UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X](Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017June 30, 2021

[  ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

For the transition period from N/A___________ to N/A___________

Commission File No. 000-28745

Cipherloc Corporation

(NameExact name of small business issuerregistrant as specified in its charter)

825 Main St, Suite 100(512)337-3728

Buda, TX 78610

(Address of principal executive offices)

(702) 818-9011

Registrant’s telephone number, including area codecode)

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:Yes ☒ No ☐

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐

Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated“accelerated filer,” “smaller“smaller reporting company,” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes ☐ No ☒

Yes [  ] No [X]

Indicate the numberAs of August 16, 2021, 82,927,311shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.were outstanding.

CIPHERLOC CORPORATION

INDEX TO FORM 10-Q FILING

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2021, AND 20162020

TABLE OF CONTENTS

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to several risks, uncertainties, and assumptions, including those described and incorporated by reference in, Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. These factors include:

● Statutory preemptive rights which our shareholders are provided under Texas law, our failure to comply with such rights in the past, dilution caused by the exercise of such rights, and potential penalties or liability in connection therewith, as well as our plans to terminate such rights in the future;

● Penalties and other amounts which may be payable for our failure to comply with the covenants in, and time periods set forth in, our March/April 2021 private offering documents, including ability to timely terminate the statutory preemptive rights which currently apply under Texas law;

● That we have incurred net losses since inception, our need for additional funding, the substantial doubt about our ability to continue as a going concern, and the terms of any future funding we raise;

● That COVID-19 has materially adversely affected our operations and may continue to have a material adverse impact on our operating results in the future;

● Our dependence on current management and our ability to attract and retain qualified employees;

● Competition for our products;

● Our ability to develop new products, improve current products and innovate;

● Unpredictability in our operating results;

● Our ability to retain existing licensees and add new licensees;

● Risks associated with data breaches, security flaws, unauthorized access to our and our customers’ (if any) and the customers of our licensees’ systems and products, hacking risks, risks of intentional disruption of our products or services, product failures and the effect of such failures and other events on our brand and operating results;

● Outages in third party infrastructure on which we rely;

● Customer defaults and delays in payment;

● Delays in product development, our failure to predict changes in technology, and actual or perceived defects or vulnerabilities in our products;

● Our ability to manage our growth;

● Our ability to protect our intellectual property (IP), enforce our IP rights and defend against claims that we infringed on the IP of others;

● Risks related to the volatile and sporadic trading of our common stock, dilution caused by future offerings, anti-dilutive rights which exist relating to our securities, over-hang, the effect of substantial sales of our common stock, the anti-dilutive rights of the Warrants as set forth in the Purchase Agreement, and additional restrictions put on the sale of our common stock because of it being a ‘penny stock’;

● Our compliance with various rules and regulations, penalties we may face for non-compliance, and the risk of new, more costly, or more restrictive rules and regulations;

● Our ability to maintain effective controls and procedures;

● Restrictions on our ability to issue new securities and amounts required to be paid to our CEO upon certain sales of the Company;

● The Board of Directors’ ability to designate blank check preferred stock without further shareholder approval;

● Risks associated with future acquisitions and/or with our failure to grow by acquisition; and

● Risks associated with pending and/or future litigation, lawsuits, and/or regulatory claims.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Considering these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

PART I

FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

The accompanying interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with accounting principles generally accepted in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.2020. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included, and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended December 31, 2017June 30, 2021 are not necessarily indicative of the results that can be expected for the year ending September 30, 2018.2021.

CIPHERLOC CORPORATION

BALANCE SHEETS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

CIPHERLOC CORPORATION

STATEMENTS OF OPERATIONS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

CIPHERLOC CORPORATION

STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

CIPHERLOC CORPORATION

STATEMENTSTATEMENTS OF STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2017(UNAUDITED)

(UNAUDITED)

The accompanying notes are an integral part of these unaudited financial statements.

CIPHERLOC CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2017JUNE 30, 2021 AND 20162020

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

Cipherloc Corporation (the “Company”“Company” or “Cipherloc”) was incorporated in the State of Texas on June 22, 1953, as under the name “American Mortgage Company. On” Effective August 27, 2014, we changed our name to “Cipherloc Corporation.” Our headquarters are located at 6836 Bee Cave Road, Building 1, S#279, Austin, Texas 78746. Our website is www.cipherloc.net.

Management is seeking shareholder approval at its upcoming shareholders meeting to be held on September 13, 2021, to among other things, change the Company’s state of incorporation from Texas to Delaware. The full slate of proposals is summarized under Note 8 - Subsequent Events section of this filing and are detailed in the Definitive Proxy Statement on Schedule 14A and related Amendments on file with the SEC. The Notice of Meeting and Proxy Statement may be viewed on http://annualgeneralmeetings.com/cipherloc/.

NOTE 2 – NEW EQUITY ISSUANCE

From March 15, 2015,31, 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 changed its namesold the Purchasers an aggregate of 55,549,615 (a) shares of common stock (“Offering Shares”), and (b) warrants to Cipherloc Corporation.purchase shares of common stock of the Company (“Offering Warrants”). The name change became effectiveOffering Shares and Offering Warrants were sold at a price of $0.18 per combined Offering Share and 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 entry into the Purchase Agreement.

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

SCHEDULE OF OFFERING SHARES AND OFFERING WARRANTS

Total gross proceeds from the offering of the Offering Shares and Offering Warrants (the “Private Offering”) were approximately $10 million (as shown above) and the Private Offering is now closed.

Paulson Investment Company, LLC (the “Placement Agent”), served as placement agent for the Private Offering and the Company entered into a Placement Agent Agreement with the Placement Agent in connection therewith (the “Placement Agreement”, discussed below). As partial consideration for the services provided by the Amended CertificatePlacement Agent, the Company granted the Placement Agent and its assigns, warrants to purchase shares of common stock (“Placement Warrants”, discussed in greater detail below).

We agreed to use the proceeds from the Private Offering for working capital purposes and not to use such proceeds: (a) for the 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.

In connection with the Private Offering, each of our officers and directors entered into Lock-Up Agreements whereby they agreed not to sell, offer, or transfer, any of our securities which they hold for 180 days after the end of the Private Offering, subject to customary exceptions.

