U.S.
SECURITIES AND EXCHANGE
 COMMISSION
 Washington,
D.C. 20549
  FORM
10-KSB/A
 Annual
Report under Section 13 or 15 (d) of the
 Securities
Exchange Act 1934:
 
 Fiscal
Year Ended December 31, 2003
 
 Commission
File Number: 0-23873
 
 **CIPHER
HOLDING CORPORATION**
 (FORMERLY
KNOWN AS)
 
 MOMENTUM
HOLDINGS CORPORATION
 
 (Exact
Name of Registrant in its Charter)
 
 Delaware
    13-4099008(State
      or other Jurisdiction of Incorporation)
    (IRS
      Employer Identification No.)
 
 3801 N.
Washington St. Oak Brook, IL 60523
 (Address
of Principal executive Offices including Zip Code)
 
 (630)
371-5583
 
 (Registrant's
Telephone Number)
 
 Securities
registered under Section 12(b) of the Exchange Act: None
 
 Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $.001
par
 
 Check
whether Registrant (1) filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act during the past 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 [
]
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or
information
 statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
thereto. [ X ]
 
 Registrant's
revenues for its most recent fiscal year: $ -0-
 
 Market
value of Common stock held by non-affiliates at April 14, 2004:
$9,765,011
 
 Shares of
Common Stock outstanding at December 31, 2003: 17,652,811 shares Documents
incorporated by reference: None
 
 Transitional
Small Business Disclosure Format (check one): Yes [ X ] No [ ]
 
 
 
  -1-
  
 TABLE
      OF CONTENTSPART
      IItem
      1.
    Description
      of BusinessItem
      2.
    Description
      of PropertyItem
      3.
    Legal
      ProceedingsItem
      4.
    Submissions
      of Matters to a Vote of Security HoldersPART
      IIItem
      5.
    Market
      for Common Equity and Related Stockholder MattersItem
      6.
    Management's
      Discussion and Analysis or Plan of OperationItem
      7.
    Financial
      StatementsItem
      8.
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      DisclosuresPART
      IIIItem
      9.
    Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange ActItem
      10.
    Executive
      CompensationItem
      11.
    Security
      Ownership of Certain Beneficial Owners and ManagementItem
      12.
    Certain
      Relationships and Related TransactionsItem
      13.
    Exhibits
      and Reports on Form 8-KItem
      14.
    Controls
      and ProceduresSIGNATURESCERTIFICATIONS
 
 
  -2-
  
 
 PART
I
 
 
 **ITEM
1. DESCRIPTION OF BUSINESS**
 
 Business
Development
 
 Cipher
Holding Corporation ("Cipher", "the Company") was incorporated under the laws of
the State of Illinois on September 13, 2002. The Company commenced its
operations upon incorporation and has been in the development stage since
then.
 
 Cipher
Holding Corporation is a digital distribution solution and marketing company
which secures and allows access to digital content through proprietary encoding,
encryption and authorization technology. Cipher's technology and services allow
publishers and distributors to distribute digital content in a secure format to
mass markets. Secured video and software content is distributed through new and
existing commercial product offerings and distribution channels.
 
 Cipher's
Digital Rights Management ("DRM") technology protects or controls access to
digital content. Cipher's technology allows publishers and distributors to
distribute full-feature video and/or software in a secure format. Secured
digital content is delivered in the form of CD/DVDs, diskettes and Internet
download format. The consumer has the ability to view a sample of the video or
demonstration of the software before purchasing of the product by unlocking the
full product for immediate use on their personal computer. The purchase and
delivery transactions are immediate and are facilitated though Cipher's
transaction processing service. Cipher's technology protects publisher's content
from copyright infringement by restricting access only to authorized
purchasers.
 
 On August
19, 2003, Cipher, then a privately owned corporation, entered a stock purchase
agreement with Momentum Holdings Corporation (Momentum), Midwest Merger
Management, LLC, a Kentucky limited liability Company and Brentwood Capital
Corp., a New York Corporation (collectively, the "Selling Shareholders").
Pursuant to the terms of the Agreement, Cipher purchased an aggregate of
1,900,000 shares of the 2,100,011 issued and outstanding shares of the Momentum
Holding Corporation's common Stock, par value $.001 per share, from the Selling
shareholders for the purchase price of $275,000 of cash and debt. Cipher
delivered the sum of One Hundred Fifty Thousand Dollars ($150,000) by wire
transfer and executed promissory notes in the amount of Sixty Thousand Dollars
($60,000) due on September 6, 2003 and a second promissory note in the amount of
Sixty-Five Thousand Dollars ($65,000) due on December 5, 2003. The notes are
presently in default.
 
 Also,
under the terms of the exchange agreement, Momentum exchanged 14,052,800 newly
issued shares of common stock for all of the issued and outstanding shares of
common stock of Cipher. The total number of issued and outstanding shares of
Momentum after the Exchange increased to 16,452,811.
 
 As a
result of the purchase and exchange of shares, Cipher acquired voting control of
Momentum on August 19, 2003 and became Momentum's majority
shareholder.
 
 Also on
August 19, 2003, Anthony R. Russo and Danny L. Pixler resigned as the sole
officers and directors of the Company. Patrick Rooney was elected as the
Company's President and Chairman of the Board of Directors and Corey Conn was
elected as the Company's Chief Financial Officer, Secretary and
Director.
 
 On
November 24, 2003, the Company amended its Articles of Incorporation to change
the name of the Company to Cipher Holding Corporation and to increase its
authorized capital stock to 100,000,000 shares of which 95,000,000 shall be
common and 5,000,000 shall be preferred. The Company also created a new class of
"blank check" preferred stock authorizing the Company's Board of Directors to
set the rights and preferences of the preferred stock without further
stockholder action.
 
  -3-
  History
of Momentum
 
 Momentum
Holdings Corporation ("Momentum") was incorporated in Delaware on January 13,
2000 under the name Momentum Holding Corp. Upon its formation, the Registrant
was a wholly owned subsidiary of Momentum Productions, Inc., a New York
corporation formed on February 23, 1999 ("Productions") which was engaged in the
business of developing and producing live theatrical properties. On March 22,
2000, Buffalo Capital VIII, Ltd., a Colorado corporation formed on September 19,
1997 ("Buffalo") acquired all of the issued and outstanding capital stock of
Productions.
 
 On June
21, 2000, the shareholders of Buffalo approved the merger of Buffalo with and
into the Registrant. The merger was effected on July 14, 2000. As a result, the
corporate domicile and name of Buffalo were changed to Delaware and Momentum
Holdings Corporation, respectively, and Productions became a wholly owned
subsidiary of Momentum.
 
 Since its
acquisition, Productions and its live theatrical business sustained increasing
losses, which led to Momentum to dispose of 100% of its interest in Productions
on December 31, 2001. Since January 1, 2002, and as a result of its December 31,
2001, disposition of its entertainment business, the Registrant has not had any
revenue from operations. During this period, the Registrant has been principally
engaged in seeking to consummate a business combination with a profitable
privately owned company. Accordingly, and despite the fact that new management
does consider the Registrant to be a development stage company, it is possible
that the Registrant could be considered to be a blank check company. As defined
in Section 7(b)(3) of the Securities Act of 1933, as amended (the "Securities
Act"), a "blank check" company is an entity that has no specific business plan
or purpose or has indicated that its business plan is to engage in a merger or
an acquisition with an unidentified company or companies and is issuing "penny
stock" securities as defined in Rule 3(a)(51) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Securities and Exchange
 
 In
December 2001, the Registrant's management determined it was in its best
interest to dispose of Productions and its live entertainment business.
Accordingly, on December 31, 2001, the Registrant entered into an Asset
Disposition Agreement with Momentum Resolution Trust, an affiliated New York
trust formed by the Registrant's management to resolve Productions' affairs (the
"Trust"). The Trust purchased 100% of the outstanding shares of Productions in
exchange for the Trust's assumption of specified liabilities of the Registrant
aggregating $300,000. As Productions' liabilities exceeded its assets by
$2,614,731, the disposition resulted in an aggregate increase to the
Registrant's stockholders equity of $2,914,731 at December 31, 2001, the
classification of which was further refined in January, 2002.
 
 On
February 5, 2002, Midwest Merger Management (MMM), LLC, a Kentucky limited
liability company engaged in the business of identifying, acquiring and
financing business operations acquired 12,001,465 (66.67%) of pre-reverse split
shares of the Registrant's Common Stock from the Registrant's former officers,
directors, and the Trust.
 
 Effective
April 5, 2002, the Registrant's Common Stock was reverse split on a one for 100
basis. As a result of this reverse split, the number of shares of the
Registrant's Common Stock then outstanding was reduced from 18,000,000 to
180,000 shares.
 
 In April
2002, in exchange for 1,000,000 post reverse split shares of the Registrant's
Common Stock issued to MMM, MMM arranged for Brentwood Capital Corp., a
privately owned business development company of which MMM was a client
("Brentwood"), to represent the Registrant in its acquisition
search.
 
