Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Dec. 27, 2018 | |
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, 2018 | |
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 | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Public Float | $ 31,058,087 | |
Entity Common Stock, Shares Outstanding | 40,783,164 | |
Trading Symbol | CLOK | |
Document Fiscal Period Focus | FY | |
Document Fiscal Year Focus | 2,018 |
Balance Sheets
Balance Sheets - USD ($) | Sep. 30, 2018 | Sep. 30, 2017 |
Current assets: | ||
Cash | $ 14,056,346 | $ 227,396 |
Total current assets | 14,056,346 | 227,396 |
Other assets | 12,218 | 12,218 |
Fixed assets, net | 20,050 | 11,170 |
Total assets | 14,088,614 | 250,784 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 52,043 | 59,763 |
Accrued compensation | 72,489 | 505,027 |
Convertible note payable | 26,678 | |
Deferred revenue-current | 308,412 | |
Total current liabilities | 124,532 | 899,880 |
Long term liabilities: | ||
Deferred revenue, net of current portion | 7,836 | |
Total long term liabilities | 7,836 | |
Total liabilities | 124,532 | 907,716 |
COMMITMENTS AND CONTINGENCIES (NOTE 7) | ||
STOCKHOLDERS' EQUITY (DEFICIT) | ||
Series A convertible preferred stock, $0.01 par value, 10,000,000 shares authorized; 1,000,000 and 10,000,000 issued and outstanding as of September 30, 2018 and 2017, respectively | 10,000 | 100,000 |
Common stock, $0.01 par value, 650,000,000 shares authorized; 40,743,917 and 6,635,127 issued and outstanding as of September 30, 2018 and 2017, respectively | 407,438 | 66,351 |
Additional paid-in capital | 68,169,157 | 49,378,447 |
Accumulated deficit | (54,622,513) | (50,201,730) |
Total stockholders' equity (deficit) | 13,964,082 | (656,932) |
Total liabilities and stockholders' equity (deficit) | $ 14,088,614 | $ 250,784 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - $ / shares | Sep. 30, 2018 | Sep. 30, 2017 |
Statement of Financial Position [Abstract] | ||
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 | 1,000,000 | 10,000,000 |
Series A convertible preferred stock, shares outstanding | 1,000,000 | 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 | 40,743,917 | 6,635,127 |
Common stock, shares outstanding | 40,743,917 | 6,635,127 |
Statements of Operations
Statements of Operations - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Income Statement [Abstract] | ||
Revenues | $ 316,248 | $ 467,274 |
Cost of revenues | 89,230 | 121,200 |
Gross profit | 227,018 | 346,074 |
Operating expenses: | ||
General and administrative | 1,844,903 | 3,166,471 |
Sales and marketing | 545,250 | 354,005 |
Research and development | 873,107 | 1,087,372 |
Settlement expenses | 81,000 | 106,250 |
Total operating expenses | 3,344,260 | 4,714,098 |
Operating loss | (3,117,242) | (4,368,024) |
Other (expenses) income: | ||
Loss on extinguishment of convertible notes | (317,268) | |
Excess fair value of derivatives in convertible note | (486,745) | |
Change in fair value of embedded conversion features in convertible notes | (8,536) | |
Interest expense, net | (490,992) | (53,137) |
Total other expenses, net | (1,303,541) | (53,137) |
Net loss | $ (4,420,783) | $ (4,421,161) |
Net loss per common share - Basic and diluted: | $ (0.20) | $ (0.71) |
Weighted average common shares outstanding - Basic and diluted | 22,502,166 | 6,183,909 |
Statements of Stockholders' Equ
Statements of Stockholders' Equity (Deficit) - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid-in Capital [Member] | Accumulated Deficit [Member] | Total |
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 | |||
Common stock issued for services | $ 250 | 74,250 | $ 74,500 | ||
Common stock issued for services, shares | 25,000 | 25,000 | |||
Common stock issued for cash, net of offering costs of $69,680 and 2,356,662 | $ 7,240 | 1,376,080 | $ 1,383,320 | ||
Common stock issued for cash, net of offering costs of $69,680 and 2,356,662, shares | 724,000 | ||||
Common stock issued for license termination | $ 250 | 106,000 | 106,250 | ||
Common stock issued for license termination, shares | 25,000 | ||||
Common stock issued to officers and employees | $ 5,423 | 2,778,499 | $ 2,783,922 | ||
Common stock issued to officers and employees, shares | 542,268 | 542,268 | |||
Common stock issued with convertible note | $ 500 | 44,109 | $ 44,609 | ||
Common stock issued with convertible note, shares | 50,000 | 15,000,000 | |||
Issuance of warrants | 84,227 | $ 84,227 | |||
Beneficial conversion feature on convertible note | 135,986 | 135,986 | |||
Net loss | (4,421,161) | (4,421,161) | |||
Balance at Sep. 30, 2017 | $ 100,000 | $ 66,351 | 49,378,447 | (50,201,730) | (656,932) |
Balance, shares at Sep. 30, 2017 | 10,000,000 | 6,635,127 | |||
Common stock issued for services | $ 100 | 14,900 | $ 15,000 | ||
Common stock issued for services, shares | 10,000 | 10,000 | |||
Common stock issued for cash, net of offering costs of $69,680 and 2,356,662 | $ 189,099 | 16,436,139 | $ 16,625,238 | ||
Common stock issued for cash, net of offering costs of $69,680 and 2,356,662, shares | 18,909,900 | ||||
Common stock issued to officers and employees | $ 7,660 | 1,464,941 | $ 1,472,601 | ||
Common stock issued to officers and employees, shares | 766,033 | 766,033 | |||
Common stock issued with convertible note, shares | 1,500,000 | ||||
Common stock issued for legal settlement | $ 500 | 80,500 | $ 81,000 | ||
Common stock issued for legal settlement, shares | 50,000 | 50,000 | |||
Common stock issued for warrant exercise | $ 3,889 | (3,889) | |||
Common stock issued for warrant exercise, shares | 388,928 | ||||
Convertible notes - issuance of common stock | $ 3,625 | 498,875 | 502,500 | ||
Convertible notes - issuance of common stock, shares | 362,500 | ||||
Convertible note - issuance of warrants | 90,345 | 90,345 | |||
Convertible note - amendment of existing warrants | 74,041 | 74,041 | |||
Settlement of convertible note | $ 1,214 | 179,858 | 181,072 | ||
Settlement of convertible note, shares | 121,429 | ||||
Related party conversion of preferred stock | $ (90,000) | $ 135,000 | (45,000) | ||
Related party conversion of preferred stock, shares | (9,000,000) | 13,500,000 | |||
Net loss | (4,420,783) | (4,420,783) | |||
Balance at Sep. 30, 2018 | $ 100,000 | $ 407,438 | $ 68,169,157 | $ (54,622,513) | $ 13,964,082 |
Balance, shares at Sep. 30, 2018 | 10,000,000 | 40,743,917 |
Statements of Stockholders' E_2
Statements of Stockholders' Equity (Deficit) (Parenthetical) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Statement of Stockholders' Equity [Abstract] | ||
Proceeds from offering cost | $ 2,356,662 | $ 69,680 |
Statements of Cash Flows
Statements of Cash Flows - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (4,420,783) | $ (4,421,161) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 5,548 | 5,524 |
Stock-based compensation | 1,472,601 | 2,783,922 |
Stock issued for services | 15,000 | 74,500 |
Settlement expenses | 81,000 | |
Loss on extinguishment of convertible notes | 317,268 | |
Termination of software license | 106,250 | |
