Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
For the transition period from N/A to N/A |
Commission File No. 000-28745
Cipherloc Corporation
(Name of small business issuer as specified in its charter)
(Formerly National Scientific Corporation)
Texas | 86-0837077 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1291 Galleria Drive, Suite 200
Henderson, NV 89014
(Address of principal executive offices)
(702) 818-9011
Registrant’s telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non–Accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at June 7, 2016 | |
Common stock, $0.01 par value | 4,813,541 |
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Q of Cipherloc Corporation (the “Company”) for the quarter ended December 31, 2015, as originally filed with the Securities and Exchange Commission on February 22, 2016 (the “Original Filing”), to reflect a restatement of our financial statements as a result of improper revenue recognition and a change to gain recognition related to a discontinued operations. Revenues under the Company’s software license and support arrangements should have been recognized ratably over the term of the agreement once delivery and acceptance was deemed completed by the parties.
We also made adjustments to the Notes to Financial Statements, specifically, Notes 2 and 6 to support the changes made to the financial statements . These changes include a restatement of revenue that is described in Note 2, and also to a change in gain recognition for a discontinued operation that is explained in Note 6.
This amendment also contains changes to Part II – Other information. These changes are as follows:
Item 2. Management’s Discussion and analysis of financial condition and results of operations has been amended by updating changes in Results of operations and Liquidity and Capital Resources.
CIPHERLOC CORPORATION
INDEX TO FORM 10-Q/A FILING
FOR THE THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014
TABLE OF CONTENTS
PAGE | ||||
PART I - FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements (Unaudited) | |||
Balance Sheets | 1 | |||
Statements of Operations | 2 | |||
Statements of Cash Flows | 3 | |||
Notes to Financial Statements | 4 | |||
Item 2. | Management Discussion & Analysis of Financial Condition and Results of Operations | 8 | ||
Item 4. | Controls and Procedures | 10 |
|
||||
PART II - OTHER INFORMATION | ||||
Item 6. | Exhibits | 21 | ||
CERTIFICATIONS |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements |
The accompanying interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2015. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended December 31, 2015 are not necessarily indicative of the results that can be expected for the year ending September 30, 2016.
CIPHERLOC CORPORATION | ||||||||
BALANCE SHEETS | ||||||||
(UNAUDITED) as Amended | ||||||||
Dec 31, 15 | Sep 30, 15 | |||||||
(Restated) | ||||||||
ASSETS | ||||||||
Cash | $ | 1,131,206 | $ | 1,993,406 | ||||
Assets attributable to discontinued operations | 3,232 | 3,232 | ||||||
Total Current Assets | 1,134,438 | 1,996,638 | ||||||
Proprietary Technology | 7,217 | — | ||||||
TOTAL ASSETS | $ | 1,141,655 | $ | 1,996,638 | ||||
LIABILITIES & EQUITY | ||||||||
Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 405,779 | $ | 1,100,945 | ||||
Due to related party | 1,205 | — | ||||||
Liabilities attributable to disco ops | 18 | 18 | ||||||
Deferred Revenue | 1,121,185 | 1,125,000 | ||||||
Total Liabilities | 1,528,187 | 2,225,963 | ||||||
Equity | ||||||||
Series A Convertible Preferred Stock, $0.01 par value, 10,000,000 shares authorized; 10,000,000 outstanding As of December 31, 2015 and September 30, 2015 |
100,000 | 100,000 | ||||||
Common Stock, $0.01 par value, 650,000,000 shares authorized; 4,494,421 issued and outstanding as of December 31, 2015 and 4,356,741 issued and outstanding as of September 30, 2015 | 44,942 | 43,567 | ||||||
Other Equity | (50,000 | ) | (50,000 | ) | ||||
Additional Paid-In Capital | 43,107,060 | 42,815,934 | ||||||
Accumulated deficit | (43,588,534 | ) | (43,138,826 | ) | ||||
Total Equity | (386,532 | ) | (229,325 | ) | ||||
TOTAL LIABILITIES & EQUITY | $ | 1,141,655 | $ | 1,996,638 |
The accompanying notes are an integral part of these unaudited financial statements.