The Offering Warrants, which are evidenced by Common Stock Purchase Offering 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 from 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 if when exercised, a registration statement registering the shares of March 23, 2015.common stock issuable upon exercise thereof, is not 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. The Offering 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.

Pursuant to the 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 10^th day after the end of the Private Offering (provided that the Placement Agent agreed that such 10 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.

On 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 Placement Agent Agreement has 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. In addition to the compensation payable upon completion of the Private Offering, we paid the Placement Agent a $35,000 cash retainer.

The Placement Warrants are evidenced by 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.

Cipherloc is a data security solutions company. Our highly innovative, patented polymorphic encryption technology is designed to enable an iron-clad layer of protection to be added to existing solutions.Management has evaluated the warrants for derivative status and concluded the warrants are freestanding equity instruments.

NOTE 23 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended December 31, 2017June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending September 30, 2018.2021. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended September 30, 20172020, have been omitted; this report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30, 20172020, included within the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

NOTE 3 - GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred losses from operations and has an accumulated deficit at December 31, 2017 of $51,614,878. The Company issued two convertible notes, which may be repaid within 180 days from issuance, on September 26, 2017 and December 14, 2017, respectively, aggregating $849,000. If not repaid, the conversion features become variable, hindering our ability to raise capital in the future on terms favorable to the Company. The Company’s continued existence is dependent upon our ability to obtain additional funding to explore potential strategic relationships, complete development and marketing of the Company’s technologies, and operate the business. These factors raise doubt about the Company’s ability to continue as a going concern.

Management is currently in the process of raising capital, which is expected to be completed by May 2018. Management intends to use the proceeds from this financing to repay the two outstanding convertible notes. There are no assurances that management will be successful in raising capital to be able to achieve the needs of the business. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Cash and Cash Equivalents

The Company considers all highly liquid investments with an originala maturity at the time of purchase of three months or less to be cash equivalents. At December 31, 2017June 30, 2021, and September 30, 2017,2020, cash and cash equivalents includeincludes cash on hand and cash in the bank. The Company maintains its cash inbalance of such accounts, held by large, globally recognized banks which, at times, may exceed federally insured limits, as guaranteed by the Federal Deposit Insurance Corporation (FDIC)(“FDIC”). The FDIC insures these deposits up to $250,000.$250,000. At December 31, 2017 and SeptemberJune 30, 2017, none2021, $6,598,508 of the Company’s cash balance was uninsured. The Company has not experienced any losses in such accounts.

Convertible Debt and Embedded Derivatives

Convertible debt is accounted for under the guidelines established by Accounting Standards Codification (“ASC”) 470-20,Debt with Conversion and Other Options. ASC 470-20 governs the calculation of an embedded beneficial conversion, a derivative instrument, which is treated as an additional discount to the instruments where derivative accounting does not apply. This applies during the period for which embedded conversion features are either fixed, contingently convertible, or cash or net settlement is in control of the Company. When equity instruments, such as warrants, are issued with convertible debt, the net proceeds from the transaction are allocated to the convertible debt and equity instruments based on their relative fair values. The proceeds allocated to the equity instruments may reduce the carrying value of the convertible debt, and such discount is amortized to interest expense over the term of the debt. The amount of the warrants and beneficial conversion feature will reduce the carrying value of the debt instrument to zero, but no further. The Company has the option to pay the convertible notes at a premium ranging from 0% to 140% within the first six (6) months before they become convertible. The discount relating to the initial recording of the original issue discounts, issue costs, warrants and beneficial conversion feature are accreted, together with the premium, over the estimated term of the debt, which is generally 180 days from the date of issuance. We initially accounted for the embedded conversion feature in the FirstFire convertible note (see Note 5) in equity since management fully expected, at the time the loan was made, to repay the note upon its scheduled maturity.

Many of the conversion features embedded in the Company’s notes become variable upon the event of default or upon the passage of time in the event the Company does not repay the notes, at a premium, at 180 days from issuance of the note. If the conversion price is adjusted based on a discount to the market price of the Company’s common stock, the number of shares upon conversion is potentially unlimited. In the event we cannot control the net share settlement and cash settlement, we record the embedded conversion feature as a derivate instrument, at fair value. The excess of fair value of the embedded conversion feature, together with the original issue discounts, warrants, and issue costs over the face value of the debt, is recorded as an immediate charge in the accompanying statements of operations and cash flows. Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. The discounts are accreted over the term of the debt, which is generally nine months after the notes become convertible, using the effective interest method. We accounted for the embedded conversion features in the FirstFire and Peak One convertible notes (see Note 5) as derivative liabilities in December 2017, even though we fully expect to repay the notes upon their scheduled maturity, because we have lost control of that ability as a result of the issuance of the Peak One note, and the financial burden these notes have placed on the Company. We continue to believe we will repay these notes before they become convertible after 180 days.

ASC 470-50,Extinguishments, require entities to record an extinguishment when the terms of the original note are significantly modified, defined as a greater than 10% change in expected cash flows. As a result of modifications made to one of the Company’s convertible notes during the reporting period, we recorded a loss as reported in the accompanying statements of operations and cash flows.

Basic and Diluted Net Loss per Common Share

Basic 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 December 31, 2017June 30, 2021, there were 0 preferred shares of stock outstanding and Septemberas of June 30, 2017,2020, the Company had 10,000,0001,000,000 shares of preferred stock outstanding, which arewere convertible into 15,000,0001,500,000 shares of common stock. The Company’s convertible notes are not yet convertible, and management expects to repay the notes.

Diluted 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 resultbecause of the net loss. During the three and nine months ended June 30, 2021, warrants to purchase 79,461,481 shares of common stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. During the three and nine months ended June 30, 2020, warrants to purchase 24,216,866 shares of common stock 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.

Research and Development and Software Development Costs

Capitalization of certain software development costs are recorded after the determination of technological feasibility. Based on our product development process, technological feasibility is determined upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release do not have technological feasibility. Accordingly, we have chargedThe Company expenses all such costs to research and development expense in the period incurred.costs, including patent and software development costs. Our research and development costs incurred for the threenine months ended December 31, 2017June 30, 2021, and 20162020 were $114,852$465,974 and $599,959,$1,544,205, respectively.

Revenue Recognition

The Company recognizes revenues in accordance with the provisions of Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” and a series of amendments which together we identify as “ASC Topic 606”.

