Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Sep. 30, 2016 | Feb. 02, 2017 | Jan. 26, 2017 | |
Document And Entity Information | |||
Entity Registrant Name | CIPHERLOC Corp | ||
Entity Central Index Key | 1,022,505 | ||
Document Type | 10-K | ||
Document Period End Date | Sep. 30, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --09-30 | ||
Entity a Well-known Seasoned Issuer | No | ||
Entity a Voluntary Filer | No | ||
Entity's Reporting Status Current | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 15,617,469 | ||
Entity Common Stock, Shares Outstanding | 5,877,673 | ||
Trading Symbol | CLOK | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
Balance Sheets
Balance Sheets - USD ($) | Sep. 30, 2016 | Sep. 30, 2015 |
Current assets: | ||
Cash | $ 344,138 | $ 1,993,406 |
Accounts receivable, net of allowance of $10,000 | ||
Assets attributable to discontinued operations | 3,232 | |
Prepaid officer compensation | 44,788 | |
Other prepaid expenses | 2,500 | |
Total current assets | 391,426 | 1,996,638 |
Other Assets | 12,218 | |
Fixed assets, net | 13,897 | |
Total assets | 417,541 | 1,996,638 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 62,270 | 69,194 |
Accrued compensation | 420,334 | 1,031,751 |
Deferred revenue-current | 442,000 | 341,000 |
Liabilities attributable to discontinued operations | 18 | |
Total current liabilities | 924,604 | 1,441,963 |
Long term liabilities: | ||
Deferred revenue, net of current portion | 341,522 | 784,000 |
Total long term liabilities | 341,522 | 784,000 |
Total liabilities | 1,266,126 | 2,225,963 |
COMMITMENTS AND CONTINGENCIES (NOTE 6) | ||
STOCKHOLDERS' DEFICIT | ||
Series A Convertible Preferred stock, $0.01 par value, 10,000,000 shares authorized; 10,000,000 issued and outstanding as of September 30, 2016 and 2015, respectively | 100,000 | 100,000 |
Common stock, $0.01 par value, 650,000,000 shares authorized; 5,268,859 and 4,356,741 issued and outstanding as of September 30, 2016 and 2015, respectively | 52,688 | 43,567 |
Additional paid-in capital | 44,779,296 | 42,815,934 |
Stock subscription receivable | (50,000) | |
Accumulated deficit | (45,780,569) | (43,138,826) |
Total stockholders' deficit | (848,585) | (229,325) |
Total liabilities and stockholders' deficit | $ 417,541 | $ 1,996,638 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - USD ($) | Sep. 30, 2016 | Sep. 30, 2015 |
Statement of Financial Position [Abstract] | ||
Allowance for accounts receivable | $ 10,000 | $ 10,000 |
Series A Convertible Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Series A Convertible Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Series A Convertible Preferred Stock, Shares Issued | 10,000,000 | 10,000,000 |
Series A Convertible Preferred Stock, Shares Outstanding | 10,000,000 | 10,000,000 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 650,000,000 | 650,000,000 |
Common Stock, Shares Issued | 5,268,859 | 4,356,741 |
Common Stock, Shares Outstanding | 5,268,859 | 4,356,741 |
Statements of Operations
Statements of Operations - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Income Statement [Abstract] | ||
Revenues | $ 341,478 | |
Cost of revenues | 90,900 | |
Gross profit | 250,578 | |
Operating expenses : | ||
General and administrative (includes stock-based expense of $211,600 for 2016 and $11,733,265 for 2015) | 1,167,466 | 12,842,678 |
Sales and marketing (includes stock-based expense of $54,803 and $0 for 2015) | 218,722 | 43,524 |
Settlement expenses | 763,469 | |
Research and development (includes stock-based expense of $46,291 for 2016 and $194,500 for 2015) | 755,159 | 227,650 |
Total operating expenses | 2,904,816 | 13,113,852 |
Operating loss | (2,654,238) | (13,113,852) |
Other income and (expenses): | ||
Gain on extinguishment | 59,612 | |
Net interest expense | (47,117) | (2,722) |
Total other income (expenses) | 12,495 | (2,722) |
Loss from continuing operations | (2,641,743) | (13,116,574) |
Loss from discontinued operations | (641,526) | |
Net loss | $ (2,641,743) | $ (13,758,100) |
Net loss per common share - Basic and diluted: | ||
Continuing operations | $ (0.56) | $ (4.22) |
Discontinued operations | (0.21) | |
Total | $ (0.56) | $ (4.43) |
Weighted average common shares outstanding - Basic and diluted | 4,744,815 | 3,105,738 |
Statements of Operations (Paren
Statements of Operations (Parenthetical) - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Income Statement [Abstract] | ||
General and administrative included in stock-based expense | $ 211,600 | $ 11,733,265 |
Sales and marketing included in stock-based expense | 54,803 | 0 |
Research and development included in stock-based expense | $ 46,291 | $ 194,500 |
Statements of Stockholders' Def
Statements of Stockholders' Deficit - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Subscription Receivable [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Sep. 30, 2014 | $ 40,000 | $ 28,347 | $ 28,635,141 | $ (29,380,726) | $ (677,238) | |
Balance, shares at Sep. 30, 2014 | 4,000,000 | 2,834,737 | ||||
Preferred stock issued to officers | $ 60,000 | 9,840,000 | 9,900,000 | |||
Preferred stock issued to officers, shares | 6,000,000 | |||||
Common stock rescinded for purchase of asset | $ (20) | (4,732) | (4,752) | |||
Common stock rescinded for purchase of asset, shares | (2,000) | |||||
Cancellation of stock | $ (2) | 2 | ||||
Cancellation of stock, shares | (150) | |||||
Common stock issued for cash, net of offering costs | $ 11,475 | 2,271,525 | 2,283,000 | |||
Common stock issued for cash, net of offering costs, shares | 1,147,500 | |||||
Common stock issued for subscription receivable | $ 250 | (50,000) | 49,750 | |||
Common stock issued for subscription receivable, shares | 25,000 | |||||
Common stock issued for service | $ 1,617 | 993,048 | 994,665 | |||
Common stock issued for service, shares | 161,654 | |||||
Common stock issued to officers | $ 1,400 | 837,200 | 838,600 | |||
Common stock issued to officers, shares | 140,000 | |||||
Common stock issued for software licensing | $ 500 | 194,000 | (194,500) | |||
Common stock issued for software licensing, shares | 50,000 | |||||
Common stock issued for legal services | $ 994,665 | |||||
Common stock issued for legal services, shares | 161,654 | |||||
Net loss | (13,758,100) | $ (13,758,100) | ||||
Balance at Sep. 30, 2015 | $ 100,000 | $ 43,567 | (50,000) | 42,815,934 | (43,138,826) | (229,325) |
Balance, shares at Sep. 30, 2015 | 10,000,000 | 4,356,741 | ||||
Common stock issued for cash, net of offering costs | $ 5,135 | 941,185 | $ 946,320 | |||
Common stock issued for cash, net of offering costs, shares | 513,500 | 513,500 | ||||
Common stock issued for service | $ 41,456 | |||||
Common stock issued to officers | $ 165 | 102,529 | 102,694 | |||
Common stock issued to officers, shares | 16,477 | |||||
Common stock issued for software licensing | ||||||
Common stock issued for license termination | $ 3,071 | 760,398 | 763,469 | |||
Common stock issued for license termination, shares | 307,141 | |||||
Common stock issued for legal services | $ 750 | 209,250 | 210,000 | |||
Common stock issued for legal services, shares | 75,000 | |||||
Reversal of subscription receivable | 50,000 | (50,000) | ||||
Net loss | (2,641,743) | (2,641,743) | ||||
Balance at Sep. 30, 2016 | $ 100,000 | $ 52,688 | $ 44,779,296 | $ (45,780,569) | $ (848,585) | |
