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Item 8. Financial Statements and Supplementary Data

2020-12-29 compared with 2020-01-10 · 388 added, 453 removed, 413 unchanged (67% of the section changed)

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OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Sheets at September 30, 2019 and 2018

Sheets as of September 30, 2020 and 2019

of Operations for the years ended September 30, 2020 and 2019

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on the Financial Statements

have audited the accompanying balance sheet of Cipherloc Corporation (the “Company”) as of September 30, 2019, and

the related statements of operations, stockholders’

equity, and cash flows for the year ended September 30, 2019, and the

related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of September 30, 2019, and the results of its operations

and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of

have audited the accompanying balance sheets of Cipherloc Corporation (the “Company”) as of September 30, 2020 and

2019, and the related statements of operations, stockholders’

equity (deficit), and cash flows for each of the years in

the two-year period ended September 30, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of

September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period

ended, in conformity with accounting principles generally accepted in the United States of America.

Company’s Ability to Continue as a Going Concern

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

in Note 2 to the financial statements, the Company has incurred recurring losses from its operations, has negative working capital,

and a significant accumulated deficit, which raise substantial doubt about its ability to continue as a going concern.

Management’s

plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audit.

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

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and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

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Accordingly, we express no such opinion.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

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used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We believe that our audits provide a reasonable basis for our opinion.

Briggs & Veselka Co.

have served as the Company’s auditor since 2019.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and

of Cipherloc Corporation

on the Financial Statements

have audited the accompanying balance sheet of Cipherloc Corporation (the “Company”) as of September 30, 2018, and

the related statements of operations, stockholders’

equity, and cash flows for the year ended September 30, 2018, and the

related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of September 30, 2018, and the results of its operations

and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but

not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

have served as the Company’s auditor during 2018.

Francisco, California

Current assets

and cash equivalents

current assets

LIABILITIES & STOCKHOLDERS’

Operating lease ROU

LIABILITIES &

STOCKHOLDERS’

EQUITY (DEFICIT)

Current liabilities

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Accrued compensation

revenue-current

Operating lease liability

current portion

protection program loan –

current portion

current liabilities

COMMITMENTS AND CONTINGENCIES (NOTE

STOCKHOLDERS’

Series A convertible

preferred stock, $0.01 par value, 10,000,000 shares authorized;

1,000,000 and 1,000,000 issued and outstanding as of September

30, 2019 and 2018, respectively

Common stock, $0.01

Paycheck protection

program loan –

Operating lease

liability –

long-term portion

Commitments and contingencies

Series A convertible preferred stock, $0.01

par value, 1,000,000 shares authorized;

40,792,510 and 40,743,917 issued and outstanding as of September 30, 2019 and 2018,

Additional paid-in

(61,456,536 )

(54,622,513 )

1,000,000 shares issued and outstanding as of September 30, 2020 and September 30,

Common stock, $0.01 par value, 681,000,000 shares

27,505,196 and 40,792,510 shares outstanding;

and 40,792,510 and 40,792,510 issued as of September 30, 2020 and

September 30, 2019, respectively

Treasury stock, at cost 13,287,314 shares

Additional paid-in capital

Accumulated deficit

stockholders’

equity (deficit)

liabilities and stockholders’

equity (deficit)

accompanying notes are an integral part of these financial statements.

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Sales and marketing

Research and development

and development

operating expenses

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Other (expenses) income:

Loss on extinguishment

of convertible notes

Excess fair value

of derivatives in convertible note

Change in fair value

of embedded conversion features in convertible notes

income (expense), net

other expenses, net

$ (6,834,023 )

$ (4,420,783 )

common share - Basic and diluted:

on disposal of asset

other income, net

Net loss per common

share - Basic and diluted:

Weighted average

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THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019

Additional Paid-in

Stockholders’

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$ (54,622,513 )

Common stock issued for cash, net of

offering costs of $2,356,662

Common stock issued to officers and

Common stock issued for services

Common stock issued for legal settlement

Common stock issued for warrant exercise

Convertible notes –

Convertible note –

existing warrants

Settlement of convertible note

Related party conversion of preferred

Balance at September

$ (54,622,513 )

Common stock issued to an employee

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$ (61,456,536 )

Stock option expense issued to directors

Purchase of treasury stock

Balance at September

$ (68,426,608 )

accompanying notes are an integral part of these financial statements.

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CASH FLOWS FROM OPERATING ACTIVITIES:

$ (6,834,023 )

$ (4,420,783 )

Adjustments to reconcile

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Stock-based compensation

Impairment loss

Loss on disposal

Stock issued for

Settlement expenses

Loss on extinguishment

of convertible notes

Termination of software

Excess fair value

of derivatives in convertible note

Change in fair value

of embedded conversion features in convertible notes

Debt discount amortization

Changes in operating

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CASH FLOWS FROM FINANCING ACTIVITIES

Common stock issued

for cash, net of offering costs of $2,356,662

Repayment of oversubscription

Proceeds from convertible

of convertible notes

cash used/provided by financing activities

INCREASE (DECREASE) IN CASH

Purchase of treasury

Proceeds from PPP loan

of oversubscription

cash provided by (used in) financing activities

DECREASE IN CASH

CASH, BEGINNING

NON-CASH FINANCING ACTIVITIES:

of common stock with convertible notes

of warrants with convertible note

of warrants issued with convertible note

of convertible note

CASH, END OF YEAR

NON-CASH INVESTING AND FINANCING ACTIVITIES :

Capitalization

operating lease liability recorded

Unpaid treasury stock

accompanying notes are an integral part of these financial statements.