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

The 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.

Software License Agreements

During the fiscal year ended September 30, 2019, the Company entered into a one-year agreement with SoundFi LLC (“SoundFi”) which automatically renews for subsequent one-year periods unless otherwise terminated by either party. Cipherloc received $25,000 from SoundFi during the year ended September 30, 2020.

The Company executed an annual software licensing agreement with Castle Shield during the year ended September 30, 2020, which also includes auto-renewing terms. Castle Shield made a $10,000 payment to the Company based on the terms of their agreement with Cipherloc.

During the nine-months ended June 30, 2021, the Company recognized $15,417 in licensing revenue from the SoundFi and Castle Shield agreements.

Recent Accounting AnnouncementsPronouncements

The Financial Accounting Standards Board (“FASB”FASB”) issues Accounting Standards Updates (“ASU”)ASUs to amend the authoritative literature in the Accounting Standards Codification (“ASC”ASC”). There have been a number ofseveral ASUs to date that amend the original text of the ASC. TheASCs. Other than those discussed below, the Company believes those updates issued-to-dateASUs 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.

NOTE 5In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. 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 is 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.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) – CONVERTIBLE NOTE PAYABLEDisclosure 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.

FirstFire Global Opportunities Fund, LLCThe Company adopted ASU 2018-13 on October 1, 2020, and the adoption of this update did not have a material impact on the Company’s financial position, results of operations and cash flows.

On September 26,In July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value because of the existence of a down round feature. The Company has adopted ASU 2017-11 and implemented the pronouncement retrospectively. The adoption of this guidance did not have an impact on its financial statements.

As a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value because of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

During March and April 2021, the Company issued a convertible note to FirstFire Global Opportunities Fund, LLC (“FirstFire”) with a principal amount of $330,000, which includes an original issue discount of $30,000. The Company incurred $8,500 in direct costs. The note accrues interest at 5% per annum and matures on March 26, 2018, six months following the issuance date. The note was convertible at $2.00 per share, subject to adjustment. The Company issued 50,000 shares of its common stock, as well as warrants to purchase an additional 165,00063,882,054 shares of common stock at $4.50 per share with a term of two years. The note was amended on December 20, 2017, which reduced the conversion price of the note to $1.00 per share, subject to adjustment, reducedthat have anti-dilution rights that provide for adjustments in the exercise price and number of the warrants from $4.50 to $2.00 and required the Company to issueshares exercisable if there is an additional 87,500 sharesissuance of common stock to FirstFire, which resulted in an extinguishment loss (see below).

The note, as amended, provides the holder with the right, at any time on or after the note’s maturity date, to convert all or a portion of the outstanding principal balance and accrued interest to shares of the Company’s common stock equivalents at a conversionlower price of $1.00 per share, subject to certain adjustments to the conversion price under certain circumstances. In the event of default, the conversion price shall equal the lower of $1.00 per share or 70% multiplied by the lowest bid price of the Company’s common stock during the 25 trading days preceding the conversion date. An event of default, among other events, is the non-payment of the note at maturity.(down round feature).

If shares of the Company’s common stock trade below $1.00 per share on the day following the conversion date, the conversion price shall be retroactively adjusted to equal 75% multiplied by the lowest traded price on the day following the conversion date. If the Company consummates a registered or unregistered primary offering of its securities for capital raising purposes, the holder of the note shall have the right to demand repayment in full or convert the outstanding principal balance and accrued interest into shares of the Company’s common stock at the lower of $1.00 per share or a 20% discount to the offering price to investors in the primary offering.

The Company accounted for the amendment of the FirstFire note using derivative accounting and recognized a loss on extinguishment of $358,038 during the three months ended December 31, 2017. The Company also recognized a derivative liability of $320,312 as of the note’s amendment date. The Company valued the derivative liability with the Black-Scholes valuation model on the date of the amendment using an expected life of one (1) year, volatility of 150%, and risk-free rate of 1.87%. On December 31, 2017, the Company recognized a loss of $48,911 related to the change in fair value of the FirstFire derivative liability. The change in fair value was calculated using the stock price as of December 31, 2017 of $1.18 and an exercise price of $0.70, which is 70% multiplied by the lowest bid price of the Company’s common stock during the preceding 25 trading days, per the terms of the note.

Upon amendment of the FirstFire note, the Company recorded a debt discount of $330,000. The Company amortized $37,813 of the debt discount to interest expense during the three months ending December 31, 2017. The remaining debt discount of $292,187 as of December 31, 2017 will be amortized to interest expense over the remaining term of the note. Total interest expense related to the FirstFire note, including the debt discount amortization prior to the amendment, was $178,700 for the three months ending December 31, 2017.

Peak One Opportunity Fund LP

On December 14, 2017, the Company issued a convertible note to Peak One Opportunity Fund LP (“Peak One”) with a principal amount of $300,000, which includes an original issue discount of $30,000. The Company incurred $27,400 in direct costs. The note matures three years from the issuance date and provides the holder with the right to convert all or a portion of the outstanding principal balance to shares of the Company’s common stock at a conversion price of $1.00 per share, subject to certain adjustments to the conversion price under certain circumstances. If an event of default has occurred or if the conversion occurs more than 180 days from the issuance date, the conversion price shall equal the lower $1.00 per share or 70% of the lowest traded price of the Company’s common stock during the 20 trading days preceding the conversion date. However, if the Company’s common stock is not eligible for clearing through the Depository Trust Company’s Deposit Withdrawal Agent Commission system on the conversion date, the conversion price shall equal the lower of $1.00 per share or 65% of the lowest traded price of the Company’s common stock during the 20 trading days preceding the conversion date.

Together with the convertible note, the Company also issued 275,000 shares of its common stock, as well as warrants to purchase an additional 75,000 shares of common stock at $2.00 per share with a term of five years. The Company accounted for the convertible note to Peak One using derivative accounting and recognized a derivative liability of $267,750 as of the note’s issuance date. The Company valued the derivative liability with the Black-Scholes valuation model on the date of issuance using an expected life of 1.25 years, volatility of 150%, and risk-free rate of 1.82%. The Company also recognized a loss of $486,745 resulting from the excess fair value of the derivative in the convertible note and of the equity instruments issued with the convertible note. On December 31, 2017, the Company recognized a loss of $87,021 related to the change in fair value of the Peak One derivative liability. The change in fair value was calculated using the stock price as of December 31, 2017 of $1.18 and an exercise price of $0.70, which is 70% multiplied by the lowest bid price of the Company’s common stock during the preceding 25 trading days, per the terms of the note.

