What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-12-21 compared with 2020-12-29 · 731 added, 625 removed, 176 unchanged (89% of the section changed)

FINANCIAL STATEMENTS

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Sheets as of September 30, 2020 and 2019

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

of Stockholders’

Equity (Deficit) for the years ended September 30, 2020 and 2019

of Cash Flows for the years ended September 30, 2020 and 2019

TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FINANCIAL STATEMENTS:

Balance Sheets as of September 30, 2021 and 2020

Statements of Operations for the years ended September 30, 2021 and 2020

Statements of Stockholders’ Equity (Deficit) for the years ended September 30, 2021 and 2020

Statements of Cash Flows for the years ended September 30, 2021 and 2020

NOTES TO FINANCIAL STATEMENTS

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2 unchanged sentences

on the Financial Statements

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 audits.

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.

have audited the accompanying balance sheets of Cipherloc Corporation (the “Company”) as of September 30, 2021, and 2020,

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, 2021, 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, 2021, and

2020, 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.

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 audits.

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.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits 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.

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 or fraud.

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

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.

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.

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 audits provide a reasonable basis for our opinion.

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.

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 audits

provide a reasonable basis for our opinion.

Briggs & Veselka Co.

have served as the Company’s auditor since 2019.

Current assets

have served as the Company’s auditor since 2019.

Current assets

Operating lease ROU

LIABILITIES &

STOCKHOLDERS’

Deferred costs

Prepaid expenses

Total current assets

Operating lease ROU asset

Deferred costs

LIABILITIES & STOCKHOLDERS’

EQUITY (DEFICIT)

Current liabilities

Accounts payable

and accrued liabilities

Accounts payable and accrued

Accrued compensation

1 unchanged sentence

– current portion

protection program loan –

current portion

current liabilities

Paycheck protection

program loan –

Operating lease

liability –

long-term portion

Paycheck protection program

loan – current portion

Deferred revenue

Total current liabilities

Paycheck protection program loan – long

Operating lease liability – long-term

Total liabilities

Commitments and contingencies

Series A convertible preferred stock, $ 0.01

par value, 1,000,000 shares authorized;

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

par value, 10,000,000 shares

nil and 1,000,000 shares issued and outstanding as of September 30, 2021 and September

30, 2020, respectively

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

shares authorized;

and 27,505,196 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

and 96,342,125 and 40,792,510 issued as of

September 30,

2021 and September 30, 2020, respectively

Treasury stock, at cost, 13,414,814 and

13,287,314 shares as of September 30, 2021 and September 30, 2020, respectively

Additional paid-in capital

Accumulated deficit

stockholders’

( 71,530,891 )

( 68,426,608 )

Total stockholders’

equity (deficit)

liabilities and stockholders’

Total liabilities and stockholders’

equity (deficit)

1 unchanged sentence

OF OPERATIONS

the Year Ended

Cost of revenues

5 unchanged sentences

Operating loss

( 3,295,335 )

( 6,925,740 )

Other (expenses) income:

on disposal of asset

other income, net

Loss on disposal of asset

Paycheck Protection Program

Forgiveness Income

other income (expense), net

$ ( 3,104,283 )

$ ( 6,970,072 )

Net loss per common

share - Basic and diluted:

Weighted average

common shares outstanding - Basic and diluted

Weighted average common

shares outstanding - Basic and diluted

accompanying notes are an integral part of these financial statements.

OF STOCKHOLDERS’

OF STOCKHOLDERS’ EQUITY (DEFICIT)

THE YEARS ENDED SEPTEMBER 30, 2021, AND 2020

Stockholders’

Shares Issued

Treasury Stock

Paid-in Capital

Accumulated Deficit

Equity (Deficit)

Preferred Stock

Stockholders’

Shares Issued

Treasury Stock

Paid-in Capital

Accumulated Deficit

Equity (Deficit)

Balance at, September 30, 2019

$ ( 61,456,536 )

Common stock issued to an employee

Stock option expense issued to directors

Common stock issued for services

Correction of shares outstanding

Refund of oversubscription

Stock option issued to directors and officers

Treasury shares acquired

Preferred and treasury shares acquired

Preferred and treasury shares acquired, shares

Issuance of common stock for cash, net of issuance costs

Issuance of common stock for cash, net of issuance costs, shares

( 6,970,072 )

Balance at September 30, 2020

$ ( 550,000 )

Stock option expense issued to directors

Purchase of treasury stock

$ ( 68,426,608 )

$ ( 137,962 )

Preferred and treasury shares acquired

( 1,000,000 )

Issuance of common stock for cash, net of issuance costs

( 3,104,283 )

Balance at September 30, 2021

$ ( 590,000 )

$ ( 71,530,891 )

accompanying notes are an integral part of these financial statements.

2 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 3,104,283 )

$ ( 6,970,072 )

Adjustments to reconcile

1 unchanged sentence

Stock-based compensation

Impairment loss

Loss on disposal

Stock issued for

Changes in operating

assets and liabilities:

Prepaid expenses

and other assets

Accounts payable

and accrued liabilities

Impairment loss on ROU

assets (gain on early termination of operating lease)

Loss on disposal of asset

PPP loan forgiveness income

Changes in operating assets

and liabilities:

Prepaid expenses and other

Accounts payable and accrued

Accrued compensation

cash used in operating activities

( 3,630,806 )

( 6,646,091 )

CASH FLOWS FROM INVESTING ACTIVITIES

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Purchase of treasury

Purchase of treasury stock

Proceeds from PPP loan

of oversubscription

Repayment on PPP loan

Purchase of preferred stock

from the issuance of common stock, net of costs

cash provided by (used in) financing activities

DECREASE IN CASH

CASH, BEGINNING

INCREASE (DECREASE) IN CASH

( 6,759,633 )

CASH, BEGINNING OF YEAR

CASH, END OF YEAR

3 unchanged sentences

operating lease liability recorded

Unpaid treasury stock

treasury stock

accompanying notes are an integral part of these financial statements.