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Corporation (the “Company”

or “Cipherloc”) was incorporated in Texas on June 22, 1953 as American Mortgage

or “Cipherloc”) was incorporated in the State of Texas on June 22, 1953 as

American Mortgage Company.

Effective August 27, 2014, the Company changed its name to Cipherloc Corporation.

2 - GOING CONCERN

do not believe that our existing cash balances are sufficient to fund future operations for the next 12 months.

We are considering

options to issue additional equity as a means to increase liquidity sufficient to fund operations into the start of calendar year

If we are unsuccessful doing so, then the Company will cease operations.

September 30, 2020, the Company had not yet achieved profitable operations.

We had a net loss of approximately $7.0 million

for the year ended September 30, 2020 and had an accumulated deficit in aggregate of approximately $68.4 million since

our inception.

We expect to incur further losses in the development of our business.

These conditions raise substantial doubt

about the Company’s ability to continue as a going concern.

Company’s ability to continue as a going concern is dependent on its ability to generate future profitable operations and/or

to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when

they come due.

Management’s plan to address the Company’s ability to continue as a going concern includes:

(1) obtaining

debt or equity funding from private placement or institutional sources;

(2) generating cash flow from operations.

Although management

believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods

discussed above, there can be no assurances that such methods will prove successful.

financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the financial

statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets

or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

SIGNIFICANT ACCOUNTING POLICIES

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the asset is written down to its estimated fair value.

There was no impairment recorded during the years ended September 30, 2019

There was no impairment recorded during the year ended September 30, 2019.

During the year ended September 30, 2020, the Company recorded an impairment loss of $382,961 related to its Virginia lease.

addition, the Company recorded a loss of $44,336 on the disposal of fixed assets.

Value of Financial Instruments

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were determined using level 2 measurements and are discussed in further detail in Notes 5 and 8, respectively.

debt is accounted for under the guidelines established by ASC 470-20, Debt with Conversion and Other Options .

governs the calculation of an embedded beneficial conversion, a derivative instrument, which is treated as an additional discount

to the instruments where derivative accounting does not apply.

This applies during the period for which embedded conversion features

are either fixed or not yet available to the holder.

The amount of the beneficial conversion feature may reduce the carrying value

of the instrument.

The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted

over the term of the debt.

equity instruments, such as common stock and/or warrants, are issued with convertible debt, the net proceeds from the transaction

are allocated to the convertible debt and equity instruments based on their relative fair values.

The proceeds allocated to the

equity instruments may reduce the carrying value of the convertible debt, and such discount is amortized to interest expense over

the term of the debt.

the event a convertible note has an embedded conversion feature which, among other features, allows an unlimited number of common

shares to be issued upon conversion since the conversion price is based on the quoted market price of the Company’s common

stock, the Company records a derivative liability, which is marked to market at each reporting period and charged to the statement

of operations in accordance with ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities .

Concentration

the years ended September 30, 2019 and 2018, one customer accounted for 100% of revenues.

The loss of this customer would not

have a significant impact on operations.

Company derives its revenue from sales of its products, support and services.

Product revenue consists of the Company’s

software sold as complete turn-key integrated solutions, as stand-alone software applications or sold on a subscription or consumption

Depending on the nature of the arrangement revenue, related to turn-key solutions and stand-alone software applications

are generally recognized upon shipment and delivery of license keys.

For certain arrangements revenue is recognized based on usage

or ratably over the term of the arrangement.

Support and services revenue consist of both maintenance revenues and professional

services revenues.

Revenue is recorded net of applicable sales taxes.

accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue when persuasive

evidence of an arrangement exists, the fee is fixed or determinable, delivery has occurred, and collection of the resulting receivable

is deemed probable.

Products delivered to a customer on a trial basis are not recognized as revenue until the trial period has

ended and acceptance has occurred by the customer.

Reseller and distributor customers typically send the Company a purchase order

when they have an end user identified.

the year ended September 30, 2020 two customers accounted for approximately 100% of the Company’s revenues.

During the year

ended September 30, 2019, one customer accounted for approximately 100% of the Company’s revenues.

Company recognizes revenues in accordance with the provisions of Accounting Standards Update 2014-09, “Revenue from Contracts

with Customers,”

and a series of amendments which together we identify as “ASC Topic 606”.

This new accounting

standard, which we adopted on October 1, 2018 using the permitted modified retrospective method, outlines a single comprehensive

model for entities to use in accounting for revenues arising from contracts with customers.

The new standard supersedes most previous

revenue recognition guidance, including industry-specific guidance.

The effect of the adoption of ASC Topic 606 on retained earnings

as of October 1, 2018 was not material.

The differences between our reported operating results for the nine months ended June

30, 2020, which reflect the application of the new standard on our contracts, and the results that would have been reported if

the accounting was performed pursuant to the accounting standards previously in effect, also were not material.

to the new revenue recognition guidance is a five-step revenue recognition model that requires reporting entities to:

Identify the contract,

Identify the performance obligations of the contract,

Determine the transaction price of the contract,

Allocate the transaction price to the performance obligations, and

Recognize revenue.

Company accounts for a promise to provide a customer with a right to access the Company’s intellectual property as a performance

obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s

performance of providing access to its intellectual property as the performance occurs.

of Products and Services

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right to payment is conditioned upon providing product support and services in future years.

were no accounts receivable balances at September 30, 2019 and 2018.

There was no adjustment needed to accounts receivable

were no accounts receivable balances on September 30, 2020 and 2019.

There was no adjustment needed to the accounts receivable

for the cumulative effect of applying ASC 606 under the modified retrospective method.

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and technical support revenue are recognized ratably over the coverage period.

Deferred revenue also includes contracts

for professional services to be performed in the future which are recognized as revenue when the company delivers the related

service pursuant to the terms of the customer arrangement.