Excess fair value of derivatives in convertible note | 486,745 | |
Change in fair value of embedded conversion features in convertible notes | 8,536 | |
Debt discount amortization | 491,132 | |
Changes in operating assets and liabilities: | ||
Prepaid officer compensation | 44,788 | |
Prepaid expenses and other assets | 2,501 | |
Accounts payable and accrued liabilities | (7,720) | (2,507) |
Accrued compensation | (432,538) | 84,693 |
Deferred revenue | (316,248) | (467,274) |
Net cash used in operating activities | (2,299,459) | (1,788,764) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of fixed assets | (14,429) | (2,798) |
Net cash used in investing activities | (14,429) | (2,798) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Common stock issued for cash, net of offering costs of $2,356,662 and $69,680, respectively | 16,625,238 | 1,383,320 |
Proceeds from related party notes | 70,000 | |
Repayment of related party notes | (70,000) | |
Proceeds from convertible notes, net | 242,600 | 291,500 |
Repayment of convertible notes | (725,000) | |
Net cash provided by financing activities | 16,142,838 | 1,674,820 |
INCREASE (DECREASE) IN CASH | 13,828,950 | (116,742) |
CASH, BEGINNING OF YEAR | 227,396 | 344,138 |
CASH, END OF YEAR | 14,056,346 | 227,396 |
CASH PAID FOR: | ||
Interest paid | ||
Income taxes paid | ||
NON-CASH FINANCING ACTIVITIES: | ||
Issuance of common stock with convertible notes | 502,500 | |
Issuance of warrants with convertible note | 90,345 | |
Amendment of warrants issued with convertible note | 74,041 | |
Settlement of convertible note | $ 181,072 |
Statements of Cash Flows (Paren
Statements of Cash Flows (Parenthetical) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Statement of Cash Flows [Abstract] | ||
Proceeds from offering cost | $ 2,356,662 | $ 69,680 |
Description of Business
Description of Business | 12 Months Ended |
Sep. 30, 2018 | |
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 on March 23, 2015. |
Significant Accounting Policies
Significant Accounting Policies | 12 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies are as follows: Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. 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 estimate relates to the valuation of its convertible note. 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. 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. The Company did not have any cash equivalents as of September 30, 2018 and 2017. At September 30, 2018 and 2017, cash includes 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. As of September 30, 2018, $13,806,346 of the Company’s cash balance was uninsured. The Company has not experienced any losses on cash. 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. Equipment and furniture are depreciated over an estimated useful life of three (3) to five (5) years. Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten (10) years. Software is depreciated over an estimated useful life of three (3) years. 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. There was no impairment recorded during the years ended September 30, 2018 and 2017. Fair Value of Financial Instruments The Company’s financial instruments consisted primarily of cash, accounts payable and accrued expenses, deferred revenue, convertible note payable, as well as embedded conversion features. 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; ● 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; ● Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. The fair values of the embedded conversion features in the Company’s convertible notes and of the warrants issued by the Company were determined using level 2 measurements and are discussed in further detail in Notes 5 and 8, respectively. Convertible Debt Convertible debt is accounted for under the guidelines established by ASC 470-20, Debt with Conversion and Other Options When equity instruments, such as common stock and/or warrants, are issued with convertible debt, the net proceeds from the transaction are allocated to the convertible debt and equity instruments based on their relative fair values. The proceeds allocated to the equity instruments may reduce the carrying value of the convertible debt, and such discount is amortized to interest expense over the term of the debt. In the event a convertible note has an embedded conversion feature which, among other features, allows an unlimited number of common shares to be issued upon conversion since the conversion price is based on the quoted market price of the Company’s common stock, the Company records a derivative liability, which is marked to market at each reporting period and charged to the statement of operations in accordance with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities Customer Concentration During the years ended September 30, 2018 and 2017, one customer accounted for 100% of revenues. The loss of this customer will have a significant impact on operations. 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. Since the customer requested additional modifications to the software before it could be used, 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 were recognized on a pro rata basis prospectively over the 30 months ending June 10, 2018 per the terms of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized. The Company had deferred revenue of $0 and $316,248 as of September 30, 2018 and 2017, respectively. Research and Development and Software Development Costs The Company expenses all research and development costs, including patent and software development costs. Our research and development costs incurred for the years ended September 30, 2018 and 2017 were $873,107 and $1,087,372, respectively. Stock-Based Compensation The Company measures the cost of services provided by employees and non-employees in exchange for an award of an equity instrument based on the grant-date fair value of the award. All equity awards granted to employees and non-employees during the years ended September 30, 2018 and 2017 were fully vested upon grant. As such, compensation cost was recognized at the time of the grant. 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 during the years ended September 30, 2018 or 2017. Basic and Diluted Net Loss per Common Share Basic loss per share is computed by dividing net 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, 2018 and 2017, the Company had 1,000,000 and 10,000,000 shares, respectively, of preferred stock outstanding, which are convertible into 1,500,000 and 15,000,000 shares, respectively, 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. During the year ended September 30, 2018, 25,015,866 warrants and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. During the year ended September 30, 2017, 725,000 warrants and 10,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. Recent Accounting Announcements The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the ASC. There have been a number of ASUs to date that amend the original text of the ASCs. Other than those discussed below, the Company believes those ASUs 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting Compensation – Stock Compensation In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840) Leases (Topic 840): Targeted Improvements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) |