2 unchanged sentences

1 - DESCRIPTION OF BUSINESS

Corporation (the “Company”

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.

Cipherloc Corporation (the “ Company ”

or “ Cipherloc ”) was incorporated in the State of Texas on June 22, 1953, under the name “ American Mortgage

” Effective August 27, 2014, we changed our name to “ Cipherloc Corporation.

” Prior to September

30, 2021, the Company was a Texas corporation.

The Company became a Delaware corporation effective September 30, 2021.

Our headquarters are

located at 6836 Bee Cave Road, Building 1, Suite279, Austin, Texas 78746.

Our website is www.cipherloc.net .

2 – NEW EQUITY ISSUANCE

March 31, 2021, to April 16, 2021, we entered into a Securities Purchase Agreement (the “ Purchase Agreement ”), with

certain accredited investors (the “ Purchasers ”), pursuant to which the Company sold the Purchasers an aggregate of

(a) 55,549,615 shares of common stock (“ Offering Shares ”), and (b) warrants to purchase 55,549,615 shares of common

stock of the Company (“ Offering Warrants ”).

The Offering Shares and Offering Warrants were sold at a price of $ 0.18

per combined unit of an Offering Share and an Offering Warrant (the “ Offering Price ”), which was equal to 80 % of the

closing sales price of the Company’s common stock on the OTCQB Market on March 30, 2021, which was the last trading day prior to

the initial closing under the Purchase Agreement.

sale of the Offering Shares and Offering Warrants occurred at four closings as follows:

SCHEDULE OF OFFERING SHARES AND OFFERING WARRANTS

March 31, 2021

April 7, 2021

April 9, 2021

April 16, 2021

gross proceeds from the offering of the Offering Shares and Offering Warrants (the “ Private Placement ”) were approximately

$ 10 million (as shown above).

Investment Company, LLC (the “ Placement Agent ”), served as placement agent for the Private Offering.

The Company entered

into a Placement Agent Agreement with the Placement Agent in connection therewith (the “ Placement Agreement ”, discussed

As partial consideration for the services provided by the Placement Agent, the Company granted the Placement Agent and its assigns,

warrants to purchase 8,332,439 shares of common stock (“ Placement Warrants ”, discussed in greater detail below).

Company agreed to use the proceeds from the Private Placement for working capital purposes and not to use such proceeds:

satisfaction of any portion of the Company’s debt (other than (i) payment of trade payables in the ordinary course of the Company’s

business and prior practices and (ii) the repayment of funds received by the Company under the “ paycheck protection program ”

of the CARES Act), (b) for the redemption of any common stock or common stock equivalents, (c) for the settlement of any outstanding

litigation, or (d) in violation of applicable regulations.

connection with the Private Placement, each of our officers and directors entered into Lock-Up Agreements pursuant to which they agreed

not to sell, offer, or transfer, any of our securities that they held for 180 days after the closing of the Private Placement, subject

to customary exceptions.

Offering Warrants, which are evidenced by Common Stock Purchase Warrants (the “ Warrant Agreements ”), have an exercise

price of $ 0.36 per share ( 200 % of the Offering Price), and may be exercised at any time after the grant date of the Offering Warrants

(i.e., March 31, 2021, April 7, 2021, April 9, 2021, or April 16, 2021, as applicable), until five years thereafter.

The Offering Warrants

have cashless exercise rights that are exercisable if, when exercised, a registration statement registering the shares of the Company’s

common stock issuable upon exercise thereof, is not then effective with the Securities and Exchange Commission.

The exercise of each

of the Offering Warrants is subject to a beneficial ownership limitation of 4.99%, preventing such exercise by the holder(s) thereof,

if such exercise would result in such holder(s) and their affiliates, exceeding ownership of 4.99 % of our common stock.

Warrants contain anti-dilution rights such that, if we issue, or are deemed to have issued, common stock or common stock equivalents

at a price less than the then exercise price of the Offering Warrants, the exercise price of the Offering Warrants is automatically reduced

to such lower value, and the number of shares of common stock issuable upon exercise thereafter is adjusted proportionately so that the

aggregate exercise price payable upon exercise of such Offering Warrants is the same prior to and after such reduction in exercise price.

to a Registration Rights Agreement (“ RR Agreement ”), we agreed to file a registration statement to register the sale

of the Offering Shares and the shares of common stock issuable upon exercise of the Warrants, prior to the tenth day after the end of

the Private Offering (provided that the Placement Agent agreed that such ten day period began on April 19, 2021, regardless of the actual

closing date of the Private Offering), and to obtain effectiveness of such registration statement by the 60 th calendar day

following the date of the RR Agreement (March 31, 2021)(provided that in the event we are required to file any additional registration

statements under the RR Agreement, such required effectiveness date is the 90 th day after such registration statement is required

to be filed), which registration statement was timely filed and was timely declared effective.

January 11, 2021, we entered into a Placement Agent Agreement with the Placement Agent, pursuant to which we engaged the Placement Agent

as the Company’s exclusive placement agent in connection with the Private Offering.

Pursuant to the Placement Agent Agreement,

we agreed to pay the Placement Agent a cash commission of 13 %

of the gross proceeds received in the Private Offering ($ 1,334,861 ),

and to grant the Placement Agent or its assigns, a warrant to purchase 15 %

of the Offering Shares sold in the Private Offering (i.e., warrants to purchase 8,332,439

shares in aggregate), which were granted to the

Placement Agent effective on April 16, 2021.

The warrants were priced at the issuance price of the Offering Shares in the

Private Placement.

The Placement Agent Agreement had a term expiring on August

31, 2021 , and includes a three-year tail period,

pursuant to which the Placement Agent is due the same fees payable in connection with the Private Offering, in the event the Company

sells any securities to any investor or potential investor who received Private Offering documents as part of the Private Offering.

addition to the compensation payable upon completion of the Private Offering, the Company paid the Placement Agent a $ 35,000

cash retainer.

