UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period endedDecember 31, 20182019

 

[  ] 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

(Name of small business issuer as specified in its charter)

 

Texas 86-0837077
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

 

825 Main St, Suite 100

Buda, TX 78610

(Address of principal executive offices)

 

(512) 772-4237649-7700

Registrant’s telephone number, including area code

 

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 [X][  ] No [  ][X]

 

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 [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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[  ]Accelerated filer[  ]
Non–Accelerated filer[  ]X]Smaller reporting company[X]
Emerging growth company[  ]  

 

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 [X]

 

Indicate the numberAs of January 31, 2020, 40,792,510 shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.were outstanding.

ClassOutstanding at February 12, 2019
Common stock, $0.01 par value40,783,164

 

 

 

 

 

CIPHERLOC CORPORATION

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS ENDED DECEMBER 31, 20182019 AND 20172018

TABLE OF CONTENTS

 

 PAGE
PART I - FINANCIAL INFORMATION 
  
Item 1.Financial Statements (Unaudited)3
 Balance Sheets at December 31, 2019 and September 30, 20194
 Statements of Operations for the three months ended December 31, 2019 and 20185
 Statements of Cash Flows for the three months ended December 31, 2019 and 20186
 Statement of Stockholders’ Equity for the three months ended December 31, 2019 and 20187
 Notes to Financial Statements8
Item 2.Management Discussion & Analysis of Financial Condition and Results of Operations1313
Item 3Quantitative and Qualitative Disclosures About Market Risk1514
Item 4.Controls and Procedures1514
   
PART II - OTHER INFORMATION 
  
Item 1.Legal Proceedings1716
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds1716
Item 3.Defaults Upon Senior Securities1716
Item 4.Mining Safety Disclosures1716
Item 5Other Information1716
Item 6.Exhibits1716
   
CERTIFICATIONS 
  
31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 
31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 
32.1Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 
32.2Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 

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, 2018.2019. 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 months ended December 31, 20182019 are not necessarily indicative of the results that can be expected for the year ending September 30, 2019.2020.

 

 3 
 

 

CIPHERLOC CORPORATION

BALANCE SHEETS

(UNAUDITED)

 

 

December 31, 2018

  September 30, 2018  

December 31,

2019

  September 30,
2019		 
ASSETS                
Current assets                
Cash $13,052,481  $14,056,346  $5,677,539  $7,839,472 
Prepaid expenses  56,995   —   64,730   121,371 
Total current assets  13,109,476   14,056,346   5,742,269   14,056,346 
                
Other assets  12,218   12,218   7,566   7,566 
Operating lease ROU asset  209,419   — 
Fixed assets, net  35,988   20,050   48,619   40,182 
Total assets $13,157,682  $14,088,614  $6,007,873  $8,008,591 
                
LIABILITIES & STOCKHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and accrued liabilities $91,782  $52,043  $662,857  $650,681 
Accrued compensation  153,765   72,489   —   142,293 
Operating lease liability  102,251   — 
Deferred revenue  9,650   28,400 
Total current liabilities  245,547   124,532   774,758   821,374 
        
Operating long-term lease liability  102,413   - 
Total liabilities  817,732   821,374 
                
Commitments and contingencies (Note 5)                
                
Series A convertible preferred stock, $0.01 par value, 10,000,000 shares authorized; 1,000,000 issued and outstanding as of December 31, 2018 and September 30, 2018  10,000   10,000 
Common stock, $0.01 par value, 650,000,000 shares authorized; 40,763,917 and 40,743,917 issued and outstanding as of December 31, 2018 and September 30, 2018, respectively  407,638   407,438 
Series A convertible preferred stock, $0.01 par value, 1,000,000 shares authorized; 1,000,000 issued and outstanding as of December 31, 2019 and September 30, 2019  10,000   10,000 
Common stock, $0.01 par value, 681,000,000 shares authorized; 40,792,510 and 40,792,510 issued and outstanding as of December 31, 2019 and September 30, 2019, respectively  407,925   407,925 
Additional paid-in capital  68,208,957   68,169,157   68,277,399   68,225,828 
Accumulated deficit  (55,714,460)  (54,622,513)  (63,564,622)  (61,456,536)
Total stockholders’ equity  12,912,135   13,964,082   5,130,702   7,187,217 
Total liabilities and stockholders’ equity $13,157,682  $14,088,614  $6,007,873  $8,008,591 

 

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

 

 4 
 

 

CIPHERLOC CORPORATION

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 Three Months Ended  Three Months Ended 
 December 31,  December 31, 
 2018  2017  2019  2018 
Revenues $—  $115,642  $18,570  $— 
Cost of revenues  —   30,300   —   — 
Gross profit  —   85,342   18,750   — 
                
Operating expenses                
General and administrative  532,974   183,920   1,304,780   532,974 
Sales and marketing  213,975   22,967   256,044   213,975 
Research and development  345,895   114,852   566,015   345,895 
Total operating expenses  1,092,844   321,739   2,067,400   1,092,844 
Operating loss  (1,092,844)  (236,397)  (2,108,089)  (1,092,844)
                