The Company recorded a debt discount of $300,000 upon issuance of the Peak One note. The Company amortized $4,645 of the debt discount to interest expense during the three months ending December 31, 2017. The remaining debt discount of $295,355 as of December 31, 2017 will be amortized to interest expense over the remaining term of the note. The Peak One note was included in current liabilities as management intends to repay the loan within the next 12 months.

Additionally, the transaction with Peak One included a stock purchase agreement setting forth the details above, including the option for an additional convertible note in the amount of $300,000 and an equity purchase agreement for up to $7,000,000 of the Company’s common stock and related registration rights agreement, which will require a registration statement to be filed.

NOTE 6 - 5 – COMMITMENTS AND CONTINGENCIES

Terminated Employment Agreement with FormerLitigation

Other than as set forth below, the Company is not currently involved in any litigation that it believes could have a material adverse effect on its financial condition or results of operations.

In December 2017, Robert LeBlanc, a disgruntled former consultant of the Company, filed a petition against the Company and Michael De La Garza, our former Chief FinancialExecutive Officer

and President, in the 20th Judicial District for Hays County, Texas (Cause No. 18-0005). The petition (which has been amended) alleges causes of action against us for alleged violation of the Texas Securities Act (based on the allegation that the defendants sold securities by means of untrue statements of material facts), common law fraud against Mr. De La Garza (for alleged misrepresentations alleged made by Mr. De La Garza); breach of fiduciary duty against Mr. De La Garza; breach of contract; as well as declaratory relief. Damages sought exceed $1,000,000 but are less than $10,000,000. The Company previously had an employment agreement with itsbelieves it has made all required payments and delivered the stock to the plaintiff and that the plaintiff’s claims are without merit. The consultant also included a claim of partial ownership of certain of the Company’s patents, which the Company believes is without merit. The case 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.

In 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, our former Chief Executive Officer and President, in the 20^th Judicial District for Hays County, Texas (Cause No. 20-0818). The lawsuit alleges causes of action for fraud against Mr. De La Garza (for misrepresentations alleged made by Mr. De La Garza); Breach of Contract, for alleged breaches of Mr. Marquez’s employment agreement, which terminatedrequired the Company pay him cash and shares of stock; unjust enrichment; quantum meruit; and rescission of certain stock purchases made by certain of the plaintiffs, as well as declaratory relief and fraud. Damages sought exceed $1,000,000. The Company believes it has made all required payments and delivered the stock to the plaintiffs. The case 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.

Semple, Marchal & Cooper, LLP (“SMC”), the Company’s former independent registered auditing firm, has brought a demand for arbitration before the American Arbitration Association against the Company in 2015. There wereOctober 2019, relating to amounts that were accruedwhich 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 unpaid assubsequently entered into a Settlement Agreement and Release on April 26, 2021, to confidentially settle the matter and mutually release each other from any liabilities.

On 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 December 31, 2017the 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, 2017, totaling $351,1282021. The Company has one remaining payment of $25,000 due, payable to De La Garza by September 1, 2021.

In October 2020, Ageos, LLC, a Virginia limited liability company (“Ageos”), filed a Third-Party Complaint against the Company (Third Party Case No. GV20015643-00) in connection with the pending action titled Scandium, LLC v. Ageos, LLC (Case No. GV20014313-00) in the General District Court for Fairfax County in the Commonwealth of Virginia. The action relates to an operating agreement, by and $338,437, respectively. Accordingbetween 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 the Company, 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 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.

Leases

As of June 30, 2021, the Company has no financial obligations for facility lease agreements.

In 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 was scheduled to continue 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. The lease provided for annual rent increases of approximately 2.5%. The amount of future payments guaranteed was $741,680.

Tom Wilkinson, the Company’s Chairman of the Board of Directors, provides the Company the use of office space which he rents, at 6836 Bee Caves Road, Building 1, Suite 279, Austin, TX 78746 for its corporate headquarters. There is no formal lease or sublease agreement with Mr. Wilkinson and Mr. Wilkinson does not charge the Company any rental fees in connection therewith.

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

Operating Leases

Operating 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. 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.

As 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 June 30, 2021.

The early termination of the 2111 Wilson Boulevard operating lease resulted in recognizing a $441,597 gain in this reporting period due to the original agreement,removal of the unpaid salaries were to accrue interestROU assets and operating lease liabilities. The balance for ROU assets and liabilities at each reporting date. Interest expense related toJune 30, 2021 is $0 each.

Cash Flows

An 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. In February 2020, the Company’s lease in Arlington, Virginia added approximately $746,000 in new lease obligations. Cash paid for this matterlease was $12,691 and $10,939 during$80,402 for the threenine months ended December 31, 2017June 30, 2021 and 2016, respectively. Management believes that such amounts were previously satisfied throughis included in operating cash flows. The landlord agreed to an early termination and release from all past, present and future liabilities associated with the issuance of common stock and does not intend to pay such amounts.lease in exchange for a $150,000 one-time payment which the company made during June 2021.

Significant Judgments

There are no significant judgments.

Rent expense totaled $306,452 and $177,785 for the nine months ended June 30, 2021, and 2020, respectively.

NOTE 6 – DEBT

On 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. On April 12, 2020, Company’s SBA loan application was approved, and the Company received loan proceeds on April 22, 2020. The SBA loan has an interest rate of 1% and matures on April 12, 2022.

Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP. The PPP and loan forgiveness are intended to provide economic relief to small businesses, such as the Company, that are adversely impacted under the COVID-19 Emergency Declaration issued by President Donald J. Trump on March 13, 2020.

The PPP loan balance on March 31, 2021, was $365,430. 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.

The 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 June 30, 2021.

NOTE 7 - STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)

As of December 31, 2017, theThe Company wasis authorized to issue 650,000,000681,000,000 common shares and 10,000,000 preferred shares, each at a par value of $0.01.$0.01 per share.

