U.S.
SECURITIES AND EXCHANGE COMMISSION
 
 Washington,
D.C. 20549
 
 FORM
10-QSB/A
 (Mark
One)
 
 (x)
Quarterly Report under section 13 or 15(d) of the Securities Exchange Act of
1934
 for the
quarterly period ended March 31, 2005.
 
 ( )
Transition report under section 13 or 15(d) of the Securities Exchange Act of
1934
 for the
transition period from _____________ to _____________.
 
 
 Commission
File Number: 000-29449
 
 
 **CIPHER
HOLDING CORPORATION**
 (FORMERLY
KNOWN AS)
 MOMENTUM
HOLDINGS CORPORATION
 
 (Name of
small business 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)
 
 Indicate
by check mark whether Registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the proceeding 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 [ ]
 
 State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
 
 Shares of
Common Stock outstanding at May 21, 2005: 19,405,311 shares
 
 Documents
incorporated by reference: None
 
 Transitional
Small Business Disclosure Format (check one): Yes [ X ] No [ ]
 
 
 
  
  
 CIPHER
HOLDING CORPORATION
 FORM
10-QSB/A - QUARTER ENDED MARCH 31, 2005
 
 INDEX
 
 PART
      I
    FINANCIAL
      INFORMATIONItem
      1.
    Financial
      StatementsBalance
      Sheets at March 31, 2005 and December 31, 2004.Statements
      of Operations for the Three Months endedMarch
      31, 2005 and 2004 and inception September 13, 2002 through March 31,
      2005Statements
      of Cash Flows for the Three Months EndedMarch
      31, 2005 and 2004 and inception September 13, 2002 through March 31,
      2005Notes
      to Financial StatementsItem
      2.
    Management's
      Discussion and AnalysisItem
      3.
    Controls
      and ProceduresPART
      II
    OTHER
      INFORMATIONItem
      6.
    Exhibits
      and Reports on Form 8-KSIGNATURESEXHIBITS
 
  
  
 **PART
I - FINANCIAL INFORMATION**
 
 **ITEM
1. FINANCIAL STATEMENTS**
 
 The
unaudited balance sheet of the Registrant as of March 31, 2005, the audited
balance sheet at December 31, 2004, and the unaudited statements of operations
for the three months ended March 31, 2005 and 2004, follow. The unaudited
financial statements reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
BALANCE SHEETS**
 
 MARCH
      31,
    
    DECEMBER
      31,2005
    
    2004(UNAUDITED)
    
    (AUDITED)ASSETSCash
    
    $
    612
    
    $
    1,625Total
      Current Assets
    
    
    612
    
    
    1,625Total
      Assets
    
    $
    612
    
    $
    1,625LIABILITIES
      AND STOCKHOLDERS’ (DEFICIT)Accounts
      payable
    
    $
    47,025
    
    $
    21,196Notes
      payable to shareholders’
    
    
    236,974
    
    
    225,974Notes
      payable - Other
    
    
    130,000
    
    
    130,000Interest
      payable
    
    
    39,491
    
    
    33,279Total
      Current Liabilities
    
    
    453,490
    
    
    410,449Commitments
      and contingencies stockholders’ (Deficit):Preferred
      stock, 5,000,000 share authorized, no shares issued and
      outstandingCommon
      stock, $0.001 par value; 95,000,000 shares authorized and 19,405,311
      shares issued and outstanding, on March 31, 2005 and
      19,205,311 December 31, 2004, respectively.
    
    
    19,406
    
    
    19,206Additional
      paid-in capital (restated, Note 2)
    
    
    490,359
    
    
    482,558(Deficit)
      accumulated during the development stage
    
    
    (962,643
    )
    
    (910,588
    )Total
      Stockholders' (Deficit) restated, Note 2)
    
    
    (452,878
    )
    
    (408,824
    )Total
      Liabilities and Stockholders' (Deficit)
    
    $
    612
    
    $
    1,625
 
 The
      accompanying notes are an integral part of the financial
      statements.
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
STATEMENT OF OPERATIONS**
 **FOR
THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND 2004 AND**
 **THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO MARCH 31,
2005**
 
 InceptionSeptember
      13, 2002 toMarch
      31,
    
    March
      31,
    
    March
      31, 20052005
    
    2004Revenues:Total
      revenues
    
    $
    1,520
    
    $
    170
    
    $
    4,188Operating
      expenses:Professional
      fees
    
    
    43,884
    
    
    11,800
    
    
    568,423Research
      and Development
    
    
    --
    
    
    --
    
    
    11,400Marketing,
      general, and administrative
    
    
    3,478
    
    
    5,088
    
    
    111,677Total
      operating expenses
    
    
    47,362
    
    
    16,888
    
    
    691,500Operating
      loss
    
    
    (
      45,842
    )
    