 On
February 13, 2002, Momentum granted an option to Brentwood to purchase an
aggregate of 1,000,000 shares at $.40 per share. On February 15, 2002, the
Registrant accepted Brentwood's acquisition search services valued at $40,000 as
payment in full for Brentwood's option. At December 31, 2002, an aggregate of
4,000,000 post reverse split shares of the Registrant's common stock remain
eligible for the granting of options under the 2002 Stock Option
Plan.
 
  -4-
  
 Risk
Factors
 
 Our
business is subject to numerous risk factors, including the following:
 
 No
Operating History or Revenue and Minimal Assets. We are a development stage
company and we have had an unprofitable operating history and no revenues or
earnings from operations for the last 12 months. We do not have significant
assets or financial resources. We will, in all likelihood, incur operating
expenses without corresponding revenues; at least until our Business model
becomes fully operational. This may result in incurring a net operating loss,
which will increase continuously until we can develop viable markets and
distribution networks. There can be no assurance that we will be able to
accomplish our goals on acceptable terms or that it will derive any benefit from
the net operating loss.
 
 Additional
Capital Requirements. The Company's need for capital during the twelve months or
more subsequent to the offering will vary based upon a number of factors,
including the rate at which demand for its service expands, the level of sales
and marketing activities for its service, and the level of effort needed to
develop and commercialize additional applications. In addition, the Company's
business plans may change or unforeseen events may occur which require the
Company to raise additional funds.
 
 Additional
funds may not be available on terms acceptable to the Company when it needs such
funds. The unavailability of additional funds when needed could have a material
adverse effect on the Company. If adequate funds are not available to satisfy
short-term or long-term requirements, management will be required to consider a
variety of other options including seeking joint venture partners, selling or
licensing all or a portion of the Company's proprietary technology, curtailing
the development and growth of the services the Company offers, as well as other
cost cutting actions, including suspending all or a portion of the Company's
activities.
 
 Dependence
on Executive Officers and Directors. The Company's success is dependent on the
efforts and abilities of its officers and directors. The Company currently does
not have employment agreements with its executive officers. The loss of the
services of any of these individuals could materially and adversely affect the
development of the Company's business plan.
 
 The
Company's ability to attract and retain qualified marketing and management
personnel is critical to its operations. While management believes it will be
able to attract and retain sufficient professional employees to meet its needs,
there can be no assurance that management is correct. If the Company were unable
to employ the qualified employees needed, then its business would be materially
and adversely affected.
 
 Competition.
The Company expects to compete with other companies engaged in the Internet and
technology industries. Competitors in this industry could have more personnel
and greater financial and other resources than the Company. The Company may also
compete directly with firms that have much longer operating histories, greater
size, more substantial marketing organizations and established distribution
channels that are better situated in the market. The Company does not yet have
an established customer base and will likely encounter a high degree of
competition in developing one. One or more competitors could use their resources
to improve their current services or to develop new services that may compete
more effectively. New competitors may arise and may develop services, which
compete with the Company. In addition, new technologies may arise which could
lower or eliminate the demand for the Company's services. Recognizing these
factors, the Company intends to attempt to form marketing and distribution
alliances with established marketing and distribution firms for its services. No
assurance can be given that such relationships can be established or
maintained.
 
 Control
by Board of Directors and Management. The subscribers hereto will not have
substantial participation in the Company's management or the investment of the
proceeds of this Offering. Rather, they must rely on the Company's management
and the expertise provided by the Company's Board of Directors. Thus, no person
should purchase any of the Units offered hereby unless he or she is willing to
entrust all aspects of the Company's business to its management.
 
  -5-
  
 Dependence
on Emerging Markets. All of Cipher's revenue will be directly connected to the
exploitation of Cipher's business plan. Cipher's success will depend, in large
part, upon the development and expansion of this business plan, the growth and
development of which cannot be predicted with any certainty and which is subject
to, among other things, ongoing technological developments and regulatory and
access issues. The Company cannot predict the size of the market or the rate at
which the market will grow.
 
 Dependence
Upon Third Party Relationships. Cipher will be dependent on various third
parties for software, manufacturing equipment and related services. As a result,
Cipher's ability to deliver various services to its potential users may be
adversely affected by the failure of these third parties to provide reliable
software, equipment and related services to Cipher. In addition, there can be no
assurance that Cipher will be successful in establishing and maintaining such
relationships with those entities on terms favorable to Cipher.
 
 Risks
Associated with Technological Change
 
 The
market in which Cipher will compete is characterized by rapidly changing
technology; evolving industry standards, frequent new product and service
announcements, introductions and enhancements, and changing customer demands.
These market characteristics are heightened by the emerging nature of the
Internet and e-commerce. Accordingly, Cipher's future success will depend on its
ability to adapt to rapidly changing technologies, its ability to adapt its
services to meet evolving industry standards and its ability to continually
improve the performance, features and reliability of Cipher's Web site in
response to both changing customer demands and competitive product and service
offerings. Cipher's failure to successfully adapt to such changes in a timely
manner could have a material adverse effect on Cipher's business, results of
operations and financial condition.
 
 Government
Regulation
 
 Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The law of the Internet remains largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing privacy; libel
and taxation apply to our services. The rapid growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on companies conducting
business online. The adoption or modification of laws or regulations relating to
the Internet business could result in a decrease in demand for our
services.
 
 Growth of
Internet Usage. Our future eCommerce revenues and profits, if any, substantially
depend upon the widespread acceptance and use of the Internet as an effective
medium of business and communication by our targeted customers. Rapid growth in
the use of and interest in the Internet has occurred only recently. As a result,
acceptance and use may not continue to develop at historical rates, and a
sufficiently broad base of consumers may not adopt, and continue to use, the
Internet and other online services as a medium of commerce. In addition, the
Internet may not be accepted as a viable long-term commercial marketplace for a
number of reasons, including potentially inadequate development of the necessary
network infrastructure or delayed development of enabling technologies and
performance improvements. Our success will depend, in large part, upon third
parties maintaining the Internet infrastructure to provide a reliable network
backbone with the speed, data capacity, security and hardware necessary for
reliable Internet access and services.
 
 Cipher's
Founder Faces SEC Enforcement. In September 2000, the Securities and Exchange
Commission (the "SEC") commenced an action against the Company's President and
Director Patrick Rooney, his brother, John Rooney and others alleging that they
had engaged in insider trading in a publicly traded security. John Rooney and
Patrick Rooney have both advised the Company that they deny the SEC's
substantive allegations.
 
 The
Company has been made aware that in addition to objective criteria, stock
exchanges and markets impose certain subjective listing criteria on securities
sought to be listed thereon. Assuming the Company sought to list its securities
on such an exchange or market place and met the relevant objective criteria,
such a listing application may be denied as a result of a finding of securities
law violation of a principal stockholder of the Registrant such as Patrick
Rooney. For further information concerning this matter, see SEC Litigation
Release No. 16733 (September 27, 2000) available at
www.sec.gov/litigation/litreleases/lrl6733.htm or contact the SEC's Public
Reference Unit, 450 Fifth Street, N.W, Washington, D.C. 20549.
  -6-
  
 Reporting
Requirements May Delay or Preclude Acquisition. Section 13 of the 34 Act
requires the Registrant to provide certain information about significant
acquisitions including certified financial statements for the business being
acquired covering one or two years, depending on the relative size of the
acquisition. The time and additional costs that may be incurred by some target
companies to prepare such financial statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by the
Registrant. Acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable.
 
 Lack of
Market Research or Marketing Organization. The Registrant has not conducted, nor
have others made available to it, market research indicating that demand exists
for the transactions contemplated by the Registrant. Even in the event demand
exists for a merger or acquisition of the type contemplated by the Registrant,
there can be no assurance the Registrant will be successful in completing any
such business combination.
 
 Lack of
Diversification. The Registrant's proposed operations, even if successful, will,
at least in the short term and in all likelihood in the long term, result in the
Registrant engaging in a business combination with only one business
opportunity. Consequently, the Registrant's activities will be limited to those
engaged in by the business opportunity which the Registrant merges with or
acquires. The Registrant's inability to diversify its activities into
a
 number of
areas may subject the Registrant to economic fluctuations within a particular
business or industry and therefore increase the risks associated with the
Registrant's operations.
 
 Requirement
of Audited Financial Statements may disqualify business opportunities.
Management of the Registrant will request that any potential business
opportunity provide audited financial statements. One or more potential
combination candidates may opt to forego pursuing a business combination with
the Registrant rather than incur the burdens associated with preparing audited
financial statements. In such case, the Registrant may choose to obtain certain
assurances as to the target company's assets, liabilities, revenues and expenses
prior to consummating a business combination, with further assurances that an
audited financial statement would be provided after closing of such a
transaction. Closing documents for such a transaction may include
representations that the audited financial statements will not materially differ
from the representations included in such closing documents.
 
