UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

  

FORM 10-Q10-Q/A

  

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31,June 30, 2015

 

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

 

For the transition period from N/A to N/A

  

Commission File No. 000-28745

  

Cipherloc Corporation

(Name of small business issuer as specified in its charter)

(Formerly National Scientific Corporation)

 

 Texas86-0837077
( State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
  

                                                                                                         

1291 Galleria Drive, Suite 200

Henderson, NV 89014

(Address of principal executive offices)

(702) 818-9011

Registrant’stelephone number, including area code

 

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[ ]Accelerated filer[ ]
Non–AcceleratedNon-Accelerated filer [ ]Smaller reporting company[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–212b-2 of the Exchange Act). Yes [ ] No [X]

 

 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class Outstanding at  February 22,March 24, 2016
Common stock, $0.01 par value  4,494,241

 

 EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Q of Cipherloc Corporation (the “Company”) for the quarter ended June 30, 2015 as originally filed with the Securities and Exchange Commission on August 18, 2015 (the “Original Filing”).

This Form 10-Q/A amends the Original Filing to reflect a retrospective restatement of financial information. The Company realized that the criteria for revenue recognition had not been met for revenue previously recognized. The Company is amending the Consolidated Balance Sheet, Statements of Operations and Statements of Cash Flows. We also made adjustments to the Notes to Consolidated Financial Statements, specifically, Notes 2 and 4 to support the changes to the Consolidated Balance Sheet.

This amendment also contains changes to Part II – Other information. These changes are as follows:

Item 2. Management’s Discussion and analysis of financial condition and results of operations has been amended by updating changes in Results of operations and Liquidity and Capital Resources.

CIPHERLOC CORPORATION

INDEX TO FORM 10-Q10-Q/A FILING

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31,JUNE 30, 2015 AND 2014

 

TABLE OF CONTENTS

    PAGE
PART I - FINANCIAL INFORMATION  
   
Item 1. Consolidated Financial Statements (Unaudited) 1
   Consolidated Balance Sheets (Restated) 1
   Consolidated Statements of Operations (Restated) 2
   Consolidated Statements of Cash Flows (Restated) 3
   Notes to Consolidated Financial Statements (Restated) 4
Item 2. Management Discussion & Analysis of Financial Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11

 

 

 
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings 12
Item 1A. Risk Factors 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Mining Safety Disclosures 12
Item 5 Other information 12
Item 6. Exhibits 12
     
     
CERTIFICATIONS  

 

31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.2Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

The accompanying interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q.  Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles.  Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2015.2014.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the threenine months ended December 31,June 30, 2015 are not necessarily indicative of the results that can be expected for the year ending September 30, 2016.

CIPHERLOC CORPORATION
BALANCE SHEETS
(UNAUDITED)
 
  Dec 31, 15 Sep 30, 15
ASSETS        
Cash $1,131,206  $1,993,406 
Assets attributable to discontinued operations  —     3,232 
Short-term notes receivable  50,000   —   
Total Current Assets  1,181,206   1,996,638 
         
Long-term notes receivable  200,000   —   
Deposits with others  10,449   —   
TOTAL ASSETS $1,391,655  $1,996,638 
LIABILITIES & EQUITY        
Liabilities        
Accounts payable and accrued liabilities $405,779  $1,100,945 
Due to related party  1,205   —   
Liabilities attributable to discontinued operations  18   18 
Deferred Revenue  691,406   1,125,000 
Total Liabilities  1,098,408   2,225,963 
Equity        
Series A Convertible Preferred Stock, $0.01 par value,
10,000,000 shares authorized; 10,000,000 outstanding
As of December 31, 2015 and September 30, 2015		  100,000   100,000 
Common Stock, $0.01 par value, 650,000,000 shares authorized; 4,494,421 issued and outstanding as of December 31, 2015 and 4,356,741 issued and outstanding as of September 30, 2015  44,942   43,567 
Other Equity  (50,000)  (50,000)
Additional Paid-In Capital  43,107,060   42,815,934 
Accumulated deficit  (42,908,755)  (43,138,826)
Total Equity  293,247   (229,325)
TOTAL LIABILITIES & EQUITY $1,391,655  $1,996,638 

The accompanying notes are an integral part of these unaudited financial statements.                2015.

 

Table of Contents 1 
 

CIPHERLOC CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
     
   Three Months Ended December 31,
   2015   2014 
Revenue $433,594  $—   
Cost of Revenues  —     —   
Gross Profit  433,594   —   
Operating Expenses:        
General and administrative  326,267   176,325 
Research and development  127,150   17,431 
Total Operating Expenses  453,417   193,756 
Operating Loss  (19,823)  (193,756)
         
Other Expenses        
Interest expense  (106)  (1,024)
(Loss) from Continuing Operations  (19,929)  (194,780)
Gain (Loss) from Discontinued Operations  250,000   (68,353)
Net Income (Loss) $230,071  $(263,133)
         
Net Income (Loss) per Common Share - Basic and diluted:        
Continuing operations $(0.00) $(0.09)
Discontinued operations $0.06  $(0.00)
Total $0.05  $(0.09)
         
Weighted Average Number of Common Shares Outstanding Basic and diluted  4,476,659   2,833,265 

CIPHERLOC CORPORATION

(Formerly Cloud Medical Doctor Software Corporation)

(Formerly National Scientific Corporation)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) as Amended

  June 30, 2015 September 30,
  2015 2014
   (Restated)   (Restated) 
ASSETS        
         
CURRENT ASSETS:        
  Cash $90,567  $545,650 
  Accounts receivable  —     1,006 
   Assets attributable to discontinued operations  —     6,887 
      Total current assets  90,567   553,543 
         
  Proprietary technology, net  53,300   604,301 
  Intangible assets, net of accumulated amortization  194,500   —   
    TOTAL ASSETS $338,367  $1,157,844 
         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)        
         
