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eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 2009
1.
Basis of Presentation
In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management's estimates and assumptions.
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Form 10-K.
2.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. However, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has plans to implement a marketing strategy in the following quarter to promote the Company’s products in an effort to raise the capital through sales. These plans, if successful, will mitigate the factors which raise substantial doubt about the Company’s ability to continue as a going concern.
3.
Convertible Loan
On July 02, 2007, the Company issued a convertible debenture to Global Capital Partners which per agreement is a related party with a face value totaling $23,800. This loan, or any portion, is convertible at any time until paid in full at a rate of 1 common share per $0.001 of the debt converted. The loan bears interest at an annual rate of 12% percent compounded monthly.
The fair value of shares granted in the amount of $166,600 has been recorded as an interest expense and included in stockholder equity.
The fair value of shares used to calculate derivative interest expense associated with convertible debenture was estimated using the Black-Scholes pricing model with the following assumptions:
| |
| March 31, |
| 2008 |
Risk-free interest rate | 5.39 |
Expected dividend yield | 0 |
Expected stock price volatility | 0 |
Expected option life in years | 1 |
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
Overview & Plan of Operation
eCrypt Technologies, Inc. was incorporated in the State of Colorado, on April 19, 2007. The Company provides encryption software which secures the transmission of, storage of, and access to digital information. Currently the Company is in the developmental stage and is in the process of establishing its business operations. eCrypt’s primary business focus is on Information Security solutions which assist individuals and entities in securely transmitting, storing, and accessing information. The Company believes its business will come from three primary areas: (1) Software sales; (2) Managed Communication Network Services (“MCNS”); and (3) Information Technology (“IT”) consulting services. The Company believes that a majority of its revenues will be derived from software sales, while some of its revenue will be derived from MCNS and IT consulting se rvices.
Software Sales - eCrypt is developing and plans to sell device-based encryption and security software for Personal Digital Assistants (“PDAs”), wireless handheld devices, laptop and desktop computers, pocket computers, cellular phones, smartphones, and other file storage devices. The Company has developed, and is now selling via its eCommerce website, its flagship product,eCrypt for BlackBerry® smartphones, encryption software for messaging on BlackBerry smartphones; as of June 30, 2009, the Company had not earned any revenue from sales ofeCrypt for BlackBerry® smartphones. The Company is also in the process of developing the next generation version of eCrypt for Blackberry smartphones. In 2007, eCrypt secured a 50-user BETA test group foreCrypt for BlackBerry® smartphones.
eCrypt is also developing and plans to sell device-based encryption and security software which protects email, Short Message Service (“SMS”), peer-to-peer (“P2P”), PIN-to-PIN, Instant Messaging (“IM”), Multimedia Message Service (“MMS”), and voice communications for users on such devices and mobile
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devices. Additionally, eCrypt is developing and plans to sell device-based secure access interfaces which allow users to conduct financial activities on mobile devices, as well as secure access User Interfaces (“UIs”) for mobile devices. eCrypt has the ability to customize its device-based encryption and security software, as well as its secure access UIs, for the purpose of securely storing, communicating and accessing information. In addition to the device-based software, eCrypt is also developing and plans to sell appliance-based encryption software for email servers and for the files stored on servers.
Managed Communications Network Service –eCrypt also operates a Managed Communications Network Services business through which eCrypt assists its clients with managing their electronic communication needs.
IT ConsultingServices– eCrypt also will provide IT consulting services through which eCrypt will assist its clients with establishing solutions for deficiencies or weaknesses in the client’s business equipment, communications infrastructure, communications network security, and/or business practices in relation to the security of information.
Over the next twelve (12) months, eCrypt will continue developing product enhancements and strengthening strategic alliances. In particular, eCrypt plans to complete development of the second generation version of it’s flagship producteCrypt for BlackBerry® smartphones, and commence development of additional language support for both versions ofeCrypt for BlackBerry® smartphones. The Company has commenced research for development of encryption software solutions for platforms other than the BlackBerry smartphone as well as research for development of other security software for mobile dev ices.
