ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
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AND RESULTS OF OPERATIONS
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The following discussion should be read in conjunction with our audited financial statements and the related notes for the years ended June 30, 2012 and June 30, 2011 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" of this annual report.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.
Recently Issued Accounting Pronouncements
Refer to the notes to the financial statements for a complete description of recent accounting pronouncements.
Company Overview
Verify Smart Corp. (the "Company") was incorporated under the laws of the State of Nevada on May 31, 2006. The Company was originally formed to engage in the acquisition, exploration and development of natural resource properties. Effective March 25, 2009, the Company commenced activity involving developing and selling internet security software for credit card fraud prevention.
13
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. We have identified in Note 3 Summary of Significant Accounting Policies to the Financial Statements contained in Item 8 of this document certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements.
Use of Estimates and Assumptions
Preparation of the Companys financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The significant areas requiring managements estimates and assumptions relate to determining the fair value of shares issued for services and acquisitions, and recognition of future income tax benefits.
Development Stage Company
The Company is a development stage company as defined by codification ASC 915, Development Stage Entities). The Company is devoting substantially all of its present efforts to establishing a new business. All losses accumulated since inception have been considered as part of the Companys development stage activities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. At June 30, 2012 and 2011 cash consists primarily of cash on deposit.
Impairment of Long-Lived Assets
In accordance with codification in ASC 360, Property, Plant, and Equipment, Accounting for the Impairment or Disposal of Long-Lived Assets, the carrying value of intangible assets and other long-lived assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Fair Value of Financial Instruments and Concentration of Risk
A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1: classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price. As at June 30, 2012 and 2011 the Company has classified cash as being a Level 1 fair value financial instrument.
Level 2: classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market. As at June 30, 2012 and 2011 the Company did not have any Level 2 fair value financial instruments.
Level 3: classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would price the asset or liability. As at June 30, 2012 and 2011 the Company classified notes payable as being a Level 3 fair value financial instrument.
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The fair values of financial instruments, which include cash, accounts payable and accrued liabilities and loans payable, were estimated to approximate their carrying values due to the immediate or relatively short maturity of these instruments. Management does not believe that the Company is subject to significant interest, currency or credit risks arising from these financial instruments.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with codification ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) before and after discontinued operations, by the weighted average number of common shares outstanding (denominator) during the period, including contingently issuable shares where the contingency has been resolved. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Foreign Currency Translation
The Companys functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with ASC 830, Foreign Currency Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Comprehensive Loss
codification ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. At June 30, 2012, the Company had no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Common Share Non-Monetary Consideration
In situations where common shares are issued and the fair value of the goods or services received is readily determinable, the fair value of the common shares is used to measure and record the transaction. The fair value of the common shares issued in exchange for the receipt of goods and services is based on the stock price as of the earliest of the date at which:
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i)
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the counterpartys performance is complete;
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ii)
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a commitment for performance by the counterparty to earn the common shares is reached; or
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iii)
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the common shares are issued if they are fully vested and non-forfeitable at that date.
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Stock-Based Compensation
The Company has adopted FASB ASC Topic 505,
Equity
, and FASB ASC Topic 718,
Compensation Stock Compensation
to account for its stock options and similar equity instruments issued. Accordingly, compensation costs attributable to stock options or similar equity instruments granted to employees are measured at the fair value at the grant date, and expensed over the expected vesting period. Transactions in which goods or services are received from non-employees in exchange for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
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Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to FASB ASC Topic 740
Income Taxes
(ASC 740). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the more likely than not standard imposed by ASC 740 to allow recognition of such an asset.
Plan of Operations
The business will market and sell its licensed software which provides a comprehensive solution to credit card fraud by addressing the security needs of consumer clients, credit card companies, banks and merchants through instant verification that is inexpensive to implement and simple to use.
The software operates through the use of a cellular phone for secured verification of monetary transactions. The software has been developed to include debit card purchases, internet purchases, ATM, passport and mortgage verification.
We had also entered into preliminary discussions with Verified Capital Corp. wherein we would acquire either the assets or outstanding shares of common stock of Verified Capital Corp. The parties would jointly determine the optimum structure for the acquisition in order to best satisfy tax planning, regulatory and other considerations, including mutually agreed upon performance based milestones.
The acquisition contemplated by the preliminary discussions was subject to the fulfillment of certain conditions precedent, due diligence and the negotiation of a definitive agreement. As at September 19, 2012, the joint venture agreement was terminated by mutual consent of the parties.