Fixed Assets, Net
Fixed Assets, Net | 12 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Fixed Assets, Net | NOTE 3 – FIXED ASSETS, NET As of September 30, 2018 and 2017, fixed assets consisted of the following: September 30, 2018 2017 Equipment and furniture $ 11,042 $ 3,355 Leasehold improvements 10,542 10,541 Software 9,538 2,798 31,122 16,694 Accumulated depreciation (11,072 ) (5,524 ) Fixed assets, net $ 20,050 $ 11,170 Depreciation expense for the years ended September 30, 2018 and 2017 was $5,548 and $5,524, respectively. |
Software Licenses
Software Licenses | 12 Months Ended |
Sep. 30, 2018 | |
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. Prior to this, the Company had never sold or licensed the CipherShop-Cipherloc encryption software, nor any support services for such. Under the license agreement, the Company was to provide access to its software on an operational basis and provide training. The Company would also provide unspecified upgrades, if and when available, and 24/7 support over the license term. No VSOE was known for any of the elements. After the agreement was executed, the licensee requested modifications to the software because they could not otherwise use the software. The Company made the requested modifications to the software and 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 were recorded from the date of delivery over the remaining term of the agreement or approximately 30 months. For these reasons, revenue is recognized ratably from December 2015 until June 2018. During the years ended September 30, 2018 and 2017, the Company recognized revenues of $316,248 and $467,274, respectively. |
Convertible Note Payable
Convertible Note Payable | 12 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Convertible Note Payable | NOTE 5 – CONVERTIBLE NOTES PAYABLE FirstFire Global Opportunities Fund, LLC On September 26, 2017, the Company issued a convertible note payable to FirstFire Global Opportunities Fund, LLC (“FirstFire”) with a principal amount of $330,000, which included an original issue discount of $30,000. The Company incurred $8,500 in debt issuance costs. The note accrued interest at 5% per annum and was to mature on March 26, 2018. The note was convertible at $2.00 per share, subject to adjustment due to ratchet or down round protection, among other adjustments. The Company also issued 50,000 shares of its common stock, as well as warrants to purchase an additional 165,000 shares of common stock at $4.50 per share with a term of two years. The note was amended on December 20, 2017, which reduced the conversion price of the note from $2.00 to $1.00 per share and the exercise price of the warrants from $4.50 to $2.00. The amendment also required the Company to issue an additional 87,500 shares of common stock to FirstFire. The Company also received the right to prepay the convertible note at any time from the 151st through the 180th day following September 26, 2017, then the Company could repay FirstFire at 130% multiplied by the outstanding principal amount plus accrued and unpaid interest. The reduction of the conversion price from $2.00 to $1.00 was deemed to create a beneficial conversion feature, therefore, the Company accounted for the amendment of the FirstFire note using ASC 815, Derivatives and Hedging During the year ended September 30, 2018, the Company recognized a gain of $11,234 related to the change in fair value of the FirstFire beneficial conversion feature derivative liability. The Company valued the beneficial conversion feature derivative liability with the Black-Scholes-Merton valuation model as of March 21, 2018, immediately prior to the settlement of the note as described below, using an expected life of 0.78 years, volatility of 150%, and risk-free rate of 1.71%. Additionally, upon the December 20, 2017 amendment of the FirstFire note, the Company recorded a debt discount of $330,000. The Company amortized $312,813 of the debt discount to interest expense during the year ended September 30, 2018. Total interest expense related to the FirstFire note, including the debt discount amortization, was $453,700 for the year ended September 30, 2018. On March 21, 2018, the Company entered into a settlement agreement with FirstFire, under which FirstFire converted $77,500 of the note payable into 50,000 shares of common stock, and the Company paid $350,000 to satisfy the convertible note payable in full. In connection with the settlement of the FirstFire note, the Company recognized a gain on extinguishment of $194,391. Peak One Opportunity Fund LP On December 14, 2017, the Company issued a convertible note payable to Peak One Opportunity Fund LP (“Peak One”) with a principal amount of $300,000. The Company incurred $27,400 in debt issuance costs. The note was to mature on December 14, 2020. The note was convertible at $1.00 per share. The Company also issued 275,000 shares of its common stock, as well as warrants to purchase an additional 75,000 shares of common stock at $2.00 per share with a term of five years at the time of note issuance. The Company accounted for the Peak One note using ASC 815, Derivatives and Hedging During the year ended September 30, 2018, the Company recognized a loss of $19,770 related to the change in fair value of the beneficial conversion feature derivative liability. The Company valued the beneficial conversion feature derivative liability with the Black-Scholes-Merton valuation model as of April 30, 2018, immediately prior to the redemption of the note as described below, using an expected life of 1.17 years, volatility of 150%, and risk-free rate of 1.65%. Additionally, upon issuance of the Peak One note, the Company recorded a debt discount of $300,000. The Company amortized $37,432 of the debt discount to interest expense during the year ended September 30, 2018. On April 30, 2018, the Company settled the Peak One note for $375,000 and issued 71,429 shares of common stock with a fair value of $103,572 to Peak One. The Company recognized a loss on extinguishment of $153,621. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 6 – RELATED PARTY TRANSACTIONS Notes Payable to Chief Executive Officer In September 2017, the Company’s Chief Executive Officer (“CEO”) issued four notes with an aggregate principal amount of $70,000 to the Company. The notes bore interest at 3% per annum and matured one year from the issuance date. The Company repaid all four notes in full during September 2018. As of September 30, 2018 and 2017, there were no outstanding notes payable to the CEO. See Note 8 for additional related party transactions. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 7 – COMMITMENTS AND CONTINGENCIES Litigation We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. A disgruntled former contracted consultant has brought an action in Texas state court against the CEO and the Company, alleging fraud and misrepresentation pertaining to stock and payments, all of which have been paid, and all stock has been delivered to him. He has also included a claim of partial ownership of some of the Company’s patents, which is without merit in that any interest he may have had has been assigned to the Company. The claim is frivolous and without merit. The case is being vigorously defended on our behalf by our insurance carrier. Leases The Company leases 3,906 square feet of office space in Buda, Texas. The lease for the Buda office began on March 15, 2016 and continues until March 31, 2019. The current monthly rent payment of $7,542 continues until February 28, 2019. On March 1, 2019, the monthly rent payment increases to $7,705. The lease shall be automatically renewed for two one-year periods at a rate of $7,705 per month from April 1, 2019 through March 31, 2020 and a rate of $7,867 per month from April 1, 2020 until March 31, 2021, unless either party to the lease agreement notifies the other of the intent to terminate the lease in writing at least 180 days prior to the expiration of the current term. The Company also leases 1,005 square feet of office space in Scottsdale, Arizona. The lease for the Scottsdale office began on July 15, 2018 and continues until July 31, 2021. The current monthly rent payment of $1,608 continues until July 31, 2019. From August 1, 2019 to July 31, 2020, the monthly rent payment increases to $1,656, and from August 1, 2020 to July 31, 2021, the monthly rent payment increases to $1,705. Future annual minimum lease obligations at September 30, 2018 are as follows: Year Ending September 30, Amount 2019 $ 111,034 2020 113,405 2021 64,259 $ 288,698 Rent expense totaled $99,209 and $91,246 for the years ended September 30, 2018 and 2017, respectively. |
Stockholders' Equity (Deficit)
Stockholders' Equity (Deficit) | 12 Months Ended |
Sep. 30, 2018 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity (Deficit) | NOTE 8 - STOCKHOLDERS’ EQUITY (DEFICIT) Common Stock As of September 30, 2018 and 2017, the Company had 40,743,917 and 6,635,127 shares of common stock outstanding, respectively, and was authorized to issue 650,000,000 shares of common stock at a par value of $0.01. Common Stock Issued for Cash During the year ended September 30, 2018, through the utilization of PPMs and upon receipt of executed Subscription Agreements, the Company issued 18,909,900 shares of common stock for $16,625,238 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D. During the year ended September 30, 2017, through the utilization of PPMs and upon receipt of executed Subscription Agreements, the Company issued 724,000 shares of common stock for $1,383,320 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D. Common Stock Issued to Officers and Employees During the year ended September 30, 2018, the Company issued 766,033 fully vested shares of common stock with a fair value of $1,472,601 to its officers and other employees as part of their compensation. Of this amount, $950,056 was recorded in general and administrative expenses, $279,500 was recorded in sales and marketing expenses, and $243,045 was recorded in research and development expenses. During the year ended September 30, 2017, the Company issued 542,268 fully vested shares of common stock with a fair value of $2,783,922 to its officers and other employees as part of their compensation. Of this amount, $2,192,200 was recorded in general and administrative expenses, $93,748 was recorded in sales and marketing expenses, and $536,515 was recorded in research and development expenses. Common Stock Issued for Services During the year ended September 30, 2018, the Company issued 10,000 shares of fully vested common stock with a fair value of $15,000 to Magnolia Investor Relations for investor relations services rendered. During the year ended September 30, 2017, the Company issued 25,000 shares of fully vested common stock with a fair value of $74,500 to StockVest for investor relations services. Common Stock Issued for Settlement During the year ended September 30, 2018, the Company issued 50,000 shares of fully vested common stock with a fair value of $81,000 for to settle a legal matter by two shareholders who claimed that they were entitled to 125,000 shares of common stock because of funds allegedly paid to the Company and promises allegedly made by the Company. The Company denied these allegations and settled the matter for 50,000 shares of common stock. Common Stock Issued for License Termination During the year ended September 30, 2017, the Company issued 25,000 shares of fully vested common stock with a fair value of $106,250 for a software termination settlement. Common Stock Issued with Convertible Notes During the year ended September 30, 2018, the Company issued 275,000 and 71,429 shares of fully vested common stock in connection with the issuance and redemption, respectively, of the Peak One note. The Company also issued 87,500 and 50,000 shares of common stock in connection with the amendment and conversion, respectively, of the FirstFire note. Refer to Note 5 for further discussion. During the year ended September 30, 2017, the Company issued 50,000 shares of fully vested common stock in connection with the issuance of the FirstFire note. Refer to Note 5 for further discussion. Preferred Stock As of September 30, 2018 and 2017, the Company had 1,000,000 and 10,000,000 shares of restricted preferred stock outstanding, respectively, and was authorized to issue 10,000,000 shares of preferred stock at a par value of $0.01. Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. The holders of preferred stock can only convert the shares if agreed to by the Board of Directors. If declared by the Board of Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company. In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common stock of the Company. During the year ended September 30, 2018, the Company’s Chief Executive Officer converted 9,000,000 shares of preferred stock into 13,500,000 shares of common stock. Warrants During the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock in connection with the Peak One convertible note discussed in Note 5. These warrants were issued with an exercise price of $2.00 and a term of five years. The Company valued these warrants at $90,345 with the Black-Scholes-Merton valuation model using an expected life of five years, volatility of 150%, and risk-free rate of 2.14%. Additionally, in connection with shares sold through a PPM, the Company issued warrants to purchase 144,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years. The Company valued these warrants at $93,198 with the Black-Scholes-Merton valuation model using an expected life of two years, volatility of 150%, and risk-free rates ranging from 1.89% to 2.27%. Lastly, in connection with shares sold through an additional PPM, the Company issued warrants