CEO and President, Brad Lever, represented the Company at theWireless Enterprise Symposium (“WES”) in May of 2009, a conference billed as the “biggest BlackBerry event of the year,” as a new BlackBerry® ISV Alliance Member™ guest of RIM. At WES,Brad Lever had the opportunity to perform informal market research among potential end users, fellow Alliance Members, and potential competitors. Additionally, the Company has begun prospecting for distribution alliance partners and will be seeking to formalize these relationships in the first or second quarter of the 2010 fiscal year. Furthermore, eCrypt will pursue strategic engagements of individuals considered to be leading authorities in the field of cryptography for the purposes of seeking advice, testing software, and providing other relevant product-specific research and guidance.
In addition to the foregoing, in an effort to advance the business operations of the Company, over the next twelve (12) months the Company plans to undertake the following actions in the order in which they are listed:
1.
complete development of the second generation version ofeCrypt for BlackBerry® smartphones;
2.
commence and complete BETA testing of the second generation version ofeCrypt for BlackBerry® smartphones; and
3.
commence distribution of second generation version ofeCrypt for BlackBerry® smartphones, in accordance with all applicable import and export rules and regulations.
The foregoing business actions are goals of the Company. There is no assurance that the Company will be able to complete any, or all, of the foregoing actions.
Results of Operations
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation and financial condition for the three months ended June 30,
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2009. The following discussion should be read in conjunction with the Financial Statements and related Notes appearing elsewhere in this Form 10-Q.
Our financial statements are stated in US Dollars and are prepared in accordance with generally accepted accounting principals of the United States (“GAAP”).
Results of Operation for eCrypt Technologies, Inc. for the Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008.
Revenue
Revenue. During the three months ended June 30, 2009, the Company had revenues of $15,450as compared to revenues of $0 during the three months ended June 30, 2008, an increase of $15,450, or approximately 100%. The increase in revenue experienced by the Company was primarily attributable to the fact that the Company received revenue for MCNS services that it provided to a customer.
Operating Expenses
Operating Expenses. During the threemonths ended June 30, 2009, the Company had operating expenses of $37,589 as compared to operating expenses of $26,249 during the threemonths ended June 30, 2008, an increase of $11,340, or approximately 43%. The increase in operating expenses experienced by the Company was primarily attributable the fact that the Company experienced an increase in professional fees during the period ended June 30, 2009 as compared to the same period in 2008.
Net Loss
The Company had a net loss of $(22,664) for thethreemonths ended June 30, 2009, as compared to a net loss of $(27,261) for thethreemonths ended June 30, 2008, a change of $4,597 or approximately 17%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced an increase in Interest Income and a decrease in Interest Expenses during the three months ended June 30, 2009 as compared to the same period in 2008.
Liquidity and Capital Resources
Currently, we have limited operating capital. The Company anticipates that it will require approximately $2,000,000 of working capital to complete all of its desired business activity during the next twelve months. The Company has earned limited revenue from its business operations relating to its MCNS business through which eCrypt assists its clients with managing their electronic communication needs. We expect that our current capital and our other existing resources will be sufficient only to provide a limited amount of working capital, and the revenues generated from our business operations alone may not be sufficient to fund our operations or planned growth. During the next twelve months, we plan on generating the necessary capital to fund our business operations and complete our desired business activity through sales of our flagship product,eCrypt for BlackBerry® smartphones. As of the period ended June 30, 2009, we have not generated any revenue through sales ofeCrypt for BlackBerry® smartphones. If we are unable to generate the necessary capital through the sales ofeCrypt for BlackBerry® smartphones, we may conduct a private placement offering to raise the necessary working capital to fund our business operations. We may be unable to obtain the additional capital required. Our inability to generate capital or raise additional funds when required will have a negative impact on our operations, business development and financial results.