Common Stock

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

During the threenine months ended December 31, 2017, there were 37,000June 30, 2021, the Company issued 55,549,615 shares of common stock sold for $57,200,pursuant to the Private Offering. Each share was priced at $0.18 and the gross proceeds from the equity issuance were $9,998,931. The proceeds net of $16,800 in offering costs.issuance costs were $8,558,339.

During the threenine months ended December 31, 2017,June 30, 2021, the Company issued 5,537came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased back 127,500 shares of common stock withand recorded such shares as Treasury Stock. Mr. LeGanke received a fair valuetotal payment of $10,000$50,000 as a result of the settlement. The Company attributed $40,000 of this settlement to its employees as partthe repurchase of their compensation.

Preferred Stock

The Company’scommon stock and the remaining $10,000 to the repurchase of Series A Preferred Stock is convertible intostock.

During the Company’stwelve months ended September 30, 2020, the Company came to a settlement with Michael De La Garza and purchased 13,137,757 shares of common stock held by Mr. De La Garza in consideration for $400,000 of which $300,000 was paid at the time of settlement and the remaining $100,000 paid through four quarterly payments of $25,000. The final payment will be made on September 1, 2021.

During the nine months ended June 30, 2020, the Company came to a ratesettlement with First Fire Global Opportunity Fund, LLC and purchased back 149,557 shares of 1 to 1.5 common shares. stock for $150,000 and recorded such shares as Treasury Stock.

As of December 31, 2017, thereJune 30, 2021, we had issued 40,792,501 common shares of which 13,414,814 are now in treasury stock. The net amount of common shares outstanding as of June 30, 2021 was 82,927,311.

Series A Preferred Stock

During the nine months ended June 30, 2021, the Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased back 1,000,000 shares of Series A Preferred Stock. Mr. LeGanke received a total payment of 10,000,000 shares$50,000 as a result of the settlement. The Company attributed $10,000 of this settlement to the repurchase of the Series A Preferred Stock authorized and outstanding which are convertible into a total of 15,000,000 sharesthe remaining $40,000 to the repurchase of common stock. Each share of the Preferred Stock has 150 votes on all matters presented to be voted by the holders of common stock. The holders of the Series A Preferred Stock can only convert the shares if agreed upon by 50.1% vote of all preferred shareholders.

NOTE 8 – SUBSEQUENT EVENTS

On January 22, 2018,July 14, 2021, we entered into an employment agreement with Nick Hnatiw to fulfill the role of Chief Technology Officer (“CTO”). The effective date of the employment agreement was June 1, 2021. Mr. Hnatiw began providing CTO services to Cipherloc as an independent contractor during November 2020.

On July 19, 2021, the Company filed a Definitive Proxy Statement on Schedule 14A announcing a shareholders meeting to be held on September 13, 2021 for shareholders of record as of July 15, 2021, to elect a Board of Directors authorized Michael De La Garza, Chief Executive Officerand to seek approval of five other proposals. On July 28, 2021, the Definitive Proxy Statement was amended to add two additional proposals relating to executive compensation.

The meeting will be held at the Company’s headquarters at 6836 Bee Cave Road in Austin, Texas at 9:00 AM Central Time on September 13, 2021. Shareholders will be voting on the following proposals:

On 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 our request: (a) familiarize itself with our business, assets and financial condition; (b) assist us in developing strategic and financial objectives; (c) assist us in increasing our exposure in the software industry; (d) assist us in increasing our 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 Company,Agreement is four years from the date of the Agreement, unless terminated earlier by either party as provided therein. As compensation for these services, we are issuing to convert his 9,000,000 preferredPaulson 4,000,000 shares at a conversion rate of 1our common stock and agreeing to 1.5 common shares, to 13,500,000 common shares, restricted pursuant to Rule 144. On February 15, 2018, Michael De La Garza converted his 9,000,000 preferred shares to 13,500,000 common shares.reimburse them for all reasonable and documented expenses incurred by Paulson in connection with providing such services.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

InGeneral Information

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report “Company,on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the year ended September 30, 2020, filed with the Securities and Exchange Commission on December 29, 2020 (the “Annual Report” “our company,or the “Form 10-K”).

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated financial statements included above under “Part I – Financial Information” “us,– “Item 1. Financial Statements”.

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames, and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under, and incorporated by reference in, the section entitled “Item 1A. Risk Factors” of this Report. These and “our” referother factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to Cipherloc CorporationCorp., is also based on our good faith estimates.

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Cipherloc”, and “Cipherloc Corp.” refer specifically to Cipherloc Corp. and its subsidiaries,consolidated subsidiaries.

In addition, unless the context otherwise requires otherwiseand for the purposes of this report only:

Forward-Looking StatementsWhere You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to the SEC, on the “Investor Relations,” page of our website at https://cipherloc.net. Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Introduction

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

The following information contains certain forward-looking statements. Forward-lookingdiscussion should be read in conjunction with Cipherloc Corporation’s financial statements and accompanying notes included elsewhere in this Report.

All references to years relate to the fiscal year ended September 30 of the particular year.

Business Strategy and Plan of Operations

We are statements that estimate the happeningdeveloping products and services around our patented polymorphic encryption technology designed to enable a more efficient and stronger layer of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by managementprotection to be reasonable. Our future operating results, however, are impossibleadded to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

Our Business

Cipherloc Corporation isexisting solutions. Through a technology and services solutions company for the rapidly expanding cloud-based cyber security industry. Cipherloc is based in Buda, Texas.

The Company has introduced an innovative and revolutionary new type of encryption technology with five international patents and two US patents pending and is the industry’s first “Polymorphic Cipher Engine”, called CipherLoc®. It islicensing program, we anticipate offering the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (PKPA). This morphing cipher can“Polymorphic Encryption Core” (“PEC”) software developers kit to be used in any commercial data security industry and/or in sensitive applications.

The Company’s initialAs described above, our products are focused on protecting “data in motion”designed to encrypt and will consist of three different offerings: CipherLoc EDGE (for mobile platforms), CipherLoc ENTERPRISE (for desktops, laptops,decrypt information. Encryption means encoding information which is readable into another form which is not readable, and tablets), and CipherLoc GATEWAY (for servers). Summaries for each of these productswhich is therefore unable to be intercepted, read, or used, by someone other than the original person who encrypted the information—unless such encryption can be foundbroken.