CURRENT LIABILITIES:        
   Accounts payable and accrued liabilities $698,024  $649,452 
   Liabilities attributable to discontinued operations  —     18 
   Line of credit  42,097   53,612 
   Due to related party  74,211   —   
   Stock payable  —     7,000 
   Deferred Revenue  1,125,000   1,125,000 
      Total current liabilities  1,939,332   1,835,082 
         
      TOTAL LIABILITIES  1,939,332   1,835,082 
         
COMMITMENTS AND CONTINGENCIES  —     —   
         
STOCKHOLDERS' EQUITY (DEFICIT):        
Preferred stock, $0.01 par value, 10,000,000 shares authorized; 10,000,000 issued and outstanding as of June 30, 2015 and September 30, 2014  100,000   40,000 
Common stock, $0.01 par value, 650,000,000 shares authorized; 2,951,587 and 2,834,737  issued and outstanding as of June 30, 2015 and September 30, 2014, respectively  29,515   28,347 
Additional paid-in capital  38,806,521   28,635,141 
Accumulated deficit  (40,537,001)  (29,380,726)
Total stockholders' deficit  (1,600,965)  (677,238)
         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $338,367  $1,157,844 

   

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

Table of Contents 2 
 

CIPHERLOC CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
  Three Months Ended December  31,
  2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss) $230,071  $(263,133)
(Gain) Loss from discontinued operations  (250,000)  68,353 
Net loss from continuing operations  (19,929)  (194,780)
Adjustments to reconcile net loss from continuing operations:        
to net cash (used in) provided by operating activities:        
Stock based compensation  27,500   —  
Changes in operating assets and liabilities:        
Deferred revenue  (433,594)  —   
Accounts payable and accrued liabilities  (695,166)  (138,879)
Net cash (used in) operating activities  (1,121,189)  (333,659)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Deposit with others  (10,449)  —   
Net cash from investing activities  (10,449)  —   
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Advances from officer  1,205   —   
Subscribed stock  —     (4,739)
Common stock issued for cash  265,001   —   
Net cash provided by financing activities  266,206   (4,739)
         
CASH FLOWS FROM DISCONTINUED OPERATIONS:        
Operating  3,232   1,249 
Net decrease in cash from discontinued operations  3,232   1,249 
(DECREASE) INCREASE IN CASH  (862,200)  (337,149)
CASH, BEGINNING OF YEAR  1,993,406   545,650 
CASH, END OF YEAR $1,131,206  $208,501 
         
CASH PAID FOR:        
Interest $107  $1,111 
Taxes $—    $—   
         
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
         
Common stock rescinded for purchase of software $—    $(6,000)
Cancellation of common stock $—    $150 

CIPHERLOC CORPORATION

(Formerly Cloud Medical Doctor Software Corporation)

(Formerly National Scientific Corporation)

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED) As Amended

  Three Months Ended Nine Months Ended
  June 30, June 30,
  2015 2014 2015 2014
       (Restated)       (Restated) 
REVENUE $—    $1,725  $431  $224,400 
COST OF REVENUES  63,620   61,155   191,590   183,465 
                 
    GROSS PROFIT  (63,620)  (59,430)  (191,159)  40,935 
                 
OPERATING EXPENSES:                
    General and administrative  251,770   1,079,306   10,535,766   2,447,524 
    Impairment  119,266   —     357,797   —   
    Research and development  27,195   —     68,845   20,000 
    Total operating expenses  398,231   1,079,306   10,962,408   2,467,524 
OPERATING LOSS  (461,851)  (1,138,736)  (11,153,567)  (2,426,589)
                 
OTHER (INCOME) AND EXPENSES                
   Interest expense  2   (1,656)  (1,839)  (2,171)
Total other (income) expenses  2   (1,656)  (1,839)  (2,171)
                 
LOSS FROM CONTINUING OPERATIONS  (461,849)  (1,140,392)  (11,155,406)  (2,428,760)
                 
(LOSS) INCOME FROM DISCONTINUED OPERATIONS  —     (5,376)  (869)  (12,893)
                 
NET LOSS $(461,849) $(1,145,768) $(11,156,275) $(2,441,653)
                 
NET LOSS PER COMMON SHARE - Basic and diluted:                
                 
   Continuing operations $(0.16) $(0.43) $(3.91) $(1.03)
                 
    Discontinued operations $0.00  $(0.00) $(0.00) $(0.00)
                 
    Total $(0.16) $(0.43) $(3.91) $(1.03)
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic and diluted  2,885,104   2,689,457   2,852,486   2,360,865 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents 3 
 

CIPHERLOC CORPORATION

(Formerly Cloud Medical Doctor Software Corporation)

(Formerly National Scientific Corporation)

CONSOLIDATED STATEMENT OF CASHFLOWS

(UNAUDITED) As Amended

  Nine Months Ended
  June 30,
  2015 2014
       (Restated) 
         
  Net loss $(11,156,275) $(2,441,653)
  Loss from discontinued operations  (869)  (12,893)
  Net loss from continuing operations  (11,155,406)  (2,428,760)
Adjustments to reconcile net loss from continuing operations
to net cash (used in) provided by operating activities:		        
  Impairment of software  357,797   —   
  Depreciation and amortization  193,204   183,465 
  Stock-based compensation  9,930,800   1,623,369 
  Gain on cancellation of stock issued for services  (4,752)  —   
  Common stock issued for software sales  —     5,700 
  Changes in operating assets and liabilities:        
    Accounts receivable  7,006   1,437 
    Accounts payable and accrued liabilities  48,572   241,887 
  Deferred revenue  —     1,125,000 
          Net cash (used in) operating activities  (622,779)  752,098 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
  Advances from officer  74,211   8,299 
  Repayment of advances from officer  —     (8,299)
  Proceeds from line of credit  —     103,529 
  Subscribed stock  (7,000)  —   
  Repayment of line of credit  (11,515)  (50,713)
  Common stock issued for cash  112,000   15,000 
          Net cash provided by financing activities  167,696   67,816 
         