Alternative exploitation opportunities are currently being considered by the Company and management.
Our Products / Services
We currently offer or intend to offer the following four product lines consisting of:
(i) VerifyNGo,
(ii) VerifyGateway,
(iii) VerifyTransfer and
(iv) VeriSmart Card.
VerifyNGo
VerifyNGo is a comprehensive authentication system which addresses security concerns through an instant verification process. It is an easy, inexpensive and unique solution that uses a response to an individual's mobile phone as verification for a transaction. VerifyNGo address the security needs of clients, credit card companies, banks and merchants through an instant verification process.
VerifyNGo will provide secure verification for the following types of transactions:
* debit and credit card purchases
* internet purchases
* ATM transactions
* passport applications
* credit applications
* mortgage verifications
* access to medical history
·
entry into secured areas
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VerifyNGo requires no special hardware, software, upgrades or training. All that is required is for the user to have a mobile phone or PDA.
A typical VerifyNGo process occurs in the following way:
The process starts when a user performs an action which contains a certain security constraint (i.e. online purchase, website login). Once the user performs an action that contains a security constraint, a VerifyNGO authentication is triggered sending a message to the user's mobile phone or PDA.
The message options include:
* Phone call
* SMS detailing the action
* One time password via SMS
* WAP Push, opening a mobile web page
The user receives the request and authorizes the action via mobile phone or PDA. Finally, the system receives the response, determines authenticity and then grants or denies the user's access to the action.
VerifyGateway
VerifyGateway is cutting-edge technology for secure and confidential online payment processing. It acts as a processing hub and intermediary between a business' website and their account provider, giving an enhanced network and superior transaction capabilities to make e-commerce reliable and seamless. It's simple, economical technology, accredited by most major banks and ensures the secure, successful delivery of billions of transactions to billions of ports worldwide.
VerifyGateway provides a system that easily accepts credit card payments from customers and instills confidence because every transaction is sent through a secured system. The system complies with privacy and security regulations globally, and allows client companies to safely manage and track funds across all borders and boundaries. This innovative technical infrastructure is unrivaled in the industry.
Business-to-business services include:
* Processing transaction for major credit cards such as MasterCard and Visa
* PCI-certified processing centers
* Support for major merchant processing networks
* Transaction reports with the necessary data to track daily activity
* Reliable and secure business solutions
VerifyTransfer
VerifyTransfer is a comprehensive remittance service allowing business clients to easily and securely send and receive money instantly, in person, online, wirelessly, or by phone.
Using VerifyGateway, VerifyTransfer covers all aspects of the process from transaction logging to retrieval.
The service offers:
* easier remittance payments
* faster data transmission
* multiple recipient accounts
* fast, flexible payment options
* 24 hour, 7 day/week client support
* cutting edge security, fraud monitoring, and reporting
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* increased accuracy and speed of contributions to member accounts
* synchronization with sophisticated retrieval methods, including remittance on Visa cards
*
mobile to mobile money transfers (PDA's and iPhones)
* comprehensive tracking and reporting on transactions and client accounts, providing details and history.
VeriSmart Card
The VeriSmart Card is a Visa co-branded, multipurpose prepaid card designed to work optimally with VeriSmart's own secure remittance service, VerifyTransfer, or to be easily integrated with any existing remittance platform.
It can be used, worldwide, for:
* traditional debit/credit card transactions in Visa affiliated establishments
* payment processing between individuals and organizations (e.g.; commission and payroll payments, accounts payable, etc.)
* gift cards (pre-loaded format)
* ATM transactions for Visa ATMs
Requirements and Utilization of Funds
To implement our plan of operations, including some or all of the above described milestones (objectives), we will need to continue to raise capital (equity) in an amount between $135,000 and $1.0 million in equity from restricted stock sales or other acceptable financing options over the next 6-12 month period beginning in the first quarter of 2013 on terms and conditions to be determined. Management may elect to seek subsequent interim or bridge financing in the form of debt (corporate loans) as may be necessary.
We anticipate the need to raise additional capital beyond the first 6 months of operations, subject to the successful implementation of our initial milestones over the first 180 days of operations and our revenue growth cycle thereafter. At this time, management is unable to determine the specific amounts and terms of such future financings.