Balance, shares at Sep. 30, 2016 | 10,000,000 | 5,268,859 |
Statements of Cash Flows
Statements of Cash Flows - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (2,641,743) | $ (13,758,100) |
Loss from discontinued operations | 641,526 | |
Net loss from continuing operations | (2,641,743) | (13,116,574) |
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities: | ||
Depreciation | 2,132 | |
Stock-based compensation | 312,694 | 11,733,265 |
Stock issued with licensing agreement | 194,500 | |
Gain on settlements | (59,612) | (4,752) |
Termination of software license | 763,469 | |
Changes in operating assets and liabilities: | ||
Accounts payable and accrued liabilities | (558,747) | 451,511 |
Prepaid officer compensation | (44,788) | |
Other Prepaid expenses | 732 | (7,000) |
Deferred revenue | (341,478) | |
Net cash used in operating activities | (2,567,341) | (749,050) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Other assets | (12,218) | |
Equipment purchases | (16,029) | |
Net cash used in investing activities | (28,247) | |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Repayment of line of credit | (53,612) | |
Common stock issued for cash, net of offering costs | 946,320 | 2,283,000 |
Net cash provided by financing activities | 946,320 | 2,229,388 |
CASH FLOWS FROM DISCONTINUED OPERATIONS | ||
Operating | (32,582) | |
Net cash flows from discontinued operations | (32,582) | |
INCREASE (DECREASE) IN CASH | (1,649,268) | 1,447,756 |
CASH, BEGINNING OF YEAR | 1,993,406 | 545,650 |
CASH, END OF YEAR | 344,138 | 1,993,406 |
CASH PAID FOR: | ||
Interest paid | 2,836 | |
Income taxes paid | ||
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES: | ||
Cancellation of common stock | 150 | |
Stock subscription receivable | $ 50,000 |
Description of Business
Description of Business | 12 Months Ended |
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business | NOTE 1- DESCRIPTION OF BUSINESS Cipherloc Corporation (the “Company” or “Cipherloc”) was incorporated in Texas on June 22, 1953 as American Mortgage Company. 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. Cipherloc is a data security solutions company. Our highly innovative products - based on our patented polymorphic encryption technology - are designed to enable an iron-clad layer of protection to be added to existing solutions. On September 30, 2015, the Company decided to sell Cloud MD. Cloud MD was a business segment that provided cloud based medical software and services, designed for healthcare providers. The details of the sale were finalized in October 2015. By selling Cloud MD, the Company will allocate all resources towards the Cipherloc encryption development. The Cloud MD component is presented as a discontinued operation as more fully described in Note 3. |
Going Concern
Going Concern | 12 Months Ended |
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern | NOTE 2 - GOING CONCERN The accompanying 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 September 30, 2016 of ($45,780,569) and needs additional cash to maintain its operations. These factors raise doubt about the Company’s ability to continue as a going concern. The accompanying 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. |
Significant Accounting Policies
Significant Accounting Policies | 12 Months Ended |
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows: Use of Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates. The Company’s most significant estimates relate to the valuation of its proprietary technology and the valuation of its common stock. Legal The Company is subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. The Company accrues for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred. Consolidation of Financial Statements The Company is presenting the years ended September 30, 2016 and 2015 without consolidation of financial activity, as there has been no activity in any subsidiaries. Reclassifications Certain reclassifications have been made to conform the 2015 amounts to the 2016 classifications for comparative purposes. Cash and Cash Equivalents and Concentration of Credit Risk The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2016 and 2015, 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 September 30, 2016, approximately $94,138 of the Company’s cash balance was uninsured. The Company has not experienced any losses in such accounts. Website and Software Costs The Company’s accounting for software development costs complies with ASC 985-20, Costs of Software to be Sold, Leased or Marketed, whereby capitalization begins when the Company has a working prototype and has been tested, thereby achieving technological feasibility. This occurs very late in the development stage of the software product. The Company has determined the software costs do not fall under ASC 350-40, Internal-Use Software, based on the guidance in ASC 985-605-55-119 through 125 which covers guidance for hosting agreements. The Company’s product will generally not be hosted and will reside on the technology platform available to the user. Fixed Assets Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated life of equipment is three (3) years. The estimated life of our leasehold improvements is the lesser of the term of the related lease and useful life. 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 software in the amount of $347,477 associated with discontinued operations during the year ended September 30, 2015. Fair Value of Financial Instruments The Company's financial instruments consisted 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. Customer Concentration During the year ended September 30, 2016, one customer accounted for 100% of revenues. 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 collection of the resulting receivable 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. When the fair value of VSOE of post contract customer support cannot be determined, the revenue is recognized ratably over the contract period. In June 2014, the Company entered into an agreement to provide software and support to a third party for which no VSOE for any elements is known. Delivery of the use of the license was not achieved until December 2015; the only remaining undelivered element was post contract support services, and accordingly, the revenues will be recognized on a pro rata basis prospectively over the remaining 30 months of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized. Deferred Revenue Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. The Company has deferred revenue of $783,522 and $1,125,000 as of September 30, 2016 and 2015, respectively. Research and Development and Software Development Costs Capitalization of certain software development costs are recorded after the determination of technological feasibility. Based on our product development process, technological feasibility is determined upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release do not have technological feasibility. Accordingly, we have charged all such costs to research and development expense in the period incurred. Our research and development costs incurred in our continuing operations for the years ended September 30, 2016 and 2015 were $755,159 and $227,650, respectively. Share-Based Compensation The Company measures the cost of services provided by employees in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized over the vesting or requisite service period. The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted. Performance-based grants should be recognized prior to completion if the assessment is that it is probable that the performance condition will be met. There were no options or warrants issued by the Company during the years ended September 30, 2016 and 2015. For non-employees, the Company uses the fair value at each reporting date over the service period, which is usually the vesting period. Income Taxes The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized. The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. The Company did not record any liabilities for uncertain tax positions for the years ended September 30, 2016 or 2015. Basic and Diluted Net Loss per Common Share Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of September 30, 2016 and 2015, the Company had 10,000,000 shares of preferred stock outstanding which are convertible into 15,000,000 shares of common stock. Diluted loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive as a result of the net loss. Discontinued Operations Cloud MD Sale The Company’s 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 segment was approved. The Cloud MD sale occurred in October 2015 as a $250,000 note payable from the buyer. Accordingly, the assets, which had a net book value of zero as of September 30, 2015, qualified as held for sale and the Company has presented Cloud MD as discontinued operations. As of September 30, 2016, the Company has not received any payments towards the note payable from the buyer, and a full allowance has been recorded. Details of the classifications for revenues, operating expenses and discontinued operations are shown below. Year ended September 30, 2016 2015 Revenues $ - $ - Operating expenses - (641,526 ) Loss from discontinued operations $ - $ (641,526 ) There were no significant assets of discontinued operations during the periods presented. Recent Accounting Announcements The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the Accounting Standards Codification (“ASC”). There have been a number of ASUs to date that amend the original text of ASC. The Company believes those updates issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” (Topic 606). Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for the Company beginning January 1, 2018. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. In August 2014, the FASB issued ASU No. 2014-15 "Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern"” (Subtopic 205-40), which requires management to evaluate, 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 No. 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17 “Income Taxes: Balance Sheet Classification of Deferred Taxes” (Topic 740), which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. ASU No. 2015-17 will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual years, and early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. |
Software Licenses
Software Licenses | 12 Months Ended |
Sep. 30, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Software Licenses | NOTE 4 – SOFTWARE LICENSES Gawk On June 14, 2014, the Company entered into a license agreement with Gawk to use the CipherLoc engine for $1,125,000 for a period of four (4) years. This customer licensed the CipherShop-CipherLoc encryption software technology and support services. The Company was not required to make significant modifications at the time the contract was executed. The Company has never sold or licensed the CipherShop-CipherLoc encryption software, nor any support services for such. Under the license agreement, the Company is to provide access to its software on an operational basis and provide training. The Company will also provide unspecified upgrades, if and when available, and 24/7 support over the license term. No Vendor-Specific Objective Evidence was known for any of the elements. After the agreement was executed, the licensee requested modifications to the software because they could not use the software with the requested modifications. The Company made the newly requested modifications to the software. Management delivered the finished product in late December 2015, thus delivery had not deemed to have occurred until such date. The contract termination date was not extended beyond the initial date of June 2018. Revenues are being recorded from the date of delivery over the remaining term of the agreement or 30 months. For these reasons, revenue is recognized proratably from December 2015 until June 2018. During the year ended September 30, 2016, the Company recognized revenues of $341,478 and had a deferred revenue balance of $783,522. GoSecured The Company signed a license agreement with GoSecured on September 15, 2016 to provide GoSecured with a non-exclusive, non-transferable license to use multiple versions of CipherLoc encryption software. GoSecured is to pay a $10,000 license and maintenance fee, as well a royalty (three to ten percent of gross sales) for each end user agreement, dependent upon the origination of the end user agreement. To date, no amounts have been received or recorded as revenues under this contract. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Sep. 30, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 5 – RELATED PARTY TRANSACTIONS Employment Contracts The Company entered into an employment agreement with its Chief Executive Officer on January 1, 2013. The employment agreement will expire on January 1, 2018 and shall automatically renew for another five years unless terminated in accordance with the provisions of the employment agreement. The employment agreement provides for: i. A monthly salary of $20,833 per month subject to an annual increase of 10% per year and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors. During the year ended September 30, 2016, the base salary was $360,000. ii. A cash bonus of 25% of his annual base salary each year if the Company reaches the following milestones: a. The Company posts annual gross revenues on a consolidated basis of at least $5,000,000; b. The Company’s earnings before the deduction of income taxes and amortization expenses (“EBITA”), including cash extraordinary items but before officer’s bonuses, on a consolidated basis for any year is at least $1,000,000; iii. An automobile allowance of $1,500 per month. iv. A medical insurance allowance of $1,500 per month. v. In the event the executive’s employment is terminated without cause he will receive the entire contract remaining on the agreement. The Company has removed other provisions from the original employment agreement. During the years ended September 30, 2016 and 2015, cash compensation amounted to $397,854 and $684,098, including benefits, respectively. During the years ended September 30, 2016 and 2015, stock-based compensation amounted to zero and $10,738,600, respectively. As of September 30, 2015, the Chief Executive Officer was due $778,087, which is included within accrued compensation on the accompanying balance sheet. The Chief Executive Officer was prepaid $44,788 to be offset against 