CIPHERLOC Corp (Form: S-1/A, Received: 02/21/2019 16:45:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

Amendment NO.1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CIPHERLOC CORPORATION

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)
Texas	518210	86-0837077

{Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

825 Main St, Suite 100

Buda, TX 78610

Telephone (512)-772-4245

Michael De La Garza

President/CEO

825 Main St, Suite100

Buda, TX 78610

Telephone: (512)-772-4245

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of all communications, including communications sent to agent for service, should be sent to:

Carl P. Ranno, Esq.

2733 East Vista Dr.

Phoenix, AZ 85032

Telephone 602-402-3615 Email carlranno@cipherloc.net

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective
date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

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

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [X]
(Do not check if a smaller reporting company) 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 accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]

CALCULATION OF REGISTRATION FEE

TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED	AMOUNT TO BE REGISTERED (1)		PROPOSED MAXIMUM OFFERING PRICE PER SHARE (2)		PROPOSED MAXIMUM AGGREGATE OFFERING PRICE		AMOUNT OF REGISTRATION FEE
Common Stock, $0.01 par value		18,897,400	$	1.195	$	22,582,393.00	$	2,736.99
Common Stock underlying warrants		24,226,866	$	1.195	$	28,951,104.87	$	3,508.87

Total		43,124,266			$	51,533,497.87	$	6,245.86

(1) Pursuant to Rule 416 under the Securities Act, the shares of common stock offered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.

(2) Estimated at $1.195 per share, the average of the high and low prices as reported on the OTC Bulletin Board regulated quotation service on February 4, 2019, for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 5, 2019

PRELIMINARY PROSPECTUS

43,124,266 Shares

CIPHERLOC CORPORATION

Common Stock

This prospectus relates to the sale by the selling stockholders identified in this prospectus of up to 43,124,266 shares of our common stock, par value $0.01 per share. These shares consist of the following.

A private placement pursuant to Regulation D, ending in August of 2018 wherein 18,827,900 Units were sold to accredited investors for $1.00 per unit. Each Unit consisted of one (1) share of common stock and a warrant to purchase one (1) additional share of Common Stock at $1.20 per share. The Warrant will expire 60 months from date of purchase. There are 18,827,900 Warrant Shares and 18,897,400 Common Shares which includes 69,500 converted warrant shares. The Company issued an additional 5,398, 966 Warrants, with a cashless conversion provision, at $1.20 with a ten (10) year expiration date to the investment agent as part of the its fee. The transaction totaled 43,124,266 common shares.

The prices at which the selling stockholders may sell shares will be determined by the prevailing market price for the shares or in privately negotiated transactions. We will not receive any proceeds from the sale of these shares by the selling shareholders. All expenses of registration incurred in connection with this offering are being borne by us, however all selling and other expenses incurred by the selling stockholders will be borne by the selling stockholders.

Our common stock is quoted on the regulated quotation service of the OTC Bulletin Board under the symbol “CLOK”. On February 4, 2019, the last reported sale price of our common stock as reported on the OTC Bulletin Board was $1.20 per share.

Investing in our common stock is highly speculative and involves a high degree of risk. You should carefully consider the risks and uncertainties in the section entitled “Risk Factors” beginning on page 6 of this prospectus before deciding to purchase our stock.

The date of this Prospectus is February 5, 2019

TABLE OF CONTENTS

	Page

PART I. PROSPECTUS

PROSPECTUS SUMMARY	4
RISK FACTORS	6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	9
USE OF PROCEEDS	9
SELLING STOCKHOLDERS	9
PLAN OF DISTRIBUTION	19
DESCRIPTION OF SECURITIES	20
INTERESTS OF NAMED EXPERTS AND COUNSEL	20
DESCRIPTION OF OUR BUSINESS	21
ORGANIZATION WITHIN THE LAST FIVE YEARS	23
DESCRIPTION OF PROPERTIES	23
LEGAL PROCEEDINGS	23
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS	23
SELECTED FINANCIAL DATA	24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	28
EXECUTIVE COMPENSATION	30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	31
AVAILABLE INFORMATION	31
FINANCIAL STATEMENTS	32
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES	60

PART II – INFORMATION NOT REQUIRED IN PROSPECTUS

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION	61
INDEMNIFICATION OF DIRECTORS AND OFFICERS	61
RECENT SALES OF UNREGISTERED SECURITIES	61
EXHIBITS TO THE REGISTRATION STATEMENT	63
UNDERTAKINGS	64
SIGNATURES	65

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed information and the financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this Prospectus. Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” or the “Registrant” refer to Cipherloc Corporation, a Texas corporation. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Cipherloc Corporation

Cipherloc Corporation is 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 is the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (PKPA). This morphing cipher can be used in any commercial data security industry and/or in sensitive applications.

The Company’s initial products are focused on protecting “data in motion” and will consist of three different offerings: CipherLoc EDGE (for mobile platforms), CipherLoc ENTERPRISE (for desktops, laptops, and tablets), and CipherLoc GATEWAY (for servers). Summaries for each of these products can be found on the Company’s website. The end goal with the release of these products is to offer end-to-end data security (i.e., data can be securely sent to/from any mobile device, any PC, 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. We will be offering these potential clients a fairly standard 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-in to their products, we are planning to achieve scale much faster.

The Company was incorporated in Texas on June 22, 1953 as American Mortgage Company. During 1996, the Company acquired the operations of Eden Systems, Inc. (“Eden”) as a wholly owned subsidiary. Eden was engaged in water treatment and the retailing of cleaning products. Eden’s operations were sold on October 1, 1997. From September 30, 1997 through the year ended September 30, 2001, the company aimed our efforts in the research and development of semiconductor proprietary technology and processes and in raising capital to fund its operations and research. On May 16, 1996, the Company changed its name to National Scientific Corporation and since January of 2000 traded on the OTC Bulletin Board under the symbol NSCT. On March 15, 2015, the Company changed its name to Cipherloc Corporation and reversed its stock on a 100 to 1 basis. The name change became effective by the Amended Certificate as of March 23, 2015 and the stock has been trading under the symbol CLOK.

Our principal executive offices are located at 825 Main Street, Suite 100, Buda, TX 78610. Our telephone number is (512) 772-4245. Our website is www.cipherloc.net. Information on or accessed through our website is not incorporated into this prospectus and is not a part of this prospectus.

SUMMARY OF THE OFFERING

Common stock offered by the Stockholders:		43,124,266 shares of our common stock, which is the total of 18,897,400 issued common shares and 24,226,866 shares issuable upon the exercise of outstanding warrants

Common stock outstanding before and after this offering :		40,783,164 and 65,010,030 (1)

Use of proceeds:		We will not receive any proceeds from the sale of shares in this offering by the selling stockholders

OTC Bulletin Board symbol :		CLOK

Risk Factors:		The Common Shares offered involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factor.”

(1)

The number of outstanding shares before the offering is based upon 40,783,164 common shares outstanding as of February 4, 2019 and the number of shares outstanding after this offering includes 24,226,866 shares of common stock issuable upon the exercise of the outstanding warrants.

Risk factors: You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 6 of this prospectus before deciding whether or not to invest in shares of our common stock.

RISK FACTORS

Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should carefully consider the following risks, together with the financial and other information contained in this prospectus. If any of the following risks actually occurs, our business, prospects, financial condition and results of operations could be adversely affected. In that case, the trading price of our common stock would likely decline, and you may lose all or a part of your investment.

Risks Relating to Our Business

Risks Relating to our Organization and our Common Stock

Exercise of options and warrants and/or conversion of preferred stock will dilute your percentage of ownership. We may issue options to purchase or grant up to an aggregate of 3,000,000 shares of common stock under our 2019 Stock Grant/Option Plan. We also have warrants to purchase 25,015,866 shares of our common stock. In the future, we may grant additional stock options, warrants and convertible securities. The exercise or conversion of stock options, warrants, preferred stock or convertible securities will dilute the percentage ownership of our other stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert them when we would be able to obtain additional equity capital on terms more favorable than these securities.

Difficulties we may encounter managing our growth could adversely affect our results of operations. As our business needs expand, we may need to hire a significant number of employees. This expansion may place a significant strain on our managerial and financial resources. To manage the potential growth of our operations and personnel, we will be required to:

	●	improve existing, and implement new, operational, financial and management controls, reporting systems and procedures;
	●	install enhanced management information systems; and
	●	train, motivate and manage our employees.

We may not be able to install adequate management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage growth effectively, our business would be seriously harmed.

If we lose key personnel or are unable to attract and retain additional qualified personnel, we may not be able to successfully manage our business and achieve our objectives.

We believe our future success will depend upon our ability to retain our key management, including Mr. De La Garza, our Chief Executive Officer, President, and Director, and Dr. Carlson, our Chief Scientist. We may not be successful in attracting, assimilating and retaining our employees in the future.

Our stock price may be volatile.

The stock market in general has experienced volatility that often has been unrelated to the operating performance of any specific public company. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

	●	changes in our industry;
	●	competitive pricing pressures;
	●	our ability to obtain working capital financing;
	●	additions or departures of key personnel;
	●	limited “public float” in the hands of a small number of persons who sales or lack of sales could result in
		positive or negative pricing pressure on the market prices of our common stock;
		sales of our common stock;
	●	our ability to execute our business plan;
	●	operating results that fall below expectations;
	●	Joss of any strategic relationship;
	●	regulatory developments;
	●	economic and other external factors; and
	●	period-to-period fluctuations in our financial results.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We have never paid nor; do we expect in the near future to pay dividends. We have never paid cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock for the foreseeable future. Investors should not rely on an investment in our Company if they require income generated from dividends paid on our capital stock. Any income derived from our common stock would only come from rise in the market price of our common stock, which is uncertain and unpredictable.

We cannot predict how liquid the market for our common stock might become. The market liquidity for our common stock is not predictable. Since January of 2000, our common stock has been quoted for trading on the OTC Bulletin Board as National Scientific Corporation with the symbol NSCT and since April of 2015 as Cipherloc Corporation trading on the OTC Bulletin Board under the symbol CLOK, as soon as is practicable, we intend to apply for listing of our common stock on The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remain listed on the OTC Bulletin Board or suspended from the OTC Bulletin Board, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. Furthermore, for companies whose securities are traded on the OTC Bulletin Board, it is more difficult (I) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.

Our common stock is subject to restrictions on sales by broker-dealers and penny stock rules, which may be detrimental to investors .

Our common stock is subject to Rules 15g-l through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 50l(a) of the Securities Act). For transactions covered by this rule, a broker- dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock.

Additionally, our common stock is subject to SEC regulations applicable to “ penny stocks.” Penny stocks include any non-Nasdaq equity security that bas a market price of less than $5.00 per share, subject to certain exceptions .

The regulations require that prior to any non-exempt buy/sell transaction in a penny stock; a disclosure schedule proscribe d by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of a penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

Our common stock may be affected by limited trading volume and price fluctuation which could adversely impact the value of our common stock.

There has been limited trading in our common stock and there can be no assurance that an active trading market in our common stock will either develop or be maintained. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants or upon the conversion of our Preferred Stock, it could create an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity related securities in the future at a time and price that we deem reasonable or appropriate.

Investor relations activities, nominal “float” and supply and demand factors may affect the price of our stock.

The Company expects to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for the Company. These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described. The Company may provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third-parties based upon publicly-available information concerning the Company. The Company does not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods. Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control. in addition, investors in the Company may, from time to time, also take steps to encourage investor awareness through similar activities that may be undertaken at the expense of the investors. Investor awareness activities may also be suspended or discontinued which may impact the trading market of our common stock.

The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases. We and our shareholders may be subject ed to enhanced regulatory scrutiny due to the small number of shareholders who initially will own the registered shares of our common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace (Pink OTC) or pink sheets. Until such time as our restricted shares are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions, which will constitute the entire available trading market. The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. Since a small percentage of the outstanding common stock of the Company will initially be available for trading, held by a small number of individuals or entities, the supply of our common stock for sale will be extremely limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist. Securities regulators have often cited factors such as thinly-traded markets, small numbers of holders, and awareness campaigns as hallmarks of claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases. There can be no assurance that the Company’s or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what price s they may be willing to buy or sell stock will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of the stock.

Risks Related to Our Industry

We face intense competition .

We continue to experience intense competition across all markets for our products and services. Although we believe our business and product portfolio is a competitive advantage, our competitors that are focused on narrower product lines may be more effective in devoting technical, marketing, and financial resources to compete with us. In addition, barriers to entry in our businesses generally are low end products. Open source software vendors are devoting considerable efforts to developing software that mimics the features and functionality of our products. These competitive pressures may result in decreased sales volumes, price reductions, and/or increased operating costs, such as for marketing and sales incentives, resulting in lower revenue, gross margins, and operating income.

Our business depends on our ability to attract and retain talented employees.

Our business is based on successfully attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry is extremely competitive. We are limited in our ability to recruit internationally by restrictive domestic immigration laws. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

Delays in product development schedules may adversely affect our revenues .

The development of software products is a complex and time-consuming process. New products and enhancements to existing products can require long development and testing periods. Our increasing focus on innovative and new software presents new and complex development issues. Significant delays in new product releases or significant problems in creating new products could adversely affect our revenue.

Acquisitions and joint ventures may have an adverse effect on our business.

We expect to continue making acquisitions or entering into joint ventures as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we don’t realize a satisfactory return on our investment, or that we experience difficulty in the integration of new employees, business systems, and technology, or diversion of management’s attention from our other businesses. These events could harm our operating results or financial condition.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Such statements include statements regarding our expectations, hopes, beliefs or intentions regarding the future, including but not limited to statements regarding our market, strategy, competition, development plans (including acquisitions and expansion), financing, revenues, operations, and compliance with applicable laws. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-loo king statements include the risks described in greater detail in the following paragraphs. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward- looking statement. Market data used throughout this prospectus is based on published third party reports or the good faith estimates of management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information.

You should review carefully the section entitled “Risk Factors” beginning on page 6 of this prospectus for a discussion of these and other risks that relate to our business and investing in shares of our common stock.

USE OF PROCEEDS

The selling stockholders will receive all of the proceeds from the sale of the shares offered by them under this prospectus. We will not receive any proceeds from the sale of the shares by the selling stockholders covered by this prospectus.

SELLING STOCKHOLDERS

Up to 43,120,266 shares of common stock are being offered by this prospectus, all of which are being registered for sale for the account of the selling stockholders and consist of 18,897,400 shares of common stock issued to certain investors in the private placements ending in August 2018 and 24,226,866 shares of common stock issuable upon the conversion of outstanding warrants to the investors in the private placements ending in August 2018 which includes 5,398,966 warrants as a portion of the commissions paid to the Placement Agent and issued to the Agent’s designees.

Each of the transactions by which the selling stockholders acquired their securities from us was exempt under the registration provisions of the Securities Act.

The 43,120,266 shares of common stock referred to above are being registered to permit public sales of the shares, and the selling stockholders may offer the shares for resale from time to time pursuant to this prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act or pursuant to another effective registration statement covering those shares. We may from time to time include additional selling stockholders in supplements or amendments to this prospectus.

Except as otherwise provided, the following table sets forth certain information with respect to the beneficial ownership of our common stock including the names of the selling stockholders, the number of shares of our Common Stock owned beneficially by the selling stockholders as of February 4, 2019 the number of shares of our common stock being offered by each selling stockholder and the number and percentage of shares of Common stock that will be owned by each selling stockholder following the completion of this offering. The selling stockholders have not had a material relationship with us within the past three years other than as described in the footnotes to the table below or as a result of acquisition of our shares or other securities.

The selling stockholders’ percentage of ownership of our outstanding shares in the table below is based upon 40,783,164 shares of common stock outstanding as of February 4, 2019.

