6
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1.
Nature of Operations
eCrypt Technologies Inc., a Colorado corporation (“the Company”), was incorporated on April 19, 2007. The Company develops and sells encryption software which secures the transmission of, storage of, and access to digital information. Software applications range from device based (for Personal Digital Assistants (“PDAs”), wireless handheld devices, laptop and desktop computers, pocket computers, cellular phones, smartphones, and other file storage devices), to server-based encryption software for email servers and for file-store server.
In addition to information security software, the Company also offers IT Consulting and Managed Private Network Services.
2.
Significant Accounting Policies
Basis of Presentation
The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America (“US GAAP”). 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.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position as of December 31, 2009 and the results of operations and cash flows presented herein have been included in the financial statements. Operating results for the nine months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending March 31, 2010. The financial statements should be read in conjunction with the Form 10-K for the year ended March 31, 2009 of the Company.
Uncertainty as a 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 seek additional capital through a private placement and public offering of its common stock. These plans, if successful, will mitigate the factors which raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
7
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2.
Significant Accounting Policies (cont’d)
Cash, Cash Equivalents and Investments
Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. Short term investments mature in less than one year from the balance sheet date.
The Company places its cash and short-term investments with financial institutions with high credit quality investments in accordance with its investment policy designed to protect the principal investment. Therefore, the Company believes that its exposure due to concentration of credit risk is minimal and has not experienced credit losses on investments in these instruments to date.
Property and Equipment
Property and Equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight line basis over their estimated useful lives:
| |
Computer equipment | 2 years straight line basis |
Computer software | 1 years straight line basis |
Equipment | 5 years straight line basis |
Revenue Recognition
Product revenue and miscellaneous income are recognized as earned.
Income Taxes
The Company accounts for income taxes as outlined in the Accounting Standards Codification ("ASC") 740 "Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC Topic 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, highly liquid short-term investments, interest receivable, accounts payable and accrued liabilities, stockholder loans and a convertible loan. The Company does not hold or issue financial instruments for trading purposes and does not hold any derivative financial instruments.
8
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2.
Significant Accounting Policies (cont’d)
Financial Instruments (cont’d)
The Company’s investment policy is to achieve, in order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments are made in U.S. obligations and bank securities provided the obligations are guaranteed or carry ratings appropriate for the policy.
The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As the Company is currently in the development stage, the Company has chosen to avoid investments of a trade or speculative nature.
Foreign Currency Translation
The measurement currency of the Company is the U.S. dollar. Transactions in foreign currencies are translated at the exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in other than the measurement currency are translated at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in earnings.
Net Earnings (Loss) per Share
Basic and diluted net loss per share information is presented under the requirements of ASC Topic 260, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, less shares subject to repurchase. Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible notes in the weighted-average number of common shares outstanding for a period, if dilutive. The computation of earnings (loss) per share is as follows:
| | | | | |
| Nine months ended December 31, 2009 | | | Nine months ended December 31, 2008 | |
Net Loss |
$ (125,607) | | |
$ (60,922) | |
Weighted-average number of shares outstanding | | | | | |
Basic |
133,518,216 | | |
132,890,758 | |
Loss per share | | | | | |
Basic |
(0.00) | | |
(0.00) | |
| | | | | |
9
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3.
Property and Equipment
The components of the Company’s equipment are presented below:
| | | | |
| | December 31, 2009 | December 31, 2009 | March 31, 2009 |
| | Accumulated | | |
| Cost | Depreciation | Net | Net |
| | | | |
Computer equipment | $11,526 | $7,759 | $3,767 | $4,899 |
Computer software | 13,783 | 13,783 | 0 | 2,861 |
Equipment | 27,839 | 10,718 | 17,121 | 21,316 |
| | | | |
Total | $53,148 | $32,260 | $20,888 | $29,076 |
Intangibles
The components of the Company’s license are presented below:
| | | | |
| | December 31, 2009 | December 31, 2009 | March 31, 2009 |
| | Accumulated | | |
| Cost | Amortization | Net | Net |
License | $10,000 | $6,400 | $3,600 | $6,111 |
| $10,000 | $6,400 | $3,600 | $6,111 |
4.