2017 payments. In addition, as of September 30, 2016, payroll taxes of $34,557 were included within accrued liabilities on the accompanying balance sheet. Payments made to the Chief Executive Officer were made on a gross basis with the Chief Executive Officer assuming responsibility for the remittance of the tax to the appropriate tax authorities. Other than the employment contract with our CEO, we have employment agreements with Michael Salas and Michael Hufnagel (the “Agreements”). The Agreements are for a term of one year, with Mr. Salas’s Agreement commencing on April 25, 2016 and expiring on April 24, 2017, and Mr. Hufnagel’s commencing on June 27, 2016 and expiring on June 26, 2017. Both Agreements have three successive one year extensions. Mr. Salas has an annual salary of $175,000 and quarterly stock issuances equal to $125,000 per year. Mr. Hufnagel has an annual salary of $145,000, an initial sign-on bonus of $10,000 and quarterly stock issuances equal to $60,000 per year. As of September 30, 2016, these individuals were owed $13,333 which is included within accrued compensation on the accompanying balance sheet. As of September 30, 2016, these individuals were owed common shares for services, but for which shares have not yet been issued. An accrual has been recorded to equity totaling $41,456 to accrue the common shares earned. The Agreement provides that, in addition to receiving paid vacation in accordance with the Company’s policies as well as other customary benefits and provisions, Mr. Salas and Mr. Hufnagel shall receive an annual base salary, a signing bonus and a stock grant. If, at any time during the term of the Agreement, Mr. Salas or Mr. Hufnagel is terminated “without cause,” they will be entitled to receive a cash payment equal to the aggregate compensation payable to them during the remaining term of the Agreement. Terminated Employment Agreement We previously had an employment agreement with our Chief Financial Officer which terminated in 2015. There were amounts that were accrued and unpaid as of September 30, 2016 and 2015, totaling $291,715 and $253,665, respectively, According to the original agreement, the unpaid salaries were to accrue interest at 15%, which has been accrued at each reporting date. Interest expense was $38,050 and $23,915 during the years ended September 30, 2016 and 2015, respectively. Management believes that such amounts were previously satisfied though the issuance of common stock, and does not intend to pay such amounts. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 6 – COMMITMENTS AND CONTINGENCIES Litigation As of September 30, 2016, the Company is not involved in any material litigation. The Company has settled all litigation in which it was involved. The matter that was pending in the United States Federal District Court for the Southern District of Mississippi was settled and dismissed on July 12, 2016 and the matter pending in Chancery Court of Rankin County Mississippi was settled and dismissed on July 18, 2016. The Company repurchased its stock with the $45,580 it held in escrow as the Company’s contribution to the settlements and all other expenses and costs were covered by the Company’s insurance carrier. The repurchased stock had a fair market value of $61,281 resulting in a gain on settlement. Commission Agreement The Company entered into an agreement with BrokerBank Securities, Inc. to raise up to $40 million from the issuance of common stock. In connection therewith, the Company agreed to pay a commission of 9%, payable 5% in cash and 4% in common stock. During the year ended September 30, 2016, the Company paid cash commissions of $20,680 and 28,000 shares of common stock. These amounts were netted against the proceeds received as described in Note 7 below. After September 30, 2016, the Company revised the commission to be paid to 8% in cash. Leases The Company leased 3,906 square feet of office space Buda, Texas. The lease for the Buda facility began on April 1, 2016 and continues until March 31, 2019. The current rental rate of $7,216 continues until March 31, 2017, and then increases to $7,379 from April 1, 2017 until March 31, 2018. On April 1, 2018, the rent goes to $7,542 and ends on March 31, 2019. The lease shall be automatically renewed for two one-year periods, $7,705 per month through March 31, 2020 and $7,867 per month until March 31, 2021 ) unless either Landlord or Customer (the Company) notifies the other in writing at least 180 days prior to the expiration of the current term. Future annual minimum lease obligations at September 30, 2016 are as follows: Year Ending September 30, Amount 2017 $ 87,570 2018 $ 89,520 2019 $ 45,252 TOTAL: $ 222,342 Line of Credit The Company does not have any lines of credit. Prior to September 30, 2015, the Company had a line of credit that was unsecured and was paid in full in the amount of $53,612. |
Stockholders' Deficit
Stockholders' Deficit | 12 Months Ended |
Sep. 30, 2016 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Deficit | NOTE 7 - STOCKHOLDERS’ DEFICIT Common Stock As of September 30, 2016 and 2015, the Company had 5,268,859 and 4,356,741 outstanding, respectively, and was authorized to issue 650,000,000 common shares at a par value of $0.01. The Company issued 25,000 shares of stock for a subscription receivable for $50,000 during the year ended September 30, 2015. The subscription receivable was removed during the year ended September 30, 2016 due to non-payment. Preferred Stock As of September 30, 2016 and 2015, the Series A Preferred Stock is convertible into the Company’s common stock at a rate of 1 to 1.5 common shares. As of November 11, 2016, 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% vote of all preferred shareholders. 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. Fiscal Year Ended September 30, 2016 Stock Issued for Cash During the year ended September 30, 2016, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company issued 513,500 shares of common stock for $946,320, net of offering costs of $80,680. Stock Issued for Services During the year ended September 30, 2016, the Company issued 10,677 shares of common stock valued at $32,138 and accrued earned shares of common stock amounting to $41,456 as compensation to certain officers pursuant to their employment agreements. In addition, the Company issued 800 shares for marketing services valued at $1,600, and 5,000 shares issued for software development valued at $27,500. The Company also issued 75,000 shares for legal services valued at $210,000. The shares for these issuances were valued using the closing market price of the Company's common stock on the commitment date. Stock Issued for Settlements The Company issued stock to terminate software licenses. The Company incurred settlement expenses of $763,469 for the termination of software licenses related to seven separate licenses in that the software usage would possibly interfere with the Company’s future software development. The settlements were satisfied through the issuance of 307,141 shares of common stock at fair value on date of grant. Stock Issued for Subscription Receivable The Company issued stock for an interested Private Placement Memorandum party. The individual’s payment did not clear the bank account, and, the stock was