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CIPHERLOC CORPORATION | ||||||||
STATEMENTS OF OPERATIONS | ||||||||
(UNAUDITED) As Amended | ||||||||
Three Months Ended December 31, | ||||||||
2015 | 2014 | |||||||
(Restated) | ||||||||
Revenue | $ | 3,814 | $ | — | ||||
Cost of Revenues | — | — | ||||||
Gross Profit | 3,814 | — | ||||||
Operating Expenses: | ||||||||
General and administrative | 298,767 | 176,325 | ||||||
Research and development | 154,650 | 17,431 | ||||||
Total Operating Expenses | 453,417 | 193,756 | ||||||
Operating Loss | (449,603 | ) | (193,756 | ) | ||||
Other Expenses | ||||||||
Interest expense | (106 | ) | (1,024 | ) | ||||
(Loss) from Continuing Operations | (449,709 | ) | (194,780 | ) | ||||
Gain (Loss) from Discontinued Operations | — | (68,353 | ) | |||||
Net Loss | $ | (449,709 | ) | $ | (263,133 | ) | ||
Net Loss per Common Share - Basic and diluted: | ||||||||
Continuing operations | $ | (0.10 | ) | $ | (0.07 | ) | ||
Discontinued operations | $ | 0.00 | $ | (0.02 | ) | |||
Total | $ | (0.10 | ) | $ | (0.09 | ) | ||
Weighted Average Number of Common Shares Outstanding | ||||||||
Basic and diluted | 4,476,659 | 2,833,265 |
The accompanying notes are an integral part of these unaudited financial statements.
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CIPHERLOC CORPORATION | ||||||||
STATEMENT OF CASH FLOWS | ||||||||
(UNAUDITED) As Amended | ||||||||
Three Months Ended December 31, | ||||||||
2015 | 2014 | |||||||
(Restated) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (449,709 | ) | $ | (263,133 | ) | ||
(Gain) Loss from discontinued operations | — | 68,353 | ||||||
Net loss from continuing operations | (449,709 | ) | (194,780 | ) | ||||
Adjustments to reconcile net loss from continuing operations: | ||||||||
to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | — | — | ||||||
Stock-based compensation | 27,500 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | — | — | ||||||
Deferred revenue | (3,814 | ) | — | |||||
Accounts payable and accrued liabilities | (691,934 | ) | (138,879 | ) | ||||
Net cash (used in) operating activities | (1,117,957 | ) | (333,659 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Deposit with others | (10,449 | ) | — | |||||
Net cash from investing activities | (10,449 | ) | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Advances from officer | 1,205 | — | ||||||
Subscribed stock | — | (4,739 | ) | |||||
Common stock issued for cash | 265,001 | — | ||||||
Net cash provided by financing activities | 266,206 | (4,739 | ) | |||||
CASH FLOWS FROM DISCONTINUED OPERATIONS: | ||||||||
Operating | — | 1,249 | ||||||
Net decrease in cash from discontinued operations | — | 1,249 |
(DECREASE) INCREASE IN CASH | (862,200 | ) | (337,149 | ) | ||||
CASH, BEGINNING OF PERIOD | 1,993,406 | 545,650 | ||||||
CASH, END OF PERIOD | $ | 1,131,206 | $ | 208,501 | ||||
CASH PAID FOR: | ||||||||
Interest | $ | 107 | $ | 1,111 | ||||
Taxes | $ | — | $ | — | ||||
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES: | ||||||||
Common stock rescinded for purchase of software | $ | — | $ | (6,000 | ) | |||
Cancellation of common stock | $ | — | $ | — |
The accompanying notes are an integral part of these unaudited financial statements.
