
 
H.25          SUBCONTRACTOR CONDUCT
 
Subcontractor employees shall comply with base Operations Plans and Instructions for Force Protection Conditions (FPCON) procedures, Random Antiterrorism Measures (RAMS) and local search and identification requirements.  The Subcontractor shall safeguard all Government property. At the close of each work period, Government training, equipment, facilities, support equipment, and other valuable materials are to be secured.
 
H.26          FACILITY ACCESS
 
The Subcontractor shall have access as needed to all Government-furnished facilities in accordance with AR 190-51 (Security of Unclassified Army Property (Sensitive and Non Sensitive)), AR 380-5 (Department of the Army Information Security Program), and any applicable JIEDDO regulations.
 
H.26.1       ACCESS CONTROL
 
The Government will issue a Common Access Card (CAC) and other forms of DoD identification necessary to access JIEDDO and other Government facilities.  JIEDDO will also issue a Letter of Authorization (LOA) to deploying Subcontractor personnel.  For deployed Subcontractor personnel, the CAC and LOA together will authorize use of Government transportation and access to the following: on-base life support and Morale, Welfare and Recreation (MWR) facilities, Army Post Office (APO) / Fleet Post Office (FPO) Postal Services, billeting, commissary, DFACS, excess baggage, Government furnished meals, military clothing, military issued equipment, resuscitative care, authorized weapons, DOD Issuances (DODI) essential, fuel authorized, military banking, military exchange, Milair, and transportation. The Subcontractor shall develop and implement procedures to ensure that metal and electronic keys,  to include common access cards, received from the Government are accountable, controlled, and safeguarded in accordance with above regulations.
 

 
 
 

 
H.26.2       VISITOR GROUP SECURITY AGREEMENT (VGSA)
 
The Subcontractor shall enter into a Visitor Group Security Agreement for performance on base. The Subcontractor shall integrate security requirements with its subcontract operations to ensure efficient contract support on the installation.

H.26.3       FACILITY PASS AND IDENTIFICATION
 
The Subcontractor shall ensure the following pass and identification items required for subcontract performance are obtained for Subcontractor employees and non-government owned vehicles.
 
a.   DD Form 1172, Application for Uniformed Services Identification Card
b.   DD Form 2220, DoD Registered Vehicle

H.27          SECURITY REQUIREMENTS
 
This is a Department of Defense (DoD) work effort involving access to and the safeguarding of classified information/material.  The security policies, procedures and requirements stipulated in the National Industrial Security Program (NISP), National Industrial Security Program Operating Manual (NISPOM) and any supplements thereto are applicable, including applicable Federal Acquisitions Regulations (FAR) and Defense Federal Acquisition Regulations (DFARS).   The Contractor shall also comply with DoD 5200.1-R and Army security regulations and guidance.
 
Specific work shall be performed at JIEDDO-COIC facilities in Northern Virginia.  With oversight from proper SOTERA/Government authorities, the Subcontractor may be required to operate secure facilities in designated anonymous locales.  Unclassified and classified IT and communications support and maintenance will be provided by the Government.
 
All subcontractor personnel working in a COIC designated space are required to:
 
1.   Have undergone an SSBI or SSBI-PR within the last five (5) years that was favorably adjudicated;
2.   Have no break, greater than 24 months, in military service, federal civilian employment or access to classified information under the Industrial Security Program;
3.   Possess a current Top Secret security determination;
4.   Possess a Sensitive Compartmented Information determination reflected in the Joint Personnel Adjudication System (JPAS).
 
In order to report to COIC designated spaces for the first day of employment, subcontractor personnel must possess a current TS clearance with a Sensitive Compartmented Information (SCI) determination reflected in JPAS and be formally nominated by their company's security office to be indoctrinated into SCI programs.

 
 
 
 
 

If any subcontracted personnel are unable to obta i n a Top Secret clearance with access to SCI within 30 calendar days of initiating support under this subcontract, the subcontractor shall:
 
1.   Notify SOTERA; and,
2.   Terminate billing for the employee against the subcontract.
 
If any subcontracted personnel employed by the subcontractor in support of this subcontract, fa i l t o mainta i n the required security clearance or access, the contractor shall:

1.   Notify SOTERA of this discrepancy; and,
2.   Remove the employee from the COIC designated site; and,
3.   Terminate billing for the employee against the subcontract.

The Subcontractor shall comply with IEDDO Classification Guide dated August 2007. The Subcontractor’s performance shall require access from unclassified through Top Secret Sensitive Compartmented Information (SCI), including SI/TK, G, and HCS, depending on the specific work that must be performed.  The Subcontractor must be ICD 704 eligible and must adhere to the guidelines in order to maintain eligibility and indoctrination.  SOTERA will execute a DoD Contract Security Classification Specification (DD Form 254) to allow the Subcontractor the following accesses:
 
a.   Access to Sensitive Compartmented Information
b.   Classified ADP Processing
c.   Open Source/Unclassified data.
 
Each Subcontractor personnel, to include any second tier subcontractors, shall be the subject of a Single Scope Background Investigation (SSBI) (with Periodic Reinvestigations based on an SBPR/PPR every five years) and granted a TS/SCI security clearance.  It is incumbent upon the Subcontractor to ensure that the necessary security paperwork is submitted in sufficient time to be cleared prior to beginning work on this subcontract.
 
All personnel that require a permanent badge or access to the LAN must be on the Personnel Management Roster (PMR) and attend Newcomer‘s Orientation.  In addition, all such Contractors must out-process through the JIEDDO Human Resources (HR) and security departments.  The Subcontractor shall return all badges, keys and equipment to the site.
 
The Subcontractor shall ensure all Subontractor employees return security identification badges and picture identification cards to the Government at the completion of their employment.  An employment/installation clearance form will be developed by the Contractor to include a signature block for the Government to certify that an employee has turned in all badges/government property before leaving employment on the installation.  The Subcontractor shall ensure that security badges are turned-in to the Government within 2 work days after the employee has departed.

 
 
 
 

 
The Subcontractor shall immediately report the loss or possible compromise of classified information or material to the SOTERA PM or his/her designee.

Contractors who do not directly support COIC must have either a Secret or Top Secret Clearance and be approved by JIEDDO to be granted access to the COIC.
 
H.27.1       NISPOM REQUIREMENTS
 
As required the Subcontractor shall implement Security Classification Guidelines, e.g., DCID (DCID) 6/3 and DCID 6/9.
 
H.27.2       CLASSIFIED OPERATIONS
 
Select Subcontractor personnel shall operate at Subcontractor/Contractor and Government facilities controlled at SECRET collateral and TS/SCI.  The Government will provide appropriate Security Classification Guides (SCG) and additional instructions within the DD Form 254.  The Subcontractor shall follow instructions for Public Release requirements and Disclosure Policy references in the DD Form 254 Contract Security Classification Specification Block 12 as well as additional security guidance and requirements in Blocks 13 and 14.
 
H.27.3       OPERATIONS SECURITY REVIEWS
 
All material produced by the Subcontractor which will be disseminated outside of JIEDDO shall be subject to an OPSEC and Security review, to be performed by the JIEDDO OPSEC Officer prior to release.  This includes all written (hardcopy) and electronic materials produced, such as organizational press releases and marketing material.  The Subcontractor shall notify the SOTERA Sr. Subcontracts Manager of plans to issue any press release related to the subcontract.  Informal email correspondence does not apply; however, any and all official business correspondence that leaves the JIEDDO network should be reviewed by a Government official prior to it being sent, or as a minimum requirement, the communication should be approved by the Government.  The Government can authorize continued correspondence between the Contractor working for him/her and the outside entity so as not to burden the day to day sending of electronic email, for example.  Refer to the DD Form 254 for additional information.
 
H.28          DEFENSE BASE ACT INSURANCE
 
Pursuant to FAR 28.305, Defense Base Act (DBA) insurance coverage provides workers‘ compensation benefits (medical, disability, death) in the event of a work-related injury or illness outside the United States.
 
The Government requires that employees hired by Contractors and subcontractors who work internationally be protected by the DBA coverage, regardless of their assignment and/or location unless a waiver has been obtained by the U.S. Department of Labor.
 
DBA insurance shall be at no direct cost to the Government and shall be furnished to the task order Contracting Officer within 30 days of award of a task order; however, if required and approved by the CO, additional DBA riders may be charged as a direct cost to the Government.

 
 
 
 

 
H.29          PRIVACY REQUIREMENTS
 
Work on this project may require that Subcontractor personnel have access to Privacy Act and other sensitive information.  The Subcontractor shall adhere to the Privacy Act, Title 5 of the United States Code, section 552a and applicable GSA, DoD, and Army rules and regulations, and JIEDDO policies and procedures.  Subcontractor personnel shall not divulge or release privacy data or information developed or obtained in the performance of this subcontract, until made public or specifically authorized by SOTERA and/or the Government.  The Subcontractor shall not use, disclose, or reproduce third party companies‘ propriety data, other than as authorized and required in performance of this subcontract.  Personnel working on this project shall sign a non-disclosure agreement immediately upon their start on the project.  The Subcontractor‘s procedures for protecting against unauthorized disclosure of information shall not require Department of Defense employees or members of the Armed Forces to relinquish control of their work product, whether classified or not, to the Subcontractor.
 
H.30          GOVERNMENT LIABILITY
 
SOTERA and/or the Government shall not be liable for any injury to the Subcontractor's personnel or damage to the Subcontractor's property unless such injury or damage is due to negligence on the part of SOTERA and/or the Government and is recoverable under the Federal Torts Claims Act, or pursuant to another Federal statutory authority.
 
H.31          SUPERVISION OF EMPLOYEES
 
The Subcontractor's employees shall remain under the Subcontractor's direct supervision at all times. Although SOTERA will coordinate directions within the scope of the subcontract, detailed instruction for the Subcontractor's employees and supervision shall remain the responsibility of the Subcontractor.
 
H.32          INSURANCE

Without prejudice to the Subcontractor’s liability to indemnify the Contractor as stated in the indemnification provision of this agreement, the Subcontractor shall procure at its expense and maintain for the duration of this agreement, and ensure that any of its Subcontractors used in connection with this agreement procure and maintain, the insurance policies described below with financially responsible insurance companies, reasonably acceptable to the Contractor, with policy limits not less than those indicated below.

H.32.1.     Special Provisions.

1.1. Additional Insured.  The Subcontractor shall have all policies, except Workers Compensation, endorsed to name the Contractor as an Additional Insured with respect to the work to be performed by the Subcontractor.

1.2. Waiver of Subrogation.  The Subcontractor shall have all policies endorsed to waive the insurer’s rights of subrogation in favor of the Contractor.
 

 
 
 


1.3. Deductibles.  Subject to the reasonable review and approval of the Contractor, the Subcontractor may arrange deductibles of self-insured retentions as part of the required insurance coverages.  However, it is expressly agreed that all deductibles or self-insured retentions are the sole responsibility of the Subcontractor.

1.4. Certificates of Insurance.  Prior to commencement of any work under this Agreement, the Subcontractor shall furnish the Contractor with Certificates of Insurance, in a format acceptable to the Contractor, evidencing the insurance coverage required in this Agreement and containing the following information:
1.4.1. Identify the Contractor as an Additional Insured with respect to all policies except Workers Compensation and Employer’s Liability;
1.4.2. State that all policies have been endorsed to waive subrogation in favor of the Contractor;
1.4.3. State that the underwriters agree to provide the contractor with at least 30 days prior written notice of any cancellation or material change in the coverage.

3. Insurance Coverages:
 
The Subcontractor shall be required to have insurance in accordance with FAR 52.228-5, (Insurance – Work on a Government Installation) found in Section I.
 
 a.   Workman's compensation insurance required by law of the State where performance is conducted.
 b.   Comprehensive bodily injury insurance with limits of not less than $500,000 for each occurrence.
 c.   Property Damage liability with a limit of not less than $100,000 for each occurrence.
 d.  
 
Automotive bodily injury liability insurance with limits of not less than $200,000 for each person and $500,000 for each occurrence, and property damage liability insurance with a limit of not less than $50,000 for each occurrence.
 
H.33          DATA RIGHTS
 
In order to carry out its missions and programs, it is necessary for the Government to acquire access to data produced or used in the performance of its contracts.  Such data may promote competition among suppliers, foster subsequent technological developments, meet specialized acquisition needs and ensure logistics support.  The Government expects to acquire unlimited rights in the following data:
 
 a.   Data first produced in the performance of the contract;
 b.  
 
Data that constitute manuals or instructional and training material for processes delivered or furnished for use under the contract; andData that constitute manuals or instructional and training material for processes delivered or furnished for use under the contract; and
c.  
 
All other data delivered under the contract other than limited rights data or restricted computer software. If any of the foregoing data are published copyrighted data with the notice of 17 U.S.C. 401 or 402, the Government will acquire them under a copyright license rather than with unlimited rights.

 
 
 
 

   
H.34           DEPLOYMENT REQUIREMENTS
 
The requirements of this Subcontract have been identified by the U.S. Government as being essential to the mission and operational readiness of the U.S. Armed Services operating worldwide; therefore, the Subcontractor may be required to perform this subcontract during crisis situations (including war or a state of emergency), contingencies or exercises in the identified area of operations, also known as theatre of operations, subject to the requirements and provisions listed below. These requirements apply to all personnel deployed to the AOR, regardless if they are temporary travelers or permanently deployed.
 
The Subcontractor shall be responsible for performing all requirements of this subcontract notwithstanding crisis situations, contingencies or exercises, including but not limited to the existence of any state of war, whether declared or undeclared, or state of emergency, by the United States or the host nation, commencement of hostilities, internal strife, rioting, civil disturbances, or activities of any type which would endanger the welfare and security of U.S. Forces in the host nation.  Failure by the Subcontractor to perform may subject the Subcontractor to a termination of this subcontract for cause.
 
The Subcontractor shall ensure all employees participate in any necessary pre- deployment qualification training at the JIEDDO COIC and with units preparing for deployment for up to 6 weeks.  The personnel in each team shall be available for deployment or duty at other designated CONUS locations at the end of that training period.  JIEDDO shall determine the actual initial deployment dates based on mission requirements.  JIEDDO will assess individual performance during training in order to validate readiness to perform all tasks and duties.  The Government will provide the following training (as needed):
 
 
1.   Individual pre-deployment training in accordance with DoD and U.S. Central Command requirements.
 
2.   Weapons qualification training, if required by arming authorization (only if authorized by the Contracting Officer).
 
3.   Technical  and  functional  training  at  the  JIEDDO  COIC  on  regional  operational procedures, the threat situation and all operational and intelligence tools necessary to perform duties at the JIEDDO COIC and when deployed with forward elements.
 
Subcontractor personnel will be integrated into Government contingency plans, and afforded the same rights, privileges, protection, and priority as U.S. Government personnel.  The Government may provide security, housing, and messing facilities for Subcontractor personnel should conditions warrant.
 
H.35          SUBCONTRACTOR COMPLIANCE
 
The Subcontractor shall ensure that all Subcontractor employees, including second tier subcontractors, will comply with all guidance, instructions, and general orders applicable to U.S. Armed Forces and DOD civilians and issued by the Theater Commander or his/her representative.  This will include any and all guidance and instructions issued based upon the need to ensure mission accomplishment, force protection and safety.

 
 
 
 

 
The Subcontractor shall comply, and shall ensure that all deployed employees and agents comply, with pertinent Service and Department of Defense directives, policies, and procedures.  The Subcontractor shall ensure compliance with all Federal statutes, judicial interpretations and international agreements (e.g., Status of Forces Agreements, Host Nation Support Agreements, etc.) applicable to U.S. Armed Forces or U.S. citizens in the area of operations.  The contract ordering Officer will resolve disputes.  Host Nation laws and existing Status of Forces Agreements may take precedence over contract requirements.
 
 a.   The Subcontractor shall take actions to ensure the professional conduct of its employees.
 b.  
 
The Subcontractor shall promptly resolve, to the satisfaction of the SOTERA PM/TL and Sr. Subcontracts Manager, all Subcontractor employee performance and conduct problems identified by the SOTERA PM/TL and cognizant FEDSIM CO or Contracting Officer's Representative (COR).
c.  
 
The SOTERA Sr. Subcontracts Manager and/or PM may direct the Subcontractor, at the Subcontractor's expense, to remove or replace any Subcontractor employee failing to adhere to instructions and general orders issued by the Theater Commander or his/her designated representative.
 
H.36          ACCOUNTING FOR PERSONNEL
 
As directed by the SOTERA Sr. Subcontracts Manager and PM and based on instructions of the Theater Commander, the Subcontractor shall report its employees, including third country nationals, entering and/or leaving the area of operations by name, citizenship, location, Social Security number (SSN) or other official identity document number.
 
H.37          THEATER RISK ASSESSMENT AND MITIGATION
 
If a Subcontractor employee departs an area of operations without Subcontractor permission, the Subcontractor shall ensure continued performance in accordance with the terms and conditions of the subcontract.  If the Subcontractor replaces an employee who departs without permission, the replacement is at Subcontractor expense and must be in place within two business weeks or as directed by the SOTER Sr. Subcontracts Manager.

The Subcontractor shall prepare plans for support of military operations as required by the subcontract as directed by the SOTERA Sr. Subcontracts Manager.
 
For badging and access purposes, the Subcontractor shall provide the SOTERA Sr. Subcontracts Manager and PM a list of all employees (including qualified subcontractors and/or local vendors being used in the area of operations) with all required identification and documentation information.
 
The Subcontractor shall brief its employees regarding the potential danger, stress, physical hardships and field living conditions.
 
The Subcontractor shall require all its employees to acknowledge in writing that they understand the danger, stress, physical hardships and field living conditions that are possible if the employee deploys in support of military operations.

 
 
 
 

 
The Subcontractor shall designate a point of contact for all of its plans and operations and establish an operations center to plan and control the Subcontractor deployment process and resolve operational issues with the deployed force.
 
H.38         FORCE PROTECTION
 
While performing duties in accordance with the terms and conditions of the subcontract, the Service/ Agency (e.g., Army, Navy, Air Force, Marine, Defense Logistics Agency (DLA)) will provide force protection to Subcontractor employees commensurate with that given to Service/Agency civilians in the operations area.  Subcontractor employees should be made aware of force protection options and NOT take any actions that would put themselves in harm‘s way beyond what is reasonable and expected from the conditions offered by the services.
 
H.39          VEHICLE AND EQUIPMENT OPERATION IN SUPPORT OF IT SERVICES
 
The Subcontractor shall ensure employees possess the required civilian licenses to operate the equipment necessary to perform contract requirements in the theater of operations in accordance with the statement of work.
 
Before operating any military owned or leased equipment, the Subcontractor employee shall provide proof of license (issued by an appropriate Governmental authority) to the SOTERA PM/TL and task order FEDSIM CO or COR.
 
The Government, at its discretion, may train and license Subcontractor employees to operate military owned or leased equipment.
 
The Subcontractor and its employees shall be held jointly and severably liable for all damages resulting from the unsafe or negligent operation of military owned or leased equipment.
 
H.40          MEDICAL
 
In accordance with DoD Instruction 3020.41, Contractor employees deploying to the AOR either temporarily or as permanent party must be documented to be medically and psychologically fit for the performance of their duties (without limitation or need for accommodation) by a medical and dental evaluation prior to deployment.  Fitness includes but is not limited to the ability to accomplish the tasks and duties unique to a deployed environment.  Minimum standards include ability to wear respiratory protective equipment and other chemical/biological protective equipment and to take required prophylactic medications.
 
All deplo ye d p e rsonnel e x p ec ted to b e   in t h e ater for   great e r than 30   days shall undergo a Pre- Deployment Health Assessment (PDHA) by an on-base military doctor.  The PDHA physical examination shall remain valid for 15 months from the date of the exam.
 
Pre-deployment and travel medicine services for contracted employees, including immunizations, TB testing, dental panograph and evaluation of fitness, are the responsibility of the Contractor – with the following exceptions:

 
 
 
 

 
 a.   Mission/Emergency essential  Contractors  are  authorized  Anthrax  and  Smallpox vaccinations,
 b.  
c.   
Theater specific medical supplies and medications (anti-malarials) are authorized,
DNA serum sample may be obtained at the Military Treatment Facility Lab.

Each Contractor deployed to the AOR shall complete a D e pl o y m e nt R e ad i n e ss Program Ch eck l i st ( to b e   pro v ided   by   Go ve r n m e nt   at task o rder Kick   Off   m ee t i ng s )   prior to deployment. A signature is required on the checklist by a Medical Readiness team member before the document is deemed complete.
 