to purchase 18,837,900 shares of common stock. These warrants were issued with an exercise price of $1.20 and a term of five years. During the year ended September 30, 2017, the Company issued warrants to purchase 165,000 shares of common stock in connection with the FirstFire convertible note discussed in Note 5. These warrants were issued with an exercise price of $4.50 per share with a term of two years. In December 2017, the FirstFire convertible note was amended to, among other things, lower the warrants’ exercise price to $2.00 per share. The Company re-valued the warrants at $158,268 with the Black-Scholes-Merton valuation model using an expected life of two years, volatility of 150%, and risk-free rate of 1.87%. Additionally, during the year ended September 30, 2017, in connection with shares purchased through a PPM, the Company issued warrants to purchase 560,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years. Warrant activity for the years ended September 30, 2018 and 2017 is as follows: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Life Outstanding at September 30, 2016 — $ — — Granted 725,000 4.50 2.00 Exercised — — — Canceled/Forfeited — — — Outstanding at September 30, 2017 725,000 4.50 1.88 Granted 25,033,366 1.18 5.99 Exercised (742,500 ) 1.20 1.50 Canceled/Forfeited — — — Outstanding at September 30, 2018 25,015,866 $ 1.27 5.83 |
Income Taxes
Income Taxes | 12 Months Ended |
Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 9 - INCOME TAXES The provision (benefit) for income taxes from continued operations for the years ended September 30, 2018 and 2017 consist of the following: September 30, 2018 2017 Current: Federal $ — $ — State — — $ — $ — Deferred: Federal $ (2,558,000 ) $ (781,817 ) State — — (2,558,000 ) (781,817 ) Valuation allowance 2,558,000 781,817 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, 2018 2017 Statutory federal income tax rate 21.0 % 34.0 % Non-deductible stock-based compensation (7.0 ) (16.0 ) Change in statutory tax rate (19.0 ) — Valuation allowance 5.0 (18.0 ) 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, 2018 2017 Net operating loss carry forward $ 3,536,000 $ 4,725,000 Deferred compensation 3,747,000 — Valuation allowance (7,283,000 ) (4,725,000 ) Deferred income tax asset $ — $ — The Company has a net operating loss carry forward of $16.8 million available to offset future taxable income. Of which, $2.6 million will expire within the next five years, and the remaining $14.2 million will expire thereafter. 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. 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, 2018 and 2017, 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, as well as non-deductible stock-based compensation. 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 returns since 2012, which is through the fiscal year ending September 30, 2013. The Company is preparing the 2013 through 2016 filings, which report activity for the fiscal years ending September 30, 2014 through 2017. The September 30, 2018 tax return is not due at this time. The Company intends to remediate the lack of filing timely tax returns immediately. There are currently no ongoing tax examinations. On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law in the U.S. The Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation. These changes were effective beginning in 2018. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 10 - SUBSEQUENT EVENTS On October 4, 2018, the Company executed a lease for 3,859 square feet of office space in Scottsdale, Arizona. The lease has a term of three years, commencing on November 1, 2018. The monthly rent is $6,432 for the first year and increases to $6,753 for the second year and $7,075 for the third year. The Company will, within the next fiscal year, move its corporate headquarters to this location from its current location in Buda, Texas. The Company has reduced the size of its Buda, Texas facility and will continue to maintain the facility for its research and development activities. The lease for the existing office space in Scottsdale, Arizona will not be renewed. |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 12 Months Ended |
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
Use of Estimates and Assumptions | Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. 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 estimate relates to the valuation of its convertible note. |
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. |
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. The Company did not have any cash equivalents as of September 30, 2018 and 2017. At September 30, 2018 and 2017, cash includes 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. As of September 30, 2018, $13,806,346 of the Company’s cash balance was uninsured. The Company has not experienced any losses on cash. |
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. Equipment and furniture are depreciated over an estimated useful life of three (3) to five (5) years. Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten (10) years. Software is depreciated over an estimated useful life of three (3) years. |
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. There was no impairment recorded during the years ended September 30, 2018 and 2017. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consisted primarily of cash, accounts payable and accrued expenses, deferred revenue, convertible note payable, as well as embedded conversion features. 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; ● 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; ● Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. The fair values of the embedded conversion features in the Company’s convertible notes and of the warrants issued by the Company were determined using level 2 measurements and are discussed in further detail in Notes 5 and 8, respectively. |
Convertible Debt | Convertible Debt Convertible debt is accounted for under the guidelines established by ASC 470-20, Debt with Conversion and Other Options When equity instruments, such as common stock and/or warrants, are issued with convertible debt, the net proceeds from the transaction are allocated to the convertible debt and equity instruments based on their relative fair values. The proceeds allocated to the equity instruments may reduce the carrying value of the convertible debt, and such discount is amortized to interest expense over the term of the debt. In the event a convertible note has an embedded conversion feature which, among other features, allows an unlimited number of common shares to be issued upon conversion since the conversion price is based on the quoted market price of the Company’s common stock, the Company records a derivative liability, which is marked to market at each reporting period and charged to the statement of operations in accordance with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities |
Customer Concentration | Customer Concentration During the years ended September 30, 2018 and 2017, one customer accounted for 100% of revenues. The loss of this customer will have a significant impact on operations. |
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. Since the customer requested additional modifications to the software before it could be used, 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 were recognized on a pro rata basis prospectively over the 30 months ending June 10, 2018 per the terms of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized. The Company had deferred revenue of $0 and $316,248 as of September 30, 2018 and 2017, respectively. |
Research and Development and Software Development Costs | Research and Development and Software Development Costs The Company expenses all research and development costs, including patent and software development costs. Our research and development costs incurred for the years ended September 30, 2018 and 2017 were $873,107 and $1,087,372, respectively. |
Stock-Based Compensation | Stock-Based Compensation The Company measures the cost of services provided by employees and non-employees in exchange for an award of an equity instrument based on the grant-date fair value of the award. All equity awards granted to employees and non-employees during the years ended September 30, 2018 and 2017 were fully vested upon grant. As such, compensation cost was recognized at the time of the grant. |
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 during the years ended September 30, 2018 or 2017. |
Basic and Diluted Net Loss Per Common Share | Basic and Diluted Net Loss per Common Share Basic loss per share is computed by dividing net 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, 2018 and 2017, the Company had 1,000,000 and 10,000,000 shares, respectively, of preferred stock outstanding, which are convertible into 1,500,000 and 15,000,000 shares, respectively, 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. During the year ended September 30, 2018, 25,015,866 warrants and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. During the year ended September 30, 2017, 725,000 warrants and 10,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. |
Recent Accounting Announcements | Recent Accounting Announcements The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the ASC. There have been a number of ASUs to date that amend the original text of the ASCs. Other than those discussed below, the Company believes those ASUs 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting Compensation – Stock Compensation In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840) Leases (Topic 840): Targeted Improvements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) |
Fixed Assets, Net (Tables)
Fixed Assets, Net (Tables) | 12 Months Ended |
Sep. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Fixed Assets | As of September 30, 2018 and 2017, fixed assets consisted of the following: September 30, 2018 2017 Equipment and furniture $ 11,042 $ 3,355 Leasehold improvements 10,542 10,541 Software 9,538 2,798 31,122 16,694 Accumulated depreciation (11,072 ) (5,524 ) Fixed assets, net $ 20,050 $ 11,170 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Annual Minimum Operating Lease Obligations | Future annual minimum lease obligations at September 30, 2018 are as follows: Year Ending September 30, Amount 2019 $ 111,034 2020 113,405 2021 64,259 $ 288,698 |
Stockholders' Equity (Deficit)
Stockholders' Equity (Deficit) (Tables) | 12 Months Ended |
Sep. 30, 2018 | |
Stockholders' Equity Note [Abstract] | |
Schedule of Warrant Activity | Warrant activity for the years ended September 30, 2018 and 2017 is as follows: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Life Outstanding at September 30, 2016 — $ — — Granted 725,000 4.50 2.00 Exercised — — — Canceled/Forfeited — — — Outstanding at September 30, 2017 725,000 4.50 1.88 Granted 25,033,366 1.18 5.99 Exercised (742,500 ) 1.20 1.50 Canceled/Forfeited — — — Outstanding at September 30, 2018 25,015,866 $ 1.27 5.83 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Sep. 30, 2018 | |
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, 2018 and 2017 consist of the following: September 30, 2018 2017 Current: Federal $ — $ — State — — $ — $ — Deferred: Federal $ (2,558,000 ) $ (781,817 ) State — — (2,558,000 ) (781,817 ) Valuation allowance 2,558,000 781,817 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, 2018 2017 Statutory federal income tax rate 21.0 % 34.0 % Non-deductible stock-based compensation (7.0 ) (16.0 ) Change in statutory tax rate (19.0 ) — Valuation allowance 5.0 (18.0 ) 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, 2018 2017 Net operating loss carry forward $ 3,536,000 $ 4,725,000 Deferred compensation 3,747,000 — Valuation allowance (7,283,000 ) (4,725,000 ) Deferred income tax asset $ — $ — |
Significant Accounting Polici_3
Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
FDIC insured cash | $ 250,000 | |
Cash balance uninsured | 13,806,346 | |
Impairment of long-lived assets | ||
Deferred revenue | 0 | 316,248 |
Research and development costs | $ 873,107 | $ 1,087,372 |
Series A preferred stock, shares outstanding | 1,000,000 | 10,000,000 |
Number of shares issued for conversion | 1,500,000 | 15,000,000 |
Warrants [Member] | ||
Anti-dilutive common stock equivalents | 25,015,866 | 725,000 |
Convertible Preferred Stock [Member] | ||
Anti-dilutive common stock equivalents | 1,000,000 | 10,000,000 |
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | ||
Customer concentration percentage | 100.00% | 100.00% |
Equipment and Furniture [Member] | Minimum [Member] | ||
Assets estimated useful life | 3 years | |
Equipment and Furniture [Member] | Maximum [Member] | ||
Assets estimated useful life | 5 years | |
Leasehold Improvements [Member] | ||
Assets estimated useful life | 10 years | |
Software [Member] | ||
Assets estimated useful life | 3 years |
Fixed Assets, Net (Details Narr
Fixed Assets, Net (Details Narrartive) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 5,548 | $ 5,524 |
Fixed Assets, Net - Schedule of
Fixed Assets, Net - Schedule of Fixed Assets (Details) - USD ($) | Sep. 30, 2018 | Sep. 30, 2017 |
Fixed assets, gross | $ 31,122 | $ 16,694 |
Accumulated depreciation | (11,072) | (5,524) |
Fixed assets, net | 20,050 | 11,170 |
Equipment and Furniture [Member] | ||
Fixed assets, gross | 11,042 | 3,355 |
Leasehold Improvements [Member] | ||
Fixed assets, gross | 10,542 | 10,541 |
Software [Member] | ||
Fixed assets, gross | $ 9,538 | $ 2,798 |
Software Licenses (Details Narr
Software Licenses (Details Narrative) - USD ($) | Jun. 14, 2014 | Sep. 30, 2018 | Sep. 30, 2017 |
Revenue recognized | $ 316,248 | $ 467,274 | |
Gawk [Member] | |||
Payment to software license | $ 1,125,000 | ||
License expiration period | 4 years |
Convertible Note Payable (Detai
Convertible Note Payable (Details Narrative) - USD ($) | Apr. 30, 2018 | Mar. 21, 2018 | Dec. 20, 2017 | Dec. 14, 2017 | Sep. 26, 2017 | Dec. 31, 2017 | Sep. 30, 2018 | Sep. 30, 2017 |
Gain (loss) on extinguishment | $ 317,268 | |||||||