never received by the individual. The Company has not received the money and is in the process of cancelling the issued stock. Fiscal Year Ended September 30, 2015 Stock Issued for Cash During the year ended September 30, 2015, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company issued 1,147,500 shares of common stock for $2,283,000 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended (the “Act”), afforded by Rule 506 of Regulation D. Stock Issued in Connection with acquisition of Software Licensing During the year ended September 30, 2015, the Company issued 50,000 shares of common stock valued at $194,500 based on the market price on the date of grant in regards to the purchase of a software license known as XPSS in accordance with the Software Licensing Agreement. Each of the two owners received 25,000 shares. Stock Issued for Services During the year ended September 30, 2015, the Company issued 161,654 shares of common stock as compensation, which includes 2,084 shares issued for performance to Dr. Carlson. The fair value of the shares was $994,665 including stock that vested immediately and a performance base grant valued at $10,733, and was recorded at the market price on the date of grant. Stock Issued for Performance Dr. Carlson shall be entitled to a performance bonus of 50,000 shares of Cipherloc stock to be paid at such time as the CipherLoc Polymorphic Hardware Engine can be demonstrated to function as a working, complete, product capable of being manufactured in facilities that would normally produce standard Field Programmable Gate Array chips. Management has determined that it is probable that the award will vest. Accordingly, the Company recognized 2,084 shares during 2015 and compensation expense of $10,733 during the year ended September 30, 2015. The unvested portion of the award will be recognized over the implied service period of 24 months. During the year ended September 20, 2016, it was determined that technological feasibility had not yet been reached and no additional expense was recognized during the year. Stock Issued for Services Related Party On September 18, 2015, the Company granted 140,000 common shares to its President/CEO, Michael De La Garza. The fair value of the shares was $838,600 and was recorded at the market price on the date of grant. In addition, on February 5, 2015, the Company issued 6,000,000 shares of its Series A Preferred Stock to its CEO, valued at $9.9 million. The Company recorded $10.7 million as stock compensation for the combined value of all preferred and common stock, based upon the market value of the Company’s common stock on the date of grant. |
Income Taxes
Income Taxes | 12 Months Ended |
Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 8 - INCOME TAXES The provision (benefit) for income taxes from continued operations for the years ended September 30, 2016 and 2015 consist of the following: September 30, 2016 2015 Current: Federal $ - $ - State - - $ - $ - Deferred: Federal $ (603,753) $ (435,391) State - - (603,753) (435,391) Valuation allowance 603,753 435,391 Provision (benefit) for income taxes, net $ - $ - The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows: September 30, 2016 2015 Statutory federal income tax rate 34.0 % 34.0 % State income taxes and other 0.0 0.0 Valuation allowance (34.0 ) (34.0 ) Effective tax rate 0.0 % 0.0 % Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following: September 30, 2016 2015 Net operating loss carry forward $ 11,597,828 $ 9,822,083 Valuation allowance (11,597,828) (9,822,083) Deferred income tax asset $ - $ - The Company has a net operating loss carry forward of approximately $11.6 million available to offset future taxable income. For income tax reporting purposes, the Company’s aggregate unused net operating losses were subject to the limitations of Section 382 of the Internal Revenue Code, as amended. Under the Tax Reform Act of 1986, the benefits from net operating losses carried forward may be impaired or limited on certain circumstances. Management has determined that there is a cumulative ownership change of more than 50% over a three-year period. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, because in the opinion of management based upon the earning history of the Company; it is more likely than not that the benefits will not be realized. For income tax reporting purposes, Management has determined that net operating losses prior to February 5, 2015 are subject to an annual limitation of approximately $600,000. For the years ended September 30, 2016 and 2015, the difference between the amounts of income tax expense or benefit that would result from applying the statutory rates to pretax income to the reported income tax expense of $0 is the result of the net operating loss carry forward and the related valuation allowance. The Company anticipates it will continue to record a valuation allowance against the losses of certain jurisdictions, primarily federal and state, until such time as it is able to determine it is “more-likely-than-not” the deferred tax asset will be realized. Such position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets. The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction. The Company has not filed its federal income tax filings since 2012, which is through the fiscal year ending September 30, 2013. The Company is preparing the 2013 and 2014 filings, which report activity through the fiscal years ending September 30, 2014 and 2015. The September 30, 2016 tax return is not due at this time. The Company intends to remediate the lack of filing timely tax returns immediately. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 9 - SUBSEQUENT EVENTS The following individuals were awarded common stock bearing a restrictive legend pursuant to Rule 144: Michael Hufnagel was issued 10,000 shares of common stock as a quarterly employee bonus. Robert LeBlanc was issued 25,000 shares of common for patent work. Gino Mauriello was issued 20,000 shares of common stock for his tenure as a Board Director. Albert Carlson was issued 50,000 shares of common stock as an annual bonus. Eric Marquez was issued 70,000 shares of common stock for his tenure as a Board Director and as a CFO stock award. Michael De La Garza was issued 300,000 shares of common stock for his tenure as Chairman of the Board and as a CEO stock award. The fair value of all 475,000 shares is $2,579,250 and will be recorded in fiscal 2017. The Company has continued to raise equity financing through a Private Placement Memorandum. After September 30, 2016, the Company has sold 406,500 shares of common shares at $2.00 per share and received $786,520, net of offering costs. The Company issued 25,000 shares for software termination settlement. The fair value of the shares on December 6, 2016 was $106,250. On November 28, 2016, the Company entered into an independent sales contract for a period of six months commencing December 1, 2016. In connection therewith, the Company will pay $5,000 draw per month to be offset against future commissions from the licensing of its technology. The Company will pay a commission on licenses as follows: Sales Amount Commission to be Paid $ 50,000 20 % $ 100,000 18 % $ 500,000 16 % $ 1,000,000 14 % $ 2,000,000 12 % $ 3,000,000 10 % $ 4,000,000 8 % $ 5,000,000 6 % $ 10,000,000 4 % $ 15,000,000+ TBD |