(DECREASE) INCREASE IN CASH  (455,083)  819,914 
CASH, BEGINNING OF YEAR  545,650   8,587 
CASH, END OF YEAR $90,567  $828,501 
         
CASH PAID FOR:        
   Interest paid $1,839  $—   
   Income taxes paid $—    $—   
         
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES:        
         
   Write-off of  related party debt to additional paid-in capital $—    $59,704 
   Common stock issued for purchase of software $194,500  $6,000 
   Cancellation of stock rescinded for purchase of software $6,000  $—   
   Cancellation of common stock $150  $—   

 The accompanying notes are an integral part of these unaudited consolidated financial statements. 

Table of Contents4

CIPHERLOC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31,JUNE 30, 2015 AND 2014

(Unaudited)

 

NOTE 1- DESCRIPTION OF BUSINESS

 

Cipherloc Corporation (the “Company”) was incorporated in Texas on June 22, 1953 as American Mortgage Company. On May 16, 1996, the Company changed its name to National Scientific Corporation. On March 15, 2015, the Company changed its name to Cipherloc Corporation. On March 15, 2015, the Company changed its name to Cipherloc Corporation. The name change became effective through the Amended Certificate as of March 23, 2015.

The Company has notified the Financial Industry Regulatory Authority (FINRA) of its name change and has received FINRA’s approval for a new trading symbol CLOK reflecting its new name. The name change and the 1-100 reverse split were announced March 20, 2015 in the Daily List and became effective on March 23, 2015. The financial statements as to shares and earnings per share are restated as if the reverse split occurred on the first day of the first period being reported.

In the year ended September 30, 2011, the Company introduced the Cloud-MD Office, a “Cloud Based”, 5010 ready and ICD-10 compliant, fully integrated and interoperable suite of medical software and services, designed by experienced healthcare analysts and programmers for healthcare providers, that produces “Actionable Information” to help Independent Physician Practices, New Care Delivery Models (ACO), Healthcare Systems and Billing Services optimize a wide range of business processes resulting in Increased Profits, Higher Quality, Greater Efficiency, Noticeable Cost Reductions and Better Patient Care. Current software product offerings include Practice Management, Electronic Medical Records, Revenue Management, Patient Financial Solutions, Medical and Pharmaceutical Supply Management, Claims Management and PHI Exchange.

During the year ended September 30, 2012, we launched Cloud-MD Billing Services which provides management of medical claims from posting physician charges and payments into our medical billing software. The software uses a continuous insurance claim follow-up system to track and research all rejected or denied medical claims; a Comprehensive Reporting module that includes monthly financial statements sent to our clients so they can see how their practice is performing and a variety of detailed reports giving our clients the necessary information and tools used to assist in the increased production which leads to more profit; and patient account inquiries and support to assist patients with their billing and insurance questions.

On November 21, 2012, the Company purchased from CipherSmith, LLC a complete source code, intellectual property rights, all computer software or algorithm licensed or sold under CipherSmith, and appropriate copy rights, patents, mask works, trademarks, service marks, internet domain names or world wide web URS. Since 2012, the Company has tested the software application and created a commercial product for distribution of its encryption technology. The Company is presently developing more applications for consumer usage in the future.

On September 1, 2014, the company purchased Evolve Software for $25,000, which is a front office interface that complements our back office medical billing software. The Company has bridged the software to provide a more user friendly medical billing package for our customers.

 

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The restatement reflects adjustments to correct errors identified by management related to the Company’s revenue recognition of a transaction that occurred during the year ended September 30, 2014. The effect of the restatement was material on the Company’s Balance Sheets, Income Statement and Statement of Cash Flows. The nature and impact of these adjustments are described below.

Table of Contents5

Revenue Recognition

During the quarter ended June 30, 2015, the Company has retrospectively restated software revenue related to the sale of a license for its Cipherloc software to a third-party. Management subsequently determined that a lack of delivery of the software to the customer did not allow for revenue recognition during the year ended September 30, 2014. The Company has corrected the classification of this amount ($1,125,000) as a reduction to software revenue and an increase to deferred revenue.

For the quarter ended June 30, 2015

The results of the restatements are summarized as follows:

Consolidated Balance Sheets as of June 30, 2015:

  As reported Restatement Adjustment As restated
Deferred revenue $—    $1,125,000  $1,125,000 
Current liabilities  814,332   1,125,000   1,939,332 
Accumulated deficit  (39,412,001)  (1,125,000)  (40,537,001)
Stockholders’ deficit $(475,965) $(1,125,000) $(1,600,965)

Consolidated Balance Sheets as of September 30, 2014:

  As reported Restatement Adjustment As restated
Deferred revenue $—    $1,125,000  $1,125,000 
Current liabilities  710,082   1,125,000  $1,835,082 
Accumulated deficit  (28,255,726)  (1,125,000)  (29,380,726)
Stockholders’ equity (deficit) $447,762  $(1,125,000) $(677,238)

Consolidated Income Statement for the three months ended June 30, 2014:

  As reported Restatement Adjustment As restated
Revenue $1,126,725  $(1,125,000) $1,725 
Loss from continuing operations  (15,392)  (1,125,000) $(1,140,392)
Net loss  (20,768)  (1,125,000)  (1,145,768)

Consolidated Income Statement for the nine months ended June 30, 2014:

  As reported Restatement Adjustment As restated
Revenue $1,349,400  $(1,125,000) $224,400 
Loss from continuing operations  (1,303,760)  (1,125,000) $(2,428,760)
Net loss  (1,316,653)  (1,125,000)  (2,411,653)

Consolidated Statement of Cash Flow for the nine months ended June 30, 2014:

  As reported Restatement Adjustment As restated
Net loss $(1,316,653) $(1,125,000) $(2,411,653)
Deferred Revenue  —     1,125,000   1,125,000 

Table of Contents6

NOTE 3 - BASIS OF PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

Operating results for the threenine months ended December 31,June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending September 30, 2016.2015. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements forthe year ended September 30,2015 2014 have been omitted; this report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended September 30, 20152014 included within the Company’s Form 10-K as filed with the Securities and Exchange Commission.