Deferred revenue also includes contracts for professional

services to be performed in the future which are recognized as revenue when the company delivers the related service pursuant

to the terms of the customer arrangement.

in deferred revenue were as follows:

Twelve Months Ended September 30, 2019

Balance at September 30, 2018

Year Ended September 30, 2019

Balance on September 30, 2018

Cumulative effect

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Deferral of revenue

Recognition of revenue

Balance at September 30, 2019

Year Ended September 30, 2020

Balance on September 30, 2019

Deferral of revenue

Balance at September 30, 2020

Note (1) Summary of Significant Accounting Policies, section (s) to our Financial Statements for further information.

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recognized as revenue in future periods.

Deferred revenue was $28,400 as of September 30, 2019, of which the Company expects

to recognize 100% of the revenue over the next 12 months.

Deferred revenue was $15,417 as of September 30, 2020, of which the Company expects to

recognize 100% of the revenue over the next 12 months.

terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days.

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based on the grant-date fair value of the award.

There were both fully vested stock grants and stock options granted to employees

and non-employees during the year ended September 30, 2019.

As such, compensation cost was recognized for grant as well as a ratable

portion for the stock options vesting over a three-year time frame.

All equity awards granted to employees and non-employees during

the year ended September 30, 2018 were fully vested upon grant.

As such, compensation cost was recognized at the time of the grant.

There were stock options issued during the year ended September 30, 2020, however,

awards were subsequently forfeited.

Outstanding awards are the awards issued for the fiscal year 2019.

There were both fully vested

stock grants and stock options granted to employees and non-employees during the year ended September 30, 2019.

As such, compensation

cost was recognized for grant as well as a ratable portion for the stock options vesting over a three-year time frame.

Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation,

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All share-based awards are expected to be fulfilled with new shares of common stock.

ASC 718-20-35-7, Repurchase or Cancellation of equity awards, the amount of cash or other assets transferred (or liabilities incurred)

to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of

the equity instruments repurchased at the repurchase date.

Any excess of the repurchase price over the fair value of the instruments

repurchased shall be recognized as additional compensation cost.

Company utilizes the asset and liability method in accounting for income taxes.

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Company uses the two-step approach to recognize and measure uncertain tax positions.

The first step is to evaluate

the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that

the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step

is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.

The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may

require periodic adjustments.

The Company did not record any liabilities for uncertain tax positions during the years ended September

30, 2019 or 2018.

The first step is to evaluate the tax position

for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will

be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure

the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.

The Company considers

many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments.

The Company did not record any liabilities for uncertain tax positions during the years ended September 30, 2020 or 2019.

and Diluted Net Loss per Common Share

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As of September 30, 2020, and 2019,

the Company had 1,000,000 shares of preferred stock outstanding, which are convertible into 1,500,000 shares of common

the Company had 1,000,000 shares of preferred stock outstanding, which are convertible into 1,500,000 shares of common stock.

loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential

common stock equivalents would be anti-dilutive as a result of the net loss.

During the years ended September 30, 2019 and 2018,

24,290,866 warrants, 1,100,000 stock options, and 1,000,000 shares of convertible preferred stock were excluded from the calculation

of diluted loss per share because their effect would be anti-dilutive.

and Going Concern Considerations

Company feels the cash on hand is sufficient to enable the Company to continue in operation through January 2021.

During the year ended September 30, 2020, 24,146,866

warrants, 800,000 stock options and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted

loss per share because their effect would be anti-dilutive.

During the year ended September 30, 2019, 24,290,866 warrants, 1,100,000

stock options, and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share

because their effect would be anti-dilutive.

Accounting Announcements

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There have been several ASUs to date that amend the original text of the ASCs.

than those discussed below, the Company believes those ASUs issued to date either (i) provide supplemental guidance, (ii) are

technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

those discussed below, the Company believes those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical

corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the

income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is

not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

adoption is permitted.

The Company are currently evaluating the impact of ASU 2019-12 on its financial statements, which is effective

for the Company in its fiscal year and interim periods beginning on October 1, 2021.

August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) –

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periods within those fiscal years, beginning after December 15, 2019.

The Company is currently in the process of evaluating the

effect this guidance will have on its financial statements and related disclosures.

The Company adopted ASU 2018-13 on October 1, 2019 and the

adoption of this update did not have a material impact on the Company’s notes to the financial statements.

June 2018, the FASB issued ASU 2018-07, Compensation –

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for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company is currently in

the process of evaluating the effect this guidance will have on its financial statements and related disclosures.

February 2016, the FASB issued ASU 2016-02, Leases (Topic 840) , to increase transparency and comparability among organizations

by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

Early adoption of the amendments in this standard is permitted for all entities, and the Company may recognize and measure leases

at the beginning of the earliest period presented using a modified retrospective approach.

In July 2018, the FASB issued ASU 2018-11,

Leases (Topic 840):

Targeted Improvements , to provide a new transition method and practical expedient for separating components

of a contract.

The amendments in this standard are effective for fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2018.

The Company is currently in the process of evaluating the effect this guidance will have on

its financial statements and related disclosures.

The Company adopted ASU 2018-07

on October 1, 2019 and the adoption of this update did not have a material impact on the Company’s financial position, results

of operations and cash flows.

February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and

requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset (ROU) and corresponding

lease liability, including leases currently accounted for as operating leases.

Leases of mineral reserves and related land leases

have been exempted from the standard.

We adopted ASU 2016-02, Leases, on October 1, 2019.

We elected the “package of practical

expedients”

within the standard which permits us not to reassess prior conclusions about lease identification, lease classification

and initial direct costs.

We made an accounting policy election to not separate lease and non-lease components for all leases.

