10
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(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.
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”).
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2012, and the results of operations and cash flows presented herein have been included in the financial statements. The Company has limited operations and in accordance with FASB ASC 915-10, “Development Stage Entities”, the Company is considered a development stage company. Operating results for the three months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending March 31, 2013. The financial statements should be read in conjunction with the Form 10-K for the year ended March 31, 2012 of the Company.
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.
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 since inception which raises substantial doubt about its ability to continue as a going concern. The company has an accumulated deficit during the development stage at June 30, 2012 and March 31, 2012 of $(1,822,902) and $(1,699,223), respectively.
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.
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.
11
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
2.
Significant Accounting Policies (cont’d)
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.
Stock-Based Compensation
The Company accounts for share based payments in accordance with ASC 718, Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company estimates the fair value of the award using a valuation technique. For this purpose, the Company uses the Black-Scholes option pricing model. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. Compensation cost is recognized over the requisite service period which is generally equal to the vesting period. Upon exercise, shares issued will be newly issued shares from authorized common stock.
ASC 505, "Compensation-Stock Compensation", establishes standards for the accounting for transactions in which an entity exchanges its equity instruments to non employees for goods or services. Under this transition method, stock compensation expense includes compensation expense for all stock
12
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
2.
Significant Accounting Policies (cont’d)
based compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 505.
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 equivalent, accounts payable and accrued liabilities, and stockholder loans. The Company does not hold or issue financial instruments for trading purposes and does not hold any derivative financial instruments.
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:
13
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
2.
Significant Accounting Policies (cont’d)
| | | | | |
| Three Months Ended June 30, 2012 | | | Three Months Ended June 30, 2011 | |
Net loss |
$ (123,679) | | |
$ (163,768) | |
Weighted-average number of shares outstanding | | | | | |
Basic |
135,538,525 | | |
134,823,827 | |
Loss per share | | | | | |
Basic |
(0.00) | | |
(0.00) | |
3.
Recent Accounting Pronouncements
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
4.
Property and Equipment
The components of the Company’s equipment are presented below:
| | | | |
| | June 30, 2012 | June 30, 2012 | March 31, 2012 |
| | Accumulated | | |
| Cost | Depreciation | Net | Net |
| | | | |
Computer equipment | $9,812 | $9,812 | $ - | $ - |
Computer software | 14,445 | 14,445 | - | - |
Equipment | 45,159 | 28,750 | 16,409 | 18,653 |
| | | | |
Total | $69,415 | $53,007 | $16,409 | $18,653 |
Depreciation expense for the three months ended June 30, 2012 and 2011 were $2,243 and $2,240, respectively.
14
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
5.
Stockholders’ Deficit
a)
Authorized:
500,000,000 Common shares with no par value
10,000,000 Preferred shares with no par value
During the three months ended June 30, 2012, the Company effected the following stock transactions:
On November 8, 2011, the Company issued 37,500 shares of common stock for director compensation for a value of $21,000. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.56 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On February 9, 2012, the Company issued 250,000 shares of common stock for director compensation for a value of $117,500. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.47 per share. The compensation agreement calls for a total of 1,000,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On February 15, 2012, the Company issued 37,500 shares of common stock for director compensation for a value of $22,875. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $.0.61 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On March 8, 2012, the Company issued 37,500 shares of common stock for director compensation for a value of $17,250. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.46 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
During the year ended March 31, 2012, Company had authorized the issuance of 362,500 shares for a total value of $178,625 as disclosed above. However the Company had not issued the stock, hence the said stock was reclassified as stock payable under the Statement of stockholders’ equity.
On May 30, 2012 Company issued 362,500 shares recorded as stock payable during March 31, 2012 period, which was authorized for director compensation.
6.
Warrants
There are no warrants outstanding as of June 30, 2012. The 5,476,191 of unexercised warrants issued in the prior year expired on April 19, 2012.
15
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
7.
Stock options
On February 16, 2012 the company granted a non- qualified stock option to its newly appointed director, Thomas Trkla as compensation for his services. The director is entitled to purchase a total of three hundred thousand (300,000) shares of restricted common stock for a price equal to $0.30 per share (Exercise Price), exercisable over a ten-year period thereafter. The option shall be vested during the 12 month period. As to the total number of Shares with respect to which the Option is granted, the Option shall be exercisable as follows: (i) 25% of the Option in the aggregate may be exercised upon the mutual execution of this Agreement (ii) 50% of the Option in the aggregate may be exercised on or after the four month anniversary of the Grant Date; (iii) 75% of the Option in the aggregate may be exercised on or after the eight month anniversary of the Grant Date; and (iv) 100% of the Option in the aggregate may be exercised on or after the twelve month anniversary of the Grant Date (the twelve month period commencing on the Grant Date and ending on the twelve month anniversary of the Grant Date being referred to as the “Vesting Period”). As at June 30, 2012, the director has not exercised any right. The total fair value of these options at the date of grant was estimated to be $180,000 and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 1.99%, a dividend yield of 0% and expected volatility of 419% . Out of this $90,000 was recorded as a stock based compensation expense till June 30, 2012 based on seventy five thousand (150,000) options vested.