Other income (expenses)                
Loss on extinguishment of convertible notes  —   (358,038)
Excess fair value of derivatives in convertible note  —   (486,745)
Change in fair value of embedded conversion features in convertible notes  —   (135,932)
Interest income (expense), net  897   (196,036)  —   897 
Net loss $(1,091,947) $(1,413,148) $(2,108,089) $(1,091,947)
                
Net loss per common share – basic and diluted $(0.03) $(0.21) $(0.05) $(0.03)
                
Weighted average common shares outstanding – basic and diluted  40,762,159   6,712,339   40,792,510   40,762,159 

 

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

 

 5 
 

 

CIPHERLOC CORPORATION

STATEMENTS OF CASH FLOWS

(UNAUDITED)

  Three Months Ended 
  December 31, 
  2018  2017 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(1,091,947) $(1,413,148)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  1,781   1,381 
Stock-based compensation  —   10,000 
Stock issued for services  40,000   — 
Loss on extinguishment of convertible notes  —   358,038 
Excess fair value of derivatives in convertible note  —   486,745 
Change in fair value of embedded conversion features in convertible notes  —   135,932 
Debt discount amortization  —   183,345 
Changes in operating assets and liabilities:        
Prepaid expenses  (56,995)  — 
Accounts payable and accrued liabilities  39,739   (19,513)
Accrued compensation  81,276   1,396 
Deferred revenue  —   (115,642)
Net cash used in operating activities  (986,146)  (371,466)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of fixed assets  (17,719)  — 
Net cash used in investing activities  (17,719)  — 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Common stock issued for cash  —   57,200 
Proceeds from convertible note, net  —   242,600 
Net cash provided by financing activities  —   299,800 
         
DECREASE IN CASH  (1,003,865)  (71,666)
CASH, BEGINNING OF PERIOD  14,056,346   227,396 
CASH, END OF PERIOD $13,052,481  $155,730 

  Three Months Ended 
  December 31, 
  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss $(2,108,089) $(1,091,947)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  5,404   1,781 
Stock-based compensation  51,574   — 
Stock issued for services  —   40,000 
Changes in operating assets and liabilities:        
Prepaid expenses and other assets  56,641   (56,995)
Accounts payable and accrued liabilities  7,423   39,739 
Accrued compensation  (142,295)  81,276 
Deferred revenue  (18,750)  — 
Net cash used in operating activities  (2,148,092)  (986,146)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of fixed assets  (13,841)  (17,719)
Net cash used in investing activities  (13,841)  (17,719)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Common stock issued for cash  —   — 
Proceeds from convertible note, net  —   — 
Net cash provided by financing activities  —   — 
         
DECREASE IN CASH  (2,161,933)  (1,003,865)
CASH, BEGINNING OF PERIOD  7,839,472   14,056,346 
CASH, END OF PERIOD $5,677,539  $13,052,481 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
ROU asset $209,419  $— 
ST operating lease liability $102,251  $— 
LT operating lease liability $102,413  $— 

 

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

 

 6 
 

 

CIPHERLOC CORPORATION

STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018

(UNAUDITED)

  Preferred Stock  Common Stock  Additional Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  

Equity

 
Balance at September 30, 2019  1,000,000  $10,000   40,792,510  $407,925  $68,225,825  $(61,456,533) $7,187,217 
Stock option expense issued to directors, officers and employees  —   —   —   —   51,574   —   51,574 
Net loss  —   —   —   —   —   (2,108,089)  (2,108,089)
Balance at December 31, 2019    1,000,000  $10,000     40,792,510  $  407,925  $  68,277,399  $(63,564,622) $5,130,702 

 

  Preferred Stock  Common Stock  Additional Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  

Equity

 
Balance at September 30, 2018  1,000,000  $10,000   40,743,917  $407,438  $68,169,157  $(54,622,513) $13,964,082 
Common stock issued for services  —   —   20,000   200   39,800   —   40,000 
Net loss  —   —   —   —   —   (1,091,947)  (1,091,947)
Balance at December 31, 2018    1,000,000  $10,000     40,763,917  $  407,638  $  68,208,957  $(55,714,460) $12,912,135 

 

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

 

 7 
 

 

CIPHERLOC CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(Unaudited)

 

NOTE 1 - DESCRIPTION OF BUSINESS

 

Cipherloc Corporation (the “Company” or “Cipherloc”) was incorporated in Texas on June 22, 1953 as American Mortgage Company. On March 15, 2015,Effective August 27, 2014, the Company changed its name to Cipherloc Corporation. The name change became effective on March 23, 2015.

 

NOTE 2 - 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 months ended December 31, 20182019 are not necessarily indicative of the results that may be expected for the year ending September 30, 2019.2020. 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, 20182019 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, 20182019 included within the Company’s Form 10-K as filed with the Securities and Exchange Commission.

 

NOTE 3 - 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. The Company did not have any cash equivalents as of December 31, 2018 or September 30, 2018. At December 31, 20182019 and September 30, 2018,2019, cash includes 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. At December 31, 2018, $12,802,4812019, $5,384,631 of the Company’s cash balance was uninsured. The Company has not experienced any losses in cash.

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, which is treated as an additional discount to the instruments where derivative accounting does not apply. This applies during the period for which embedded conversion features are either fixed or not yet available to the holder. The amount of the beneficial conversion feature may reduce the carrying value of the instrument. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt.