The adoption of this standard resulted in the recognition of right-of-use assets and lease liabilities of $0.2 million, which

were not previously recorded on our balance sheet.

FIXED ASSETS, NET

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expense for the years ended September 30, 2020 and 2019 was $18,243 and $16,927, respectively.

The fixed assets were disposed

of during 2020.

SOFTWARE LICENSES

Software License Agreement

Company entered into a one-year agreement renewable for up to 4 years for an annual $50,000 Shield license fee and $25,000 watermark

base license fee with SoundFi LLC (“SoundFi”).

Residual income to the Company is earned based on the number of audio

files downloaded per year with residual earnings of $.012 per download exceeding 3,000,001 and scaling up to $.00075 per download

exceeding 100,000,000.

During the year ended September 30, 2019, the Company recognized $46,600 in licensing revenue.

has determined the best method for measuring licensing revenue to be the passage of time and more specifically on a monthly basis

because the customer can request modifications over the term of the arrangement.

The recognition of residual income occurs on

an annual basis based on download volume provided by Soundfi.

A download is defined as an audio file downloaded to a mobile device

from the Soundfi servers.

June 14, 2014, the Company entered into a license agreement with Gawk to use the Cipherloc engine for $1,125,000 for a period

of four (4) years.

This customer licensed the CipherShop-Cipherloc encryption software technology and support services.

was not required to make significant modifications at the time the contract was executed.

Prior to this, the Company had never

sold or licensed the CipherShop-Cipherloc encryption software, nor any support services for such.

Under the license agreement,

the Company was to provide access to its software on an operational basis and provide training.

The Company would also provide

unspecified upgrades, if and when available, and 24/7 support over the license term.

No VSOE was known for any of the elements.

After the agreement was executed, the licensee requested modifications to the software because they could not otherwise use the

The Company made the requested modifications to the software and delivered the finished product in late December 2015;

thus, delivery had not deemed to have occurred until such date.

The contract termination date was not extended beyond the

initial date of June 2018.

Revenues were recorded from the date of delivery over the remaining term of the agreement or approximately

For these reasons, revenue is recognized ratably from December 2015 until June 2018.

During the year ended September

30, 2018, the Company recognized revenues of $316,248.

CONVERTIBLE NOTES PAYABLE

Global Opportunities Fund, LLC

September 26, 2017, the Company issued a convertible note payable to FirstFire Global Opportunities Fund, LLC (“FirstFire”)

with a principal amount of $330,000, which included an original issue discount of $30,000.

The Company incurred $8,500 in debt

issuance costs.

The note accrued interest at 5% per annum and was to mature on March 26, 2018.

The note was convertible at $2.00

per share, subject to adjustment due to ratchet or down round protection, among other adjustments.

The Company also issued 50,000

shares of its common stock, as well as warrants to purchase an additional 165,000 shares of common stock at $4.50 per share with

a term of two years.

The note was amended on December 20, 2017, which reduced the conversion price of the note from $2.00 to $1.00

per share and the exercise price of the warrants from $4.50 to $2.00.

The amendment also required the Company to issue an additional

87,500 shares of common stock to FirstFire.

The Company also received the right to prepay the convertible note at any time from

the 151st through the 180th day following September 26, 2017, then the Company could repay FirstFire at 130% multiplied by the

outstanding principal amount plus accrued and unpaid interest.

reduction of the conversion price from $2.00 to $1.00 was deemed to create a beneficial conversion feature, therefore, the Company

accounted for the amendment of the FirstFire note using ASC 815, Derivatives and Hedging , and recognized a loss on extinguishment

of $358,038 during the three months ended December 31, 2017.

The Company also recognized a beneficial conversion feature derivative

liability of $320,312 as of the note’s amendment date.

The Company valued the beneficial conversion feature derivative liability

with the Black-Scholes-Merton valuation model on the date of the amendment using an expected life of one (1) year, volatility

of 150%, and risk-free rate of 1.87%.

the year ended September 30, 2018, the Company recognized a gain of $11,234 related to the change in fair value of the FirstFire

beneficial conversion feature derivative liability.

The Company valued the beneficial conversion feature derivative liability

with the Black-Scholes-Merton valuation model as of March 21, 2018, immediately prior to the settlement of the note as described

below, using an expected life of 0.78 years, volatility of 150%, and risk-free rate of 1.71%.

Additionally,

upon the December 20, 2017 amendment of the FirstFire note, the Company recorded a debt discount of $330,000.

The Company amortized

$312,813 of the debt discount to interest expense during the year ended September 30, 2018.

Total interest expense related to

the FirstFire note, including the debt discount amortization, was $453,700 for the year ended September 30, 2018.

March 21, 2018, the Company entered into a settlement agreement with FirstFire, under which FirstFire converted $77,500 of the

note payable into 50,000 shares of common stock, and the Company paid $350,000 to satisfy the convertible note payable in full.

In connection with the settlement of the FirstFire note, the Company recognized a gain on extinguishment of $194,391.

One Opportunity Fund LP

December 14, 2017, the Company issued a convertible note payable to Peak One Opportunity Fund LP (“Peak One”) with

a principal amount of $300,000.

The Company incurred $27,400 in debt issuance costs.

The note was to mature on December 14, 2020.

The note was convertible at $1.00 per share.

The Company also issued 275,000 shares of its common stock, as well as warrants to

purchase an additional 75,000 shares of common stock at $2.00 per share with a term of five years at the time of note issuance.

Company accounted for the Peak One note using ASC 815, Derivatives and Hedging , and recognized a beneficial conversion

feature derivative liability of $267,750 as of the note’s issuance date.