Segment reporting change

With the placement into service of the Company’s encryption technology, the Company began a segment reporting structure to match the new operating structure and how the Company’s management views the business and allocates resources.

Reclassifications of prior period financial information have been made to conform to the current period presentation. This change does not impact previously reported condensed consolidated financial statements of the Company. See Note 10 for additional information on our segment reporting change.

 

NOTE 34 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred losses from operations, has an accumulated deficit at December 31,June 30, 2015 of $42,908,755$40,537,001 and needs additional cash to maintain its operations.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.

 

NOTE 4 –5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Reclassifications

Certain reclassifications have been made to conform with the current period presentation.

Table of Contents4

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At December 31, 2015 and 2014, cash and cash equivalents include cash on hand and cash in the bank. The Company maintains its cash in accounts held by large, globally recognized banks which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures these deposits up to $250,000. At December 31, 2015, $871,111 of the Company’s cash balance was uninsured. The Company has not experienced any losses in such accounts.

 

Long-Lived Assets

 

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The Company impaired $119,266 and $357,797 for the three and nine month periods ending June 30, 2015

 

Table of Contents7

Fair Value of Financial Instruments

 

The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.  

 

Fair value is focused on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Within the measurement of fair value, the use of market-based information is prioritized over entity specific information and a three-level hierarchy for fair value measurements is used based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table summarizes fair value measurements by level at June 30, 2015 and September 30, 2014 for assets measured at fair value on a recurring basis:

  Level 1 Level 2 Level 3 Total
At June 30, 2015        
Proprietary technology, net
 $—    $—    $53,300  $53,300 
Intangible assets, net of accumulated amortization $—    $   $194, 500  $194,500 
Total $—    $—    $247,800  $247,800 
                 
At September 30, 2014                
Proprietary technology $—    $—    $604,301  $604,301 
Total $—    $—    $604,301  $604,301 

 

Concentration of Credit Risk

 

All of the Company’s cash and cash equivalents are maintained in regional and national financial institutions. The Company has exposure to credit risk to the extent that its cash and cash equivalents exceed amounts covered by the U.S. federal deposit insurance; however, the Company has not experienced any losses in such accounts. In management’s opinion, the capitalization and operating history of the financial institutions are such that the likelihood of material loss is remote.

 

Recent Accounting AnnouncementsNOTE 6 - Proprietary Technology

 

In May 2014, the FASB issued new accounting guidance regarding revenue recognition under GAAP. This new guidance will supersede nearly all existing revenue recognition guidance, andThe following is effective for public entities for annual and interim periods beginning after December 31, 2016. Early adoption is not permitted. The Company is currently evaluating the impacta detail of this new guidance on the Company's financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements--Going Concern", which requires management to evaluate,software at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. Management is still in the process of assessing the impact of ASU 2014-15 on the Company's financial statements.

In April 2015, the FASB issued Accounting Standard Update ("ASU") 2015-03 Simplifying the Presentation of Debt Issuance Costs. This update requires capitalized debt issuance costs to be classified as a reduction to the carrying value of debt rather than a deferred charge, as is currently required. This update will be effective for the Company for all annual and interim periods beginning after December 15,June 30, 2015 and is required to be adopted retroactively for all periods presented, and early adoption is permitted. The Company is currently evaluating the expected impact of this new accounting standard on its financial statements.September 30, 2014:

 

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  2015 2014
Source Code License $2,500  $2,500 
Software License  1,200,106   1,200,106 
EMR Certification  23,000   23,000 
Encryption Software Code  15,800   15,800 
Evolve Software Code  25,000   25,000 
Compose Rose Code  6,000   6,000 
Acquisition of Doctor’s Network of America  10,000   10,000 
Total intangible assets  1,282,406   1,282,406 
Accumulated amortization of intangible assets (charged to cost of sales)  (861,310)  (668,105)
Accumulated impairment of assets  (367,766)  (10,000)
Total proprietary technology, net $53,300  $604,301 

The FASB issues ASUsCompany’s software was placed into service starting in the second quarter of fiscal year ended September 30, 2012. The amortization expense was $63,320 and $61,155 for the three months ended June 30, 2015 and June 30, 2014 as compared to amend$193,204 and $183,465 for the authoritative literature in ASC. There have beennine months ended June 30, 2015 and 2014, respectively.

Source Code License

In October 2013, the Company through a number of ASUs to date that amend the original text of ASC.purchase agreement with Antree Systems Limited has purchased a complete source code, intellectual property rights, all computer software, patents, or formulas, algorithm licensed or sold under a project known as Compass Rose and appropriate copyrights, patents, mask works, trademarks, service marks, internet domain names and world wide web uniform resource locators (“URLs”) from Antree Systems Limited. The Company believes those issued to date either (1) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to200,000 shares of its common stock as consideration for the Company or (iv) are not expected to have a significant impact on the Company.

Revenue Recognition 

Software license revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis; and collectionpurchase. The fair value of the resulting receivableconsideration and the assets acquired is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.  Whenbased on the fair value of VSOEthe common stock issued in exchange for the software. The total fair value, based on the market price on the date of post contract customer support cannot begrant, was $6,000. The Company evaluated this acquisition and determined that it did not meet the revenue is recognized ratably overdefinition of a significant business acquisition.