Amortized debt discount | 491,132 | |||||||
Issue of common stock shares, value | 502,500 | |||||||
Excess fair value of derivatives in convertible note | (486,745) | |||||||
Common stock issued at fair value | 16,625,238 | $ 1,383,320 | ||||||
Prior To The Amendment [Member] | ||||||||
Amortized debt discount | 453,700 | |||||||
FirstFire Note [Member] | ||||||||
Debt instrument original issue discount | $ 330,000 | |||||||
Change in fair value of derivative liability | 11,234 | |||||||
Amortized debt discount | 312,813 | |||||||
Common stock issued at fair value, shares | 50,000 | |||||||
Peak One Note [Member] | ||||||||
Debt instrument original issue discount | 300,000 | |||||||
Gain (loss) on extinguishment | $ 153,621 | |||||||
Amortized debt discount | 37,432 | |||||||
Debt redemption amount | $ 375,000 | |||||||
Common stock issued at fair value, shares | 71,429 | |||||||
Common stock issued at fair value | $ 103,572 | |||||||
Expected Term [Member] | FirstFire Note [Member] | ||||||||
Fair value measurement, term | 9 months 11 days | |||||||
Volatility [Member] | FirstFire Note [Member] | ||||||||
Fair value measurement, percentage | 150.00% | |||||||
Risk Free Interest Rate [Member] | FirstFire Note [Member] | ||||||||
Fair value measurement, percentage | 1.71% | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | ||||||||
Debt instrument principal amount | $ 330,000 | |||||||
Debt instrument original issue discount | 30,000 | |||||||
Debt issuance cost | $ 8,500 | |||||||
Debt interest rate | 5.00% | |||||||
Debt instrument maturity date | Mar. 26, 2018 | |||||||
Debt conversion price | $ 1 | $ 2 | ||||||
Issue of common stock shares | 87,500 | 50,000 | ||||||
Warrant purchase additional common stock | 165,000 | |||||||
Warrant exercise price per share | $ 2 | $ 4.50 | ||||||
Warrants term | 2 years | |||||||
Reduction in conversion price per share | $ 1 | |||||||
Gain (loss) on extinguishment | $ 358,038 | |||||||
Derivative Liability | $ 320,312 | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | Settlement Agreement [Member] | ||||||||
Issue of common stock shares | 50,000 | |||||||
Gain (loss) on extinguishment | $ 194,391 | |||||||
Issue of common stock shares, value | 77,500 | |||||||
Payment of settlement note | $ 350,000 | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | Expected Term [Member] | ||||||||
Fair value measurement, term | 1 year | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | Volatility [Member] | ||||||||
Fair value measurement, percentage | 150.00% | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | Risk Free Interest Rate [Member] | ||||||||
Fair value measurement, percentage | 1.87% | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | Minimum [Member] | ||||||||
Reduction in conversion price per share | $ 2 | |||||||
FirstFire Global Opportunities Fund, LLC [Member] | 151st through the 180th day [Member] | ||||||||
Debt interest rate | 130.00% | |||||||
Peak One Opportunity Fund LP [Member] | ||||||||
Debt instrument principal amount | $ 300,000 | |||||||
Debt issuance cost | $ 27,400 | |||||||
Debt instrument maturity date | Dec. 14, 2020 | |||||||
Debt conversion price | $ 1 | |||||||
Issue of common stock shares | 275,000 | |||||||
Warrant purchase additional common stock | 75,000 | |||||||
Warrant exercise price per share | $ 2 | |||||||
Warrants term | 5 years | |||||||
Derivative Liability | $ 267,750 | |||||||
Change in fair value of derivative liability | $ 19,770 | |||||||
Excess fair value of derivatives in convertible note | $ 486,745 | |||||||
Peak One Opportunity Fund LP [Member] | Expected Term [Member] | ||||||||
Fair value measurement, term | 1 year 2 months 1 day | |||||||
Peak One Opportunity Fund LP [Member] | Expected Term [Member] | Depository Trust [Member] | ||||||||
Fair value measurement, term | 1 year 2 months 30 days | |||||||
Peak One Opportunity Fund LP [Member] | Volatility [Member] | ||||||||
Fair value measurement, percentage | 150.00% | |||||||
Peak One Opportunity Fund LP [Member] | Volatility [Member] | Depository Trust [Member] | ||||||||
Fair value measurement, percentage | 150.00% | |||||||
Peak One Opportunity Fund LP [Member] | Risk Free Interest Rate [Member] | ||||||||
Fair value measurement, percentage | 1.65% | |||||||
Peak One Opportunity Fund LP [Member] | Risk Free Interest Rate [Member] | Depository Trust [Member] | ||||||||
Fair value measurement, percentage | 1.82% |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Proceeds from issuance of notes | $ 70,000 | ||
Chief Executive Officer [Member] | Four Notes [Member] | |||
Proceeds from issuance of notes | $ 70,000 | ||
Note, interest rate | 3.00% |
Commitments and Contingencies_2
Commitments and Contingencies (Details Narrative) | 12 Months Ended | |
Sep. 30, 2018USD ($)ft² | Sep. 30, 2017USD ($) | |
Area of lease | ft² | 3,906 | |
Rent expense | $ 99,209 | $ 91,246 |
Arizona [Member] | ||
Area of lease | ft² | 1,005 | |
February 28, 2019 [Member] | ||
Current rental rate | $ 7,542 | |
March 1, 2019 [Member] | ||
Current rental rate | 7,705 | |
April 1, 2019 through March 31, 2020 [Member] | ||
Current rental rate | 7,705 | |
April 1, 2020 until March 31, 2021 [Member] | ||
Current rental rate | 7,867 | |
July 31, 2019 [Member] | Arizona [Member] | ||
Current rental rate | 1,608 | |
August 1, 2019 to July 31, 2020 [Member] | Arizona [Member] | ||
Current rental rate | 1,656 | |
August 1, 2020 to July 31, 2021 [Member] | Arizona [Member] | ||
Current rental rate | $ 1,705 |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Future Annual Minimum Operating Lease Obligations (Details) | Sep. 30, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,019 | $ 111,034 |
2,020 | 113,405 |
2,021 | 64,259 |
TOTAL | $ 288,698 |
Stockholders' Equity (Deficit_2
Stockholders' Equity (Deficit) (Details Narrative) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Common stock, shares outstanding | 40,743,917 | 6,635,127 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock issued to officers and employees, shares | 766,033 | 542,268 |
Common stock issued to officers and employees | $ 1,472,601 | $ 2,783,922 |
Number of shares issued for services | 10,000 | 25,000 |
Number of shares issued for services, value | $ 15,000 | $ 74,500 |
Common stock issued for legal settlement, shares | 50,000 | |
Common stock issued for legal settlement | $ 81,000 | |
Number of shares issued for license termination | 25,000 | |
Number of shares issued for license termination, value | $ 106,250 | |
Preferred stock, shares outstanding | 1,000,000 | 10,000,000 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, voting rights | Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. | |
Preferred Stock [Member] | ||
Common stock issued to officers and employees, shares | ||
Common stock issued to officers and employees | ||
Number of shares issued for services | ||
Number of shares issued for services, value | ||
Common stock issued for legal settlement, shares | ||
Common stock issued for legal settlement | ||
Number of common stock issued | ||