The Company valued the beneficial conversion feature

derivative liability with the Black-Scholes-Merton valuation model on the date of issuance using an expected life of 1.25 years,

volatility of 150%, and risk-free rate of 1.82%.

The Company also recognized a loss of $486,745 resulting from the excess fair

value of the beneficial conversion feature derivative in the Peak One note and of the equity instruments issued with the convertible

the year ended September 30, 2018, the Company recognized a loss of $19,770 related to the change in fair value of the beneficial

conversion feature derivative liability.

The Company valued the beneficial conversion feature derivative liability with the Black-Scholes-Merton

valuation model as of April 30, 2018, immediately prior to the redemption of the note as described below, using an expected life

of 1.17 years, volatility of 150%, and risk-free rate of 1.65%.

Additionally,

upon issuance of the Peak One note, the Company recorded a debt discount of $300,000.

The Company amortized $37,432 of the debt

discount to interest expense during the year ended September 30, 2018.

April 30, 2018, the Company settled the Peak One note for $375,000 and issued 71,429 shares of common stock with a fair value

of $103,572 to Peak One.

The Company recognized a loss on extinguishment of $153,621.

License Agreements

fiscal year 2019, the Company entered into a one-year agreement with SoundFi LLC (“SoundFi”) which will automatically

renew for subsequent one-year periods unless otherwise terminated by either party.

Cipherloc received $25,000 from SoundFi during

the year ended September 30, 2020.

Company executed an annual software licensing agreement with Castle Shield during the year ended September 30, 2020 which

also include auto-renewing terms.

Castle Shield made a $10,000 payment to the Company based on the terms of their agreement with

the year ended September 30, 2020, the Company recognized $47,983 in licensing revenue from the SoundFi and Castle Shield agreements.

April 6, 2020, to supplement its cash balance, the Company submitted their application for a Paycheck Protection Program (“PPP”)

loan (the “SBA loan”) sponsored by the U.S.

Small Business Administration in the amount of $365,430.

2020, Company’s SBA loan application was approved, and the Company received loan proceeds on April 22, 2020.

has an interest rate of 1% and matures on April 12, 2022.

1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for forgiveness of up to the

full principal amount of qualifying loans guaranteed under the PPP.

The PPP and loan forgiveness are intended to provide economic

relief to small businesses, such as the Company, that are adversely impacted under the COVID-19 Emergency Declaration issued by

President Donald J.

Trump on March 13, 2020.

a result of staff reductions during 2020, the Company expects the ultimate amount of loan forgiveness to be minimal.

Paycheck Protection Program loan balance at September 30, 2020 was $365,430

Future Minimum Paycheck

Protection Program loan payment by Fiscal Year

Total Paycheck

Protection Program loan

RELATED PARTY TRANSACTIONS

related to Ex Chief Executive Officer

Olivia and Robin De La Garza earned $52,278, $47,176 and $53,000, respectively, in compensation for the year ended September 30,

In August 2019, Robin and Skylar De La Garza were terminated as employees of the Company.

The Company also paid $11,394

in educational costs of Skylar De La Garza and $6,200 in moving expenses of Olivia De La Garza

Payable to Ex Chief Executive Officer

September 2017, the Company’s Chief Executive Officer (“CEO”) issued four notes with an aggregate principal

amount of $70,000 to the Company.

The notes bore interest at 3% per annum and matured one year from the issuance date.

repaid all four notes in full during September 2018.

As of September 30, 2018, there were no outstanding notes payable to the

Olivia and Robin De La Garza, immediate family members of former CEO Michael De La Garza, earned $52,278, $47,176 and $53,000,

respectively, in compensation for the year ended September 30, 2019.

In August 2019, Robin and Skylar De La Garza were terminated

as employees of the Company.

The Company also paid $11,394 in educational costs of Skylar De La Garza and $6,200 in moving expenses

of Olivia De La Garza.

Michael De La Garza was the CEO and director of the Company during the period of time when these payments

Note 8 for additional related party transactions.

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by the Company and costs relating thereto have been submitted to the Company’s insurance carrier.

August 2019, the Board of Directors formed a special committee of independent directors (“Special Committee”) to investigate

certain activities of Michael De La Garza (“De La Garza”).

The Special Committee has retained legal counsel, and is

authorized to retain forensic accountants, to assist the investigation.

August 2019, the Company initiated litigation against its former Chief Executive Officer, De La Garza in order to stop him from

misappropriating the company’s trade secrets, depleting its monies and other assets, damaging the value of the company in

the marketplace, and holding himself out as the company’s CEO.

On September 25, 2019, the Court entered a temporary injunction

against De La Garza enjoining him from numerous acts including representing himself as CipherLoc’s CEO and from interfering

with the current CEO’s running the company.

This litigation is ongoing, and its resolution is unknown.

The Special Committee

is investigating certain activities of the former CEO including the Ageos, LLC Operating Agreement, the QHCI/Noun note receivable,

August 2019, the Board of Directors formed a special committee of independent directors (the “Special Committee”)

to investigate certain activities of Michael De La Garza (“De La Garza”), our former chief executive officer.

in that same month, the Company initiated litigation against De La Garza in the District Court of Travis Country, Texas (the “Court”).

On September 25, 2019, the Court entered a temporary injunction against De La Garza enjoining him from numerous acts.

Committee investigated certain activities of De La Garza, including the Ageos, LLC Operating Agreement, the QHCI/Noun note receivable,

an advance/bonus, personal expenditures, and other items.

All amounts expended have been expensed as of September 30, 2019.

amounts have been recorded in these financial statements as expected recoveries.

July 26, 2019, the Board of Directors accepted the resignation of Michael De La Garza as Chief Executive Officer and appointed

Tom Wilkinson as Interim Chief Executive Officer.