During the contract period. In Junethree months ended March 31, 2014, the company entered into an agreementCompany and Antree agreed to provideunwind the acquisition of the software to a third party. Delivery was not achieved until December 2015by the Company. Accordingly, the Company gave up all its rights for the use of the Compass Rose Code and all associated intellectual property rights, all computer software, patents, or formulas, algorithms licensed or sold under the project known as Compass Rose and the pro rata portionappropriate copyrights, patents, mask works, trademarks, service marks, internet domain names and world wide web uniform resource locators. In exchange for the Company giving up its rights to the Compass Rose Code, Antree agreed to the rescission and cancellation of the deferred revenue was recognized. This resulted inshares issued for the purchase. The Company cancelled the 2,000 shares issued to Antree and recorded a significant change in deferred revenue.reduction to its capitalized intangible assets of $6,000 and a corresponding reduction of equity. The Company recorded a gain on the cancellation for the shares of $4,752.

 

Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of services is based upon stand-alone sales of those services.NOTE 7- DISCONTINUED OPERATIONS

 

The amortization of acquired technology for products acquired through business combinations are considered as the cost of revenues. The acquired software technologies are amortized over their useful lives of five years.

Deferred Revenue

Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. The Company also recognizes annual subscription fees for virtual servers and subscription and small usage fees and those revenues are based on a 48-month lease, the Company would amortize the revenue over the life of the agreement of 48 months.

The Company has deferred revenue of $691,406 as of December 31, 2015 and $1,125,000 as of September 30, 2015.

NOTE 5– RELATED PARTY TRANSACTIONS

The advances from the CEO are due on demand and do not accrue interest. As of December 31, 2015 and 2014, the amount owed to the CEO for advances was $1,205 and $0, respectively.

NOTE 6– DISCONTINUED OPERATIONS

Cloud MD Sale

The Company’s former Board of Directors believed that it was in the best interest of the Company to discontinue the former business operation Cloud MD. During September 2015, the Cloud MD business segment was discontinued and a plan of sale of the segmentGPS operational device business. In 2011, this business was approved.transferred to National Scientific Corporation; a company owned by the Company’s prior CEO, by prior management in which the Company’s former CEO was to pay $100,000 plus 2% of revenues for that technology. The Cloud MD sale occurred in October 2015 as a $250,000 note payable fromformer officer never paid the buyer. The note receivable has five annual payments of $50,000 and carries interest of 3% a year. We reviewed the needspecific consideration for an allowance for loan loss and estimation of impairment of the note receivable based on professional relationship and experience with the buyer and the specifics of the agreements. Currently, no allowance is deemed necessary and no impairment is expected as collection seems reasonably assured. this transaction.

Accordingly, the Company reclassified the assets, which had a net book value of zero as of September 30, 2015, qualified as held for saleliabilities and the Company has presented Cloud MDoperations related to its GPS operational device business as discontinued operations.  Discontinued revenue for 2014 consisted  Consequently, the accompanying consolidated financial statements reflect the assets, liabilities and operations of $12,779 revenuethe GPS operational device business as net assets of discontinued operations, net liabilities of discontinued operations and results from D&A and $431 of revenues associated with Cloud MD. Discontinued operating expenses for 2014 consisted of $13,493 operating expenses from D&A and $68,070 from Cloud MD.discontinued operations.

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DNA

On March 16, 2013, the Company closed the acquisition with the final payment for DNA. Subsequent to the transaction closing, the sellers refused to pay the transaction fees for medical billing contracts that were processed. The Company filed a lawsuit against the sellers for Breach of Contract among other things in June of 2013. During that time, the Company believes the sellers began contacting all billing contract holders and interfered with the acquisition of all the assets from the transaction. Consequently, the accompanying consolidated financial statements reflect the assets, liabilities and operations of DNA as net assets of discontinued operations, net liabilities of discontinued operations and results from discontinued operations.

Details of the classifications for revenues, operating expensesnet assets, liabilities and operations are shown below.

 

  Period ended   
December 31,
  2015 2014
Discontinued operations:        
Revenues $—    $13,210 
Operating expenses  —     81,563 
 Gain from discontinued operations  250,000     
Income(loss) from discontinued operations $250,000  $(68,353)
  June 30, 2015 September 30, 2014
Net liabilities of discontinued operations:    
Accounts payable $—    $18 
Net liabilities of discontinued operations $—    $18 

 

  Dec 31, 2015 Sep 30, 2015
Net assets attributable to discontinued operations:  —     —   
Intangible Software  —     3,232 
Net liabilities of discontinued operations  18     18   
  Three Months Ended June 30,
  2015 2014
Discontinued operations:        
Revenues $—    $45,555 
Operating expenses  —     50,931 
(Loss) income from discontinued operations $—     (5,376)

  Nine Months Ended June 30,
  2015 2014
Discontinued operations:        
Revenues $12,779  $176,607 
Operating expenses  13,648   189,500 
(Loss) income from discontinued operations  (869)  (12,893)

 

NOTE 7-8 - LINE OF CREDIT

In November 2013, the Company entered into a revolving line of credit with Mutual of Omaha in the amount of $65,000 at a 5.00% interest rate per annum which renews annually. As of June 30, 2015, the Company had borrowed $42,097 against the line of credit. During the nine months ended June 30, 2015, the Company repaid $11,515 of the outstanding balance and paid $1,839 in interest expense related to the Mutual of Omaha line of credit. The line of credit was unsecured and is paid in full.

NOTE 9- RELATED PARTY TRANSACTIONS

The Company repaid $16,000 and $8,299 of the advances from the Company’s CEO in the nine months ended June 30, 2015 and 2014, respectively. The advances from the CEO are due on demand and do not accrue interest. As of June 30, 2015 and September 30, 2014, the amount owed to the CEO for advances was $74,211 and $0, respectively.