The Subcontractor shall ensure that all Subcontractor employees are properly immunized prior to deployment as follows:
 
 a.  
 
For Contractor employees expected to be deployed less than 15 days in the A O R , the following immunizations are required prior to deployment: Hepatitis A, Tetenus diphtheria or Tetenus diphtheria and Pertusis, and influenza.
 b.  
 
For Subcontractor employees expected to be deployed b e t w ee n 15 and 30 da y s in t he   AOR , the following immunizations are required prior to deployment; Hepatitis A, Hepatitis B, Tetenus diphtheria or Tetenus diphtheria and Pertusis, influenza, Typhoid, Varicella, Anthrax and Smallpox.
c.  
 
For Subcontractor employees expected to be deployed great e r than 30 da y s in t he   AOR , the following immunizations are required prior to deployment; Hepatitis A, Hepatitis B, Tetenus diphtheria or Tetenus diphtheria and Pertusis, influenza, Typhoid, Varicella, Anthrax, Polio, MMR and Smallpox.
 
When applicable, the Government may provide Subcontractor employees deployed in a theater of operations emergency with medical and dental care commensurate with the care provided to Department of Defense civilian deployed in the theater of operations, in accordance with applicable DOD and theater policies.
 
Deploying civilian Subcontractor personnel shall carry with them a minimum of a 90-day supply of medication they require.
 
In addition to DoD Instruction 3020.41, the Contractor shall comply with CENTCOM Contracting Command (C 3 ) clause 952.225 ‐ 0003, Fitness for Duty and Medical/Dental Care Limitations (NOV 2010), which is included below.
 
 a.  
The subcontractor shall perform the requirements of this subcontract notwithstanding the fitness for duty of deployed employees, the provisions for care offered under this section, and redeployment of individuals determined to be unfit.  Subcontractor personnel who deploy for multiple tours, for more than 12 months total must be re-evaluated for fitness to deploy. An examination will remain valid for 15 months from the date of the physical.  The subcontractor bears the responsibility for ensuring all employees are aware of the conditions and medical treatment available at the performance location. The subcontractor shall include this information and requirement in all second tier subcontracts with performance in the theater of operations


 
 
 

 b. 
The subcontractor shall not deploy an individual with any of the following conditions unless approved by the appropriate CENTCOM Service Component (ie. ARCENT, AFCENT, etc.) Surgeon: Conditions which prevent the wear of personal protective equipment, including protective mask, ballistic helmet, body armor, and chemical/biological protective garments; conditions which prohibit required theater immunizations or medications; conditions or current medical treatment or medications that contraindicate or preclude the use of chemical and biological protective‘s and antidotes; diabetes mellitus, Type I or II, on pharmacological therapy; symptomatic coronary artery disease, or with myocardial infarction within one year prior to deployment, or within six months of coronary artery bypass graft, coronary artery angioplasty, or stenting; morbid obesity (BMI >/= 40); dysrhythmias or arrhythmias, either symptomatic or requiring medical or electrophysiological control; uncontrolled hypertension, current heart failure, or automatic implantable defibrillator; therapeutic anticoagulation; malignancy, newly diagnosed or under current treatment, or recently diagnosed/treated and requiring frequent subspecialist surveillance, examination, and/or laboratory testing; dental or oral conditions requiring or likely to require urgent dental care within six months‘ time, active orthodontic care, conditions requiring prosthodontic care, conditions with immediate restorative dentistry needs, conditions with a current requirement for oral-maxillofacial surgery; new onset (< 1 year) seizure disorder, or seizure within one year prior to deployment; history of heat stroke; Meniere‘s Disease or other vertiginous/motion sickness disorder, unless well controlled on medications available in theater; recurrent syncope, ataxias, new diagnosis (< 1year) of mood disorder, thought disorder, anxiety, somatoform, or dissociative disorder, or personality disorder with mood or thought manifestations; unrepaired hernia; tracheostomy or aphonia; renalithiasis, current; active tuberculosis; pregnancy; unclosed surgical defect, such as external fixeter placement; requirement for medical devices using AC power; HIV antibody positivity; psychotic and bipolar disorders. (Reference:  Mod 10 to USCENTCOM Individual Protection and Individual/Unit Deployment Policy, Tab A: Amplification of the Minimal Standards of Fitness for Deployment to the CENTCOM AOR).
   
c. 
 
 
In accordance with military directives (DoDI 3020.41, DoDI 6000.11, CFC FRAGO 09- 1038, DoD PGI 225.74), resuscitative care, stabilization, hospitalization at Level III (emergency) military treatment facilities and assistance with patient movement in emergencies where loss of life, limb or eyesight could occur will be provided. Hospitalization will be limited to emergency stabilization and short-term medical treatment with an emphasis on return to duty or placement in the patient movement system.
   
  d. 
 
Routine and primary medical care is not authorized.  Pharmaceutical services are not authorized for routine or known, routine prescription drug needs of the individual. Routine dental care, examinations and cleanings are not authorized.
   
e. 
 
 
 
Notwithstanding any other provision of the contract, the contractor shall be liable for any and all medically-related services or transportation rendered.  To view reimbursement rates that will be charged for services at all DoD deploted medical facilities please go to the following website:
 
ht t p: / /comptroll e r.d e f e nse . g ov/r a t e s/ f y 2011.ht m l  (change fiscal year as applicable).
   
(End of Clause)
 
H.41          PASSPORTS, VISA, AND CUSTOMS

 
 
 
 

 
The Subcontractor is responsible for obtaining all passports, visas, or other documents necessary to enter and/or exit any area(s) identified by the SOTERA PM/TL or Sr. Subcontracts Manager for Subcontractor employees.  However, visas will be provided by the government when the SOTERA PM/TL and/or FEDSIM CO determines it to be in the best interest of the government.
 
All Subcontractor employees shall be subject to the customs processing procedures, laws, agreements, and duties of the country to which they are deploying and the procedures, laws, and duties of the United States upon re-entry.
 
The Subcontractor shall register all personnel with the appropriate U.S. Embassy or Consulate where possible.
 
H.42          LIVING UNDER FIELD CONDITIONS
 
If requested by the Subcontractor, the Government will provide Subcontractor employees deployed in the theater of operations the equivalent field living conditions, subsistence, emergency medical and dental care, sanitary facilities, mail delivery, laundry service, and other available support afforded to Government employees and military personnel in the theater of operations.

H.43          MORALE, WELFARE, AND RECREATION
 
The Government will provide Subcontractor employees deployed in the theater of operations morale, welfare, and recreation services commensurate with that provided to Department of Defense civilians and military personnel deployed in the theater of operations.
 
H.44          HEALTH AND LIFE INSURANCE
 
The Subcontractor shall ensure that health and life insurance benefits provided to its deploying employees are in effect in the theater of operations and allow traveling in military vehicles. Insurance is available under the Defense Base Act administered by the Department of Labor.
 
H.45          NEXT OF KIN NOTIFICATION
 
Before deployment, the Subcontractor shall ensure that each Subcontractor employee completes a DD Form 93, Record of Emergency Data Card, and returns the completed form to the designated Government official.  The Subcontractor is responsible for establishing a line of communication to notify and inform their employees‘ families of the status of the employee while he/she is deployed.  The Government is responsible for ensuring that the Subcontractor is notified of their employees‘ status at the earliest possible time without compromising national security.  The Government reserves the right to notify families of Subcontractor employees‘ status only when it is in the best interest of the Government.
 
H.46          RETURN PROCEDURES

 
 
 
 

 
Upon notification of return, the task order TPOC may authorize and the FEDSIM COR may approve Subcontractor employee travel from the theater of operations to the designated individual deployment site.  The Subcontractor shall ensure that all Government-issued clothing and equipment provided to the Subcontractor or the Subcontractor's employees are returned to Government control upon completion of the deployment.  The Subcontractor shall provide the TPOC with documentation, annotated by the receiving Government official, of all clothing and equipment returns.  The Subcontractor shall be liable for any Government-furnished clothing and equipment not returned to the Government.
 
H.47          SPECIAL LEGAL CONSIDERATIONS
 
P ubl i c   L a w 10 6 - 523.  Mil i ta r y   E x tr a te r ritori a l J u r isd i c t i on A c t of 2000:   Amended Title 18, US Code, to establish Federal Jurisdiction over certain criminal offenses committed outside the United States by persons employed by or accompanying the Armed Forces, or by members of the Armed Forces who are released or separated from active duty prior to being identified and prosecuted for the commission of such offenses, and for other purposes.
 
Applicability:  This Act applies to anyone who engages in conduct outside the U.S. that would constitute an offence punishable by imprisonment for more than one year, the same as if the offense had been committed within the jurisdiction of the U.S.  The person must be employed by or accompanying the Armed Forces outside the U.S.
 
H.48          HARDSHIP AND DANGER PAY
 
Post (Hardship) Differential and Danger (Hazard) are allowances that provide additional compensation above basic compensation in a foreign area as determined by the Department of State where civil insurrection, civil war, terrorism or wartime conditions threaten physical harm or imminent danger to the health or well being of the employee.  The Contractor shall be reimbursed for payments made to its employees for danger pay, not to exceed that paid U.S. Government civilian employees, in accordance with the provisions of the Department of State Standardized Regulations (DSSR) Chapter 500 – Post (Hardship) Differential, Chapter 650 - Danger Pay Allowance, and Section 920 - Post Classification and Payment Tables, as may be amended.  Compensation to ‗Basic Compensation‘ shall be only applicable to the first forty (40) hours of effort performed per week.  Hardship and danger pay shall be billed as an ODC under the TSE contract, in accordance with G.1.1.5.
 
H.49          STATUS OF FORCES AGREEMENT
 
The SOTERA PM/TL and/or the FEDSIM task order TPOC will inform the Subcontractor of the existence of all relevant Status of Forces Agreements (SOFA) and other similar documents, and provide copies upon request.  The Subcontractor shall be responsible for obtaining all necessary legal advice concerning the content, meaning, application, etc., of any applicable SOFAs, and similar agreements.  The Subcontractor shall adhere to all relevant provisions of the applicable SOFAs and other similar related agreements.  The Subcontractor shall be responsible for providing the SOTERA PM/TL and/or the Government with the required documentation to acquire invited Subcontractor or technical expert status, if required by the applicable SOFA.
 
H.49.1        S O F A   C ONTR A CT   C LA U S E -   US F K   RE G U LATI O N   70 0 - 19, 4 JU N E   2007

 
 
 
 


INVITED CONTRACTOR OR TECHNICAL REPRESENTATIVE STATUS UNDER U.S. - REPUBLIC OF KOREA (ROK)
 
Invited Contractor (IC) and Technical Representative (TR) status shall be governed by the U.S.ROK Status of Forces Agreement (SOFA) as implemented by United States Forces Korea (USFK) Regulation 700-19, which can be found under the ― publications‖ tab on the US Forces Korea homepage ht t p: / /ww w .usfk.mi l .
 
(a) Definitions. As used in this clause—
1)        ― U.S. – ROK Status of Forces Agreement‖ (SOFA) means the Mutual Defense Treaty between the Republic of Korea and the U.S. of America, Regarding Facilities and Areas and the Status of U.S. Armed Forces in the Republic of Korea, as amended.
2)        ― Combatant Commander‖ means the commander of a unified or specified combatant command established in accordance with 10 U.S.C. 161. In Korea, the Combatant Commander is the Commander, United States Pacific Command.
3)        ― United States Forces Korea‖ (USFK) means the subordinate unified command through
which US forces would be sent to the Combined Forces Command fighting components.
4)        ― Commander,  United States Forces Korea‖  (COMUSK) means the commander of all U.S. forces present in Korea. In the Republic of Korea, COMUSK also serves as Commander, Combined Forces Command (CDR CFC) and Commander, United Nations Command (CDR UNC).
5)        ― USFK, Assistant Chief of Staff, Acquisition Management‖ (USFK/FKAQ) means the principal staff office to USFK for all acquisition matters and administrator of the U.S.-ROK SOFA as applied to US and Third Country contractors under the Invited Contractor (IC) and Technical Representative (TR) Program (USFK Reg 700-19).
6)        ― Responsible Officer (RO)‖ means a senior DOD employee (such as a military E5 and above or civilian GS-7 and above), appointed by the USFK Sponsoring Agency (SA), who is directly responsible for determining and administering appropriate logistics support for IC/TRs during contract performance in the ROK.
 
(b) IC or TR status under the SOFA is subject to the written approval of USFK, Assistant Chief of Staff, Acquisition Management (FKAQ), Unit #15237, APO AP 96205-5237.
(c) The contracting officer will coordinate with HQ USFK/FKAQ, IAW FAR 25.8, and USFK Regulation 700-19. FKAQ will determine the appropriate contractor status under the SOFA and notify the contracting officer of that determination.
(d) Subject to the above determination, the contractor, including its employees and lawful dependents, may be accorded such privileges and exemptions under conditions and limitations as specified in the SOFA and USFK Regulation 700-19. These privileges and exemptions may be furnished during the performance period of the contract, subject to their availability and continued SOFA status. Logistics support privileges are provided on an as-available basis to properly authorized individuals.  Some logistics support may be issued as Government Furnished Property or transferred on a reimbursable basis.
(e) The contractor warrants and shall ensure that collectively, and individually, its officials and employees performing under this contract will not perform any contract, service, or other
business activity in the ROK, except under U.S. Government contracts and that performance is IAW the SOFA.
 

 
 
 
 
 
(f) The contractor‘s direct employment of any Korean-National labor for performance of this contract shall be governed by ROK labor law and USFK regulation(s) pertaining to the direct employment and personnel administration of Korean National personnel.
(g) The authorities of the ROK have the right to exercise jurisdiction over invited contractors and technical representatives, including contractor officials, employees and their dependents, for offenses committed in the ROK and punishable by the laws of the ROK. In recognition of the role of such persons in the defense of the ROK, they will be subject to the provisions of Article XXII, SOFA, related Agreed Minutes and Understandings. In those cases in which the authorities of the ROK decide not to exercise jurisdiction, they shall notify the U.S. military authorities as soon as possible. Upon such notification, the military authorities will have the right to exercise jurisdiction as is conferred by the laws of the U.S.
(h) Invited contractors and technical representatives agree to cooperate fully with the USFK Sponsoring Agency (SA) and Responsible Officer (RO) on all matters pertaining to logistics support and theater training requirements. Contractors will provide the assigned SA prompt and accurate reports of changes in employee status as required by USFK Reg 700-19.
(i) Theater Specific Training. Training Requirements for IC/TR personnel shall be conducted in accordance with USFK Regulation 350-2 Theater Specific Required Training for all Arriving Personnel and Units Assigned to, Rotating to, or in Temporary Duty Status to USFK. IC/TR personnel shall comply with requirements of USFK Regulation 350-2.
(j) All U.S. contractors performing work on Government classified contracts will report to the nearest Security Forces Information Security Section for the geographical area where the contract is to be performed to receive information concerning local security requirements.
(k) Invited Contractor and Technical Representative status may be withdrawn by USFK/FKAQ
upon:
(1) Completion or termination of the contract.
(2) Determination that the contractor or its employees are engaged in business activities in the
ROK other than those pertaining to U.S. armed forces.
(3) Determination that the contractor or its employees are engaged in practices in contravention to Korean law or USFK regulations.
 
(l) It is agreed that the withdrawal of invited contractor or technical representative status, or the withdrawal of, or failure to provide any of the privileges associated therewith by the U.S. and USFK, shall not constitute grounds for excusable delay by the contractor in the performance of the contract and will not justify or excuse the contractor defaulting in the performance of this contract. Furthermore, it is agreed that withdrawal of SOFA status for reasons outlined in USFK Regulation 700-19, Section II, paragraph 6 shall not serve as a basis for the contractor filing any claims against the U.S. or USFK. Under no circumstance shall the withdrawal of SOFA Status or privileges be considered or construed as a breach of contract by the U.S. Government.
 
(m) Support.
(1) Unless the terms and conditions of this contract place the responsibility with another party, the COMUSK will develop a security plan to provide protection, through military means, of Contractor personnel engaged in the theater of operations when sufficient or legitimate civilian authority does not exist.

 
 
 

(2)(i) All Contractor personnel engaged in the theater of operations are authorized resuscitative care, stabilization, hospitalization at level III military treatment facilities, and assistance with patient movement in emergencies where loss of life, limb, or eyesight could occur Hospitalization will be limited to stabilization and short-term medical treatment with an emphasis on return to duty or placement in the patient movement system.
(ii) When the Government provides medical or emergency dental treatment or transportation of Contractor personnel to a selected civilian facility, the Contractor shall ensure that
the Government is reimbursed for any costs associated with such treatment or transportation.
(iii) Medical or dental care beyond this standard is not authorized unless specified elsewhere in this contract.
(3) Unless specified elsewhere in this contract, the Contractor is responsible for all other support required for its personnel engaged in the theater of operations under this contract.
(n) Compliance with laws and regulations. The Contractor shall comply with, and shall ensure that its personnel supporting U.S Armed Forces in the Republic of Korea as specified in paragraph (b)(1) of this clause are familiar with and comply with, all applicable _
 
(1) United States, host country, and third country national laws;
(2) Treaties and international agreements;
(3) United States regulations, directives, instructions, policies, and procedures; and
(4) Orders, directives, and instructions issued by the COMUSK relating to force protection, security, health, safety, or relations and interaction with local nationals. Included in this list are force protection advisories, health advisories, area (i.e. ― off-limits‖), prostitution and human trafficking and curfew restrictions.
 
(o) Vehicle or equipment licenses. IAW USFK Regulation 190-1, Contractor personnel shall possess the required licenses to operate all vehicles or equipment necessary to perform the contract in the theater of operations. All contractor employees/dependents must have either a Korean driver‘s license or a valid international driver‘s license to legally drive on Korean roads, and must have a USFK driver‘s license to legally drive on USFK installations. Contractor employees/dependents will first obtain a Korean driver‘s license or a valid international driver‘s license then obtain a USFK driver‘s license.
 
(p) Evacuation.
(1) If the COMUSK orders a non-mandatory or mandatory evacuation of some or all personnel, the Government will provide assistance, to the extent available, to United States and third country national contractor personnel.
(2) Non-combatant Evacuation Operations (NEO).
(i) The contractor shall designate a representative to provide contractor personnel and dependents information to the servicing NEO warden as required by direction of the Responsible Officer.
(ii) If contract period of performance in the Republic of Korea is greater than six months, non emergency essential contractor personnel and all IC/TR dependents shall participate in at least one USFK sponsored NEO exercise per year.
(q) Next of kin notification and personnel recovery.
 
(1) The Contractor shall be responsible for notification of the employee-designated next of kin in the event an employee dies, requires evacuation due to an injury, or is missing, captured, or abducted.
(2) In the case of missing, captured, or abducted contractor personnel, the Government will assist in personnel recovery actions in accordance with DOD Directive 2310.2, Personnel Recovery.
(3) IC/TR personnel shall accomplish Personnel Recovery/Survival, Evasion, Resistance and Escape (PR/SERE) training in accordance with USFK Reg 525-40, Personnel Recovery Procedures and USFK Reg 350-2 Theater Specific Required Training for all Arriving Personnel and Units Assigned to, Rotating to, or in Temporary Duty Status to USFK.

 
 
 
 

 
(r) Mortuary affairs. Mortuary affairs for contractor personnel who die while providing support in the theater of operations to U.S. Armed Forces will be handled in accordance with DOD Directive 1300.22, Mortuary Affairs Policy and Army Regulation 638-2, Care and Disposition of Remains and Disposition of Personal Effects.
 
(s) USFK Responsible Officer (RO). The USFK appointed RO will ensure all IC/TR personnel complete all applicable training as outlined in this clause.
 
(End of Clause)
 
H.49.2 G ER M A NY   S O F A   S T ATUS P ROVISI O NS
 
The Subcontractor shall comply with Army in Europe Regulation 715-9 ― Contractor Personnel in Germany – Technical Expert, Troop Care, and Analytical Support Personnel‖, USAR Regulation 600-700,   ― Identification Cards and Individual Logistics Support‖, and guidance provided on DOCPER and USA Europe Civilian Personnel Directorate websites for SOFA and TESA status. The DoD Contractor Personnel Officer (DOCPER) implements the Agreements of 27 March 1998, and the Agreements of 29 June 2001, signed by the U.S. Embassy and German Foreign Ministry, establishing bilateral implementation of Articles 72 and 73 of the Supplementary Agreement (SA) to the NATO Status of Forces Agreement. These two Articles govern the use in Germany of DOD contractor employees as Technical Experts (TE), Troop Care (TC) providers, and Analytical Support (AS) contractor personnel.  Contracts that propose to employ TE, TC providers, or AS personnel in Germany, and the applications of individuals seeking TE/TC/AS status under those contracts, are submitted through DOCPER.  DOCPER website ht t p: / /ww w .p e r.hq u s a r e u r. a r m y .m i l / c ontent/ CP D / do c p e r.html  provides guidance for DoD Contractors for SOFA and TESA status.
 