Placement Warrants are evidenced by warrants similar to the Purchase Warrants, have a term of 10 years (i.e., through April 16, 2031),

an exercise price of $ 0.18 per share (the Offering Price), and cashless exercise rights.

We are required to pay the Placement Agent liquidated

damages of $10 per day for each $1,000 of shares not timely delivered upon the exercise of the Placement Warrants.

The Placement Warrants

include a weighted average anti-dilution right in the event we issue any shares of common stock or equivalents with a value less than

the then exercise price.

management has evaluated the warrants for derivative status and concluded the warrants are freestanding equity instruments.

3 – SIGNIFICANT ACCOUNTING POLICIES

Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of

America (“U.S.

GAAP”).

Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America

Significant accounting policies are as follows:

1 unchanged sentence

preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

(i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as

of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during

the periods presented.

Adjustments made with respect to the use of estimates often relate to improved information not previously

Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements;

accordingly, actual results could differ from these estimates.

The Company’s most significant estimate relates to the valuation

of its convertible note.

GAAP requires management to make estimates and assumptions that affect (i)

the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date

the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented.

Adjustments made with respect to the use of estimates often relate to improved information not previously available.

Uncertainties with

respect to such estimates and assumptions are inherent in the preparation of financial statements;

accordingly, actual results could

differ from these estimates.

Company is subject to legal proceedings, claims and liabilities which arise in the ordinary course of business.

The Company accrues

for losses associated with legal claims when such losses are probable and can be reasonably estimated.

These accruals are adjusted

as additional information becomes available or circumstances change.

The Company accrues for

losses associated with legal claims when such losses are probable and can be reasonably estimated.

These accruals are adjusted as additional

information becomes available or circumstances change.

Legal fees are charged to expense as they are incurred.

1 unchanged sentence

Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Company did not have any cash equivalents as of September 30, 2020 and 2019.

At September 30, 2020 and 2019, cash includes cash

on hand and cash in the bank.

The Company maintains its cash in accounts held by large, globally recognized banks which, at times,

may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC).

The FDIC insures these

deposits up to $250,000.

As of September 30, 2020, $829,839 of the Company’s cash balance was uninsured.

The Company has

not experienced any losses on cash.

did not have any cash equivalents as of September 30, 2021 and 2020.

As of September 30, 2021 and 2020, our cash included cash on hand

and cash in the bank.

The Company maintains its cash in accounts held by large, globally recognized banks which, at times, may exceed

federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC).

The FDIC insures these deposits up to $ 250,000 .

As of September 30, 2021, $ 5,533,994 of the Company’s cash balance was uninsured.

The Company has not experienced any losses on

and Capital Resources

Company had an accumulated deficit as of September 30, 2021 of $ 71,530,891 .

The Company expects to continue to generate operating losses until it can generate revenues sufficient to exceed its

operating expenses.

As of September 30, 2021, the Company had $ 5,783,994

The Company believes that its

existing cash balances are sufficient to fund its operations for the next 12 months.

assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line

method for financial statement purposes.

Equipment and furniture are depreciated over an estimated useful life of three (3) to

five (5) years.

Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten (10)

Software is depreciated over an estimated useful life of three (3) years.

assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of

the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

Each impairment test

is based on a comparison of the undiscounted future cash flows to the recorded value of the asset.

If impairment is indicated,

the asset is written down to its estimated fair value.

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.

Equipment and furniture are depreciated over an estimated useful life of three ( 3 ) to five ( 5 )

Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten ( 10 ) years.

is depreciated over an estimated useful life of three ( 3 ) years.

Company does not have any fixed assets on its balance sheet as of September

The Company’s fixed assets were disposed of during 2020 as part of a downsizing and cash conservation effort.

assets are evaluated for impairment whenever events or changes in our business circumstances indicate that the carrying amount of the

assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

Each impairment test is based

on a comparison of the undiscounted future cash flows to the recorded value of the asset.

If impairment is indicated, the asset is written

down to its estimated fair value.

During the year ended September 30, 2020, the Company recorded an impairment loss of $ 382,961 related

to its Virginia lease.

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

Value of Financial Instruments

Company’s financial instruments consisted primarily of cash, accounts payable and accrued expenses, deferred revenue, convertible

note payable, as well as embedded conversion features.

The carrying amounts of such financial instruments approximate their respective

estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Company’s financial instruments consisted primarily of cash, accounts payable and accrued expenses, and embedded conversion features

in stock warrants.

The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term

maturities and approximate market interest rates of these instruments.

value is focused on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

Within the measurement of fair value, the use of market-based information

is prioritized over entity specific information and a three-level hierarchy for fair value measurements is used based on the nature

of inputs used in the valuation of an asset or liability as of the measurement date.

Within the measurement of fair value, the use of market-based information is prioritized

over entity specific information and a three-level hierarchy for fair value measurements is used based on the nature of inputs used in

the valuation of an asset or liability as of the measurement date.

three-level hierarchy for fair value measurements is defined as follows:

inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active

inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,

and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including

inputs in markets that are not considered to be active;

1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs

that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets

that are not considered to be active;

3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

fair values of the embedded conversion features in the Company’s convertible notes and of the warrants issued by the Company

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

fair values of the embedded conversion features in the warrants issued by the Company were determined using level 2 measurements and

are discussed in further detail in Note 8.

Concentration

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.

the year ended September 30, 2021, two customers accounted for 100 % of the Company’s revenues.

During the year ended September

30, 2020, two customers also accounted for 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 twelve months ended September 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:

4 unchanged sentences

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.

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

for on-premises software provide the customer with a right to use the software as it exists when made available to the customer.

Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ

mainly in the duration over which the customer benefits from the software.

Revenue from distinct on-premises licenses is recognized

upfront at the point in time when the software is made available to the customer.

In cases where the license is being modified

at the direction of the customer the revenue is being recognized ratably over the term of the arrangement.