Significant Accounting Polici17
Significant Accounting Policies (Policies) | 12 Months Ended |
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Use of Estimates and Assumptions | Use of Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates. The Company’s most significant estimates relate to the valuation of its proprietary technology and the valuation of its common stock. |
Legal | Legal The Company is subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. The Company accrues for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred. |
Consolidation of Financial Statements | Consolidation of Financial Statements The Company is presenting the years ended September 30, 2016 and 2015 without consolidation of financial activity, as there has been no activity in any subsidiaries. |
Reclassifications | Reclassifications Certain reclassifications have been made to conform the 2015 amounts to the 2016 classifications for comparative purposes. |
Cash and Cash Equivalents and Concentration of Credit Risk | Cash and Cash Equivalents and Concentration of Credit Risk The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2016 and 2015, 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 September 30, 2016, approximately $94,138 of the Company’s cash balance was uninsured. The Company has not experienced any losses in such accounts. |
Website and Software Costs | Website and Software Costs The Company’s accounting for software development costs complies with ASC 985-20, Costs of Software to be Sold, Leased or Marketed, whereby capitalization begins when the Company has a working prototype and has been tested, thereby achieving technological feasibility. This occurs very late in the development stage of the software product. The Company has determined the software costs do not fall under ASC 350-40, Internal-Use Software, based on the guidance in ASC 985-605-55-119 through 125 which covers guidance for hosting agreements. The Company’s product will generally not be hosted and will reside on the technology platform available to the user. |
Fixed Assets | Fixed Assets Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated life of equipment is three (3) years. The estimated life of our leasehold improvements is the lesser of the term of the related lease and useful life. |
Long-Lived Assets | 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 software in the amount of $347,477 associated with discontinued operations during the year ended September 30, 2015. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company's financial instruments consisted 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. |
Customer Concentration | Customer Concentration During the year ended September 30, 2016, one customer accounted for 100% of revenues. |
Revenue Recognition | 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 collection of the resulting receivable 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. When the fair value of VSOE of post contract customer support cannot be determined, the revenue is recognized ratably over the contract period. In June 2014, the Company entered into an agreement to provide software and support to a third party for which no VSOE for any elements is known. Delivery of the use of the license was not achieved until December 2015; the only remaining undelivered element was post contract support services, and accordingly, the revenues will be recognized on a pro rata basis prospectively over the remaining 30 months of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized. |
Deferred Revenue | Deferred Revenue Deferred revenue result from fees billed to customers for which revenue has not yet been recognized. The Company has deferred revenue of $783,522 and $1,125,000 as of September 30, 2016 and 2015, respectively. |
Research and Development and Software Development Costs | Research and Development and Software Development Costs Capitalization of certain software development costs are recorded after the determination of technological feasibility. Based on our product development process, technological feasibility is determined upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release do not have technological feasibility. Accordingly, we have charged all such costs to research and development expense in the period incurred. Our research and development costs incurred in our continuing operations for the years ended September 30, 2016 and 2015 were $755,159 and $227,650, respectively. |
Share-Based Compensation | Share-Based Compensation The Company measures the cost of services provided by employees in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized over the vesting or requisite service period. The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted. Performance-based grants should be recognized prior to completion if the assessment is that it is probable that the performance condition will be met. There were no options or warrants issued by the Company during the years ended September 30, 2016 and 2015. For non-employees, the Company uses the fair value at each reporting date over the service period, which is usually the vesting period. |
Income Taxes | Income Taxes The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized. The Company uses the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. The Company did not record any liabilities for uncertain tax positions for the years ended September 30, 2016 or 2015. |
Basic and Diluted Net Loss per Common Share | Basic and Diluted Net Loss per Common Share Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of September 30, 2016 and 2015, the Company had 10,000,000 shares of preferred stock outstanding which are convertible into 15,000,000 shares of common stock. Diluted loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive as a result of the net loss. |
Discontinued Operations | Discontinued Operations Cloud MD Sale The Company’s 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 segment was approved. The Cloud MD sale occurred in October 2015 as a $250,000 note payable from the buyer. Accordingly, the assets, which had a net book value of zero as of September 30, 2015, qualified as held for sale and the Company has presented Cloud MD as discontinued operations. As of September 30, 2016, the Company has not received any payments towards the note payable from the buyer, and a full allowance has been recorded. Details of the classifications for revenues, operating expenses and discontinued operations are shown below. Year ended September 30, 2016 2015 Revenues $ - $ - Operating expenses - (641,526 ) Loss from discontinued operations $ - $ (641,526 ) There were no significant assets of discontinued operations during the periods presented. |