Common Stock [Member] | ||
Common stock issued to officers and employees, shares | 766,033 | 542,268 |
Common stock issued to officers and employees | $ 7,660 | $ 5,423 |
Number of shares issued for services | 10,000 | 25,000 |
Number of shares issued for services, value | $ 100 | $ 250 |
Common stock issued for legal settlement, shares | 50,000 | |
Common stock issued for legal settlement | $ 500 | |
Number of common stock issued | 18,909,900 | 724,000 |
Warrants [Member] | Private Placement Memorandum [Member] | ||
Warrant to purchase shares | 144,000 | 560,000 |
Warrant exercise price | $ 4.50 | $ 4.50 |
Warrant term | 2 years | 2 years |
Fair of value of warrant | $ 93,198 | |
Expected life of years | 2 years | |
Volatility | 150.00% | |
Warrants [Member] | Private Placement Memorandum [Member] | Minimum [Member] | ||
Risk-free rate | 1.89% | |
Warrants [Member] | Private Placement Memorandum [Member] | Maximum [Member] | ||
Risk-free rate | 2.27% | |
Warrants [Member] | Private Placement Memorandum One [Member] | ||
Warrant to purchase shares | 18,837,900 | |
Warrant exercise price | $ 1.20 | |
Warrant term | 5 years | |
Restricted Stock [Member] | ||
Preferred stock, shares outstanding | 1,000,000 | 10,000,000 |
Peak One Note Issuance [Member] | ||
Number of common stock issued | 275,000 | |
Peak One Note Redemption [Member] | ||
Number of common stock issued | 71,429 | |
FirstFire Note Amendment [Member] | ||
Number of common stock issued | 87,500 | |
FirstFire Note Conversion [Member] | ||
Number of common stock issued | 50,000 | |
FirstFire Note [Member] | ||
Number of common stock issued | 50,000 | |
FirstFire Note [Member] | Warrants [Member] | ||
Warrant to purchase shares | 165,000 | |
Warrant exercise price | $ 4.50 | |
Warrant term | 2 years | |
Fair of value of warrant | $ 158,268 | |
Expected life of years | 2 years | |
Volatility | 150.00% | |
Risk-free rate | 1.87% | |
FirstFire Note [Member] | Warrants [Member] | Minimum [Member] | ||
Warrant exercise price | $ 2 | |
Peak One Convertible Note [Member] | Warrants [Member] | ||
Warrant to purchase shares | 75,000 | |
Warrant exercise price | $ 2 | |
Warrant term | 5 years | |
Fair of value of warrant | $ 90,345 | |
Expected life of years | 5 years | |
Volatility | 150.00% | |
Risk-free rate | 2.14% | |
Two Shareholders [Member] | ||
Entitled common stock shares | 125,000 | |
Allegations settlement of common stock, shares | 50,000 | |
Chief Executive Officer [Member] | Preferred Stock [Member] | ||
Number of shares converted | 9,000,000 | |
Chief Executive Officer [Member] | Common Stock [Member] | ||
Number of shares converted | 13,500,000 | |
General and Administrative Expense [Member] | ||
Common stock issued to officers and employees | $ 950,056 | $ 2,192,200 |
Sales and Marketing Expense [Member] | ||
Common stock issued to officers and employees | 279,500 | 93,748 |
Research and Development Expense [Member] | ||
Common stock issued to officers and employees | $ 243,045 | $ 536,515 |
Subscription Agreements [Member] | ||
Number of shares issued for cash | 18,909,900 | 724,000 |
Number of shares issued for cash, value | $ 16,625,238 | $ 1,383,320 |
Stockholders' Deficit - Schedul
Stockholders' Deficit - Schedule of Warrant Activity (Details) - $ / shares | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Stockholders' Equity Note [Abstract] | ||
Number of warrant, outstanding beginning | 725,000 | |
Number of warrant, Granted | 25,033,366 | 725,000 |
Number of warrant, Exercised | (742,500) | |
Number of warrant, Canceled/Forfeited | ||
Number of warrant outstanding ending | 25,015,866 | 725,000 |
Weighted average exercise price outstanding beginning | $ 4.50 | |
Weighted average exercise price, Granted | 1.18 | 4.50 |
Weighted average exercise price, Exercised | 1.20 | |
Weighted average exercise price, Canceled/Forfeited | ||
Weighted average exercise price, outstanding ending | $ 1.27 | $ 4.50 |
Weighted Average Remaining Life, beginning | 1 year 10 months 17 days | |
Weighted average remaining life, Granted | 5 years 11 months 26 days | 2 years |
Weighted average remaining life, Exercised | 1 year 6 months | |
Weighted average remaining life, Canceled/Forfeited | 0 years | |
Weighted average remaining life, ending | 5 years 9 months 29 days | 1 year 10 months 17 days |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | Feb. 05, 2015 | Sep. 30, 2018 | Sep. 30, 2017 |
Net operating loss carry forward | $ 16,800,000 | ||
Net operating loss | $ 600,000 | (3,117,242) | $ (4,368,024) |
Pretax income to reported income tax expense | 0 | ||
Income tax expense | |||
Income tax reconciliation description | The Tax Cuts and Jobs Act ("Tax Act&") was signed into law in the U.S. The Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation. These changes were effective beginning in 2018. | ||
Percent on statutory federal income tax rate | 21.00% | 34.00% | |
Next Five Years [Member] | |||
Net operating loss carry forward | $ 2,600,000 | ||
Thereafter [Member] | |||
Net operating loss carry forward | $ 14,200,000 |
Income Taxes - Schedule of Prov
Income Taxes - Schedule of Provision (Benefit) for Income Taxes from Continued Operations (Details) - USD ($) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Income Tax Disclosure [Abstract] | ||
Current Federal | ||
Current State | ||
Current Federal and State Income Tax Expense (Benefit) | ||
Deferred Federal | (2,558,000) | (781,817) |
Deferred State | ||
Deferred Federal and State Income Tax Expense (Benefit) | (2,558,000) | (781,817) |
Valuation allowance | (2,558,000) | 781,817 |
Provision (benefit) for income taxes, net |
Income Taxes - Schedule of Fede
Income Taxes - Schedule of Federal Statutory Corporate Tax Rate and Actual Income Tax Expense (Details) | 12 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Income Tax Disclosure [Abstract] | ||
Statutory federal income tax rate | 21.00% | 34.00% |
Non-deductible stock-based compensation | (7.00%) | (16.00%) |
Change in statutory tax rate | (19.00%) | 0.00% |
Valuation allowance | (5.00%) | (18.00%) |
Effective tax rate | 0.00% | 0.00% |
Income Taxes - Schedule of Defe
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) | Sep. 30, 2018 | Sep. 30, 2017 |
Income Tax Disclosure [Abstract] | ||
Net operating loss carry forward | $ 3,536,000 | $ 4,725,000 |
Deferred compensation | 3,747,000 | |
Valuation Allowance | (7,283,000) | (4,725,000) |
Deferred income tax asset |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) | Oct. 04, 2018USD ($)ft² | Sep. 30, 2018USD ($)ft² | Sep. 30, 2017USD ($) |
Area of lease | ft² | 3,906 | ||
Lease, monthly rent | $ 99,209 | $ 91,246 | |
Subsequent Event [Member] | |||
Lease term | 3 years | ||
Subsequent Event [Member] | First Year [Member] | |||
Lease, monthly rent | $ 6,432 | ||
Subsequent Event [Member] | Second Year [Member] | |||
Lease, monthly rent | 6,753 | ||
Subsequent Event [Member] | Third Year [Member] | |||
Lease, monthly rent | $ 7,075 | ||
Subsequent Event [Member] | Scottsdale, Arizona [Member] | |||
Area of lease | ft² | 3,859 |