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In an effort to raise additional funds, during the period ended March 31, 2009, the Company completed a private placement offering pursuant to which the Company raised a total of $136,546 through the sale of 182,062 Units at a purchase price of $0.75 per Unit. Each Unit consisted of one share of common stock (the “Common Stock”) and one Warrant (the “Warrants”). Each Warrant entitles the holder thereof to purchase one share of Common Stock at a price of $0.90 per share at any time up to 24 months from the subscription date. The warrants expire on or before May 4, 2011.
The following discussion outlines the state of our liquidity and capital resources for the three month period ended June 30, 2009:
Total Current Assets & Total Assets
Our unaudited balance sheet reflects that: i) as of June 30, 2009, we have total current assets of $69,380, as compared to total current assets of $109,432 at March 31, 2009, a decrease of $40,052, or approximately 37%; and ii) as of June 30, 2009, we have total assets of $93,498, compared to total assets of $137,086 as of March 31, 2009, decrease of $41,150, or approximately 32%. The decrease in the Company’s total current assets and total assets from June 30, 2009 to March 31, 2009 was primarily attributable to a decrease of cash and short-term investments.
Cash and Short Term Investments As of June 30, 2009, our unaudited balance sheet reflects that we have cash and short term investments of $57,882, as compared to $95,994 at March 31, 2009, a decrease of $8,112, or approximately 40%. The decrease in the Company’s cash and short term investments from June 30, 2009 to March 31, 2009 was primarily attributable to lack of financing through sales and investment and the use of savings for operational expenses.
Total Current Liabilities
Our unaudited balance sheet reflects that: i) as of June 30, 2009, we have total current liabilities of $31,609, as compared to total current liabilities of $47,657 at March 31, 2009, a decrease of $16,048, or approximately 34%; and ii) as of June 30, 2009, we have total liabilities of $31,609, as compared to total liabilities of $47,657 at March 31, 2009, a decrease of $16,048, or approximately 34%. The decrease in the Company’s total current liabilities and total liabilities from June 30, 2009 to March 31, 2009 was primarily attributable to the Company earning previously deferred revenue for its MCNS services.
Deferred Revenue As of June 30, 2009, our unaudited balance sheet reflects that we have deferred revenue of $0, as compared to deferred revenue of $15,450 as of March 31, 2009. The decrease in our deferred revenue was attributable to the fact that the Company provided the required MCNS services to earn the deferred revenue.
Cash Flow for the Company for the Three Month Period Ended June 30, 2009 as Compared to the Three Month Period Ended June 30, 2008
Operating Activities During the three month period ended June 30, 2009, the net cash used by the Company in operating activities was $33,237 as compared to net cash used in operating activities of $(41,537) during the three month period ended June 30, 2008, a change of $8,301 The decrease in our net cash used in operating activities was primarily attributable to a decrease in net loss, and a decrease in accounts payable and accrued liabilities, and the earning of previously deferred revenue.
Financing Activities During the three month period ended June 30, 2009, the net cash provided by financing activities was $(4,875) as compared to net cash provided by financing activities of $19,900 for the during the three month period ended June 30, 2009, a decrease of $24,775, or approximately 124%. The change in net cash provided by financing activities was primarily attributable to the fact that the
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Company did not engage in fundraising activities during the period, and also received one returned payment for a previous subscription by an individual for the purchase of the Company’s common stock pursuant to the terms of the private placement conducted by the Company.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
ITEM 4T.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosu re. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allowtimely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievem ent of these objectives.
Changes in Internal Control over Financial Reporting
There was no change in the Company's internal control over financial reporting during the period ended June 30, 2009, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company and no owner of record or beneficial owner
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of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
ITEM 1A.
RISK FACTORS.
Not Applicable.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5.
OTHER INFORMATION.
None.
ITEM 6.
EXHIBITS.
(a)
The following exhibits are filed herewith:
31.1
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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 thereunto duly authorized.
eCRYPT TECHNOLOGIES, INC.
By: /S/ Brad Lever
Brad Lever, Chief Executive Officer, Chief Financial Officer
Date: August 19, 2009
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