	Ownership Before Offering				Ownership After Offering (1)
Selling Stockholder	Number of Shares of Common Stock Beneficially Owned		Number of Shares Offered		Number of Shares of Common Stock Beneficially Owned		Percentage of Common Stock Beneficially Owned

3NT Management, LLC		100,000		100,000		0		0
Aaron Lehman		100,000		100,000		0		0
Adam Ofstad		120,000		120,000		0		0
Advanta IRA Services FBO Nicole Rhodes IRA		16,000		16,000		0		0
Advanta IRA Services LLC FBO David Rhodes IRA 8007173		60,000		60,000		0		0
Advanta IRA Services LLC FBO Fazal Dasankop IRA 8003		60,000		60,000		0		0
Albert Arciero		200,000		200,000		0		0
Aldolfo and Donna Carmona		200,000		200,000		0		0
Allen Gabriel		200,000		200,000		0		0
Alvin Fund		400,000		400,000		0		0
Amin and Rubina Chikhalia, TBE		100,000		100,000		0		0
Amy Stern		50,000		50,000		0		0
Andara Capital, LP		200,000		200,000		0		0
Anna Michalczyk		50,000		50,000		0		0
Anthony and Angela Reed Family Trust		100,000		100,000		0		0
Anthony and Angela Reed Family Trust, Tony Reed Trustee		50,000		50,000		0		0

Ashit and Minaxi Vijapura TBE	100,000	100,000
Ashwin and Achala Patel TBE	100,000	100,000
Asian Gateway Ltd	200,000	200,000
Asian Gateway Ltd	200,000	200,000
Asian Gateway Ltd.	100,000	100,000
Barrett M. Miller	100,000	100,000
Barrett Share Trust	500,000	500,000
Beacon Investments	200,000	200,000
Bennett Yanowitz Credit Shelter Trust, Alan Yanowitz, Trustee	100,000	100,000
Beth McChesney	30,000	30,000
BMM Capital, LLC	200,000	200,000
BMM Capital, LLC, Brian Mark Miller Control Person	200,000	200,000
Boston Light Advisors, LLC, Roney, Managing Member	200,000	200,000
Bradley and Belinda Karp, Tenents in Common	100,000	100,000
Brian Kline	200,000	200,000
Brian Skillern	50,000	50,000
Bruce and Nancy Inglis JTWROS	100,000	100,000
Bruce McFadden	20,000	20,000
C D Walker LLC	200,000	200,000
C.D. Walker, LLC	200,000	200,000
Caisson Breakwater Global Opportunity Fund, LP	1,400,000	1,400,000
Calcott Family Trust, George Calcott Trustee	50,000	50,000
Calvin Klotz	20,000	20,000
Candioty Werth Living Trust, Linda Candioty, Trustee	50,000	50,000
Charles M. Johnson Jr.	200,000	200,000
Chitayat-Mahboubian Family Trust	200,000	200,000
Chris Merten	50,000	50,000
Christopher Gutek	50,000	50,000
Clayton A. Struve	100,000	100,000
Clayton Struve	300,000	300,000
Clint Duty	50,000	50,000
Colin McIntyre	100,000	100,000
Currie Family Trust	100,000	100,000
Daniel and Delita Camilleri	50,000	50,000
Daniel and Delita Camilleri	50,000	50,000
Daniel and Delita Camilleri JTWROS	60,000	60,000

Daniel and Delita Camilleri JTWROS	60,000	60,000
Daniel Wray	50,000	50,000
David and Bonnie White	40,000	40,000
David and Elizabeth Kocyba JTWROS	50,000	50,000
David S. Nagelberg 2003 Revocable Trust David Nagelberg, Trustee	200,000	200,000
David Wells	200,000	200,000
David Wells	200,000	200,000
Devin Wate	400,000	400,000
Devon Brown	50,000	50,000
Donald Sesterhenn	50,000	50,000
Douglas Harnar, LLC	200,000	200,000
Dr. Brinda Thimmappa	100,000	100,000
Dr. Naveen Ahuja	50,000	50,000
Dwain H. Quandt Trust	50,000	50,000
Dyke Roger	500,000	500,000
Edward O’Rouke	20,000	20,000
EEJ Millennium, FLP	50,000	50,000
Eileen and John Wenschlog	100,000	100,000
Eileen and John Wenschlog Revocable Trust	50,000	50,000
EKM Capital, LLC	50,000	50,000
Eldoret, LLC Nitesh Patel Sole Member	100,000	100,000
Elliott L. Messing Revocable Trust, Elliott Messing Trustee	50,000	50,000
Eric Shank	100,000	100,000
Eric Shank	100,000	100,000
Esther M. Harpe Trust	100,000	100,000
Eugeen and Laura Webb, JTWROS	100,000	100,000
Eugene and Laura Webb JTWROS	150,000	150,000
Felix Frayman	150,000	150,000
FirstFire Global Opportunities Fund, LLC	800,000	800,000
Flying S Ranch Trust, Ryan and Diane Shay Trustees	200,000	200,000
Frank Koza	50,000	50,000
G & D Conniff, LLC	50,000	50,000
Gary and Katherine Alexander JTWROS	16,000	16,000
Gary Levine	50,000	50,000

Gary Ray Alexander and Katherine Cheri Alexander, JTWROS	8,000	8,000
Gary Ray and Katherine Cheri Alexander JTWROS	14,000	14,000
Gary Roy Alexander	40,000	40,000
Gary W. Levine	50,000	50,000
Gary Zoellner	100,000	100,000
GBS Trust George B. Stewart Trustee	50,000	50,000
George and Janice Geldin Family Trust, George Geldin, Trustee	50,000	50,000
George Mokan	30,000	30,000
Gerald A. Tomsic 1995 Trust, Gerald A. Tomsic, Trustee	50,000	50,000
Greg W. Hennessy	200,000	200,000
Gregg Buffington	200,000	200,000
Gregg Buffington	100,000	100,000
GTS Summitt, FLP	50,000	50,000
Harnar, LLC	200,000	200,000
Harry Gordon	100,000	100,000
Harvey R. Boshart	150,000	150,000
Iroquois capital Investment Group	300,000	300,000
Iroquois Master Fund	200,000	200,000
J & S Investments	100,000	100,000
Jack B. Campbell II	20,000	20,000
Jack Cavin Holland 1979 Trust, Jack Holland, Trustee t	40,000	40,000
James Adams	25,000	25,000
James Alderman	80,000	80,000
James and Theresa Bailey JTWROS	50,000	50,000
James Besser	200,000	200,000
James Besser	400,000	400,000
Jane Kantor 2011 Trust	200,000	200,000
Jayesh K. Patel and Bela J. Patel TBE	100,000	100,000
JEB Partners, LP	1,000,000	1,000,000
JEB Partners, LP	1,600,000	1,600,000
Jeffrey David Weiner	100,000	100,000
Jill Wickersham	64,800	64,800
Jimmi Dixon Jr.	100,000	100,000

JJCC Investments, LLC	100,000	100,000
John and Laura Maring	100,000	100,000
John Cavin Holland 1979 Trust	80,000	80,000
John M. Talone	40,000	40,000
Joseph Cardin	100,000	100,000
Joseph Kawley	50,000	50,000
Joseph Manzi	50,000	50,000
Joseph Michalczyk	150,000	150,000
Joseph R. Yacison	50,000	50,000
Kadi Family Trust, William Kadi Trustee	100,000	100,000
KAM, LLC	50,000	50,000
Kamaljit Khara	50,000	50,000
Kathleen A. Lannert Family Trust, Robert Lannert Trustee	50,000	50,000
Keith and Jeanne Fishback TIC	100,000	100,000
Keith Wright	100,000	100,000
Kenny Borin	40,000	40,000
Kevin Nini	50,000	50,000
Kim Marie Timothy	600,000	600,000
Ladd Hill Development, LLC	100,000	100,000
Larry Lindstrom	100,000	100,000
Larry Lindstrom	100,000	100,000
Lewis Dowdy	50,000	50,000
Lonnie B. Kester	30,000	30,000
Lonnie B. Kester	20,000	20,000
Lonnie Kestor	40,000	40,000
LRFA, LLC	200,000	200,000
Mainstar Trust FOB Robert Brett Snyder IRA	72,000	72,000
Mainstar Trust FOB Vrnon Rogr Harbough, Roth IRA	50,000	50,000
Manchester Exploer, LP	2,000,000	2,000,000
Manchester Explorer, LP	2,000,000	2,000,000
Marc Cohen	60,000	60,000
Mark and Debbie Lucas, JTWROS	50,000	50,000
Mark and Debbie Lucas, JTWROS	100,000	100,000
Mark Bloom	100,000	100,000
Mark Gaibler	100,000	100,000
Mark Herman	100,000	100,000
Matthew Campbell	100,000	100,000
Matthews Weiss	50,000	50,000
Michael Zimmerman	50,000	50,000
Millennium Investment Services 401K FBO Tony Reed	50,000	50,000

MIS Equity Strategies LP	200,000	200,000
MIS Equity Strategies, LP	400,000	400,000
MIS Equity Strategies, LP, Tony Keys Mgr.	100,000	100,000
Mitchell and Marcee Weiss Family Trust, Mitchell Weiss, Trustee	100,000	100,000
Mitchell Tracy	100,000	100,000
Mohamed Samy lhammady and Amany Awad, TB	100,000	100,000
Munaf S. and Sarya Kapadi,a TBE	100,000	100,000
Nancy Cowgill Trust, Nancy Cowgill, Trustee	100,000	100,000
Nicholas Adams	100,000	100,000
Nicholas Adams	250,000	250,000
Nick Panayotou	100,000	100,000
NJK Ventures, LLC	100,000	100,000
Northern Refuge, LLC	200,000	200,000
Northern Refuge, LLC	5,000	5,000
Patrick Carney	100,000	100,000
Paul Hermanson	50,000	50,000
Paul Traxler	200,000	200,000
Pensco Trust Company, LLC Custodian FOB Robert L. Dunn IRA	400,000	400,000
Peter Reynolds	100,000	100,000
Philip M. Cannella	100,000	100,000
Praful Patel	100,000	100,000
Quartini PLC Defined Benefit Plan and Trust, John Quartini, Trustee	75,800	75,800
Quartrini PLC Defined Benefit Plan and Truct John Quartrini, Trustee	24,200	24,200
Ralph N. Wharton	50,000	50,000
Rameshchandra Dabbi	50,000	50,000
Randall Yeomans	50,000	50,000
RBC Capital Markets LLC, CUST FBO David S. Perry, sep IRA	200,000	200,000
RBC Capital Markets LLC, CUST FBO Michael Zupan, IRA	150,000	150,000
RBC Capital Markets LLC, CUST FBO Thomas C. Rolfstad,IRA	200,000	200,000
RBC Capital Markets, LLC CUST FOB Brayden Clark IRA	100,000	100,000
RBC Capital Markets, LLC CUST FOB Gerald Clavette IRA	50,000	50,000
RBC Capital Markets, LLC CUST FOB Kerri Carmony, IRA	50,000	50,000

RBC Capital Markets, LLC CUST FOB Terry Mitchell, IRA	62,000	62,000
RBC Capital Markets, LLC CUST FOB Thomas C. Rolfstad, Seg. IRA	100,000	100,000
RBC Capital Markets, LLC, CUST FBO Alexander Tosi, IRA	200,000	200,000
RBC Capital Markets, LLC, CUST FBO Alexander Tosi, IRA	100,000	100,000
RBC Capital Markets, LLC, CUST FOB David S. Perry Sep. IRA	100,000	100,000
RBC Capital Markets, LLC, CUST FOB David S. Perry Sep. IRA	200,000	200,000
Regina Wate	80,000	80,000
Richard Carney	200,000	200,000
Richard Reiter	85,000	85,000
Robert Aldridge	210,000	210,000
Robert Biederman	50,000	50,000
Robert Dodge	200,000	200,000
Robert Dodge	200,000	200,000
Robert Johnson	50,000	50,000
Robert Johnson	30,000	30,000
Robert L. Monroe	50,000	50,000
Robert Lamphere, Jr.	410,000	410,000
Robert Radway	20,000	20,000
Robert Rathbone	50,000	50,000
Robert Swartwood	50,000	50,000
Robert Swartwood	20,000	20,000
Roger and Joyce Langeliers	200,000	200,000
Roger and Joyce Langeliers	200,000	200,000
Ross Pearson	100,000	100,000
S. Bruce Lansky Revocable Trust, Bruce Lansky, Trustee	30,000	30,000
S. Bruce Lansky Revocable Trust, Bruce Lansky, Trustee	20,000	20,000
S. Bruce Lansky Rvocable Trust, Bruce Lansky	50,000	50,000
S. Justin Devinney	50,000	50,000
Sabi and Ronit Bivas	40,000	40,000
Sargan Partners, Ltd	200,000	200,000
Sargon Partners, Ltd.	200,000	200,000
Satterfield Vintage Investments, LP	1,000,000	1,000,000
Scott Bowles	50,000	50,000
Sean and CeCille Coleman JTWROS	50,000	50,000

Sharon Walker	50,000	50,000
Sheldon Miller	120,000	120,000
Stephen Shumpert	200,000	200,000
Steve Boyd	98,000	98,000
Steve Collins	80,000	80,000
Steve Wietsma	50,000	50,000
Steven and Kaye Yost Family Trust	20,000	20,000
Steven and Kaye Yost Family Trust, Steven Yost Trustee	20,000	20,000
Steven Rothstein	60,000	60,000
Syeda S. Rizvi and Mairaj Uddin TBE	100,000	100,000
Tara Holbrook	50,000	50,000
TD Ameritrade CUST FOB Stefan Brink, IRA	40,000	40,000
Terry and Amy Milam, JTWROS	40,000	40,000
Terry Mitchell	20,000	20,000
The Childers Living Trust	50,000	50,000
The Clemetson Family Trust, Donald Clemetson Trustee	50,000	50,000
The Feldman Family Trust, Andrew Feldman Trustee	70,000	70,000
Tim Barbnecht	50,000	50,000
Troy O’Bryan	100,000	100,000
Troy Stevens	100,000	100,000
Velcro, LLC Mark Miller Manager	200,000	200,000
Veronica Marano and Thomas M. Volkening JTWROS	60,000	60,000
Veronica Marano and Thomas M. Volkening, JTWROS	100,000	100,000
Veronica Marano and Thomas M. Volkening, JTWROS	200,000	200,000
Vijay and Teja Patel TBE	100,000	100,000
Wamoh, LLC	100,000	100,000
Wayne Newkumet	300,000	300,000
William Gainey	100,000	100,000
William Gainey	60,000	60,000
William Green	50,000	50,000
William Green	40,000	40,000
William H. Costigan	50,000	50,000
William H. Costigan	20,000	20,000
William Murphy	200,000	200,000
William Stocker III	50,000	50,000
William Stocker III	50,000	50,000
William Truxal	70,000	70,000
William Winkenbach	50,000	50,000
Zachary Mock	50,000	50,000

Albert Landstrom*	52,575	52,575
Basil Christakos*	30,861	30,861
Brady Clark*	1,500	1,500
Christopher Clark*	1,082,813	1,082,813
Christopher Quandt*	500	500
Dmitry Aksenov*	5,950	5,950
Erik Poldroo*	500	500
Eugene Webb*	187,507	187,507
Gary Saccaro*	75,100	75,100
Jared Berg*	1,000	1,000
John Nole*	6,400	6,400
Jonathan Henrich*	760	760
Lorraine Maxfield*	45,861	45,861
Malcolm Alexander Winks*	121,722	121,722
Mark Finkle**	69,500	69,500
Marshall Brown*	3,000	3,000
Millard Tydings*	1,500	1,500
Paulson Investment Company, LLC*	1,205,445	1,205,445
Peter Fogarty*	22,950	22,950
Robert Setteducati*	1,082,813	1,082,813
Rodney Baber*	213,750	213,750
Ronald Coby*	48,478	48,478
Starla Goff*	2,813	2,813
Tanya Urbach*	109,505	109,505
Thomas Endres*	11,100	11,100
Thomas Parigian*	1,082,813	1,082,813
Timothy Dabulis*	1,750	1,750

(1)	Represents the amount of shares including those shares issuable upon the conversion of outstanding warrants that will be held by the selling stockholders after completion of this offering based on the assumptions that (a) all shares registered for sale by the registration statement of which this prospectus is part will be sold and (b) that no other shares of our common stock beneficially owned by the selling stockholders are acquired or are sold prior to completion of this offering by the selling stockholders.
*()**	Represents warrants as a portion of the commissions paid to the Placement Agent and issued to the Agent’s designees convertible to shares of common stock.
(**)	Represents shares of common stock that have been converted on a cashless basis by a designee of the Placement Agent.

PLAN OF DISTRIBUTION

We will not receive any of the proceeds from any sale by the Selling Shareholders. We are not offering any of the Selling Shareholders’ securities. These shares may be sold by the Selling Shareholders from time to time at prevailing market prices. The Selling Shareholders may sell or distribute their shares in transactions through underwriters, brokers dealers or agents from time to time or through privately negotiated transactions, including in distributions to shareholders or partners or other persons affiliated with the Selling Shareholders. If the Selling Shareholder enters into an agreement after the date of this prospectus to sell their shares to a broker-dealer as a principal and that broker-dealer is acting as an underwriter, we will file a post-effective amendment to the registration statement containing this prospectus identifying the broker-dealer and disclosing required information on the plan of distribution. Additionally, prior to any involvement of any broker-dealer in the offering, such broker-dealer must seek and obtain clearance of the underwriting compensation and arrangements from the Financial Industry Regulatory Agency.

Penny Stock Rules/ Section I5(g) of the Exchange Act

As previously mentioned under Risk Factors, our shares may be considered penny stock covered by Section 15(g) of the Securities Exchange Act of 1934, as a mended, and Rules 15g-l through 15g-6 promulgated thereunder. They impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors who are generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 (including spouse’s net worth and may include the fair market value of home furnishings and automobiles, but excluding the value of any primary residence and the related amount of any indebtedness on primary residence up to the fair market value of the primary residence (any indebtedness that exceeds the fair market value of the primary residence must be deducted from net worth calculation) or annual income exceeding $200,000 or $300,000 jointly with their spouses.

Rule l5g-1 exempts a number of specific transactions from the scope of the penny stock rules. Rule l Sg-2 declares unlawful broker/dealer transactions in penny stocks unless the broker/dealer has first provided to the customer a standardized disclosure document.

Rule I5g-3 provides that it is unlawful for a broker /dealer to engage in a penny stock transaction unless the broker/dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.

Rule l5g-4 prohibits broker/dealers from completing penny stock transactions for a customer unless the broker/dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.

Rule 15g-5 requires that a broker/dealer executing a penny stock transaction, other than one exempt under Rule l 5g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales person’s compensation.

Rule l5g-6 requires broker/dealers selling penny stocks to provide their customers with monthly account statements.

Rule l5g-6 requires broker/dealers to approved the transaction for the customer’s account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination and that it is unlawful to effect the transaction without written authorization for the transaction from the customer.