H.50 PROHIBITIONS AGAINST HUMAN TRAFFICKING, INHUMANE LIVING CONDITIONS, AND WITHOLDING OF EMPLOYEE PASSPORTS (JUL 2010)
 
The Subontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.222-0001 as stated below:
 
(a) All contractors ( ― contractors‖ refers to both prime contractors and all subcontractors at all tiers) are reminded of the prohibition contained in Title 18, United States Code, Section 1592, against knowingly destroying, concealing, removing, confiscating, or possessing any actual or purported passport or other immigration document, or any other actual or purported government identification document, of another person, to prevent or restrict or to attempt to prevent or restrict, without lawful authority, the person‘s liberty to move or travel, in order to maintain the labor or services of that person, when the person is or has been a victim of a severe form of trafficking in persons.
 

 
 
 

 
(b) Contractors are also required to comply with the following provisions:
 
(1) Contractors shall only hold employee passports and other identification documents discussed above for the shortest period of time reasonable for administrative processing purposes.
 
(2) Contractors shall provide all employees with a signed copy of their employment contract, in English as well as the employee‘s native language that defines the terms of their employment/compensation.
 
(3) Contractors shall not utilize unlicensed recruiting firms, or firms that charge illegal recruiting fees.
 
(4) Contractors shall be required to provide adequate living conditions (sanitation, health, safety, living space) for their employees.  Fifty square feet is the minimum acceptable square footage of personal living space per employee.  Upon contractor‘s written request, contracting officers may grant a waiver in writing in cases where the existing square footage is within 20% of the minimum, and the overall conditions are determined by the contracting officer to be acceptable.  A copy of the waiver approval shall be maintained at the respective life support area.
 
(5) Contractors shall incorporate checks of life support areas to ensure compliance with the requirements of this Trafficking in Persons Prohibition into their Quality Control program, which will be reviewed within the Government‘s Quality Assurance process.
 
(6) Contractors shall comply with international laws regarding transit/exit/entry procedures, and the requirements for work visas.  Contractors shall follow all Host Country entry and exit requirements, including requirements for visas and work permits.
 
(c) Contractors have an affirmative duty to advise the Contracting Officer if they learn of their employees violating the human trafficking and inhumane living conditions provisions contained herein.  Contractors are advised that contracting officers and/or their representatives will conduct random checks to ensure contractors and subcontractors at all tiers are adhering to the law on human trafficking, humane living conditions and withholding of passports.
 
(d) The contractor agrees to incorporate the substance of this clause, including this paragraph, in all subcontracts under his contract.
 
H.51          REPORTING KIDNAPPINGS, SERIOUS INJURIES AND DEATHS (JUL 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.223-0001 as stated below:
 
Contractors shall notify the Contracting Officer, as soon as practicable, whenever employee kidnappings, serious injuries or deaths occur.

 
 
 
 
 
 
Report the following information:
Contract Number
Contract Description & Location
Company Name
Reporting party:
Name
Phone number
e-mail address
 
Victim:
Name
Gender (Male/Female)
Age
Nationality
Country of permanent residence
 
Incident:
Description
Location
Date and time
Other Pertinent Information
 
H.52          COMPLIANCE WITH LAWS AND REGULATIONS (JUL 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0004 (Jul 2010) as stated below:
 
(a)   The Subcontractor shall comply with, and shall ensure that its employees and its subcontractors and their employees, at all tiers, are aware of and obey all U.S. and Host Nation laws, Federal or DoD regulations, and Central Command orders and directives applicable to personnel in Iraq and Afghanistan, including but not limited to USCENTCOM, Multi-National Force and Multi- National Corps operations and fragmentary orders, instructions, policies and directives.
 
(b)  Subcontractor employees shall particularly note all laws, regulations, policies, and orders restricting authority to carry firearms, rules for the use of force, and prohibiting sexual or aggravated assault.  Subcontractor employees are subject to General Orders Number 1, as modified from time to time, including without limitation, their prohibition on privately owned firearms, alcohol, drugs, war souvenirs, pornography and photographing detainees, human casualties or military security measures.
 
(c)   Subcontractor employees may be ordered removed from secure military installations or the theater of operations by order of the senior military commander of the battle space for acts that disrupt good order and discipline or violate applicable laws, regulations, orders, instructions, policies, or directives.  Contractors shall immediately comply with any such order to remove its contractor employee.

 
 
 
 

 
(d)  Subcontractor employees performing in the USCENTCOM Area of Responsibility (AOR) may be subject to the jurisdiction of overlapping criminal codes, including, but not limited to, the Military Extraterritorial Jurisdiction Act (18 U.S.C. Sec. 3261, et al) (MEJA), the Uniform Code of Military Justice (10 U.S.C. Sec. 801, et al)(UCMJ), and the laws of the Host Nation.  Non-US citizens may also be subject to the laws of their home country while performing in the USCENTCOM AOR.  Contractor employee status in these overlapping criminal jurisdictions may be modified from time to time by the United States, the Host Nation, or by applicable status of forces agreements.
 
(e)   Under MEJA, a person who engages in felony misconduct outside the United States while employed by or accompanying the Armed Forces is subject to arrest, removal and prosecution in United States federal courts.  Under the UCMJ, a person serving with or accompanying the Armed Forces in the field during a declared war or contingency operation may be disciplined for a criminal offense, including by referral of charges to a General Court Martial.  Contractor employees may be ordered into confinement or placed under conditions that restrict movement within the AOR or administratively attached to a military command pending resolution of a criminal investigation.
 
(f)       Contractors shall immediately notify military law enforcement and the Contracting Officer if they suspect an employee has committed an offense. Contractors shall take any and all reasonable and necessary measures to secure the presence of an employee suspected of a serious felony offense.  Contractors shall not knowingly facilitate the departure of an employee suspected of a serious felony offense or violating the Rules for the Use of Force to depart Iraq or Afghanistan without approval from the senior U.S. commander in the country.
 
(End of Clause)
 
H.53          MONTHLY CONTRACTOR CENSUS REPORTING (JUL 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0005 as stated below:

The Subcontractor shall provide monthly employee census information to the SOTERA Sr. Subcontracts Manager, by province, for this subcontract.  Information shall be submitted either electronically or by hard- copy. Information shall be current as of the 25th day of each month and received by the Sr. Subcontracts Manager no later than the first day of the following month. The following information shall be provided for each province in which work was performed:
(1) The total number (and subcontractors at all tiers) employees.
(2) The total number (and subcontractors at all tiers) of U.S. citizens.
(3) The total number (and subcontractors at all tiers) of local nationals (LN). (4) The total number (and subcontractors at all tiers) of third-country nationals (TCN).
(5) Name of province in which the work was performed.

 
 
 
 

 
(6) The names of all company employees who enter and update employee data in the Synchronized Predeployment & Operational Tracker (SPOT) in accordance with DFARS
252.225-7040 or DFARS DOD class deviation 2007-O0010.
 
H.54          GOVERNMENT FURNISHED CONTRACTOR SUPPORT (JUL 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225- 00011.
 
The following is a summary of the type of support the Government will provide the subcontractor, on an ― as-available basis.  In the event of any discrepancy between this summary and the description of services in the Statement of Work, this clause will take precedence.
 
U.S. C i t i z e ns A cc ompa n y i n g   the   F o r c e    
     
x APO/FPO/MPO/Postal Services
DFACs
Mil Issue Equip
o Authorized Weapon
Excess Baggage
MILAIR
x Billeting
Fuel Authorized
MWR
o CAAF
Govt Furnished Meals
Resuscitative Care
x Controlled Access Card (CAC)/ID Card
Military Banking
Transportation
x Commissary
Military Clothing
All
o Dependents Authorized
Military Exchange
None
 
Third - Count r y   N a t i on a l ( TCN) Empl o y e e s
   
     
o APO/FPO/MPO/Postal Services
DFACs
Mil Issue Equip
o Authorized Weapon
Excess Baggage
MILAIR
o Billeting
Fuel Authorized
MWR
o CAAF
Govt Furnished Meals
Resuscitative Care
o Controlled Access Card (CAC)/ID Card
Military Banking
Transportation
o Commissary
Military Clothing
All
o Dependents Authorized
Military Exchange
None
 
L o c a l N a t i on a l ( L N ) E m pl o y e e s
   
     
o APO/FPO/MPO/Postal Services
DFACs
Mil Issue Equip
o Authorized Weapon
Excess Baggage
MILAIR
o Billeting
Fuel Authorized
MWR
o CAAF
Govt Furnished Meals
Resuscitative Care
o Controlled Access Card (CAC)/ID Card
Military Banking
Transportation
o Commissary
Military Clothing
All
o Dependents Authorized
Military Exchange
None
 
H.55          CONTRACTOR HEALTH AND SAFETY (NOV 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0013.
 
(a) Contractors shall comply with all National Electrical Code (NEC 2008), Specifications as outlined, and MIL Standards and Regulations.  All infrastructure to include, but not limited to, living quarters, showers, and restrooms shall be installed and maintained in compliance with these standards and must be properly supported and staffed to ensure perpetual Code compliance, prevent hazards and to quickly correct any hazards to maximize safety of those who use or work at the infrastructure (NEC Table 352.20).  Specifically, the use of magnetic ballasts in lighting for new construction or replacement of existing magnetic ballasts during refurbishment, alterations or upgrades with new magnetic ballasts is prohibited. The government has the authority to enter and inspect contractor employee living quarters at any time to ensure the prime contractor is complying with safety compliance standards outlined in the 2008 National Electric Code (NEC).

 
 
 
 


(b) The contractor shall correct all deficiencies within a reasonable amount of time of contractor becoming aware of the deficiency either by notice from the government or a third party, or discovery by the contractor.  Further guidance on mandatory compliance with NFPA 70: NEC 2008 can be found on the following link ht t p: / /ww w .nfp a .or g .
 
H.56          CONTRACTOR PERSONNEL AUTHORIZED TO ACCOMPANY U.S. ARMED FORCES DEPLOYED OUTSIDE THE UNITED STATES (JUL 2009)

The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-7040.
 
(a)   D e fin i t i o ns .   As used in this clause—
 
― Combatant Commander‖ means the commander of a unified or specified  combatant command
established in accordance with 10 U.S.C. 161.
 
― Designated operational area‖ means a geographic area designated by the combatant commander
or subordinate joint force commander for the conduct or support of specified military operations.
 
― Law of war‖ means that part of international law that regulates the conduct of armed hostilities. The law of war encompasses all international law for the conduct of hostilities binding on the United States or its individual citizens, including treaties and international agreements to which the United States is a party, and applicable customary international law.
 
― Subordinate joint force commander‖ means a sub-unified commander or joint task force commander.
 
(b)   G e n e ra l.
(1) This clause applies when Contractor personnel are authorized to accompany U.S. Armed
Forces deployed outside the United States in—

 
 
 
 

 
(i) Contingency operations
 
(ii)  Humanitarian or peacekeeping operations; or
 
(iii)  Other military operations or military exercises, when designated by the Combatant
Commander.
 
(2) Contract performance in support of U.S. Armed Forces deployed outside the United States may require work in dangerous or austere conditions. Except as otherwise provided in the contract, the Contractor accepts the risks associated with required contract performance in such operations.
 
(3) Contractor personnel are civilians accompanying the U.S. Armed Forces.
 
(i) Except as provided in paragraph (b)(3)(ii) of this clause, Contractor personnel are only authorized to use deadly force in self-defense.
 
(ii)  Contractor personnel performing security functions are also authorized to use deadly force when such force reasonably appears necessary to execute their security mission to protect assets/persons, consistent with the terms and conditions contained in their contract or with their job description and terms of employment.
(iii)  Unless immune from host nation jurisdiction by virtue of an international agreement or international law, inappropriate use of force by contractor personnel authorized to accompany the U.S. Armed Forces can subject such personnel to United States or host nation prosecution and civil liability (see paragraphs (d) and (j)(3) of this clause).
 
(4) Service performed by Contractor personnel subject to this clause is not active duty or service under 38 U.S.C. 106 note.
 
(c) Su ppor t .
 
(1)           (i) The Combatant Commander will develop a security plan for protection of Contractor personnel in locations where there is not sufficient or legitimate civil authority, when the Combatant Commander decides it is in the interests of the Government to provide security because—
 
(A)  The Contractor cannot obtain effective security services;
 
(B)  Effective security services are unavailable at a reasonable cost; or
 
(C)  Threat conditions necessitate security through military means.
 
(ii)  The Contracting Officer shall include in the contract the level of protection to be provided to Contractor personnel.

 
 
 
 

 
(iii)  In appropriate cases, the Combatant Commander may provide security through military means, commensurate with the level of security provided DoD civilians.
 
(2)           (i) Generally, all Contractor personnel authorized to accompany the U.S. Armed Forces in the designated operational area are authorized to receive resuscitative care, stabilization, hospitalization at level III military treatment facilities, and assistance with patient movement in emergencies where loss of life, limb, or eyesight could occur. Hospitalization will be limited to stabilization and short-term medical treatment with an emphasis on return to duty or placement in the patient movement system.
 
(ii)  When the Government provides medical treatment or transportation of Contractor personnel to a selected civilian facility, the Contractor shall ensure that the Government is reimbursed for any costs associated with such treatment or transportation.
 
(iii)  Medical or dental care beyond this standard is not authorized unless specified elsewhere in this contract.
(3) Unless specified elsewhere in this contract, the Contractor is responsible for all other support required for its personnel engaged in the designated operational area under this contract.
 
(4) Contractor personnel must have a letter of authorization issued by the Contracting Officer in order to process through a deployment center or to travel to, from, or within the designated operational area.  The letter of authorization also will identify any additional authorizations, privileges, or Government support that Contractor personnel are entitled to under this contract.
 
(d)   Co m p l ia n c e   wi t h   l a ws   a n d re g u la t i o n s .
 
(1) The Contractor shall comply with, and shall ensure that its personnel authorized to accompany U.S. Armed Forces deployed outside the United States as specified in paragraph (b)(1) of this clause are familiar with and comply with, all applicable—
 
(i) United States, host country, and third country national laws;
(ii)   Provisions of the law of war, as well as any other applicable treaties and international agreements;
 
(iii)  United States regulations, directives, instructions, policies, and procedures; and
(iv) Orders, directives, and instructions issued by the Combatant Commander, including those relating to force protection, security, health, safety, or relations and interaction with local nationals.
 
(2) The Contractor shall institute and implement an effective program to prevent violations of the law of war by its employees and subcontractors, including law of war training in accordance with paragraph (e)(1)(vii) of this clause.

 
 
 
 

 
(e) Pr e - d e ploy m e n t require m en t s .
 
(1) The Contractor shall ensure that the following requirements are met prior to deploying personnel authorized to accompany U.S. Armed Forces.  Specific requirements for each category may be specified in the statement of work or elsewhere in the contract.
 
(i) All required security and background checks are complete and acceptable.
 
(ii)  All deploying personnel meet the minimum medical screening requirements and have received all required immunizations as specified in the contract.  The Government will provide, at no cost to the Contractor, any theater-specific immunizations and/or medications not available to the general public.
 
(iii)  Deploying personnel have all necessary passports, visas, and other documents required to enter and exit a designated operational area and have a Geneva Conventions identification card, or other appropriate DoD identity credential, from the deployment center.  Any Common Access Card issued to deploying personnel shall contain the access permissions allowed by the letter of authorization issued in accordance with paragraph (c)(4) of this clause.
 
(iv) Special area, country, and theater clearance is obtained for personnel.  Clearance requirements are in DoD Directive 4500.54, Official Temporary Duty Abroad, and DoD
4500.54-G, DoD Foreign Clearance Guide.  Contractor personnel are considered non- DoD personnel traveling under DoD sponsorship.
 
(v) All personnel have received personal security training.  At a minimum, the training shall—
 
(A)  Cover safety and security issues facing employees overseas;
 
(B)  Identify safety and security contingency planning activities; and
 
(C)  Identify ways to utilize safety and security personnel and other resources appropriately.
 
(vi)  All personnel have received isolated personnel training, if specified in the contract, in accordance with DoD Instruction 1300.23, Isolated Personnel Training for DoD Civilian and Contractors.
 
(vii)  Personnel have received law of war training as follows:
 
(A)  Basic training is required for all Contractor personnel authorized to accompany U.S. Armed Forces deployed outside the United States.  The basic training will be provided through—
 

 
 
 

 
( 1 )   A military-run training center; or
( 2 )   A web-based source, if specified in the contract or approved by the Contracting Officer.
(B)  Advanced training, commensurate with their duties and responsibilities, may be required for some Contractor personnel as specified in the contract.
 
(2) The Contractor shall notify all personnel who are not a host country national, or who are not ordinarily resident in the host country, that—
 
(i) Such employees, and dependents residing with such employees, who engage in conduct outside the United States that would constitute an offense punishable by imprisonment for more than one year if the conduct had been engaged in within the special maritime and territorial jurisdiction of the United States, may potentially be subject to the criminal jurisdiction of the United States in accordance with the Military Extraterritorial Jurisdiction Act of 2000 (18 U.S.C. 3621, e t seq .);
 
(ii)  Pursuant to the War Crimes Act (18 U.S.C. 2441), Federal criminal jurisdiction also extends to conduct that is determined to constitute a war crime when committed by a civilian national of the United States;
 
(iii)  Other laws may provide for prosecution of U.S. nationals who commit offenses on the premises of U.S. diplomatic, consular, military or other U.S. Government missions outside the United States (18 U.S.C. 7(9)); and
 
(iv)  In time of declared war or a contingency operation, Contractor personnel authorized to accompany U.S. Armed Forces in the field are subject to the jurisdiction of the Uniform Code of Military Justice under 10 U.S.C. 802(a)(10).
 
( f )   Pro ce ss in g a n d d e part u re   poi n t s . Deployed Contractor personnel shall—
 
(1) Process through the deployment center designated in the contract, or as otherwise directed by the Contracting Officer, prior to deploying.  The deployment center will conduct deployment processing to ensure visibility and accountability of Contractor personnel and to ensure that all deployment requirements are met, including the requirements specified in paragraph (e)(1) of this clause;

(2) Use the point of departure and transportation mode directed by the Contracting Officer; and
 
(3) Process through a Joint Reception Center (JRC) upon arrival at the deployed location.  The JRC will validate personnel accountability, ensure that specific designated operational area entrance requirements are met, and brief Contractor personnel on theater-specific policies and procedures.

 
 
 
 

 
(g) P e rso nn e l da ta .
(1) The Contractor shall enter before deployment and maintain data for all Contractor personnel that are authorized to accompany U.S. Armed Forces deployed outside the United States as specified in paragraph (b)(1) of this clause.  The Contractor shall use the Synchronized Predeployment and Operational Tracker (SPOT) web-based system, at ht t p: / /ww w .dod.m i l / bta/ p rodu c ts / spot.ht m l , to enter and maintain the data.
 
(2) The Contractor shall ensure that all employees in the database have a current DD Form 93, Record of Emergency Data Card, on file with both the Contractor and the designated Government official.  The Contracting Officer will inform the Contractor of the Government official designated to receive this data card.
 
(h)   Co n tractor perso n ne l .
 
(1) The Contracting Officer may direct the Contractor, at its own expense, to remove and replace any Contractor personnel who jeopardize or interfere with mission accomplishment or who fail to comply with or violate applicable requirements of this contract.  Such action may be taken at the Government‘s discretion without prejudice to its rights under any other provision of this contract, including the Termination for Default clause.
 
(2) The Contractor shall have a plan on file showing how the Contractor would replace employees who are unavailable for deployment or who need to be replaced during deployment. The Contractor shall keep this plan current and shall provide a copy to the Contracting Officer upon request.  The plan shall—
 
(i)  Identify all personnel who are subject to military mobilization;
 
(ii)  Detail how the position would be filled if the individual were mobilized; and
 
(iii)  Identify all personnel who occupy a position that the Contracting Officer has designated as mission essential.
 
