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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) 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. On September 27, 2012, Company's amended bylaws were adopted to the amend Article three, section 3 of the original bylaws to increase the maximum number of directors of the Registrant from five (5) persons to eleven (11) persons. 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, eCrypt One on One, encryption software for email on BlackBerry® smartphones. As of September 30, 2012, the Company had earned limited revenue from sales of eCrypt 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 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 enterprise level 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 to eCrypt 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 to eCrypt Me; and 5. complete development of an appliance-based enterprise level 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 and six months ended September 30, 2012, as compared to the three and six months ended September 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 September 30, 2012 Compared to the Three Months Ended September 30, 2011. 18 -------------------------------------------------------------------------------- Revenue During the three months ended September 30, 2012, the Company had revenues of $856 as compared to revenues of $480 during the three months ended September 30, 2011, an increase of $376, or approximately 78%. The increase in revenue experienced by the Company was primarily attributable to the commercialization of eCrypt Me. Operating Expenses During the three months ended September 30, 2012 the Company had operating expenses of $164,227 as compared to operating expenses of $72,354 during the three months ended September 30, 2011, an increase of $91,873 or approximately 126.977%. The increase in operating expenses experienced by the Company was primarily attributable to an increase in general and administrative expenses. Net Loss The Company had a net loss of $(184,038) for the three months ended September 30, 2012, as compared to a net loss of $(82,482) for the three months ended September 30, 2011, a change of $101,556 or approximately 123%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced an increase in operating and interest expenses during the three months ended September 30, 2012. Results of Operation for eCrypt Technologies, Inc. for the Six Months Ended September 30, 2012 Compared to the Six Months Ended September 30, 2011. Revenue During the six months ended September 30, 2012, the Company had revenues of $1,675 as compared to revenues of $680 during the six months ended September 30, 2011, an increase of $995, or approximately 146.3%. The increase in revenue experienced by the Company was primarily attributable to the commercialization of eCrypt Me. Operating Expenses During the six months ended September 30, 2012 the Company had operating expenses of $271,108 as compared to operating expenses of $229,292 during the six months ended September 30, 2011, an increase of $41,816 or approximately 18.237%. The increase in operating expenses experienced by the Company was primarily attributable to an increase in general and administrative expenses. Net Loss The Company had a net loss of $(307,717) for the six months ended September 30, 2012, as compared to a net loss of $(251,625) for the six months ended September 30, 2011, a change of $56,092 or approximately 22.29%. The change in net loss experienced by the Company was primarily attributable to the fact that the Company experienced an increase in operating and interest expenses during the six months ended September 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 software eCrypt One on One, and subscriptions to our web-based service eCrypt Me. However, as of the period ended September 30, 2012, we have generated limited revenue through sales of eCrypt One on One and subscriptions to eCrypt Me. 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 September 30, 2012: Total Current Assets & Total Assets Our unaudited balance sheet reflects that: i) as of September 30, 2012, we have total current assets of $57,208 as compared to total current assets of $73,197 at March 31, 2012, a decrease of $15,989, or approximately 21.844%; and ii) as of September 30, 2012, we have total assets of $71,580, compared to total assets of $91,850 as of March 31, 2012, a decrease of $20,270, or approximately 22.069%. The decrease in the Company's total current assets and total assets from September 30, 2012 to March 31, 2012 was primarily attributable to the fact that the Company utilized available cash for operating expenses during the period ended September 30, 2012. Cash As of September 30, 2012, our unaudited balance sheet reflects that we have cash of $57,208, as compared to $73,197 at March 31, 2012, a decrease of $15,989, or approximately 21.844%. The decrease in the Company's cash from September 30, 2012 to March 31, 2012 was primarily attributable to the fact that the Company utilized available cash for operating expenses during the period ended September 30, 2012. Total Current Liabilities Our unaudited balance sheet reflects that: i) as of September 30, 2012, we have total current liabilities of $586,995 as compared to total current liabilities of $291,249 at March 31, 2012, an increase of $295,746 or approximately 101.544%; and ii) as of September 30, 2012, we have total liabilities of $935,734 as compared to total liabilities of $751,787 at March 31, 2012, an increase of $183,947 or approximately 24.468%. The increase in the Company's total current liabilities and total liabilities from September 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 Six Month Period Ended September 30, 2012 as Compared to the Six Month Period Ended September 30, 2011 Operating Activities During the six month period ended September 30, 2012, the net cash used by the Company in operating activities was $(165,939) as compared to net cash used in operating activities of $(152,237) during the six month period ended September 30, 2011, a change of $13,702 or approximately 9%. The increase in our net cash used in operating activities was primarily attributable to an increase in net loss, stock issued for compensation and interest on loan from a related party. Financing Activities During the six month period ended September 30, 2012, the net cash provided by financing activities was $149,950 as compared to net cash provided by financing activities of $155,000 during the six month period ended September 30, 2011, a decrease of $5,050, or approximately 3.258%. The change in net cash provided by financing activities was primarily attributable to the fact that the Company received less cash via a loan from a third party. Investing Activities During the six month period ended September 30, 2012, the net cash used in investing activities was $nil as compared to net cash used in investing activities of $15,578 during the six month period ended September 30, 2011, a decrease of $15,578, or 100%. The change in net cash used in investing activities from the six month period ended September 30, 2012 and the six month period ended September 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. 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 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 allow timely 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 September 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 September 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 September 30, 2012, that has materially affected, or is likely to materially affect, the Company's internal control over financial reporting. |