Recent Accounting Announcements | Recent Accounting Announcements The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the Accounting Standards Codification (“ASC”). There have been a number of ASUs to date that amend the original text of ASC. The Company believes those updates issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” (Topic 606). Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for the Company beginning January 1, 2018. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. In August 2014, the FASB issued ASU No. 2014-15 "Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern"” (Subtopic 205-40), which requires management to evaluate, 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 No. 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17 “Income Taxes: Balance Sheet Classification of Deferred Taxes” (Topic 740), which requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. ASU No. 2015-17 will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual years, and early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures. |
Significant Accounting Polici18
Significant Accounting Policies (Tables) | 12 Months Ended |
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Schedule of Discontinued Operations | Details of the classifications for revenues, operating expenses and discontinued operations are shown below. Year ended September 30, 2016 2015 Revenues $ - $ - Operating expenses - (641,526 ) Loss from discontinued operations $ - $ (641,526 ) |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Annual Minimum Operating Lease Obligations | Future annual minimum lease obligations at September 30, 2016 are as follows: Year Ending September 30, Amount 2017 $ 87,570 2018 $ 89,520 2019 $ 45,252 TOTAL: $ 222,342 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Schedule of Provision (Benefit) for Income Taxes from Continued Operations | The provision (benefit) for income taxes from continued operations for the years ended September 30, 2016 and 2015 consist of the following: September 30, 2016 2015 Current: Federal $ - $ - State - - $ - $ - Deferred: Federal $ (603,753) $ (435,391) State - - (603,753) (435,391) Valuation allowance 603,753 435,391 Provision (benefit) for income taxes, net $ - $ - |
Schedule of Federal Statutory Corporate Tax Rate and Actual Income Tax Expense | The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows: September 30, 2016 2015 Statutory federal income tax rate 34.0 % 34.0 % State income taxes and other 0.0 0.0 Valuation allowance (34.0 ) (34.0 ) Effective tax rate 0.0 % 0.0 % |
Schedule of Deferred Tax Assets and Liabilities | The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following: September 30, 2016 2015 Net operating loss carry forward $ 11,597,828 $ 9,822,083 Valuation allowance (11,597,828) (9,822,083) Deferred income tax asset $ - $ - |
Subsequent Events (Tables)
Subsequent Events (Tables) | 12 Months Ended |
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Schedule of Accured Commission on Licenses | The Company will pay a commission on licenses as follows: Sales Amount Commission to be Paid $ 50,000 20 % $ 100,000 18 % $ 500,000 16 % $ 1,000,000 14 % $ 2,000,000 12 % $ 3,000,000 10 % $ 4,000,000 8 % $ 5,000,000 6 % $ 10,000,000 4 % $ 15,000,000+ TBD |
Going Concern (Details Narrativ
Going Concern (Details Narrative) - USD ($) | Sep. 30, 2016 | Sep. 30, 2015 |
Accounting Policies [Abstract] | ||
Accumulated deficit | $ (45,780,569) | $ (43,138,826) |
Significant Accounting Polici23
Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Nov. 11, 2016 | Oct. 31, 2015 | |
FDIC insured cash | $ 250,000 | |||
Cash balance uninsured | 94,138 | |||
Software, impairment | $ 347,477 | |||
Deferred revenue | 783,522 | 1,125,000 | ||
Research and development costs | $ 755,159 | $ 227,650 | ||
Series A Preferred Stock, Shares Outstanding | 10,000,000 | 10,000,000 | 10,000,000 | |
Number of shares converted | 15,000,000 | |||
Cloud MD [Member] | ||||
Notes payable | $ 0 | $ 250,000 | ||
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | ||||
Customer concentration percentage | 100.00% | |||
Equipment [Member] | ||||
Assets estimated useful life | 3 years |
Significant Accounting Polici24
Significant Accounting Policies - Schedule of Discontinued Operations (Details) - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Accounting Policies [Abstract] | ||
Revenues | ||
Operating expenses | (641,526) | |
Loss from discontinued operations | $ (641,526) |
Software Licenses (Details Narr
Software Licenses (Details Narrative) - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Revenue recognized | $ 341,478 | |
Deferred revenue | 341,522 | $ 784,000 |
Gawk [Member] | ||
Payment to software license | $ 1,125,000 | |
License expiration period | 4 years | |
Revenue recognized | $ 341,478 | |
Deferred revenue | 783,522 | |
GoSecured [Member] | ||
Revenue recognized | 0 | |
License and maintenance fee | $ 10,000 | |
GoSecured [Member] | Minimum [Member] | ||
Percentage of gross sales | 3.00% | |
GoSecured [Member] | Maximum [Member] | ||
Percentage of gross sales | 10.00% |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | Jan. 01, 2013 | Sep. 30, 2016 | Sep. 30, 2015 |
Posts annual gross revenues | $ 5,000,000 | ||
Earnings before the deduction of income taxes and amortization expenses | 1,000,000 | ||
Automobile allowance per month | 1,500 | ||
Medical insurance allowance per month | $ 1,500 | ||
Cash compensation | $ 397,854 | $ 684,098 | |
Stock-based compensation | 0 | 10,738,600 | |
Accrued compensation | 41,456 | ||
Interest expense | 47,117 | 2,722 | |
Terminated Employment Agreement [Member] | |||
Accrued and unpaid | $ 291,715 | 253,665 | |
Accrued interest percentage | 15.00% | ||
Interest expense | $ 38,050 | 23,915 | |
Chief Executive Officer [Member] | |||
Employee agreement expiration date | Jan. 1, 2018 | ||
Employee agreement automatically renew term | 5 years | ||
Accrued compensation | $ 778,087 | ||
Prepaid offset amount | 44,788 | ||
Payroll taxes | 34,557 | ||
Other Senior Executives And Officers [Member] | |||
Related parties salary | $ 20,833 | 360,000 | |
Percentage of annual increase in salary | 10.00% | ||
Percentage of cash bonus in annual base salary | 25.00% | ||
Mr. Salas [Member] | |||
Related parties salary | 175,000 | ||
Cash compensation | 13,333 | ||
Stock-based compensation | 125,000 | ||
Mr. Hufnagel [Member] | |||
Related parties salary | 145,000 | ||
Cash compensation | 13,333 | ||
Stock-based compensation | 60,000 | ||
Initial sign-on bonus | $ 10,000 |
Commitments and Contingencies27
Commitments and Contingencies (Details Narrative) | 12 Months Ended | |
Sep. 30, 2016USD ($)ft² | Sep. 30, 2015USD ($) | |
Repurchased of stock with escrow | $ 45,580 | |
Repurchased stock fair market value | $ 59,612 | |
Area of lease | ft² | 3,906 | |
Lease rent renewed period | 2 years | |
Line of credit unsecured amount | $ 53,612 | |
Broker Bank Securities, Inc [Member] | ||
Proceeds from issuance shares | $ 40,000,000 | |
Percentage of commission to be paid | 9.00% | |
Broker Bank Securities, Inc [Member] | Cash [Member] | ||
Percentage of commission to be paid | 5.00% | |
Commission paid | $ 20,680 | |
Broker Bank Securities, Inc [Member] | Common Stock [Member] | ||
Percentage of commission to be paid | 4.00% | |
Commission paid | $ 28,000 | |
Percentage of revised commission to be paid | 8.00% | |
Until March 31, 2017 [Member] | ||
Current rental rate | $ 7,216 | |
April 1, 2017 to March 31, 2018 [Member] | ||
Current rental rate | 7,379 | |
April 1, 2018 to March 31, 2019 [Member] | ||
Current rental rate | 7,542 | |
March 31, 2020 [Member] | ||
Current rental rate | 7,705 | |
March 31, 2021 [Member] | ||
Current rental rate | 7,867 | |
Settled Litigation [Member] | ||
