VERIFY SMART CORP. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with our audited
financial statements and the related notes for the years ended June 30, 2011 and
June 30, 2010 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
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.
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.
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 Company's 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 management's
estimates and assumptions relate to determining the fair value of stock-based
compensation, fair value of shares issued for services and the acquisitions, and
useful lives of long-lived assets.
Development Stage Company
The Company is a development stage company as defined by SFAS 7, Accounting and
Reporting by Development Stage Enterprises (codified in 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 Company's 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, 2011 and 2010 cash consists
primarily of cash on deposit.
Impairment of Long-Lived Assets
In accordance with SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (codified in ASC 360, Property, Plant, and Equipment), the
carrying value of intangible 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.
Financial Instruments and Concentration of Risk
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
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with SFAS 128,
Earnings per Share (codified in 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 Company's functional and reporting currency is the United States
dollar. Monetary assets and liabilities denominated in foreign currencies are
translated in accordance with SFAS 52, Foreign Currency Translation (codified in
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
SFAS 130, Reporting Comprehensive Income, (codified in ASC 220, Comprehensive
Income) establishes standards for the reporting and display of comprehensive
loss and its components in the financial statements. At June 30, 2011, 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:
i) the counterparty's performance is complete;
ii) a commitment for performance by the counterparty to earn the
common shares is reached; or
iii) the common shares are issued if they are fully vested and
non-forfeitable at that date.
The Company had adopted the fair value recognition provisions of SFAS 123R,
Share-Based Payment, (codified in ASC 718, Compensation-Stock Compensation). The
Company adopted SFAS 123R using the modified-prospective-transition
method. Under this method, compensation cost recognized for all periods prior to
December 1, 2005 includes: a) compensation cost for all share-based payments
granted prior to, but not yet vested as of November 30, 2005, based on the
grant-date fair value estimated in accordance with the original provisions of
SFAS 123, and b) compensation cost for all share-based payments granted
subsequent to November 30, 2005, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123R. In addition, deferred stock
compensation related to non-vested options is required to be eliminated against
additional paid-in capital upon adoption of SFAS 123R.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from parties other than employees in accordance with SFAS
123 and the conclusions reached by the Emerging Issues Task Force ("EITF") in
Issue No. 96-18, (codified in ASC 505, Equity). Costs are measured at the
estimated fair market value of the consideration received or the estimated fair
value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration other than
employee services is determined on the earliest of a performance commitment or
completion of performance by the provider of goods or services as defined by
Income taxes are provided in accordance with ASC 740 Accounting For Income
Taxes. A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss carry
forwards. Deferred tax expense (benefit) results from the net change during the
year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
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
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 will 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
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 par
On April 3, 2009, we entered into an agreement with China Trust to launch our
first credit card "VeriSmart (TM) Platinum Visa".
Under the terms of the agreement, China Trust will distribute, for pilot, 2,500
co-branded VeriSmart(TM) Platinum Visa Cards linked to our patent-pending
Authentication system, VerifyNGo(TM), to serve as enterprise payroll, payout and
remittance solutions affording centralized control and management of fund
disbursement globally, anytime, anywhere.
On April 6, 2009, we entered into a services agreement with European hosting and
infrastructure provider Prime Interactive S.R.O. The services agreement with
Prime Interactive accelerates the European leg of our expansion plan and
compliments our company's existing capabilities. Under the terms of the
agreement Prime Interactive will be providing the following services to our
* Web and Mobile Application Development
* Data Centre infrastructure servicing Europe and located in Slovakia
* Marketing access to a legacy worldwide customer base of 130,000
* Marketing access to established European Financial Industry vertical
Our Products / Services
Through our interest in the joint venture, we currently offer or intend to offer
the following four product lines consisting of:
(iii) VerifyTransfer and
(iv) VeriSmart Card.
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
VerifyNGo will provide secure verification for the following types of
* debit and credit card purchases
* internet purchases
* ATM transactions
* passport applications
* credit applications
* mortgage verifications
* access to medical history
* entry into secured areas
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 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
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 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
* 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.
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.
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
Financial Condition, Liquidity and Capital Resources
We have cash and cash equivalents of $2,727 as at June 30, 2011. We are
indebted to creditors in the amount of $135,282. These advances were paid for
auditing, office, legal, transfer agent and filing fees payable.
During the last year we did not raise any funds 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).
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 "Management's 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, 2011 and 2010 are summarized
For the year
ended For the year ended
June 30, 2011 June 30, 2010
Revenue $ - -
Operating Expenses 221,010 840,830
Other Expenses 1,555 4,934
Net (Loss) $ (222,565) (845,764)
Our expenses for years ended June 30, 2011 and 2010 are outlined in the table
For the year
ended For the year ended
June 30, 2011 June 30, 2010
General and administrative expenses $ 430 $ 52,072
Professional fees 840 51,804
Management fees 219,740 736,954
Total Operating Expenses $ 221,010 $ 840,830
Interest expense $ 1,555 $ 212
Exchange loss - 4,722
Total Other Expenses $ 1,555 $ 4,934
The decrease in professional fees during the year ended June 30, 2011 as
compared to the year ended June 30, 2010 is primarily due to decreased business
activity in areas such as accounting, auditing and legal. The decrease in
management fees during the year ended June 30, 2011 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, 2011 we have had
accumulated losses of $1,592,114 which are as follows:
General and administrative expenses $ 81,645
Professional fees 96,080
Management fees 1,406,116
Interest expense 1,767
Exchange loss 6,506
Net (Loss) $ (1,592,114)
Our balance sheets as at June 30, 2011 and 2010 are summarized as follows:
As at June As at June 30,
30, 2011 2010
Cash $ 2,728 9,728
Total assets $ 29,290 248,861
Total liabilities $ 135,282 132,288
Total shareholders' equity (deficit) $ (105,992) 116,573
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.
As of June 30,
Current Assets $ 29,290 222,298
Current Liabilities 135,282 132,288Working Capital (Deficit) $ (105,992) 90,010
Years Ended June 30,
Net cash (used in) operating activities $ (14,031) (131,057)
Net cash provided by financing activities 7,030 131,052
Net Decrease in Cash
$ (7,001) (5)
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 $14,031 during the
year ended June 30, 2011. Cash used in operating activities was provided by
Cash Provided by Financing Activities
Cash was provided of $7,030 in financing activities during the year ended June
30, 2011, which was attributable mainly to proceeds from loans payable.
Our historical results do not necessary indicate results expected for any future
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:
Investor relations $ 10,000
Office and administration 1,000
Transfer agent and filing fees 4,500
Consulting fees 5,000
Foreign exchange -Estimated cash required before payment of accounts payable 72,500
Add: Accounts payable as at June 30, 2011
Estimated cash required over next twelve months $ 56,247
Disclosure of Outstanding Share Data
As of June 30, 2011, we had 52,785,000 shares of common stock issued and
Going Concern Uncertainties
The Company and has a cumulative net loss of $1,592,114. 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 $135,000 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.
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.
We have not issued and do not have outstanding any warrants to purchase shares
of our common stock.
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
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, 2011 is $105,992. 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.
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.
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