NOTE 10- EQUITY

 

As of December 31,June 30, 2015, the Company was authorized to issue 650,000,000 common shares and 10,000,000 preferred shares at a par value of $0.01.

Nine months ended June 30, 2015

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Stock Cancelled

 

The Company received $7,000 for the issuance of 50,000 shares of common stock recorded as stock payable and as of September 30, 2014 the common stock has not been issued by the Company. In the nine months ended March 31, 2015, the Company paid back the proceeds and did not issue the stock.

During the nine months ended June 30, 2015, the Company cancelled 2,150 shares of common stock. 2,000 of these shares were cancelled in relation to the Company giving back its rights to the Compass Rose Code. See Note 5. As part of the Antree rescission and cancellation, 150 shares were additionally cancelled that were issued in the year ended September 30, 2014, to one of the owners of Antree who provided additional programming services for improvements to the Compass Rose Code. The cancellation of the 150 shares was recorded as an adjustment to the Company’s par value, as no consideration was paid for the cancellation.

Preferred Stock

 

On February 5, 2015, the Company issued 6,000,000 shares of its Series A Preferred Stock to its CEO. As of September 30, 2015, the Series A Preferred Stock is convertible into the Company’s common stock at a rate of 1 to 1.5 common shares. The Company recorded $9,900,000 as stock compensation based on the market value of the Company’s common stock on the date of grant. As of February 17, 2015, there are a total of 10,000,000 shares of the Series A Preferred Stock authorized and outstanding which are convertible into a total of 15,000,000 shares of common stock. Each share of the Preferred Stock has 150 votes on all matters presented to be voted by the holders of common stock. The holders of the Preferred A shares can only convert the shares if agreed upon by 50.1% voteproper notice and approval of all preferred shareholders. During November 2015, the conversion rate forBoard of Directors. Presently, the Seriesholders of the Preferred A preferred stock was modified to a 1 to 30 common shares. The certificate of amendmentshares have not sent notice to the ArticlesBoard of Incorporation was not filedDirectors and on February 12, 2016 the Board reversed its position and reinstated the 1of Directors does not currently intend to 1.5 conversion rate. Accordingly, we determined that no modification accounting was required. (See note 9)approve such conversion.

 

Common Stock Issued for Cash

 

TheOn March 18, 2015, the Company issued 132,500 shares of5,000 restricted common shares through a Private Placement Memorandumto Entrust Group/Michael Hopkins for proceeds of $265,001 during$5,000. On May 20, 2015 the three months ended December 31, 2015.Company issued 7,000 restricted common shares to Garry Zagami for $7,000. On June 18, 2015, the Company issued 50,000 restricted common shares to Common Wealth Management for $100,000.

 

Common Stock Issued for Services

 

On October 1,May 5, 2015 the Company issued 2,0842,000 restricted common shares to Dr. Albert Carlson perRobert Wurzburg for his employment agreementassistance in the production of an animated video for the Company. The shares had a value of $10,733$8,800 on the date of issue. On October 22, 2015 the Company issuedCommon Wealth Management received 5,000 restricted common shares to Isaiah Eichen per an asset purchase agreement.from the Company on May 5, 2015 for commissions. The shares had a value of $27,500$22,000 on the date of issue.issuance.

 

Common Stock Issued for Software Licensing

On April 21, 2015 the Company issued 50,000 shares of restricted common stock for the purchase of a software license as follows; 25,000 shares to Code Robert, LLC and 25,000 shares to Sunset Angel Productions, LLC.

NOTE 11 - SEGMENT INFORMATION

Cloud Medical Doctors Software Corporation has two reporting segments and corporate overhead:

Cloud-MD - the Company sells medical billing software to doctors. Prior to 2014, all of the Company’s business activities were derived from this segment.
Cipherloc - the Company has a second software program which is an encryption technology that can be used by larger corporation to protect their data through our polymorphic technology.
Corporate Overhead - the Company’s investment holding including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional business.

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NOTE 8 -COMMITMENTS AND CONTINGENCIESThe accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses. The reportable segments are strategic business units that offer different technology and marketing strategies. Most of the businesses were developed internally and management remains the same. To date, the Company’s operations are principally in the United States.

 

LitigationConsolidated revenues from external customers, operating loss, and identifiable assets were as follows:

 

  Three months ended June 30,
  2015 2014
Revenues:        
Cloud-MD $—    $1,725 
Total revenues $—    $1,725 
         
Operating expenses:        
Cloud-MD $(19,693) $(61,155)
Cipherloc  (27,195)  (30,684)
Corporate  (414,963)  (1,021,150)
Net Loss from Continuing Operations $(461,851) $(1,111,264)

The Company is involved in various collections matters; the defendants have asserted certain counterclaims. While the outcome and impact of currently pending legal proceedings cannot be predicted with certainty, based on the current status of the matters, we believe that the resolution of these proceedings through settlement or judgment will not have a material adverse effect on our consolidated operating results, financial position or cash flow.

  Nine months ended June 30,
  2015 2014
Revenues:        
Cloud-MD $431  $224,400 
Total revenues $431  $224,400 
         
Operating expenses:        
Cloud-MD $(10,535,766) $(203,465)
Cipherloc  (45,715)  (30,684)
Corporate  (572,517)  (2,431,904)
Net Loss from Continuing Operations $(11,153,567) $(2,441,653)

  June 30, 2015 

September 30,

2014

Identifiable assets:        
Cloud-MD $31,500  $583,507 
CipherLoc  216,300   21,800 
Corporate  90,567   552,537 
Total identifiable assets $338,367  $1,157,844 

 

Contingencies

The company entered into a licensing and subscription agreement on June 11, 2014. The counterparty has requested an extension of its terms and claimed that the product may not be viable. The company disagrees with both claims. The range of loss, if any, associated with these claims cannot currently be estimated.