Repurchased stock fair market value | $ 61,281 |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Future Annual Minimum Operating Lease Obligations (Details) | Sep. 30, 2016USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,017 | $ 87,570 |
2,018 | 89,520 |
2,019 | 45,252 |
TOTAL | $ 222,342 |
Stockholders' Deficit (Details
Stockholders' Deficit (Details Narrative) - USD ($) | Nov. 11, 2016 | Sep. 18, 2015 | Feb. 05, 2015 | Sep. 30, 2016 | Sep. 30, 2015 |
Common Stock, Shares Outstanding | 5,268,859 | 4,356,741 | |||
Common stock, shares authorized | 650,000,000 | 650,000,000 | |||
Common stock, par value | $ 0.01 | $ 0.01 | |||
Number of stock issued for subscription | 25,000 | ||||
Number of stock issued for subscription, value | $ 50,000 | ||||
Common stock rate description | 1 to 1.5 common shares | ||||
Series A preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 | ||
Series A preferred stock, shares outstanding | 10,000,000 | 10,000,000 | 10,000,000 | ||
Coversion of stock into other securities | 15,000,000 | ||||
Percentage of vote for preferred shareholders | 50.10% | ||||
Number of shares issued for cash | 513,500 | ||||
Number of shares issued for cash, value | $ 946,320 | $ 2,283,000 | |||
Offering costs | $ 80,680 | ||||
Number of shares issued during period | 10,677 | ||||
Number of shares issued during period, value | $ 32,138 | ||||
Share based compensation compensation | 41,456 | $ 994,665 | |||
Stock issued for services | 161,654 | ||||
Stock issued for services, value | 210,000 | $ 994,665 | |||
Settlement expenses for termination of software licenses | $ 763,469 | ||||
Conversion of debt into shares | 307,141 | ||||
Fair value of vested performance base grant value | 10,733 | ||||
Compensation expense | $ 0 | $ 10,738,600 | |||
Service period | 24 months | ||||
Dr. Carlson [Member] | |||||
Shares issued for performance bonus | 50,000 | ||||
Compensation expense recognized as shares | 2,084 | ||||
Compensation expense | $ 10,733 | ||||
Michael De La Garza [Member] | |||||
Stock issued for services | 140,000 | ||||
Stock issued for services, value | $ 838,600 | ||||
Michael De La Garza [Member] | Series A Preferred Stock[Member] | |||||
Common stock rate description | 1 to 1.5 common shares | ||||
Share based compensation compensation | $ 10,700,000 | ||||
Stock issued for services | 6,000,000 | ||||
Stock issued for services, value | $ 9,900,000 | ||||
Subscription Arrangement [Member] | |||||
Number of shares issued for cash | 1,147,500 | ||||
Number of shares issued for cash, value | $ 2,283,000 | ||||
Software Licensing Agreement [Member] | |||||
Number of stock issued for subscription | 25,000 | ||||
Number of shares issued during period | 50,000 | ||||
Number of shares issued during period, value | $ 194,500 | ||||
Marketing Services [Member] | |||||
Stock issued for services | 800 | ||||
Stock issued for services, value | $ 1,600 | ||||
Software Development [Member] | |||||
Stock issued for services | 5,000 | ||||
Stock issued for services, value | $ 27,500 | ||||
Legal Services [Member] | |||||
Stock issued for services | 75,000 | ||||
Stock issued for services, value | $ 210,000 | ||||
Dr. Carlson [Member] | |||||
Stock issued for services | 2,084 |
Income Taxes (Details Narraive)
Income Taxes (Details Narraive) - USD ($) | Feb. 05, 2015 | Sep. 30, 2016 | Sep. 30, 2015 |
Income Tax Disclosure [Abstract] | |||
Net operating loss carry forward | $ 11,600,000 | ||
Net operating loss | $ 600,000 | (2,654,238) | $ (13,113,852) |
Income tax expense | $ 0 | $ 0 |
Income Taxes - Schedule of Prov
Income Taxes - Schedule of Provision (Benefit) for Income Taxes from Continued Operations (Details) - USD ($) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Income Tax Disclosure [Abstract] | ||
Current Federal | ||
Current State | ||
Current Federal and State Income Tax Expense (Benefit) | ||
Deferred Federal | (603,753) | (435,391) |
Deferred State | ||
Deferred Federal and State Income Tax Expense (Benefit) | (603,753) | (435,391) |
Valuation allowance | 603,753 | 435,391 |
Provision (benefit) for income taxes, net |
Income Taxes - Schedule of Fede
Income Taxes - Schedule of Federal Statutory Corporate Tax Rate and Actual Income Tax Expense (Details) | 12 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Income Tax Disclosure [Abstract] | ||
Statutory federal income tax rate | 34.00% | 34.00% |
State income taxes and other | 0.00% | 0.00% |
Valuation allowance | (34.00%) | (34.00%) |
Effective tax rate | 0.00% | 0.00% |
Income Taxes - Schedule of Defe
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Sep. 30, 2016 | Sep. 30, 2015 |
Income Tax Disclosure [Abstract] | ||
Net operating loss carryforward | $ 11,597,828 | $ 9,822,083 |
Valuation Allowance | (11,597,828) | (9,822,083) |
Deferred income tax asset | $ 0 | $ 0 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Dec. 06, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Nov. 28, 2016 |
Number of shares issued for patent work service | 161,654 | |||
Fair value of stock during perid | 10,677 | |||
Fair value of stock during perid, value | $ 210,000 | $ 994,665 | ||
Subsequent Event [Member] | ||||
Sale of stock transaction during period | $ 784,520 | |||
Sale of stock transaction during period, value | 406,500 | |||
Common stock price per share | $ 2 | |||
Number of shares issued for software termination settlement | 25,000 | |||
Fair value of shares | $ 106,250 | |||
Accrued offset amount against future commission | $ 5,000 | |||
Subsequent Event [Member] | Fiscal 2017 [Member] | ||||
Fair value of stock during perid | 475,000 | |||
Fair value of stock during perid, value | $ 2,579,250 | |||
Michael Hufnagel [Member] | Subsequent Event [Member] | ||||
Number of shares issued for employee bonus | 10,000 | |||
Robert LeBlanc [Member] | Subsequent Event [Member] | ||||
Number of shares issued for patent work service | 25,000 | |||
Gino Mauriello [Member] | Subsequent Event [Member] | ||||
Number of shares issued for employee bonus | 20,000 | |||
Albert Carlson [Member] | Subsequent Event [Member] | ||||
Number of shares issued for employee bonus | 50,000 | |||
Eric Marquez [Member] | Subsequent Event [Member] | ||||
Number of shares issued for employee bonus | 70,000 | |||
Michael De La Garza [Member] | Subsequent Event [Member] | ||||
Number of shares issued for employee bonus | 300,000 |
Subsequent Events - Schedule o
Subsequent Events - Schedule of Accured Commission on Licenses (Details) - Subsequent Event [Member] | Nov. 28, 2016USD ($) |
Sales One [Member] | |
Sales amount | $ 50,000 |
Commission to be paid | 20.00% |
Sales Two [Member] | |
Sales amount | $ 100,000 |
Commission to be paid | 18.00% |
Sales Three [Member] | |
Sales amount | $ 500,000 |
Commission to be paid | 16.00% |
Sales Four [Member] | |
Sales amount | $ 1,000,000 |
Commission to be paid | 14.00% |
Sales Five [Member] | |
Sales amount | $ 2,000,000 |
Commission to be paid | 12.00% |
Sales Six [Member] | |
Sales amount | $ 3,000,000 |
Commission to be paid | 10.00% |
Sales Seven [Member] | |
Sales amount | $ 4,000,000 |
Commission to be paid | 8.00% |
Sales Eight [Member] | |
Sales amount | $ 5,000,000 |
Commission to be paid | 6.00% |
Sales Nine [Member] | |
Sales amount | $ 10,000,000 |
Commission to be paid | 4.00% |
Sales Ten [Member] | |
Sales amount | $ 15,000,000 |
Commission to be paid | 0.00% |