Revenue allocated to

software maintenance and support services is recognized ratably over the contractual support period.

may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the

duration over which the customer benefits from the software.

Revenue from distinct on-premises licenses is recognized upfront at the

point in time when the software is made available to the customer.

In cases where the license is being modified at the direction of the

customer the revenue is being recognized ratably over the term of the arrangement.

Revenue allocated to software maintenance and support

services is recognized ratably over the contractual support period.

services are primarily related to software implementation services and associated revenue is recognized upon customer acceptance.

of revenue recognition may differ from the timing of invoicing to customers.

The Company records a contract asset or receivable

when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing.

For perpetual

licenses with multi-year product maintenance agreements, the Company generally invoices customers at the beginning of the coverage

For multi-year subscription licenses, the Company generally invoices customers annually at the beginning of each annual

coverage period.

The Company records a contract asset related to revenue recognized for multi-year on-premises licenses as its

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

The Company records a contract asset or receivable when

revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing.

For perpetual licenses

with multi-year product maintenance agreements, the Company generally invoices customers at the beginning of the coverage period.

multi-year subscription licenses, the Company generally invoices customers annually at the beginning of each annual coverage period.

The Company records a contract asset related to revenue recognized for multi-year on-premises licenses as its right to payment is conditioned

upon providing product support and services in future years.

were no accounts receivable balances on September 30, 2021, and 2020.

There was no adjustment needed to the accounts receivable

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

There was no impact on the opening balance

contract assets and liabilities, for the cumulative effect of applying ASC 606 under the modified retrospective method as of October

There was no adjustment needed to the accounts receivable for the

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

There was no impact on the opening balance contract assets

and liabilities, for the cumulative effect of applying ASC 606 under the modified retrospective method as of October 1, 2018.

revenue is comprised mainly of unearned revenue related maintenance and technical support on term and perpetual licenses.

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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.

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:

OF CHANGES IN DEFERRED REVENUE

Year Ended September

Balance on September 30, 2020

Cumulative effect

of applying ASC 606 under the modified retrospective method*

Deferral of revenue

Recognition of revenue

Balance at September 30, 2021

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Deferral of revenue

Recognition of revenue

Balance at September 30, 2020

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

revenue includes invoiced revenue allocated to remaining performance obligations that has not yet been recognized and will be

recognized as revenue in future periods.

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.

revenue includes invoiced revenue allocated to remaining performance obligations that has not yet been recognized and will be recognized

as revenue in future periods.

Deferred revenue was zero as of September 30, 2021.

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

instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts

generally do not include a significant financing component.

The primary purpose of the Company’s invoicing terms is to provide

customers with simplified and predictable ways of purchasing its products and services, not to receive financing from our customers

or to provide customers with financing.

Examples include invoicing at the beginning of a subscription term with maintenance and

support revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with

product revenue recognized upon delivery.

Company’s contracts with customers often include promises to transfer multiple products and services to a customer.

where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not

include a significant financing component.

The primary purpose of the Company’s invoicing terms is to provide customers with simplified

and predictable ways of purchasing its products and services, not to receive financing from our customers or to provide customers with

Examples include invoicing at the beginning of a subscription term with maintenance and support revenue recognized ratably

over the contract period, and multi-year on-premises licenses that are invoiced annually with product revenue recognized upon delivery.

Company’s contracts with customers often include promises to transfer multiple products and services to a customer.

whether products and services are considered distinct performance obligations that should be accounted for separately versus together

may require significant judgment.

is required to determine the standalone selling price (“SSP”) for each distinct performance obligation.

and services aside from maintenance and support, the Company estimates SSP by adjusting the list price by historical discount

SSP for software and hardware maintenance and support fees is based on the stated percentages of the fees charged

for the respective products.

The Company’s perpetual and term software licenses may have significant standalone functionality

and therefore revenue allocated to these performance obligations are recognized at a point in time upon electronic delivery of

the download link and the license keys.

In cases where the license is being modified at the direction of the customer the revenue

is being recognized ratably over the term of the arrangement.

Product maintenance and support services are satisfied over time

as they are stand-ready obligations throughout the support period.

As a result, revenues associated with maintenance services

are deferred and recognized as revenue ratably over the term of the contract.

is required to determine the standalone selling price (“SSP”) for each distinct performance obligation.

For products and

services aside from maintenance and support, the Company estimates SSP by adjusting the list price by historical discount percentages.

SSP for software and hardware maintenance and support fees is based on the stated percentages of the fees charged for the respective

The Company’s perpetual and term software licenses may have significant standalone functionality and therefore revenue

allocated to these performance obligations are recognized at a point in time upon electronic delivery of the download link and the license

In cases where the license is being modified at the direction of the customer the revenue is being recognized ratably over the

term of the arrangement.

Product maintenance and support services are satisfied over time as they are stand-ready obligations throughout

the support period.

As a result, revenues associated with maintenance services are deferred and recognized as revenue ratably over the

term of the contract.

associated with professional services are recognized at a point in time upon customer acceptance.

Recognized from Costs to Obtain a Contract with a Customer

Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those

costs to be longer than one year.

The Company has determined that its sales commission program meets the requirements for cost

capitalization.

Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs

to be longer than one year.

The Company has determined that its sales commission program meets the requirements for cost capitalization.

Total capitalized costs to obtain a contract were immaterial during the periods presented.

The Company applies

a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period

would have been one year or less.

license revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software

has been electronically delivered, the license fee is fixed or is measured on a paid user basis, and collection of the resulting

receivable is probable.

When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”)

exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.”

VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license

arrangement or rates charged in stand-alone sales of maintenance and support.

Revenue from subscription license agreements, which

include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription

When the fair value of VSOE of post contract customer support cannot be determined, the revenue is recognized ratably

over the contract period.

The only remaining undelivered element was post contract support services, and accordingly, the revenues

were recognized on a pro rata basis prospectively over the terms of the related contracts.