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CIPHERLOC CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014
(Unaudited)
NOTE 1- DESCRIPTION OF BUSINESS
Cipherloc Corporation (the “Company”) was incorporated in Texas on June 22, 1953 as American Mortgage Company. On May 16, 1996, the Company changed its name to National Scientific Corporation. On March 15, 2015, the Company changed its name to Cipherloc Corporation. 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. CipherLoc has developed technology that:
• Dramatically enhances data security
• Can be easily added to existing products
• Is scalable and future-proof
Our solutions are not a replacement of existing encryption technologies but rather an enhancement to them. Our mobile, desktop, and server software solutions are specifically designed to be added to any third-party application, service, or product. With a highly flexible and modular technology that can be easily added other software solutions, CipherLoc can support a wide range of use cases including any-to-any security (mobile-to-mobile, mobile-to-desktop, desktop-to-cloud, etc.), dynamically-created VPNs (where no provisioning is necessary), and many others.
NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The restatement reflects adjustments to correct errors identified by management related to the Company’s revenue recognition of a transaction that occurred during the quarter ended December 31, 2015. The effect of the restatement was material on the Company’s Balance Sheets, Income Statement and Statement of Cash Flows. The nature and impact of these adjustments are described below.
Gain recognition on the sale of certain assets of discontinued operations needed to be deferred and will be discussed in detail in Note 6.
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.
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During the quarter ended December 31, 2015, the Company had retrospectively restated software revenue related to the sale of a license for its Cipherloc software to a third-party. Management subsequently determined that there was an error in calculating the correct amount of revenue based upon ratable accounting to recognize during the quarter ended December 31, 2015. The Company has corrected the classification of this amount ($3,814) as a reduction to software revenue and an increase to deferred revenue.
For the quarter ended December 31, 2015
The results of the restatements are summarized as follows:
Balance Sheet as of December 31, 2015:
As reported | Restatement Adjustment | As restated | ||||||||||
Deferred revenue | $ | 691,406 | $ | 429,779 | $ | 1,121,185 | ||||||
Current liabilities | 1,098,408 | 429,779 | 1,528,187 | |||||||||
Accumulated deficit | (42,908,755 | ) | (429,779 | ) | (43,338,534 | ) |
Statement of Operations for the three months ended December 31, 2015:
As reported | Restatement Adjustment | As restated | ||||||||||
Revenue | $ | 433,594 | $ | (429,780 | ) | $ | 3,814 | |||||
Loss from continuing operations | (19,929 | ) | (429,780 | ) | (449,709 | ) | ||||||
Statement of Cash Flows for the three months ended December 31, 2015:
As reported | Restatement Adjustment | As restated | ||||||||||
Net loss | $ | 230,071 | $ | (679,780 | ) | $ | (449,709 | ) | ||||
Revenue | (433,594) | 429,780 | (3,814 | ) |
NOTE 3 – BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended December 31, 2015 are not necessarily indicative of the results that may be expected for the year ending September 30, 2016. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended September 30, 2015 have been omitted; this report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30, 2015 included within the Company’s Form 10-K, as amended, as filed with the Securities and Exchange Commission.
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NOTE 4 - 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 December 31, 2015 of $43,588,534 and needs additional cash to maintain its operations.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.
NOTE 5 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2015 and 2014, cash and cash equivalents include cash on hand and cash in the bank. The Company maintains its cash in accounts held by large, globally recognized banks which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures these deposits up to $250,000. At December 31, 2015, $871,111 of the Company’s cash balance was uninsured. The Company has not experienced any losses in such accounts.
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.
The Company has deferred revenue from one customer of $1,121,185 as of December 31, 2015 and $1,125,000 as of September 30, 2015.
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NOTE 6– 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. The note receivable has five annual payments of $50,000 and carries interest of 3% a year. We reviewed the need for an allowance for loan loss and estimation of impairment of the note receivable based on professional relationship and experience with the buyer and the specifics of the agreements. As it was determined that collectability of the cash was not reasonably assured, the Company has fully reserved the receivable, and the Company will record revenue in the future when and if cash is received.
NOTE 7 – EQUITY
Since September 30, 2015, the Company has issued 132,500 restricted common shares through a Private Placement Memorandum for cash proceeds totaling $265,001.
NOTE 8 - SUBSEQUENT EVENTS
The Company hired Mike Salas as Vice President of Sales and Marketing on April 25, 2016. The employment contract grants an annual salary of $175,000.00 and restricted common stock with an annual value of $125,000. One quarter of the stock shall be granted at the end of the first quarter anniversary of employment and a like amount each quarter as long as the contract is in effect. The Company also executed a three-year lease agreement effective April 1, 2016 for a free standing building with annual rent of $86,596 for the first year increasing annual to $90,502 for the third year. The lease is automatically renewable for two one year periods at the Company’s option. The building is located in Buda, Texas.