 ITEM 2.
DESCRIPTION OF PROPERTY
 
 None
 
 ITEM 3.
LEGAL PROCEEDINGS
 
 Since its
inception, no material legal proceedings have ever been pending against the
Registrant. As of the date of this Report, no legal proceedings have been
threatened against or settled by the Registrant.
 
 ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 Neither
during the fourth quarter of the fiscal year ended December 31, 2003, nor at any
time since March 25, 2002, did the Registrant conduct an Annual Meeting of its
stockholders pursuant to definitive proxy materials under Regulation 14A under
the Exchange Act, or otherwise.
 
 
  -7-
  
 PART
II
 
 ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
 (a)
Market Information.
 
 Since
approximately December 1999, the Registrant's common stock, its only class of
trading securities, and is currently quoted in the NASDAQ Bulletin Board Market
under the symbol CIHR.OB. The following table sets forth the range of high and
low bid price information for the common stock for each fiscal quarter for the
past two fiscal years. High and low bid quotations represent prices between
dealers without adjustment for retail mark-ups, markdowns or commissions and may
not necessarily represent actual transactions. The following quotations have
been adjusted for a one for 100 reverse split of the Registrant's common stock
on April 5, 2002.
 
 
 Quarter
      End
    Low
      Bid
    High
      BidDecember
      31, 2003
    $
      1.01
    $
      1.70September
      30, 2003
    0.10
    1.01June
      30, 2003
    0.10
    1.01March
      3l, 2003
    .016
    0.20December
      31, 2002
    $
      0.15
    $
      1.01September
      30, 2002
    0.25
    1.50June
      30, 2002
    0.11
    1.05March
      3l, 2002
    0.04
    0.32
 
 
 Since the
Registrant's shares began trading in the NASDAQ Bulletin Board Market, the
prices for its shares have fluctuated widely. There may be many factors that may
explain these variations. The Registrant believes that such factors include (a)
the demand for its common stock, (b) the number of shares of the Registrant's
common stock available for sale, (c) developments in the live entertainment
industry, and (d) changes in the performance of the stock market in general,
among others.
 
 In recent
years, the stock market has experienced extreme price and volume fluctuations
that have had a substantial effect on the market prices for many small and
emerging growth companies such as the Registrant, which may be unrelated to the
operating performances of the specific companies. Some companies that have
experienced volatility in the market price of their stock have been the objects
of securities class action litigation. If the Registrant became the object of
securities class action litigation, it could result in substantial costs and a
diversion of its management's attention and resources and have an adverse effect
on the Registrant's ability to consummate a business combination. In addition,
holders of shares of the Registrant's common stock could suffer substantial
losses as a result of fluctuations and declines in the market price of the
Registrant's common stock.
 
  -8-
  The
trading of shares of the Registrant's common stock is subject to limitations set
forth in Rule 15g-9 of the Exchange Act. This rule imposes sales practice
requirements on broker-dealers who sell so-called "penny stocks" to persons
other than established customers, accredited investors or institutional
investors. For any transaction involving a penny stock, unless exempt, the rules
require that a broker or dealer: (i) approve a person's account for transactions
in penny stocks; and (ii) receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in penny
stocks, the broker or dealer must: (i) obtain financial information and
investment experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable for that person
and that person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule relating to the penny stock market, which, in highlight
form, (i) sets forth the basis on which the broker or dealer made the
suitability determination; and (ii) that the broker or dealer received a signed,
written agreement from the investor prior to the transaction. Disclosure also
has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading, and about commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
 
 (b)
Holders
 
 As of
December 31, 2003, the approximate number of holders of record of shares of the
Registrant's Common Stock, $.001 par value per share, the Registrant's only
class of trading securities, was believed by management to be as
follows:
 
 
 Title
      of Class
    Number
      of Record HoldersCommon
      Stock, $.001 par
    150
 
 
 Management
believes there are many shareholders whose securities are held in street name
with various brokerage houses. The exact number of shareholders is unknown to
the Registrant.
 
 (c)
Dividends.
 
 The
Registrant has paid no dividends during the fiscal years ended December 31, 2002
and 2003. Other than the requirements of the General Corporation Law of the
State of Delaware that dividends be paid out of capital surplus only and that
the declaration and payment of a dividend not render the Registrant insolvent,
there are no restrictions on the Registrant's present or future ability to pay
dividends.
 
 The
payment by the Registrant of dividends, if any, in the future rests within the
discretion of its Board of Directors and will depend, among other things, upon
the Registrant's earnings, its capital requirements, and its financial
conditions, as well as other relevant factors.
 
  -9-
  
 
 ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 Results
of Operations
 
 We have
been at a development stage since the inception of our operations on September
13, 2002. We have had no revenues in 2003 and 2002. Our total operating expenses
were $376,041 in 2003 as compared to $112,627 from inception to December 31,
2002. Professional fees were $323,504 and accounted for 86% of the total
operating expenses, in 2003, as compared to $80,911 or 72% of the operating
expenses from inception to December 31, 2002. Substantial portion of
professional fees were for consulting regarding the company services and
finances. Management fees for 2003 and 2002 were $39,000 and $25,000
respectively. The management fees accounted for 74% and 79% of general and
administrative expenses in 2003 and 2002, respectively.
 
 The total
operating, professional, and general and administrative expenses were $488,668,
$404,495, and $84,173, from inception to December 31, 2003. The professional
fees and general and administrative expenses accounted for 83% and 17% of the
total operating expenses respectively. Management fees were $64,000, 76% of the
general and administrative expenses, from inception to December 31,
2003.
 
 Based on
the limited operating background of the company and uncertainty of future cash
flows from operations, we determined that the goodwill resulting from the
acquisition of Momentum Holding Corp. was impaired and we wrote it off. In 2003,
the total net loss was $468,090. Our loss for 2002 was $112,627. The total loss
from inception to December 31, 2003 was $580,717.
 
 We
restated our financial statements and reclassified the amount of $275,000,
previously recorded and written off as goodwill from the acquisition of the
shares of Momentum, as a reduction in the additional paid in
capital.
 
 The
Registrant did not conduct any research and development activities in the fiscal
year ended December 31, 2003.
 
 Financial
Condition
 
 The
Company had no revenues or operating cash inflows since inception of operations.
The net cash used by operations were $134,585, 112,627, and 247,212, for 2003,
2002, and from inception on September 13, 2002 to December 31, 2003. The Company
also expended $150,000 for the acquisition of Momentum Holding
Corp.
 
 The
principal source of cash inflows were convertible notes payable from shareholder
and additional paid in capital in the amounts of $24,642 and $110,000 in 2003.
In 2002 we raised the funds necessary to pay the operating expenses through
issuance of shares of common stock for $112,400. The notes payable to
shareholder and common stock issued provided us with $25,042 and $112,400, from
inception to December 31, 2003.
 
 On
December 31, 2003, we had net working capital deficiency and total stockholders'
deficit of $308,550.
 
 PLAN OF
OPERATION
 
 Cipher's
plans to continue offering technology and services to publishers and
distributors to mass market digital content in a secure format. Management does
not expect substantial revenues from its operations and plans to raise equity
capital to finance the operating and capital requirements of the Company, over
the next year. Also, the principal shareholder of the Company has agreed to make
working capital loans. While the Company is expending its best efforts to
achieve the above plans, there is no assurance that such activity will generate
sufficient funds to accomplish its business purpose, or that the Company's
business plans will be successful.
 
 
  -10-
  
 Effects
of Inflation
 
 The
Registrant believes that the relatively moderate rate of inflation over the past
few years has not had a significant impact on the Registrant's financial
position or operating results. Future Plans Our Digital Rights Management
technology allows publishers and distributors to mass distribute, full-feature
video and/or software in a secure format. Secured digital content is delivered
in the form of CD/DVD's, PC disk drives, and Internet download. Once received,
the consumer has the ability to view a trailer of the video or demo the software
before the decision to purchase and unlock the full product for immediate use on
PC. The purchase and delivery transactions are immediate and facilitated though
our transaction processing service. Our technology protects publisher's content
from copyright infringement. This delivery of secure content enables publishers
and distributors to gain exposure through mass distribution, create and
immediately fulfill demand for digital product. We develop unique and cost
effective distribution campaigns for software and video content publishers. We
enable publisher's exposure and delivery to the end consumer on a massive scale.
Utilizing our technology and services, publishers produce HOLDING CORPORATION
CD's that introduce, promote and sell digital content for immediate use on
customer's PC. Publishers can also offer an additional up sell opportunity to
customers by offering an additional feature on the unused portion of their own
DVD's that can be purchased and immediately used by the consumer on their PC.
Our distribution solution focus is the development of campaigns that assist our
clients with greater reach and increased sales of products. Our services benefit
the following; major and independent film studios, software publishers, monthly
magazine and catalog companies, retail stores, Internet retailers, computer
manufacturers, Internet Service Providers and digital content direct marketing
companies. These companies represent substantial distribution opportunities of
CD's, DVD's, PC hard drives and Internet downloads per year.
 