When equity instruments, such as common stock and/or warrants, are issued with convertible debt, the net proceeds from the transaction are allocated to the convertible debt and equity instruments based on their relative fair values. The proceeds allocated to the equity instruments may reduce the carrying value of the convertible debt, and such discount is amortized to interest expense over the term of the debt.

In the event a convertible note has an embedded conversion feature which, among other features, allows an unlimited number of common shares to be issued upon conversion since the conversion price is based on the quoted market price of the Company’s common stock, the Company records a derivative liability, which is marked to market at each reporting period and charged to the statement of operations in accordance with ASC 815,Accounting for Derivative Financial Instruments and Hedging Activities.

 

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, 20182019, and September 30, 2018,2019, the Company had 1,000,000 shares of preferred stock outstanding, which are convertible into 1,500,000 shares of common stock.

 

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 result of the net loss. During the three months ended December 31, 2018, 25,015,8662019, 24,216,866 warrants and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. During the three months ended December 31, 2017, 874,0002018, 25,015,866 warrants 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

 

The Company expenses all research and development costs, including patent and software development costs. Our research and development costs incurred for the three months ended December 31, 2019 and 2018 were $566,015 and 2017 were $345,895, and $114,852, respectively.

 

Revenue Recognition

The Company recognizes revenues in accordance with the provisions of Accounting Standards Update 2014-09, “Revenue from Contracts with Customers,” and a series of amendments which together we identify as “ASC Topic 606”. This new accounting standard, which we adopted on October 1, 2018 using the permitted modified retrospective method, outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. The new standard supersedes most previous revenue recognition guidance, including industry-specific guidance. The effect of the adoption of ASC Topic 606 on retained earnings as of October 1, 2018 was not material. The differences between our reported operating results for the three months ended December 31, 2019, which reflect the application of the new standard on our contracts, and the results that would have been reported if the accounting was performed pursuant to the accounting standards previously in effect, also were not material.

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

1.Identify the contract,
2.Identify the performance obligations of the contract,
3.Determine the transaction price of the contract,
4.Allocate the transaction price to the performance obligations, and
5.Recognize revenue.

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.

SoundFi – Software License Agreement

On February 15, 2019, the Company entered into a one-year agreement renewable for up to 4 years for an annual $50,000 Shield license fee and $25,000 watermark base license fee with SoundFi LLC (“SoundFi”). Residual income to the Company is earned based on the number of audio files downloaded per year with residual earnings of $.012 per download exceeding 3,000,001 and scaling up to $.00075 per download exceeding 100,000,000. During the three months ended December 31, 2019, the Company recognized $18,750 in licensing revenue. The Company has determined the best method for measuring licensing revenue to be the passage of time and more specifically on a monthly basis. The recognition of residual income occurs on an annual basis based on download volume provided by SoundFi. A download is defined as an audio file downloaded to a mobile device from the SoundFi servers.

Recent Accounting AnnouncementsPronouncements

 

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the ASC. There have been a number ofseveral ASUs to date that amend the original text of the ASC.ASCs. 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.

 

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurements (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements for fair value measurements. The ASU removes certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes for Level 3 fair value measurements. It modifies certain disclosure requirements for investments in entities that calculate net asset value. It adds certain disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements and unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07,Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718,Compensation – Stock Compensation, which currently only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Thus, accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently inadopted ASU 2018-07 on October 1, 2019 and the process of evaluating the effect this guidance will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Early adoption of the amendments in this standard is permitted for all entities, and the Company may recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11,Leases (Topic 840): Targeted Improvements, to provide a new transition method and practical expedient for separating components of a contract. The amendments in this standard are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606). Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of ASU 2014-09update did not have a material impact on the Company’s financial statements or related disclosures.position, results of operations and cash flows.

 

NOTE 4 – CONVERTIBLE NOTE PAYABLE

FirstFire Global Opportunities Fund, LLC

On September 26, 2017,In February 2016, the CompanyFASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a convertible note payable to FirstFire Global Opportunities Fund, LLC (“FirstFire”). This convertible note was settled in March 2018. The note was issued with a principal amountright-of-use asset (ROU) and corresponding lease liability, including leases currently accounted for as operating leases. Leases of $330,000, which included an original issue discount of $30,000. The Company incurred $8,500 in debt issuance costs. The note accrued interest at 5% per annummineral reserves and was to mature on March 26, 2018. The note was convertible at $2.00 per share, subject to adjustment due to ratchet or down round protection, among other adjustments. The Company also issued 50,000 shares of its common stock, as well as warrants to purchase an additional 165,000 shares of common stock at $4.50 per share with a term of two years. The note was amended on December 20, 2017, which reduced the conversion price of the note from $2.00 to $1.00 per share and the exercise price of the warrants from $4.50 to $2.00. The amendment also required the Company to issue an additional 87,500 shares of common stock to FirstFire. The Company also received the right to prepay the convertible note at any timerelated land leases have been exempted from the 151st throughstandard. We adopted ASU 2016-02, Leases, on October 1, 2019. We elected the 180th day following September 26, 2017, after“package of practical expedients” within the standard which the Company could repay FirstFire at 130% multiplied by the outstanding principal amount plus accruedpermits us not to reassess prior conclusions about lease identification, lease classification and unpaid interest.