(3) Contractor personnel shall report to the Combatant Commander or a designee, or through other channels such as the military police, a judge advocate, or an inspector general, any suspected or alleged conduct for which there is credible information that such conduct—
 
(i) Constitutes violation of the law of war; or
 
(ii)  Occurred during any other military operations and would constitute a violation of the law of war if it occurred during an armed conflict.

 
 
 
 

 
(i) Mil i tary c lo th i n g a n d   prot ec t i v e e q u ip m e n t .
 
(1) Contractor personnel are prohibited from wearing military clothing unless specifically authorized in writing by the Combatant Commander.  If authorized to wear military clothing, Contractor personnel must—
 
(i) Wear distinctive patches, arm bands, nametags, or headgear, in order to be distinguishable from military personnel, consistent with force protection measures; and
 
(ii)  Carry the written authorization with them at all times.
 
(2) Contractor personnel may wear military-unique organizational clothing and individual equipment (OCIE) required for safety and security, such as ballistic, nuclear, biological, or chemical protective equipment.
 
(3) The deployment center, or the Combatant Commander, shall issue OCIE and shall provide training, if necessary, to ensure the safety and security of Contractor personnel.
 
(4) The Contractor shall ensure that all issued OCIE is returned to the point of issue, unless otherwise directed (in writing) by the Contracting Officer.
 
(j) Wea p o n s .
 
(1)  If the Contractor requests that its personnel performing in the designated operational area be authorized to carry weapons, the request shall be made through the Contracting Officer to the Combatant Commander, in accordance with DoD Instruction 3020.41, paragraph 6.3.4.1 or, if the contract is for security services, paragraph 6.3.5.3.  The Combatant Commander will determine whether to authorize in-theater Contractor personnel to carry weapons and what weapons and ammunition will be allowed.
 
(2)  If the Contracting Officer, subject to the approval of the Combatant Commander, authorizes the carrying of weapons—
 
(i) The Contracting Officer may authorize the Contractor to issue Contractor-owned weapons and ammunition to specified employees; or
 
(ii)  The [ C ontra c t i ng Off i ce r to s p ec i f y   the appr o pria t e   ind i v idua l , e .g., Contra c t i ng Off i ce r’s R e pre s e nta t iv e ,   R e gional   S ec uri t y   Off i c e r ]   may issue Government-furnished weapons and ammunition to the Contractor for issuance to specified Contractor employees.
 
(3) The Contractor shall ensure that its personnel who are authorized to carry weapons—
 
(i) Are adequately trained to carry and use them—
 
(A)  Safely;
 

 
 
 

 
(B)  With full understanding of, and adherence to, the rules of the use of force issued by the Combatant Commander; and

(C)  In compliance with applicable agency policies, agreements, rules, regulations, and other applicable law;
 
(ii)  Are not barred from possession of a firearm by 18 U.S.C. 922; and
 
(iii)  Adhere to all guidance and orders issued by the Combatant Commander regarding possession, use, safety, and accountability of weapons and ammunition.
 
(4) Whether or not weapons are Government-furnished, all liability for the use of any weapon by Contractor personnel rests solely with the Contractor and the Contractor employee using such weapon.

(5) Upon redeployment or revocation by the Combatant Commander of the Contractor‘s authorization to issue firearms, the Contractor shall ensure that all Government-issued weapons and unexpended ammunition are returned as directed (in writing) by the Contracting Officer.
 
(k)   V e h icle   or   e q u ip m e n t l ic e n s e s .
 
Contractor personnel shall possess the required licenses to operate all vehicles or equipment necessary to perform the contract in the designated operational area.
 
(l) Pu r c h ase o f s c ar c e   g oods a n d ser v ic e s .
 
If the Combatant Commander has established an organization for the designated operational area whose function is to determine that certain items are scarce goods or services, the Contractor shall coordinate with that organization local purchases of goods and services designated as scarce, in accordance with instructions provided by the Contracting Officer.
 
( m )   E v a c u at i o n .
 
(1)  If the Combatant Commander orders a mandatory evacuation of some or all personnel, the Government will provide assistance, to the extent available, to United States and third country national Contractor personnel.
 
(2)  In the event of a non-mandatory evacuation order, unless authorized in writing by the Contracting Officer, the Contractor shall maintain personnel on location sufficient to meet obligations under this contract.
 
(n)   N e xt of kin n ot i fi c at i on   a n d p e rso nn e l re c o ve r y .

 
 
 
 

 
(1) The Contractor shall be responsible for notification of the employee-designated next of kin in the event an employee dies, requires evacuation due to an injury, or is isolated, missing, detained, captured, or abducted.

(2)  In the case of isolated, missing, detained, captured, or abducted Contractor personnel, the
Government will assist in personnel recovery actions in accordance with DoD Directive
3002.01E, Personnel Recovery in the Department of Defense.

(o)   Mor tu ary a f f air s .

Mortuary affairs for Contractor personnel who die while accompanying the U.S. Armed Forces will be handled in accordance with DoD Directive 1300.22, Mortuary Affairs Policy.

(p)   C h a n g e s .
 
In addition to the changes otherwise authorized by the Changes clause of this contract, the Contracting Officer may, at any time, by written order identified as a change order, make changes in the place of performance or Government-furnished facilities, equipment, material, services, or site.  Any change order issued in accordance with this paragraph (p) shall be subject to the provisions of the Changes clause of this contract.
 
(q)   Su b c o n tract s .

The Contractor shall incorporate the substance of this clause, including this paragraph (q), in all subcontracts when subcontractor personnel are authorized to accompany U.S. Armed Forces deployed outside the United States in—

(1) Contingency operations;

(2) Humanitarian or peacekeeping operations; or

(3) Other military operations or military exercises, when designated by the Combatant Commander.
 
H.57          ADDITIONAL REQUIREMENTS AND RESPONSIBILITES RELATING TO ALLEGED CRIMES BY OR AGAINST CONTRACTOR PERSONNEL IN IRAQ OR AFGHANISTAN (Deviation 2010-O0014) (AUG 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-7997.
 
(a)  The Contractor shall report to the appropriate investigative authorities any alleged offenses under:
 
 
 
 

 
(1)  The Uniform Code of Military Justice (chapter 47 of title 10, United States Code) (applicable to contractors serving with or accompanying an armed force in the field during a declared war or a contingency operation); or
(2) The Military Extraterritorial Jurisdiction Act (chapter 212 of title 18, United States Code).
(b) The Contractor shall provide to all contractor personnel who will perform work on a contract in Iraq or Afghanistan, before beginning such work, information on the following:
(1)  How and where to report an alleged crime described in paragraph (a) of this clause. (2)  Where to seek victim and witness protection and assistance available to contractor personnel in connection with an alleged offense described in paragraph (a) of this clause.
(c) The appropriate investigative authorities to which suspected crimes shall be reported include the following officials—
(i) US Army Criminal Investigations Division at h tt p:// www . c i d. a r m y .mil/r e p or ta c r i m e .h t m l ;
(ii) Air Force Office of Special Investigations at http : // www .o s i. a nd r e ws . a f .mi l /li b r a r y / f ac t s h ee t s / f ac t s h ee t . a s p ? id=14 5 2 2 ; (iii) Navy Criminal Investigative Service at http : // www .n c i s . n a v y .mil/ P a g e s / publi c d e f a ult . a s p x ; or
(iv) To the command of any supported military element or the command of any base.
(d) Personnel seeking whistleblower protection from reprisals for reporting criminal acts shall seek guidance through the DoD Inspector General hotline at (800) 424-9098 or
www .dodi g .mil/ HO T LI NE /in d e x.h t m l . Personnel seeking other forms of victim or witness protections should contact the nearest military law enforcement office.
 
H.58          ARMING REQUIREMENTS AND PROCEDURES FOR PERSONAL SECURITY SERVICES CONTRACTORS AND REQUESTS FOR PERSONAL SERVICES (AUG 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0001. (a) G e n e ra l . Contractor and its subcontractors at all tiers that require arming under this contract  agree to obey all laws, regulations, orders, and directives applicable to the use of private security personnel in Iraq and Afghanistan, including U.S. CENTCOM, United States Forces – Iraq (USF-I) and United States Forces – Afghanistan (USFOR-A) Commander orders, instructions and directives. Contractors will ensure that all employees, including employees at any tier of subcontracting relationships, who will seek individual authorization to be armed under the provisions of this contract (requests for blanket authorization for groups or organizations will not be approved), comply with the contents of this clause and with the requirements set forth in the following:
 
(1) DODI 3020.50, Private Security Contractors (PSC) Operating in Contingency Operations;
(2) DODI 3020.41, Program Management for Acquisition and Operational Contract Support in Contingency Operations;

 
 
 
 

 
(3) DFARS 252.225-7040, Contractor Personnel Supporting a Force Deployed Outside the United States;
(4) Class Deviation 2007-O0010, Contractor Personnel in the United States Central Command Area of Responsibility
(5) USFOR-A, FRAGO 09-206, Outlines Management of Armed Contractors and Private Security Companies Operating in the Combined Joint Operating Area - Afghanistan (CJOA-A)
(6) USF-I OPORD 10-01, Annex C, Appendix 13
(7) U.S. CENTCOM Message, USCENTCOM Policy and Delegation of Authority for Personal Protection and Contract Security Service Arming of DoD Civilian Personnel and Contractors for Iraq and Afghanistan, dated 23 Dec 2005
(8) U.S. CENTCOM Message, Modification to USCENTCOM Civilian and Contractor Arming Policy and Delegation of Authority for Iraq and Afghanistan, dated 07 Nov 2006
(9) U.S. CENTCOM Message, Modification 3 to USCENTCOM Civilian and Contractor Arming Policy and Delegation of Authority in Iraq and Afghanistan, dated 09 Jun 2009
 
(b) R e q u ired G o ve r n m e n t Do c u m e n ta t i o n . An O-6 or GS-15 (or above) from the unit requesting the contractor security shall provide a description of the following to the arming approval authority via the contracting officer representative (COR) in sponsoring each individual request for arming (under paragraph (c) below:
 
(1) The specific location where the PSC employee will operate;
(2) The persons and/or property that require protection;
(3) The anticipated threat;
(4) The requested weapon type(s), including serial number when possible;
(5) The reason current security/police forces are unable to provide adequate protection;
and (6) Verification, under paragraph (e) below, that background checks have been conducted and that no records were found of convictions or other acts that should be known to the arming authority.
 
(c) R e q u ired Co n tractor Do c u m e n ta t io n . Contractors and their subcontractors at all tiers that require arming approval shall provide to the arming approval authority via the COR consistent documentation (signed and dated by the employee and employer as applicable) for each of their employees who will seek authorization to be armed under the contract as follows:
 
(1) Weapons Qualification/Familiarization. All employees must meet the weapons qualification requirements on the requested weapon(s) established by any DoD or other U.S. government agency, Law of Armed Conflict (LOAC); Rules for the Use of Force (RUF), as defined in the U.S. CENTCOM Policy, dated 23 December 2005; and distinction between the above-prescribed RUF and the Rules of Engagement (ROE), which are applicable only to military forces.

 
 
 
 

 
(2) Completed DD Form 2760 (or equivalent documentation) for each armed employee, indicating that the employee is not otherwise prohibited under U.S. law from possessing the required weapon or ammunition.
(3) Written acknowledgement by the individual of the fulfillment of training responsibilities and the conditions for the authorization to carry firearms. This document includes the acknowledgement of the distinctions between the ROE applicable to military forces and RUF that control the use of weapons by DoD civilians, DoD contractors and PSCs.
(4) Written acknowledgement signed by both the armed employee and by a representative of the employing company that use of weapons could subject both the individual and company to U.S. and host nation prosecution and civil liability.
(5) A copy of the contract between the contractor‘s company and the U.S. Government that verifies the individual‘s employment and addresses the need to be armed.
(6) One (1) copy of a business license from the Iraqi or Afghani Ministry of Trade or Interior.
(7) One (1) copy of a license to operate as a PSC (or a temporary operating license) from the Ministry of Interior.
 
(d) The contractor will submit to the COR a communications plan that, at a minimum, sets forth the following:
 
(1) The contractor‘s method of notifying military forces and requesting assistance where hostilities arise, combat action is needed or serious incidents have been observed;
(2) How relevant threat information will be shared between contractor security personnel and U.S. military forces; and
(3) How the contractor will coordinate transportation with appropriate military authorities.
 
(e) Prior to requesting arming approval, the contractor will submit to the COR an acceptable plan for accomplishing background checks on all contractor and subcontractor employees who will be armed under the contract. The contractor shall, at a minimum, perform the following (which will be specifically addressed in its plan and which will be documented and furnished to the COR upon completion):
 
(1) Use one or more of the following sources when conducting the background checks: Interpol, FBI, Country of Origin Criminal Records, Country of Origin U.S. Embassy Information Request, CIA records, and/or any other records available;
(2) Verify with USF-I or USFOR-A, as applicable, that no employee has been barred by any commander within Iraq or Afghanistan; and
(3) All local nationals and third country nationals will voluntarily submit to full biometric enrollment in accordance with theater biometric policies within 60 days of their arming request. While biometric collection and screening is voluntary, CORs will immediately notify the arming approval authority of any individuals who do not meet this requirement and any arming authorization will be revoked until all requirements are met.

 
 
 
 


(f) P e n al t ies f or No n - C o m p l ia n c e . Failure of contractor or subcontractor employee(s) to comply with the laws, regulations, orders, and rules (including those specified herein) governing the use of force, training, arming authorization, and incident reporting requirements may result in the revocation of weapons authorization for such employee(s). Where appropriate, such failure may also result in the total revocation of weapons authorization for the contractor (or subcontractor) and sanctions under the contract, including termination.
 
(g) Cri m i n al a n d   Civil L iab i l i ty.   Arming of contractor or subcontractor employees under this contract may subject the contractor, its subcontractors, and persons employed by the same, to the civil and criminal jurisdiction of the U.S. and Host Nation. ― Host Nation‖ refers to the nation or nations where services under this contract are performed.

(h) Laps e s in   Trai n i n g o r Au t h o r iza t i o n .   Failure to successfully retrain an employee who has been properly authorized to be armed under this contract within twelve (12) months of the last training date will constitute a lapse in the employee‘s authorization to possess and carry the weapon. All unauthorized employees will immediately surrender their weapon and authorization letter to the contractor and will remain unarmed until such time as they are retrained and newly approved by the arming authority. Additionally, the arming authority‘s authorization letter is valid for a maximum of twelve (12) months from the date of the prior letter (unless authorization is earlier invalidated by a lapse in training).

(i) A u t h ori z e d W e apon   & A m m u n i t i o n   T y p e s . Unless DCDRUSCENTCOM (or a designee)
expressly provides otherwise, all arming requests and authorizations for contractor or subcontractor employees under this contract shall be limited to U.S. Government-approved weapons and ammunition. Notwithstanding Host Nation laws or regulations that would allow use of heavier weapons by contract security/PSC, all DoD security service / PSC contractors must have weapons approved by DCDRUSCENTCOM (or a designee) before use. This restriction applies to all weapons in the possession of contractor employees, even if such weapons are required for personal protection. The following weapons and ammunition are currently
authorized by the U.S. Government for use in Iraq and Afghanistan:

(1) The M9, M4, M16, or equivalent (e.g. .45 CAL, AK-47).
(2) The M9 or equivalent sidearm will be the standard personal protection weapon unless other weapons are specifically requested and approved.
(3) U.S. government Ball ammunition is the standard approved ammunition.
 
(j) R e q u ire m e n ts for   I n d ivid u al Weapons Posses s io n .   All employees of the contractor and its subcontractors at all tiers who are authorized to be armed under this contract must:

(1) Possess only those U.S. Government-approved weapons and ammunition for which they are qualified under the training requirements of section (c) and subsequently authorized to carry;
(2) Carry weapons only when on duty or at a specific post (according to their authorization);
(3) Not conceal any weapons, unless specifically authorized;
 

 
 
 

 
(4) Carry proof of authorization to be armed. Employees not possessing such proof will be deemed unauthorized and must surrender their weapon to their employer; and
(5) IAW USCENTCOM G.O. #1, consumption of alcohol in Iraq or Afghanistan is prohibited. In the event of a suspension or an exception to G.O. #1, employees shall not consume any alcoholic beverage while armed or within eight (8) hours of the next work period when they will be armed. There are no circumstances under which a person will be authorized to consume any alcoholic beverage when armed for personal protection.
 
(k) Wea p o n s/ E q u i p m e n t   R e st r ictio n s a n d   R e spo n sib i l i t i e s.   Unl e ss o t h e r w ise pro v ided, the   U.S. Government will not provide any weapons or ammunition to contractors, their subcontractors, or any employees of the same. The Contractor will provide all weapons and ammunition to those employees that will be armed under the contract. The contractor and its subcontractors at all tiers will also provide interceptor body armor, ballistic helmets, and the Nuclear, Biological, and Chemical (NBC) protective masks to those employees that require such equipment in the performance of their duties.

(l) R u les f or t h e   Use   of   Force   ( RUF ) .   In addition to the RUF and ROE training referenced in paragraph (c), the contractor and its subcontractors at all tiers will monitor and report all activities of its armed employees that may violate the RUF and/or otherwise trigger reporting requirements as serious incidents. Prompt reporting demonstrates a desire by the contractor and its subcontractors to minimize the impact of any violations and, therefore, will be given favorable consideration. Violations of the RUF include, though are not limited to:
 
(1) Taking a direct part in hostilities or combat actions, other than to exercise self-defense;
(2) Failing to cooperate with Coalition and Host Nation forces;
(3) Using deadly force, other than in self-defense where there is a reasonable belief of imminent risk of death or serious bodily harm;
(4) Failing to use a graduated force approach;
(5) Failing to treat the local civilians with humanity or respect; and
(6) Detaining local civilians, other than in self-defense or as reflected in the contract terms.

(m) R e ten t ion   a n d Re v iew of R ec ord s . The Contractor and all subcontractors at all tiers shall maintain records on weapons training, LOAC, RUF and the screening of employees for at least six (6) months following the expiration (or termination) of the contract. The Contractor and its subcontractors at all tiers shall make these records available to the Contracting Officer or designated representative, at no additional cost to the government, within 72 hours of a request.

(n) Co n tractor Ve h icl e s.   Vehicles used by contractor and subcontractor personnel in the course of their security duties shall not be painted or marked to resemble U.S./Coalition or host nation military and police force vehicles.

(o) Quarterly   R e porti n g.   The prime contractor will report quarterly (i.e. NLT 1 January, 1 April, 1 July and 1 October for each quarter of the calendar year) to the Contracting Officer responsible for this contract, and any other organization designated by the Contracting Officer, the following information under this contract:

 
 
 
 

 
(1) The total number of armed civilians and contractors;
(2) The names and contact information of its subcontractors at all tiers; and
(3) A general assessment of the threat conditions, adequacy of force numbers, and any problems that might require a change to force levels. Note: this information is in addition to the information the contractor promises to immediately provide under the communications plan referenced at paragraph (d).
 
H.59          ARMED PERSONNEL INCIDENT REPORTS (SEP 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0002.
 
(a) All contractors and subcontractors in the United States Forces-Iraq (USF-I) or United States Forces-Afghanistan (USFOR-A) theater of operations shall comply with and shall ensure that their personnel supporting USF-I or USFOR-A forces are familiar with and comply with all applicable orders, directives, and instructions issued by the respective USF-I or USFOR-A Commanders relating to force protection and safety.
 
(b) IR A Q : Contractors shall provide an initial report of all weapons firing incidents or any other serious incidents they or their contractors are involved in to USF-I Contractor Operations Cell (CONOC) as soon as practical, but not later than 4 hours after the incident. The contractor and its subcontractors at all tiers shall submit a written report to CONOC, the Contracting Officer (CO) within 96 hours of the incident. Interim reports shall be submitted between the initial and final report, when necessary to the CONOC at usfic3conoc@iraq.centcom.mil DSN 318-435-2369, UK# 0044 203 286 9851 or 0044 203 239 5894 or Skype: USFICONOC
 
(c) A F G HANISTAN : Contractors shall immediately report all incidents and use of weapons through their Contracting Officers Representative (CORs) who will notify the Contracting Officer. Contracting Officers are responsible to notify the SCO-A Chief of Operations and the SAR @ USFOR-A (SAR SHIFT DIRECTOR, DSN: 318-237-1761) Information should include: the name of the company, where the incident occurred, time when the incident occurred, a brief description of the events leading up to the incident, and a point of contact for the company. The PARC-A Chief of Operations in coordination with the JOC will issue guidance for further reporting requirements.
 