 
 EXPLANATORY
NOTE
 
 This Form
10-KSB/A amends and restates the original Form 10-KSB, which was filed with the
Securities and Exchange Commission on April 14, 2004, including the restatement
of the Company's financial statements for the year ended December 31,2004 and
from inception on September 13, 2002 to December 31, 2003. See Note (2) to the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations - Restatements.
 
 
 Forward
Looking Statements
 
 This
report includes "Forward-Looking Statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Any statements that
express or involve discussions with respect to predictions, expectations,
beliefs, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as "expects" or
"does not expect", "is expected", "anticipates" or "does not anticipate",
"plans", "estimates" or "intends", or stating that certain actions, events or
results "may", "could", "would", "might" or "will" be taken, occur or be
achieved) are not statements of historical fact and may be considered "forward
looking statements". Such statements are included, among other places in this
registration statement, in the sections entitled "Management's Discussion and
Analysis or Plan of Operation," "Description of Business" and "Description of
Property." Forward-looking statements are based on expectations, estimates and
projections at the time the statements are made that involve a number of risks
and uncertainties which could cause actual results or events to differ
materially from those presently anticipated. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, the
Registrant can give no assurance that such expectations will prove to have been
correct.
 
  -11-
  
 ITEM 7.
FINANCIAL STATEMENTS
 
 
 Independent
Auditors Report
 
 Restated
Consolidated Balance Sheets at December 31, 2003 and 2002
 
 Restated
Consolidated Statements of Operations for the Years Ended December 31, 2003 and
2002
 
 Restated
Consolidated Statement of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 2003 and 2002
 
 Restated
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and
2002
 
 Restated
Notes to Consolidated Financial Statements
 
  
  
 
 BLOOM
& CO., LLP
 Certified
Public Accountant
 50
Clinton Street - Suite 502 Hempstead, New York 11550
 Tel. 516
486-5900
 
 Board of
Directors Cipher Holding Corporation
 (previously
known as Momentum Holdings Corporation)
 3801 N
Washington St. Oak Brook, IL 60523
 
 We have
audited the Consolidated balance sheet of Cipher Holding Corporation (previously
known as Momentum Holdings Corporation), a development stage company, as of
December 31, 2003 and 2002 and the related consolidated statements of income,
accumulated deficit, and cash flows for the year ended December 31, 2003 and the
period from inception on September 13, 2002 to December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
 As more
fully described in Notes 1 and 5 to the financial statements of Company,
Momentum Holdings Corporation entered a reverse merger with Cipher Holding
Corporation, on August 19, 2003. The financial statements represent the
financial conditions and results of operations of the successor
company.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Cipher Holding Corporation,(
previously known as Momentum Holdings Corporation) as of December 31, 2003 and
2002 and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming
Cipher Holding Corporation will continue as a going concern. As discussed in
Note 3, the Company has sustained accumulated losses of $580,717, from inception
to December 31, 2003 and has a net working capital deficiency of $307,096 as of
December 31, 2003 that raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is dependent upon the successful completion of management plans to raise
equity capital to finance the operating and capital requirements of Cipher
Holding Corporation Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 
 
 Bloom
& Co., LLP
 Hempstead,
New York
 
 
 March 30,
2004, Except for Note 2, as to which the date is January 3, 2005.
 
 
  
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
BALANCE SHEETS**
 **DECEMBER
31, 2003 AND 2002**
 
 2003
    
    2002ASSETSCash
    
    $
    230
    
    $
    173Total
      Current Assets
    
    
    230
    
    
    173Total
      Assets
    
    $
    230
    
    $
    173LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)Accounts
      payable
    
    $
    1,455
    
    $
    --Loans
      payable - shareholders'
    
    
    --
    
    
    400Notes
      payable to shareholders'
    
    
    177,825
    
    
    --Notes
      payable - Other
    
    
    125,000
    
    
    --Interest
      Payable
    
    
    4,500
    
    
    --Total
      Current Liabilities
    
    
    308,780
    
    
    400Commitments
      and contingenciesStockholders'(Deficit)(Restated-
      Note 2):Preferred
      Stock, 5,000,000 share Authorized, no shares issued and
      OutstandingCommon
      stock, $0.001 par value;
      95,000,000
      shares authorized and 17,652,811and 8,135,928 shares issued and
      outstanding, on December 31, 2003 and 2002, respectively.
    
    
    17,653
    
    
    8,136Additional
      paid-in capital
    
    
    254,514
    
    
    104,264(Deficit)
      accumulated during the development stage (Restated, Note
2)
    
    
    (580,717
    )
    
    (112,627
    )Total
      Stockholders' (Deficit)
    
    
    (308,550
    )
    
    (227
    )Total
      Liabilities and Stockholders'
      (Deficit)
    
    $
    230
    
    $
    173The
      accompanying notes are an integral part of the financial
      statements.
 
 
  F-1
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
STATEMENT OF OPERATIONS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AND**
 **THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO DECEMBER 31,
2003**
 
 Inception
    
    Year
      ended
      December
      31,
    
    September
      13,
      2002
      to
      December
      31,
      20032003
    
    2002Revenues:
    
    $
    --
    
    $
    --
    
    $
    --Operating
      expenses:Professional
      fees
    
    
    323,504
    
    
    80,991
    
    
    404,495Marketing,
      general, and administrative
    
    
    52,537
    
    
    31,636
    
    
    84,173376,041
    
    
    112,627
    
    
    488,668Operating
      loss
    
    
    (376,041
    )
    
    (112,627
    )
    
    (488,668
    )Other
      expensesInterest
      expense
    
    
    (
      92,049
    )
    
    --
    
    
    (
      92,049
    )Total
      other expenses
    
    
    (92,049
    )
    
    --
    
    
    (92,049
    )Net
      income(Loss)(Restated, Note 2)
    
    
    (468,090
    )
    
    (112,627
    )
    
    (580,717
    )Provision
      for income taxes:Tax
      benefit of loss carryforward
    
    
    --
    
    
    --
    
    
    --Net
      income(Loss)(Restated, Note 2)
    
    $
    (468,090
    )
    $
    (112,627
    )
    $
    (580,717
    )Per
      share amounts:Loss
      per share
    
    
    (
      0.03
    )
    
    (
      0.01
    )
    
    --Weighted
      average common Shares
    
    
    15,271,949
    
    
    8,135,928
    
    
    11,760,053The
      accompanying notes are an integral part of the financial
      statements.
 
 
  F-2
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
STATEMENT OF CASH FLOWS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AND**
 **THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO DECEMBER 31,
2003**
 
 
 September
      13,
      2002
      to
      December
      31,
      2003Year
      ended
      December
      31,2003
    
    2002Cash
      Flows From Operating Activities:Net
      (loss) (Restated, Note 2)
    
    $
    (468,090
    )
    $
    (112,627
    )
    $
    (580,717
    )Adjustments
      to Reconcile Net (Loss)
      to
      Net Cash (Used) by Operating
      Activities:Stock
      issued for services
    
    
    240,000
    
    
    --
    
    
    240,000Interest
      expenseBeneficial
      conversion
    
    
    84,767
    
    
    --
    
    
    84,767Changes
      in operating current assets and
      LiabilitiesAccounts
      payable
    
    
    1,455
    
    
    --
    
    
    1,455Interest
      payable -
      Included
      loan to shareholder
    
    
    2,783
    
    
    --
    
    
    2,783Interest
      payable to Brentwood
    
    
    4,500
    
    
    --
    
    
    4,500Net
      Cash (Used) by Operating Activities
    
    
    (134,585
    )
    
    (112,627
    )
    
    (247,212
    )Cash
      Flows From Financing Activities:Notes
      payable convertible
    
    
    24,642
    
    
    400
    
    
    25,042Additional
      paid in capital
    
    
    110,000
    
    
    --
    
    
    110,000Issuance
      of common stock
    
    
    --
    
    
    112,400
    
    
    112,400Cash
      Flows Provided by Financing Activities
    
    
    134,642
    
    
    112,800
    
    
    247,442Net
      increase in cash
    
    
    57
    
    
    173
    
    
    230Cash
      at beginning of period
    
    
    173
    
    
    --
    
    
    --Cash
      at end of period
    
    $
    230
    
    $
    173
    
    $
    230The
      accompanying notes are an integral part of the financial
      statements.
 
 
 
 
 
  F-3
  
 CIPHER
HOLDING CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENT OF CASH FLOWS
 FOR THE
YEARS ENDED DECEMBER 31, 2003 AND 2002 AND
 THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO DECEMBER 31, 2003
 
 (CONTINUED)
 
 SUPPLEMENTARY
SCHEDULE OF NONCASH TRANSACTIONS
 
 
 2003
 
 In August
2003, Cipher entered a reverse merger agreement with majority shareholders of
Momentum. Under the agreement cipher purchased 1,900,000 shares of Momentum for
$150,000 cash and two notes payable in the amounts of $60,000, and $65,000 each.
Also, Momentum issued 14,052,800 new shares in exchange for all issued and
outstanding shares of common stock of Cipher. The majority shareholder of Cipher
loaned $150,000 to Cipher.
 