NOTE 9 - SUBSEQUENT EVENTS

During November 2015, the conversion rate for the Series A preferred stock was modified to a 1 to 30 common shares. The certificate of amendment to the Articles of Incorporation was not filed and on February 12, 2016 the Board reversed its position and reinstated the 1 to 1.5 conversion rate.

* * * * * * * * * * * *

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ITEM 2 -2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

In this Quarterly Report “Company,” “our company,” “us,” and “our” refer to Cipherloc Corporation and its subsidiaries, unless the context requires otherwise

 

Forward-Looking Statements

 

The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may," "could," "expect," "estimate," "anticipate," "plan," "predict," "probable," "possible," "should," "continue," or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

 

Our Business

Cipherloc Corporation is a Technology and Services based Solutions Company for the rapidly expanding Cloud based Cyber Security industry. Cipherloc is based in Henderson, Nevada.

The company has introduced an innovative and revolutionary new type of encryption technology with five international patents and two US patents pending and is the industry’s first “Polymorphic Cipher Engine”, called CipherLoc®. Itis the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (PKPA). This morphing cipher can be used in any commercial data security industry and/or in sensitive applications: Banks, Financial transactions, Credit Cards, Securities, Stock and Bonds transactions, Emails, Phones, tablets, Servers and or computers, etc...

Financial results and trends

 

Results of Operations for the ThreeNine Months Ended December 31,June 30, 2015 and 2014 (Restated)

 

Revenue increaseddecreased to $433,594$431 from $0$224,400 for the threenine months ended December 31,June 30, 2015 and 2014, respectively. Our revenues increaseddecreased as a result of a software sale that was recognized duringour focus on the three months ended December 31, 2015.marketing of our CipherLoc Encryption Technology.

 

Cost of revenue was $0$191,590 and $183,465 for the threenine months ended December 31,June 30, 2015 and 2014, respectively. Our cost of revenue was related to the amortization of the software costs placed into service.

 

Selling, general and administrative expenses increased to $326,267$10,535,766 from $176,325$2,447,524 for the threenine months ended December 31,June 30, 2015 and 2014, respectively.The increase in our selling, general and administrative expenses is related to stock-based compensation.Research and development costs increased to $127,150$68,845 from $17,431$20,000 for the threenine months ended December 31,June 30, 2015 and 2014, respectively. Our research and development costs increase is related to new product development of our Cipherloc technology.focus on our CipherLoc Encryption Technology.

 

Interest expense decreased to $106$1,839 from $1,024$2,171 for the threenine months ended December 31,June 30, 2015 and 2014, respectively. Our interest expense decreased as a result of paying offthe decrease in outstanding borrowings on our lines of credits.

We recorded a loss to income for discontinued operations of $869 and closing our line$12,893 for the nine months ended June 30, 2015 and 2014, respectively. The Company is currently engaged in the medical billing operations. Until October 1, 2009, the Company’s sole sources of credit.revenues were from GPS operational device business.  The Company discontinued its GPS operational device business in February 2010 (See “Note 6 - Discontinued Operations” to the accompanying Consolidated Financial Statements).

 

Liquidity and Capital Resources

 

We expect to incur substantial expenses and generate significant operating losses as we continue to grow our operations, as well as incur expenses related to operating as a public company and compliance with regulatory requirements. At December 31,June 30, 2015, the Company had cash of $1,131,206.$90,567.

 

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We have an accumulated deficit at December 31,June 30, 2015 of $42,908,755$40,537,001 and need additional cash flows to maintain our operations. We depend on the continued contributions of our executive officers to finance our operations and need to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of our products and business. We expect our cash needs for the next 12 months to be $850,000 to fund our operations. The ability of the Company to continue its operations is dependent on the successful execution of management’s plans, which include expectations of raising debt or equity based capital until such time that funds from operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company’s existence. There is no assurance that such funding, if required will be available to us or, if available, will be available upon terms favorable to us.

 

Sources of Cash

The Company has a revolving line of credit with Chase Bank with a balance as of December 31, 2015 in the amount of $139 and a borrowing limit of $29,000. We have previously received advances from our Chief Executive Officer which we have used to help fund our operations.

We believe that our existing cash and investment balances, our available revolving credit facility, our ability to issue new debt instruments, and cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements. Our strategy emphasizes organic growth through internal innovation and will be complemented by acquisitions that fit strategically and meet specific internal profitability hurdles.

Cash Flow

The following table summarizes, for the periods indicated, selected items in our Condensed Statements of Cash Flows:

  Three Months Ended
  

December 31,

2015

 

December 31,

2014

Net cash provided by (used in):        
Operating activities $(1,121,189) $(333,659)
Investing activities  (10,449)  —   
Financing activities  266,206   (4,739)
         

Operating Activities

 

Cash flows from operating activities.Our cash (used in) operating activities were ($1,121,189)622,779) and ($333,659)$752,098 for the three monthsNine Months ended December 31,June 30, 2015 and 2014, respectively.The increase of cash used in operations was primarily attributable to the payment of salaries.stock compensation.

Financing Activities

 

Cash flows from financing activities.Cash provided by (used in) financing activities was $266,206$167,696 and $ (4,739)$67,816 for the threenine months ended December 31,June 30, 2015 and 2014, respectively. In the threenine months ended December 31,June 30, 2015, we repaid our line of credits of $11,515, received $265,001 from a PPM duringcash for the three months ended December 31, 2015sale of common stock of $112,000 and $0 duringsubscribed stock of $7,000. For the three months ended December 31, 2014.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affectsame period in the liquidity, capital resources, market risk support and credit risk support or other benefits.