    (
      16,718
    )
    
    (
      687,312
    )Other
      expenses:Interest
      expense
    
    
    (6,212
    )
    
    (4,741
    )
    
    (
      135,005
    )Total
      other expenses
    
    
    (6,212
    )
    
    (4,741
    )
    
    (
      135,005
    )Net
      income (Loss)
    
    $
    (52,054
    )
    $
    (21,459
    )
    $
    (822,317
    )Per
      share amounts:Loss
      per share
    
    
    (.002
    )
    
    (
      .000
    )
    
    --Weighted
      average common Shares
    
    
    18,722,619
    
    
    17,652,811
    
    
    15,860,336
 
 
 The
      accompanying notes are an integral part of the financial
      statements.
 
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
STATEMENT OF CASH FLOWS**
 **FOR
THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND 2004 AND**
 **THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO MARCH 31,
2005**
 
 InceptionSeptember
      13,Three
      months ended
    
    2002
      toMarch
      31,
    
    March
      31,
    
    March
      31,2005
    
    2004
    
    2005Cash
      Flows From Operating Activities:Net
      (loss)
    
    $
    (52,054
    )
    $
    (
      21,459
    )
    $
    (822,317
    )Adjustments
      to Reconcile Net (Loss)to
      Net Cash (Used) by Operating Activities:Shares
      issued for services
    
    
    --
    
    
    --
    
    
    --Changes
      in operating current assets and
      LiabilitiesInterest
      expense-beneficial conversion
    
    
    --
    
    
    --
    
    
    95,513Shares
      issued for services
    
    
    8,000
    
    
    --
    
    
    326,526Accounts
      payable
    
    
    25,830
    
    
    (
      1,455
    )
    
    47,026Interest
      payable
    
    
    --
    
    
    --
    
    
    4,500Interest
      payable
    
    
    6,211
    
    
    2,874
    
    
    37,774Net
      Cash (Used) by Operating Activities
    
    
    (12,013
    )
    
    (20,040
    )
    
    (310,978
    )Cash
      Flows From Financing Activities:Loan
      payable
    
    
    11,000
    
    
    --
    
    
    (114,000
    )Notes
      payable shareholders'
    
    
    --
    
    
    20,123
    
    
    155,042Issuance
      of common stock
    
    
    --
    
    
    --
    
    
    112,400Others
    
    
    --
    
    
    --
    
    
    48,148Additional
      paid-in-capital
    
    
    --
    
    
    --
    
    
    110,000Cash
      Flows Provided by Financing Activities
    
    
    11,000
    
    
    20,123
    
    
    311,590Net
      increase (Decrease) in cash
    
    
    (1,013
    )
    
    83
    
    
    612Cash
      at beginning of period
    
    
    1,625
    
    
    230
    
    
    --Cash
      at end of period
    
    $
    612
    
    $
    313
    
    $
    612
 
 The
      accompanying notes are an integral part of the financial
      statements.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
STATEMENT OF CASH FLOWS**
 **FOR
THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND 2004 AND**
 **THE
PERIOD FROM SEPTEMBER 13, 2002 (INCEPTION) TO MARCH 31,
2005**
 
 (CONTINUED)
 
 SUPPLEMENTARY
SCHEDULE OF NONCASH TRANSACTIONS
 
 2004
 
 During
the year ended December 31, 2004, 1,552,500 shares were issued in exchange for
consulting services, which amounted to $76,973.
 
 The
amount of $10,746, 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 $10,746 was charged to
interest expense at that date.
 
 
 2005
 
 On March
28, 2005, the Company issued 200,000 shares of common stock, par value .001 to a
consultant for website development services performed. We computed the cost of
each share using the Black Scholes model with a risk free rate of 4% and a
volatility of 230%.
 
 
 The
accompanying notes are an integral part of the financial
statements.
 
 
 
 
 
 
 
  
  **CIPHER
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.
 
 The
Company's wholly-owned subsidiary, Cipher Multimedia, Inc. is a digital
distribution solution and marketing company which secures and allows access to
digital content through proprietary encoding, encryption and authorization
technology. Through its subsidiary, 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 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 Multimedia, Inc., 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 were paid on April 28, 2004.
 
 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.
  
  **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 $822,317 as of December 31, 2004. 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, 2004, the consolidated financial statements include the
transactions of Cipher Multimedia, Inc. (subsidiary) and the transactions of
Momentum Holding Corp. (parent) from August 19, 2003, the time of reverse merger
to the end of the year. For the period September 13, 2002 to December 31, 2004,
the consolidated financial statements include only the accounts of Cipher
Multimedia 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.
 