 At the
time of acquisition Momentum did not have any assets and the only liability of
Momentum was to Brentwood Capital Corp., a selling shareholder, who had waived
the liability prior to the exchange. The Payment of $250,000 to the prior
shareholders' of Momentum was recorded as a reduction in additional paid in
capital.
 
 The
amount of $84,767, the proceeds from issuance of the convertible debt, equal to
the difference between the fair value of the common stock and the conversion
price, was allocated to additional paid-in-capital. Because the debt is
convertible at the date of issuance, the debt discount of $84,767 was charged to
interest expense at that date. We used Black-Scholes Model to determine the
amount of the beneficial effect of the conversion feature.
 
 
 The
accompanying notes are an integral part of the financial
statements.
 
 
 
  F-4
  CIPHER
HOLDING CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
 FOR THE
YEARS ENDED DECEMBER 31, 2003 AND 2002 AND
 THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO DECEMBER 31, 2003
 
 
 
 AdditionalNumber
      of
    
    Common
    
    Paid
      inShares
    
    Stock
    
    Capital
    
    Deficit
    
    Total2002September
      13, 2002Issuance
      of Cipher
      shares
      for cash
    
    $
    8,135,928
    
    $
    8,136
    
    $
    104,264
    
    
    --
    
    $
    112,400Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    (
      112,627
    )
    
    (
      112,627
    )December
      31, 2002
    
    
    8,135,928
    
    
    8,136
    
    
    104,264
    
    
    (
      112,627
    )
    
    (
      227
    )2003Shares
      issued for cash
    
    
    7,816,872
    
    
    7,817
    
    
    102,183
    
    
    --
    
    
    110,000Payment
      to Momentum
      Shareholders
    
    
    
    
    
    
    
    
    (275,000
    )
    
    --
    
    
    (275,000
    )Recapitalization
    
    
    500,011
    
    
    500
    
    
    (
      500
    )
    
    --
    
    
    --shares
      issued services
    
    
    1,200,000
    
    
    1,200
    
    
    238,800
    
    
    --
    
    
    240,000Beneficial
      effect
    
    
    --
    
    
    --
    
    
    84,767
    
    
    --
    
    
    84,767Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    (468,090
    )
    
    (468,090
    )Total
    
    $
    17,652,811
    
    $
    17,653
    
    $
    254,514
    
    $
    (580,717
    )
    
    (308,550
    )The
      accompanying notes are an integral part of the financial
      statements.
 
 
 
 
 
 
 
  F-5
  
 
 **HOLDING
CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **NOTE
1. BUSINESS ORGANIZATION**
 
 Cipher
Holding Corporation ("Cipher", "the Company") , a development stage company, was
incorporated under the laws of the State of Illinois on September 13, 2002. The
Company commenced its operations upon incorporation and has been in the
development stage since then and has had no revenues.
 
 Cipher
Holding Corporation is a digital distribution solution and marketing company
which secures and allows access to digital content through proprietary encoding,
encryption and authorization technology. Cipher's technology and services allow
publishers and distributors to distribute digital content in a secure format to
mass markets. Secured video and software content is distributed through new and
existing commercial product offerings and distribution channels.
 
 Cipher's
developmental stage activities involve introducing and marketing its technology
and services to publishers and distributors to help them mass market their
products digitally in a secure format. Also, the Company contemplates acquiring
other operating companies.
 
 Cipher's
Digital Rights Management ("DRM") technology protects or controls access to
digital content. Cipher's technology allows publishers and distributors to
distribute full-feature video and/or software in a secure format. Secured
digital content is delivered in the form of CD/DVDs, diskettes and Internet
download format. The consumer has the ability to view a sample of the video or
demonstration of the software before purchasing of the product by unlocking the
full product for immediate use on their personal computer. The purchase and
delivery transactions are immediate and are facilitated though Cipher's
transaction processing service. Cipher's technology protects publisher's content
from copyright infringement by restricting access only to authorized
purchasers.
 
 Reverse
Merger
 
 On August
19, 2003, Momentum Holdings Corporation (the "Company", Midwest Merger
Management, LLC, a Kentucky limited liability Company and Brentwood Capital
Corp., a New York Corporation (collectively, the "Selling Shareholders"),
consummated the terms of a Stock Purchase Agreement (the "Agreement") with
Cipher Holding Corporation a privately-owned, Illinois corporation ("Cipher").
Pursuant to the terms of the Agreement, Cipher purchased an aggregate of
1,900,000 shares of the 2,100,011 issued and outstanding shares of the Company's
common Stock, par value $.001 per share, from the Selling shareholders for the
purchase price of $275,000 of cash and debt. Cipher delivered the sum of
$150,000 by wire transfer and executed promissory notes in the amount of $60,000
due on September 6, 2003 and a second promissory note in the amount of $65,000
due on December 5, 2003. The notes are presently in default.
 
 Also,
under the terms of the exchange agreement, Momentum exchanged 14,052,800
newly-issued shares of common stock for all of the issued and outstanding shares
of common stock of Cipher, amounting to 100% of Cipher's outstanding capital
stock after the Exchange, leaving 16,152,811 shares of the Company's stock
issued and outstanding.
 
 As a
result of reverse merger agreement, Cipher acquired voting control of Momentum
on August 19, 2003 and became Momentum's majority shareholder.
 
 Also on
August 19, 2003, Anthony R. Russo and Danny L. Pixler resigned as the sole
officers and directors of the Company. Patrick Rooney was elected as the
Company's President and Chairman of the Board of Directors and Corey Conn was
elected as the Company's Chief Financial Officer, Secretary and
Director.
 
 On
November 24, 2003, the Company amended its Articles of Incorporation to change
the name of the Company to Cipher Holding Corporation and to increase its
authorized capital stock to 100,000,000 shares of which 95,000,000 shall be
common and 5,000,000 shall be preferred. The Company also created a new class of
"blank check' preferred stock authorizing the Company's Board of Directors to
set the rights and preferences of the preferred stock without further
stockholder action.
 
  F-6
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
1. BUSINESS ORGANIZATION (Continued)**
 
 Going
Concern
 
 These
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The Company has sustained losses since inception and
has accumulated losses of $580,717 as of December 31, 2003. The Company's
ability to continue as a going concern is dependent upon the successful
completion of additional financing arrangements and its ability to develop and
sell its services.
 
 Cipher's
plans to continue offering technology and services to publishers and
distributors to distribute to mass market digital content in a secure format.
Management does not expect substantial revenues from its operations and plans
to
 raise
equity capital to finance the operating and capital requirements of the Company.
While the Company is expending its best efforts to achieve the above plans,
there is no assurance that such activity will generate sufficient funds to
accomplish its business purpose, or that the Company's business plans will be
successful.
 
 
 **NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Principles
of Consolidation and Nature of Operations
 
 For the
year ended December 31, 2003 and the period from August 19, 2003, the time of
reverse merger, to the end of 2003, the consolidated financial statements
include the transactions of Cipher Holding Corporation and the transactions of
Momentum Holding Corp. . For the period September 13, 2002 to August 18, 2003,
the financial statements include only the accounts of Cipher Holding Corporation
Inc. All Intercompany transactions have been eliminated.
 
 Cash and
Cash Equivalents
 
 The
Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.
 
 Income
Taxes: The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under Statement No.
109, the asset and liability method is used in accounting for income taxes.
Deferred taxes are recognized for temporary differences between the bases of
assets and liabilities for financial statement and income tax purposes. The
temporary differences relate primarily to net operating loss carryforwards. A
valuation allowance is recorded for deferred tax assets when it is more likely
than not that some or all of the deferred tax assets will not be realized
through future operations.
 
  F-7
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Loss Per
Share
 
 Loss per
share is computed based on the weighted average number of shares of common stock
outstanding. All per share data retroactively reflects the effect of the reverse
acquisition.
 
 Accounting
for Convertible Notes
 
 The
Company has issued convertible debt securities with non-detachable conversion
features. The note holder has the right to have the notes and all or a portion
of accrued and unpaid interest converted into a number of shares of
 the
Common Stock at a Conversion Price of $0.001 per share. The Company has recorded
the fair value of the beneficial conversion features as interest expense and an
increase to Additional Paid in Capital.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
 
 New
Accounting Pronouncements
 
 In
November 2002, the EITF finalized its consensus on EITF Issue 00-21, "Revenue
Arrangements with Multiple Deliverables, " which provides guidance on the method
of revenue recognition for sales arrangements that include the delivery of more
than one product or service. EITF 00-21 is effective prospectively for
arrangements entered into in fiscal periods beginning after June 15, 2003. Under
EITF 00-21, revenue must be allocated to all deliverables regardless of whether
an individual element is incidental or perfunctory. The adoption of EITF
00-21did not have a material impact on the Company's results of operations or
financial position. In January 2003, the FASB issued FASB Interpretation No. 46
("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities ("VIE's") created after January 31, 2003, and to
VIE's in which an enterprise obtains an interest after that date. On October 9,
2003 the FASB issued FASB Staff Position No. FIN 46-6 "Effective Date of FASB
Interpretation No.46 Consolidation of Variable Interest Entities," which defers
the implementation date for public entities that hold an interest in a variable
interest entity or potential variable interest entity from the first fiscal year
or interim period beginning after June 15, 2003 to the end of the first interim
or annual period ending after December 15, 2003.
 