The application of the penny stock rules may affect your ability to resell your shares due to broker-dealer reluctance to undertake the above-described regulatory burdens.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists 650,000,000 shares of common stock at a par value of $0.01 and 10,000,00 shares of preferred stock at a par value of $0.01.

Common Stock

On April 11, 2011, the Company amended its articles of incorporation to increase the authorized shares to 650,000,000 shares, at $0.01 par value. On March 23, 2015, the common stock was reverse split on a 1 for 100 basis. There were 40,783,164 common shares issued and outstanding as of February 9, 2019 held by 1,182 stockholders. There is no cumulative voting with respect to the election of directors or any other matter. The holders of our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors from time to time out of legally available funds. The dividend rights of our common stock are junior to any preferential dividend rights of any outstanding shares of preferred stock. The holders of our common stock also are entitled to receive distributions upon our liquidation, dissolution or winding up of our assets that are legally available for distribution, after payment of all debt and other liabilities and distribution in full of preferential amounts, if any, to be distributed to holders of our preferred stock.

The holders of our common stock are not entitled to preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

The Company has authorized 10,000,000 shares of Series A Preferred Stock, at $0.01 par value and 1,000,000 are issued and outstanding as of February 4, 2019. Each share of the preferred stock has 1.5 votes on all matters presented to be voted by the holders of our common stock. The holders of the Preferred A shares can only convert the shares if agreed upon by the Board of Directors.

Warrants

During the year ended September 30, 2017, the Company issued warrants to purchase 165,000 shares of common stock. The warrants were issued with an exercise price of $4.50 and a term of two years. Additionally, during the year ended September 30, 2017, the Company issued 560,000 warrants to the Private Placement Investors. The Private Placement Investors were granted units, which consisted of one share of common stock and a warrant to purchase two additional shares of common stock, for $2 each. The warrants were issued with an exercise price of $4.50 and a term of two years. There is a total of 725,000 warrants that will expire in fiscal year ending 2019.

During the year ended September 30, 2018, the Company issued warrants to purchase 18,827,900 to accredited investors for $1.00 per unit. Each Unit consisted of one (1) share of common stock and a warrant to purchase one (1) additional share of Common Stock at $1.20 per share. The warrant will expire 60 months from date of purchase. The Company issued an additional 5,398,970 warrants, with a cashless conversion provision, at $1.00 with a ten (10) year expiration date to the investment agent as part of the its fee.

INTERESTS OF NAMED EXPERTS AND COUNSEL

The validity of the shares of common stock offered hereby will be opined for the Company by Jeffery A. McKee Esq. of the law firm of Davis, McKee P.L.L.C. located at 1650 North 1 ^st Avenue, Phoenix, AZ 85003.

The financial statements included in this prospectus and the registration statement have been audited by Armanino LLP of San Francisco, California, to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. The auditor for the prior year is dbbmckennon of Newport Beach, California.

DESCRIPTION OF OUR BUSINESS

Cipherloc Corporation is a technology and services solutions company for the rapidly expanding cloud-based cyber security industry. Cipherloc is based in Buda, Texas. Our website is www.cipherloc.net

The foundation of modern security relies on encryption technology to protect sensitive information and maintain user privacy. However, ubiquitous use of encryption has been hampered by several factors: encryption is slow, key sizes need to be continually increased, it is increasingly possible to “break” into encrypted files using plaintext-recovery techniques, and encryption algorithms will be irreparably compromised when quantum computing becomes mainstream in the near-future. The Cipherloc mission is to eliminate these flaws and inadequacies to fully and securely protect the world’s data.

The Company has introduced an innovative and revolutionary new type of encryption technology with four international patents and two US patents pending and is the industry’s first “Poly morphic Cipher Engine”, called CipherLoc®. It is the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (PKPA). This morphing cipher can be used in any commercial data security industry and/or in sensitive applications. Our highly innovative solutions are based on our patented polymorphic encryption technology which is designed to make encryption faster, stronger, and massively scalable.

Our key technology is Polymorphic encryption engine (U.S. Patent No. 9,178,514)

Our products for data-in- motion are:

● EDGE – for use on mobile devices

● ENTERPRISE – for use on desktops, laptops, tablets

● GATEWAY – for use on servers

Our product for data-at-rest is:

● SHIELD – for use on databases and other storage devices

Summaries for each of these products can be found on the Company’s website. The end goal with the release of these products is to offer end-to-end data security (i.e., data can be securely sent to/from any mobile device, any PC and any server).

Our highly innovative products - based on our patented polymorphic encryption technology are designed to enable an iron-clad layer of protection to be added to existing solutions. Cipherloc has developed technology that:

● Cuts encryption processing time by over 50%

● Dramatically enhances data security strength

● Scalable, future-proof technology

● Easily added to existing solutions

Go-to-Market Strategy:

ln June 2018, the Company hired a Vice President of Sales and Marketing who is now the COO, to oversee the Comp any’s sales and business development.

Intellectual Property

Cipherloc holds a number of Patents and Trademarks, both U.S. and international, with several patents pending:

Patents			Trademarks

	1.	U.S. Patent Number 9,178,514	1. Cipherloc®
	2.	U.S. Patent Number 6,424,227	2. CipherShop
	3.	U.S. Patent Number 6,423,990	3. CipherShop
	4.	U.S. Patent Number 6,301,147

The Competition

Conventional wisdom currently assumes modern encryption algorithms (such as AES) are safe because it would take an impractical amount of time for a brute force attack to successfully crack the encryption key used to protect data. This has been, and still is, an accurate statement. However, it can be demonstrably shown that it is possible to “break” into encrypted files using plaintext-recovery techniques that do not rely on brute force attacks thus exposing weaknesses and vulnerabilities in modern encryption algorithms. Because these encryption software engines have been used in the industry for well over 30 years, our primary competition are not other companies but rather the freely available, open-source encryption software that is currently used to protect data. One of our biggest challenges is convincing companies that their existing approaches that utilize these well-known encryption algorithms are no longer sufficient which means that the single biggest competitor we have is the status quo.

Two competitors are Palo Alto Networks (PANW) and FireEye (FEYE), which are highly indicative of the premium placed on firms in the business of cyber-security even though they don’t provide identical services or protection. Both firms have been brought public within the last 2 years and are experiencing exponential growth in revenues. Cipherloc is not expected to have a sizable need to upgrade and improve its encryption methodology and cipher engine as it is currently implemented because of the use of Set Theoretic Estimation mathematics.

Marketing

The Company’s COO heads up a marketing and sales organization consisting of professional consultants and licensees with extensive experience in the various markets where our products can be sold. Those markets are governmental, commercial and consumer. We attend trade shows, conferences and call on leaders in each market. Our products are sold through non-exclusive licensing agreements

Manufacturing

Our products are licensed software with very minimal development costs that is done in house.

Government Regulations

We are not subjected to government regulations in the sale or development of our products. All regulations that may be applicable are the responsibility of our customers.

Employees

We currently have 14 employees.

ORGANIZATION WITHIN THE LAST FIVE YEARS

DESCRIPTION OF PROPERTIES

The Company rents office space at 825 Main Street, Suite 100, Buda, Texas 78610 for its corporate headquarters. It is our intention to use this facility for research and development. The Company leases offices at 7320 E. Butherus Drive, Suite 103, Scottsdale, Arizona 85260 primarily for sales and marketing. The Company has leased property at 21819 N. Scottsdale, AZ 85255 Scottsdale, Arizona 85260, which will be used for operation and accounting as well as the future headquarters.

LEGAL PROCEEDINGS

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. A disgruntled former contracted consultant has brought an action in the Texas State court against the CEO and the Company alleging fraud and misrepresentation pertaining to stock and payments, all of which have been paid, and all stock has been delivered to him. He has also included a claim of partial ownership of some of the Company’s patent which 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 being vigorously defended on our behalf by our insurance carrier. The Company’s motion to dismiss is pending on appeal.

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has been publicly traded since April 1, 2015 on the OTC Bulletin Board. Our common stock is quoted under the symbol CLOK. Prior to that, our common stock was quoted under the symbol NSCT. The following table sets forth for the periods indicated the range of high and low bid quotations per share as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail markups, markdowns or commissions and may not necessarily represent actual transactions.

	High		Low
Fiscal Year 2017
First Quarter (October - December 20I6)	$	6.00	$	2.70
Second Quarter (January - March 2017)	$	4.70	$	2.46
Third Quarter (April - June 2017)	$	3.02	$	1.56
Fourth Quarter (July - September 2017)	$	3.00	$	1.80

Fiscal Year 2018
First Quarter (October - December 2017)	$	1.83	$	0.86
Second Quarter (January - March 2018)	$	1.91	$	1.12
Third Quarter (April - June 2018)	$	1.91	$	1.22
Fourth Quarter (July - September 2018)	$	2.63	$	1.35

Fiscal Year 2019
First Quarter (October - December 2018)	$	2.20	$	1.03

Holders

On February 4, 2019 the closing price of our common stock as reported on the Over-the-Counter Bulletin Board was $1.20 per s hare. On February 4, 2019, we had approximately 1,182 holders of record of common stock. As of February 4, 2019, 40,783,164 shares of our common stock were issued and outstanding and 1,000,000 shares of preferred stock were issued and outstanding. As of February 4, 2019, we had outstanding warrants to purchase 25,206,866 shares of common stock including 188,000 warrants not being registered with this registration statement.

Dividend Policy

We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain any earnings to finance the growth of the business. We cannot assure you that we will ever pay cash dividends. Whether we pay any cash dividends in the future will depend on the financial condition, results of operations and other factors that the Board of Directors will consider.

Securities Authorized for Issuance under Equity Compensation Plans

On August 27, 2018 our Board of Director’s adopted a Stock Option/Stock Issuance Plan for the employees, non-employee directors, consultants and other independent advisors who provide services to the Corporation. The Plan allows 3 million shares to be allocated to be used for either as a grant or option to purchase not to exceed 100% of the recipient’s annual revenue. It shall be administered by the Board of Directors or a committee created by the Board and became effective October 1, 20 I8. No shares have been issued pursuant to the plan.

SELECTED FINANCIAL DATA

This Item is not required for smaller reporting companies, and the Company has elected to omit this information.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.

The following information contains certain forward-looking statements of our management. 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, polymorphic encryption technology designed to enable an iron-clad 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 to be the industry’s first “Polymorphic Cipher Engine”, called Cipherloc ^® . We expect to offer the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine” (“PKPA”). This morphing cipher can be used in any commercial data security industry and/or in sensitive applications.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the 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 differ from these estimates as a result of different assumptions or conditions.

The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates are accounting for convertible debt and embedded derivatives, software revenue recognition, and stock issued to employees and non-employees. Our most critical accounting policies applicable to the periods presented are noted below. For additional information see Note 2, “Significant Accounting Policies” in the notes to our financial statements appearing elsewhere in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

Accounting for Convertible Debt and Embedded Derivatives

Convertible debt is accounted for under the guidelines established by Accounting Standards Topic (“ASC”) 470-20, Debt with Conversion and Other Options . ASC 470-20 governs the calculation of an embedded beneficial conversion feature, 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 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.

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.

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 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.

Software Revenue Recognition

Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of services is based upon stand-alone sales of those services.

Stock Issued to Employees and Non-Employees

The Company measures the compensation cost using the fair value-based method. This method uses the fair value at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Grants to vendors are recorded at fair value at each reporting period.

Results of Operations

Fiscal Year Ended September 30, 2018, Compared to Fiscal Year Ended September 30, 2017

Revenue decreased to $316,248 from $467,274 for the years ended September 30, 2018 and 2017, respectively. Revenue decreased primarily as a result of the term on the Company’s only software license ending in June 2018. As a result, revenue was ratably recognized over nine months during the year ended September 30, 2018, as compared to twelve months during the year ended September 30, 2017. Correspondingly, cost of revenue decreased to $89,230 from $121,200 for the years ended September 30, 2018 and 2017, respectively. Cost of revenue is comprised of salaries and maintenance costs.

General and administrative expenses decreased to $1,844,903 from $3,166,471 for the years ended September 30, 2018 and 2017, respectively. General and administrative expenses decreased primarily as a result of lower stock-based compensation of $1,241,944 and lower salaries of $407,954, partially offset by higher legal costs of $196,508.

Sales and marketing expenses increased to $545,250 from $354,005 for the years ended September 30, 2018 and 2017, respectively. Sales and marketing expenses increased primarily as a result of higher stock-based compensation of $185,752.

Research and development expenses decreased to $873,107 from $1,087,372 for the years ended September 30, 2018 and 2017, respectively. Research and development expenses decreased primarily as a result of lower stock-based compensation of $293,470, partially offset by higher salaries of $69,111.

Settlement expense was $81,000 for the year ended September 30, 2018, as compared to $106,250 for the year ended September 30, 2017. Settlement expense for the year ended September 30, 2018 was due to the issuance of 50,000 shares of common stock to settle a legal claim. Settlement expense for the year ended September 30, 2017 was due to the issuance of 25,000 shares of common stock to terminate a software license.

Total other expenses, net, increased to $1,303,541 from $53,137 for the years ended September 30, 2018 and 2017, respectively. The increase was due to the following:

	1.	Net loss on extinguishment of convertible notes totaling $317,268. The Company recognized a $358,038 loss on extinguishment related to the amendment of the convertible note with FirstFire Global Opportunities Fund, LLC (“FirstFire”) in December 2017, as well as a $153,621 loss on extinguishment related to the redemption of the convertible note with Peak One Opportunity Fund LP (“Peak One”) in April 2018. These losses were partially offset by a $194,391 gain on extinguishment related to the settlement of the amended FirstFire convertible note in March 2018.

	2.	The Company recognized a loss of $486,745 in December 2017, resulting from the excess fair value of the embedded conversion feature in the Peak One convertible note and of the equity instruments issued with the Peak One convertible note.

	3.	Changes in the fair value of the embedded conversion features in the FirstFire and Peak One convertible notes during the year ended September 30, 2018, totaling $8,536.

	4.	An increase in interest expense, net, to $490,992 from $53,137 for the years ended September 30, 2018 and 2017, respectively, due to interest incurred on the Company’s convertible notes with FirstFire and Peak One that were outstanding during the year ended September 30, 2018.

Liquidity and Capital Resources

We have an accumulated deficit at September 30, 2018 of $54,622,513. We expect to incur substantial expenses and generate continued operating losses until we generate revenues sufficient to meet our obligations. At September 30, 2018, the Company had cash of $14,056,346. We believe that our existing cash balances are sufficient to fund future operations for the next 12 months.

Cash Flows

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

	Year Ended September 30,
	2018			2017
Net cash (used in) provided by:
Operating activities	$	(2,299,459	)	$	(1,788,764	)
Investing activities	$	(14,429	)	$	(2,798	)
Financing activities	$	16,142,838		$	1,674,820

Operating Activities

Cash used in operating activities was $2,299,459 and $1,788,764 for the years ended September 30, 2018 and 2017, respectively. The increase in cash used for operating activities was primarily due to lower stock-based compensation.

Investing Activities

Cash used in investing activities was $14,429 and $2,798 for the years ended September 30, 2018 and 2017, respectively. The increase in cash used for investing activities was due to an increase in fixed asset purchases.

Financing Activities

Cash provided by financing activities was $16,142,838 and $1,674,820 for the years ended September 30, 2018 and 2017, respectively. The increase in cash provided by financing activities was due to an increase in the issuances of common stock for cash.

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.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Set forth below is information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected annually by stockholders. The executive officers serve at the pleasure of the Board of Directors.

Name	Age	Title

Michael De La Garza	60	Chairman, Chief Executive Officer

Albert Carlson, PhD	59	Director, Chief Scientific Officer

Sammy Davis DrPH	71	Director

Milton Mattox	56	Chief Operating Officer

The Chief Executive Officer, directors, and officers of the Company will hold office until additional members or officers are duly elected and qualified. The background and principal occupations of the directors and officers of the Company are as follows:

Michael De La Garza , 60 years of age, is the Company’s Chairman and Chief Executive Officer. Mr. De La Garza has 25 years’ experience in the software industry as an executive officer and founder of numerous companies both private and publicly traded. His career started in 1991 as the COO of a medical imaging company and subsequently founded or co-founded three other software companies where he served as President and/or CEO. Michael studied computer science at Southwest Texas State University and received a Computer Science Technical degree from Danforth Technical College in 1980.

Albert Carlson, PhD , 59 years of age, serves as a Director and the Company’s Chief Scientific Officer. Dr. Carlson oversees the development of the Company’s Cipherloc suite of products and reports directly to the Chief Executive Officer. Dr. Carlson created and led teams advancing the state-of-the-art in more than six embedded, computer, and electrical engineering sectors, creating new markets, products, and value for exploitation. He has extensive experience in on-time design to delivery while remaining under budget at all levels of engineering. Additionally, he has worked in many areas of engineering and has focused extensive world knowledge, as well as deep algorithmic, set theory, mathematical, and design expertise. Dr. Carlson holds a PhD in Computer Science from the University of Idaho.

Sammy Davis DrPH , 71 years of age, serves as a Director of the Company. Dr. Davis has over 20 years’ experience in operations, finance, budgeting, financial reporting, revenue cycle management, inventory, payroll, accounts receivable and payable, and information systems in the healthcare industry. He has held numerous managerial positions as the Chief Executive Officer and Administrator. Dr. Davis holds a Doctor of Public Health degree from the University of Texas.