 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.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**
 
 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
December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment"
("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees. "SFAS 123R requires that all share-based payments to
employees, including grants of employee stock options, be recognized in the
financial statements based on their fair values, beginning with the first
interim or annual period after June 15, 2005, with early adoption encouraged.
The pro forma disclosures previously permitted under SFAS 123, no longer will be
an alternative to financial statement recognition. We are required to adopt SFAS
123R in the third quarter of 2005. Under SFAS 123R, we must determine the
appropriate fair value model to be used in valuing share-based payments, the
amortization method for compensation cost and the transition method to be used
at the date of adoption. Upon adoption, we may choose from two transition
methods: the modified-prospective transition approach or the
modified-retroactive transition approach. Under the modified-prospective
transition approach we would be required to recognize compensation cost for
awards that were granted prior to, but not vested as of the date of adoption.
Prior periods remain unchanged and pro forma disclosures previously required by
SFAS No. 123 continue to be required. Under the modified-retrospective
transition method, we would be required to restate prior periods by recognizing
compensation cost in the amounts previously reported in the pro forma disclosure
under SFAS No. 123. Under this method, we would be permitted to apply this
presentation to all periods presented or to the start of the fiscal year in
which SFAS No. 123R is adopted. We would also be required to follow the same
guidelines as in the modified-prospective transition method for awards granted
subsequent to adoption and those that were granted and not yet vested. We are
currently evaluating the requirements of SFAS 123R and its impact on our
consolidated results of operations and earnings per share. We have not yet
determined the method of adoption or the effect of adopting SFAS 123R, and it
has not been determined whether the adoption will result in amounts similar to
the current pro forma disclosures under SFAS 123.
 
 In
December 2004, the FASB issued Staff Position ("FSP") No.109-2, "Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). This position provides
guidance under FASB Statement No.109 ("SFAS 109"), "Accounting for Income
Taxes", with respect to recording the potential impact of the repatriation
provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on
enterprises' income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS 109.   The Company does not have accumulated
income earned abroad and The Act and the FSP No. 109-2 do not have any
effect on the Company's financial statements.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**
 
 In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets -
An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange have commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for fiscal periods beginning after June 15,
2005. We have considered SFAS 153 and have determined that this pronouncement is
not applicable to our current operations.
 
 New
Accounting Pronouncements
 
 In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment of
ARB Opinion No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs
be recognized as current period charges regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151
requires that the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005. We have
considered SFAS 151 and have determined that this pronouncement will not
materially impact our consolidated results of operations.
 
 In
November 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - An amendment of SFAS No. 66 and 67". This statement
amends SFAS No. 66, "Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions which is provided in AICPA Statement of Position ("SOP") 04-2,
"Accounting for Real Estate Time-Sharing Transactions." This statement also
amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects," to state the guidance for (a) incidental costs and (b) costs
incurred to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those costs is subject to guidance in SOP 04-2.
SFAS 152 is effective for fiscal years beginning after June 15, 2005. We have
considered SFAS 152 and have determined that this pronouncement is not
applicable to our current operations.
 
 In
December 2003, the FASB issued a revision to Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. This revision
requires additional disclosures by the Company regarding its plan assets,
investment strategies, plan obligations and cash flows. We have considered
revised statement 132 and have determined that at this time this pronouncement
is not applicable to our current operations.
 
 
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**
 
 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.
 
 During
2004, the Company had issued 1,552,500 restricted shares of common stock for
consulting services. The shares were valued at $78,726. As explained in the note
5, the Company used the Black Scholes model and recomputed and restated the fair
value of the restricted shares at $218,850. As a result of the adjustment, the
company’s professional fees, net loss, and additional paid in capital increased
by $140,324.
 
 The
restatement did not change the total stockholders’ equity.
 
 **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.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
3. COMMITMENT AND CONTINGENCIES**
 
 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:
 
 2001
Liabilities of Productions to government and third parties:
 
 Accounts
      payable and accrued expenses
    
    $
    542,633Accrued
      payroll taxes and related expenses
    
    
    900,000Notes
      payable
    
    
    835,638$
    2,278,271
 
 Liabilities
of Productions to related parties and minority interest:
 
 Notes
      payable-- related parties
    
    $
    290,569Minority
      interest
    
    
    86,054376,623Total
      Productions liabilities
    
    
    2,654,894Assets
      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.
 
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
4. RELATED PARTY TRANSACTION**
 
 On
December 28, 2004, the Registrant modified and amended a promissory note made by
Cipher in favor of John Rooney, brother of the Registrant’s President and
Chairman, in the principal amount of $130,000. Pursuant to the terms of the
amended note, the Registrant accepted the obligation for the payment of the note
for the release of the obligation of Cipher to repay principal and interest. The
due date of the note was extended to December 31, 2006, with interest at the
rate of 10%. The note was amended to be convertible into 138,867 shares of the
Registrant’s common stock.
 