(d) Contractors shall provide first aid and request MEDEVAC of injured persons, and remain available for U.S. or Coalition response forces, based upon the situation. In the event contractor personnel are detained by U.S. or Coalition Forces, prolonged detention due to lack of proper identification can be alleviated by contractor personnel possessing on their person information that includes the contractor‘s name, the contract number, a contractor management POC, and the phone number of the CONOC/JOC Watch.

 
 
 
 

 
H.61          MEDICAL SCREENING AND VACCINATION REQUIREMENTS FOR THIRD COUNTRY NATIONALS OR LOCALLY HIRED EMPLOYEES OPERATING IN THE CENTCOM AREA OF RESPONSIBILITY (AOR) (NOV 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0009.
 
(a)   Contractors, and subcontractors at any tier shall ensure and provide satisfactory evidence that all locally hired employees, including Local National (LN), Third Country National (TCN), and U.S. employees, working on bases have been screened for and do not currently have active tuberculosis (TB).
 
(1) Contractors may initially utilize a testing method of either a chest x-ray or TB skin test (TST), depending on the originating country a contracted employee.
 
(i)         Chest x-rays (CXR's), symptom survey, and Body Mass Index (BMI) shall be taken, and TSTs administered within 12 months prior to the start of deployment/employment.  Contractors are required to bring in a physical copy of the pre-employment CXR film as it is the only way to verify interval changes should an active case of TB occur.
 
(A) Third Country Nationals (TCNs) and Local Nationals (LNs) cannot be screened with the TST.  They need the pre-employment screening with a quality CXR, Body Mass Index (BMI) and symptom survey

(B) Small-Risk Nationals (SRNs), those with less than 25 TB cases per
100,000 persons annually (mostly expats from Europe and US), can be screened via the TST.

(ii)    Annual re-screening for TCNs, and LNs will be performed with a CXR conducted by the Contractors medical provider or local economy provider, who will look for interval changes from prior CXR‘s and review any changes in the symptom survey.

(iii)   SRN‘s do not require annual TB re-screening.  However, for a TB contact investigation, a TST or Interferon Gamma Release Assay (IGRA) is required.

(iv)   For a contact investigation, all personnel with a positive TST or IGRA will be evaluated for potential active TB with a symptom screen, exposure history, BMI, and CXR.  All cases of suspected or confirmed active TB must be reported to the theater Preventive Medicine (PM) physician and/or TB Consultant as soon as possible.  TB reporting is required within 24 hours to the PM POC.  Contact tracing, and medical coding have specific requirements.  All Small-Risk National (SRN) contract personnel are required to be MEDEVAC‘d out of theater, at the contractor‘s expense, for treatment of active TB, after consultation with the Theater PM or TB Consultant at the USF-I Surgeon‘s office.  For SRN personnel, the contractor is responsible for management and compliance with all prescribed public health actions.
 

 
 
 


(v)         Screening may be performed either by a licensed medical provider from the local economy or by the contractors‘ licensed medical staffs.  Contractors shall maintain medical screening documentation and make it available to the Contracting Officer upon request.
 
(2) TB screening and documentation is a requirement prior to receiving badges to work in the Iraq Joint Operations Area.  A copy of the TB screening documentation shall be provided to the responsible Base Operations Center (BOC) prior to issuance of base access badges.
 
(b)  Contractor employees, including subcontractors at any tier, who work in positions where they are working in food service,  water and ice production facilities, shall have current Typhoid and Hepatitis ― A‖ (full series) immunizations in accordance with the Centers for Disease Control and Prevention guidelines (e.g. typhoid vaccination booster is required every 2 years), in addition to the required TB tests.   The contractor medical provider must complete a pre-placement examination to include a stool sample test for ova and parasites, and annual medical screening form or equivalent for food service, ice and water production workers.

(c)   Proof of individual employee vaccinations shall be provided to the Contracting Officer and COR showing that their employees and their subcontractor employees at any tier have received the above vaccinations.  The contractor shall maintain their employees‘ vaccination records for examination by the Contracting Officer.  The contractor shall ensure that their subcontractors at any tier maintain their respective employees‘ vaccination records for examination by the Contracting Officer.

(d)  The contractor is responsible for management and compliance with all prescribed public health actions regarding TB in the contracted personnel.  The contractor also bears the responsibility of ensuring that adequate health management for TB (screening / diagnosis / treatment / isolation) is available at the contractor‘s chosen health care provider for their contracted and subcontracted personnel.

NOTE:  Contractors are reminded of the requirement to comply with their contract and all regulatory guidance (DoD Instructions/Regulations, Federal Acquisition Regulation/Defense Federal Acquisition Regulation Supplement, and FRAGO‘s) as applicable regarding Medical Screening and Vaccination Requirements.
 
H.62          CONTRACTOR DEMOBILIZATION (NOV 2010)
 
The Subcontractor shall comply with CENTCOM Contracting Command (C 3 ) Clause 952.225-0016.
 
(a)  Full demobilization of contractors and subcontractor(s) in the Iraq/Afghanistan Combined/Joint Operations Area (CJOA) is critical to Responsible Drawdown. The prime contractor is  required to submit a demobilization plan to the Contracting Officer a minimum of 30 days prior to the end of the contract performance period or when requested by the Contracting Officer.  The demobilization plan shall address, as a minimum, the following procedures detailed below.  The procedures outline specific guidance to ensure a timely and responsible exit from Iraq.  Prime contractors are responsible and accountable to ensure their subcontractor(s) at all tiers comply with responsible and timely exit from Iraq immediately following contract performance completion or termination.

 
 
 
 


(1) Exit from Iraq:  The prime contractor shall follow the exit guidance issued by the United States (U.S.) Embassy Baghdad and shall ensure subcontractor(s) at all tiers also follow the exit procedures.  The prime contractor is responsible to remain cognizant of Iraqi laws regarding exit from Iraq.  Currently, all foreigners traveling out of Iraqi airports via commercial air transportation must have exit visas.  Department of Defense, U.S. Forces-Iraq, Letters of Authorization (LOAs), and/or Embassy Badges are no longer the accepted means of exiting Iraq.  All U.S. citizens and foreign national contractors must obtain an Iraqi exit sticker before departing the country.  The exit sticker may be obtained from selected police stations or Ministry of Interior (MOI) offices.  It is the prime contractor‘s responsibility to ensure that the most recent exit procedures are followed and to ensure that subcontractor(s) at all tiers are in compliance with exit procedures. Assistance for this procedure may be obtained by e-mailing baghdadregmgt@state.gov or phone 240-553-0581, ext 2782 or ext 2092.
 
(2) Letter of Authorization (LOA): The prime contractor is responsible for demobilizing its workforce, including subcontractor employees at all tiers, and all contractor owned and subcontractor owned equipment out of theater as part of the prime contractor‘s exit strategy.  This exit strategy must include reasonable timeframes starting with the end of the contract performance period and not exceeding 30 days.  The Contracting Officer has the authority to extend selected LOAs up to, but not exceeding 30 calendar days after the contract completion date to allow the prime contractor to complete demobilization of its workforce and contractor owned equipment, as well as subcontractor(s) workforce and owned equipment, out of the Iraq/Afghanistan CJOA.  The prime contractor shall notify the Contracting Officer a minimum of 30 days prior to the end of the contract period to request up to a 30-day extension of selected LOAs beyond the contract completion date to complete demobilization.  The request shall include at a minimum:
 
(i) the name of each individual requiring a new LOA;
(ii) the number of days for the LOA (no more than 30 calendar days); and
(iii) justification for the request (e.g., what function the individual(s) will be performing during the demobilization period).
 
The Contracting Officer may request additional information for an LOA extension.  Any LOA extension granted beyond the contract completion date shall not exceed 30 days and the contractor is not entitled to additional compensation for this period.  If approved by the contracting officer, this is a no cost extension of an employee‘s LOA due to demobilization and in no way is an extension of the contract performance period.

 
 
 
 
 
 
(3) B a d g i n g :   The prime contractor is responsible to ensure all employee badges, including subcontractor employees at all tiers, are returned to the local Access Control Badging Office for de-activation and destruction.  The prime contractor shall submit a Badge Termination Report to ensure each record is flagged and the badge is revoked.  If a prime and/or subcontractor employee‘s badge is not returned, the prime contractor shall submit a Lost, Stolen or Unrecovered Badge Report to the appropriate Access Control Badging Office.  Contractor employees in possession of a Common Access Card (CAC) shall be responsible for turning in the CAC upon re-deployment through a CONUS Replacement Center in the U.S. Failure to return employee badges in a timely manner may result in delay of final payment.
 
(4) Contr ac tor Con t roll e d   Fac i l i t y   S p ace :   If the prime contractor has entered into a Memorandum of Understanding with the Installation Mayor or Garrison for site space, buildings, facilities, and/or Containerized Housing Units (CHU) to house prime and/or subcontractor employees (at all tiers), the prime contractor is responsible to notify the Installation Mayor or Garrison Commander of intent to vacate at least 90 calendar days prior to the end of the contract performance period.  All United States Government (USG) provided property in the prime contractor‘s possession must be returned to the USG in satisfactory condition. The prime contractor is responsible and liable for any and all damages to USG property caused by prime and/or subcontractor employees, and shall be further liable for all cleanup, clearing, and/or environmental remediation expenses incurred by the USG in returning prime contractor and/or subcontractor facilities including surrounding site to a satisfactory condition, including expenses incurred in physically moving property, trash, and refuse from such premises, removing/ remediating hazardous wastes on the premises, and repairing structures, buildings, and facilities used by the prime contractor and/or subcontractor.  The prime contractor shall provide notification to the Installation Mayor or Garrison Commander to perform an inspection of all facilities as soon as practicable, but no more than 30 days, after the end of the contract period.  If damages are discovered, the prime contractor shall make the necessary repairs.  The prime contractor shall notify the Installation Mayor or Garrison Commander for re- inspection of the facilities upon completion of the repairs.  If the Installation Mayor or Garrison Commander inspects the property, site space, buildings, facilities, and/or CHUs and finds they have not been properly cleaned, cleared, and/or environmentally remediated, or if the prime contractor fails to repair  any damages within 30 calendar days after the end of the contract performance period, the final contract payment shall be reduced by the amount of the specified damages/repairs or the expenses incurred by the USG to properly clean, clear, and/or environmentally remediate the premises.

(5) Gov e rnm e nt F u r nis h e d Equipm e nt / Materi a ls:   The prime contractor is responsible to return all USG furnished equipment, as defined in Federal Acquisition Regulation (FAR) Part 45, clauses 52.245-1, 52.245-2, and 52.245-5, if included in the contract.  Prime contractors who are not in compliance with the FAR, Defense Federal Acquisition Regulation Supplement, Department of Defense Directives and Instructions, United States Forces-Iraq (USF-I) FRAGO‘s, United States Forces-Afghanistan (USFOR-A) FRAGOs, policies, or procedures will be responsible and liable for damages to the government property. The prime contractor may apply for a ― relief of responsibility‖ from the Contracting Officer anytime during the contract performance period.  A joint inventory shall be conducted of the equipment by the prime contractor, USG representative, and the Contracting Officer or their representative, within 10 calendar days after the end of the contract performance period.  The prime contractor shall report lost, damaged or destroyed property immediately to the Contracting Officer, but no later than the joint inventory at the end of the contract period.  If the prime contractor fails to report lost, damaged or destroyed equipment or materials during the contract performance period, the prime contractor shall be responsible for the replacement and/or repair of the equipment or materials.  The replaced equipment shall be new, of the same quality, and shall perform at the same functional level as the missing piece of equipment.  If the prime contractor fails to repair and/or replace damaged or missing equipment, the final payment shall be reduced by the appropriate amount of the specified damages or cost to replace missing equipment with new.

 
 
 
 


(6) S y n c h r oni z e d P r e d e p l o y ment O p e r a t i on a l T r a c k e r ( SP OT ) :   The prime contractor is responsible to close out the deployment of personnel, including subcontractor employees at all tiers, at the end of the contract completion period and to release the personnel from the prime contractor‘s company in the SPOT database.  The release of employee information must be accomplished no more than 30 calendar days after the end of the contract completion date.

(7) A c c ountabil i t y   of Pr i me a nd S ub c ontr ac t o r P e rsonn e l:   Whether specifically written into the contract or not, it is the expectation of the USG that for any persons brought into Iraq for the sole purposes of performing work on USG contracts, contract employers will return employees to their point of origin/home country once the contract is completed or their employment is terminated for any reason.  If the prime contractor fails to re-deploy an employee, or subcontractor employee at any tier, the USG shall notify the U.S. Embassy Baghdad, to take appropriate action.  Failure by the prime contractor to re-deploy its personnel, including subcontractor personnel at any tier, at the end of the contract completion date, could result in the contractor being placed on the Excluded Parties List System (EPLS) and not be allowed to propose on future U.S. contracts anywhere in the world.

(b)  CENTCOM Contracting Command (C 3 ) and external agencies will utilize all available contracting remedies to guarantee compliance with demobilization requirements.  Such actions include, but are not limited to withholding payment, issuing a cure notice, issuing a negative Contractor Performance Assessment Reporting System (CPARS) evaluation, reduction of award fee, debarment, reimbursement of U.S. Government expenses, and/or any other legal remedy available to a contracting officer. The USG reserves the right to   w it h h old   p ay m e n t   from the prime contractor not in compliance with the above procedures included herein.  Additionally, the Contracting Officer shall document all unresolved contractor compliance issues in CPARS, which shall have an adverse past performance affect on future contracts with the USG, anywhere in the world.

 
 
 
 


SECTION I – SUBCONTRACTOR AGREEMENT CLAUSES

1.
Definitions

a.     As used throughout this Agreement, the following terms shall have the meanings set forth below:

(1) The term "SOTERA" means the complete name of SOTERA.
(2) The term "Prime Contract" means the contract between SOTERA and the United States Government, under which this Agreement is issued, the number of which is specified in this Agreement.
(3) The term "Agreement" means the contractual instrument in which these "Terms and Conditions" are incorporated.
(4) The term "lower-tier subcontracts" except as otherwise provided in this Agreement, means purchase orders and other subcontracts (including changes and modifications to these purchase orders and subcontracts) issued under this Agreement and includes lower-tier subcontracts and purchase orders.

This Subcontract incorporates one or more clauses by reference with the same force and effect as if they were given in full text.  Upon request the SOTERA Sr. Subcontracts Manager will make their full text available.  Also, the full text of a provision may be accessed electronically at this address:
 
FAR website:  https://www.acquisition.gov/far
GSAM website:   ht t ps: / / w w w . ac quis i t i on. g ov/G S A M/ g s a m.h t ml
 
I.1.1           F EDER A L A C QUI S I T ION RE G ULATION ( 4 8 CHA P TER 1)   CL AU S ES
 
C L A U S E NO C L A U S E T I T L E DATE
52.202-1 Definitions (Jul 2004)
52.203-3 Gratuities (Apr 1984)
52.203-5 Covenant against Contingent Fees (Apr 1984)
52.203-6 Restrictions on Subcontractor Sales to the Government (Sep 2006)
52.203-7 Anti-Kickback Procedures (Oct 2010)
52.203-8 Cancellation, Rescission, and Recovery  
 
Of Funds for Illegal or Improper Activity
(Jan 1997)
 
 
 
 
 

 
52.203-10
Price or Fee Adjustment of Illegal or Improper Activity
(Jan 1997)
52.203-12
Limitation on Payments to Influence Certain Federal Transactions
(Oct 2010)
52.203-13
Contractor Code of Business Ethics and Conduct
(Apr 2010)
52.203-14
Display of Hotline Poster(s)
(Dec 2007)
52.204-2
Security Requirements
(Aug 1996)
52.204-3
Taxpayer Identification
(Oct 1998)
52.204-4
Printing/copying double-Sided on Recycled Paper
(Aug 2000)
52.204-7
Central Contractor Registration
(Apr 2008)
52.209-6                      
Protecting the Government‘s Interest when Subcontracting With Contractor‘s Debarred, Suspended, or Proposed for Debarment
(Sep 2006)
52.211-6
Brand Name or Equal
(Aug 1999)
52.211-14
Notice of Priority Rating for National Defense, Emergency Preparedness and Energy Use Program
(Apr 2008)
52.215-2
Audit and Records – Negotiation with Alternate III
(Oct 2010)
52.215-8
Order of Precedence Uniform Contract Format Modification
(Oct 1997)
52.215-19
Notification of Ownership Changes
(Oct 1997)
52.215-20
Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
(Oct 2010)
52.215-20
Alternate III
(Oct 2010)
52.216-1
Type of Contract (Fill In.  Firm Fixed Price, Cost plus)
(Apr 1984)
52.217-8
Option to Extend Services (Fill in, 30 days, Prior to contract expiration)
(Nov 1999)
52.217-9
Option To Extend the Term of the Contract 90 Days
(Mar 2000)
52.219-1
Small Business Program Representations
(May 2004)
52.219-8
Utilization of Small Business Concerns
(May 2004)
52.219-9
Small Business Subcontracting Plan
(Oct 2010)
52.219-14
Limitations on Subcontracting
(Dec 1996)
52.222-2
Payment of Overtime Premiums
(Jul 1990)
52.222-3
Convict Labor
(Jun 2003)
52.222-19
Child Labor – Cooperation with Authorities and Remedies
(Jul 2010)
52.222-21
Prohibition of Segregated Facilities
(Feb 1999)
52.222-24
Preaward On-Site Equal Opportunity Compliance Evaluation
(Feb 1999)
52.222-26
Equal Opportunity
(Mar 2007)
52.222-35
Equal Opportunity for Special Disabled and Vietnam Era Veterans
(Sep 2010)(((                          (Sep 2010)
52.222-36
Affirmative Action for Handicapped Workers
(Jun 1998)
52.222-37
Employment reports on Special Disabled Veterans and Veterans of the Vietnam Era
(Dec 2001)
52.222-50
Combating Trafficking in Persons
(Feb 2009)
52.223-6
Drug Free Workplace
(May 2001)
52.223-16
IEE 1680 Standard for the Environmental Assessment of Personal Computer Products
(Dec 2007)
 
 
 
 
 

 
52.225-2
Buy America Act Certificate (Feb 2009)
52.225-6 Trade Agreements Certificate (Jan 2005)
52.225-13 Restriction on Certain Foreign Purchases (Jun 2008)
52.227-14 Rights in Data – General—Alternate V  (Dec 2007)
52.227-15 Representations of limited rights Data and Restricted Computer Software                         (Dec 2007)
52.227-23 Rights to Proposal Data (Technical) (Jun 1987)
52.228-3 Worker‘s Compensation Insurance (Defense Base Act) (Apr 1984)
52.228-5  Insurance-Work on a Government Installation  (Jan 1997)
52.228-7  Insurance-Liability to Third Persons (Mar 1996)
52.229-4 Federal, State, and Local Taxes (Apr 2003) (State and Local Adjustments)
52.232-18 Availability of Funds (Apr 1984)
52.232-22 Limitation of Funds (Apr 1984)
52.232-23 Assignment of Claims (Jan 1986)
52.232-25 Prompt Payment (Oct 2008)
52.232-33 Payment by Electronic Funds Transfer - Central Contractor Registration (Oct 2003)
52.233-1  Disputes – Alternate I  (Jul 2002)
52.233-4 Applicable Law for Breach of Contract Claim (Oct 2004)
52.234-2
Notice of Earned Value Management System –
 
 
Pre-Award IBR
(Jul 2006)
52.234-3
Notice of Earned Value Management System –
 
 
Post-Award IBR
(Jul 2006)
52.234-4
Earned Value Management System
(Jul 2006)
52.237-2
Protection of Government Buildings, Equipment,
 
 
and Vegetation
(Apr 1984)
52.239-1
Privacy or Security Safeguards
(Aug 1996)
52.242-13
Bankruptcy
(Jul 1995)
52.244-6
Subcontract For Commercial Items
(Oct 2010)
52.245-1
Government Property
(Aug 2010)
52.246-3
Inspection of Supplies – Cost Reimbursement
(May 2001)
52.246-4
Inspection of Services (Fixed Price)
(Aug 1996)
52.246-5
Inspection of Services – Cost Reimbursement
(Apr 1984)
52.246-8
Inspection of R&D – Cost Reimbursement
(May 2001)
52.246-9
Inspection of R&D – (Short Form)
(Apr 1984)
52.246-11
Higher –level contract quality requirement
(Feb 1999)
52.246-15
Certificate of Conformance
(Apr 1984)
52.246-25
Limitation of Liability – Services
(Feb 1997)
52.249-14
Excusable Delays
(Apr 1994)
52.251-1
Government Supply Sources
(Aug 2010)
52.251-2
Interagency Fleet management System Vehicles and
 
 
Related Services
(Jan 1991)
52.252-2
Solicitation Provisions Incorporated by Reference
(Feb 1998)
 
I.1.2                       F A R C LA U S ES   IN F U LL TEXT
 
52.216-18 ORDERING. (OCT 1995)
 

 
 
 

(a) Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders or task orders by the individuals or activities designated in the Schedule. Such orders may be issued from the effective date of the contract through the end of the contract period of performance.
(b) All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.
(c) If mailed, a delivery order or task order is considered "issued" when the Government deposits the order in the mail. Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the Schedule.
 