We believe that our innovative and patented polymorphic technology eliminates the flaws and inadequacies associated with today’s encryption algorithms. Instead of dealing with large monolithic blocks of data, our approach decomposes the information to be protected into multiple segments. These individual segments each have a unique encryption key, utilize different encryption algorithms, are randomly grouped into different lengths, and can be further re-encrypted. Since segments are independent from each other and are individually protected, our technology is not susceptible to computational attacks. In fact, the strength of our technology improves as compute power increases.

We anticipate the operating expenses for the next twelve months may require up to $7.5 million capital, which funds will come from amounts raised in the Private Offering; however, we hope to manage our business such that the existing liquidity carries the Company to positive cash flow from operations, of which there can be no assurance. This measured approach to managing cash initially emphasizes demonstrating product capabilities with current customers which is followed by a scaling exercise in all functional areas, including product development, marketing, sales, customer support, and administration. As such, the cash required for operating expenses through June 30, 2022, will most likely range from $2.4 million to $4.4 million. A summary of the operating plan by functional area is provided below.

Product Development will focus on further maturing the Company’s website. The end goal with the release of these products that we have developed. Our plan is to offer end-to-end data security (i.e., databuild out our core technologies on multiple operating system platforms as well as work with current customers to ensure our product is in line with their needs. Once these items are completed, we plan to shift to further expand our product suite to enable user-defined encryption cipher modes, as well as a remote PEC management system. This will require us to expand the team footprint rapidly to ensure that we can meet market demand.

These efforts will require more personnel as well as more infrastructure. This personnel expansion will likely require $1 million of capital. The infrastructure needed to perform these new functions is planned to be securely sent to/built on modern technology with scale and reliability built from any mobile device, any PC,the ground-up. Utilizing cloud services, we plan to provide our customers with an interface that modern software provides, but an ease of use that encryption technologies desperately need. We believe that if we are able to meet these goals, we will be at a competitive advantage from most other players in this space. Marketing efforts will emphasize qualified lead generation using very focused industry messaging and any server).

With a business-to-business model, the Company will directly pursue businesses that will embed Cipherloc’s technology within their own product offering.engagement. We will be offering these potential clients a fairly standardparticipating in relevant cybersecurity and quantum computing industry events. Our advisors will help us identify the right focus areas for lead generation. Customer support teams will need to be put in place and are expected to be built around each of our product offerings. We anticipate our Support Team will scale as our business needs change. The projected costs for the first 12 months are likely to reach $500,000. These funds will be used for salaries and technology in order for the Support Team to provide the necessary support described above. Administration requirements are currently minimal, but we expect that this will change in the event the Company is able to generate revenues and add employees. The administrative resources will be ramped according to the Company’s demand to support employees, increase accounting capacity, and expand reporting and compliance capabilities. Additional leadership personnel in accounting and human resources are anticipated to precede staff additions. We also plan to add software licensing-maintenance model, under which they will license our software for use within their own products. Any company today that is currently using encryption technology becomes a potential customer for us. By targeting companies who are already building solutions that have encryption built-intools to their products, we are planning to achieve scale much faster.manage functional processes.

Financial Results and Trends

Results of Operations for the three and nine months ended December 31, 2017June 30, 2021, and 20162020

Comparison of Results

Revenue increaseddecreased to $115,642 from $112,500zero for the three months ended December 31, 2017 and 2016, respectively. Revenue is comprised of a software license sale that is being recognized ratably through June 2018.

Cost of revenue remained the same at $30,300 for both the three months ended December 31, 2017 and 2016. Cost of revenue is comprised of salaries and maintenance costs related to the Company’s core Cipherloc products. The current software license contract is being recognized ratably through June 2018.

General and administrative expenses decreased to $183,92030, 2021, from $2,430,937$8,750 for the three months ended December 31, 2017June 30, 2020. Revenue decreased to $15,417 for the nine months ended June 30, 2021, from $39,233 for the nine months ended June 30, 2020. Revenues decreased due to no new invoicing activity taking place in the current reporting period. SoundFi has not been operating due to theater closures and 2016,Castle Shield did not report revenue from the PEC license agreement under which it is currently operating because it didn’t launch products until late during our third fiscal quarter (this reporting period).

General and administrative expenses were $197,534 and $833,260 for the three months ended June 30, 2021, and 2020, respectively. General and administrative expenses decreased primarily as a result of lower stock-based compensation.a gain recognized in the amount of $441,597 due to the write-off of the remaining right-of-use (ROU) assets and operating lease liability after the early termination of our final operating lease. Net of this gain, general and administrative expenses were $639,131. Compared to the same period one year ago, the current period amount reflects a decrease in headcount related costs including payroll of $93,000, due to staffing reductions initiated during the prior fiscal year, a decrease in legal fees of $146,000, due to the settlement of legal matters, decreases in board and professional fees of $51,000, and decreases in various other expenses of $13,000, offset by increases in rent of $56,000, as a result of the Virginia office lease settlement (as discussed under Note 5 – Commitments and Contingencies - Leases, to the unaudited financial statements included above) and in corporate insurance of $53,000, primarily for directors and officers liability insurance premiums.

General and administrative expenses were $1,748,398 and $4,114,084 for the nine months ended June 30, 2021, and 2020, respectively. The decrease in general and administrative expenses was primarily due to a decrease in legal expenses of $1,055,000 because of settlements reached during this fiscal year, a decrease in headcount related costs including payroll and travel costs of $483,000, due to staffing reductions initiated during the prior fiscal year, a $824,000 favorable variance in the accounting for ROU assets and liability ($441,597 gain in 2021 discussed above versus a $382,625 impairment loss reported during 2020), a decrease in board and professional fees of $155,000, and a decrease in various other expenses of $143,000, offset by increases in corporate insurance of $165,000, for directors and officers liability insurance premiums and rent of $129,000 related to the Virginia office lease settlement (as discussed under Note 5 – Commitments and Contingencies - Leases, to the unaudited financial statements included above).

SalesSelling and marketing expenses decreased to $22,967 from $98,374were zero and $107,842 for the three months ended December 31, 2017June 30, 2021, and 2016,2020, respectively. Sales and marketing expenses decreased asprimarily because of a resultdecrease in payroll expenses of lower stock-based compensation$79,000, a decrease in consulting related costs of $12,000, a decrease in marketing related costs of 13,000 and lowera decrease in travel related costs of $4,000, all of these decreases were generated by spending reductions initiated during the prior fiscal year. We expect to resume incurring sales and marketing expenses during the fourth quarter of our fiscal year ending September 30, 2021.

