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Commitments and Contingencies
6 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company is currently not involved in any litigation that it believes could have a material adverse effect on its financial condition or results of operations. A disgruntled former consultant has brought an action in Texas state court against the Company and its chief executive officer, alleging fraud and misrepresentation pertaining to stock and payments alleged to be owed to the consultant. The Company has made all required payments and delivered the stock to the consultant. The consultant 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 the Company’s behalf by its insurance carrier.

 

Leases

 

In March 2019, the Company guaranteed a lease on behalf of Ageos, LLC, a sales representative assisting the Company with securing contracts with agencies of the United States government. The lease has a term of three years for 4,359 square feet of space in McClean, Virginia. The initial rent cost is $7,991 per month and the lease agreement provides for annual rent increases of approximately 4.0%. The amount of future payments guaranteed is $291,364. The nature of the guarantee and the operating agreement with Ageos, as discussed below, makes Cipherloc primarily responsible for the lease. As such, lease payments and lease obligations will be shown in the financial statements of Cipherloc.

 

In February 2019, the Company and the landlord for its leased office space in Buda, Texas entered into a new lease agreement, and the Company reduced its rented space from approximately 3,900 to 1,302 square feet. The new lease was effective February 1, 2019 and has a three-year term. The initial monthly rent is $2,566, and the lease agreement provides for annual rent increases of approximately 2.7%. The lease automatically renews for a three-year term, 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.

 

In February 2019, the Company terminated its lease agreement for 1,005 square feet of office space on Butherus Drive in Scottsdale, Arizona effective March 1, 2019. In exchange for the lease termination, the Company relinquished its right to payments it had made to prepay rent through October 31, 2019. As a result of the termination, the Company recorded a charge to rent expense of approximately $13,000.

 

In October 2018, the Company leased approximately 3,900 square feet of office space on North Scottsdale Road in Scottsdale, Arizona. The lease for this facility began on October 4, 2018 and continues until October 31, 2021. Annual rent of $77,180 was prepaid for the first year from November 1, 2018 to October 31, 2019, and the lease agreement provides for annual rent increases of approximately 5.0%.

 

Ageos, LLC Operating Agreement

 

In the quarter ended March 31, 2019, the Company paid Ageos, LLC, a newly formed separate entity, approximately $700,000. The purpose of the funds was to establish an office in McLean, Virginia and to develop the resources and personnel to market the Company’s products to governmental sources, primarily requiring advanced security clearances that the Company does not currently have. On April 24, 2019 the Company entered into an Operating Agreement with Ageos that provides for how revenues will be shared from sales derived from the Company’s products. The advances through March 31, 2019 have been expensed as incurred in the accompanying statements of operations.

 

As Ageos is a newly formed venture, designed primarily to work with the Company in marketing its products, management is in the process of determining if Ageos represents a Variable Interest Entity that must be consolidated with the operations of the Company. The Company has expensed all advances to date, which largely represent non-capitalizable expenditures, and consequently believes that consolidation would not change the reported results of operations for the quarter ended March 31, 2019.