52.216-22 INDEFINITE QUANTITY. (OCT 1995)
 
(a) This is an indefinite-quantity contract for the supplies or services specified and effective for the period stated, in the Schedule. The quantities of supplies and services specified in the Schedule are estimates only and are not purchased by this contract.
 
(b) Delivery or performance shall be made only as authorized by orders issued in accordance with the Ordering clause. The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule up to and including the quantity designated in the Schedule as the "maximum". The Government shall order at least the quantity of supplies or services designated in the Schedule as the "minimum".
 
(c) Except for any limitations on quantities in the Order Limitations clause or in the Schedule, there is no limit on the number of orders that may be issued. The Government may issue orders requiring delivery to multiple destinations or performance at multiple locations.
 
(d) Any order issued during the effective period of this contract and not completed within that period shall be completed by the Contractor within the time specified in the order. The contract shall govern the Contractor's and Government's rights and obligations with respect to that order
to the same extent as if the order were completed during the contract's effective period; provided, that the Contractor shall not be required to make any deliveries under this contract after 365 days following the end of the contract period of performance.
 

 
 
 
 
 
 
I.1.3
DE F ENSE   F EDER A L   A C QUI S I T ION RE G ULATION S UP P LE M ENTS ( D F A R S ) C LA U S ES   IN C OR P O R AT E D BY R E F EREN C E
 
C L A U S E NO
C L A U S E T I T L E
D A TE
252.204-7004
Required Central Contractor Registration
(Nov 2001)
252.204-7008
Requirements for Contracts Involving
 
 
Export Controlled Items
(June 1995)
 252.219-7003  Small Business Subcontracting Plan (DOD CONTRACTS)  (Apr 2007)
 252.225-7040       Contractor Personnel Authorized to Accompany  
 
U.S. Forces Deployed Outside the U.S.
(July 2009)
252.225-7043
Antiterrorism/Force Protection for Defense Contractors
(Mar 2006)
 
Outside the United States
 
252.225-7997
Additional Requirements and Responsibilities
 
 
Relating to Alleged Crimes by or Against Contractor
 
 
Personnel in Iraq or Afghanistan (Deviation)
(Dec 2009)
252.227-7013
Rights in Technical Data -
 
 
Noncommercial Items
(Nov 1995)
252.227-7014
Rights in Noncommercial Computer
 
 
Software and Noncommercial Computer
 
 
Software Documentation
(Jun 1995)
252.227-7016
Rights in Bid or Proposal Information
(Jun 1995)
252.227-7019
Validation of Asserted Restrictions -
(Jun 1995)
 
Computer Software
 
252.227-7028
Technical Data or Computer Software
(Jun 1995)
 
Previously Delivered to the Government
 
252.228-7003
Capture and Detention
(Dec 1991)
252.234-7002
Earned Value Management System
(Apr 2008)
252.246-7001
Warranty of Data
(Mar 2003)

 
 
 
 


SECTION J – LIST OF DOCUMENTS, ATTACHMENTS AND OTHER EXHIBITS
 
Attachment 1-Statement of Work

Attachment 2-  General Provisions

Attachment 3 – DD254

Attachment 4 – Task Order Monthly Status Report - Sample

Attachment 5 – Problem Notification Report (PNR)

Attachment 6 – Government Furnished Documents

Attachment 7 – TSE Labor Category Descriptions

Attachment 8 – JIEDDO Acronym List

Attachment 9 – Corporate Non-Disclosure Agreement

Attachment 10 – Timekeeping Instructions
 

 
 
 



ATTACHMENT 1

STATEMENT OF WORK




 
 
 

 
Subcontract Statement of Work
C.1           PURPOSE
 
The purpose of this contract is to provide technology and system engineering support services to support the Joint Improvised Explosive Device (IED) Defeat Organization (JIEDDO) Counter- IED Operations Integration Center (COIC).  JIEDDO-COIC requires continued support via a multiple award contract to conduct research and experimental development, provide analytical, technical and operational assistance, and deliver required capabilities to enable JIEDDO-COIC to achieve successful execution of its mission.
 
C.2           BACKGROUND
 
The Joint IED Defeat Organization was established as a Deputy Secretary of Defense (DEPSECDEF) directed initiative with the mission to rapidly provide solutions to defeat the Enemy‘s IED Campaign and save service members‘ lives deployed fighting insurgent networks that employ IEDs as a strategic weapon of choice.  The JIEDDO-COIC was established to innovatively harness and amass information, analyses, and technology to empower the warfighter with the insight needed to predict, preempt, and defeat IEDs and other asymmetric threats.
 
C.3           SCOPE
 
The Technology and Systems Engineering (TSE) contract is a maximum five-year, multiple- award, Indefinite Delivery/Indefinite Quantity (IDIQ) contract for the development, operation, maintenance, and transition of information technology and communications infrastructure, tools, and capabilities.  The contract also facilitates research and development in support of the JIEDDO-COIC mission.  Research and experimental development shall include the following technological areas: Bacteriological and biological research (e.g., biological-based IED forensic tools), chemical (e.g., current IEDs are predominantly chemical based), computer, electronic, engineering, software, and mathematics (e.g., methods, tools, and techniques to defeat human enemy networks that facilitate the use of IEDs), industrial (e.g., interruption of IED manufacturing networks), physical sciences (e.g., IED damage effect analysis) and physics (e.g., electromagnetic and thermodynamic analyses).The Contractor shall perform the analytical, logistic, technical and engineering tasks described in C.4 with the overarching goal of promoting the continuous discovery, development and enhancement of solutions to combat enemy IED efforts and emerging threats under the JIEDDO-COIC mission.
 

 
 
 

 
C.3.1                       OVER A R C HING PRO G R A M M A N A G E M ENT RE Q UI R E M ENTS
 
The Contractor shall provide the requisite program management capab i lities to facilitate the work required and enable an effective and productive level of communication with the Government.  This includes the oversight of all activities performed by contractor personnel, including subcontractors, to satisfy the requirements identified in this PWS. The contractor shall identify a Program Manager (PM) by name, who shall provide overarching management, direction, administration, quality assurance, and leadership of all task or delivery orders issued under the contract.  Contract-level Program Management functions shall not be directly billed to the contract.
 
The contractor shall participate in a Contract Kick-Off Meeting at a location approved by the Government.  The meeting will provide an introduction between the contractor personnel and Government personnel who will be involved with the contract.  The meeting will provide the opportunity to discuss technical, management, and security issues.  At a minimum, the attendees shall include vital contractor and JIEDDO personnel, and the Federal Systems Integration and Management Center (FEDSIM) Contracting Officer‘s Representative (COR).
 
There may be additional kickoff meetings required upon award of task orders; the Government will communicate those requirements in individual task orders.  In addition to task order kickoff meetings, the Contractor may be expected to submit monthly status reports, prepare project plans, submit trip reports, prepare consent to purchase forms, provide transition out plans, etc. The specific project management requirements will also be communicated in individual task orders.
 
C.3.1.1                       A cc o un ting f or   Cont r a c t Se r vic e s   ( to be   r e p o r ted   at t h e t ask   o r d e r   lev e l )
 
The Office of the Assistant Secretary of the Army (Manpower & Reserve Affairs) operates and maintains a secure Army data collections site where the contractor shall report ALL contractor manpower (including subcontractor manpower) required for performance of task orders under this contract.  The contractor is required to completely fill in all the information in the format using the following web address   ht t ps: / /cmr a . a r m y . m i l .  The required information includes:
 
a.   Contracting Office, Contracting Officer, Contracting Officer‘s Representative, Contracting Officer‘s Technical Representative
b.   Contract number
c.   Beginning and ending dates covered by reporting period
d.   Contractor name, address, phone number, e-mail address, identity of contractor employee entering data
e.   Estimated direct labor hours (including subcontractors)
f.    Estimated direct labor hours paid this reporting period (including subcontractors)
g.   Total payments (including subcontractors)
h.   Predominant Federal Service Code (FSC) reflecting services provided by Contractor (and separate predominant FSC for each subcontractor if different)
 

 
 
 
 
 
i.    Estimated data collection cost
j.    Organizational title associated with the Unique Identification Code (UIC) for the Army Requiring Activity.  (The Army requiring activity is responsible for provided the Contractor with its UIC for the purposes of reporting this information.)
k.   Locations where Contractor and subcontractors perform the work (specified by zip code in the United States and nearest city, country, and when in an overseas location, using standardized nomenclature provided on the website) l.    Presence of deployment or contingency contract language
m.  Number of Contractor and subcontractor employees deployed in theater this reporting period (by country).
 
As a part of TSE task order proposal submissions, the contractor shall also provide the estimated total cost (if any) incurred to comply with this reporting requirement.  Reporting period will be the period of performance, not to exceed 12 months ending September 30 of each government fiscal year and must be reported by October 31 of each calendar year or at the end of the contract, whichever comes first.  Contractors may use XML data transfer to the database server or fill in the fields on the website.  The XML direct transfer is a format for transferring files from a contractor‘s systems to the secure web site without the need for separate data entries for each required data element at the website.   The specific formats for the XML direct transfer may be downloaded from the web.  The contractor shall provide a copy of the Contractor Manpower Accounting Input Data to the task order COR upon upload of required information to the Army data collections website.
 
C.4           TASKS
 
The following describes the services required for each Task Area.  The Contractor shall provide high quality products and services in a timely and cost effective manner.
 
Task 1:         Advanced Concepts and Prototyping
Task 2:         Operational, Enterprise, and System Architecture Development
Task 3:         System Design and Development
Task 4:         Integration
Task 5:         Testing
Task 6:         Global Deployment and Fielding
Task 7:         Operations and Maintenance
Task 8:         Performance-based Integrated Logistics Support (ILS)
Task 9:         Transition, Transfer or Terminate
Task 10:       Research and Analytical Support
Task 11:       Research, Development, and Engineering Support
Task 12:       Telecommunications, Network, and Satellite Systems Engineering
Task 13:       Information Assurance
Task 14:       Deployed Information Technology (IT)
 
C.4.1           TASK   1 –   A D V A N CED   CON C E P TS   A N D   P R O T O T Y P ING
 

 
 
 

 
D e sir e d   O u t c o me :   JIEDDO-COIC is continuously aware of evolving and exploited technologies and their value to the mission; promising technologies are quickly identified, developed and implemented to benefit the deployed warfighters and support teams to destroy the networks that employ IEDs.
 
In support of the contract scope in Section C.3, the Contractor shall be knowledgeable of evolving technological trends and investigate possible applications to enable the JIEDDO-COIC mission through research and experimental development. As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
New technology discovery, analysis, evaluation, and assessment o   Keep abreast with state-of-the-art technology and trends o   Technology Insertion
o   Technology exploitation
o   Reverse Engineering
o   Market research and prototyping
Process Development,  Reengineering, and Improvement
Workflow analysis
Requirements Identification, Analysis, and Engineering
Performance benchmarking
Gap Analysis
Concept of Operations
Cross domain solutions (CDS)
Continuity of Operations (COOP) / Disaster Continuity Planning (DCP)
 
C.4.2             TASK   2 –  O P ER A TI O N A L, EN T ER P RISE   A N D SY S TEM A R CHI T ECTU R E DEVE L O P M ENT
 
D e sir e d   O u t c o me :   Vendor-neutral operational, enterprise, and system architectures and requirements are defined in sufficient detail that implementation programs can be established and planning, programming, budgeting, and execution submissions can be defended.
 
In support of the contract scope in Section C.3, the Contractor shall develop vendor-neutral operational, enterprise, and system architectures and requirements in sufficient detail that implementation programs can be established and budgeted.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Functional Baseline Development
Information and Knowledge Engineering
DOD Architecture Framework (DODAF) Based Operational & System Architecture
Design and Development
Compliance with Interoperability Standards
 

 
 
 


C.4.3                       TASK   3 –   S YS T EM   DE S I G N A ND   D E VE L O P M ENT
 
D e sir e d   O u t c o me :   Solutions and components successfully complete Functional, Preliminary, and Critical Design Reviews (FDR, PDR, and CDR).
 
In support of the contract scope in Section C.3, the Contractor shall design and develop solutions and components that satisfy stated JIEDDO-COIC requirements.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Design Reviews (e.g., FDR, PDR, CDR)
Apportion Requirements to Applications
Capacity Management
Logical and Physical Design and Development
Interface Design and Development
Data
o   Database Design and Development
o   Database Applications Development
o   Data Migration and Validation
o   Data Management
o   Source Data Development
Web/Portal Design and Development
Information Dissemination Management
Custom Application Development
COTS and GOTS Integration
Software/Middleware Development
Software Engineering
Reliability and Maintainability Engineering
Technical Documentation
 
C.4.4                       TASK   4 –   INT E G R A T I ON
 
D e sir e d   O u t c o me :   Solutions and components are successfully integrated into a system capability and the system capability is successfully interfaced to and interoperable with related systems and capabilities.
 
In support of the contract scope in Section C.3, the Contractor shall integrate solution components into system capabilities that are interfaced to and interoperable with related systems and capabilities.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Product Baseline Development
System Integration
Integration with other systems
Data Migration and Validation
Technical Documentation
 

 
 
 


C.4.5                       TASK   5 –   TE S TING
 
D e sir e d   O u t c o me :   System capability successfully completes the JIEDDO-COIC approved testing program.
 
In support of the contract scope in Section C.3, the Contractor shall plan and conduct a thorough and comprehensive test program as coordinated and approved by JIEDDO-COIC.  The Defense Information Systems Agency (DISA) Joint Interoperability Test Command (JITC) will be employed as necessary to certify interoperability and compatibility with existing and future systems.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
Test Planning, Conduct, and Reporting
Component/Application/Unit Testing
System Integration Testing
Interface Testing
Interoperability Testing
Independent Validation and Verification (V&V) Testing and Support
Operational Testing Support
Automated Testing
Regression Testing
Limit Testing (e.g., maximum and minimum)
Stress Testing
Performance Testing
Problem Reporting and Trend Analysis
Documentation and Training Validation
 
C.4.6                       TASK   6 –   G LO B AL   DE P LOY M ENT A N D   F I EL D ING
 
D e sir e d   O u t c o me :   Initial Operational Capability (IOC) and Full Operational Capability (FOC)
are achieved as defined by JIEDDO.
 
In support of the contract scope in Section C.3, the Contractor shall globally deploy and field system capabilities to support JIEDDO-COIC IOC and FOC requirements. As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Deploy Operational Baseline
Deployment Planning and Management
Operational Readiness and Disposition
Pilots
Initial Operational Capability (IOC)
Final Operational Capability (FOC)
Operators Manuals
Operating Guidelines
 

 
 
 

 
Change Management
Training (mission-related)
o   Operator Training
o   System Administrator Training
o   Instructor Training (e.g., train the trainer)
o   Design and Use of Computer-generated Imaging Training
On site assistance (e.g. operator assistance with establishing satellite links)
 
C.4.7                       TASK   7 -   O P ER A TIONS   A N D M AI N T EN A N CE
 
D e sir e d   O u t c o me :   System capability is successfully operated and maintained by the intended organizational units to the satisfaction of the end-users and Operational Availability (Ao) continues to meet requirements.
 
In support of the contract scope in Section C.3, the Contractor shall operate and maintain local, deployed, and fielded capabilities to the satisfaction of the end-users, while sustaining Operational Availability (Ao) at required levels.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Network Operations and Maintenance
o   Network and systems administration
o   Fault/problem detection and resolution
o   Trend Analysis, Performance Prediction, and Corrective Action
o   Installation and configuration
Applications Operations and Maintenance
o   Problem resolution
o   Technical assistance
o   Minor development
Data Warehouse Operations and Maintenance
o   On call query development
o   Sorts and reports
o   Data backups
Website/Portal Operations and Maintenance
o   Web/Portal Maintenance
o   Web/Portal Content Maintenance
o   Web/Portal Management and Quality Control
o   Web/portal-related Documentation Support
Telecommunications, Network, and Satellite Systems Operations and Maintenance and Engineering Support
o   Performance monitoring and fault management
§       Networks
§       Servers
§       Applications
§       Databases
 

 
 
 

 
o   Collection of operational performance statistics, data analysis, identification of potential problems, and recommendation of engineering solutions for these problems
Audio-Visual (AV) Support Services
E-Mail Services
Information Assurance (see Section C.4.13)
Operational Engineering Support
Update technical and operational documentation and training
Customer Services
o   One-Stop Help Desk Services
o   Continuous Process Improvement
o   Technology-on-the-Move Services
o   Other Customer Services
 
C.4.8               TASK   8 -   INT E G R A T ED LO G I S TICS   S U P PORT (IL S )
 
D e sir e d   O u t c o me :   Product reliability, availability, maintainability, and testability are enhanced through a disciplined and unified management of the technical logistic disciplines that plan, develop, and incorporate logistics support requirements throughout the life cycle process.
 
In support of the contract scope in Section C.3, the Contractor shall develop and implement ILS concepts for capabilities and solutions in development and other stages of the life cycle.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Maintenance (preventive, predictive and corrective) Planning (including reliability engineering)
Supply (Spare part) Acquisition and Support
Support and Test Equipment and Equipment Support
Manpower and Personnel
Training and Training Support
Technical Data and Publications
Computer Resources Support
Facilities
Packaging, Handling, Storage, and Transportation (PHS&T)
Design Interface
 
C.4.9            TASK   9 –   TR A NSI T ION,   TR A NS F ER, OR T E R M INATE ( T3)
 
D e sir e d   O u t c o me :   Systems and/or capabilities are successfully transitioned or transferred to a
Service or agency, or successfully terminated as authorized by JIEDDO.
 
In support of the contract scope in Section C.3, the Contractor shall transition, transfer, and/or terminate newly developed or prototype capabilities and systems to a Service or agency as directed by JIEDDO-COIC.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 

 
 
 

 
Transition to Service or agency as an identifiable program to fund in the President‘s Budget
 
Transfer to a Service or agency to sustain using Global War on Terrorism (GWOT) funding
 
Terminate
o   Mission Complete
o   Mission Failure
 
C.4.10             TASK   10 –  RE S EA R CH A N D   A N ALYTIC A L   S UP P ORT
 
D e sir e d   O u t c o me :     Improved mission effectiveness and efficiency through focused analytical support services.
 
In support of the contract scope in Section C.3, the Contractor shall provide research and analytical support to JIEDDO-COIC.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise to provide research and analytical support in the following areas:
 
Studies and Analysis
Statistical Analysis
Operational Research and System Analysis
Simulation and Modeling
o   Data Analysis and Modeling
o   Capacity and Throughput Modeling
o   Process and Product Model Studies
o   Reliability and Maintainability Modeling
Wargaming, Experimentation, Scenario Design, and Execution
Demonstrations, Exercise Support,  and Training
 
C.4.11             TASK   11 –  RE S EA R CH, DEVE L O P M E N T, A N D EN G I NE E RI N G S UP P ORT
 
D e sir e d   O u t c o me :   Improved mission effectiveness and efficiency through focused engineering support services.
 