initial direct costs. We made an accounting policy election to not separate lease and non-lease components for all leases. The reductionadoption of the conversion price from $2.00 to $1.00 was deemed to create a beneficial conversion feature, therefore, the Company accounted for the amendment of the FirstFire note using ASC 815,Derivatives and Hedging, and recognized a loss on extinguishment of $358,038 during the three months ended December 31, 2017. The Company also recognized a beneficial conversion feature derivative liability of $320,312 as of the note’s amendment date. The Company valued the beneficial conversion feature using the Black-Scholes-Merton valuation model on the date of the amendment with an expected life of one (1) year, volatility of 150%, and risk-free rate of 1.87%.

During the three months ended December 31, 2017, the Company recognized a loss of $48,911 related to the change in fair value of the FirstFire beneficial conversion feature. 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.

Additionally, upon the December 20, 2017 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 ended December 31, 2017. Total interest expense related to the FirstFire note, including the debt discount amortization prior to the amendment, was $178,700 for the three months ended December 31, 2017.

10

Peak One Opportunity Fund LP

On December 14, 2017, the Company issued a convertible note payable to Peak One Opportunity Fund LP (“Peak One”). This convertible note was settled in April 2018. The note was issued with a principal amount of $300,000. The Company incurred $27,400 in debt issuance costs. The note was to mature on December 14, 2020. The note was convertible at $1.00 per share. The Company also issued 275,000 shares of its common stock, as well as warrants to purchase an additional 75,000 shares of common stock at $2.00 per share with a term of five years at the time of note issuance.

The Company accounted for the Peak One note using ASC 815,Derivatives and Hedging, and recognized a beneficial conversion feature derivative liability of $267,750 as of the note’s issuance date. The Company valued the beneficial conversion feature using the Black-Scholes-Merton valuation model on the date of issuance with an expected life of 1.25 years, volatility of 150%, and risk-free rate of 1.82%. The Company also recognized a loss of $486,745 resulting from the excess fair value of the beneficial conversion featurethis standard resulted in the Peak One noterecognition of right-of-use assets and lease liabilities of the equity instruments issued with the convertible note.

During the three months ended December 31, 2017, the Company recognized a loss of $87,021 related to the change in fair value of the Peak One beneficial conversion feature. 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,$0.2 million, 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.

Additionally, upon issuance of the Peak One note, the Companywere not previously recorded a debt discount of $300,000. The Company amortized $4,645 of the debt discount to interest expense during the three months ended December 31, 2017.on our balance sheet.

 

NOTE 54 – COMMITMENTS AND CONTINGENCIES

 

Litigation

 

We areThe Company is currently not involved in any litigation that we believeit believes could have a material adverse effect on ourits financial condition or results of operations.

A disgruntled former contracted consultant has brought an action in Texas state court against the CEOCompany and the Company,its former chief executive officer, alleging fraud and misrepresentation pertaining to stock and payments alleged to be owed to the consultant. The Company believes it has made all of which have been paid,required payments and alldelivered the stock has been delivered to him. Hethe consultant. The consultant has also included a claim of partial ownership of somecertain of the Company’s patents, which management believes is without merit in that any interest he may have had has been assigned to the Company. The claim is frivolous and without merit. The case is currently being vigorously defended on our behalf by ourthe Company and costs relating thereto have been submitted to the Company’s insurance carrier.

 

LeasesIn August 2019, the Board of Directors formed a special committee of independent directors (the “Special Committee”) to investigate certain activities of Michael De La Garza (“De La Garza”), our former chief executive officer. The Special Committee has retained legal counsel, and is authorized to retain forensic accountants, to assist the investigation.

 

In August 2019, the Company initiated litigation against De La Garza in the Discount Court of Travis Country, Texas (the “Court”) in order to stop him from misappropriating the company’s trade secrets, depleting its monies and other assets, damaging the value of the company in the marketplace, and holding himself out as the company’s CEO. On September 25, 2019, the Court entered a temporary injunction against De La Garza enjoining him from numerous acts including representing himself as the Company’s CEO and from interfering with the current CEO’s management of the company. This litigation is ongoing, and its resolution is unknown. The Special Committee is investigating certain activities of De La Garza, including the Ageos, LLC Operating Agreement, the QHCI/Noun note receivable, an advance/bonus, personal expenditures, and other items. All amounts expended have been expensed as of September 30, 2019. No amounts have been recorded in these financial statements as expected recoveries.

Leases

In March 2019, the Company leases 3,906guaranteed a lease on behalf of Ageos, LLC in McLean, Virginia. The lease has a term of three years for 4,359 square feet of space in McClean, Virginia. The initial rent cost is $7,991 per month and the lease agreement provides for annual rent increases of approximately 4.0%. The amount of future payments guaranteed is $267,389. The agreement with Ageos was terminated in August 2019 and the Company has made an unwritten offer to assume the lease. No amounts have been accrued for this commitment as of December 31, 2019.