 On
December 29, 2004, John Rooney transferred the right to convert 800,000 shares
underlying the amended note to Solaris Opportunity Fund, L.P. (“Solaris”) in
satisfaction of unpaid obligations to Solaris in the aggregate amount of
$30,000. The Registrant’s President and Chairman, Patrick Rooney, is the
President of the general partner of Solaris.
 
 **NOTE
5. CONVERTIBLE NOTE**
 
 On
December 28, 2004 the Registrant entered into an agreement with John Rooney,
brother to the CEO, majority shareholder and chairman of the board, to convert
the note John Rooney was holding for $130,000, 10% due December 31, 2005 into a
10 % note for $130,000 due and payable on December 31, 2006 with the right to
convert to 1,386,667, fully and non-assessable shares at any time prior to the
repayment thereof. Additional shares may be converted for unpaid interest at
$.09375. Because of the beneficial effect of the conversion right granted to the
related party we recognized an interest of $10,746 and equivalent paid in
capital. We used black Schoeles model to compute the interest
expense.
 
 
 **ITEM
2. 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 and have had no substantial revenues to date.
 
 Total
operating expenses for March 31, 2005 and 2004 and from inception were $47,362,
$16,888 and $691,500 respectively. Of the operating expenses professional fees
were $43,884 (93%), $11,800 (70%) and $568,423 (82%), respectively. Marketing,
general and administrative expenses were $3,478 (7%), $5,088 (30%) and $,111,677
(16%), respectively. There were $11,400 (2%) research and development costs from
inception to March 31, 2005.
 
 We have
been at a development stage since the inception of our operations on September
13, 2002. Revenues as of March 31, 2005 and 2004 and from inception were $1,520,
$170 $4,188, respectively.
 
 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 the
first quarter of 2005, the total net loss was $52,054 as compared to $21,459 in
the same quarter of 2004. The total loss from inception to March 31, 2005 was
$822,317.
 
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)**
 
 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.
 
 During
2004, the Company had issued 1,552,500 restricted shares of common stock for
consulting services. The shares were valued at $78,726. As explained in the note
5, the Company used the Black Scholes model and recomputed and restated the fair
value of the restricted shares at $218,850. As a result of the adjustment, the
company’s professional fees, net loss, and additional paid in capital increased
by $140,324. The restatement did not change the total stockholders’
equity.
 Research
and development activities from inception was $11,400.
 
 FINANCIAL
CONDITION
 
 The net
cash used in operations were $12,013 and $20,040 for the first quarter of 2005
and 2004, respectively.
 
 The
principal source of cash inflows were notes payable in the amount of $130,000 in
2004.
 
 On March
31, 2005, we had a net working capital deficiency and total stockholders'
deficit of $452,878.
 
 PLAN OF
OPERATION
 
 On April
11, 2005, the Registrant executed a Securities Exchange Agreement with Imagin
whereby Imagin would transfer convertible promissory notes in favor of Imagin
and made by Positron Corporation, a publicly owned Texan corporation
(“Positron”) convertible into 64,000,000 shares of Positron common stock (the
“Positron Notes”) to the Registrant in exchange for 30,000,000 newly-issued
shares of the Registrant’s common stock (the “Exchange”). Upon consummation of
the Exchange, Imagin will become the controlling shareholder of the Registrant
and the Registrant, upon conversion of the Positron Notes would hold a majority
position of Positron. Further, after closing of the Exchange, the Registrant
intends to amend its articles of incorporation to change its name to Imagin
Molecular Corporation.
 
 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.
  
  **CIPHER
HOLDING CORPORATION**
 **(A
DEVELOPMENT STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **ITEM
3. 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 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.
 
 (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.
 
 **PART
II. OTHER INFORMATION**
 
 ITEM 1.
Legal Proceedings
 
 None
 
 ITEM 2.
Changes in Securities
 
 There
have been no changes in the instruments defining the rights or rights evidenced
by any class of registered securities.
 
 There
have been no dividends declared.
 
 ITEM 3.
Defaults Upon Senior Securities
 
 None
 
 ITEM 4.
Submission of Matters to Vote of Security Holders
 
 None
 
 ITEM 5.
Other Information
 
 None
 
 
 
  
  
 
 ITEM 6.
Exhibits and Reports on Form 8-K
 
 
 (a)
Exhibits
 
 (a)
Certification pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
 (b)
Certification pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
 
 (b)
Reports on Form 8-K
 
 1. There
were no reports filed on a Form 8-K for the first quarter ended March 31,
2005.
 
 
 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 Oak Brook, State of
Illinois on October 19, 2005.
 
 Cipher
Holding Corporation
 
 
 By: /s/
Patrick Rooney
 
 Patrick
Rooney
 Chairman
of the Board and President