| | | | | | |
| | Number of Options | | Weighted-Average Exercise Price per share | | Weighted- Average Remaining Life (Years) |
Outstanding at as at 4.01.2012 | | 300,000 | | $ 0.30 | | 9.88 |
Granted | | - | | $ - | | - |
Exercised | | - | | $ NA | | NA |
Cancelled | | - | | $ NA | | NA |
Outstanding at as at 6.30.2012 | | 300,000 | | $ 0.30 | | 9.88 |
Exercisable at 06.30.2012 | | 150,000 | | $ 0.30 | | |
8.
Loan – Related Party
The Company issued on January 11, 2012 a $38,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on January 11, 2014.
The Company issued on December 6, 2011 a $20,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on December 6, 2013.
The Company issued on October 19, 2011 a $25,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on October 19, 2013.
The Company issued on September 30, 2011 a $20,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on September 30, 2013.
The Company issued on September 2, 2011 a $20,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on September 2, 2013.
16
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
8.
Loan – Related Party (cont’d)
The Company issued on August 5, 2011 a $24,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on August 5, 2013.
The Company issued on July 7, 2011 a $40,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on July 7, 2013.
The Company issued on May 9, 2011 a $36,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on May 9, 2013.
The Company issued on April 29, 2011 a $15,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on April 29, 2013.
The Company acquired a $100,000 advance during the month of January 2011 from a related party. The advance was non-interest bearing and due in six months. On June 24, 2011 the loan was modified to bear interest at 10%, compounded annually, and extended to mature in two years on June 24, 2013.
The Company issued on May 18, 2010 a $215,000 unsecured note payable to a shareholder. The note bears interest at 10%, compounded annually, matures in two years on May 18, 2012. The note, which was originally due on May 18, 2012 bearing interest at 10%, compounded annually, now matures in one year on May 18, 2013 and bears interest at 10% due to an extension agreement entered into on July 1, 2012. All other terms remain the same as per the original agreement.
Interest expense for the three months ended June 30, 2012 and 2011 was $14,666 and $6,723, respectively.
9.
Note Payable
The Company issued on June 13, 2012 a $99,970 unsecured note payable to a third party. The note bears interest at 10%, compounded annually, matures in two years on June 13, 2014.
The Company issued on February 21, 2012 a $99,964 unsecured note payable to a third party. The note bears interest at 10%, compounded annually, matures in two years on February 21, 2014.
Interest expense for the three months ended June 30, 2012 and 2011 was $2,951 and $0, respectively.
10.
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred $1,474 and $3,753 of advertising expense during the three months ended June 30, 2012 and 2011, respectively.
11.
Stock Compensation Program
On April 12, 2011, subject to shareholder approval, the Board of Directors of eCrypt Technologies, Inc. (the “Company”) approved the adoption of the eCrypt Technologies, Inc. Stock Compensation Program (the “Program”) under which 13,500,000 shares have been reserved for purposes of possible future
17
eCRYPT TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(UNAUDITED)
11.
Stock Compensation Program (cont’d)
issuance of incentive stock options, non-qualified stock options, and restricted stock grants to employees, directors and certain key individuals. On April 15, 2011, pursuant to a written consent in lieu of a meeting, a majority of the Company’s shareholders approved the Program. The purpose of the Program is to attract and retain key employees, consultants and other persons, and to provide such key individuals with an additional incentive to contribute to the success of the Company. In order to maintain flexibility in the award of stock benefits, the Program constitutes a single “omnibus” plan, but is composed of three parts. The first part is the Incentive Stock Option Plan (“Incentive Option Plan) which provides grants of incentive stock options under Section 422A of the Internal Revenue Code of 1986, as amended. The second part is the Nonqualified Stock Option Plan (“Nonqualified Option Plan”) which provides grants of nonqualified stock options. The third part is the Restricted Shares Plan (“Restricted Plan”) which provides grants of restricted shares of Company common stock. The Incentive Option Plan, the Nonqualified Option Plan and the Restricted Plan respectively comprise Plan I, Plan II, and Plan III of the Program.
12.
Subsequent Event
The Company entered into an extension and modification agreement with Global Capital Partners on July 1, 2012 to have the Note modified to extend the maturity date to May 18, 2013 maintaining an interest rate of 10% per annum. The note was originally executed and delivered on May 18, 2010 and due on May 18, 2012.