De La Garza was subsequently terminated as an employee on August 11, 2019.

On August 14, 2019, the Board of Directors formed an Executive Committee, as allowed by the Bylaws, consisting of Mr.

Carlson and Dr.

In accordance with the bylaws, the Executive Committee is empowered to execute all business

on behalf of the Board of Directors to the fullest extent permitted under Texas law.

August 8, 2019, the operating agreement with Ageos was terminated.

August 2019, it was determined that the previously disclosed note receivable from QHI would not be collectible.

While the note

receivable had been presented to the board for approval, a vast majority of the funds had been paid to Noun Energy, rather

Noun Energy is a company doing business in the United Arab Emirates that is believed to be controlled by Mr.

Garza’s brother.

This agreement and the funding are part of an ongoing investigation related to the litigation against Mr.

De La Garza discussed in Note 4.

The note receivable has been written off as a loss for the quarter ended June 30, 2019 and is

included in general and administrative expenses on the statements of operations.

March 2019, the Company guaranteed a lease on behalf of Ageos, LLC in McLean, Virginia.

The lease has a term of three years for

4,359 square feet of space in McClean, Virginia.

The initial rent cost is $7,991 per month and the lease agreement provides for

annual rent increases of approximately 4.0%.

The amount of future payments guaranteed is $267,389.

The agreement with Ageos was

terminated in August 2019 and the Company has made an unwritten offer to assume the lease.

No amounts have been accrued for this

commitment as of September 30, 2019.

Company also sued De La Garza, among others, in federal district court seeking to invalidate the issuance of preferred stock to

The preferred stock shares were converted to 13.5 million shares of common stock by De La Garza during 2018.

litigation matters with Michael De La Garza were settled on August 28, 2020 with De La Garza agreeing to return 13.1 million shares

of common stock to the Company and the Company agreeing to pay De La Garza $400,000 between September 30, 2020 and September 30,

At September 20, 2020, Cipherloc owed $100,000 in settlement payments which will be made in $25,000 payments on December

1, 2020, March 1, 2021, June 1, 2021, and September 1, 2021.

Company is seeking to invalidate the issuance of 1 million shares of Cipherloc preferred stock to former director and chief financial

officer, Pamela Thompson, which stock is now being held by the Carmel Trust II, in or around 2011.

As such, the Company has sued

James LeGanke, as Trustee of Carmel Trust II, in federal court as part of its efforts to invalidate those shares.

alleges that Thompson failed to comply with both state law and Company bylaws when she and then CEO, Michael De La Garza, caused

the Company to issue the preferred stock to themselves as purported compensation.

The lawsuit is ongoing, and its resolution is

October 13, 2020, Ageos, LLC, a Virginia limited liability company (“Ageos”), filed a Third Party Complaint against

Cipherloc (Third Party Case No.

GV20015643-00) in connection with the pending action titled Scandium, LLC v.

Ageos, LLC (Case

GV20014313-00) in the General District Court for Fairfax County in the Commonwealth of Virginia.

The action relates to an

operating agreement, by and between Cipherloc and Ageos, whereby Cipherloc agreed to guarantee Ageos’s lease in order to

enable the leasing of space in Fairfax County, VA.

Cipherloc subsequently terminated the agreement with Ageos and offered to take

over the space as an accommodation.

Ageos declined.

Ageos’s third party complaint demands from Cipherloc, among other things,

all damages obtained by Scandium, LLC against Ageos;

(ii) other compensatory damages in connection with certain lease payments

under the lease discussed above;

and (iii) pre-judgment interest.

This lawsuit is ongoing, and its resolution is unknown.

February 2019, the Company and the landlord for its leased office space in Buda, Texas entered into a new lease agreement, and

the Company reduced its rented space from approximately 3,900 to 1,302 square feet.

The new lease was effective February 1, 2019

The new lease became effective on February

1, 2019 and has a three-year term.

The initial monthly rent is $2,566, and the lease agreement provides for annual rent increases of approximately

The lease automatically renews for a three-year term, unless either party to the lease agreement notifies the other of the

intent to terminate the lease in writing at least 180 days prior to the expiration of the current term.

The amount of future payments

guaranteed is $74,388.

The initial monthly rent is $2,566, and the lease agreement provided for annual rent increases

of approximately 2.7%.

The lease automatically renews for a three-year term, unless either party to the lease agreement notifies

the other of the intent to terminate the lease in writing at least 180 days prior to the expiration of the current term.

2020, the Company executed a lease termination agreement with the landlord for an early termination fee of $10,546 and forfeited

the existing security deposit of $2,566.

There are no future payments related to this lease.

October 2018, the Company leased approximately 3,900 square feet of office space on North Scottsdale Road in Scottsdale, Arizona.

The lease for this facility began on October 4, 2018 and continues until October 31, 2021.

Annual rent of $77,180 was prepaid

for the first year from November 1, 2018 to October 31, 2019, and the lease agreement provides for annual rent increases of approximately

The lease for this facility began on October 4, 2018 and originally continued until October 31, 2021.

Annual rent of $77,180 was

prepaid for the first year from November 1, 2018 to October 31, 2019, and the lease agreement provides for annual rent increases

of approximately 5.0%.

In June 2020, the Company executed a lease termination agreement with the landlord for an early termination

fee of $27,013 and forfeited the existing security deposit of $9,796.

There are no future payments related to this lease.

February 2020, the Company leased approximately 3,666 square feet of office space on 2107 Wilson Boulevard, Arlington, Virginia.

The lease for this facility began on February 1, 2020 and continues until July 31, 2025.

The base annual rent is $159,471, a $100,000

security deposit was paid, and abatement of monthly rent payments was provided until August 1, 2020, and the lease provides for

annual rent increases of approximately 2.5%.