Selling and marketing expenses were $56,250 and $695,245 for the nine months ended June 30, 2021, and 2020, respectively. Sales and marketing expenses decreased primarily because of a decrease in payroll expenses.related expenses of $323,000, a decrease in consulting related costs of $206,000, a decrease in marketed related costs of $71,000 and a decrease in travel related costs of $39,000, all of which were generated by spending reductions initiated during the prior fiscal year.

Research and development costs decreased to $114,852 from $599,959were $169,098 and $205,613 for the three months ended December 31, 2017June 30, 2021, and 2016,2020, respectively. Research and development costs decreased asprimarily because of a decrease in payroll related expenses of $26,000 and a decrease in consulting related expenses of $11,000, both decreases were the result of lower stock-based compensation.the spending reductions initiated during the prior fiscal year.

Settlement expense decreased to $0 from $106,250Research and development costs were $465,974 and $1,544,205 for the threenine months ended December 31, 2017June 30, 2021, and 2016,2020, respectively. SettlementResearch and development expenses decreased for the nine-month period ended June 30, 2021, primarily because of a decrease in consulting related costs of $750,000 and a decrease in payroll related expense of $329,000, both decreases were the result of the spending reductions initiated during the prior fiscal year.

We had a net loss of $175,580 or $0.00 per share for the three months ended December 31, 2016 relatedJune 30, 2021, compared to the issuancea net loss of 25,000 shares of common stock for a software termination settlement.

Interest expense increased to $196,036 from $10,939$1,157,743 or $0.03 per share for the three months ended December 31, 2017June 30, 2020. The year-over-year decrease in net loss for the three months ended June 30, was a result of a decrease in operating expenses, and 2016, respectively. Interest expense increased duethe PPP loan forgiveness of $192,051. For the nine months ended June 30, 2021, we had a net loss of $2,064,153 or $0.05 per share, compared to a net loss of $6,334,079 or $0.16 per share for the issuancenine months ended June 30, 2020. Net loss for the nine months ended June 30, decreased year-over-year as a result of convertible debt to FirstFire Global Opportunities Fund, LLCthe decreases in legal and Peak One Opportunity Fund LP.other operating expenses discussed earlier.

Liquidity and Capital Resources

We havehad an accumulated deficit at December 31, 2017on June 30, 2021, of $51,614,878.$70,490,761. We expect to incur substantial expenses and generate continued operating losses until we generate revenues sufficient to meet our obligations. At December 31, 2017, the CompanyOn June 30, 2021, we had cash of $155,730. We believe that our existing cash balances are insufficient to fund future operations for$6,848,508. On March 31, 2021, we completed the next 12 months. These factors raise doubt about the Company’s ability to continue as a going concern.

On September 26, 2017, the Company issued a convertible note to FirstFire Global Opportunities Fund, LLC with a principal amount of $330,000, and on December 14, 2017, the Company issued a convertible note to Peak One Opportunity Fund LP with a principal amount of $300,000. The notes require a premium of 130% to 140% (if paid by the 180th day) in an aggregate amount of $849,000. Non-payment by the Company on either or both of these notes could result in the creditors receiving an unlimited amountinitial closing of the Company’s stockPrivate Offering in order to satisfy the notes, adversely impacting our ability to raise capital on more favorable terms. It is the intent of the Company to repay these notes before through funds received from Private Placement Memorandums.

We depend upon the continued participation of Private Placement Memorandums (PPM) and the issuance of debt to finance our operations and need to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketingwhich we sold 35,757,942 shares of our products and business.common stock at a price to the public of $0.18 per share, for net proceeds of $5,497,964. During the month of April 2021, we completed additional closings pursuant to the Private Offering, in which we sold 19,791,673 shares of our common stock at a price to the public of $0.18 per share, for net proceeds of $2,850,383.

ThereThe Private Offering is no assurance that such funding, if required, will be availabledescribed in greater detail in Note 2 – New Equity Issuance, to us or, if available, will be available upon terms favorable to us. The accompanyingthe unaudited financial statements do not include any adjustments that might result fromincluded above.

We had working capital of $6,301,824 as of June 30, 2021, compared to working capital of $123,102 as of September 30, 2020. Working capital increased because of funds raised through the outcome of this uncertainty.Private Offering.

Cash FlowFlows

The following table summarizes, for the periods indicated, selected items in our condensed Statements of Cash Flows:

Operating Activities

Cash used in operating activities was $371,466$2,566,292 and $487,780$5,798,100 for the threenine months ended December 31, 2017June 30, 2021, and 2016,2020, respectively. The uses of cash during the nine months ended June 30, 2021, were mainly attributable to a net loss of $2,064,153, which was increased by the ROU asset gain of $441,597, the PPP loan forgiveness of $192,052 and a decrease in cash usednet operating assets and liabilities of $135,910. The change in our net operating activitiesassets and liabilities was primarily due to lower net loss, partiallya decrease in prepaid and other assets of $450,257, offset by higher working capital usage.a decrease in accounts payable and accrued liabilities of $298,930, and a decrease in deferred revenue of $15,417.

Investing Activities

Cash used in investing activities was $0zero and $3,171$28,792 for the threenine months ended December 31, 2017June 30, 2021, and 2016,2020, respectively. The decrease in cash used in investing activities for the nine months ended June 30, 2020, was the result of no fixed asset purchases during the three months ended December 31, 2017.purchases.

Financing Activities

Cash provided by financing activities was $299,800 and $233,120$8,334,961 for the threenine months ended December 31, 2017June 30, 2021. The Company sold certain securities pursuant to the Private Offering, described in Note 2 – New Equity Issuance, to the unaudited financial statements included above, and 2016, respectively. The increaseraised $8,558,339, net of issuance costs, partially offset by the cash used in cashrelation to a lawsuit filed by the Company against James LeGanke, as Trustee of Carmel Trust II, which was settled for $50,000 in exchange for the return of 1,000,000 shares of Series A Preferred Stock and 127,500 shares of common stock to the Company and the repayment of a portion of the PPP loan plus interest in the amount of $173,928. Cash provided byin financing activities for the nine months ended June 30, 2020, was primarily due to the issuance of convertible debt, partiallyproceeds from the PPP loan, offset by fewer issuancesthe legal settlement with First Fire Global Opportunity Fund, LLC and the purchase of common stockTreasury Stock for cash.$150,000 in connection therewith (see also Note 7 - Stockholders’ Equity (Deficit), to the unaudited financial statements included above).