Milton Mattox , 56 years of age, serves as the Company’s Chief Operating Officer. Mr. Mattox is an experienced, senior technology executive with an extensive background in software engineering, application development, IT infrastructure, and offshore research and development team management. His accomplishments include transforming and accelerating technology development and delivery in alignment with worldwide business goals. His professional experience includes an executive vice president position at Lucent Technologies with executive-level experience at Intuit, Mitel, SHPS, Narus India, Signa, and CGI. Mr. Mattox holds a Doctorate in Organization and Leadership from the University of San Francisco, an MBA from City University of Seattle, and a Bachelor of Science in Electronic Engineering Technology from DeVry University.

Audit Committee

The Company does not have an audit committee.

Conflicts of Interest

Members of our management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our company. Although the directors are engaged in other business activities, we anticipate they will devote an important amount of time to our affairs.

Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to ours. Accordingly, additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.

Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.

Code of Ethics

We have adopted a code of ethics that applies to all of our executive officers, directors and employees. Code of ethics codifies the business and ethical principles that govern all aspects of our business. This document will be made available in print, free of charge, to any shareholder requesting a copy in writing from the Company. A form of the code of conduct and ethics was filed as Exhibit 14.1 to the Annual Report on Form 10-K for the year ended September 30, 2004.

EXECUTIVE COMPENSATION

The following tables set forth certain information concerning all compensation paid, earned or accrued for service by (i) our Principal Executive Officer and Principal Financial Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal years ended September 30, 2018 and 2017, and each of the other two most highly compensated executive officers of the Company who served in such capacity at the end of the fiscal year whose total salary and bonus exceeded $100,000 (collectively, the “Named Executive Officer”):

2018 AND 2017 SUMMARY COMPENSATION TABLE

Name and Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		All Other Compensation ($)			Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		Total ($)
Michael De La Garza
Chairman &		2018	$	360,000	$	60,000	$	600,000	$	40,200	(i)		—	$	1,060,200
Chief Executive Officer		2017	$	360,000	$	60,000	$	1,633,000	$	54,000	(i)		—	$	2,107,000

Albert Carlson, PhD
Director &		2018	$	150,000	$	20,000	$	100,000		—			—	$	270,000
Chief Scientific Officer		2017	$	150,000		—		—		—			—	$	150,000

Sammy Davis, DrPH		2018		—		—	$	20,000		—			—	$	20,000
Director		2017		—		—		—		—			—		—

Milton Mattox		2018	$	30,000		—		—		—			—	$	30,000
Chief Operating Officer		2017		—		—		—		—			—		—

(i) All other compensation consists primarily of remunerations for auto and health insurance costs.

Compensation of Directors

Our current compensation policy for directors is to compensate them through common stock as consideration for their joining our board and/or providing continued services as a director. We do not currently provide our directors with cash compensation, although we do reimburse their expenses, with exception for a chairman of the board. No additional amounts are payable to the Company’s directors for committee participation or special assignments. There are no other arrangements pursuant to which any directors were compensated during the Company’s last completed fiscal year for any service provided except as follows:

Employment Contracts

We have an employment agreement with Albert Carlson as our Chief Scientific Officer. The Agreement is for a term of one year, commencing on September 1, 2015 and initially expiring on August 31, 2016 with three one-year extensions. The Agreement provides that, in addition to receiving paid vacation in accordance with the Company’s policies as well as other customary benefits and provisions, Dr. Carlson shall receive an annual base salary of $150,000. If, at any time during the term of the Agreement, Dr. Carlson is terminated “without cause,” he will be entitled to receive a cash payment equal to the aggregate compensation payable to him during the remaining term of the Agreement. The terms of the employment agreement are incorporated by reference and was filed with our Form 8-K on September 4, 2015.

We have an employment agreement with Milton Mattox, Ed. D, our former Vice President of Sales and Marketing, as our Chief Operating Officer. The Agreement is for a term of one year, commencing on October 1, 2018 and initially expiring on September 30, 2019 with three automatic one-year extensions. The Agreement provides that, in addition to receiving paid vacation in accordance with the Company’s policies as well as other customary benefits and provisions, Dr. Mattox shall receive an annual base salary of $175,000. If, at any time during the term of the Agreement, Dr. Mattox is terminated “without cause,” he will be entitled to receive a cash payment equal to the aggregate compensation payable to him during the remaining term of the Agreement. The terms of the employment agreement are incorporated by reference and was filed with our Form 8-K on September 26, 2018.

The Company entered into an employment agreement with its Chief Executive Officer on January 1, 2013. The employment agreement will expire on January 1, 2018 and shall automatically renew for another five years unless terminated in accordance with the provisions of the employment agreement. The employment agreement provides for:

	i.	A monthly salary of $20,833 per month subject to an annual increase of 10% per year and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors. During the year ended September 30, 2018, the base salary was $360,000.

	ii.	A cash bonus of 25% of his annual base salary each year if the Company reaches the following milestones:

	a.	The Company posts annual gross revenues on a consolidated basis of at least $5,000,000;

	b.	The Company’s earnings before the deduction of income taxes and amortization expenses (“EBITA”), including cash extraordinary items but before officer’s bonuses, on a consolidated basis for any year is at least $1,000,000;

	iii.	An automobile allowance of $1,500 per month.

	iv.	A medical insurance allowance of $1,500 per month.

	v.	In the event the executive’s employment is terminated without cause he will receive the entire contract remaining on the agreement.

The Company has removed other provisions from the original employment agreement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None.

AVAILABLE INFORMATION

You are advised to read this Form S-1 in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us at 825 Main Street, Suite 100, Buda, TX 78610, our website, www.cipherloc.net 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 website http://www.sec.gov.

FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Cipherloc Corporation

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Cipherloc Corporation (the “Company”) as of September 30, 2018, and the related statements of operations, stockholders’ equity, and cash flows for the year ended September 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Armanino LLP

We have served as the Company’s auditor since 2018.

San Francisco, California

December 31, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Cipherloc Corporation

We have audited the accompanying balance sheet of Cipherloc Corporation (the “Company”) as of September 30, 2017, and the related statements of operations, stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements were prepared assuming the Company will continue as a going concern. The Company has incurred losses and had a working capital deficit as of September 30, 2017. Those factors raised substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with respect to these factors were previously described in Note 2. The Company’s financial statements did not include any adjustments that might have resulted from the outcome of those uncertainties had the Company been unable to continue as a going concern.

/s/ dbbmckennon

Newport Beach, California

January 12, 2018

CIPHERLOC CORPORATION

BALANCE SHEETS

	As of September 30,
	2018			2017
ASSETS
Current assets:
Cash	$	14,056,346		$	227,396
Total current assets		14,056,346			227,396

Other assets		12,218			12,218
Fixed assets, net		20,050			11,170
Total assets	$	14,088,614		$	250,784

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	52,043		$	59,763
Accrued compensation		72,489			505,027
Convertible note payable		—			26,678
Deferred revenue-current		—			308,412
Total current liabilities		124,532			899,880

Long term liabilities:
Deferred revenue, net of current portion		—			7,836
Total long-term liabilities		—			7,836
Total liabilities		124,532			907,716

COMMITMENTS AND CONTINGENCIES (NOTE 7)

STOCKHOLDERS’ EQUITY (DEFICIT)
Series A convertible preferred stock, $0.01 par value, 10,000,000 shares authorized; 1,000,000 and 10,000,000 issued and outstanding as of September 30, 2018 and 2017, respectively		10,000			100,000
Common stock, $0.01 par value, 650,000,000 shares authorized; 40,743,917 and 6,635,127 issued and outstanding as of September 30, 2018 and 2017, respectively		407,438			66,351
Additional paid-in capital		68,169,157			49,378,447
Accumulated deficit		(54,622,513	)		(50,201,730	)
Total stockholders’ equity (deficit)		13,964,082			(656,932	)
Total liabilities and stockholders’ equity (deficit)	$	14,088,614		$	250,784

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

CIPHERLOC CORPORATION

STATEMENTS OF OPERATIONS

	For The Year Ended
	September 30,
	2018			2017
Revenues	$	316,248		$	467,274

Cost of revenues		89,230			121,200
Gross profit		227,018			346,074

Operating expenses:
General and administrative		1,844,903			3,166,471
Sales and marketing		545,250			354,005
Research and development		873,107			1,087,372
Settlement expenses		81,000			106,250
Total operating expenses		3,344,260			4,714,098

Operating loss		(3,117,242	)		(4,368,024	)

Other (expenses) income:
Loss on extinguishment of convertible notes		(317,268	)		—
Excess fair value of derivatives in convertible note		(486,745	)		—
Change in fair value of embedded conversion features in convertible notes		(8,536	)		—
Interest expense, net		(490,992	)		(53,137	)
Total other expenses, net		(1,303,541	)		(53,137	)

Net loss	$	(4,420,783	)	$	(4,421,161	)

Net loss per common share - Basic and diluted:	$	(0.20	)	$	(0.71	)

Weighted average common shares outstanding - Basic and diluted		22,502,166			6,183,909

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

CIPHERLOC CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED SEPTEMBER 30, 2018 AND 2017

	Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Stockholders’ Equity
	Shares			Amount			Shares		Amount		Capital			Deficit			(Deficit)
Balance at September 30, 2016		10,000,000		$	100,000			5,268,859	$	52,688	$	44,779,296		$	(45,780,569	)	$	(848,585	)
Common stock issued for services		—			—			25,000		250		74,250			—			74,500
Common stock and warrants issued for cash, net of offering costs of $69,680		—			—			724,000		7,240		1,376,080			—			1,383,320
Common stock issued for license termination		—			—			25,000		250		106,000			—			106,250
Common stock issued to officers and employees		—			—			542,268		5,423		2,778,499			—			2,783,922
Common stock issued with convertible note		—			—			50,000		500		44,109			—			44,609
Issuance of warrants		—			—			—		—		84,227			—			84,227
Beneficial conversion feature on convertible debt		—			—			—		—		135,986			—			135,986
Net loss		—			—			—		—		—			(4,421,161	)		(4,421,161	)
Balance at September 30, 2017		10,000,000		$	100,000			6,635,127	$	66,351	$	49,378,447		$	(50,201,730	)	$	(656,932	)
Common stock issued for cash, net of offering costs of $2,356,662		—			—			18,909,900		189,099		16,436,139			—			16,625,238
Common stock issued to officers and employees		—			—			766,033		7,660		1,464,941			—			1,472,601
Common stock issued for services		—			—			10,000		100		14,900			—			15,000
Common stock issued for legal settlement		—			—			50,000		500		80,500			—			81,000
Common stock issued for warrant exercise		—			—			388,928		3,889		(3,889	)		—			—
Convertible notes – issuance of common stock		—			—			362,500		3,625		498,875			—			502,500
Convertible note – issuance of warrants		—			—			—		—		90,345			—			90,345
Convertible note – amendment of existing warrants		—			—			—		—		74,041			—			74,041
Settlement of convertible note		—			—			121,429		1,214		179,858			—			181,072
Related party conversion of preferred stock		(9,000,000	)		(90,000	)		13,500,000		135,000		(45,000	)		—			—
Net loss		—			—			—		—		—			(4,420,783	)		(4,420,783	)
Balance at September 30, 2018		1,000,000		$	10,000			40,743,917	$	407,438	$	68,169,157		$	(54,622,513	)	$	13,964,082

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

CIPHERLOC CORPORATION

STATEMENTS OF CASH FLOWS

	For The Year Ended
	September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,420,783	)	$	(4,421,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		5,548			5,524
Stock-based compensation		1,472,601			2,783,922
Stock issued for services		15,000			74,500
Settlement expenses		81,000			—
Loss on extinguishment of convertible notes		317,268			—
Termination of software license		—			106,250
Excess fair value of derivatives in convertible note		486,745			—
Change in fair value of embedded conversion features in convertible notes		8,536			—
Debt discount amortization		491,132			—
Changes in operating assets and liabilities:
Prepaid officer compensation		—			44,788
Prepaid expenses and other assets		—			2,501
Accounts payable and accrued liabilities		(7,720	)		(2,507	)
Accrued compensation		(432,538	)		84,693
Deferred revenue		(316,248	)		(467,274	)
Net cash used in operating activities		(2,299,459	)		(1,788,764	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets		(14,429	)		(2,798	)
Net cash used in investing activities		(14,429	)		(2,798	)

CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash, net of offering costs of $2,356,662 and $69,680, respectively		16,625,238			1,383,320
Proceeds from related party notes		—			70,000
Repayment of related party notes		—			(70,000	)
Proceeds from convertible notes, net		242,600			291,500
Repayment of convertible notes		(725,000	)		—
Net cash provided by financing activities		16,142,838			1,674,820

INCREASE (DECREASE) IN CASH		13,828,950			(116,742	)
CASH, BEGINNING OF YEAR		227,396			344,138
CASH, END OF YEAR	$	14,056,346		$	227,396

CASH PAID FOR:
Interest paid	$	—		$	—
Income taxes paid	$	—		$	—

NON-CASH FINANCING ACTIVITIES:
Issuance of common stock with convertible notes	$	502,500		$	—
Issuance of warrants with convertible note	$	90,345		$	—
Amendment of warrants issued with convertible note	$	74,041		$	—
Settlement of convertible note	$	181,072		$	—

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

CIPHERLOC CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2018 AND 2017

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, the Company changed its name to Cipherloc Corporation. The name change became effective on March 23, 2015.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies are as follows:

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net revenues and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates. The Company’s most significant estimate relates to the valuation of its convertible note.

Legal

The Company is subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. The Company accrues for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.

Cash and Cash Equivalents and Concentration of Credit Risk

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2018 and 2017. At September 30, 2018 and 2017, cash includes cash on hand and cash in the bank. The Company maintains its cash in accounts held by large, globally recognized banks which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures these deposits up to $250,000. As of September 30, 2018, $13,806,346 of the Company’s cash balance was uninsured. The Company has not experienced any losses on cash.

Fixed Assets

Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Equipment and furniture are depreciated over an estimated useful life of three (3) to five (5) years. Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten (10) years. Software is depreciated over an estimated useful life of three (3) years.

Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. There was no impairment recorded during the years ended September 30, 2018 and 2017.

Fair Value of Financial Instruments

The Company’s financial instruments consisted primarily of cash, accounts payable and accrued expenses, deferred revenue, convertible note payable, as well as embedded conversion features. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Fair value is focused on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Within the measurement of fair value, the use of market-based information is prioritized over entity specific information and a three-level hierarchy for fair value measurements is used based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

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

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

	●	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active;

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

The fair values of the embedded conversion features in the Company’s convertible notes and of the warrants issued by the Company were determined using level 2 measurements and are discussed in further detail in Notes 5 and 8, respectively.

Convertible Debt

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. In the event the Company has the option to pay the convertible note at a premium ranging within the first six (6) months before they become convertible, the Company will record the prepayment if intended. The discount relating to the initial recording of the original issue discount, issue cost, warrant 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.

The conversion feature embedded in the Company’s note may 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.

Customer Concentration

During the years ended September 30, 2018 and 2017, one customer accounted for 100% of revenues. The loss of this customer will have a significant impact on operations.

Revenue Recognition

Software license revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis, and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period. When the fair value of VSOE of post contract customer support cannot be determined, the revenue is recognized ratably over the contract period. In June 2014, the Company entered into an agreement to provide software and support to a third party for which no VSOE for any elements is known. Since the customer requested additional modifications to the software before it could be used, delivery of the use of the license was not achieved until December 2015. The only remaining undelivered element was post contract support services, and accordingly, the revenues were recognized on a pro rata basis prospectively over the 30 months ending June 10, 2018 per the terms of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized.

The Company had deferred revenue of $0 and $316,248 as of September 30, 2018 and 2017, respectively.

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 years ended September 30, 2018 and 2017 were $873,107 and $1,087,372, respectively.

Stock-Based Compensation

The Company measures the cost of services provided by employees and non-employees in exchange for an award of an equity instrument based on the grant-date fair value of the award. All equity awards granted to employees and non-employees during the years ended September 30, 2018 and 2017 were fully vested upon grant. As such, compensation cost was recognized at the time of the grant.

Income Taxes

The Company utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry-forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

The Company uses the two-step approach to recognize and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. The Company did not record any liabilities for uncertain tax positions during the years ended September 30, 2018 or 2017.

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 September 30, 2018, and 2017, the Company had 1,000,000 and 10,000,000 shares, respectively, of preferred stock outstanding, which are convertible into 1,500,000 and 15,000,000 shares, respectively, 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 year ended September 30, 2018, 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. During the year ended September 30, 2017, 725,000 warrants and 10,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

Recent Accounting Announcements

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the ASC. There have been a number of ASUs to date that amend the original text of the ASCs. Other than those discussed below, the Company believes those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) – Accounting for Certain Financial Instruments with Down Round Features , to change the classification analysis of certain equity-linked financial instruments with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity-classified instruments, the amendments require the effect of the down round feature to be recognized in earnings per share when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective in annual periods beginning after December 15, 2019 and in interim periods within annual periods beginning after December 15, 2020. The Company early adopted ASU 2017-11 during the year ended September 30, 2017.

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 in 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 Company is currently in the process of evaluating the effect that this guidance will have on its financial statements and related disclosures.