Deferred revenue results from fees

billed to or collected from customers for which revenue has not yet been recognized.

Company had deferred revenue of $15,417 and $28,400 as of September 30, 2020 and 2019, respectively.

The Company applies a practical expedient

to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or

license revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has

been electronically delivered, the license fee is fixed or is measured on a paid user basis, and collection of the resulting receivable

When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all

undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value

for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged

in stand-alone sales of maintenance and support.

Revenue from subscription license agreements, which include software, rights to unspecified

future products and maintenance, is recognized ratably over the term of the subscription period.

When the fair value of VSOE of post

contract customer support cannot be determined, the revenue is recognized ratably over the contract period.

The only remaining undelivered

element was post contract support services, and accordingly, the revenues were recognized on a pro rata basis prospectively over the

terms of the related contracts.

Deferred revenue results from fees billed to or collected from customers for which revenue has not yet

been recognized.

Company had deferred revenue of zero and $ 15,417 as of September 30, 2021 and 2020, respectively.

and Development and Software Development Costs

Company expenses all research and development costs, including patent and software development costs.

Our research and development

costs incurred for the years ended September 30, 2020 and 2019 were $1,689,455 and $1,744,480, respectively.

Company measures the cost of services provided by employees and non-employees in exchange for an award of an equity instrument

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

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.

Our research and development costs

incurred for the years ended September 30, 2021 and 2020 were $ 616,746 and $ 1,689,455 , respectively.

Company measures the cost of services provided by employees and non-employees in exchange for an award of an equity instrument based

on the grant-date fair value of the award.

The Company granted stock options during the year ended September 30, 2020, but

those awards were subsequently forfeited.

The Company had both fully vested stock grants and stock options granted to employees

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

As such, the Company recognized compensation cost for grants,

as well as a ratable portion for the stock options vesting over a three-year time frame during the years ended September 30, 2019 and

however, no vesting occurred during fiscal year 2021 for these awards due to separation of employment by these employees during

fiscal year 2020.

The Company made no award grants during the year ended

September 30, 2021.

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

which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services.

the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair

value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period),

net of actual forfeitures.

The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing

Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered

at their fair value.

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

provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of

the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of actual forfeitures.

The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model.

Additionally, share-based

awards to non-employees are expensed over the period in which the related services are rendered at their fair value.

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.

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.

Under this method, deferred tax assets and liabilities

are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary

differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates

is recognized in the results of operations in the period that includes the enactment date.

A valuation allowance is recorded to

reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between

the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities

are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected

to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of

operations in the period that includes the enactment date.

A valuation allowance is recorded to reduce the carrying amounts of deferred

tax assets unless it is more likely than not that the value of such assets will be realized.

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, 2020 or 2019.

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 no t record

any liabilities for uncertain tax positions during the years ended September 30, 2021, or 2020.

and Diluted Net Loss per Common Share

loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares

outstanding during the reporting period.

The weighted average number of shares is calculated by taking the number of shares outstanding

and weighting them by the amount of time that they were outstanding.

Diluted earnings per share reflects the potential dilution

that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest

resulting in the issuance of common stock that could share in the earnings of the Company.

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 stock.

loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding

during the reporting period.

The weighted average number of shares is calculated by taking the number of shares outstanding and weighting

them by the amount of time that they were outstanding.

Diluted earnings per share reflects the potential dilution that could occur if

stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of

common stock that could share in the earnings of the Company.

During the year ended September 30, 2021, 87,628,920 warrants were exclude

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

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 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, 2020, 23,746,866 warrants,

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because their effect would be anti-dilutive.

As of September 30, 2021, the Company had purchased the 1,000,000 shares of preferred stock

outstanding which were outstanding as of September 30, 2020.

Accounting Announcements

Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the

authoritative literature in the ASC.

Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative

literature in the ASC.

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

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.

Other 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.

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) –

Disclosure Framework –

to the Disclosure Requirements for Fair Value Measurement , to modify the disclosure requirements for fair value measurements.

The ASU removes certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes

for Level 3 fair value measurements.

It modifies certain disclosure requirements for investments in entities that calculate net

It adds certain disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements

and unobservable inputs used to develop Level 3 fair value measurements.

This 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.

This standard is effective for fiscal

years and interim periods within those fiscal years beginning after December 15, 2020.

Early 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) – Disclosure Framework – Changes to the

Disclosure Requirements for Fair Value Measurement , to modify the disclosure requirements for fair value measurements.

The ASU removes

certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes for Level 3 fair value

measurements.

It modifies certain disclosure requirements for investments in entities that calculate net asset value.

It adds certain

disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements and unobservable inputs used to develop

Level 3 fair value measurements.

ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2019.

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 – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based

Payment Accounting , to expand the scope of Topic 718, Compensation – Stock Compensation , which currently only includes

share-based payments to employees, to include share-based payments issued to nonemployees for goods or services.

Thus, accounting for

share-based payments to nonemployees and employees will be substantially aligned.

ASU 2018-07 is effective for fiscal years, and interim

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

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 –

Stock Compensation (Topic 718) –

Improvements to Nonemployee

Share-Based Payment Accounting , to expand the scope of Topic 718, Compensation –

Stock Compensation , which currently

only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services.

Thus, accounting for share-based payments to nonemployees and employees will be substantially aligned.

ASU 2018-07 is effective

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

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.

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 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

of September 30, 2020, and 2019, fixed assets consisted of the following:

Equipment and furniture

Leasehold improvements

Accumulated depreciation

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.

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.

4 – SOFTWARE LICENSES

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.

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 Cipherloc.

the years ended September 30, 2021, and 2020, the Company recognized $ 15,417 and $ 47,983 , respectively, 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.

On April 12, 2020, Company’s

SBA loan application was approved on April 12, 2020, and the Company received loan proceeds on April 22, 2020.