Stockholders’ Equity
a)
Authorized:
500,000,000 Common shares with par value $0.001 each
10,000,000 Preferred shares with no par value
b)
Issued or outstanding:
| | |
| Number of shares |
Amount |
Balance, April 19, 2007 | - | $ - |
Common shares issued and outstanding | 116,015,968 | 116,016 |
Paid In capital | - | (60,886) |
Balance, March 31, 2008 | 116,015,968 | $55,130 |
Common shares issued and outstanding | 17,502,248 | 17,502 |
Paid In capital | - | 134,070 |
Balance, March 31, 2009 | 133,518,216 | $206,702 |
Common shares issued and outstanding | - | - |
Paid In capital | - | - |
Balance, December 31, 2009 | 133,518,216 | $206,702 |
10
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4.
Stockholders’ Equity (cont’d)
On October 9, 2008, the Company announced a 4:1 forward stock split on its common shares. 33,203,992 common shares were issued for 8,300,998 common shares.
On November 12, 2009, the Board of Directors of the Company consented to and approved a four-for-one forward split of the Company’s 33,379,554 issued and outstanding shares of common stock. Pursuant to Rule 10b-17, the Forward Split became effective on November 24, 2009. On the effective date, the Company’s transfer agent caused to be issued and mailed to the eligible shareholders of record, three additional shares of common stock for each share of common stock held by the shareholder. The forward split resulted in the increase in the number of shares of the Company’s common stock issued and outstanding to 133,518,216 while keeping the number of authorized shares and par value of such shares the same.
5.
Stock Subscriptions
The Company issued private placement subscription agreements. The total amount of common shares subscribed for cash at December 31, 2009 and March 31, 2009 is $0 and $4,875.
6.
Convertible Loan-Related Party
On July 2, 2007, the Company issued a convertible debenture 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. In accordance with ASC Topic 470-20 the intrinsic value of the beneficial conversion feature has been recorded and valued at $0.
7.
Advances-Related Party
The Company has acquired in the month of October and November 2009 a $30,000 note payable to a related party. The note is a non-interest bearing note, due in six months.
8.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred $4,544 and $12,936 of advertising expense included in General and Administrative expenses during the nine months ended December 31, 2009 and 2008.
9.
Deferred Revenue, Commitments, and Contingencies
On July 1, 2008, the Company entered into an agreement to provide a client with network services for a one year term.
The agreement provided for a prepayment of $61,800 for the full term of the contract. At December 31, 2009, the contract has been fulfilled.
10.
Recent Accounting Pronouncements
FASB Accounting Standards Codification
(Accounting Standards Update (“ASU”) 2009-01)
11
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10.
Recent Accounting Pronouncements (cont’d)
In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literatu re will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification.
As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.
Subsequent Events
(Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)
ASC Topic 855 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. ASC Topic 855 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. ASC Topic 855 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements. No recognized or non-recognized subsequent events were noted.
Determination of the Useful Life of Intangible Assets
(Included in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS No. 142-3
“Determination of the Useful Lives of Intangible Assets”)
FSP ASC Topic 350 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP ASC Topic 350 became effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP ASC Topic 350 did not impact the Company’s financial statements.
12
eCRYPT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10.
Recent Accounting Pronouncements (cont’d)
Noncontrolling Interests
(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)
ASC Topic 810 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. ASC Topic 810 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented ASC Topic 810 at the start of fiscal 2009. The adoption of ASC Topic 810 did not have any other material impact on the Company’s financial statements.
Consolidation of Variable Interest Entities — Amended
(To be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)
ASC Topic 810 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. ASC Topic 810 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company will adopt ASC Topic 810 in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.
11. Subsequent Events
The Company has evaluated subsequent events through the date that the financial statements were available to be issued on February 15, 2010. The Company has determined that there were no such events that warrant disclosure or recognition in the financial statements.
13
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
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. 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 producteCryptemail encryption software for use on BlackBerry® smartphones, and commence development of additional language support for both versions ofeCrypt. 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 devices. The Company’s business operations are divided into three primary areas: (1) Software Sales; (2) Managed Communication Network Services (“MCNS”); and (3) Information Technology (“IT”) Consulting Services.