 
  F-8
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 New
Accounting Pronouncements (Continued) This deferral applies only if 1) the
variable interest entity was created before February 1, 2003 and 2) the public
entity has not issued financial statements reporting that variable interest
entity in accordance with FIN 46, other than disclosures required by paragraph
26 of FIN 46. The adoption of FIN 46 did not have a material impact on the
Company's financial position, liquidity or results of operations.
 
 In May
2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." This Statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not materially impact the Company's financial position or results of
operations.
 
 In May
2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003. Otherwise, it is effective on July
1, 2003 except for mandatory redeemable non controlling (minority) interest
which, on October 29, 2003, the FASB decided to defer indefinitely. The adoption
of SFAS No. 150 did not materially impact the Company's financial position or
results of operations
 
 In
December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," which supercedes SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 104 rescinds accounting guidance in SAB No. 101
related to multiple element arrangements, which was previously superceded by
EITF 00-21 (see above). The adoption of SAB No. 104 did not have a material
impact on the Company's results of operations or financial
position.
 
 Restatement
of financial statements
 
 The
Company adopted recapitalization accounting for the reverse merger and restated
the financial statements and eliminated the recognition and immediate write off
of $275,000 of goodwill. The additional paid in capital was reduced by $275,000
for the liabilities incurred to acquire Momentum Holding
Corporation.
 
 The
restatement did not change the total stockholders' equity. The net loss,
accumulated deficit, and additional paid in capital were each reduced by
$275,000. The net loss per share before and after restatement are as
follows:
 
 From
      Inception toDecember
      31, 2003Net
      loss per shareAfter
      Restatement
    $
      0.03Before
      restatement
    0.04
 
 
 
  F-9
  
 
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **NOTE
3. COMMITMENT AND CONTINGENCIES**
 
 Formation
of Momentum Resolution Trust (the "Trust").
 
 During
August 2001, the Momentum Holding Corp accepted the resignation of the two
executives who operated Productions. In connection with their resignation, 100%
of the Registrant shares they owned were contributed to a Trust in contemplation
of their use in resolving the Registrant's business affairs. The Trust is a New
York irrevocable trust to which the Registrant's two remaining executives agreed
to contribute 100% of their ownership in the Registrant, to act as Trustees, and
to perform such services as necessary to resolve the Registrant's affairs
without compensation.
 
 The sole
beneficiaries of the Trust are in order of priority: the taxing authorities to
which Productions has payroll withholding tax liabilities, the Trustees for
indemnification of claims that may arise from their good faith guarantees of any
of the Registrant's business obligations, and any person the Trustees deem to
have made a valuable contribution to the accomplishment of the Trust's
purpose.
 
 On
February 5, 2002, the Trust delivered 12,001,465 pre reverse split shares or
66.7% of the Registrant's stock to Midwest Merger Management, LLC in exchange
for $250,000 in cash, notes and common stock.
 
 Disposition
of Productions
 
 During
2001, the Registrant's Board of Directors determined that it was in the
Registrant's best interest to dispose of Productions and its entertainment
projects. Accordingly, on December 31, 2001, pursuant to an Asset Disposition
Agreement, between the Company and MPI Resolution Trust, a New York irrevocable
trust was formed and managed by the Company officers for the purpose of
resolving Production's affairs (the "Trust"). The Registrant transferred 100% of
the outstanding shares of Productions to the Trust in exchange for the Trust's
assumption of specified liabilities of the Registrant aggregating $300,000. The
net liabilities transferred pursuant to this agreement include delinquent
obligations, fiduciary withholdings applicable to payroll taxes and related
taxes, as follows:
 
 
  F-10
  
 
 
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
3. COMMITMENT AND CONTINGENCIES**
 
 Disposition
of Productions (Continued)
 
 2001
Liabilities of Productions to government and third parties:
 
 Accounts
      payable and accrued expenses
    
    $
    542,633Accrued
      payroll taxes and related expenses
    
    
    900,000Notes
      payable
    
    
    835,6382,278,271Liabilities
      of Productions to related parties and minority
interest:Notes
      payable-- related parties
    
    
    290,569Minority
      interest
    
    
    86,054376,623Total
      Productions liabilities2,654,894Assets
      of Productions - Cash
    
    
    17,163Loan
      receivable-- related party
    
    
    23,000Total
      Productions assets
    
    
    40,163Productions
      liabilities in excess of assets
    
    
    2,614,731Liabilities
      of the Company assumed by the Trust
    
    
    300,000Total
      Liabilities Removed from the Company at
      December
      31, 2001
    
    $
    2,914,731
 
 
 Momentum
had not guaranteed the liabilities of Production and has removed the $2,914,731
in liabilities of Production from its financial statements.
 
 
 
  F-11
  
 
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
4. INCOME TAXES**
 
 The
details of deferred tax assets and liabilities are as follows:
 
 In 2003,
the Company used a statutory tax rate of 40% and estimated the tax asset to be
$232,000. The valuation allowance of $45,000, in 2002, was increased by
$187,000, in 2003, to equal the amount of the Company's tax assets that are
estimated to expire without providing future tax benefits. Estimated Tax Year
Loss Expiration Operating Asset on Net Incurred Date Loss Operating
Loss
 
 2002
    2022
    $
      (112,627)
    $
      45,0002003
    2023
    (468,090)
    187,000$
      (580,717)
    232,000Valuation
      allowance
    
    
    (232,000)Net
      tax assets
    
    
    $--
 
 
 Internal
Revenue Code Section 382 establishes a limit on the amount of NOLs of Momentum
Holding Corp. that may be used to offset income after the ownership change that
occurred in 2002 and 2003. The net operating loss carryforward of Momentum was
$2,028,970, as of December 31, 2003.
 
 Section
382 allows an owner shift any time there is a transfer of stock by a person who
directly, or indirectly, owns more than 5% of the corporation and the percentage
of stock of the corporation owned by one or more five percent shareholders has
increased, in the aggregate, by more than 50 percentage points over the lowest
percentage of stock owned by such shareholders at any time during the "testing
period." The "testing period" is generally a three-year period ending on the
date of any owner or equity structure shift.
 
 The
amount of post-change income that may be offset by pre-change losses is limited
each year by the "Section 382 Limitation." Generally, the Section 382 Limitation
is an amount equal to the value of the old loss corporation multiplied by a rate
established monthly by the Internal Revenue Service.
 
 
  F-12
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **NOTE
5. STOCKHOLDERS' EQUITY**
 
 Reverse
Acquisition
 
 On August
19, 2003, the Company, Midwest Merger Management, LLC, a Kentucky limited
liability Company and Brentwood Capital Corp., a New York Corporation
consummated a Stock Purchase Agreement with Cipher Holding Corporation a
privately-owned, Illinois corporation ("Cipher"). Pursuant to the terms of the
Agreement, Cipher purchased an aggregate of 1,900,000 shares of the 2,100,011
issued and outstanding shares of the Company's common Stock, par value $.001 per
share, from the Selling shareholders for the purchase price of $275,000 of cash
and debt. Cipher delivered the sum of $150,000 by wire transfer and executed a
promissory note in the amount of $60,000 due on September 6, 2003 and a second
promissory note in the amount of $65,000 due on December 5, 2003.
 
 Also,
under the terms of the exchange agreement, Momentum exchanged 14,052,800
newly-issued shares of common stock for all of the issued and outstanding shares
of common stock of Cipher, amounting to 100% of Cipher's outstanding capital
stock after the Exchange, leaving 16,452,811 shares of the Company's stock
issued and outstanding. Consequently, Cipher acquired voting control of Momentum
on August 19, 2003 and became Momentum's majority shareholder.
 
 The
transaction is accounted for as a reverse merger and the Company's name was
formally changed to Cipher HOLDING CORPORATION
 
 Recapitalization
 
 In August
2003, Cipher was merged into its Delaware subsidiary and renamed the surviving
entity Cipher Holding Corporation. The principal effects of the merger were to
more closely align the Company's identity with its operating business. In
addition, the number of Common Shares authorized was increased to 100,000,000,
95,000,000 common and 5,000,000 preferrd Cipher's capital accounts have been
restated to give effect to this recapitalization.
 
 Issuance
of Common Stock
 
 During
December 2003, the Company issued 1,200,000 unrestricted shares of common stock
for consulting services. The shares were valued at $240,000, based on a price of
$0.20 per share.
 