In February 2019, the Company and the landlord for its leased office space in Buda, Texas.Texas entered into a new lease agreement, and the Company reduced its rented space from approximately 3,900 to 1,302 square feet. The new lease was effective February 1, 2019 and has a three-year term. The initial monthly rent is $2,566, and the lease agreement provides for annual rent increases of approximately 2.7%. The lease automatically renews for the Buda office began on March 15, 2016 and continues until March 31, 2019. The current monthly rent payment of $7,542 continues until February 28, 2019. On March 1, 2019, the monthly rent payment increases to $7,705. The lease shall be automatically renewed for two one-year periods at a rate of $7,705 per month from April 1, 2019 through March 31, 2020 and a rate of $7,867 per month from April 1, 2020 until March 31, 2021,three-year term, unless either party to the lease agreement notifies the other of the intent to terminate the lease in writing at least 180 days prior to the expiration of the current term.

The Company also leases 1,005 square feetamount of office space in Scottsdale, Arizona. The lease for the Scottsdale office began on July 15, 2018 and continues until July 31, 2021. The current monthly rent payment of $1,608 continues until July 31, 2019. From August 1, 2019 to July 31, 2020, the monthly rent payment increases to $1,656, and from August 1, 2020 to July 31, 2021, the monthly rent payment increases to $1,705.future payments guaranteed is $66,690.

 

In October 2018, the Company leased an additional 3,859approximately 3,900 square feet of office space on North Scottsdale Road in Scottsdale, Arizona. The lease for the new Scottsdale officethis facility began on October 4, 2018 and continues until October 31, 2021. Annual rent of $77,180 was prepaid for the first year from November 1, 2018 to October 31, 2019. After the first year,2019, and the lease requires monthlyagreement provides for annual rent increases of approximately 5.0%. The amount of future payments guaranteed is $152,430.

Our significant accounting policies are detailed in Note 2 of $6,753 from November 1, 2019our Annual Report on Form 10-K for the year ended September 30, 2019. Changes to Octoberour accounting policies as a result of adopting ASU 2016-02 are discussed below.

The Company has two lease agreements for facilities. Some leases include options to extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

Leases with an initial term of 12 months or less are not recorded on our Balance Sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases in our Balance Sheet.

Lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use a secured incremental borrowing rates based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

At inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g. minimum rent payments) and non-lease components (e.g. maintenance, labor charges, etc.). The Company generally accounts for each component separately based on the estimated standalone price of each component. For certain leases the Company accounts for the lease and non-lease components as a single lease component.

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

Operating Leases

Operating leases are included in operating lease ROU lease assets, and operating lease liabilities and operating long-term lease liabilities on the Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. 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. Lease income is not material to the results of operations for the quarter ended December 31, 2019.

Cash Flows

An initial right-of-use asset of $209,419 was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Cash paid for amounts included in the present value of operating lease liabilities was $28,387 during first quarter 2020 and $7,075 from November 1, 2020is included in operating cash flows.

The weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of December 31, 2019:

Remaining lease term and discount rate:December 31, 2019
Weighted average remaining lease terms (years)
Lease facilities1.75
Weighted average discount rate
Lease facilities4.62%

Significant Judgements

Significant judgements include the discount rates applied, the expected lease terms, and lease renewal options. There are two leases with a renewal options. Using the practical expedient the Company utilized existing lease classifications as of September 30, 2019. As a result the lease renewal options were not changed on implementation.

The Company will reassess the lease terms and purchase options when there is a significant event of change in circumstances or when the Company elects to Octoberexercise an option that had previously been determined that it was not reasonably certain to do so.

Future annual minimum lease obligations at December 31, 2021.2019 are as follows:

Year Ending December 30, Amount 
2020 $84,438 
2021  87,433 
2022  47,249 
  $219,120 

Rent expense totaled $22,744 and $107,542 for the three months ended December 31, 2019 and 2018, respectively.

 

NOTE 65 - STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue 650,000,000681,000,000 common shares and 10,000,0001,000,000 preferred shares at a par value of $0.01 per share. As of December 31, 2018, the Company had 40,763,917 shares of common stock and 1,000,000 shares of preferred stock outstanding. As of September 30, 2018, the Company had 40,743,917 shares of common stock and 1,000,000 shares of preferred stock outstanding.

 

Common Stock

 

Management determinesDuring the three months ended December 31, 2019, the Company issued 620,000 shares of stock options to the employees with a fair value of $459,019, of which $12,751 was recorded as stock-based compensation expenses in research and development, marketing and general administration expense. Options will vest over a three-year period ratably. Of the 620,000 options, 500,000 options have a strike price of $0.78 and the remaining 120,000 have a strike price of $0.81. Total stock issuances usingcompensation expense was $51,574 for the closing stock price on the grant date.quarter ended December 31, 2019.

 

During the three months ended December 31, 2018, the Company issued 20,000 shares of common stock with a fair value of $40,000 to Pycnocline, LLC for management consulting services.

During the three months ended December 31, 2017, the Company issued 5,537 shares of common stock with a fair value of $10,000 to its officers and other employees as part of their compensation, which was recorded in research and development expenses.

11

Preferred Stock

Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. The holders of preferred stock can only convert the shares if agreed to by the Board of Directors. If declared by the Board of Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company. In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common stock of the Company.