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,eCryptemail encryption software for use on BlackBerry® smartphones; as of December 31, 2009, the Company had not earned any revenue from sales ofeCryptemail encryption software for use on BlackBerry® smartphones. The Company is also in the process of developing the next generation version ofeCrypt email encryption software for use on BlackBerry® smartphones. In 2007, eCrypt secured a 50-user BETA test group foreCryptemail encryption software for use on BlackBerry® smartphones, but this group has since dissolved.
14
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 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 a nd 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. As of December 31, 2009, all of the Company’s revenue has been generated through its MCNS.
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.
Plan of Operation
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 producteCryptemail encryption software for use on BlackBerry® smartphones, and commence development of additional language support for both versions ofeCryptemail encryption software for use on BlackBerry® smartphones. Additionally,the Company has commenced research for development of encryption software solutions for platforms other than the BlackBerry® sm artphone as well as research for development of other security software for mobile devices.
In November 2009, Gabriel Rosu, the Company’s Chief Development Officer, represented the Company at the BlackBerry Developer’s Conference in November of 2009, an event designed to provide commercial and corporate developers from around the world with opportunities to advance their skills and knowledge in building powerful, world-class applications on the market-leading BlackBerry® platform. At the conference, Mr. Rosu gained valuable knowledge with respect to development for the BlackBerry® platform, as well as upcoming releases and new resources. Mr. Rosu also had the opportunity to make potentially beneficial connections with other professionals in related industries, such as information technology and security.
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:
15
1.
commence marketing efforts for the Company’s products and services in the following mediums: online; print; television; and radio;
2.
complete development of the second generation version ofeCryptemail encryption software for use on BlackBerry® smartphones;
3.
commence and complete BETA testing of the second generation version ofeCryptemail encryption software for use on BlackBerry® smartphones; and
4.
commence distribution of second generation version ofeCryptemail encryption software for use on 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 and nine months ended December 31, 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 principles of the United States (“GAAP”).
Results of Operation for eCrypt Technologies, Inc. for the Three Months Ended December 31, 2009 Compared to the Three Months Ended December 31, 2008.
Revenue
During the three months ended December 31, 2009, the Company had revenues of $4,503,as compared to revenues of $15,450 during the three months ended December 31, 2008, a decrease of $10,947, or approximately 71%. The decrease in revenue experienced by the Company was primarily attributable to the fact that the Company earned less revenue from its MCNS during the period ended December 31, 2009; specifically, during the period ended December 31, 2008, the Company earned deferred revenue of $15,450 from the provision of MCNS.
Operating Expenses
During the threemonths ended December 31, 2009, the Company had operating expenses of $58,030 as compared to operating expenses of $29,833 during the threemonths ended December 31, 2008, an increase of $28,197, or approximately 95%. The increase in operating expenses experienced by the Company was primarily attributable the fact that the Company experienced an increase in general and administrative expenses and professional fees during the period ended December 31, 2009 as compared to the same period in 2008.
Net Loss
The Company had a net loss of $(54,560) for thethreemonths ended December 31, 2009, as compared to a net loss of $(15,014) for thethreemonths ended December 31, 2008, a change of $39,546 or approximately 263%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced a decrease in revenue and an increase in operating expenses during the three months ended December 31, 2009 as compared to the same period in 2008.
16
Results of Operation for eCrypt Technologies, Inc. for the Nine Months Ended December 31, 2009 Compared to the Nine Months Ended December 31, 2008.
Revenue
During the nine months ended December 31, 2009, the Company had revenues of $32,097as compared to revenues of $30,900 during the nine months ended December 31, 2008, an increase of $1,197, or approximately 3.7%. The increase in revenue experienced by the Company was primarily attributable to the fact that the Company collected a larger amount of revenue from it’s MCNS customer during the nine month period ended December 31, 2009as compared to the same period in 2008.