The amount of future payments guaranteed is $822,082.

the result of restructuring actions intended to conserve cash during the COVID-19 crisis, the landlord of the Wilson Boulevard

space was notified that the Company no longer needed the space and is seeking an amicable and reasonable termination of the lease

of September 30, 2020, the Company had one lease agreements for facilities.

with an initial term of 12 months or less are not recorded on our Balance Sheet;

we recognize lease expense for these leases on

a straight-line basis over the lease term.

Leases with initial terms in excess of 12 months are recorded as operating or financing

leases in our Balance Sheet.

assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the

lease term at commencement date.

As most of our leases do not provide an implicit rate, we use a secured incremental borrowing

rates based on the information available at commencement date, including lease term, in determining the present value of future

The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will

be exercised.

inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria

of a finance or operating lease.

Some of the Company’s lease arrangements contain lease components (e.g.

minimum rent payments)

and non-lease components (e.g.

maintenance, labor charges, etc.).

The Company generally accounts for each component separately

based on the estimated standalone price of each component.

For certain leases, the Company accounts for the lease and non-lease

components as a single lease component.

Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

leases are included in operating lease ROU lease assets, and operating lease liabilities and operating long-term lease liabilities

on the Balance Sheets.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

lease expense is recognized in the period in which the obligation for those payments is incurred.

Lease expense is included in

general and administrative expense in the statements of operations and is reported net of lease income.

Lease income is not material

to the results of operations for the quarter ended June 30, 2020.

The Company announced a corporate restructuring on June 30,

2020 which will result in the abandonment of certain office spaces.

The Company has recorded an impairment charge of approximately

$382,962 which is the estimate of the future payments less projected sublease income from the abandoned office space.

initial right-of-use asset of $233,751 was recognized as a non-cash asset addition with the adoption of the new lease accounting

Cash paid for amounts included in the present value of operating lease liabilities was $28,534 during third quarter

2020 and is included in operating cash flows.

In February 2020, the Company’s new lease in Arlington, Virginia added approximately

$746,000 in new lease obligations.

weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of September 30, 2020:

Remaining lease term

and discount rate:

Weighted average remaining lease terms

Weighted average discount rate

Lease facilities

judgements include the discount rates applied, the expected lease terms, and lease renewal options.

There are three leases with

a renewal option.

Using the practical expedient, the Company utilized existing lease classifications as of September 30, 2019.

As a result, the lease renewal options were not changed on implementation.

annual minimum lease obligations at September 30, 2020 are as follows:

1 unchanged sentence

expense totaled $218,997 and $150,575 for the years ended September 30, 2020 and 2019, respectively.

Operating Agreement

operating agreement was entered into with Ageos, LLC and the Company on April 18, 2019.

Ageos, LLC agreed to hire competent professionals,

establish and maintain an approved government facility and guide engineers to customize the Company’s base products for

governmental agency use.

The Company agreed to advance Ageos, LLC $1,600,000 commiserate with the responsibilities and operating

expense budget provided by Ageos, LLC on a periodic basis.

The Company had advanced $974,188 through September 30, 2019.

the operating agreement, Ageos, LLC was to reimburse the Company from the sale of the software by applying 50% of net revenues

earned to repay the advanced operating expenses.

The operating agreement was terminated on August 8, 2019.

August 2019, it was determined that the previously disclosed note receivable from Quality Healthcare International, Inc.

(“QHI”)

would not be collectible.

While the note receivable had been presented to the board for approval, a vast majority of the

funds had been paid to Noun Energy, rather than to QHI.

Noun Energy is a company doing business in the United Arab Emirates that

is believed to be controlled by Mr.

De La Garza’s brother.

This agreement and the funding are part of an ongoing investigation

related to the litigation against Mr.

De La Garza discussed in Note 4.

The note receivable has been written off as a loss for

the quarter ended June 30, 2019 and is included in general and administrative expenses on the statements of operations.

9 - STOCKHOLDERS’

2 unchanged sentences

were authorized to issue 681,000,000 shares of common stock at a par value of $0.01.

determines the fair value of stock issuances using the closing stock price on the grant date.

the year ended September 30, 2020, the Company came to a settlement with First Fire and purchased back 149,557 shares and recorded

such shares as Treasury Stock.

First Fire received $150,000 in exchange for the 149,557 shares.

the year ended September 30, 2020, the Company reached a settlement and as result received surrendered shares of 13,137,757 share

and recorded such shares as Treasury Stock.

Stock Issued for Cash

2 unchanged sentences

The refund was made in lieu of an issuance of shares.

the year ended September 30, 2018, through the utilization of Private Placement Memorandums (PPMs) and upon receipt of executed

Subscription Agreements, the Company issued 18,909,900 shares of common stock for $16,625,238 in net cash proceeds pursuant to

the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D.

Stock and Stock Options Issued to Directors and Offices

Stock and Stock Options Issued to Directors and Officers

the year ended September 30, 2019, the Company issued 9,346 vested shares of common stock with a fair value of $11,216 to an employee,

6 unchanged sentences

a strike price of $0.85 and the remaining 100,000 have a strike price of $0.75.

the year ended September 30, 2018, the Company issued 766,033 fully vested shares of common stock with a fair value of $1,472,601

to its officers and other employees as part of their compensation.

Of this amount, $950,056 was recorded in general and administrative

expenses, $279,500 was recorded in sales and marketing expenses, and $243,045 was recorded in research and development expenses.

2020, 620,000 stock options were granted to employees.

Also during 2020, 920,000 stock options were cancelled due to the

termination of employment.

As of September 30, 2020, 800,000 stock options are outstanding.