NOTE 3 – FIXED ASSETS, NET

As of September 30, 2018, and 2017, fixed assets consisted of the following:

	September 30,
	2018			2017
Equipment and furniture	$	11,042		$	3,355
Leasehold improvements		10,542			10,541
Software		9,538			2,798
		31,122			16,694
Accumulated depreciation		(11,072	)		(5,524	)
Fixed assets, net	$	20,050		$	11,170

Depreciation expense for the years ended September 30, 2018 and 2017 was $5,548 and $5,524, respectively.

NOTE 4 – SOFTWARE LICENSES

Gawk

On June 14, 2014, the Company entered into a license agreement with Gawk to use the Cipherloc engine for $1,125,000 for a period of four (4) years. This customer licensed the CipherShop-Cipherloc encryption software technology and support services. The Company was not required to make significant modifications at the time the contract was executed. Prior to this, the Company had never sold or licensed the CipherShop-Cipherloc encryption software, nor any support services for such. Under the license agreement, the Company was to provide access to its software on an operational basis and provide training. The Company would also provide unspecified upgrades, if and when available, and 24/7 support over the license term. No VSOE was known for any of the elements. After the agreement was executed, the licensee requested modifications to the software because they could not otherwise use the software. The Company made the requested modifications to the software and delivered the finished product in late December 2015; thus, delivery had not deemed to have occurred until such date. The contract termination date was not extended beyond the initial date of June 2018. Revenues were recorded from the date of delivery over the remaining term of the agreement or approximately 30 months. For these reasons, revenue is recognized ratably from December 2015 until June 2018. During the years ended September 30, 2018 and 2017, the Company recognized revenues of $316,248 and $467,274, respectively.

NOTE 5 – CONVERTIBLE NOTES PAYABLE

FirstFire Global Opportunities Fund, LLC

On September 26, 2017, the Company issued a convertible note payable to FirstFire Global Opportunities Fund, LLC (“FirstFire”) with a principal amount of $330,000, which included an original issue discount of $30,000. The Company incurred $8,500 in debt issuance costs. The note accrued interest at 5% per annum and was to mature on March 26, 2018. The note was convertible at $2.00 per share. 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 note, as amended, provided 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 at a conversion 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 equaled 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, was the non-payment of the note at maturity.

If shares of the Company’s common stock traded below $1.00 per share on the day following the conversion date, the conversion price was to be retroactively adjusted to equal 75% multiplied by the lowest traded price on the day following the conversion date. If the Company consummated a registered or unregistered primary offering of its securities for capital raising purposes, the holder of the note had 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 reduction of the conversion price from $2.00 to $1.00 was deemed to create a beneficial conversion feature, therefore, the Company accounted for the amendment of the FirstFire note using ASC 815, Derivatives and Hedging , and recognized a loss on extinguishment of $358,038 during the three months ended December 31, 2017. Upon the December 20, 2017 amendment of the FirstFire note, the Company reduced the note to zero and recognized an embedded conversion feature derivative liability of $320,312. The Company valued the embedded conversion feature as derivative liability with the Black-Scholes-Merton valuation model on the date of the amendment using an expected life of one (1) year, volatility of 150%, and risk-free rate of 1.87%.

During the year ended September 30, 2018, the Company recognized a gain of $11,234 related to the change in fair value of the FirstFire embedded conversion feature derivative liability. The Company valued the embedded conversion feature derivative liability with the Black-Scholes-Merton valuation model as of March 21, 2018, immediately prior to the settlement of the note as described below, using an expected life of 0.78 years, volatility of 150%, and risk-free rate of 1.71%.

On March 21, 2018, the Company entered into a settlement agreement with FirstFire, under which FirstFire converted $77,500 of the note payable into 50,000 shares of common stock, and the Company paid $350,000 to satisfy the convertible note payable in full. In connection with the settlement of the FirstFire note, the Company recognized a gain on extinguishment of $194,391.

Total interest expense related to the FirstFire note, including the debt discount amortization, was $453,700 for the year ended September 30, 2018.

Peak One Opportunity Fund LP

On December 14, 2017, the Company issued a convertible note payable to Peak One Opportunity Fund LP (“Peak One”) with a principal amount of $300,000. The Company incurred $27,400 in debt issuance costs. The note was to mature on December 14, 2020 and provided 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 had occurred or if the conversion occurred 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 was not eligible for clearing through the Depository Trust Company’s Deposit Withdrawal Agent Commission system on the conversion date, the conversion price would have equaled 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. 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 derivative liability with the Black-Scholes-Merton valuation model on the date of issuance using an expected life of 1.25 years, volatility of 150%, and risk-free rate of 1.82%. The Company also recognized a loss of $486,745 resulting from the excess fair value of the beneficial conversion feature derivative in the Peak One note and of the equity instruments issued with the convertible note.

During the year ended September 30, 2018, the Company recognized a loss of $19,770 related to the change in fair value of the beneficial conversion feature derivative liability. The Company valued the beneficial conversion feature derivative liability with the Black-Scholes-Merton valuation model as of April 30, 2018, immediately prior to the redemption of the note as described below, using an expected life of 1.17 years, volatility of 150%, and risk-free rate of 1.65%.

Additionally, upon issuance of the Peak One note, the Company recorded a debt discount of $300,000. The Company amortized $37,432 of the debt discount to interest expense during the year ended September 30, 2018.

On April 30, 2018, the Company settled the Peak One note for $375,000 and issued 71,429 shares of common stock with a fair value of $103,572 to Peak One. The Company recognized a loss on extinguishment of $153,621.

NOTE 6 – RELATED PARTY TRANSACTIONS

Notes Payable to Chief Executive Officer

In September 2017, the Company’s Chief Executive Officer (“CEO”) issued four notes with an aggregate principal amount of $70,000 to the Company. The notes bore interest at 3% per annum and matured one year from the issuance date. The Company repaid all four notes in full during September 2018. As of September 30, 2018, and 2017, there were no outstanding notes payable to the CEO.

See Note 8 for additional related party transactions.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Litigation

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. A disgruntled former contracted consultant has brought an action in Texas state court against the CEO and the Company, alleging fraud and misrepresentation pertaining to stock and payments, all of which have been paid, and all stock has been delivered to him. He has also included a claim of partial ownership of some of the Company’s patents, which 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 being vigorously defended on our behalf by our insurance carrier.

Employment Contracts

i.		A monthly salary of $20,833 per month subject to an annual increase of 10% per year and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors. During the year ended September 30, 2017, the base salary was $360,000.

ii.		A cash bonus of 25% of his annual base salary each year if the Company reaches the following milestones:

	a.		The Company posts annual gross revenues on a consolidated basis of at least $5,000,000;

	b.		The Company’s earnings before the deduction of income taxes and amortization expenses (“EBITA”), including cash extraordinary items but before officer’s bonuses, on a consolidated basis for any year is at least $1,000,000;

iii.		An automobile allowance of $1,500 per month.

iv.		A medical insurance allowance of $1,500 per month.

v.		In the event the executive’s employment is terminated without cause he will receive the entire contract remaining on the agreement.

The Company has removed other provisions from the original employment agreement.

Leases

The Company leases 3,906 square feet of office space in Buda, Texas. The lease 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, 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 feet 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 annual minimum lease obligations at September 30, 2018 are as follows:

Year Ending September 30,	Amount
2019	$	111,034
2020		113,405
2021		64,259
	$	288,698

Rent expense totaled $99,209 and $91,246 for the years ended September 30, 2018 and 2017, respectively.

NOTE 8 - STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

As of September 30, 2018, and 2017, the Company had 40,743,917 and 6,635,127 shares of common stock outstanding, respectively, and was authorized to issue 650,000,000 shares of common stock at a par value of $0.01.

Common Stock Issued for Cash

During the year ended September 30, 2018, through the utilization of PPMs and upon receipt of executed Subscription Agreements, the Company issued 18,909,900 shares of common stock for $16,625,238 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D.

During the year ended September 30, 2017, through the utilization of PPMs and upon receipt of executed Subscription Agreements, the Company issued 724,000 shares of common stock for $1,383,320 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D.

Common Stock Issued to Officers and Employees

During the year ended September 30, 2018, the Company issued 766,033 fully vested shares of common stock with a fair value of $1,472,601 to its officers and other employees as part of their compensation. Of this amount, $950,056 was recorded in general and administrative expenses, $279,500 was recorded in sales and marketing expenses, and $243,045 was recorded in research and development expenses.

During the year ended September 30, 2017, the Company issued 542,268 fully vested shares of common stock with a fair value of $2,783,922 to its officers and other employees as part of their compensation. Of this amount, $2,192,200 was recorded in general and administrative expenses, $93,748 was recorded in sales and marketing expenses, and $536,515 was recorded in research and development expenses.

Common Stock Issued for Services

During the year ended September 30, 2018, the Company issued 10,000 shares of fully vested common stock with a fair value of $15,000 to Magnolia Investor Relations for investor relations services rendered.

During the year ended September 30, 2017, the Company issued 25,000 shares of fully vested common stock with a fair value of $74,500 to StockVest for investor relations services.

Common Stock Issued for Settlement

During the year ended September 30, 2018, the Company issued 50,000 shares of fully vested common stock with a fair value of $81,000 for to settle a legal matter by two shareholders who claimed that they were entitled to 125,000 shares of common stock because of funds allegedly paid to the Company and promises allegedly made by the Company. The Company denied these allegations and settled the matter for 50,000 shares of common stock.

Common Stock Issued for License Termination

During the year ended September 30, 2017, the Company issued 25,000 shares of fully vested common stock with a fair value of $106,250 for a software termination settlement.

Common Stock Issued with Convertible Notes

During the year ended September 30, 2018, the Company issued 275,000 and 71,429 shares of fully vested common stock in connection with the issuance and redemption, respectively, of the Peak One note. The Company also issued 87,500 and 50,000 shares of common stock in connection with the amendment and conversion, respectively, of the FirstFire note. Refer to Note 5 for further discussion.

During the year ended September 30, 2017, the Company issued 50,000 shares of fully vested common stock in connection with the issuance of the FirstFire note. Refer to Note 5 for further discussion.

Preferred Stock

As of September 30, 2018, and 2017, the Company had 1,000,000 and 10,000,000 shares of restricted preferred stock outstanding, respectively, and was authorized to issue 10,000,000 shares of preferred stock at a par value of $0.01. Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. The holders of preferred stock can only convert the shares if agreed to by the Board of Directors. If declared by the Board of Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company. In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common stock of the Company.

During the year ended September 30, 2018, the Company’s Chief Executive Officer converted 9,000,000 shares of preferred stock into 13,500,000 shares of common stock.

Warrants

During the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock in connection with the Peak One convertible note discussed in Note 5. These warrants were issued with an exercise price of $2.00 and a term of five years. The Company valued these warrants at $90,345 with the Black-Scholes-Merton valuation model using an expected life of five years, volatility of 150%, and risk-free rate of 2.14%.

Additionally, in connection with shares sold through a PPM, the Company issued warrants to purchase 144,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years. The Company valued these warrants at $93,198 with the Black-Scholes-Merton valuation model using an expected life of two years, volatility of 150%, and risk-free rates ranging from 1.89% to 2.27%.

Lastly, in connection with shares sold through an additional PPM, the Company issued warrants to purchase 18,837,900 shares of common stock. These warrants were issued with an exercise price of $1.20 and a term of five years. The Company valued these warrants at $28,609,542 with the Black-Scholes-Merton valuation model using an expected life of five years, volatility of 150%, and risk-free rates ranging from 2.56% to 2.95%. The Company also issued warrants to purchase 5,398,966 shares of common stock to the placement agents for this PPM. These warrants were issued with an exercise price of $1.00 and a term of ten years. The Company valued these warrants at $10,952,342 with the Black-Scholes-Merton valuation model using an expected life of ten years, volatility of 150%, and a risk-free rate of 3.05%.

During the year ended September 30, 2017, the Company issued warrants to purchase 165,000 shares of common stock in connection with the FirstFire convertible note discussed in Note 5. These warrants were issued with an exercise price of $4.50 per share with a term of two years. In December 2017, the FirstFire convertible note was amended to, among other things, lower the warrants’ exercise price to $2.00 per share. The Company re-valued the warrants at $158,268 with the Black-Scholes-Merton valuation model using an expected life of two years, volatility of 150%, and risk-free rate of 1.87%.

Additionally, during the year ended September 30, 2017, in connection with shares purchased through a PPM, the Company issued warrants to purchase 560,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years. The Company valued these warrants at $963,337 with the Black-Scholes-Merton valuation model using an expected life of two years, volatility of 150%, and risk-free rates ranging from 1.27% to 1.45%.

Warrant activity for the years ended September 30, 2018 and 2017 is as follows:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding at September 30, 2016		—		$	—		—
Granted		725,000			4.50		2.00
Exercised		—			—		—
Canceled/Forfeited		—			—		—
Outstanding at September 30, 2017		725,000			4.50		1.88
Granted		25,033,366			1.18		5.99
Exercised		(742,500	)		1.20		1.50
Canceled/Forfeited		—			—		—
Outstanding at September 30, 2018		25,015,866		$	1.27		5.83

NOTE 9 - INCOME TAXES

The provision (benefit) for income taxes from continued operations for the years ended September 30, 2018 and 2017 consist of the following:

	September 30,
	2018			2017
Current:
Federal	$	—		$	—
State		—			—
	$	—		$	—

Deferred:
Federal	$	(2,558,000	)	$	(781,817	)
State		—			—
		(2,558,000	)		(781,817	)
Valuation allowance		2,558,000			781,817
Provision (benefit) for income taxes, net	$	—		$	—

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

	September 30,
	2018			2017
Statutory federal income tax rate		21.0	%		34.0	%
Non-deductible stock-based compensation		(7.0	)		(16.0	)
Change in statutory tax rate		(19.0	)		—
Valuation allowance		5.0			(18.0	)
Effective tax rate		0.0	%		0.0	%

Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

	September 30,
	2018			2017
Net operating loss carry forward	$	3,536,000		$	4,725,000
Deferred compensation		3,747,000			—
Valuation allowance		(7,283,000	)		(4,725,000	)
Deferred income tax asset	$	—		$	—

The Company has a net operating loss carry forward of $16.8 million available to offset future taxable income. Of which, $2.6 million will expire within the next five years, and the remaining $14.2 million will expire thereafter. For income tax reporting purposes, the Company’s aggregate unused net operating losses were subject to the limitations of Section 382 of the Internal Revenue Code, as amended. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, because in the opinion of management based upon the earning history of the Company; it is more likely than not that the benefits will not be realized. For income tax reporting purposes, Management has determined that net operating losses prior to February 5, 2015 are subject to an annual limitation of approximately $600,000.

For the years ended September 30, 2018 and 2017, the difference between the amounts of income tax expense or benefit that would result from applying the statutory rates to pretax income to the reported income tax expense of $0 is the result of the net operating loss carry forward and the related valuation allowance, as well as non-deductible stock-based compensation.

The Company anticipates it will continue to record a valuation allowance against the losses of certain jurisdictions, primarily federal and state, until such time as it is able to determine it is “more-likely-than-not” the deferred tax asset will be realized. Such position is dependent on whether there will be sufficient future taxable income to realize such deferred tax assets. The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.

The Company has not filed its federal income tax returns since 2012, which is through the fiscal year ending September 30, 2013. The Company is preparing the 2013 through 2016 filings, which report activity for the fiscal years ending September 30, 2014 through 2017. The September 30, 2018 tax return is not due at this time. The Company intends to remediate the lack of filing timely tax returns immediately. There are currently no ongoing tax examinations.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law in the U.S. The Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation. These changes were effective beginning in 2018.

NOTE 10 - SUBSEQUENT EVENTS

On October 4, 2018, the Company executed a lease for 3,859 square feet of office space in Scottsdale, Arizona. The lease has a term of three years, commencing on November 1, 2018. The monthly rent is $6,432 for the first year and increases to $6,753 for the second year and $7,075 for the third year. The Company will, within the next fiscal year, move its corporate headquarters to this location from its current location in Buda, Texas. The Company has reduced the size of its Buda, Texas facility and will continue to maintain the facility for its research and development activities. The lease for the existing office space in Scottsdale, Arizona will not be renewed.

FORM 10-Q FILING

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

CIPHERLOC CORPORATION

BALANCE SHEETS

(UNAUDITED)

	December 31, 2018			September 30, 2018
ASSETS
Current assets
Cash	$	13,052,481		$	14,056,346
Prepaid expenses		56,995			—
Total current assets		13,109,476			14,056,346

Other assets		12,218			12,218
Fixed assets, net		35,988			20,050
Total assets	$	13,157,682		$	14,088,614

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	91,782		$	52,043
Accrued compensation		153,765			72,489
Total current liabilities		245,547			124,532

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
Additional paid-in capital		68,208,957			68,169,157
Accumulated deficit		(55,714,460	)		(54,622,513	)
Total stockholders’ equity		12,912,135			13,964,082
Total liabilities and stockholders’ equity	$	13,157,682		$	14,088,614

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

CIPHERLOC CORPORATION

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	December 31,
	2018			2017
Revenues	$	—		$	115,642
Cost of revenues		—			30,300
Gross profit		—			85,342

Operating expenses
General and administrative		532,974			183,920
Sales and marketing		213,975			22,967
Research and development		345,895			114,852
Total operating expenses		1,092,844			321,739
Operating loss		(1,092,844	)		(236,397	)

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	)
Net loss	$	(1,091,947	)	$	(1,413,148	)

Net loss per common share – basic and diluted	$	(0.03	)	$	(0.21	)

Weighted average common shares outstanding – basic and diluted		40,762,159			6,712,339

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

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

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

CIPHERLOC CORPORATION

STATEMENT 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, 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.