Additional information regarding the Private Offering and the Company’s debt can be found under Note 2 – New Equity Issuance and Note 6 – Debt, to the unaudited financial statements included above.

Off-Balance Sheet Arrangements

We did not have noduring the periods presented, nor do we currently have, any off-balance sheet arrangements including arrangementsas defined under applicable SEC rules.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires the use of estimates and assumptions that would affect the liquidity, capital resources, market risk support,reported amounts of assets and credit risk support or other benefits.

WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reportsliabilities and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copiesdisclosure of these reports directly from us or from the SECcontingent liabilities at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549,date of the financial statements and youthe reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may obtain information about obtaining access todiffer from these estimates as a result of different assumptions or conditions.

See Note 4 of the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains informationunaudited financial statements included in “Part I—Item 1. Financial Statements”, above, for electronic filers at its websitehttp://www.sec.gov.a discussion of our significant accounting policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We had no material changes in market risk from those described in “Part II,Pursuant to Item 7A — Quantitative and Qualitative Disclosures about Market Risk”305(e) of our Annual Report on Form 10-K forRegulation S-K (§ 229.305(e)), the year ended September 30, 2017.Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES

This report includes the certifications of our Chief Executive OfficerDisclosure Controls and Chief Financial OfficerProcedures

As required by Rule 13a-1413a-15(b) of the Securities Exchange Act, we have evaluated, under the supervision and with the participation of 1934 (the “Exchange Act”). See Exhibits 31.1our management, including our principal executive officer and 31.2. This Item 4 includes information concerningprincipal financial officer, the controls and control evaluations revered to in those certifications.

Evaluationeffectiveness of Disclosure Controls and Procedures

We maintainour disclosure controls and procedures that(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Our disclosure controls and procedures are designed to ensureprovide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that such information is accumulatedour disclosure controls and communicatedprocedures were effective as of the end of the period covered by this quarterly report, at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, 2021, that have materially affected or are reasonably likely to materially affect, our Chief Executive Officerinternal control over financial reporting, including any corrective actions regarding significant deficiencies and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. material weaknesses.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the cost-benefit relationshipbenefits of possible controls and procedures. Our disclosure controls and procedures were designedrelative to provide reasonable assurance that the controls and procedures would meet their objectives.costs.

As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer need to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017 due to 1) no formal evaluation has been performed by us and 2) the existence of the material weaknesses in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures). Based on the performance of additional procedures designed to ensure the reliability of our financial reporting, we believe that the financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with U.S. GAAP.

Management’s Report on Internal Control over Financial Reporting

Our Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

In connection with the preparation of our Annual Report on Form 10-K for the year ended September 30, 2017, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our internal control over financial reporting as of September 30, 2017 and concluded that we did not maintain effective internal control over financial reporting as of September 30, 2017 due to the identification of material weaknesses. These material weaknesses remain as of December 31, 2017.

Management identified a number of deficiencies in the design and operating effectiveness of the Company’s internal controls as of September 30, 2017 that represent material weaknesses in our internal control over financial reporting. These deficiencies are the result of management’s failure to design, implement and maintain adequate operational and internal controls and processes, including a lack of sufficient accounting staff which resulted in inadequate segregation of duties, the inability to prove delivery of software, an insufficient number of personnel familiar with financial and SEC reporting requirements, inadequate monitoring and review controls over financial reporting and disclosures as well as transaction processing, and insufficient written policies and procedures for accounting and financial reporting.

Remediation Plan

Management has executed a remediation plan intended to address the material weaknesses discussed above. These remediation efforts are focused on:

During the three months ended December 31, 2017, management engaged additional resources to support the remediation efforts outlined above. In addition, management has continued to train key accounting staff to improve controls that will ultimately eliminate the material weaknesses discussed above, as well as improve the accounting and financial reporting process.

We expect that remediation, including testing of related controls, will be completed by the end of third quarter 2018.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, other than the remediation actions discussed above.

Inherent Limitations on Internal Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Limitations inherent in any control system include the following:

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

AsFrom time to time, we may become party to litigation or other legal proceedings that we consider to be a part of December 31, 2017,the ordinary course of our business.

Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Part II - Item 1. Legal Proceedings” of this Form 10-Q from, “Part I - Item 1. Financial Statements” in the notes to financial statements in “Litigation” in Note 5 – Commitments and Contingencies. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries, or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2020, filed with the Commission on December 29, 2020 (the “Form 10-K”), under the heading “Risk Factors” and in Part II, Item 1A of the Company’s Quarterly Report on Form 8-K for the quarter ended March 31, 2021, filed with the Commission on May 17, 2021, under the heading “Risk Factors” (the “Form 10-Q”), as supplemented by the risk factors included in the Company’s Registration on Form S-1 which was filed with the Commission on April 30, 2021 (the “Form S--1”), under the heading “Risk Factors”, except as set forth below, and investors should review the risks provided in the Form 10-K, Form 10-Q, Form S-1 and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not involvedlimited to those described below and in the Form 10-K, Form 10-Q and Form S-1, under the headings “Risk Factors”, which risk factors from the Form 10-K, Form 10-Q and Form S-1 are incorporated by reference in this Item 1A. Risk Factors, subject to updates to such risk factors as provided below, any material litigation.one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Securities

There have been no sales of unregistered securities during the quarter ended June 30, 2021, and from the period from July 1, 2021, to the filing date of this Report, which have not previously been disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, or in a Current Report on Form 8-K.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The Company has unregistered sales of securities through an active Private Placement Memorandum. During the three months ending December 31, 2017, through the utilization of a Private Placement Memorandum and upon receipt of executed Subscription Agreements, the Company sold and issued 37,000 shares of common stock for $57,200 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended (the “Act”), afforded by Rule 506 of Regulation D.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the three months ended December 31, 2017.None.

ITEM 4. MINING SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

There is no information with respect to which information is not otherwise called for by this form.None.

ITEM 6. EXHIBITS