The SBA loan had an interest

rate of 1 % and was scheduled to mature 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

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

The Company filed for partial loan forgiveness on January

29, 2021, which was approved in the amount of $ 192,052 on June 11, 2021.

The staff reductions that occurred in 2020 prevented the Company

from qualifying for full forgiveness of its principal balance.

full principal balance of the loan, plus $ 1,000 of interest was set aside in an escrow account at Texas Capital Bank on April 15, 2021.

Upon receipt of the partial forgiveness approval, the remaining amount of the Paycheck Protection Program Loan was repaid using funds

in the escrow account and the remaining balance was returned to the Company’s operating account.

The balance of the loan was $ 0

as of September 30, 2021.

6 – RELATED PARTY TRANSACTIONS

related to Ex Chief Executive Officer

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.

related party transactions occurred during the years ending September 30, 2021 and September 30, 2020 other than those disclosed in Note

7 – COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

or results of operations.

disgruntled former consultant has brought an action in Texas state court against the Company and its former chief executive officer,

alleging fraud and misrepresentation pertaining to stock and payments alleged to be owed to the consultant.

The Company believes

it has made all required payments and delivered the stock to the consultant.

The consultant has also included a claim of partial

ownership of certain of the Company’s patents, which management believes is without merit.

The case is currently being defended

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 (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.

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.

Pending Litigation

December 2017, Robert LeBlanc, filed a petition against the Company and Michael De La Garza, the Company’s former Chief Executive

Officer and President, in the 20th Judicial District for Hays County, Texas (Cause No.

LeBlanc claims that he is a former

consultant, employee, and/or officer of the Company, Mr.

LeBlanc’s petition (which has been amended) alleges causes of action

against the Company for alleged violation of the Texas Securities Act, common law fraud against Mr.

breach of fiduciary

duty against Mr.

breach of contract;

as well as declaratory relief.

Damages sought exceed $ 1,000,000

but are less than $ 10,000,000 .

The Company believes that the plaintiff was fully compensated for his services and that the plaintiff’s claims are without

LeBlanc is also asserting a claim of partial ownership of certain of the Company’s patents, which the

Company believes is without merit.

The Company believes it has meritorious defenses to the allegations, and the Company intends to continue

to vigorously defend against the litigation.

April 2020, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of the Company, and certain other plaintiffs, filed

a lawsuit against the Company and Michael De La Garza, the Company’s former Chief Executive Officer and President, in the 20 th

Judicial District for Hays County, Texas (Cause No.

The lawsuit alleges causes of action for fraud against Mr.

Garza (for misrepresentations allegedly made by Mr.

De La Garza);

breach of contract, for alleged breaches of Mr.

Marquez’s alleged

oral employment agreement, which Mr.

Marquez claims required the Company pay him cash and shares of stock;

unjust enrichment;

and rescission of certain stock purchases made by certain of the plaintiffs, as well as declaratory relief and fraud.

sought exceed $ 1,000,000 .

The Company believes it has made all required payments and delivered the stock to the plaintiffs.

is currently being defended by the Company.

The Company believes it has meritorious defenses to the allegations, and the Company intends

to continue to vigorously defend against the litigation.

Settled During the Year Ended September 30, 2021

Marchal & Cooper, LLP (“ SMC ”), the Company’s former independent registered auditing firm, brought a demand

for arbitration before the American Arbitration Association against the Company in October 2019, relating to amounts which SMC has alleged

are due to SMC for services rendered, which amount was alleged to exceed $ 75,000 , but to be less than $ 150,000 .

The parties entered arbitration

regarding the amounts owed and subsequently entered into a Settlement Agreement and Release on April 26, 2021, to confidentially settle

the matter and mutually release each other from any liabilities.

August 28, 2020, the Company settled all litigation matters which had previously been pending with Michael De La Garza, a former chief

executive officer of the Company.

As a result of this settlement, De La Garza returned 13.1 million shares of common stock to the Company

and the Company agreed to pay De La Garza $ 400,000 between September 30, 2020, and September 30, 2021.

The final payment of the settlement

balance was made on September 1, 2021.

Company sought to invalidate the issuance of one million shares of the Company’s Series A preferred stock on or around 2011 to

former director and chief financial officer, Pamela Thompson, which stock was being held by the Carmel Trust II.

In connection therewith,

the Company initiated an action against James LeGanke, as Trustee of Carmel Trust II, in federal district court as part of its efforts

to invalidate those shares.

The action was settled on January 11, 2021, for $ 50,000 , in exchange for the return of the 1,000,000 shares

of Series A preferred stock and 127,500 shares of the Company’s common stock.

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

Company in connection with the pending action titled Scandium, LLC v.

Ageos, LLC in the General District Court for Fairfax County in

the Commonwealth of Virginia.

The action related to an operating agreement, by and between the Company and Ageos, whereby the Company

agreed to guarantee Ageos’s lease to enable the leasing of space in Fairfax County, VA.

The Company 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 became effective on February

1, 2019 and has a three-year term.

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.

This lawsuit was subsequently settled on

April 29, 2021, and the Company paid Scandium $ 60,000 in exchange for a release from all past, present, and future liabilities associated

with the lease.

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 became effective on February 1, 2019 and has a

three -year term.

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.

In July 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 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.

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

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

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

The base annual rent was $ 159,471 , a $ 100,000 security

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

of approximately 2.5 %.

As 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 reached a termination agreement with the landlord.

As part of this agreement, the company paid $ 150,000 on June 9, 2021.

of September 30, 2021, the Company had no lease agreements for facilities.

leases were 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

Variable 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.

a result of restructuring actions intended to conserve cash during the COVID-19 crisis, the Company stopped occupying the space in March

2020 and notified the landlord that the Company no longer needed the property and began seeking an amicable and reasonable termination

of the lease agreement.

On June 9, 2021, a settlement of $ 150,000 was reached with 2111 Wilson Boulevard, Inc.

to terminate the lease

effective June 2021.