CIPHERLOC CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

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, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2019. 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, 2018 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, 2018 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 original maturity 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, 2018 and September 30, 2018, cash includes cash on hand and cash in the bank. The Company maintains its cash in accounts held by large, globally recognized banks which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures these deposits up to $250,000. At December 31, 2018, $12,802,481 of the Company’s cash balance was uninsured. The Company has not experienced any losses in cash.

Convertible Debt and Embedded Derivatives

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, 2018 and September 30, 2018, 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, 25,015,866 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, 874,000 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, 2018 and 2017 were $345,895 and $114,852, respectively.

Recent Accounting Announcements

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative literature in the ASC. There have been a number of ASUs to date that amend the original text of the ASC. Other than those discussed below, the Company believes those updates 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 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 2014-09 did not have a material impact on the Company’s financial statements or related disclosures.

NOTE 4 – CONVERTIBLE NOTE PAYABLE

FirstFire Global Opportunities Fund, LLC

On September 26, 2017, the Company issued 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 amount of $330,000, which included an original issue discount of $30,000. The Company incurred $8,500 in debt issuance costs. The note accrued interest at 5% per annum and was to mature on March 26, 2018. The note was convertible at $2.00 per share, subject to adjustment due to ratchet or down round protection, among other adjustments. The Company also issued 50,000 shares of its common stock, as well as warrants to purchase an additional 165,000 shares of common stock at $4.50 per share with a term of two years. The note was amended on December 20, 2017, which reduced the conversion price of the note from $2.00 to $1.00 per share and the exercise price of the warrants from $4.50 to $2.00. The amendment also required the Company to issue an additional 87,500 shares of common stock to FirstFire. The Company also received the right to prepay the convertible note at any time from the 151st through the 180th day following September 26, 2017, after which the Company could repay FirstFire at 130% multiplied by the outstanding principal amount plus accrued and unpaid interest.

The reduction of the conversion price from $2.00 to $1.00 was deemed to create a beneficial conversion feature, therefore, the Company accounted for the amendment of the FirstFire note using ASC 815, Derivatives and Hedging , and recognized a loss on extinguishment of $358,038 during the three months ended December 31, 2017. The Company also recognized a beneficial conversion feature derivative liability of $320,312 as of the note’s amendment date. The Company valued the beneficial conversion feature 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.

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 feature in the Peak One note and 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, 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 Company 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.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Litigation

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. A disgruntled former contracted consultant has brought an action in Texas state court against the CEO and the Company, alleging fraud and misrepresentation pertaining to stock and payments, all of which have been paid, and all stock has been delivered to him. He has also included a claim of partial ownership of some of the Company’s patents, which 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 being vigorously defended on our behalf by our insurance carrier.

Leases

In October 2018, the Company leased an additional 3,859 square feet of office space in Scottsdale, Arizona. The lease for the new Scottsdale office 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, the lease requires monthly rent payments of $6,753 from November 1, 2019 to October 31, 2020 and $7,075 from November 1, 2020 to October 31, 2021.

NOTE 6 - STOCKHOLDERS’ EQUITY

The Company is authorized to issue 650,000,000 common shares and 10,000,000 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 determines the fair value of stock issuances using the closing stock price on the grant date.

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.

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 7 – SUBSEQUENT EVENTS

There have been no reportable events that have occurred after December 31, 2018.

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

Results of Operations for the three months ended December 31, 2018 and 2017

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

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

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

Research and development costs increased to $345,895 from $114,852 for the three months ended December 31, 2018 and 2017, respectively. 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 of $10,000.

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 have an accumulated deficit at December 31, 2018 of $55,714,460. 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 Company had cash of $13,052,481. We believe that our existing cash balances are sufficient to fund future operations for the next 12 months.

Cash Flow

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

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

Operating Activities

Cash used in operating activities was $986,146 and $371,466 for the three months ended December 31, 2018 and 2017, respectively. The increase in cash used in operating activities was primarily due to lower non-cash expenses, partially offset by changes in working capital usage.

Investing Activities

Cash used in investing activities was $17,719 and $0 for the three months ended December 31, 2018 and 2017, 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 for the three months ended December 31, 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.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Bylaws, as amended, provides that to the fullest extent permitted by law, directors, officers, employees and agents may be indemnified by the Corporation against any and all expenses, liabilities or other matters. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted as to directors, officers, employees, controlling persons and agents of the small business issuer pursuant to the above-stated language, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as set out in the Act and is therefore unenforceable.

PART II – INFORMATION NOT REQUIRED IN PROSPECTUS

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated costs (assuming all shares are sold) of this offering are as follows: (1)

SEC Registration Fee	$	6,245.86
Auditor Fees and Expenses	$	16,500.00
Consulting Fees and Related Expenses	$	15,750.00
Transfer Agent Fees	$	6,500.00
TOTAL	$	44,995.86

(1) All amounts are estimates, other than the SEC’s registration fee. The above expenses are to be paid by the Company, rather than the selling shareholders.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article XIII of our Bylaws, as amended, provides that to the fullest extent permitted by law, directors, officers, employees and agents may be indemnified by the Corporation against any and all expenses, liabilities or other matters. Without limiting the application of the foregoing, the Board of Directors may adopt bylaws from time to time with respect to indemnification, to provide at all times the fullest indemnification permitted by the laws of the State of Texas, and may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another Corporation, or as its representative in a partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. The indemnification provided in this Article shall continue as to a person who has ceased to be a Director, Officer, Employee, or Agent, and shall inure to the benefit of the heirs, executors and administrators of such person. The authority for said indemnification arises from the Texas Business Corporation Act Article 2.02-1 and shall be amended from time to time as such statute is amended.

RECENT SALES OF UNREGISTERED SECURITIES

Fiscal Year Ended September 30, 2018

Stock Issued for Cash

During the year ended September 30, 2018, through the utilization of Private Placement Memorandums (PPMs) and upon receipt of executed Subscription Agreements, the Company issued 18,909,900 shares of common stock for $16,625,238 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D. Of the 18,909,900 shares of common stock issued, 72,000 shares were issued each with a warrant to purchase two additional shares of common stock and 18,837,900 shares were issued each with a warrant to purchase one additional share of common stock.

Stock Issued to Officers and Employees

During the year ended September 30, 2018, the Company issued 766,033 shares of common stock with a fair value of $1,472,601 to its officers and other employees as part of their compensation.

Stock Issued for Services

During the year ended September 30, 2018, the Company issued 10,000 shares of common stock with a fair value of $15,000 to Magnolia Investor Relations for investor relations services rendered.

Stock Issued for Settlement

During the year ended September 30, 2018, the Company issued 50,000 shares of common stock with a fair value of $81,000 to settle a legal matter by two shareholders who claimed they were entitled to 125,000 shares of common stock because of funds allegedly paid to the Company and promises allegedly made by the Company. The Company denied these allegations and settled the matter for 50,000 shares of common stock.

Convertible Notes

On September 26, 2017, the Company issued a convertible note to FirstFire Global Opportunities Fund, LLC (“FirstFire”) with a principal amount of $330,000, which included an original issue discount of $30,000. The Company incurred $8,500 in debt issuance costs. The note accrued interest at 5% per annum and was to mature on March 26, 2018. The note was convertible at $2.00 per share. Under the terms of the note, the Company also issued 50,000 shares of its common stock to FirstFire, 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. On March 21, 2018, the Company entered into a settlement agreement with FirstFire, under which FirstFire converted $77,500 of the note payable into 50,000 shares of common stock, and the Company paid $350,000 to satisfy the note payable in full.

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. 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. Under the terms of the note, the Company also issued 275,000 shares of its common stock to Peak One, 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. On April 30, 2018, the Company redeemed the Peak One note for $375,000 prior to the maturity date and also issued 71,429 shares of common stock with a fair value of $103,572 to Peak One.

Fiscal Year Ended September 30, 2017

Stock Issued for Cash

During the year ended September 30, 2017, through the utilization of a PPM and upon receipt of executed Subscription Agreements, the Company issued 724,000 shares of common stock for $1,383,320 in net cash proceeds pursuant to the exemption from the registration provisions of the Securities Act, as amended, afforded by Rule 506 of Regulation D. Of the 724,000 shares of common stock issued, 280,000 shares were issued each with a warrant to purchase two additional shares of common stock. These shares and warrants were issued for $534,985 in net cash proceeds.

Stock Issued to Officers and Employees

During the year ended September 30, 2017, the Company issued 542,268 shares of common stock with a fair value of $2,783,922 to its officers and other employees as part of their compensation.

Stock Issued for Services

During the year ended September 30, 2017, the Company issued 25,000 shares of common stock with a fair value of $74,500 to StockVest for investor relations services.

Stock Issued for License Termination

During the year ended September 30, 2017, the Company issued 25,000 shares of common stock with a fair value of $106,250 for a software termination settlement.

Preferred Stock

The Company has authorized 10,000,000 shares of preferred stock at $0.01 par value. There were 1,000,000 and 10,000,000 shares of preferred stock issued and outstanding as of September 30, 2018 and 2017, respectively. Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. The holders of preferred stock can only convert the shares if agreed to by the Board of Directors. If declared by the Board of Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company. In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common stock of the Company.

The issuance of preferred stock by our board of directors could adversely affect the rights of holders of the common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers. See “Risk Factors” above.

Common Stock

The Company has authorized 650,000,000 shares of common stock at $0.01 par value. There were 40,743,917 and 6,635,127 shares of common stock issued and outstanding as of September 30, 2018 and 2017, respectively. The holders of our common stock are entitled to receive such dividends, if any, as may be declared by our board of directors from time to time out of legally available funds. The dividend rights of our common stock are junior to any preferential dividend rights of any outstanding shares of preferred stock. The holders of our common stock also are entitled to receive distributions upon our liquidation, dissolution or winding up of our assets that are legally available for distribution, after payment of all debt and other liabilities and distribution in full of preferential amounts, if any, to be distributed to holders of our preferred stock.

Warrants

During the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock in connection with the Peak One convertible note discussed above. These warrants were issued with an exercise price of $2.00 and a term of five years. Additionally, in connection with shares purchased through a PPM, the Company issued warrants to purchase 144,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years. Lastly, in connection with shares purchased through another PPM, the Company issued warrants to purchase 18,837,900 shares of common stock. These warrants were issued with an exercise price of $1.20 and a term of five years. The Company issued an additional 5,398,970 warrants, with a cashless conversion provision, at an exercise price of $1.00 and a term of ten years to the investment agent as part of its fees.

During the year ended September 30, 2017, the Company issued warrants to purchase 165,000 shares of common stock in connection with the FirstFire convertible note discussed above. These warrants were issued with an exercise price of $4.50 per share and a term of two years. Additionally, in connection with shares purchased through a PPM, the Company issued warrants to purchase 560,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years.

EXHIBITS

Ex No.

3.1		Articles of Incorporation Incorporated by reference to the Registrant’s Form 10-SB filed on or about January 3, 2000.
3.2		Bylaws 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.
3.3		Amendment 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
3.5		Amendment to the Bylaws, incorporated by reference as set out in Registrant’s Form 8-K dated and filed on September 9, 2014
5.1		Legal Opinion Letter (1)
10.30		Employment 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.
10.31		Lease 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.
10.32		Placement Agent Agreement dated January 17, 2018 incorporated by reference to the Registrant’s Form 8-K filed on August 1, 2018 and attached to Form 10-K for year ending September 30, 2018 filed on December 31, 2018.
10.33		2019 Stock Option/Stock Issuance Plan dated August 27, 2018 is incorporated by reference and attached to Form 10-K for year ending September 30, 2018 filed on December 31, 2018.
13.1		Form 10-K for year ending September 30, 2018 filed and dated December 31, 2018 is incorporated herein by reference
23.1		Consent of Independent Accounting Firm Armanino LLP (1)
23.2		Consent of Independent Accounting Firm dbbmckennon (1)
99.1		Form of Subscription Agreement (1)

(1) Filed herewith

UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(a)(1) To file, during any period in which offers, or sales of securities are being made, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or our securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Buda, State of Texas, on February 21 , 2019.

Registrant	Cipherloc Corporation

Date: February 21 , 2019	By:	/s/ Michael De La Garza
		Michael De La Garza , Chairman, Chief Executive Officer, President (Principal Executive Officer),

	By:	/s/ Michael De La Garza
		Acting Chief Financial Officer (Principal Financial Officer)

In accordance with the Securities Act of 1933, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Date: February 21 , 2019	By:	/s/ Albert Carlson
		Albert Carlson
		Director

Date: February 21 , 2019	By:	/s/ Sammy Davis
		Sammy Davis
		Director

Writer’s E-mail:

jmckee@davismckee.com

Exhibit 5.1

February 5, 2019

VIA U.S. MAIL &

EMAIL: mdlg@cipherloc.net

Board of Directors

Cipherloc Corporation

825 Main Street, Suite 100

Buda, Texas 78610

	*Re:*	*Opinion to be filed with an S-1 Registration statement of Cipherloc*
		*Corporation, a Texas Corporation, CIK 0001022505*

Gentlemen:

This Opinion is in connection with a registration statement to be filed by Cipherloc Corporation, a Texas corporation on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”), under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the registration of 18,897,400 issued shares, $0.01 par value of the Company’s common stock and 24,226,866 shares issuable upon the exercise of outstanding warrants, for public sale by the Company’s’ selling shareholders.

You have requested my opinion as to the matters set forth below in connection with the Registration Statement. For purposes of this opinion, I have examined the Registration Statement, the Company’s Articles of Incorporation as amended filed on March 23, 2015, the Company’s Bylaws as amended filed on September 9, 2014, the Exhibits to be attached to the Registration Statement and such other documents and matters of law as I have deemed necessary for the expression of the opinion herein contained.

In all such examinations, I have assumed the genuineness of all signatures on original documents, and the conformity to the originals of all copies submitted to me by the parties herein. In passing upon certain corporate records and documents of the Company, I have necessarily assumed the correctness and completeness of the statements made or included therein by the Company, and I express no opinion thereon. As to the various questions of fact material to this opinion, I have relied, to the extent I deemed reasonably appropriate, upon representations or of officers or directors of the Company and upon documents, records and instruments furnished to me by the Company, without verification except where such verification was readily ascertainable.

Based upon and subject to the foregoing, it is my opinion with respect to the registration of 18,897,400 issued shares, $0.01 par value of the Company’s common stock (the “Shares”), for public sale by the Company’s selling shareholders as disclosed in the S-1 Registration Statement , the subject shares are validly issued, fully paid, non-assessable and owned by the 264 selling shareholders. In connection with the registration of 24,226,866 shares issuable upon the exercise of outstanding warrants, for public sale by the Company’s’ selling shareholders it is my opinion that the Shares have been duly authorized and when issued and paid for as described in the Registration Statement and Prospectus, will be, validly issued, fully paid and non-assessable.

This opinion is limited to the Federal laws of the United States, and the applicable statutory provisions of the General Corporation Laws of the State of Delaware, including all applicable provisions of the Delaware Constitution and all regulations related to and all reported judicial decisions interpreting those laws and provisions. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference made to this firm in the Registration Statement under the heading “Legal Matters.”

I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name under the caption “Interests of Named Experts and Counsel” in the prospectus comprising part of the Registration Statement.

This opinion is rendered pursuant to Item 601(b)(5)(i) of Regulation S-K under the Act and may not be used or relied upon for any other purpose. This opinion is given as of the effective date of the Registration Statement, and I assume no obligation to update or supplement the opinions contained herein to reflect any facts or circumstances which may hereafter come to our attention or any changes in laws which may hereafter occur.

	Sincerely,

	/s/ Jeffrey A. McKee
	Jeffrey A. McKee

Armanino ^LLP
44 Montgomery Street
Suite 900
San Francisco, CA 94104-4611
415 568 3280 main
415 568 3281 fax
armaninoLLP.com

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING ACCOUNITNG FIRM

We hereby consent to the incorporation by reference in this registration statement on Form S-1 of Cipherloc Corporation of our report dated December 31, 2018, with respect to the balance sheet of Cipherloc Corporation as of September 30, 2018 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes, which report appears in the September 30, 2018 annual report on Form 10-K of Cipherloc Corporation. We also consent to the reference to us under the heading “Experts” in the Interests of Named Experts and Counsel section of the prospectus.

Armanino ^LLP

San Francisco, California

February 6, 2019

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the use, in this Registration Statement on Form S-1, of our report dated January 12, 2018 related to the financial statements of Cipherloc Corporation as of September 30, 2017 and for the year then ended, which includes an explanatory paragraph regarding the substantial doubt about Cipherloc Corporation’s ability to continue as a going concern. We also consent to the reference to us in the “Experts” section of the Registration Statement.

Very truly yours,

/s/ dbbmckennon

Newport Beach, California

February 5, 2019

Exhibit 99.1

DISCLOSURE ACKNOWLEDGMENT

The undersigned (the “ Investor ”), intending to make an investment in Cipherloc Corporation (the “ Company ”), understands and acknowledges the following.

1.	The Investor meets the definition of “accredited investor” set forth in Rule 501 of Regulation D promulgated under the Securities Act of 1933.

2.	The Investor can withstand the loss of the entire investment that the Investor makes in the Company.

3.	The Investor is a highly sophisticated person that has knowledge of private equity and venture capital investing, and is capable of evaluating the risks involved with an investment in the securities being offered by the company through Paulson Investment Company, LLC (“ PIC ”).