 

NOTE 76 – SUBSEQUENT EVENTS

 

There have been no reportable events that have occurred after DecemberOn January 17, 2020, a decision was made to form a new company to be incorporated in the state of Nevada. The new entity will be a wholly owned subsidiary of Cipherloc Corporation and will become the commercial enterprise of the consolidated entity following the completion of a trademark search before the end of the Company’s second quarter.

On January 31, 2018.2020, a commercial lease for office space in the state of Virginia between 2111 Wilson Boulevard Inc. and Cipherloc Corporation was executed with a commencement date of February 1, 2020.

On February 1, 2020, Cipherloc Corporation hired Ryan Polk as its Chief Financial Officer.

12

 

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

 

In this Quarterly Report, “Company,” “our company,” “us,” and “our” refer to Cipherloc Corporation and its subsidiaries, unless the context requires otherwise.

 

Forward-Looking Statements

 

The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening 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 management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

 

Our Business

 

Cipherloc is a data security solutions company. We are developing a highly innovative,products and services around its patented polymorphic encryption technology designed to enable an iron-clada more efficient and stronger layer of protection to be added to existing solutions. The Company plans to introduce an innovative and revolutionary new type of encryption technology with five international patents and four US patents. We expect tosolutions which we believe could be the industry’s first “Polymorphic Cipher Engine”, calledwhich we call Cipherloc®. We expect to offeranticipate offering the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (“PKPA”). ThisWe believe this morphing cipher can be used in any commercial data security industry and/or in sensitive applications.

 

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.

Results of Operations for the three months ended December 31, 20182019 and 20172018

 

Revenue decreasedincreased to $0 from $115,642$18,750 for the three months ended December 31, 2018 and 2017, respectively. Similarly, cost of revenue decreased to2019 from $0 from $30,300 for the three months ended December 31, 2018 and 2017, respectively.2018. The decreaseincrease in revenue and cost of revenue is a result ofrelated to the Company’s only softwareSoundFi license contract ending in June 2018.contract.

 

General and administrative expenses increased to $532,974 from $183,920$1,304,780 for the three months ended December 31, 2018 and 2017, respectively.2019 from $532,974 for the three months ended December 31, 2018. General and administrative expenses increased primarily as a result of higher legal fees of $470,000, higher headcount related costs of $195,000, higher professional fees, of $86,000, higher legal costs of $74,000, higher consulting fees and contract services of $64,000, higher salaries of $47,000, and higher rent expense of $22,000.$107,000.

 

Sales and marketing expenses increased to $213,975 from $22,967$256,044 for the three months ended December 31, 2018 and 2017, respectively.2019 from $213,975 for the three months ended December 31, 2018. Sales and marketing expenses increased primarily as a result of higher consultingheadcount related costs of $151,000.

 

Research and development costs increased to $345,895 from $114,852$566,015 for the three months ended December 31, 2018 and 2017, respectively.2019 from $345,895 for the three months ended December 31, 2018. Research and development expenses increased primarily as a result of higher salaries of $167,000 and higher consulting costs of $74,000, partially offset by lower stock-based compensation$203,000 and higher headcount related costs of $10,000.$17,000.

 

Interest income, net, was $897 for the three months ended December 31, 2018, as compared to interest expense, net, of $196,036 for the three months ended December 31, 2017. The change in interest income (expense), net, was due to the convertible notes with FirstFire Global Opportunities Fund, LLC and Peak One Opportunity Fund LP, which were outstanding during the three months ended December 31, 2017 and subsequently settled prior to the three months ended December 31, 2018.

 

Liquidity and Capital Resources

 

We havehad an accumulated deficit at December 31, 20182019 of $55,714,460.$63,564,622. We expect to incur substantial expenses and generate continued operating losses until we generate revenues sufficient to meet our obligations. At December 31, 2018, the Company2019, we had cash of $13,052,481.$5,327,539. We believe that our existing cash balances are sufficient to fund future operations for the next 9 to 12 months. We may need to raise additional capital to increase liquidity and extend the period of time until we have positive cashflow from operations. We believe the additional funding required can be obtained on terms acceptable to us, although there can be no assurance that we will be successful.

Cash Flow

 

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

 

 Three Months Ended  Three Months Ended 
 December 31,  December 31, 
 2018  2017  2019  2018 
Net cash (used in) provided by:        
Net cash (used in):        
Operating activities $(986,146) $(371,466) $(2,148,092) $(986,146)
Investing activities $(17,719) $—  $(13,841) $(17,719)
Financing activities $—  $299,800  $—  $— 

 

Operating Activities

Cash used in operating activities was $986,146$2,148,092 and $371,466$986,146 for the three months ended December 31, 20182019 and 2017,2018, respectively. The increasechange in cash used in operating activities was primarily due to lower non-cash expenses, partially offset by changesthe increase in working capital usage.the net loss during 2019.

 

Investing Activities

Cash used in investing activities was $17,719$13,841 and $0$17,719 for the three months ended December 31, 20182019 and 2017,2018, respectively. The increase in cash used in investing activities was the result of fixed asset purchases.