In support of the contract scope in Section C.3, the Contractor shall provide research, development, and engineering support services to JIEDDO-COIC.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise to provide engineering support in the following areas:
 
Configuration Management
o   Configuration Identification
o   Change Control
o   Status Accounting
 

 
 
 

 
Baseline Management (e.g., Functional, Allocated, Product, Operational) Research and Development Test Facility Implementation and Support
Quality Assurance for efficient monitoring and evaluation of all projects and services, to include the Test Facility capabilities, to ensure that standards of quality are being met.
Logistical Support and Inventory Management
o   Asset Management
o   Hardware
o   Software
o   Licenses
o   Acquisition of Commodities
o   Acceptance and Staging of Equipment
o   Supplies and Expendables
o   Commodity Procurement
o   Logistics and Property Accounting
o   Property Management (i.e. non-accountable items)
Other Related IT Technical Support and Product Services
 
C.4.12     TASK   12 –  TELECO MM U N IC A TION S ,   NE T WOR K , A N D S AT E LLI T E S YS T E M S   EN G INE E RI N G
 
D e sir e d   O u t c o me :   Telecommunications capabilities continue to meet mission requirements.
 
In support of the contract scope in Section C.3, the Contractor shall ensure that current telecommunications capabilities are maintained as needed, and that changes to capabilities are researched, developed, and provisioned to satisfy JIEDDO-COIC mission requirements.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
 
Architecture design and development of implementation options in conformance with specified guidelines
Network engineering for Internet protocol (IP) convergence and integrated voice, data and video communications systems
System and network management documentation
Transition and connectivity from local area networks, (LAN) to metropolitan area networks (MAN), and wide area network (WAN)
Design and installation of wireless and microwave technology
Satellite systems engineering, design, integration, and test
o   Terminals
o   Teleport
o   Transmission
o   Signal/Waveform/Image Processing
Network Information Assurance
Also, includes engineering for:
o   Secure and Unsecure Video Teleconferencing
o   Voice over Internet Protocol (VOIP)
o   Transition to IPv6 and beyond
o   Wireless Networking
o   Network and Telecommunications Infrastructure
 

 
 
 

 
C.4.13                       TASK   13 –  I N F OR M A TION ASS U R A N CE
 
D e sir e d   O u t c o me :   Information is available to authorized users when and where it is needed and is not available to unauthorized users.  Also, the confidentiality, integrity, and availability of information are maintained.
 
In support of the contract scope in Section C.3, the Contractor shall ensure that information is available to authorized users when and where it is needed and is not available to unauthorized users.  The Contractor shall ensure that the confidentiality, integrity, and availability, and non- repudiation of information is maintained when data is at rest, in transit, or being processed.  As a minimum, the Contractor shall provide technology, physics, mathematics, as well as electrical, industrial, and systems engineering expertise in the following areas:
Security Architecture Design (e.g. system development life cycle [SDLC])
Ensuring a Defense in Depth posture
Security Engineering of tactical and strategic systems and applications
Security Hardening of operating systems and applications
System and Network Information Assurance
Intrusion Prevention, Detection, and Mitigation
Remote Monitoring
Incident Response
Security Awareness and Training
Continuity of Operations (COOP) / Disaster Continuity Planning (DCP)
o   Disaster Recovery
o   Contingency Planning
Security Test and Evaluation (ST&E)
System and Network Certification and Accreditation (DCID 6-3, NIST, NSA and DIACAP regulatory guidance) Information System Security Operations /Information System Security Management (ISSO/ISSM)
 
C.4.14                       TASK   14 –  DE P LOY E D I N F O R M ATI O N   TECHNOLO G Y ( I T )
 
D e sir e d   O u t c o me :   Deployed Information Technology (IT) is IT ― on the move.‖ The Deployed IT desired outcome is robust, flexible, secure, and sustained end-to-end IT capabilities (including telecommunication) for JIEDDO-COIC teams deployed to Forward Operating Bases (FOB) including reach back capabilities necessary for on-site time sensitive analysis.
 
In support of the contract Scope in Section C.3, the Contractor shall support Counter-Improvised Explosives Device (C-IED) operations in the Continental United States (CONUS) and in theaters of operation Outside CONUS (OCONUS) as directed by individual task orders.  Specifically, the Contractor may be required to provide the following services:
 

 
 
 

 
  A c qu is i tio n :  Upon task order COR or TPOC approval, procure hardware, software, and licenses incidental to the performance of this contract.
 
P r o pe r ty a cc o un tabil i t y :  Ensure property accountability in accordance with JIEDDO- COIC Supply Standard Operating Procedures dated 6 November 2009 (See S ec t i on J , Attach me nt 6 ) and any revision during the contract period of performance.
 
P r e- d e p lo y m e n t   c h ec k o u t :  Using a Contractor-provided test facility, integrate and install systems, subsystems, software, and components and configure to the as-deployed capability.  Check out and verify system operation, documentation, and training simulating the intended environment as necessary.  Disassemble and prepare for shipping.
 
P a c k agi n g, h a nd l in g, s h i pp i n g, a n d   tr a n s p o r ta t ion   ( P H S & T ) . Disassemble (as needed) and package into shipping containers as needed to ensure no damage during handling and shipping.  Arrange for handling, shipping, and transportation using the Rapid Equipping Force (REF) or other service as approved by the COR.
 
R ece i p t in sp ec tio n :  Receive, check inventory, unpack, and inspect shipped items in theater.  Report issues to the COR.
 
I n stall, che c k o u t, tr ai n , a n d   t u r n ov e r : Reassemble, install, and test equipment and systems and verify the intended capability and operation are provided.  Provide training as required.  Ensure end user acceptance of the capability.

O p er a t e   a n d   m ai n tain   d e p loyed I T :  Identify and correct problems, errors, and defects.
Provide capability upgrades.
 
I nf o r m a t ion   Ass u r a n c e   (I A ) :  Perform security test and evaluation (ST&E) and provide services to support certification and accreditation (C&A) which includes but is not limited to Interim Authority To Test (IATT), Interim Authority To Operate (IATO) and Authority to Operate (ATO).  Install IA updates and patches as directed.
 
IT   e n gi n eer i n g s u p p o r t s er vic e s :  Provide capability engineering support services to design, develop new IT capabilities and modify existing capabilities including telecommunications, network, and satellite engineering and requests for service as well as computer systems engineering.
 
C.5           SECTION 508 COMPLIANCE REQUIREMENTS
 
Unless the Government invokes an exemption, all EIT products and services proposed shall fully comply with Section 508 of the Rehabilitation Act of 1973, per the 1998 Amendments, 29 U.S.C.  794d, and the Architectural and Transportation Barriers Compliance Board‘s Electronic and Information Technology Accessibility Standards at 36 CFR 1194.  The Contractor shall  identify all EIT products and services proposed, identify the technical standards applicable to all products and services proposed and state the degree of compliance with the applicable standards. Additionally, the Contractor must clearly indicate where the information pertaining to Section
 

 
 
 

508 compliance can be found (e.g., Vendor‘s or other exact web page location).  The Contractor must ensure that the list is easily accessible by typical users beginning at time of award.  The Government believes the following 508 standards are applicable (this does not relieve the Contractor of the responsibility for their determination and compliance):
 
a.   1194.21 - Software Applications and Operating Systems
b.   1194.23 - Telecommunications Products
c.   1194.26 - Desktop and Portable Computers
d.   1194.41 - Information, Documentation and Support e.   1194.31 - Functional Performance Criteria
 

 
 
 

 
ATTACHMENT 2 – GENERAL PROVISIONS

1. LIABILITY.

Except to the extent of the indemnification provision herein for tort claims resulting in bodily injury or real or tangible personal property damage, NEITHER PARTY SHALL BE LIABLE, UNDER ANY CIRCUMSTANCES FOR ANY ANTICIPATORY OR LOST PROFIT, SPECIAL, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, INCIDENTAL OR INDIRECT DAMAGES OF ANY KIND (COLLECTIVELY “NON-DIRECT DAMAGES”) RESULTING FROM ITS PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT EVEN IF: SUCH NON-DIRECT DAMAGES ARE ATTRIBUTED TO BREACH OF THIS AGREEMENT, TORT OR NEGLIGENCE OR OTHERWISE CAUSED; SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH NON-DIRECT DAMAGES; OR UNDER APPLICABLE LAW, ANY SUCH NON-DIRECT DAMAGES ARE CONSIDERED DIRECT DAMAGES.

2. REMEDIES.

All remedies available to either party for breach of the Agreement by the other party are and shall be deemed cumulative and may be exercised separately or concurrently. The exercise of a remedy shall not be an election of such remedy to the exclusion of other remedies available at law or in equity.

3. INDEMNIFICATION.

Each party shall defend, indemnify and hold harmless the other party from any and all liability, claims, and expenses of whatever kind and nature for injury to or death of any person or persons and for loss of or damage to any real or tangible personal property occurring in connection with or in any way incident to or arising under this Agreement, resulting in whole or in part from the acts or omissions of the indemnifying party. The indemnified party shall promptly notify the indemnifying party, in writing, of any such claim and shall reasonably cooperate with the indemnifying party in the defense and settlement thereof.

4. WARRANTY OF SERVICES
 
a.  
Definitions. "Acceptance," as used in this clause, means the act of an authorized representative of SOTERA and/or the Government by which SOTERA assumes for itself, or as an agent of another, ownership of existing and identified supplies, or approves specific services, as partial or complete performance of the Agreement. "Correction," as used in this clause, means the elimination of a defect.

b.  
Notwithstanding inspection and acceptance by SOTERA and/or the Government any provision concerning the conclusiveness thereof, the Subcontractor warrants, if required, that all services performed under this Agreement will, at the time of acceptance, be free from defects in workmanship and conform to the requirements of this Agreement.  The SOTERA Contracts Administrator and/or the Government shall give written notice of any defect or non-conformance to the Subcontractor within 30 days from the date of acceptance by SOTERA and/or the

 
 
 
 

Government. This notice shall state either:
 
(1) That the Subcontractor shall correct or re-perform any defective or non-conforming services; or
(2) That SOTERA and/or the Government do not require correction or re-performance.

c.  
If the Subcontractor is required to correct or re-perform, it shall be at no cost to SOTERA and/or the Government, and any services corrected or re-performed by the Subcontractor shall be subject to this clause to the same extent as work initially performed.  If the Subcontractor fails or refuses to correct or re-perform, the SOTERA Contracts Administrator and/or the Government may, by contract or otherwise, correct or replace with similar services and charge to the Subcontractor the cost occasioned to SOTERA and/or the Government thereby, or make an equitable adjustment in the contract price.

d.  
If SOTERA and/or the Government do not require correction or re-performance, the SOTERA Contracts Administrator and/or the Government shall not seek an equitable adjustment in the Agreement price.

5. SUBCONTRACTOR NOTICE REGARDING DELAY

In the event the Subcontractor encounters difficulty in meeting performance requirements, or when he anticipates difficulty in complying with the Agreement delivery schedule or date, it shall immediately notify, the SOTERA Contracts Administrator in writing, giving pertinent details; provided, however, that this data shall be informational only in character and that this provision shall not be construed as a waiver by SOTERA of any delivery schedule or date, or of any rights or remedies provided by law or under this Agreement.

6. INDEPENDENT PARTIES.

This Agreement shall not constitute, create, give effect to or otherwise imply a joint venture, partnership or business organization of any kind. SOTERA and the Subcontractor are independent parties and neither shall act as an agent for or partner of the other for any purpose, and the employees of one shall not be deemed the employees of the other. Each party shall be solely responsible for payment of all compensation owed to its employees, including payment of any taxes related to employment and workers’ compensation insurance. Any work, not included in the Agreement or Task Orders, being independently performed for the Client by either party shall remain as such.

7. VIOLATION OF LAWS AND REGULATIONS.

The Subcontractor acknowledges that as an independent contractor, it is performing for SOTERA and/or the Government and is subject to certain local, state, and federal laws and regulations. The Subcontractor therefore agrees to defend, indemnify and hold harmless SOTERA, its affiliates, subsidiaries, agents, directors, officers, and employees, against all claims, damages, losses, causes of action, liabilities, and expenses of any kind or nature, including reasonable attorneys’ fees, which arise out of or relate to the Subcontractor’s failure to comply with all applicable local, state and federal laws and regulations in the performance of Subcontractor’s obligation under this Agreement.
 

 
 
 

 
8. NON-SOLICITATION.

Neither party shall knowingly, directly solicit for hire the other company’s employees who are directly assigned to any tasking under this subcontract agreement for the duration of this subcontract agreement and one (1) year thereafter.  This shall in no way, however, be construed to restrict, limit, or encumber the rights of any employee granted by law, nor shall it in any way restrict either party from hiring employees who respond to advertisements or make independent inquiries for employment.

9. SEVERABILITY.

If any term or condition or portion thereof of the Agreement or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of the term or condition or the Agreement or the application thereof to the party or circumstance, other than those portions as to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each remaining term or condition or portion thereof shall be valid and enforced to the fullest extent permitted by law. In the event such determination prevents the accomplishment of the purpose of the Agreement, the invalid term or condition or portion thereof shall be restated to conform to applicable law and to reflect as nearly as possible the original intention of the parties.

10. ORDER OF PRECEDENCE.

Conflicting provisions hereof, if any, shall prevail in the following descending order of precedence:  (1) typed provisions set forth on any Task Order or Delivery Order, including the description of items purchased/statement of work and specifications attached or incorporated by reference, (2) Order Attachments, and (3) the terms and conditions of this Subcontract.  Contractor's specifications shall prevail over those of an agency of the U.S. Government, and both shall prevail over those of the Subcontractor.
 

 
 
 




ATTACHMENT 3 – DD254

 




 
 
 


ATTACHMENT 4 – TASK ORDER MONTHLY STATUS REPORT – SAMPLE
  TASK ORDER MONTHLY STATUS REPORT – SAMPLE (MONTH AND YEAR)
 
Cont r a c t o r   N a m e
Cont r a c t   N u m be r Task  
Order   Nu m b e r Prepared
by: R e p o r ting Pe r io d : Page 1 of ____
 
 
M o n thly S ta t u s R e p o r t
 
S ta t u s of   P er f o r m a n c e   Agai n st P e r f o r m a n c e   Me as u re s
 
Wo r k   P la nn e d fo r t h e M o n th   to w a r d   A c h ievi n g D e sir e d   O u t c o me s
 
Wo r k   C o m p le te d   Duri n g the M o n th   to w a r d   A c h ievi n g D e sir e d   O u t c om e s
 
Wo r k   Not   C o m p le t e d   Duri n g the M o n th   to w a r d   A c h ievi n g D e sir e d   O u t c o m e s
 
Wo r k   P la nn e d f or   N e xt   M o n th   to w a r d   A c h ievi n g D e sir e d   O u t c o m e s
 
Cont r a c t   Me e tings
Indicate the meeting date, meeting subject, persons in attendance and duration of the
meeting.
D e l i v er a b le Sta t u s
 
Iss u e s/ Qu e stio n s/Re c om me nd a t io n s
 
Ris k s
Indicate potential risks, their probability, impact, and proposed mitigation strategy.
Ea r n e d   Val u e   S ta t u s R e p o r t



 
 
 


ATTACHMENT 5 – PROBLEM NOITIFICATION REPORT (PNR)
 
PROBLEM NOTIFICATION REPORT


CONTRACT NUMBER: _________________________________________________   DATE: ______________________________________________                                               
 
1.   Nature and sources of problem:
 

2.   COR was verbally notified on: (date)                                                                                              
 
 
3.   Is action required by the Government?  Yes ________    No ________                  
 
 
4.   If YES, describe Government action required and date required:
 
 
5.   Will problem impact delivery schedule?     Yes ________    No ________              
 
 
6.   If YES, identify what deliverables will be affected and extent of delay:
 
 
7.   Can required delivery be brought back on schedule?  Yes _________  No _________  
 
 
8.   Describe corrective action needed to resolve problems:

 
9.   When will corrective action be completed?
 
 
10.   Are increased costs anticipated?    Yes ________    No ________                                                                   
      


 
 
 

 
 
  11.  Identify amount of increased costs anticipated, their nature, and define Government responsibility for problems and costs:
 


 
 
 

 
ATTACHMENT 6 – GOVERNMENT FURNISHED DOCUMENTS
 
GOVERNMENT FURNISHED DOCUMENTS

JIEDDO  Instruction  5000.01  Joint  IED  Defeat  Capability Approval  and  Acquisition
Management Process (JCAAMP) (Attachment to be provided electronically)
JIEDDO-COIC   Supply   Standard   Operating   Procedures   dated   6   November   2009 (Attachment to be provided electronically)

 
 
 

 

ATTACHMENT 7 – TSE LABOR CATEGORY DESCRIPTIONS



 
 
 


 
ATTACHMENT 8 – JIEDDO ACRONYM LIST
 


 
 
 

 
 
ATTACHMENT 9 – CORPORATE NON-DISCLOSURE AGREEMENT
 
 

 
 
 

 
 
ATTACHMENT 10 – TIMEKEEPING POLICY



 
 
 

 
Electronic Timesheet Quick Start Guide and FAQs

To access the Time & Expense (T&E) application, follow these steps :
 
Deltek T&E Overview for Sotera IS
 
Logging on to Time & Expense:

1.  
Open the Internet Explorer web browser.
2.  
In the address area (URL) enter in https://timesheets.soteradefense.com  or access the link using the Intranet
3.  
After the T&E log-in screen appears (see below) enter the following: 
·  
Login ID --   firstname.lastname (i.e., joe.smith)
·  
Password  -- C0stPoint! (default).  Passwords must be changed manually.
Visit https://security.gtec-inc.com if you need to reset your password or need to unlock your account
·  
Domain -- GNA
4.  
Press Login or hit the Enter key
 
 
After successfully logging in for the first time, you will be prompted to choose your Time Zone.  Choose the time zone where you normally work.  This only needs to be done once.  You will then be placed into your timesheet, in the timesheet period that contains the current date.


 
 
 

 
 
In the top header section of the screen, you will see the following key data:
·  
Employee – your name and employee number
·  
Status – current status of your timesheet
·  
Revision  -- current version of your timesheet which begins with 1 (not zero)
·  
Class – is your pay class
·  
Period ending – timesheet end date

In the control bar, the following options are available to you depending upon the status of your timesheet and your security role.  All unavailable selections are grayed out.
 
 
·  
Open – opens the calendar and enables the user to select the day, month or year of a particular timesheet
·  
Save – saves the current timesheet on the screen
·  
Search – enables Supervisor to open selected employee timesheets
·  
Print – prints the timesheet
·  
Audit – shows all changes made to a saved timesheet
·  
Reverse Timesheet – used when correcting a timesheet that was previously processed for payroll
·  
Off-Line Timesheet – not applicable
·  
Notes – Allows for Supervisors or Administrators to add a note to a user’s timesheet


Navigates between TS periods                                                                                                                           Adds selected projects to “My Favorites”
 
Employee signs TS to indicate completion                                                                                                                      Supervisor approves or rejects TS
 

 
 
 


Adding charge lines

Adding charge lines to a timesheet can be done in two ways:

1.  
Manual Entry - If you know the specific project charge code, simply enter it in the Account No. field.   You will only be able to charge those codes which you are authorized to charge.

                                                         
2.  
Lookup – To invoke the lookup, press the binoculars icon in the Project / WBS field on the timesheet.  There are a number of folders that contain your projects:  All projects to which you are allowed to charge can be found in the charge lookup.

 

 
Note :  Favorites contains a list of projects setup for the user. You can click into Favorites to add / remove, or to auto load or stop auto loading on a timesheet.

Click Execute to see all projects available to charge to.

 
 
 
 
 

 
Once you have found the project for charging, check the box to the left of the project and click the “Add to Timesheet” button. You can add multiple projects to the timesheet at the same time.

Alternatively you can click down through the charge trees to limit the choices down to a single top level project.

Once you have found the project for charging, check the box to the left of the project and click the “Add to Timesheet” button. You can add multiple projects to the timesheet at the same time.

Adding hours for projects

After selecting the project, you are now ready to enter hours.  Enter hours by selecting the appropriate day of the week for that project and record your hours worked.  If you desire to enter comments, simply press the comment  link for either the entire project line or the specific day.



Saving and Signing Timesheets

When charges and hours have been entered you must save your timesheet in order for the data to be recorded.  The timesheet should only be saved when you are satisfied with the entries made.

When you have completed your timesheet for the timesheet pay period, you must sign your timesheet.
When you press the sign   button on the toolbar, the sign dialog window will appear.  You will then be required to enter your password.

Note:  Signing of a timesheet should only happen after all hours have been entered . If a timesheet needs to be changed after you have already saved it, simply make changes as necessary and re-sign the timesheet.
 

 
 
 

 
Future Hours Charging

Future charging is the ability to charge ahead of the current date.  Time & Expense is designed to allow future charging only on fringe projects (PTO, Holiday, and Other Paid Absence).  The charge codes are located in the “Leave” folder of the charge lookup.