18
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 solutions which secure the transmission of, storage of, and access to digital information. Currently the Company is a development stage Company.
eCrypt’s primary business focus is on information security solutions which assist individuals and entities in securely transmitting, storing, and accessing information. The Company’s business operations are oriented around the development and sale of encryption software and services. To date the Company has earned limited revenue. The Company believes the majority of its revenues will be derived from service subscriptions of both pre-packaged solutions and custom developed solutions for data encryption. Initially, the Company’s business operations were also focused on the provision of Managed Communication Network Services (“MCNS”) and Information Technology (“IT”) consulting services. However, due to the lack of demand for these services, the Company has discontinued offering MCNS and IT consulting services as part of its business operations.
Currently, eCrypt develops and sells device-based encryption and security software and web-based encryption services 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 first product to market, recently renamedeCrypt One on One, encryption software for email on BlackBerry® smartphones. As of June 30, 2012, the Company had earned limited revenue from sales ofeCrypt One on One. The Company is also currently selling subscriptions to its web-based solution,eCrypt Me, a secure email, secure file storage, and secure file sharing service.
eCrypt is also developing and plans to sell device-based and web-based encryption and security software which protects email, Short Message Service (“SMS”), peer-to-peer (“P2P”), PIN-to-PIN, Instant
19
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 and web-based encryption and security solutions, as well as its secure access UIs, for the purpose of securely storing, communicating and accessing information. In addition to the device-based and web-based solutions, eCrypt is also developing and plans to sell appliance-based encryption solutions for securing email and the storage of and access to files stored on servers.
Over the next twelve (12) months, eCrypt plans to continue developing new products and existing product enhancements and strengthening strategic alliances. In particular, eCrypt plans to add features to its web-based solution,eCrypt Me, as well as commence the development of additional mobile phone apps for the service. The Company will also commence with the development of an appliance-based data encryption solution.
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 downloadable User Interfaces for the access toeCrypt Me alternate to using a web browser, for Android and BlackBerry smartphones;
2.
commence and complete testing of these Interfaces;
3.
commence distribution of the Interfaces;
4.
commence and complete development of enhancements toeCrypt Me; and
5.
complete development of an appliance-based encryption solution.
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, 2012, as compared to the three months ended June 30, 2011. 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 June 30, 2012 Compared to the Three Months Ended June 30, 2011.
Revenue
During the three months ended June 30, 2012, the Company had revenues of $819 as compared to revenues of $200 during the three months ended June 30, 2011, an increase of $619, or approximately 309.5%. The increase in revenue experienced by the Company was primarily attributable to the commercialization ofeCrypt Me.
20
Operating Expenses
During the three months ended June 30, 2012 the Company had operating expenses of $106,881 as compared to operating expenses of $156,938 during the three months ended June 30, 2011, a decrease of $50,057 or approximately 31.81%. The decrease in operating expenses experienced by the Company was primarily attributable to a decrease in general and administrative expenses.
Net Loss
The Company had a net loss of $(123,679) for the three months ended June 30, 2012, as compared to a net loss of $(163,768) for the three months ended June 30, 2011, a change of $40,089 or approximately 24.45%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced a decrease in operating and increase in interest expenses during the three months ended June 30, 2012.
Liquidity and Capital Resources
Currently, we have limited operating capital. The Company anticipates that it will require approximately $5,000,000 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. Our current capital and our other existing resources will be sufficient only to provide a limited amount of working capital, and, to date, the revenues generated from our business operations have not been sufficient to fund our operations or planned growth. As noted above, we will likely require additional capital to continue to operate our business, and to further expand our business. 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.
During the next twelve months, we plan to seek to generate the necessary capital to fund our business operations and complete our desired business activity through sales of our softwareeCrypt One on One,and subscriptions to our web-based serviceeCrypt Me . However, as of the period ended June 30, 2012, we have generated limited revenue through sales ofeCrypt One on Oneand subscriptions toeCryptMe. If we are unable to generate the necessary capital through the sales of these products, we may conduct a private placement offering to seek to raise the necessary working capital to fund our business operations.
The following discussion outlines the state of our liquidity and capital resources as of June 30, 2012:
Total Current Assets & Total Assets
Our unaudited balance sheet reflects that: i) as of June 30, 2012, we have total current assets of $103,898 as compared to total current assets of $73,197 at March 31, 2012, an increase of $30,701, or approximately 41.94%; and ii) as of June 30, 2012, we have total assets of $120,307, compared to total assets of $91,850 as of March 31, 2012, an increase of $28,457, or approximately 30.98%. The increase in the Company’s total current assets and total assets from June 30, 2012 to March 31, 2012 was primarily attributable to the fact that the Company received cash via a loan from a third party during the period ended June 30, 2012.