 

Financing Activities

Cash provided by financing activities was $0 and $299,800$0 for the three months ended December 31, 2019 and 2018, and 2017, respectively. The decrease in cash provided by financing activities was primarily due to no issuances of common stock or notes payable during the three months ended December 31, 2018.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements, including arrangements that would affect the liquidity, capital resources, market risk support, 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 reports 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 copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its websitehttp://www.sec.gov.

14

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We had no material changes in market risk from those described in “Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended September 30, 2018.Not applicable

 

ITEM 4. CONTROLS AND PROCEDURES

 

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”)SEC’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. 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, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives.

As required by SEC Rule 13a-15(b), our ChiefCheif 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 effective as of December 31, 2018.

 

Management’s Report on Internal Control over Financial Reporting

Our ChiefPrincipal Executive Officer and the ChiefPrincipal 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, 2018,2019, our ChiefPrincipal Executive Officer and ChiefPrincipal Financial Officer evaluated the effectiveness of our internal control over financial reporting as of September 30, 20182019 and concluded that we did not maintain effective internal control over financial reporting as of September 30, 20182019 due to the identification of material weaknesses. Management continued with its remediationCertain transactions that occurred from October 1, 2018 through August 31, 2019 validated that the material weakness had not been remedied as of September 30, 2019. We intend to remediate these material weaknesses during the three months ended December 31, 2018.2020 fiscal year.

Changes in Internal Control over Financial Reporting

 

During the three months ended December 31, 2018, management beganWe intend to begin implementing a remediation plan to address the material weaknesses identified during the year ended September 30, 2018. These2020. The remediation efforts were focusedwill focus on:

 

 ●Enhancing monitoring and review controls over financial reporting and disclosures;
   
 ●Enhancing review and approval controls around transaction processing;
   
 ●Enhancing controls around proving the delivery of software; and
   
 ●Enhancing and maintaining written policies and procedures for accounting and financial reporting.

 

We expect that remediation, including testing of related controls, will be completed during the 2019balance of the 2020 fiscal year.

 

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:

 

 ●Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes;
   
 ●Controls can be circumvented by individuals, acting alone or in collusion with others, or by management override;
   
 ●The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
   
 ●Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures; and
   
 ●The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs.

 

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.

 

 1615 
 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

See “Litigation” in Note 5 – Commitments and Contingencies of the Notes to the Financial Statements in Part I, Item I of this document.

 

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

 

The Company did not have any unregistered sales of securities during the three months ended December 31, 2018.None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

There were no defaults upon senior securities during the three months ended December 31, 2018.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

 