 Options
 
 On
February 6, 2002, the Company filed a Registration Statement on Form S-8
registering an aggregate of 5,000,000 post reverse split shares of its Common
Stock, $.001 par value per share. The shares are to be issued upon the exercise
of options granted under the Registrant's 2002 Stock Option Plan. On February
13, 2002, the Registrant granted an option to Brentwood to purchase an aggregate
of 1,000,000 post reverse split shares at $.40 per share. On February 15, 2002,
the Registrant accepted Brentwood's acquisition search services valued at
$40,000 as payment in full for Brentwood's option. The option expires on April
15, 2003. At December 31, 2002, an aggregate of 4,000,000-post reverse split
shares of the Registrant's common stock remain eligible for the granting of
options under the 2002 Stock Option Plan.
 
 Options
may be granted to employees, at such times and on such terms and conditions, as
determined by the Company. No Options will be granted after the 10th anniversary
of the effective date of the Plan.
 
  F-13
  
 
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 
 **NOTE
5. STOCKHOLDERS' EQUITY (Continued)**
 
 Options
(Continued)
 
 The
Company will determine the Option Price for each grant of an Option. The minimum
with respect to Incentive Stock Options will be one hundred percent (100%) of
the Fair Market Value of a Share on the date as of which the Option is granted.
However, if a Participant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the purchase price
per Share deliverable upon exercise of each Incentive Stock Option shall not be
less than 110% of the fair market value of the shares on the date of
grant.
 
 Each
Option will expire at such time as the Company has determined at the time of
grant. No Option will be exercisable later than the tenth (10th) anniversary
date of its grant. However, if a Participant owns stock possessing more than 10%
of the total combined shares of the Company, the Incentive Stock Option granted
to such Participant will not be exercisable after the expiration of five years
from the date of Grant.
 
 Options
granted under the Plan will be exercisable ("Vest") at such times and be subject
to such restrictions and conditions, as the Company will approve. Payment for
Shares purchased upon any exercise of an Option shall be made in full in cash or
common shares concurrently with such exercise.
 
 Except as
may be determined otherwise by the Company with respect to individual awards,
the following shall apply with respect to options of employees whose employment
is terminated:
 
 a) If the
employment of a Participant is terminated by reason of death or disability, any
outstanding Options granted to the Participant will vest as of the date of
termination of employment and may be exercised, if at all, no more than one (1)
year following termination of employment, unless the Options, by their terms,
expire earlier.
 
 b) If the
employment is terminated by reason of Retirement, any outstanding Options
granted to the Participant that are vested as of the date of termination of
employment may be exercised, if at all, no more than three years following
termination of employment, unless the Options, by their terms, expire earlier.
In the case of Incentive Stock Options, any Option exercised more than three
months after termination of employment shall lose its status as an Incentive
Stock Option.
 
 If the
employment of a Participant terminates for any reason other than the reasons set
forth in (a) or (b), above, and other than for Cause, all outstanding Options
granted to the Participant which are vested as of the date of termination of
employment may be exercised by the Participant within the period beginning on
the effective date of termination of employment and ending three months after
such date, unless the Options, by their terms, expire earlier.
 
 
  F-14
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 **NOTE
5. STOCKHOLDERS' EQUITY (Continued)**
 
 Options
(Continued)
 
 If the
employment of a Participant terminates for Cause, all outstanding Options held
by the Participant shall immediately terminate and be forfeited to the Company
at the date notice of termination is given.
 
 Any
outstanding Options not vested as of the effective date of termination of
employment will expire immediately.
 
 No Option
granted pursuant to the Plan shall be transferable otherwise than by the laws of
descent and distribution and as may be permitted by the Committee with respect
to Options which are not Incentive Stock Options. During the lifetime of a
Participant, the Option shall be exercisable only by the Participant personally
(or permitted transferee) or by the Participant's guardian or legal
representative. If a Participant shall die, the executor or administrator of the
Participant's estate or a transferee of the Option pursuant to a will or the
laws of descent and distribution shall have the right to exercise the Option in
lieu of the Participant.
 
 The
Company may from time to time authorize the grant of Options with respect to
Restricted Shares. Such Options with respect to Restricted Shares shall be
exercisable immediately but the Restricted Shares issued upon exercise of the
Options shall be subject to such restrictions, including such vesting schedule
and other terms and conditions, as may be established by the
Company.
 
 If the
employment of the Participant is terminated for any reason other than the
Retirement, Disability or death of the Participant before the expiration of the
restriction period, all rights of the Participant will terminate immediately
without further obligation on the part of the Company.
 
 If the
Participant's employment is terminated by reason of the Retirement, Disability
or Death of the Participant before the expiration of the restriction period, the
number of Restricted Shares held by the Company for the Participant's account
shall be reduced by the proportion of the restriction period remaining after the
Participant's termination of employment. The restrictions on the balance of such
Restricted Shares shall lapse on the date the Participant's employment
terminated and the certificate or certificates representing the Shares upon
which the restrictions have lapsed shall be delivered to the Participant or his
beneficiary or other successor in the event of the Participant's
death.
 
 
 
 
  F-15
  
 **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 
 **NOTE
6. NOTES PAYABLE**
 
 Notes
Payable Other
 
 Cipher in
consideration for the purchase of the shares of Momentum paid the sellers
$150,000 and issued two promissory notes in the amounts of $60,000 and $65,000.
The $60,000 and $65,000 notes bear 9% interest and are payable within 30 and 120
days, respectively. The notes are secured by the personal guarantees of Mr.
Patrick Rooney a principal shareholder and officer of the Company.
 
 As of
December 31, 2003, the Company has not paid the principal or interest of the
notes. The note holders have agreed to extend the notes. (Note 7. Subsequent
Events)
 
 Notes
Payable Shareholder
 
 1. The
principal shareholder of the Company loaned $150,000 to Cipher to provide for a
part of the acquisition cost of Momentum. The unsecured note is a demand note
and is payable no later than December 31, 2004. The interest o the note is the
prime rate.
 
 2. The
principal shareholder has advanced funds to finance the working capital
requirements of the Company. The advances are made against a demand note that is
payable by December 31, 2004. interest on the amounts advanced is computed at
prime rate. The note may be converted to common stock at a rate of $0.01 per
share.
 
 We used
Black-Scholes Model to compute the beneficial effect of the conversion feature
and recorded interest expense and additional paid in capital of
$84,767.
 
 **NOTE
7. SUBSEQUENT EVENTS**
 
 In
January 2004, the holders of $60,000 and $65,000 notes payable, issued in
acquisition of the majority shares of Momentum, agreed to extend postpone the
due dates for these notes.
 
 
 
 **ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND**
 **FINANCIAL
DISCLOSURE**
 
 None
 
  F-16
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 **PART
III**
 
 
 **ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT**
 
 (a)
Identify Directors and Executive Officers.
 
 The
following table sets forth: (1) names and ages of all persons who presently are
and who have been selected as directors of the Registrant; (2) all positions and
offices with the Registrant held by each such person; (3) the term or office of
each person named as a director; and 4) any period during which he or she has
served a such:
 
 
 Duration
      and Dateof
      Expiration of
    Position
      and Office
    Age
      andName
    Present
      Term
    with
      Registrant
    Director
      SincePatrick
      Rooney
    One
      year
    Chief
      Executive
    41December
      31, 2004
    Officer
      and Director
    August
      19, 2003Corey
      Conn
    One
      year
    Chief
      Financial
    41December
      31, 2004
    Officer,
      Director
    August
      19, 2003Anthony
      R. Russo(1)
    One
      year
    Chief
      Executive
    60August
      19, 2003
    Officer,
      and Director
    January
      2000Danny
      L. Pixler(1)
    One
      year
    
    54August
      19, 2003
    Director
    March
      2002(1)
      Resigned August 19, 2003
 
 There is
no understanding or arrangement between any directors or any other person or
persons pursuant to which such individual, was or is to be, selected as a
director or nominee of the Registrant.
 
 Business
Experience
 
 Anthony
R. Russo, had served as the Registrant's President from March 2002, and Chief
Financial Officer and Director since January 2000. Mr. Russo resigned his
position on August 19, 2003.
 
 Danny L.
Pixler has been a director of the Registrant since March 2002 and has resigned
on August 19, 2003.
 
 Patrick
Rooney- Age 41, President, Director: Mr. Rooney is the founder of the Company.
Since March, 2003, he also serves as Partner of Solaris Opportunity Fund, L.P.
From June, 1998 to April 2002, Mr. Rooney served as President of Digital Age
Ventures Ltd., a venture investment company and concurrently acts as the
President of UBInet, Inc, an internet service provider. From 1998 to 2000, Mr.
Rooney was a member of the Chicago Board Options Exchange from 1985 through 2000
and was founder and operator of Rooney Trading, Inc., an option and futures
trading company based in Chicago. Mr. Rooney has been actively involved in the
management and business development of early stage companies since
1986.
 