Proceeds
We foresee the proceeds from capital raised to be allocated as follows: (a) consolidation and integration; (b) growth capital; (c) research and due diligence; (d) pre-development plant costs; (e) product enhancements and technology partners; (f) new business development; (g) legal, audit, SEC filings and compliance fees; (h) financing costs; (i) working capital (general and administrative); (j) reserve capital for costs of acquisition and market expansion.
Financial Condition, Liquidity and Capital Resources
We have cash and cash equivalents of $22,464 as at June 30, 2012. We are indebted to creditors in the amount of $163,838, including loans payable of $119,019..
During the last year we raised $50,000 from investors.
Management believes that our current financial condition, liquidity and capital resources may not satisfy our cash requirements for the next 12 months and as such we will need to either raise additional proceeds and/or our officers and/or directors will need to make additional financial commitments to our company, neither of which is guaranteed. We plan to satisfy our future cash requirements, primarily the working capital required to execute on our objectives, including marketing and sales of our product, and legal and accounting fees, through financial commitments from future debt/equity financings, if and when possible.
Management believes that we may generate sales revenue during the fiscal year ended in 2013, but that these sales revenues will not satisfy our cash requirements to implement the first 6-12 months of our business plan, including, but not limited to, project acquisitions and integration costs, and other operating expenses and corporate overhead (which is subject to change depending upon pending business opportunities and available financing).
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We have no committed source for funds as of this date. No representation is made that any funds will be available when needed. In the event that funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales, and could fail to satisfy our future cash requirements as a result of these uncertainties.
If we are unsuccessful in raising the additional proceeds from officers and/or directors, we may then have to seek additional funds through debt financing, which would be extremely difficult for an early stage company to secure and may not be available to us. However, if such financing is available, we would likely have to pay additional costs associated with high-risk loans and be subject to above market interest rates.
At such time as these funds are required, management would evaluate the terms of such debt financing and determine whether the business could sustain operations and growth and manage the debt load. If we cannot raise additional proceeds via a private placement of our common stock or secure debt financing we would be required to cease business operations. As a result, investors in our common stock would lose all of their investment.
The staged development of our business will continue over the next 12 months. Other than engaging and/or retaining independent consultants to assist the Company in various administrative and marketing related needs, we do not anticipate a significant change in the number of our employees, if any, unless we are able to obtain adequate financing.
Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next 12 months unless we obtain additional capital to pay our expenses. This is because we have not generated revenues and no substantial revenues are anticipated in the near-term. Accordingly, we must raise cash from sources other than from the sale of our products.
Results from Operations
The following summary financial data was derived from our financial statements. This information is only a summary and does not provide all the information contained in our financial statements and related notes thereto. You should read the Managements Discussion and Analysis or Plan of Operations and our financial statements and related noted included elsewhere in this Form 10-K.
Our operating results for the years ended June 30, 2012 and 2011 are summarized as follows:
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For the year
ended
June 30, 2012
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For the year ended
June 30, 2011
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Revenue
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$
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-
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$
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-
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Operating Expenses
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74,455
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221,010
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Other Expenses
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927
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|
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1,555
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Net Loss
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$
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75,382
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$
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222,565
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19
Our expenses for years ended June 30, 2012 and 2011 are outlined in the table below:
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For the year
ended
June 30, 2012
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For the year ended
June 30, 2011
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Operating Expenses
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General and administrative expenses
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$
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9,481
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$
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430
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Professional fees
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23,411
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840
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Management fees
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41,563
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219,740
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Total Operating Expenses
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$
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74,455
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$
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220,973
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Other Expenses
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|
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Interest expense
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$
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778
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$
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1,555
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Exchange loss
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149
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-
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Total Other Expenses
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$
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927
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$
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1,555
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The increase in professional fees during the year ended June 30, 2012 as compared to the year ended June 30, 2011 is primarily due to increased business activity in areas such as accounting, auditing and legal. The decrease in management fees during the year ended June 30, 2012 is primarily related to termination of consulting agreements under former management and less business activity as the Company prepares for its new business venture.