3.1Articles of Incorporation Incorporated by reference to the Registrant’s Form 10-SB filed on or about January 3, 2000.
3.2Bylaws Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended December 31, 2000 and filed on or about February 14, 2001.
3.3Amendment to the Articles of Incorporation indicating name change and reverse stock split as set out in Registrant’s Form 8-K dated and filed on March 23, 2015.
4.1S-8 Registration Filed on June 2, 2014 and by reference incorporated herein.
4.2S-8 Registration Filed on October 27, 2016 and by reference incorporated herein.
5.1Legal opinion of Carl P. Ranno included in the S-8 Registration filed on June 2, 2014.
5.2Legal opinion of Carl P. Ranno included in the S-8 Registration filed on October 27, 2016.
10.1Employment Agreement between National Scientific Corporation and Michael A. Grollman dated January 2001 Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended March 31, 2001 and filed on or about May 15, 2001.
10.2Employment Agreement between National Scientific Corporation and Graham L. Clark dated January 2003 Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended June 30, 2004 and filed on or about August 16, 2004.
10.3NSC Consulting Agreement dated August 2001, and Amendments dated August 2002 and July 2003, with Dr. El-Badawy El-Sharawy Incorporated by reference to the Registrant’s Form 10-QSB for the quarter ended June 30, 2004 and filed on or about August 16, 2004.
10.4Amended and Restated 2000 Stock Option Plan Incorporated by reference to the Registrant’s Form 10-KSB for the year ended September 30, 2000 and filed on or about December 19, 2000.
10.5Form of 2004 Stock Retainage Plan Agreement Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.6Agreement Regarding Management Consulting Services with Stanton Walker of New York dated May 2003 Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.7Agreement Regarding Distribution and Marketing of Gotcha!® Child Safety Product and other products dated December 2002 with FutureCom Global, Inc. Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.8Purchase Order from Verify Systems, Inc., dated March 2003 for IBUSTM School Child Tracking Systems. Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.9Letter of Understanding and Agreement dated April 2004 Regarding Sales and Distribution of Verify School safety products, and an Unlimited Software License with Anthony Grosso and CIS Services, LLC. Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.10Letter of Intent from Positus, Inc. dba Bike & Cycle Trak, dated February 2003 for Design of Power Sports Tracking System. Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.11Purchase Order from Positus, Inc. dba Bike & Cycle Trak, for Design of Power Sports Tracking System dated March 2003. Incorporated by reference to the Registrant’s Form SB-2 filed on or around June 24, 2004.
10.12Employment agreement of Michael De La Garza. Incorporated by reference to the Registrant’s Form 10-K for the year ended September 30, 2011 and filed on October 10, 2013.
10.13Employment Agreement of Pamela Thompson Incorporated by reference to the Registrant’s Form 10-K for the year ended September 30, 2011 and filed on October 10, 2013.
10.14Licensing Agreement of Code Robert, LLC and Sunset Angel Productions, LLC. Incorporated by reference to the Registrant’s Form 8-K filed on April 25, 2015.
10.15Employment Agreement of Dr. Albert Carlson, incorporated by reference to Form 8-K filed on September 4, 2015.
10.16Asset Purchase Agreement and Promissory Note re sale of MD Software dated September 29, 2015. Incorporated by reference to the Registrant’s Form 10-K for the year ended September 30, 2015 and filed on February 2, 2016.
10.17Asset Purchase Agreement with Isaiah Eichen dated October 22, 2015, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending December 31, 2015 and filed on February 22, 2016.
10.18Sisco Product Development Agreement dated November 6, 2015, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending December 31, 2015 and filed on February 22, 2016.
10.19Cloud Medical Doctors Software Corporation 48-month Licensing Agreement with Gawk dated June 11, 2014, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending December 31, 2015 and filed on February 22, 2016.
10.20Employment agreement of Patrick Doherty dated January 16, 2016, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending March 30, 2016 and filed on June 6, 2016.
10.21Employment agreement of Carlos Gonzales dated March 14, 2016, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending March 30, 2016 and filed on June 6, 2016.
10.22Employment agreement of Mike Salas dated April 25, 2016, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending June 30, 2016 and filed on September 2, 2016.
10.23Lease agreement effective March 16, 2016 and addendum dated April 14, 2016, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending June 30, 2016 and filed on September 2, 2016.
10.24Employment agreement of Mike Hufnagel dated June 7, 2016, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending June 30, 2016.
10.25Software Licensing Agreement with GoSecured Dated August 29, 2016, incorporated by reference to the Registrant’s Form 10-K for the year ending September 30, 2017 and filed on February 2, 2017.
10.26Consulting Agreement with Susan Hufnagel dated March 28, 2027 and incorporated herein
10.27Employment agreement of Mike Hufnagel dated October 31, 2017 appointing him as Chief Operating Officer, incorporated by reference to the Registrant’s Form 8-K filed on October 31, 2017
10.28Employment Agreement of Dr. Milton Mattox date June 25, 2018 appointing him as Vice President of Sales and Marketing incorporated by reference to the Registrant’s Form 8-K filed on June 27, 2018.
10.29Lease agreement effective July 15, 2018 for property in Scottsdale, AZ, incorporated by reference to the Registrant’s Form 10-Q for the quarter ending June 30, 2018 and filed on August 14, 2018.
10.30Employment Agreement of Dr. Milton Mattox date September 24, 2018 appointing him as Chief Operating Officer incorporated by reference to the Registrant’s Form 8-K filed on September 26, 2018. The exhibit was inadvertently marked as Exhibit 10.29.
10.31Lease agreement effective November 1, 2018 and dated October 4, 2018 for property in North Scottsdale, AZ incorporated by reference to the Registrant’s Form 8 K filed on October 11, 2018 and attached hereto.
10.32Placement Agent Agreement dated January 17, 2018 incorporated by reference to the Registrant’s Form 8-K filed on August 1, 2018 and attached hereto.
10.332019 Stock Option/Stock Issuance Plan dated August 27, 2018 is incorporated by reference and attached hereto.
14Code of Ethics Incorporated by reference to the Registrant’s Form 10QSB for the quarter ending June 30, 2004 filed on or around August 16, 2004.
16.1Letter of GBH CPA, PC regarding change in Independent Registered Public Accounting firm dated April 7, 2015, incorporated by reference to the Registrant’s Form 8-K filed on April 10, 2015.
16.2Letter of MaloneBailey, LLP, regarding change in Independent Registered Public Accounting firm dated April 22, 2016, incorporated by reference to the Registrant’s Form 8-K filed on April 25, 2016.
16.3Letter of dbbmckennon, regarding change in Independent Registered Public Accounting firm dated August 30, 2018 incorporated by reference to the Registrant’s Form 8-K filed on September 5, 2018. The exhibit was inadvertently marked as exhibit 16.2.
17.1Letter of Resignation as Officer and Director dated December 30, 2014, incorporated by reference to the Registrant’s Form 8-K filed on January 2, 2015.
17.2Appointment of two Directors one of which is also appointed as Chief Financial Officer on January 7, 2015 as incorporated by reference to the Registrant’s Form 8-K filed on January 8, 2015.
17.3Letter of Resignation of Michael Hufnagel as Chief Operating Officer as Officer dated September 21, 2018, incorporated by reference to the Registrant’s Form 8-K filed on September 24, 2018.
31.1 Certification of ChiefPrincipal Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of ChiefPrincipal Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

RegistrantCipherloc Corporation
  
Date: February 14, 20192020By:/s/ Michael De La GarzaAndrew Borene
  Michael De La GarzaAndrew Borene
  Chairman, Chief Executive Officer (Principal Executive Officer), President

 

 2017 
 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RegistrantCipherloc Corporation
Date: February 14, 2020By:/s/ Ryan Polk
Ryan Polk
Chief Financial Officer

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