None of the stock options are in the

money and the unamortized amount of stock compensation as of September 30, 2020 is $383,453.

Year Ended September 30, 2019

Balance on September 30, 2018

Balance at September 30, 2019

Year Ended September 30, 2020

Balance on September 30, 2019

Balance at September 30, 2020

Stock Issued for Services

1 unchanged sentence

LLC for management consulting services, which was recorded in research and development expense.

the year ended September 30, 2018, the Company issued 10,000 shares of fully vested common stock with a fair value of $15,000

to Magnolia Investor Relations for investor relations services rendered.

Stock Issued for Settlement

the year ended September 30, 2018, the Company issued 50,000 shares of fully vested common stock with a fair value of $81,000

for to settle a legal matter by two shareholders who claimed that they were entitled to 125,000 shares of common stock because

of funds allegedly paid to the Company and promises allegedly made by the Company.

The Company denied these allegations and settled

the matter for 50,000 shares of common stock.

Stock Issued with Convertible Notes

the year ended September 30, 2018, the Company issued 275,000 and 71,429 shares of fully vested common stock in connection with

the issuance and redemption, respectively, of the Peak One note.

The Company also issued 87,500 and 50,000 shares of common stock

in connection with the amendment and conversion, respectively, of the FirstFire note.

Refer to Note 5 for further discussion.

of September 30, 2020, and 2019, the Company had 1,000,000 and 1,000,000 shares of restricted preferred stock outstanding, respectively.

and was authorized to issue 10,000,000 shares of preferred stock at a par value of $0.01.

Each share of preferred stock is convertible

into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares.

Each share of preferred stock

has 1.5 votes on all matters presented to be voted by the holders of common stock.

The holders of preferred stock can only convert

the shares if agreed to by the Board of Directors.

If declared by the Board of Directors, holders of preferred stock are entitled

to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company.

In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company

prior and in preference to any payment or distribution to holders of common stock of the Company.

the year ended September 30, 2018, the Company’s Chief Executive Officer converted 9,000,000 shares of preferred stock into

13,500,000 shares of common stock.

the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock in connection with the

Peak One convertible note discussed in Note 5.

These warrants were issued with an exercise price of $2.00 and a term of five years.

The Company valued these warrants at $90,345 with the Black-Scholes-Merton valuation model using an expected life of five years,

volatility of 150%, and risk-free rate of 2.14%.

Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5

common shares.

Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock.

The holders of preferred stock can only convert the shares if agreed to by the Board of Directors.

If declared by the Board of

Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment

of any dividend on the common stock of the Company.

In the event of liquidation or dissolution of the Company, holders of preferred

stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common

stock of the Company.

the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock.

These warrants were

issued with an exercise price of $2.00 and a term of five years.

No warrants were issues during fiscal years 2020 and 2019.

Additionally,

2 unchanged sentences

were issued with an exercise price of $4.50 and a term of two years.

The Company valued these warrants at $93,198 with the Black-Scholes-Merton

valuation model using an expected life of two years, volatility of 150%, and risk-free rates ranging from 1.89% to 2.27%.

in connection with shares sold through an additional PPM, the Company issued warrants to purchase 18,837,900 shares of common

These warrants were issued with an exercise price of $1.20 and a term of five years.

The company issued warrants to

purchase an additional 5,398,970 shares of common stock to its underwriters.

These warrants were issued with an exercise price

of $1.00 and a term of ten years.

The company issued warrants to purchase

an additional 5,398,970 shares of common stock to its underwriters.

These warrants were issued with an exercise price of $1.00

and a term of ten years.

activity for the years ended September 30, 2020 and 2019 is as follows:

1 unchanged sentence

Average Remaining Life

Outstanding at September 30, 2017

at September 30, 2018

Canceled/Forfeited

Outstanding at September 30, 2018

at September 30, 2019

Canceled/Forfeited

Outstanding at September 30, 2019

at September 30, 2020

10 - INCOME TAXES

5 unchanged sentences

is as follows:

federal income tax rate

Non-deductible

stock-based compensation

in statutory tax rate

Statutory federal income

Non-deductible stock-based compensation

and other permanent differences

Change in statutory tax rate

Valuation allowance

Effective tax

income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes

30 unchanged sentences

Company is current on all its federal income tax filings.

An extension will be filed for the September 30, 2019

An extension will be filed for the September 30, 2020 tax return.

December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law in the U.S.

7 unchanged sentences

11 - SUBSEQUENT EVENTS

November 14, 2019, the Company terminated Olivia De La Garza’s employment and was given one month’s severance

On November 21, 2019, the Company issued stock options 140,000 shares to employees with strike price to be determined.

November 25, 2019, the board of directors appointed Andrew Borene as Chief Executive Officer of the Company.

Mr Borene replaces

Tom Wilkinson, the Company’s interim Chief Executive Officer, who will remain as chairman of the board.

Effective December

13, 2019, Gino Mauriello resigned from his position as Chief Financial Officer.

On December 13, 2019, the Company terminated the

members of the R&D team On December 17, 2019, Albert Carlson, Ph.D., resigned from his position as Chief Scientific Officer

and as member of the board of directors of the Company.

On December 20, 2019, the board of directors of the Company appointed

Andrew Borene, the Company’s Chief Executive Officer, a member of the board.

October 16, 2020, David Chasteen, a director, was appointed the Chief Executive Officer of the Company.

November 12, 2020, Milton Mattox, Cipherloc Chief Operating Officer, tendered his resignation which was accepted by the Chief

Executive Officer.

Mattox assisted in the transition to interim Chief Technology Officer Nick Hnatiw who was engaged as an independent

contractor on November 18, 2020.

Mattox’s last day with the Company was December 15, 2020.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data