  F-17
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 Coreg
Conn- Age 41, Chief Financial, Director: Mr. Conn is a co-founder of the
Company. Since September, 1999. Mr. Conn serves as Managing Director of Virtual
Partnerships, LLC, a business development and business strategy consulting firm.
Previously, Mr. Conn was Vice President of Business Development at iLX, an
e-business and e-transformation services provider from June 1996 to September
1999. Mr. Conn served as a member of the Board of Directors of Uniloc, Inc.,
from April 2000 to July 2002. Mr. Conn also acted as interim President of Uniloc
from May 2002 to July 2002.
 
 Directorship
 
 Except as
disclosed in this Item, each director of the Registrant has indicated to the
Registrant that he is not presently a director in any other Registrant with a
class of securities registered pursuant to Section 12 of the 34 Act or subject
to the requirements of Section 15(d) of such act or any investment company
registered under the Investment Company Act of 1940.
 
 (b)
Identification of Certain Significant Employees
 
 The
Registrant does not presently employ any person as a significant employee who is
not an executive officer but who makes or is expected to make a significant
contribution to the business of the Registrant.
 
 (c)
Family Relationships
 
 No family
relationship exists between any director or executive officer of the
Registrant.
 
 (d)
Involvement in Certain Legal Proceedings
 
 No event
listed in Sub-paragraphs (1) through (4) of Subparagraph (d) of Item 401 of
Regulation S-B, has occurred with respect to any present executive officer or
director of the Registrant or any nominee for director during the past five
years which is material to an evaluation of the ability or integrity of such
director or officer.
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act, as amended, requires the Registrant's executive
officers and directors and persons who own more than 10% of a registered class
of the Registrant's equity securities, to file with the SEC initial statements
of beneficial ownership, reports of changes in ownership and annual reports
concerning their ownership, of Common Stock and other equity securities of the
Registrant on Forms 3, 4, and 5, respectively. Executive officers, directors and
greater than 10% shareholders are required by SEC regulations to furnish the
Registrant with copies of all Section 16(a) reports they file. To the
Registrant's knowledge, all executive officers and directors, beneficial owners
of greater than 10% of Registrant's Common Stock, have complied with all Section
16(a) filing requirements applicable to them during the Registrant's most recent
fiscal year.
 
 
  F-18
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 ITEM 10.
EXECUTIVE COMPENSATION.
 
 (a)
General
 
 (1)
through (7) All Compensation Covered. During the three fiscal years ended
December 31, 2003, the aggregate compensation paid to, accrued or set aside for
any executive officer or director of the Registrant was $691,500.
 
 (b)
Summary Compensation Table.
 
 SUMMARY
      COMPENSATION TABLEAnnual
      CompensationName
      and Position
    Year
    Salary(1)Anthony
      R. Russo,CEO (1)
    2001
    --2002
    --2003
    --Danny
      L. Pixler,
    2001
    --Chief
      Financial Officer (1)
    2002
    --2003
    --Patrick
      Rooney
    2002
    26,000CEO
    2003
    39,000Corey
      Conn
    2002
    --Chief
      Financial Officer
    2003
    --
 
 (1) On
August 19, 2003 Mr. Pixler and Mr. Russo resigned.
 (2) No
officer received any bonus or other compensation.
 
 During
the fiscal years ended December 31, 2003 and 2002, the Registrant made no grants
of stock options or freestanding SAR's to any executive officer or director of
the Registrant.
 
 --------------------------------------------------------------------------------
 
 ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
 (a)
Security Ownership of Certain Beneficial Owner. The information is furnished as
of December 31, 2003, as to the number of shares of the Registrant's Common
Stock, $.001 par value per share, owned beneficially, or known by the Registrant
to own beneficially, more than 5% of any class of such security:
 --------------------------------------------------------------------------------
 
 Name
      and Address
    Amount
      and Natureof
      Beneficial Owner
    of
      Beneficial Ownership
    Percentage
      of ClassPatrick
      Rooney
    8,352,800
    47.1
 
 
  F-19
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued)
 
 (b)
Security Ownership of Management. The following information is furnished as of
December 31, 2003, as to the number of shares of the Registrant's Common Stock,
$.001 par value per share owned beneficially by each executive officer and
director of the Registrant and by all executive officers and directors as a
group:
 
 Name
      and Address
    Amount
      and Natureof
      Beneficial Owner
    of
      Beneficial Ownership
    Percentage
      of ClassPatrick
      Rooney-CEO
    8,352,800
    47.1%3801
      N Washington St.Oak
      Brook, IL 60523All
      Officers and Directors as
    8,352,800
    47.1%a
      Group of two personsEQUITY
      COMPENSATION PLAN INFORMATIONNUMBER
      OF SECURITIES TO
    WEIGHTED
      AVERAGEBE
      ISSUED UPON EXERCISE
    EXERCISE
      PRICE OFOF
      OUTSTANDING OPTIONS,
    OUTSTANDING
      OPTIONSWARRANTS,
      AND RIGHTS(b)
    WARRANTS,AND
      RIGHTS(b)
 
 
 ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
 None
 
 
 ITEM 13.
EXHIBITS AND REPORTS ON FORM 8K
 
 (a)
Exhibits:
 
 None
 
 ITEM 14.
CONTROLS AND PROCEDURES
 
 (a)
Evaluation of disclosure controls and procedures
 
 For
purposes of rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
("Exchange Act") the term "disclosure controls and procedures" refers to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Within 90 days prior to the date of this report
("Evaluation Date"), Cipher carried out an evaluation under the supervision and
with the participation of Cipher's Chief Executive Officer and its Cipher's
Chief Executive Officer and its Chief Financial Officer of the effectiveness of
the design and operation of its disclosure controls and procedures. Based on
that evaluation, Chief Executive Officer and Chief Financial Officer have
concluded that, as of the Evaluation Date, such controls and procedures were
effective at ensuring that required information will be disclosed on a timely
basis in our periodic reports filed under and pursuant to the Exchange
Act.
 
 
  F-20
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002**
 
 **ITEM
14. CONTROLS AND PROCEDURES(Continued)**
 
 (b)
Changes in internal controls
 
 There
were no significant changes to our internal controls or in other factors that
could significantly affect our internal controls subsequent to the Evaluation
Date.
 
 
 Item 15.
Principal Accounting Fees And Services
 
 
 The
following table sets forth the aggregate fees billed to us for fiscal years
ended December 31, 2003 and 2002 by Bloom & Co., LLP, and our
auditors:
 
 2003
    
    2002Audit
      Fees (1)
    
    $
    13,000
    
    $
    12,000Non-Audit
      Fees:Audit
      Related Fees(2)
    
    
    --
    
    
    --Tax
      Fees(3)
    
    
    500
    
    
    500All
      other Fees(4)
    
    
    --
    
    
    --Total
      Fees paid to Auditor
    
    $
    13,500
    
    $
    12,500
 
 (1) Audit
fees consist of fees billed for professional services rendered for the audit of
Cipher's annual financial statements and review of the interim consolidated
financial statements included in quarterly reports and services
 that are
normally provided by Bloom & Co., LLP in connection with statutory
and
 regulatory
filings or engagements.
 
 (2)
Audit-Related fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of
Cipher's consolidated financial statements and are not reported under
"Audit
 Fees".
 
 (3) Tax
fees consist of fees billed for professional services rendered for tax
compliance, tax advice and tax planning (domestic and international). These
services include assistance regarding federal, state and international tax
compliance, acquisitions and international tax planning.
 
 (4) All
other fees consist of fees for products and services other than the services
reported above.
 
 The Board
of Directors has considered the role of Bloom & Co., LLP in providing
certain tax services to Cipher and has concluded that such services are
compatible with Bloom & Co., LLP's independence as our auditors. In
addition, the Board of Directors has approved providing certain tax services
since the effective date of the SEC rules. The rule states that an auditor is
not independent of an audit client if the services it provides to the client are
not appropriately approved. The Board of Directors will continue to pre-approve
all audit and permissible non-audit services provided by the independent
auditors until an audit committee is formed which will then he responsible for
approving audit fees. We are looking for new board members that would be
qualified to serve on an audit committee. When the audit committee is formed one
of their first assignments will be to propose to the board a code of
ethics.
 
 The Board
of Directors has adopted a policy for the pre-approval of services provided by
the independent auditors, pursuant to which it may pre-approve any service
consistent with applicable law, rules and regulations. Under the policy, the
Board of Directors may also delegate authority to pre-approve certain specified
audit or permissible non-audit services to one or more of its members, including
the Chairman. A member to whom pre-approval authority has been delegated must
report its pre-approval decisions, if any, to the Board of Directors at its next
meeting, and any such pre-approvals must specify clearly in writing the services
and fees approved. Unless the Board of Directors determines otherwise, the term
for any service pre-approved by a member to whom pre-approval authority has been
delegated is twelve months.
 
 
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 SIGNATURES
 
 Pursuant
to the requirements of the 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, in the City of New York, State of
New York on March 30, 2004.
 
 Cipher
HOLDING CORPORATION
 
 
 By:
      /s/ Patrick RooneyPatrick
      RooneyChairman
      of the Board President
 
 
 
  F-22