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report “Company,” “our company,” “us,” and “our” refer to Cipherloc Corporation and its subsidiaries, unless the context requires otherwise
Forward-Looking Statements
The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may," "could," "expect," "estimate," "anticipate," "plan," "predict," "probable," "possible," "should," "continue," or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
Our Business
Cipherloc Corporation is a Technology and Services based Solutions Company for the rapidly expanding Cloud based Cyber Security industry. Cipherloc is based in Henderson, Nevada.
The company has introduced an innovative and revolutionary new type of encryption technology with five international patents and two US patents pending and is the industry’s first “Polymorphic Cipher Engine”, called CipherLoc®. It is the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (PKPA). This morphing cipher can be used in any commercial data security industry and/or in sensitive applications.
Financial results and trends
Results of Operations for the Three Months Ended December 31, 2015 and 2014
Revenue increased to $3,814 from $0 for the three months ended December 31, 2015 and 2014, respectively. Our revenues increased as a result of a software sale that was recognized using ratable accounting during the three months ended December 31, 2015.
Cost of revenue was $0 for the three months ended December 31, 2015 and 2014, respectively.
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Selling, general and administrative expenses increased to $298,767 from $176,325 for the three months ended December 31, 2015 and 2014, respectively. The increase in our selling, general and administrative expenses is related to compensation. Research and development costs increased to $154,650 from $17,431 for the three months ended December 31, 2015 and 2014, respectively. Our research and development costs increase is related to new product development of our Cipherloc technology.
Interest expense decreased to $106 from $1,024 for the three months ended December 31, 2015 and 2014, respectively. Our interest expense decreased as a result of paying off and closing our line of credit.
Liquidity and Capital Resources
We expect to incur substantial expenses and generate significant operating losses as we continue to grow our operations, as well as incur expenses related to operating as a public company and compliance with regulatory requirements. At December 31, 2015, the Company had cash of $1,131,206.
We have an accumulated deficit at December 31, 2015 of $43,588,534 and need additional cash flows to maintain our operations. We depend on the continued contributions of our executive officers to finance our operations and need to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of our products and business. We expect our cash needs for the next 12 months to be $850,000 to fund our operations. The ability of the Company to continue its operations is dependent on the successful execution of management’s plans, which include expectations of raising debt or equity based capital until such time that funds from operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company’s existence. There is no assurance that such funding, if required will be available to us or, if available, will be available upon terms favorable to us.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in any hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Principal Financial Officer need to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.
Our Chief Executive Officer and Principal Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Principal Financial Officer have concluded that our internal control over financial reporting were not effective as of December 31, 2015. There have been changes in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Specifically, management has continued to apply precise revenue recognition standards to properly record revenue.
a. | It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. |
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various collections matters; the defendants have asserted certain counterclaims. While the outcome and impact of currently pending legal proceedings cannot be predicted with certainty, based on the current status of the matters, we believe that the resolution of these proceedings through settlement or judgment will not have a material adverse effect on our consolidated operating results, financial position or cash flow
ITEM 1A - RISK FACTORS
There were no material changes from the risk factors previously disclosed in Part II, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015 during our three months ended December 31, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES
During the three months ended December 31, 2015, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company issued 132,500 shares of common stock for $265,000 in net cash 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the three months ended December 31, 2015.
ITEM 4. MINING SAFETY DISCLOSURES
N/A
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise called for by this form.
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ITEM 6. EXHIBITS
Exhibits
31.1 | Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant
Date: June 7, 2016 |
Cipherloc Corporation
By: /s/ Michael De La Garza | |
Michael De La Garza | ||
Chief Executive Officer (Principal Executive Officer) |
Registrant
Date: June 7, 2016 |
Cipherloc Corporation
By: /s/ Eric Marquez | |
Eric Marquez | ||
Chief Financial Officer (Principal Financial Officer) |
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