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11. EQUITY
 12 Months Ended
Sep. 30, 2015
Equity [Abstract]  
11. EQUITY

NOTE 11- EQUITY     

 

As of September 30, 2015, the Company was authorized to issue 650,000,000 common shares and 10,000,000 preferred shares at a par value of $0.01. As of September 30, 2014, the Company was authorized to issue 650,000,000 common shares and 4,000,000 preferred shares at a par value of $0.01 per share. The Company issued 25,000 shares of stock for a subscription receivable for $50,000 during the year ended September 30, 2015.

  

Preferred Stock

 

On February 5, 2015, the Company issued 6,000,000 shares of its Series A Preferred Stock to its CEO. As of September 30, 2015, the Series A Preferred Stock is convertible into the Company’s common stock at a rate of 1 to 1.5 common shares. The Company recorded $9,900,000 as stock compensation based on the market value of the Company’s common stock on the date of grant. As of February 17, 2015, there are a total of 10,000,000 shares of the Series A Preferred Stock authorized and outstanding which are convertible into a total of 15,000,000 shares of common stock. Each share of the Preferred Stock has 150 votes on all matters presented to be voted by the holders of common stock. The holders of the Preferred A shares can only convert the shares if agreed upon by 50.1% vote of all preferred shareholders. During November 2015, the conversion rate for the Series A preferred stock was modified (See Note 13). 

 

Fiscal Year Ended September 30, 2015

 

During the year ended September 30, 2015, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company issued 1,147,500 shares of common stock for $2,283,000 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended (the "Act"), afforded by Rule 506 of Regulation D.

 

Stock Issued in Connection with acquisition of Software Licensing

 

During the year ended September 30, 2015, the Company issued 50,000 shares of common stock valued at $194,500 based on the market price on the date of grant in regards to the purchase of a software license known as XPSS in accordance with the Software Licensing Agreement.  Each of the two owners received 25,000 shares. 

 

Stock Issued for Services 

 

During the year ended September 30, 2015, the Company issued 161,654 shares of common stock as compensation. The fair value of the shares was $994,665 including stock that vested immediately and a performance base grant, and was recorded at the market price on the date of grant. The issuance of the immediately vesting stock was as follows:

 

 Date    Per Share    Shares    Fair Value 
 5/5/2015    4.40    5,000   $22,000 
 5/5/2015    4.40    2,000    8,800 
 7/31/2015    7.00    28,750    201,250 
 9/18/2015    5.99    53,820    322,382 
 7/31/2015    7.00    5,000    35,000 
 9/18/2015    5.99    25,000    149,750 
 9/18/2015    5.99    25,000    149,750 
 8/28/2015    7.00    5,000    35,000 
 8/24/2015    6.00    5,000    30,000 
 8/24/2015    6.00    5,000    30,000 
           159,570    983,932 

 

Stock Issued for Performance

 

Dr. Carlson shall be entitled to a performance bonus of 50,000 shares of Cipherloc stock to be paid at such time as the CipherLoc Polymorphic Hardware Engine can be demonstrated to function as a working, complete, product capable of being manufactured in facilities that would normally produce standard Field Programmable Gate Array chips. Management has determined that it is probable that the award will vest. Accordingly, the Company recognized 2,084 shares during 2015 and compensation expense of $10,733 during the year ended September 30, 2015. The unvested portion of the award will be recognized over the implied service period of twenty-four months.

 

 Date    Per Share    Shares    Fair Value 
 9/30/2015    5.15    2,084   $10,733 

 

Stock Issued for Services Related Party

 

On September 18, 2015 the Company granted 140,000 common shares to its President/CEO, Michael De La Garza. The fair value of the shares was $838,600 and was recorded at the market price on the date of grant.

 

Fiscal Year Ended September 30, 2014

  

Stock Issued for Cash

 

The Company received $7,000 for the issuance of 50,000 shares of common stock recorded as stock payable and as of September 30, 2014 the common stock has not been issued by the Company.

 

During the year ended September 30, 2014, the Company issued 187,000 shares of common stock for $37,000 in net cash proceeds as follows:

Date  Number of Shares  Proceeds
 October 21, 2013    25,000   $5,000 
 January 12, 2014    10,000    10,000 
 September 3, 2014    152,000    22,000 
 Total    187,000   $37,000 

 

Stock Issued in Connection with Software Licensing and Subscription Agreements

 

During the year ended September 30, 2014, the Company issued 220,000 shares of common stock valued at $5,700 based on the market price on the date of grant, to customers, in regards to the purchase of software from the Company in accordance with the Software Licensing and Subscription Agreements. The fair values of the shares issued were recorded as a reduction of software revenue recognized.

 

Date  Number of Shares  Fair Value
 December 4, 2013    120,000   $3,600 
 February 21, 2014    100,000    2,100 
 Total    220,000   $5,700 

 

Stock Issued for Asset Acquisition

 

In October 2013, the Company through a purchase agreement with Antree Systems Limited has purchased a complete source code, intellectual property rights, all computer software, patents, or formulas, algorithm licensed or sold under a project known as Compass Rose and appropriate copyrights, patents, mask works, trademarks, service marks, internet domain names and world wide web uniform resource locators (“URLs”) from Antree Systems Limited. The Company issued 200,000 shares of its common stock as consideration for the purchase. The fair value of the consideration and the assets acquired is based on the fair value of the common stock issued in exchange for the software. The total fair value, based on the market price on the date of grant, was $6,000. The Company evaluated this acquisition and determined that it did not meet the definition of a significant business acquisition.

 

In November 2013, the Company issued 180,000 shares of common stock as replacement shares for the 160,000 shares of common stock issued to Antree Systems Limited and 20,000 shares of common stock to Kimberly Ilicerl. The Company intends to cancel the original shares issued because the shares were lost during delivery to the shareholders.

 

Stock Issued for Services

 

During the year ended September 30, 2014, the Company issued 68,242,506 shares of common stock as compensation. The fair values of the shares were a total of $1,625,119 and were recorded at the market price on the date of grant. The issuances of stock were as follows:

Date  Number of Shares  Fair Value  Description of Services
 March 5, 2014    31,750,000   $666,750   Compensation to officers
 April 3, 2014    5,000    116   Compensation for legal services
 April 21, 2014    1,392,506    34,227   Compensation for CipherLoc consultants
 April 22, 2014    7,000,000    138,600   Marketing agreement with Hemp, Inc.
 May 3, 2014    5,000    115   Compensation for legal services
 May 5, 2014    50,000    1,150   Compensation for marketing services
 May 6, 2014    25,000,000    605,000   Compensation to a sales consultant
 June 3, 2014    5,000    111   Compensation for legal services
 July 7, 2014    35,000    1,750   Compensation for CipherLoc consultants
 September 3, 2014    3,000,000    177,300   Compensation for marketing services
 Total    68,242,506   $1,625,119    

 

In June 2014, the Company entered into a consulting agreement with Gawk, Inc. This agreement required the issuance of 3,000,000 common shares and Gawk has agreed to assist the Company in seeking additional purchasers of CipherLoc Encryption Technology within the entertainment industry.