4.	It is possible that the Company may need additional capital after the current round of financing.

5.	The Investor understands that in the event that the Company does conduct a subsequent round of financing, that a failure to participate in such financing may result in adverse consequences to the Investor, including but not limited to dilution of investment.

6.	An investment in the securities being offered by the Company is a highly speculative investment that carries significant risk, which risk could result in the loss of the Investor’s entire investment, including any subsequent investments Investor may make as a result of pro rata rights offerings, or other financings.

I, __________________________________________________________________________, have reviewed foregoing, as well as the other documents incorporated by reference in the Subscription Agreement (collectively the “ Transaction Documents ”), and in spite of the risks set forth in this document, as well as those set forth in the Transaction Documents, I would like to make the investment for which I have subscribed in the attached subscription document.

Signature:			Signature:
Print Name:			Print Name:
On Behalf Of:			On Behalf Of:
Date:			Date:

SUBSCRIPTION AGREEMENT

Cipherloc Corporation

825 Main Street, Suite 100

Buda, TX 78610

Ladies and Gentlemen:

Subscription. The undersigned (the “Purchaser”), intending to be legally bound, hereby irrevocably agrees to purchase from Cipherloc Corporation ., a Texas corporation (the “Company”) the number of shares of common stock, $0.01 par value, of the Company (the “Common Stock”) set forth on the signature page hereof (the “Subscribed Shares”) at a purchase price of $1.00 (the “Unit Price”), with a minimum investment of $50,000 per Purchaser (“Minimum Investment Amount”), or such lesser amount accepted by the Company in its sole discretion. In addition, each Purchaser shall also receive a warrant, substantially in the form attached hereto as Exhibit A (the “Warrants” and together with the Subscribed Shares and the shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”), collectively, the “Securities”), to purchase a number of shares of Common Stock equal to 100% of the number of Subscribed Shares. The Warrants will be exercisable for Warrant Shares for a 5-year period commencing at the Closing (as defined below) at an exercise price equal to 120% of the Unit Price

1. The Offering . This subscription is submitted to you in accordance with and subject to the terms and conditions described in this Subscription Agreement relating to the offering (the “Offering”) by the Company of Subscribed Shares and related Warrants. The closing of the Offering to which this Subscription Agreement relates (the “Closing”) may be scheduled by the Company at any time after the execution of this Subscription Agreement. Additional Securities may have been and may continue to be offered and sold from time to time in the Offering, until the date on which the Offering is concluded, through additional closings conducted by the Company with respect to those additional Securities sold. The Company anticipates the Closing of this Offering will be held on April 30, 2018, but reserves the right, in its sole discretion to extend the final Closing of this Offering. The Company intends to raise up to a maximum of $15,000,000, but will accept up to an additional $2,250,000 should it receive subscriptions for such additional amounts.

2. Payment. The Purchaser will immediately make a wire transfer payment to the Company pursuant to the instructions included herein in the full amount of the purchase price of the Securities being subscribed for hereby. Wire transfer instructions are set forth on the Subscription Instructions included on the last page hereof under the heading “To subscribe for Securities in the private offering of Cipherloc Corporation” Together with a wire transfer (or, subject to the Company’s approval in its sole discretion in lieu of a wire transfer, a check) for the full purchase price, the Purchaser is delivering a completed and executed omnibus Signature Page to this Subscription Agreement, an initialed Accredited Investor Certification and a completed Paulson Investment Company, LLC Purchaser Questionnaire attached hereto as Schedule B.

3. Acceptance of Subscription. The Purchaser understands and agrees that the Company, in its sole discretion, reserves the right to accept or reject this or any other subscription for Securities, in whole or in part, notwithstanding prior receipt by the Purchaser of notice of acceptance of this subscription. The Company shall have no obligation hereunder, including the issuance of the Subscribed Shares and the Warrants, until the Company shall execute and deliver to the Purchaser an executed copy of this Subscription Agreement. If this subscription is rejected in whole or the Offering of Securities is terminated, all funds received from the Purchaser will be returned without interest or offset, and this Subscription Agreement shall thereafter be of no further force or effect. If this subscription is rejected in part, the funds for the rejected portion of this subscription will be returned without interest or offset, and this Subscription Agreement will continue in full force and effect to the extent this subscription was accepted.

4. Registration Rights.

(a) The Company shall use commercially reasonable efforts to prepare and file with the United States Securities and Exchange Commission (the “SEC”), on or before the date which is ninety days from the final closing of this offering, a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the resale of all of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415 promulgated under the Securities Act (“Rule 415”). Subject to the terms of this Agreement, the Company shall use its reasonable efforts to cause such registration statement to be declared effective under the Securities Act as promptly as possible after the filing thereof. For the purposes hereof, “Registrable Securities” means, as of any date of determination, (i) the Subscribed Shares and the Warrant Shares and (ii) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, registration statement hereunder with respect thereto) for so long as (x) such Registrable Securities have been disposed of by the Purchaser in accordance with such effective registration statement, (y) such Registrable Securities have been previously sold in accordance with Rule 144 promulgated under the Securities Act (“Rule 144”), or (z) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as reasonably determined by the Company, upon the advice of counsel to the Company.

(b) Notwithstanding the registration obligations set forth in Section 5(a), if the SEC informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415 or other applicable regulations, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform the Purchaser thereof and use its reasonable efforts to file amendments to the registration statement as required by the SEC, covering the maximum number of Registrable Securities permitted to be registered by the SEC. If the SEC or any publicly available written or oral guidance of the SEC staff sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering, the Company shall reduce Registrable Securities on a pro rata basis across participating investors in this Offering, in proportion to the aggregate amount of Registrable Securities to be registered by each.

(c) In connection with the Company’s registration obligations hereunder, the Company shall, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.

(d) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the natural persons thereof that have voting and dispositive control over the shares, substantially in the form attached hereto as Exhibit B , as well as such other information about the Purchaser as may reasonably be requested by the Company to facilitate such registration.

(e) To the extent the Purchaser includes any Registrable Securities in a registration statement pursuant to the terms hereof, the Purchaser will indemnify and hold harmless the Company, its directors and officers and any controlling person from and against, and will reimburse the Company, its directors and officers and any controlling person with respect to, any and all loss, damage, liability, cost, or expense to which the Company, its directors and officers or such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs, or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with information furnished by or on behalf of the Purchaser specifically for use in the preparation thereof, and provided further that the maximum amount that may be recovered from Purchaser shall be limited to the amount of proceeds received by the Purchaser from the sale of such Registrable Securities.

5. Restrictions on Transfer.

(a) The Purchaser understands and agrees that the Securities are subject to the transfer restrictions specified herein and in the Warrants, and that the Securities have not been registered under the Securities Act or the securities laws of any state or other jurisdiction; accordingly, the Securities (including the Warrant Shares) must be held indefinitely unless they are subsequently registered or unless, in the opinion of counsel reasonably acceptable to the Company, a sale or transfer may be made in compliance with the provisions of this Subscription Agreement and the Warrants, as the case may be, and without registration under United States securities laws and the applicable securities laws of any state or other jurisdiction.

(b) The Purchaser further agrees that legends may be placed on the Securities restricting the transfer thereof, and that appropriate notations may be made in the Company’s stock books and stop transfer instructions placed with the transfer agent of the Common Stock, each in a manner generally consistent with the foregoing.

(c) The Purchaser is aware of the provisions of Rule 144 which, in substance, permit limited public resale of “restricted securities” acquired by non-affiliates of the issuer thereof, directly or indirectly, from the issuer (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things, the availability of certain public information about the Company and the resale occurring not less than six (6) months after the party has purchased and paid for the securities to be sold.

(d) The Purchaser further understands that at the time the Purchaser wishes to sell Securities (including any Warrant Shares issued or issuable upon exercise of the Warrants) there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not have filed all reports and other materials required under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, other than Form 8-K reports, during the preceding 12 months, and that, in such event, because the Company is a former “shell company” as contemplated under paragraph (i) of Rule 144, Rule 144 will not be available to the Purchaser.

(e) The Purchaser further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A promulgated under the Securities Act, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.

6. Representations and Warranties .

The Company hereby acknowledges, represents, warrants, and agrees as follows:

(a) That the Company is a Texas corporation duly organized, validly existing, and in good standing under the laws of the state of Texas, with power and authority to own, lease, use, and operate its properties and to carry on its business as and where now owned, leased, used, operated, and conducted.

(b) That all corporate action on the part of the Company, its officers, and directors necessary for the authorization, execution, and delivery of this Subscription Agreement and the authorization, sale, issuance, and delivery of the Units, and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to the closing of the transactions contemplated hereby. This Subscription Agreement, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

(c) That it will not for a period of two (2) years, without the approval of the holders of a majority of the issued and outstanding shares of the Company, (excluding those owned by Mr. De La Garza) establish at any time an option plan, equity rights plan, or any other such plan which would allow the Company to issue, to its directors, officers, or employees, any equity securities or securities convertible or exercisable for the equity securities of the Company, which would exceed 10% of the currently issued and outstanding shares of common stock of the Company on a fully diluted basis. Furthermore, none of the securities authorized to be issued under any such plan shall be issued to the Company’s current Chief Executive Officer. Notwithstanding the foregoing, nothing herein shall preclude the Company from selling its securities at fair market value as determined by its Board of Directors.

The Purchaser hereby acknowledges, represents, warrants, and agrees as follows:

(a) None of the Securities offered hereby are registered under the Securities Act or the securities laws of any state or other jurisdiction. The Purchaser understands that the offering and sale of the Securities (including the issuance of Warrant Shares upon exercise of the Warrants) is intended to be exempt from registration under the Securities Act, by virtue of Section 4(a)(2) thereof and the provisions of Regulation D (“Regulation D”) as promulgated by the SEC thereunder, based, in part, upon the representations, warranties and agreements of the Purchaser contained in this Subscription Agreement.

(b) Prior to the execution of this Subscription Agreement, the Purchaser and the Purchaser’s attorney, accountant, purchaser representative and/or tax adviser, if any (collectively, the “Advisers”), have received all documents requested by the Purchaser, have carefully reviewed them and understand the information contained therein.

(c) Neither the SEC nor any state securities commission or other regulatory authority has approved the Subscribed Shares, the Warrants or the Warrant Shares, or passed upon or endorsed the merits of the offering of securities or confirmed the accuracy or determined the adequacy of the Offering. The Offering has not been reviewed by any federal, state or other regulatory authority.

(d) All documents, records, and books pertaining to the investment in the Securities have been made available for inspection by such Purchaser and its Advisers, if any.

(e) The Purchaser and its Advisers, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Offering and sale of the Securities and the business, financial condition and results of operations of the Company, and all such questions have been answered to the full satisfaction of the Purchaser and its Advisers, if any.

(f) In evaluating the suitability of an investment in the Company, the Purchaser has not relied upon any representation or information (oral or written) other than as stated in this Subscription Agreement.

(g) The Purchaser is unaware of, is in no way relying on, and did not become aware of the Offering of the Securities through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or the Internet (including, without limitation, internet “blogs,” bulletin boards, discussion groups and social networking sites) in connection with the Offering and sale of the Securities and is not subscribing for the Securities and did not become aware of the Offering of the Securities through or as a result of any seminar or meeting to which the Purchaser was invited by, or any solicitation of a subscription by, a person not previously known to the Purchaser in connection with investments in securities generally.

(h) The Purchaser, together with its Advisers, if any, has such knowledge and experience in financial, tax, and business matters, and, in particular, investments in securities, so as to enable it to utilize the information made available to it in connection with the Offering to evaluate the merits and risks of an investment in the Securities and the Company and to make an informed investment decision with respect thereto.

(i) The Purchaser is aware that Paulson Investment Company, LLC (the “Placement Agent”), for the services it is providing in this Offering will receive, with respect to subscriptions made in this Offering through the Placement Agent, (1) a cash compensation equal to 12.5% of the gross proceeds received by the Company from such subscribers; (2) a warrant to purchase a number of shares equal to 15% of the aggregate number of Subscribed Shares issued to such subscribers, which is exercisable for a period of seven (7) years from the date of issuance at an exercise price equal to the Unit Price and (3) a non-accountable expense fee of $25,000 to be paid upon the first Closing of the Offering.

(j) Other than the commission payable to the Placement Agent as described herein, the Purchaser has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Subscription Agreement or the transactions contemplated hereby.

(k) The Purchaser is aware that a Managing Partner in the Placement Agent’s New York, New York office, Robert J. Setteducati, entered into a final settlement with the Massachusetts Securities Division in 2001 pursuant to which he agreed, among other things, never to seek to register with the Massachusetts Securities Division in any capacity. The settlement resolved allegations that Mr. Setteducati failed to adequately supervise employees at a prior broker-dealer.

(l) The Purchaser is not relying on the Placement Agent, the Company or either of their respective employees or agents with respect to the legal, tax, economic and related considerations of an investment in the Securities, and the Purchaser has relied on the advice of, or has consulted with, only its own Advisers.

(m) The Purchaser is acquiring the Securities (including, upon exercise of the Warrants, the Warrant Shares) solely for such Purchaser’s own account for investment purposes only and not with a view to or intent of resale or distribution thereof, in whole or in part. The Purchaser has no agreement or arrangement, formal or informal, with any person to sell or transfer all or any part of the Subscribed Shares, the Warrants or the Warrant Shares, and the Purchaser has no plans to enter into any such agreement or arrangement.

(n) The Purchaser must bear the substantial economic risks of the investment in the Securities (including, upon exercise of the Warrants, the Warrant Shares) indefinitely because none of the Securities may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and the applicable securities laws of any state or other jurisdiction or an exemption from such registration is available. Legends shall be placed on the Securities to the effect that they have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and appropriate notations thereof will be made in the Company’s stock books. Stop transfer instructions will be placed with the transfer agent of the Securities. There will not be any assurance that such securities will be freely transferable at any time in the foreseeable future.

(o) The Purchaser has adequate means of providing for such Purchaser’s current financial needs and foreseeable contingencies and has no need for liquidity from its investment in the Securities for an indefinite period of time.

(p) The Purchaser is aware that an investment in the Securities is high risk, involving a number of very significant risks and has carefully read and considered the matters set forth under the caption “Risk Factors” in the Company’s filings with the SEC (including the documents incorporated by reference therein) (the “SEC Filings”) (as well as the offering specific risk factors listed on Schedule A hereto), and, in particular, acknowledges that the Company has a limited operating history, significant operating losses since inception, no revenues to date and limited assets, is engaged in a highly competitive business and will need additional capital which will result in dilution to the Purchaser if he, she, or it is not able to participate in future offerings.

(q) The Purchaser meets the requirements of at least one of the suitability standards for an “accredited investor” as that term is defined in Regulation D and as set forth on the Accredited Investor Certification contained herein.

(r) The Purchaser (i) if a natural person, represents that the Purchaser has reached the age of 21 and has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Securities, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the securities constituting the Securities, the execution and delivery of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Subscription Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Subscription Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Purchaser is executing this Subscription Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company, and represents that this Subscription Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Subscription Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Purchaser is a party or by which it is bound.

(s) The Purchaser and its Advisers, if any, have had the opportunity to obtain any additional information, to the extent the Company has such information in its possession or could acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information contained in the SEC Filings and all documents received or reviewed in connection with the purchase of the Securities and have had the opportunity to have representatives of the Company provide them with such additional information regarding the terms and conditions of this particular investment and the financial condition, results of operations, business of the Company deemed relevant by the Purchaser or its Advisers, if any, and all such requested information, to the extent the Company had such information in its possession or could acquire it without unreasonable effort or expense, has been provided to the full satisfaction of the Purchaser and its Advisers, if any.

(t) Any information which the Purchaser has heretofore furnished or is furnishing herewith to the Company is complete and accurate and may be relied upon by the Company in determining the availability of an exemption from registration under federal and state securities laws in connection with the Offering and sale of the Securities. The Purchaser further represents and warrants that it will notify and supply corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company’s issuance of the Securities.

(u) The Purchaser has significant prior investment experience, including investment in non-listed and non-registered securities. The Purchaser is knowledgeable about investment considerations in development-stage companies with limited operating histories. The Purchaser has a sufficient net worth to sustain a loss of its entire investment in the Company in the event such a loss should occur. The Purchaser’s overall commitment to investments which are not readily marketable is not excessive in view of the Purchaser’s net worth and financial circumstances and the purchase of the Securities will not cause such commitment to become excessive. The investment in the Securities is a suitable one for the Purchaser.

(v) The Purchaser is satisfied that the Purchaser has received adequate information with respect to all matters which it or its Advisers, if any, consider material to its decision to make this investment.

(w) The Purchaser acknowledges that any estimates or forward-looking statements or projections included in the SEC Filings (including the documents incorporated by reference therein) were prepared by the Company in good faith but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company and should not be relied upon.

(x) No oral or written representations have been made, or oral or written information furnished, to the Purchaser or its Advisers, if any, in connection with the Offering which are in any way inconsistent with the information contained in this Subscription Agreement.

(y) Within five (5) days after receipt of a request from the Company, the Purchaser will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which the Company is subject.

(z) THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM OR THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

(aa) In making an investment decision investors must rely on their own examination of the Company and the terms of the Offering and sale of the Securities, including the merits and risks involved. The Purchaser should be aware that it will be required to bear the financial risks of this investment for an indefinite period of time.