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WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents thatprior year, we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us orreceived cash from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in any hedging activities.sale of our common stock of $15,000.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

  

Our Chief Executive Officer and Principal Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control —- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Principal Financial Officer have concluded that our internal control over financial reporting were not effective as of December 31, 2015.June 30, 2015 There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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a.There were no changes in our internal control over financial reporting that occurred during the three months ended December 31,June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
b.It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various collections matters; the defendants have asserted certain counterclaims. While the outcome and impact of currently pending legal proceedings cannot be predicted with certainty, based on the current status of the matters, we believe that the resolution of these proceedings through settlement or judgment will not have a material adverse effect on our consolidated operating results, financial position or cash flow

ITEM 1A - RISK FACTORS

There were no material changes from the risk factors previously disclosed in Part II, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015 during our three months ended December 31, 2015.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

During the three months ended December 31, 2015, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company issued 132,500 shares of common stock for $265,000 in net cash proceedspursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended (the "Act"), afforded by Rule 506 of Regulation D.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the three months ended December 31, 2015.

ITEM 4.MINING SAFETY DISCLOSURES

N/A

ITEM 5.  OTHER INFORMATION

There is no information with respect to which information is not otherwise called for by this form.

ITEM 6. EXHIBITS

Exhibits

3.1Articles of Incorporation(1)
3.2Bylaws(2)
10.1

Employment Agreement between National Scientific Corporation and Michael A. Grollman dated January 2001(4)

10.2Employment Agreement between National Scientific Corporation and Graham L. Clark dated January 2003(6)
10.3

NSC Consulting Agreement dated August 2001, and Amendments dated August 2002 and July 2003, with Dr. ElBadawy ElSharawy(6)

10.4Amended and Restated 2000 Stock Option Plan(3)
10.5Form of 2004 Stock Retainage Plan Agreement(6)
10.6Agreement Regarding Management Consulting Services with Stanton Walker of New York dated May 2003(6)
10.7

Agreement Regarding Distribution and Marketing of Gotcha!® Child Safety Product and other products

dated December 2002 with FutureCom Global, Inc. (6)

10.8Purchase Order from Verify Systems, Inc, dated March 2003 for IBUS™ School Child Tracking Systems(5)
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10.9

Letter of Understanding and Agreement dated April 2004 Regarding Sales and Distribution of Verify School safety products, and an Unlimited Software License with Anthony Grosso and CIS Services, LLC(6)

10.10

Letter of Intent from Positus, Inc. dba Bike & Cycle Trak, dated February 2003 for Design of Power Sports Tracking System(6)

10.11

Purchase Order from Positus, Inc. dba Bike & Cycle Trak, for Design of Power Sports Tracking System dated March 2003(6)

10.12Employment agreement of Michael De La Garza(8)
10.13Employment agreement of Pamela Thompson(8)
10.14Licensing Agreement Code Robert, LLC and Sunset Angel Productions, LLC (11)
10.15Employment Agreement Dr. Albert Carlson(13)
10.16Asset Purchase Agreement and Promissory Note re sale of MD Software(13)
14Code of Ethics(7)

The following exhibits are filed herein

 

No.Title
10.17Asset Purchase Agreement with Isaiah Eichen dated October 22, 2015
10.18Sisco Product Development Agreement dated November 6, 2015
10.19Cloud Medical Doctors Software Corporation 48 month Licensing Agreement with Gawk (13)
31.1Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a1413a-14 and 15d14,15d-14, as adopted pursuant to Section 302 of the SarbanesOxleySarbanes-Oxley Act of 2002
31.2Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a1413a-14 and 15d14,15d-14, as adopted pursuant to Section 302 of the SarbanesOxleySarbanes-Oxley Act of 2002
32.132Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SarbanesOxleySarbanes-Oxley Act of 2002
32.2Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SarbanesOxleySarbanes-Oxley Act of 2002
(1)Incorporated by reference to the Registrant’s Form 10SB filed on or about January 3, 2000.
(2)Incorporated by reference to the Registrant’s Form 10QSB for the quarter ended March 31, 2001 and filed on or about May 15, 2001.
(3)Incorporated by reference to the Registrant’s Form 10QSB for the quarter ended December 31, 2000 and filed on or about February 14, 2001.
(4)Incorporated by reference to the Registrant’s Form 10KSB for the year ended September 30, 2000 and filed on or about December 19, 2000.
(5)Incorporated by reference to the Registrant’s Form S8 filed on or around June 3, 2003.
(6)Incorporated by reference to the Registrant’s Form SB2 filed on or around June 24, 2004.
(7)Incorporated by reference to the Registrant’s Form 10QSB for the quarter ended December 31, 2004 and filed on or about August 16, 2004.
(8)Incorporated by reference to the Registrant’s Form 10K for the year ended September 30, 2011 and filed on or about October 10, 2013.
(9)Incorporated by reference to the Registrant’s Form 8K filed on January 8, 2015
(10)Incorporated by reference to the Registrant’s Form 14CDEF filed on September 12, 2014
(11)Incorporated by reference to the Registrant’s Form 8K filed on April 25, 2015
(12)Incorporated by reference to the Registrant’s Form 8K filed on April 13, 2015 (13) Inadvertently not filed in June 2014
(13)Incorporated by reference to the Registrant’s Form 10-K for year ended September 30, 2015 and filed on February 4, 2016

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 Registrant

February 22,

Date: March 24, 2016

 

Cipherloc Corporation

 

By:/s/ Michael De La Garza

  Michael De La Garza
  Chief Executive Officer (Principal Executive Officer)

  

Registrant

 

Date: February 22,March 24, 2016

 

Cipherloc Corporation

By: /s/Eric Marquez

  Eric Marquez
  ChiefPrincipal Financial Officer (Principal Financial Officer)

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