Unavailable Charging

If a project needed for charging is not found in your lookup folders, please contact your Supervisor for appropriate work authorization.

Changes to Previously Saved Entries

Any changes to previously saved entries will require a mandatory explanation.  The comment dialog box for this explanation will appear during the saving or signing of the timesheet.

Correcting Timesheets

Contact your local timesheet administrator for timesheet corrections – depending on the type of correction, you will be given specific instructions on how to complete this correction.

Loading Different Timesheet Periods
To move between timesheet periods use the   TS toggle links.

Favorite Folder (Adding, Deleting, and Auto-Loading)

Favorites are used either to hold a project in a quick lookup area or to allow for auto-loading onto your timesheet for future use. To add a project to the Favorites Folder, highlight the project line on your timesheet and press the “Add Line to Favorite” link (found in your menu just above the timesheet).


 
You can review / edit what is in your Favorites by bringing up the charge lookup and expanding the Favorites.
 

 
 
 

 
 

 
By checking the Load option, the line will automatically be loaded onto any new timesheet. To add to your timesheet, check the box on the left of  window for the desired charge, and click “Add to Timesheet” to delete projects from Favorites, check the box on the left of  window for the desired charge and press the “Delete from Favorites” link.

Note that Favorites will maintain any non-default values for future use. This is useful to store lines for Overtime charges.

If you routinely use the same projects you have the ability to auto-load the project to the timesheet for each new period.  To auto-load a project Favorite, select the project line and click the Load checkbox.  Next click the “Update” button.
 
 


 


 
 
 

 
 
Exhibit 10.19
DEMAND PROMISSORY NOTE

 
$4,000.00      September 13, 2011
 
The undersigned, ACQUIRED SALES CORP. (“Borrower”), a Nevada corporation, for value received, hereby acknowledges that on the date hereof Borrower borrowed from MISS MIMI CORPORATION (“Lender”) the principal sum of FOUR THOUSAND DOLLARS ($4,000.00) (the “Principal Sum”).

Borrower promises to pay to the order of Lender, at 31 N. Suffolk Lane, Lake Forest, Illinois 60045 (or at such other place as may be designated by the holder hereof to Borrower from time to time), the Principal Sum, together with interest thereon as hereinafter provided, immediately ON DEMAND given by Lender to Borrower at any time, without the need for any advance notice of any kind.

The Principal Sum shall bear interest on the initial principal sum borrowed of $4,000 commencing on and as of the date hereof, to and including the date the Principal Sum is repaid in full, at a rate of ten percent (10%) per annum (the “Interest Rate”). Borrower shall pay all interest accrued but not yet paid on this loan immediately ON DEMAND given by Lender to Borrower at any time, without the need for any advance notice of any kind. If Lender has not made such demand on Borrower, then Borrower shall pay all interest accrued but not yet paid on this loan on the last day of each calendar month following the date hereof.

This Demand Promissory Note may be voluntarily prepaid by Borrower without any penalty or premium, in whole or in part, at any time or times. Any prepayment shall be applied first against any accrued and unpaid interest and then against the Principal Sum.

All or any portion of the Principal Amount not paid by Borrower to Lender immediately ON DEMAND given by Lender to Borrower at any time, and all or any interest accrued on the Principal Sum but not paid by Borrower to Lender immediately ON DEMAND given by Lender to Borrower at any time or not paid by Borrower to Lender on the last day of each calendar month following the date hereof in the absence of such a demand, shall bear a default rate of interest, commencing on and as of the date of such default to and including the date the such defaulted amount is repaid in full, at a rate equal to twenty-five percent (25%) per annum, compounded daily. Notwithstanding anything elsewhere contained herein to the contrary, the rate of interest payable hereunder shall in no event exceed the maximum lawful rate which may be charged under applicable law. Borrower represents and warrants to the holder hereof that the amounts borrowed under this Demand Promissory Note have been and will be used for business purposes.
 
 
 
 
 
 
 
Borrower hereby waives diligence, presentment, demand, protest and notice of every kind whatsoever. The failure of the holder hereof to exercise any of his rights hereunder in any particular instance shall not constitute a waiver of the same or of any other right in that or any subsequent instance. The holder hereof shall not, by any act of omission or commission, be deemed to waive any of her or his rights or remedies hereunder or in connection herewith unless such waiver shall be in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. A waiver of one event shall not be construed as continuing or as a bar to or a waiver of such right or remedy of or on a subsequent event.

This Demand Promissory Note is made under and governed by, and shall be construed and enforced in accordance with, the laws of the State of Illinois without regard to conflict of laws principles. This Demand Promissory Note shall be binding upon the successors of Borrower.

In addition to the Principal Sum and interest thereon as hereinabove provided, Borrower promises to pay the holder hereof all reasonable attorneys fees, court costs and expenses paid or incurred by the holder hereof in connection with the collection of this Demand Promissory Note.


ACQUIRED SALES CORP.


By    /s/ Roger S. Greene                   
         Roger S. Greene, Director
         Pursuant to a resolution of the Board of Directors


 
 
 

 
 
Exhibit 10.20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Exhibit 10.21
 
DEMAND PROMISSORY NOTE
                                                                                                         
$4,000.00      September 30, 2011

The undersigned, ACQUIRED SALES CORP. (“Borrower”), a Nevada corporation, for value received, hereby acknowledges that on the date hereof Borrower borrowed from MISS MIMI CORPORATION (“Lender”) the principal sum of FOUR THOUSAND DOLLARS ($4,000.00) (the “Principal Sum”).

Borrower promises to pay to the order of Lender, at 31 N. Suffolk Lane, Lake Forest, Illinois 60045 (or at such other place as may be designated by the holder hereof to Borrower from time to time), the Principal Sum, together with interest thereon as hereinafter provided, immediately ON DEMAND given by Lender to Borrower at any time, without the need for any advance notice of any kind.

The Principal Sum shall bear interest on the initial principal sum borrowed of $4,000 commencing on and as of the date hereof, to and including the date the Principal Sum is repaid in full, at a rate of ten percent (10%) per annum (the “Interest Rate”). Borrower shall pay all interest accrued but not yet paid on this loan immediately ON DEMAND given by Lender to Borrower at any time, without the need for any advance notice of any kind. If Lender has not made such demand on Borrower, then Borrower shall pay all interest accrued but not yet paid on this loan on the last day of each calendar month following the date hereof.

This Demand Promissory Note may be voluntarily prepaid by Borrower without any penalty or premium, in whole or in part, at any time or times. Any prepayment shall be applied first against any accrued and unpaid interest and then against the Principal Sum.

All or any portion of the Principal Amount not paid by Borrower to Lender immediately ON DEMAND given by Lender to Borrower at any time, and all or any interest accrued on the Principal Sum but not paid by Borrower to Lender immediately ON DEMAND given by Lender to Borrower at any time or not paid by Borrower to Lender on the last day of each calendar month following the date hereof in the absence of such a demand, shall bear a default rate of interest, commencing on and as of the date of such default to and including the date the such defaulted amount is repaid in full, at a rate equal to twenty-five percent (25%) per annum, compounded daily. Notwithstanding anything elsewhere contained herein to the contrary, the rate of interest payable hereunder shall in no event exceed the maximum lawful rate which may be charged under applicable law. Borrower represents and warrants to the holder hereof that the amounts borrowed under this Demand Promissory Note have been and will be used for business purposes.
 
 
 
 
 

 
Borrower hereby waives diligence, presentment, demand, protest and notice of every kind whatsoever. The failure of the holder hereof to exercise any of his rights hereunder in any particular instance shall not constitute a waiver of the same or of any other right in that or any subsequent instance. The holder hereof shall not, by any act of omission or commission, be deemed to waive any of her or his rights or remedies hereunder or in connection herewith unless such waiver shall be in writing and signed by the holder hereof, and then only to the extent specifically set forth therein. A waiver of one event shall not be construed as continuing or as a bar to or a waiver of such right or remedy of or on a subsequent event.

This Demand Promissory Note is made under and governed by, and shall be construed and enforced in accordance with, the laws of the State of Illinois without regard to conflict of laws principles. This Demand Promissory Note shall be binding upon the successors of Borrower.

In addition to the Principal Sum and interest thereon as hereinabove provided, Borrower promises to pay the holder hereof all reasonable attorneys fees, court costs and expenses paid or incurred by the holder hereof in connection with the collection of this Demand Promissory Note.


ACQUIRED SALES CORP.


By  /s/ Roger S. Greene                   
Roger S. Greene, Director,
Pursuant to a resolution of the Board of Directors


 
 
 

 
Exhibit 99.1
 
ACQUIRED SALES CORP.
CODE OF BUSINESS CONDUCT AND ETHICS
ADOPTED AS OF SEPTEMBER ___, 2011

INTRODUCTION:

All employees, officers and directors of Acquired Sales Corp. (the “Company”) are responsible for conducting themselves in compliance with this Code of Business Conduct and Ethics (the “Code”). The Company adopted this Code in order to assist the Company and its employees, officers and directors with the Company’s goals of conducting its business and affairs in accordance with applicable laws, rules and regulations and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. The Company expects that any consultants or other service providers it retains will adhere to the Code.

I.           Compliance and Reporting

Employees, officers and directors should strive to identify and raise potential issues before they lead to problems for the Company and should ask about the application of the Code whenever there is a question as to whether a violation of the Code has occurred or will occur. Any employee or officer who becomes aware of any existing or potential violation of the Code should promptly notify the appropriate supervisor. Should the Chief Executive Officer, the Chief Financial Officer and the Principal Accounting Officer (collectively, the “Senior Financial Officers”) or any director become aware of an existing or potential violation of the Code, he or she should promptly notify the Company’s General Counsel or outside counsel, if no general counsel exists. The Company shall take such disciplinary, corrective or preventative action as it deems appropriate to address any existing or potential violation of this Code brought to its attention.

Confidentiality regarding those who make compliance reports and those potentially involved is maintained to the extent possible during a compliance investigation. The Company does not tolerate retribution, retaliation or adverse personnel action of any kind against any person for lawfully reporting a situation of potential noncompliance with the Code, or providing to the Company or any law enforcement or other governmental agency any information or assistance relating to the commission or possible commission of any federal or state offense.

The Senior Financial Officers have a responsibility to create an environment within the Company in which compliance with the Code is treated as a serious obligation and in which violations Of the Code are not tolerated. The Senior Financial Officers will establish and, if necessary, modify the procedures by which violations of the Code are to be reported.

II.           Conflicts of Interest

All business decisions must be made in the Company’s best interest. A “conflict of interest” arises when (A) an individual’s judgment is influenced by considerations of improper personal gain or benefit to the individual or another person, and (B) either (i) a particular decision or judgment and the related alternatives which do not involve conflicts of interest have not been thoroughly vetted or (iii) such other viable non-conflicted alternatives have been purposely rejected in order to take advantage of a conflict of interest.

 
 
 
 

 
Conflicts of interest are prohibited as a matter of Company policy, unless they have been approved in advance by the Company. To the extent possible, conflicts of interest always should be avoided. Any employee, officer or director who is aware of a material transaction or relationship that could reasonably be expected to give rise to a conflict of interest should promptly discuss the matter with the General Counsel.

Transactions with outside firms must be conducted within a framework established and controlled by the executive level of the Company. Business dealings with outside firms should not result in unusual gains for those firms or their employees. Unusual gain refers to bribes, product bonuses, special fringe benefits, unusual price breaks, and other windfalls designed to ultimately benefit either the outside firm, its employee, or both. Promotional plans that could be interpreted to involve unusual gain require specific executive-level approval.

No “presumption of guilt” is created by the mere existence of a relationship with outside firms. However, if employees have any influence on transactions involving purchases, contracts, or leases, it is imperative that they disclose to an officer of the Company as soon as possible the existence of any actual or potential conflict of interest so that safeguards can be established to protect all parties.

Any employee who receives a gift from a customer or vendor must advise his or her supervisor immediately. If the supervisor determines that the gift is of a normal and customary nature (e.g., not excessively expensive), the employee may retain the gift. If the gift is determined by the supervisor to be excessive, the employee must return the gift with a brief explanation that it is against the Company’s policy for employees to accept gifts of an excessive nature. Employees who do not report the receipt of gifts to their immediate supervisor will be subject to disciplinary action up to and including termination. In addition, employees who solicit gifts will be subject to disciplinary action, up to and including termination.

In addition, as a result of their close relationships to the Company and its business, the Senior Financial Officers have a special responsibility to: refrain, without the approval of the Board of directors, from transacting business with the Company through any entity in which the officer or a member of his or her immediate family owns all or a controlling interest; refrain, without the approval of the Board of directors, from participating in other employment or serving as a director for other organizations if such activity reasonably could be expected to interfere with the officer’s ability to act in the best interests of the Company or reasonably could be expected to require the officer to use proprietary, confidential or non-public information of the Company; refuse gifts, favors or hospitality that would influence or appear to influence the recipient to act other than in the best interests of the Company; and report to the Board of directors any existing or potential director positions they hold, including positions on non-profit or charitable organization boards of directors.

III.           Public Disclosure
 

 
 
 

 
It is the Company’s policy that the information in its public communications and disclosures, including its filings with the SEC, be full, fair, accurate, timely and understandable. All employees, officers and directors who are involved in the Company’s disclosure process, including the Senior Financial Officers, are responsible for acting in furtherance of this policy. Specifically, these individuals are required to maintain familiarity with the disclosure requirements applicable to the Company and are prohibited from knowingly misrepresenting, omitting or causing others to misrepresent or omit, material facts regarding the Company to others, whether within or outside the Company, including the Company’s independent accountants. In addition, any employee, officer or director who has a supervisory role in the Company’s disclosure process has an obligation to diligently discharge his or her responsibilities.

The Senior Financial Officers, in particular, must act in good faith and with due care and diligence in connection with the preparation of the Company’s public disclosures. The Senior Financial Officers must ensure that the financial statements and reports submitted to the SEC are full, fair, accurate, timely and understandable. The Senior Financial Officers must also promptly report any irregularities or deficiencies in the Company’s internal controls for financial reporting to the Board of directors.

IV.           Compliance with Laws, Rules and Regulations

It is the Company’s policy to comply with all applicable laws, rules and regulations. It is the personal responsibility of each employee, officer and director to adhere to the standards and restrictions imposed by those laws, rules and regulations.
 
It is both illegal and against Company policy for any employee, officer or director who is aware of material, nonpublic information relating to the Company, any of the Company’s customers or clients or any other private or governmental issuer or securities, to purchase or sell any securities of those issuers, or recommend that another person purchase, sell or hold the securities of those issuers.

In general, information is “material” if it could affect a person’s decision to purchase, sell or hold a company’s securities. Material information includes, for example, a company’s anticipated earnings, plans to acquire or sell significant assets and changes in senior executives. Employees, officers and directors should try to limit transactions to times when it can reasonably be assumed that all material information about a company has been disclosed. All employees, and officers and directors of the Company in particular, should consult with the General Counsel regarding the safest times to trade in the Company’s securities. In addition, employees, officers and directors may not disclose material, nonpublic information about the Company or another company to any person (i) inside the Company, unless they need to know the information for legitimate business purposes, or (ii) outside of the Company, unless prior approval is obtained from management in consultation with the General Counsel. Bear in mind that this information belongs to the Company and no person may misappropriate it for anyone’s benefit. Providing a “tip” based on material, nonpublic information is unethical and illegal, and is prohibited, even if you do not profit from it. All employees must obtain clearance from the General Counsel prior to trading in the Company’s securities.
 

 
 
 

 
Other laws, rules, regulations and Company policies to which employees, officers and directors are subject relate to business practices. For example, employees, officers and directors may not misrepresent facts, contractual terms or Company policies to a stockholder, service provider or regulator. Even if done inadvertently, you must correct the misrepresentation as soon as possible after consulting with the General Counsel. In addition, employees, officers and directors must adhere to appropriate procedures governing the retention and destruction of the Company’s records, consistent with applicable laws, regulations, Company policies and business needs. No person should destroy, alter or falsify any document that may be relevant to a threatened or pending lawsuit or governmental investigation. You should consult with, and follow the instructions of, the General Counsel in these situations.

Employees, officers and directors must also comply with the U.S. Foreign Corrupt Practices Act, which prohibits American businesses, and in many cases their foreign subsidiaries, from offering, paying or authorizing payment to foreign government officials, political parties or their officials, or political candidates.

The Senior Financial Officers, in particular, have a responsibility to ensure Compliance with the applicable rules and regulations of federal, state and local governments and of appropriate public and private regulatory agencies or organizations.

In addition to adhering to established Company policies and procedures, these individuals must take steps to ensure that other employees and officers follow such policies and procedures.

Any employee, officer or director who is uncertain about the Legal rules and regulations to which he or she or the Company is subject should consult with the General Counsel.

V.           Employment Practices

In making employment and personnel decisions, the company employment decisions must be based only on an employee’s or applicant’s qualifications, demonstrated skills and achievements without regard to race, color, sex, religion, national origin, age, disability, veteran status, citizenship, sexual orientation, gender identity or marital status.

All employees are entitled to be treated with respect and dignity. Management must not tolerate harassment of, or by, any employee in situations involving another employee, stockholder, service provider or business associate.

Employees, officers and directors must not engage in conduct that could be construed as sexual harassment, which may include, for example, unwelcome sexual advances, offensive touching, sexually suggestive statements, offensive jokes, requests for sexual favors or other verbal or physical conduct of a sexual nature.

 
 
 
 
 
 
Any person who believes he or she has been harassed in the course of performing his or her employment with the Company should notify the General Counsel. Company policy prohibits retaliation against any individual who complains of, or reports an instance of, harassment or participates in an investigation of a harassment complaint.

VI.           Corporate Opportunities

Employees, officers and directors owe a duty to the Company to advance the Company’s legitimate business interests when the opportunity to do so arises. In this regard, employees, officers and directors are prohibited from (i) taking for themselves personally (or directing to a third party) business opportunities that are discovered through the use of Company property, information or position (unless the Company has already been offered the opportunity and rejected it); (ii) using Company property, information or position for improper personal gain; and (iii) competing with the Company.

It may be difficult to decipher whether or not a particular personal benefit is proper, as sometimes both personal and Company benefits may be derived from certain activities. The best course of action in these circumstances is to consult with the General Counsel.

VII.           Confidentiality

In carrying out the Company’s business, employees, officers and directors may learn confidential or proprietary information about the Company or third parties. Employees, officers and directors must maintain the confidentiality of all information entrusted to them, except when disclosure is authorized or legally mandated. Confidential or proprietary information includes, for example, any nonpublic information concerning the Company, including its business, properties, financial performance, results or prospects, and any nonpublic information provided by a third party with the expectation or contractual agreement that the information will be kept confidential and used solely for the business purpose for which it was conveyed. Employees, officers and directors are required to secure from unauthorized access and public view documents under their control that contain confidential or proprietary information. When such information is discarded, appropriate steps must be taken to ensure proper and complete destruction.

In addition, employees, officers and directors are prohibited from taking confidential or proprietary information with them upon termination of employment with the Company or from using or disclosing such information for any purpose elsewhere, including with a different employer or company. Any confidential or proprietary information must be promptly returned to the Company upon termination of employment or affiliation with the Company.

VIII.           Fair Dealing

Company policy is to conduct business fairly through honest business competition and the Company does not seek competitive advantages through unethical or illegal business practices. Each employee, officer and director should endeavor to deal fairly with the Company’s stockholders, service providers, competitors and employees. No employee, officer or director should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation or omission of material facts or any other practice involving unfair dealing.
 
 
 
 
 

 
IX.           Protection and Proper Use of Company Assets

All employees, officers and directors should protect the Company’s assets and ensure their efficient use. It is important to bear in mind that theft, carelessness and waste have a direct impact on the Company’s profitability. Thus, all assets of the Company should be used only for legitimate business purposes.

X. Waivers of the Code

The Company may elect to waive certain provisions of the Code on a case-by-case basis. Any employee, officer or director who would like to request a waiver of one or more of the Code’s provisions must discuss the matter with the General Counsel. Waivers for executive officers and directors of the Company only may be granted by the Board of Directors or a committee of the Board.

XI. Specific Written Agreements

To the extent there is any conflict or inconsistency between the provisions of this Code and any specific written agreements with the Company (which agreements are, have been or will be approved by the Company’s board of directors), the terms of such written agreements will control the conduct of the parties and such conduct will not be considered to be in conflict with any provisions of this Code.