During the period from inception (May 31, 2006) to June 30, 2012 we have had accumulated losses of $1,667,496 which are as follows:
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General and administrative expenses
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$
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91,126
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Professional fees
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119,491
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Management fees
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1,447,679
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Interest expense
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2,545
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Exchange loss
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6,655
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Net (Loss)
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$
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(1,667,496
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)
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Our balance sheets as at June 30, 2012 and 2011 are summarized as follows:
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As at June 30, 2012
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As at June 30, 2011
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Cash
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$
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22,464
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$
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2,727
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Total assets
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$
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32,464
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$
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29,290
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Total liabilities
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$
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163,838
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$
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135,282
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Total stockholders (deficit)
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$
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(131,374
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)
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$
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(105,992
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)
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Our Company has no plant or significant equipment to sell and we have no intension to purchase any plant or significant equipment in the immediate future. Presently we do not have any money to buy any significant assets.
Working Capital
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As of June 30,
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2012
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2011
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Current Assets
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$
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32,464
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|
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$
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29,290
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Current Liabilities
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163,838
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135,282
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Working Capital (Deficit)
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$
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(131,374
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)
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$
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(105,992
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)
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Cash Flows
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Years Ended June 30,
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2012
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2011
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Net cash (used in) operating activities
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$
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(30,263
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)
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$
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(14,031
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)
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Net cash provided by financing activities
|
|
50,000
|
|
|
|
7,030
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Net Increase (Decrease) in Cash
|
$
|
19,737
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$
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(7,001
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)
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We anticipate that we will incur approximately $150,000 for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. Accordingly, we will need to obtain additional financing in order to complete our business plan.
Cash (Used in) in Operating Activities
We used net cash in operating activities in the amount of $30,263 during the year ended June 30, 2012. Cash used in operating activities was provided by financing activities.
Cash Provided by Financing Activities
Cash was provided of $50,000 in financing activities during the year ended June 30, 2012, which was attributable to issuance of common stock.
Our historical results do not necessary indicate results expected for any future periods.
Liquidity and Capital Resources
We realize that we will have to raise cash in the near future to continue our operations. If, in the future, we are unable to raise cash we might not be able to pay our creditors.
The following represents the minimum cash requirements over the next year to meet our current and future financial obligations:
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Investor relations
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$
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10,000
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Office and administration
|
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30,500
|
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Rent
|
|
|
12,000
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Transfer agent and filing fees
|
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4,500
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Auditing
|
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|
15,000
|
|
Accounting
|
|
|
20,000
|
|
Legal
|
|
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18,000
|
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Consulting fees
|
|
|
40,000
|
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Foreign exchange
|
|
|
-
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|
Estimated cash required before payment of accounts payable
|
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150,000
|
|
Add: Accounts payable as at June 30, 2012
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44,809
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Estimated cash required over next twelve months
|
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$
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194,809
|
|
Disclosure of Outstanding Share Data
As of June 30, 2012, we had 53,285,000 shares of common stock issued and outstanding.
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Going Concern Uncertainties
The Company and has a cumulative net loss of $1,667,496. The Company currently has only limited working capital with which continue its operating activities. The amount of capital required to sustain operations is subject to future events and uncertainties, but the Company anticipates it will need to obtain approximately $200,000 in additional capital in the form of debt or equity in order to cover its current expenses over the next 12 months and continue to implement its business plan. Whether such capital will be obtainable, or obtainable on commercially reasonable terms is at this date uncertain. These circumstances raise substantial doubt about the Company's ability to continue as a going concern.
Capital Expenditures
We have not incurred any material capital expenditures.
Commitments and Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Stock Option Grants
To date, we have not granted any stock options.
Warrants
We have not issued and do not have outstanding any warrants to purchase shares of our common stock.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual course of business; or
2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.
Securities Authorized For Issuance under Equity Compensation Plans
We currently do not have any stock option or equity compensation plans or arrangements.
Our Limited Operating History and Working Capital Position
To meet our need for cash we will have to raise money. Our working capital deficit as at June 30, 2012 is $131,374. We cannot guarantee that we will be able to raise enough money in the future to stay in business. Whatever money we do raise will be used as working capital to meet current obligations. We will attempt to raise additional money through subsequent private placements, public offering or loans.
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Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Short and long-term Trend Liabilities
We are unaware of any known trends, events or uncertainties that have or are reasonably likely to have a material impact on our business either in the long-term or long-term liquidity which have not been disclosed under the section on Risk Factors.
Internal and External Sources of Liquidity
There are no material internal or external sources of liquidity.
Changes in the Financial Statements and Accounting Issues
We do not know of any cause for any material change from period to period in one or more line items of our financial statements as shown in this Form 10-K. These audited financial statements adhere with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments.
The going concern basis of presentation assumes we will continue in operation throughout the next fiscal year and into the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business.