Cash: As of June 30, 2012, our unaudited balance sheet reflects that we have cash of $103,898, as compared to $73,197 at March 31, 2012, an increase of $30,701, or approximately 41.94%. The increase in the Company’s cash from June 30, 2012 to March 31, 2012 was primarily attributable to the fact that the Company received cash via a loan from a third party during the period ended June 30, 2012.
21
Total Current Liabilities
Our unaudited balance sheet reflects that: i) as of June 30, 2012, we have total current liabilities of $454,090 as compared to total current liabilities of $291,249 at March 31, 2012, an increase of $162,841 or approximately 55.91%; and ii) as of June 30, 2012, we have total liabilities of $858,923 as compared to total liabilities of $751,787 at March 31, 2012, an increase of $107,136 or approximately 14.25%. The increase in the Company’s total current liabilities and total liabilities from June 30, 2012 to March 31, 2012 was primarily attributable to the fact that the Company received loans from related and third parties, and realized an increase in the accrued interest on the loans, accounts payable and accrued liabilities.
Cash Flow for the Company for the Three Month Period Ended June 30, 2012 as Compared to the Three Month Period Ended June 30, 2011
Operating Activities During the three month period ended June 30, 2012, the net cash used by the Company in operating activities was $(69,269) as compared to net cash used in operating activities of $(67,538) during the three month period ended June 30, 2011, a change of $1,731 or approximately 2.564%. The increase in our net cash used in operating activities was primarily attributable to an increase in interest on loan from a related party.
Financing Activities During the three month period ended June 30, 2012, the net cash provided by financing activities was $99,970 as compared to net cash provided by financing activities of $51,000 during the three month period ended June 30, 2011, an increase of $48,970, or approximately 96.02%. The change in net cash provided by financing activities was primarily attributable to the fact that the Company received cash via a loan from a third party.
Investing Activities During the three month period ended June 30, 2012, the net cash used in investing activities was $nil as compared to net cash used in investing activities of $13,493 during the three month period ended June 30, 2011, a decrease of $13,493, or 100%. The change in net cash used in investing activities from the three month period ended June 30, 2012 and the three month period ended June 30, 2011 was primarily attributable to a decrease in equipment purchases.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
ITEM 4.
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 chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that
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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 chief executive and chief 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 not 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 not effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives. Specifically, based on the foregoing evaluation, our management has concluded that, as of June 30, 2012, the Company's disclosure controls and procedures contained a material weakness due to a failure by the Company to properly record and value stock transactions relating to stock options issued by the Company, and as a result of such material weakness, our disclosure controls and procedures were not effective as of June 30, 2012. To remediate the weakness in our internal controls over financial reporting, we intend to: i) reconcile stock issuance transactions against the agreements underlying such stock issuance transactions to ensure that equity issuances are properly accounted for; and ii) implement a review board to review the stock issuance transactions to ensure that they are properly valued and accounted for.
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, 2012, that has materially affected, or is 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 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.
During the three months ended June 30, 2012, the Company effected the following stock transactions:
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On November 8, 2011, the Company issued 37,500 shares of common stock for director compensation for a value of $21,000. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.56 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On February 9, 2012, the Company issued 250,000 shares of common stock for director compensation for a value of $117,500. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.47 per share. The compensation agreement calls for a total of 1,000,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On February 15, 2012, the Company issued 37,500 shares of common stock for director compensation for a value of $22,875. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $.0.61 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
On March 8, 2012, the Company issued 37,500 shares of common stock for director compensation for a value of $17,250. The share price is valued at the adjusted closing price on the date of vesting of the shares which was $0.46 per share. The compensation agreement calls for a total of 150,000 shares to be issued during a 12 month period. These shares were recorded as subscription payable as of March 31, 2012.
During the year ended March 31, 2012, Company had authorized the issuance of 362,500 shares for a total value of $178,625 as disclosed above. However the Company had not issued the stock, hence the said stock was reclassified as stock payable under the Statement of stockholders’ equity.
During the three months ended June 30, 2012 the Company issued 362,500 shares for a total value of $178,625. These shares were recorded to subscription payable as of March 31, 2012.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
MINE SAFETY DISCLOSURES.
None.
ITEM 5.
OTHER INFORMATION.
Effective July 23, 2012, the Company had its stock quotation under the symbol "ECRY" deleted from the OTC Bulletin Board (the "OTCBB"). The symbol was deleted for factors beyond the Company's control due to various market makers electing to shift their orders from the OTCBB. As a result of not having a sufficient number of market makers providing quotes on the Company's common stock on the OTCBB for four consecutive days, the Company was deemed to be deficient in maintaining a listing standard at the OTCBB pursuant to Rule 15c2-11. That determination was made entirely without the Company's knowledge. The Company’s common stock is now listed for quotation on the OTCQB under the symbol “ECRY”.
ITEM 6.
EXHIBITS.
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(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
August 20, 2012
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