Following the settlement agreement with 2111 Wilson Boulevard, Inc., as discussed above, the Company does not have

any operating leases as of September 30, 2021.

early termination of the 2111 Wilson Boulevard operating lease resulted in recognizing a $ 441,597 gain in this reporting period due to

the removal of the ROU assets and operating lease liabilities.

The balance for ROU assets and liabilities at September 30, 2021, is $ 0

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

Cash paid for amounts included in the present value of operating lease liabilities was $ 80,402 during the fiscal year ended September

30, 2021 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:

ending September 30

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

9 - STOCKHOLDERS’

EQUITY (DEFICIT)

of September 30, 2020, and 2019, the Company had 27,505,196 and 40,792,510 shares of common stock outstanding, respectively, and

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

The landlord agreed to an early termination and release from all past, present and

future liabilities associated with the lease in exchange for a $ 150,000 one-time payment which the Company made during the quarter ended

June 30, 2021.

8 - STOCKHOLDERS’ EQUITY (DEFICIT)

of September 30, 2021 and 2020, the Company had 82,927,311

and 27,505,196

shares of common stock outstanding, respectively,

and 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

the year ended September 30, 2021, the Company came to a settlement with Mr.

James LaGanke, as Trustee of Carmel Trust II and purchased

back 127,500 shares and recorded such shares as Treasury Stock.

James LaGanke received $ 50,000 in exchange for the 127,500 shares.

The Company attributed $ 40,000 of this settlement to the repurchase of common stock and the remaining $ 10,000 to the repurchase of Series

A Preferred Stock.

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 entered into to a settlement with Michael De La Garza and purchased 13,137,757

shares of common stock held by Mr.

De La Garza in exchange for $ 400,000 in cash, of which $ 300,000 was paid at the time

of settlement and the remaining $ 100,000 was paid through four quarterly payments of $ 25,000 .

The Company made the final

payment was made on September 1, 2021.

accumulated number of common stock recorded in Treasury Stock at September 30, 2021 is 13,414,814 shares versus 13,287,314 shares as

of September 30, 2020.

Stock Issued for Cash

the year ended September 30, 2019, the Company refunded $40,000 for an oversubscription of common stock made by an investor related

to the private placement of shares in fiscal year 2018.

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

the year ended September 30, 2021, the Company issued 55,549,615 shares of common stock pursuant to the Private Offering.

was priced at $ 0.18 and the gross proceeds from the equity issuance were $ 9,998,931 .

The proceeds net of issuance costs were $ 8,558,339 .

As of September 30, 2021, the Company had

issued 96,342,125 shares of common stock, of which 13,414,814 are now in treasury stock.

The amount of shares of common

stock outstanding as of September 30, 2021, was 82,927,311 .

Stock Issued for Services

July 23, 2021, the Company entered into a financial advisory and consulting agreement with Paulson Investment Company, LLC (“ Paulson ”).

Pursuant to the agreement, Paulson will provide the following services at the Company’s request:

(a) familiarize itself

with the Company’s business, assets and financial condition;

(b) assist the Company in developing strategic and financial

(d) assist the Company in

increasing its profile in the investment and financial community through introductions to analysts and potential investors, participation

in investment conferences and exploitation of reasonably available media opportunities;

(e) identify potentially attractive merger and

acquisition opportunities;

(f) review possible innovative financing opportunities and (g) render other financial advisory services as

may be reasonably requested.

The term of the agreement is four years from the date of the agreement, unless terminated

earlier by either party as provided therein.

As compensation for these services, the Company is issuing to Paulson 4,000,000 shares

of the Company’s common stock and agreed to reimburse Paulson for all reasonable and documented expenses incurred

by Paulson in connection with providing such services.

When the 4,000,000 shares are issued to Paulson, the Company’s

total outstanding shares of common stock will increase to 86,297,311 .

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,

which was recorded as stock-based compensation expenses in research and development expense in the statement of operations.

the year ended September 30, 2019, the Company issued 1,100,000 shares of stock options to the Board of Directors and officers

with a fair value of $862,000, of which $42,942 was recorded as stock-based compensation expenses in research and development

and general administration expense.

Options will vest over a three-year period ratably.

Of the 1,100,000, 1,000,000 options have

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

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.

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

of employment of the holders.

As of September 30, 2020, 800,000 stock options were 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

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

During 2021 the remaining options were

canceled because the 2019 plan under which they were awarded was not approved by the Company’s shareholders, and none of

the options holders were still employees, which is a requirement for vesting.

Consequently, the Company recognized no stock

compensation expense for the year ended September 30, 2021.

stock or stock options were granted to employees, officers, and directors during the year ended September 30, 2021.

OF STOCK OPTIONS

Year Ended September

Balance on September 30, 2019

Options Cancelled

Balance at September

Stock Issued for Services

the year ended September 30, 2019, the Company issued 20,000 shares of common stock with a fair value of $40,000 to Pycnocline,

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

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

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,

in connection with shares sold through a PPM, the Company issued warrants to purchase 144,000 shares of common stock.

These warrants

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

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.

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

Average Exercise Price

Company’s board of directors authorized, and the shareholders approved, the Company’s 2021 Omnibus Equity

Incentive Plan which provides for the award of up to 8,000,000 shares of common stock.

See Note 10 – Subsequent Events for awards

recently made as part of this plan.

of September 30, 2021 and 2020, the Company had zero and 1,000,000 shares of restricted preferred stock outstanding, respectively.

Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased back 127,500 shares of common stock and

recorded such shares as Treasury Stock.

LeGanke received a total payment of $ 50,000 as a result of the settlement.