(bb) (For ERISA plans only) The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Purchaser fiduciary or Plan (1) is responsible for the decision to invest in the Company; (2) is independent of the Company or any of its affiliates; (3) is qualified to make such investment decision; and (4) in making such decision, the Purchaser fiduciary or Plan has not relied primarily on any advice or recommendation of the Company or any of its affiliates.

(cc) The Purchaser should check the Office of Foreign Assets Control (“OFAC”) website at <http://www.treas.gov/ofac> before making the following representations . The Purchaser represents that the amounts invested by it in the Company in the Offering were not and are not directly or indirectly derived from activities that contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations. Federal regulations and Executive Orders administered by OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at <http://www.treas.gov/ofac>. In addition, the programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals ¹ or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists.

(dd) To the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2) any person controlling or controlled by the Purchaser; (3) if the Purchaser is a privately-held entity, any person having a beneficial interest in the Purchaser; or (4) any person for whom the Purchaser is acting as agent or nominee in connection with this investment is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited under the OFAC Programs. Please be advised that the Company may not accept any amounts from a prospective investor if such prospective investor cannot make the representation set forth in the preceding paragraph. The Purchaser agrees to promptly notify the Company should the Purchaser become aware of any change in the information set forth in these representations. The Purchaser understands and acknowledges that, by law, the Company may be obligated to “freeze the account” of the Purchaser, either by prohibiting additional subscriptions from the Purchaser, declining any redemption requests and/or segregating the assets in the account in compliance with governmental regulations. The Purchaser further acknowledges that the Company may, by written notice to the Purchaser, suspend the redemption rights, if any, of the Purchaser if the Company reasonably deems it necessary to do so to comply with anti-money laundering regulations applicable to the Company or any of the Company’s other service providers. These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

(ee) To the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2) any person controlling or controlled by the Purchaser; (3) if the Purchaser is a privately-held entity, any person having a beneficial interest in the Purchaser; or (4) any person for whom the Purchaser is acting as agent or nominee in connection with this investment is a senior foreign political figure, ² or any immediate family ³ member or close associate ⁴ of a senior foreign political figure, as such terms are defined in the footnotes below.

¹ These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

² A “senior foreign political figure” is defined as a current or former senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.

³ “Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-laws.

⁴ A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

(ff) If the Purchaser is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Purchaser receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Purchaser represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.

(gg) The Purchaser understands and agrees that in addition to the Company, the Placement Agent will rely on the representations and warranties made by the Purchaser in this Subscription Agreement, in determining, among other things, fulfilling its obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2111, with respect to an investment by the Purchaser in the Securities.

7. Indemnification. The Purchaser agrees to indemnify and hold harmless the Company and the Placement Agent and each of their respective officers, directors, employees, agents, control persons and affiliates from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including, but not limited to, any and all expenses incurred in investigating, preparing or defending against any litigation commenced or threatened) based upon or arising out of any actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a material fact, or breach by the Purchaser of any covenant or agreement made by the Purchaser herein or in any other document delivered in connection with this Subscription Agreement.

8. Irrevocability; Binding Effect. The Purchaser hereby acknowledges and agrees that the subscription hereunder is irrevocable by the Purchaser, except as required by applicable law, and that this Subscription Agreement shall survive the death or disability of the Purchaser and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives, and permitted assigns. If the Purchaser is more than one person, the obligations of the Purchaser hereunder shall be joint and several and the agreements, representations, warranties, and acknowledgments herein shall be deemed to be made by and be binding upon each such person and such person’s heirs, executors, administrators, successors, legal representatives, and permitted assigns.

9. Modification. This Subscription Agreement shall not be modified or waived except by an instrument in writing signed by the party against whom any such modification or waiver is sought.

10. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt to the party to whom it is to be given (a) if to the Company, at the address set forth above, or (b) if to the Purchaser, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 11). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party’s address which shall be deemed given at the time of receipt thereof. If any notice is delivered by fax or email to a party, it will be deemed to have been delivered on the date the fax or email thereof is actually received, provided the original thereof is sent by certified mail, in the manner set forth above, within twenty-four (24) hours after the fax or email is sent.

11. Assignability. This Subscription Agreement and the rights, interests and obligations hereunder are not transferable or assignable by the Purchaser and the transfer or assignment of the Subscribed Shares, the Warrants or the Warrant Shares, as the case may be, shall be made only in accordance with the respective requirements of this Subscription Agreement, the Warrants and all applicable laws. Any purported transfer or assignment in violation of this Section 12 shall be null and void.

12. Applicable Law. This Subscription Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts to be wholly performed within said State.

13. Arbitration. The parties agree to submit all controversies to arbitration in accordance with the provisions set forth below and understand that:

(a) Arbitration is final and binding on the parties.

(b) The parties are waiving their right to seek remedies in court, including the right to a jury trial.

(d) The arbitrator’s award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modification of rulings by arbitrators is strictly limited.

(e) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

(f) All controversies which may arise between the parties concerning this Subscription Agreement shall be determined by arbitration in New York, New York. Judgment on any award of any such arbitration may be entered in any court having jurisdiction of the person or persons against whom such award is rendered . Any notice of such arbitration or for the confirmation of any award in any arbitration shall be sufficient if given in accordance with the provisions of this Subscription Agreement. The parties agree that the determination of the arbitrators shall be binding and conclusive upon them.

14. Blue Sky Qualification. The purchase of Securities under this Subscription Agreement is expressly conditioned upon the exemption from qualification of the offer and sale of the Securities from applicable federal and state securities laws. The Company shall not be required to qualify this transaction under the securities laws of any jurisdiction and, should qualification be necessary, the Company shall be released from any and all obligations to maintain its offer, and may rescind any sale contracted, in the jurisdiction.

15. Use of Pronouns. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require.

16. Confidentiality.

(a) The Purchaser acknowledges and agrees that any information or data the Purchaser has acquired from or about the Company, not otherwise properly in the public domain, was received in confidence. The Purchaser agrees not to divulge, communicate or disclose, except as may be required by law or for the performance of this Subscription Agreement, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information of the Company, including any scientific, technical, trade or business secrets of the Company and any scientific, technical, trade or business materials that are treated by the Company as confidential or proprietary, including, but not limited to, ideas, discoveries, inventions, developments and improvements belonging to the Company and confidential information obtained by or given to the Company about or belonging to third parties.

(b) The Purchaser acknowledges and agrees that certain information provided by the Company in connection with the Offering may constitute material non-public information under United States or other applicable securities laws, and that the receipt of such information, if deemed to be material non-public information, may restrict the Purchaser’s ability to trade in securities of the Company, including but not limited to the Subscribed Shares, the Warrant Shares or any other shares of Common Stock of the Company, until such time as the information is made public. The Company undertakes no obligation to make public disclosure of such information at any time, other than as may be required under applicable United States securities laws.

17. Miscellaneous .

(a) This Subscription Agreement constitutes the entire agreement between the Purchaser and the Company with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings, if any, relating to the subject matter hereof. The terms and provisions of this Subscription Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.

(b) The representations and warranties of the Company and the Purchaser made in this Subscription Agreement shall survive the execution and delivery hereof and delivery of the Subscribed Shares and the Warrants.

(c) Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Subscription Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated.

(d) This Subscription Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.

(e) Each provision of this Subscription Agreement shall be considered separable and, if for any reason any provision or provisions hereof are determined to be invalid or contrary to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of this Subscription Agreement.

(f) Paragraph titles are for descriptive purposes only and shall not control or alter the meaning of this Subscription Agreement as set forth in the text.

(g) The Purchaser understands and acknowledges that there may be multiple closings for this Offering.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

PRIVATE PLACEMENT OFFERING OF

CIPHERLOC CORPORATION

SUBSCRIPTION INSTRUCTIONS

To subscribe for Securities in the private offering of Cipherloc Corporation:

1.	Date and Fill in the number of Securities being purchased and Complete and Sign one (1) copy of the Subscription Agreement.

2.	Initial the Accredited Investor Certification page attached to the Subscription Agreement.

3.	Complete and Sign one (1) copy of the Form of Warrant.

4.	Complete and Sign the Paulson Investment Company, LLC Purchaser Questionnaire

5.	E-mail all forms to Samantha Kling at skling@paulsoninvestment.com and then send all signed original documents to:

Paulson Investment Company, LLC

2141 W. North Ave., 2nd Fl

Chicago, IL 60647

Attention: Samantha Kling

(312) 940-8321

6.	Please wire funds directly to the Company pursuant to the following instructions (unless other arrangements have been made):

	Bank Name:	Signature Bank

	Bank Address:	950 Third Ave, 9th FL New York, NY 10022; Attn: PCG# 311

	ABA Number:	026013576

	A/C Name:	CIPHERLOC CORPORATION Signature Bank as Escrow Agent

	A/C Number:	1502983330

	FBO:	Investor Name

		Address

CIPHERLOC CORPORATION

SIGNATURE PAGE TO THE

SUBSCRIPTION AGREEMENT

Subscriber hereby elects to subscribe under the Subscription Agreement for a total of

(1) ______________ Subscribed Shares with an aggregate purchase price of $ _____________ ⁵ and

(2) Warrants exercisable for ______________ ⁶ shares of Common Stock.

(NOTE: to be completed by subscriber) and executes the Subscription Agreement.

If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:


	Print Name(s)		Social Security Number(s)


	Signature(s) of Subscriber(s)		Signature


	Date		Address

If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:


	Name of Partnership,		Federal Taxpayer
	Corporation, Limited		Identification Number
	Liability Company or Trust

	By: _______________________________

	Name:		State of Organization
	Title:


	Date		Address

Accepted and agreed:

CIPHERLOC Corporation

By:
	Authorized Officer		Date

⁵ To be equal to the product of (i) the number of Subscribed Shares and (ii) $1.00.

⁶ To be equal to the number of Subscribed Shares in Item 1.

SCHEDULE A

Risks Relating to Our Common Stock and This Offering

The securities being offered are not registered, and cannot be sold other than pursuant to an effective registration statement, or exemptions from state and federal securities laws.

The Common Shares herein offered have not been registered under the Act or the securities laws of any jurisdiction and are being offered in reliance upon Section 4(a)(2) of the Securities Act of 1933 (the “Act”) and Rule 506 of Regulation D promulgated thereunder. The Act and state securities laws will limit the right of any purchaser to sell, transfer, pledge or otherwise dispose of any such securities. In general, persons acquiring Units herein must acknowledge their understanding that they may not transfer or dispose of such Common Shares, unless such transfer is registered or an exemption from registration is available.

There is a limited public market for shares of our common stock, but this market offers limited to no liquidity.

There is currently a limited public market for our authorized and issued Common Stock, with minimal to no liquidity. The price of our common stock may fluctuate significantly in response to numerous factors, including some which may be out of our control such as:

●	the announcement of new products or product enhancements by us or our competitors;

●	developments concerning intellectual property rights;

●	variations in our and our competitors’ results of operations;

●	changes in earnings estimates or recommendations by securities analysts, if our Common Stock is covered by analysts;

●	the results of product liability or intellectual property lawsuits;

●	future issuances of Common Stock or other securities;

●	the addition or departure of key personnel;

●	announcements by us or our competitors of acquisitions, investments or strategic alliances; and

●	general market conditions and other factors, including factors unrelated to our operating performance.

Your ownership in our company may be diluted in the future.

We expect to need to issue a substantial number of shares of Common Stock or other securities convertible into or exercisable for Common Stock to raise additional capital in the future to fund our operations. We have issued and plan to issue, from time to time, additional equity awards to management, our directors, employees and consultants under our equity incentive plans. Additional shares of Common or Preferred Stock, or securities convertible into or exercisable for Common or Preferred Stock issued by us in the future will dilute your investment in the Securities. Moreover, future financing may not be available on favorable terms, if at all, and some of these future issuances of our securities could be at prices significantly below the price paid by investors in this Offering which will dilute, and reduce the value, if any, of your investment.

The Securities are “Restricted Securities” under the Securities Act of 1933.

The Shares and Warrants, or Securities, being issued in this Offering are being offered and sold in reliance upon exemptions from the registration requirements of the federal and state securities laws. Those exemptions require that the Securities be purchased for investment purposes only and not with a current view toward their distribution or resale. Unless the Securities are subsequently registered with the Securities and Exchange Commission and any required state securities authorities, or appropriate exemptions from registration are available, you may be unable to liquidate your investment in the Company, even if your financial condition makes such liquidation necessary. None of the Securities will likely be readily acceptable as collateral for loans. Accordingly, prospective investors who require liquidity in their investments should not invest in the Securities. An investment in Securities should only be made by those who can afford the loss of their entire investment.

The price of the Securities and other terms of this Offering have been arbitrarily determined.

If you purchase Securities in this Offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price (including the exercise price of the Warrants) that was arbitrarily determined by us, in consultation with the Placement Agent. The sale price for the Securities may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value and may not be indicative of the fair value of the securities underlying the Securities. The trading price, if any, of the Securities that may prevail in any market that may develop in the future, for which there can be no assurance, may be lower than the price you pay.

This is a high-risk investment with the possibility of total loss.

An investment in the Securities involves a very high degree of business and financial risk that can result in substantial losses, including the loss of your entire investment. You should not invest in this Offering unless you are able to sustain a complete loss of your investment.

Our largest stockholder will continue to have substantial influence over us after this Offering and could delay or prevent a change in corporate control.

Mr. De La Garza, CEO and a member of our board of directors, beneficially owns approximately 67% of the voting power of our capital stock before the Offering, and, upon the closing of this Offering, assuming the Maximum Offering Amount is sold, of which there is no assurance, he will beneficially own approximately [ Y ]% of the total voting control. As such, Mr. De La Garza has, and will continue to have, significant influence over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. Accordingly, this concentration of ownership might have the effect of:

● delaying, deferring, or preventing a change in control;

● impeding a merger, consolidation, takeover, or other business combination involving us; or

● discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

Our management will have broad discretion over the use of the proceeds we receive in this Offering, and may not apply the proceeds in ways that increase the value of your investment.

We estimate that net proceeds of the sale of the common stock Units that we are offering will be approximately $[ X ] million, assuming the Maximum Offering Amount is sold, of which there is no assurance. We currently intend to use the net proceeds of the offering to hire sales and marketing personnel and support increased sales and marketing activities, to fund further research and development, and future enhancements of our products, and for general corporate purposes and to fund ongoing operations and expansion of our business. We will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this Offering. The actual amounts and timing of our actual expenditures depend on numerous factors, including the success of our efforts to market our highly innovative solutions are based on our patented Polymorphic Cipher Engine which is designed to take existing encryption algorithms and make them better, faster, stronger, and massively scalable. We deliver easy-to-deploy software solutions that can be added to any existing product, service, or application. Each of Cipherloc’s products (EDGE, ENTERPRISE, GATEWAY, SHIELD) are delivered in the form of C++ software code. This code is designed to be added within any existing program or application that currently utilizes encryption to secure data. In short, we keep information safe in today’s highly dangerous world.

CipherLoc software solutions, the progress of our research, and development activities, our ability to reduce operating costs through the implementation of automation and economies of scale. Depending on the outcome of these activities and other unforeseen events, our plans and priorities may change, and we may apply the net proceeds of this Offering in different proportions than we currently anticipate. Moreover, you will not have the opportunity to influence our decision on how to use the proceeds from this Offering. We may use the proceeds for corporate purposes that do not immediately enhance our prospects for the future or increase the value of your investment. See “Use of Proceeds.”

Because we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation of our common stock price for any return on your investment. Even if we change that policy, we may be restricted from paying dividends on our common stock.

We do not intend to pay cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial performance, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, you will have to rely on capital appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

EXHIBIT A

Form of WARRANT

EXHIBIT B

selling Stockholder
NOTICE AND QUESTIONNAIRE

The undersigned is the beneficial owner of certain Securities of Cipherloc Corporation, a Texas corporation (the “Company”), issued in accordance with the terms of the Subscription Agreement (the “Subscription Agreement”) to which the form of this Notice and Questionnaire was originally annexed.

The undersigned understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) to register, under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), the resale of the Subscribed Shares and/or the Warrant Shares (collectively, the “Registrable Securities”) beneficially owned by the undersigned.

All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Subscription Agreement. A copy of the Subscription Agreement is available from the Company upon written request at the following address:

Cipherloc Corporation

825 Main Street, Suite 100

Buda, TX 78610

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and related prospectus.

The undersigned beneficial owner of Registrable Securities (the “Selling Stockholder”) hereby elects to include the Registrable Securities owned by it in the Registration Statement.

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

B- 1

Selling Stockholder QUESTIONNAIRE

1.	Name.

	Full Legal Name of Selling Stockholder:

	Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

	Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

2.	Address for Notices to Selling Stockholder:

	Telephone:

	Fax:

	Contact Person:

3.	Broker-Dealer Status:

(a)

Are you a broker-dealer?

Yes [ ] No [ ]

(b)

If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

Yes [ ] No [ ]

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should he identified as an underwriter in the Registration Statement.

B- 2

(c)

Are you an affiliate of broker-dealer?

Yes [ ] No [ ]

(d)

If “yes” to Section 3(c), do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes [ ] No [ ]

	Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

4.	Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Subscription Agreement.

Type and amount of other securities beneficially owned by the Selling Stockholder:

5. Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equityholders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

B- 3

State any exceptions here:

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and related prospectus and any amendments or supplements thereto.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Date:			Beneficial Owner:

			By:
			Name:
			Title:

B- 4