Operating Expenses
During the ninemonths ended December 31, 2009, the Company had operating expenses of $154,813 as compared to operating expenses of $89,601 during the ninemonths ended December 31, 2008, an increase of $65,212, or approximately 73%. The increase in operating expenses experienced by the Company was primarily attributable to increase in general and administrative expenses and professional fees.
Net Loss
The Company had a net loss of $(125,607) for theninemonths ended December 31, 2009, as compared to a net loss of $(60,922) for theninemonths ended December 31, 2008, a change of $64,685 or approximately 106%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced an increase in operating expenses during the nine months ended December 31, 2009as 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,eCryptemail encryption software for use on BlackBerry® smartphones, andeCrypt PayPerUse email encryption software for use on BlackBerry® smartphones. As of the period ended December 31, 2009, we have not generated any revenue through sales ofeCrypt, oreCrypt PayPerUse. If we are unable to generate the necessary capital through the sales ofeCrypt, oreCrypt PayPerUse, 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.
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 $131,671 through the sale of 175,562 Units at a purchase price of $.75 per Unit. Each Unit consisted of one share of common stock (the “Common Stock”) and one Warrant (the “Warrants”). Each Warrant entitled the holder thereof to
17
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 were to expire on or before May 4, 2011, however all warrants have been cancelled in lieu of a 4-for-1 forward stock split completed on November 24, 2009.
The following discussion outlines the state of our liquidity and capital resources for the nine month period ended December 31, 2009:
Total Current Assets & Total Assets
Our unaudited balance sheet reflects that: i) as of December 31, 2009, we have total current assets of $9,887, as compared to total current assets of $99,432 at March 31, 2009, a decrease of $89,545, or approximately 90%; and ii) as of December 31, 2009, we have total assets of $34,375, compared to total assets of $134,619 as of March 31, 2009, a decrease of $100,244, or approximately 74%. The decrease in the Company’s total current assets and total assets from December 31, 2009 to March 31, 2009 was primarily attributable to the fact that the Company utilized available cash for operating expenses.
Cash As of December 31, 2009, our unaudited balance sheet reflects that we have cash of $9,039, as compared to $95,994 at March 31, 2009, a decrease of $86,955, or approximately 91%. The decrease in the Company’s cash from December 31, 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 December 31, 2009, we have total current liabilities of $77,896, as compared to total current liabilities of $47,658 at March 31, 2009, an increase of $30,238, or approximately 64%; and ii) as of December 31, 2009, we have total liabilities of $77,896, as compared to total liabilities of $47,658 at March 31, 2009, an increase of $30,238, or approximately 64%. The increase in the Company’s total current liabilities and total liabilities from December 31, 2009 to March 31, 2009 was primarily attributable to an increase in accounts payable and accrued liabilities, and the fact that the Company obtained $30,000 in short term interest free cash advances from a related party.
Deferred Revenue As of December 31, 2009, our unaudited balance sheet reflects that we have deferred revenue of $nil, 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 Nine Month Period Ended December 31, 2009 as Compared to the Nine Month Period Ended December 31, 2008
Operating Activities During the nine month period ended December 31, 2009, the net cash used by the Company in operating activities was $(109,742) as compared to net cash used in operating activities of $(19,782) during the nine month period ended December 31, 2008, a change of $89,960. The increase in our net cash used in operating activities was primarily attributable to an increase in net loss.
Financing Activities During the nine month period ended December 31, 2009, the net cash provided by financing activities was $25,125 as compared to net cash provided by financing activities of $123,821 during the nine month period ended December 31, 2008, a decrease of $98,696, or approximately 80%. The change in net cash provided by financing activities was primarily attributable to the fact that the Company did not engage in fundraising activities during the period ended December 31, 2009.
18
Investing Activities During the nine month period ended December 31, 2009, the net cash used in investing activities was $2,338 as compared to net cash used in investing activities of $18,143 during the nine month period ended December 31, 2008, a decrease of $15,805, or approximately 87%. The change in net cash used in investing activities was primarily attributable to the fact that the Company did not purchase any computer software, or equipment during the period ended December 31, 2009.
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 significant change in the Company's internal control over financial reporting during the period ended December 31, 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.
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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 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.
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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: February 16, 2010
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