The Company attributed

$ 40,000 of this settlement to the repurchase of common stock and the remaining $ 10,000 to the repurchase of 1,000,000 shares of Series

A Preferred stock.

the year ended September 30, 2021, the Company granted 63,882,054 warrants, see Note 2 above.

activities for the years ended September 30, 2021 and 2020 are as follows:

OF WARRANT ACTIVITY

Average Exercise

Average Remaining Life

at September 30, 2018

Outstanding at September 30,

Canceled/Forfeited

at September 30, 2019

Outstanding at September 30, 2020

Canceled/Forfeited

at September 30, 2020

Outstanding at September 30, 2021

9 - INCOME TAXES

provision (benefit) for income taxes from continued operations for the years ended September 30, 2020 and 2019 consist of the

provision (benefit) for income taxes from continued operations for the years ended September 30, 2021, and 2020 consist of the following:

SCHEDULE OF PROVISION (BENEFIT) FOR INCOME TAXES FROM CONTINUED

Current Federal and State Income Tax Expense (Benefit)

$ ( 692,230 )

$ ( 239,000 )

(benefit) for income taxes, net

difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense

is as follows:

Statutory federal income

Deferred Federal and State Income Tax Expense (Benefit)

( 1,284,065 )

in valuation allowance

Provision (benefit) for income taxes, net

difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is

SCHEDULE OF FEDERAL STATUTORY CORPORATE TAX RATE AND ACTUAL INCOME

Statutory federal income tax

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

and for tax purposes.

The tax effect of these temporary differences representing deferred tax asset and liabilities result principally

from the following:

Net operating loss carry

in state statutory tax rate

in valuation allowance

Effective tax rate

the years ended September 30, 2021 and 2020, the difference between the amounts of income tax expense or benefit that would result from

applying the statutory rates to pretax income to the reported income tax expense of $ 0 is the result of the net operating loss carry

forward and the related valuation allowance, as well as non-deductible stock-based compensation.

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

tax purposes.

The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

Net operating loss carry forward

Deferred compensation

Valuation allowance

Deferred income

( 10,087,705 )

( 8,823,000 )

Deferred income tax

Company has a net operating loss carry forward of $ 32.9 million available to offset future taxable income.

Of which, $2.6 million

will expire within the next five years, and the remaining $26.6 million will expire thereafter.

For income tax reporting purposes,

the Company’s aggregate unused net operating losses were subject to the limitations of Section 382 of the Internal Revenue

Code, as amended.

The Company has adjusted the net operating losses incurred prior to 2015 to reflect only the losses not subject

to limitation.

The Company has provided for a valuation reserve against the net operating loss benefit, because in the opinion

of management based upon the earning history of the Company;

Of which, $ 3.7 million will

expire within the next five years, and the remaining $ 29.2 million will expire thereafter.

For income tax reporting purposes, the Company’s

aggregate unused net operating losses were subject to the limitations of Section 382 of the Internal Revenue Code, as amended.

has adjusted the net operating losses incurred prior to 2015 to reflect only the losses not subject to limitation.

The Company has provided

for a valuation reserve against the net operating loss benefit, because in the opinion of management based upon the earning history of

it is more likely than not that the benefits will not be realized.

For income tax reporting purposes, Management has determined that net operating losses prior to February 5, 2015 are subject to

an annual limitation of approximately $525,000.

the years ended September 30, 2020 and 2019, the difference between the amounts of income tax expense or benefit that would result

from applying the statutory rates to pretax income to the reported income tax expense of $0 is the result of the net operating

loss carry forward and the related valuation allowance, as well as non-deductible stock-based compensation.

Company anticipates it will continue to record a valuation allowance against the losses of certain jurisdictions, primarily federal

and state, until such time as it is able to determine it is “more-likely-than-not”

the deferred tax asset will be

Such position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets.

The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by

jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with

varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.

For income tax reporting purposes, Management has determined

that net operating losses prior to February 5, 2015, are subject to an annual limitation of approximately $ 525,000 .

Company is current on all its federal income tax filings.

An extension will be filed for the September 30, 2021, tax return.

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

The Tax Act has resulted

in significant changes to the U.S.

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

The Tax Act has resulted in significant

changes to the U.S.

corporate income tax system.

These changes include a federal statutory rate reduction from

35% to 21%, the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest

expense and executive compensation.

These changes include a federal statutory rate reduction from 35% to 21%, the elimination

or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation.

These changes were effective beginning in 2018 .

10 - SUBSEQUENT EVENTS

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.

October 12, 2021, through the filing of a Current Report on Form 8-K, the Company announced a new employment agreement with Ryan

Polk, who serves as its Chief Financial Officer.

The agreement provides for an annual salary of $ 150,000 , annual equity

incentive awards equal to $ 50,000 , and a discretionary annual performance bonus target of $ 100,000 .

October 22, 2021, the Company filed a Form S-8 Registration Statement registering the issuance of the 8,000,000 shares of common stock

under the Company’s 2021 Omnibus Equity Incentive Plan, which was approved by the shareholders at the annual

meeting held on September 13, 2021.

SEC acceptance of the Form S-8 for the Omnibus Equity Incentive Plan, the Company made the following awards, and the

award recipients filed Form 4s with the SEC:

Wilkinson, Chairman:

141,667 shares vesting immediately

Ambrose, Lead Independent Director:

141,667 shares vesting immediately

Davis, Director:

127,778 shares vesting immediately

Chasteen, Chief Executive Officer:

1,111,111 shares vesting over 3 years with the first vesting

anniversary on June 1, 2022

Hnatiw, Chief Technology Officer:

277,778 shares vesting over 3 years with the first vesting

anniversary on June 1, 2022

Polk, Chief Financial Officer:

277,778 shares vesting over 3 years with the first vesting

anniversary on June 1, 2022

November 12, 2021, the Company announced the formation of a Board of Advisors to its support product development, market entry

and commercial applications of its disruptive polymorphic encryption technology.

The founding members of the advisory board are Griffin

Boyce, Privacy Lead at Google Fuchsia;

Margaret Jones, Head of Content and Women’s ERG Lead at Airtable;

and Travis Williams, Director

of Product Management for Mind Tech at Hyperice.

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