NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE AND MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
NOTE
1 - DESCRIPTION OF BUSINESS
Cipherloc
Corporation (the “Company” or “Cipherloc”) was incorporated in the State of Texas on June
22, 1953 under the name “American Mortgage Company.” Effective August 27, 2014, we changed our name to “Cipherloc
Corporation.” Our headquarters are located at 6836 Bee Cave Road, Building 1, S#279, Austin, TX 78746. Our website is
www.cipherloc.net.
NOTE
2 – NEW EQUITY ISSUANCE
From
March 31, 2021 to April 16, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”),
with certain accredited investors (the “Purchasers”), pursuant to which the Company sold the Purchasers an
aggregate of 55,549,615 (a) shares of common stock (“Offering Shares”), and (b) warrants to purchase shares
of common stock of the Company (“Offering Warrants”). The Offering Shares and Offering Warrants were sold at
a price of $0.18 per combined Offering Share and Offering Warrant (the “Offering Price”), which was equal to
80% of the closing sales price of the Company’s common stock on the OTCQB Market on March 30, 2021, which was the last trading
day prior to the initial entry into the Purchase Agreement.
The
sale of the Offering Shares and Offering Warrants occurred at four closings as follows:
Date of Closing
|
|
Shares Sold
|
|
|
Warrants Sold
|
|
|
Gross Proceeds
|
|
March 31, 2021
|
|
|
35,757,942
|
|
|
|
35,757,942
|
|
|
$
|
6,436,430
|
|
April 7, 2021
|
|
|
7,513,893
|
|
|
|
7,513,893
|
|
|
$
|
1,352,501
|
|
April 9, 2021
|
|
|
8,683,336
|
|
|
|
8,683,336
|
|
|
$
|
1,563,000
|
|
April 16, 2021
|
|
|
3,594,444
|
|
|
|
3,594,444
|
|
|
$
|
647,000
|
|
|
|
|
55,549,615
|
|
|
|
55,549,615
|
|
|
$
|
9,998,931
|
|
Total
gross proceeds from the offering of the Offering Shares and Offering Warrants (the “Private Offering”) were
approximately $10 million (as shown above) and the Private Offering is now closed.
Paulson
Investment Company, LLC (the “Placement Agent”), served as placement agent for the Private Offering and the
Company entered into a Placement Agent Agreement with the Placement Agent in connection therewith (the “Placement Agreement”,
discussed below). As partial consideration for the services provided by the Placement Agent, the Company granted the Placement
Agent and its assigns, warrants to purchase shares of common stock (“Placement Warrants”, discussed in greater
detail below).
We
agreed to use the proceeds from the Private Offering for working capital purposes and not to use such proceeds: (a) for the satisfaction
of any portion of the Company’s debt (other than (i) payment of trade payables in the ordinary course of the Company’s
business and prior practices and (ii) the repayment of funds received by the Company under the “paycheck protection program”
of the CARES Act), (b) for the redemption of any common stock or common stock equivalents, (c) for the settlement of any outstanding
litigation, or (d) in violation of applicable regulations.
In
connection with the Private Offering, each of our officers and directors entered into Lock-Up Agreements whereby they agreed not
to sell, offer, or transfer, any of our securities which they hold for 180 days after the end of the Private Offering, subject
to customary exceptions.
The
Offering Warrants, which are evidenced by Common Stock Purchase Offering Warrants (the “Warrant Agreements”),
have an exercise price of $0.36 per share (200% of the Offering Price), and may be exercised at any time from the grant date of
the Offering Warrants (i.e., March 31, 2021, April 7, 2021, April 9, 2021 or April 16, 2021, as applicable), until five years
thereafter. The Offering Warrants have cashless exercise rights if when exercised, a registration statement registering the shares
of common stock issuable upon exercise thereof, is not effective with the Securities and Exchange Commission. The exercise of
each of the Offering Warrants is subject to a beneficial ownership limitation of 4.99%, preventing such exercise by the holder(s)
thereof, if such exercise would result in such holder(s) and their affiliates, exceeding ownership of 4.99% of our common stock.
The Offering Warrants contain anti-dilution rights such that if we issue, or are deemed to have issued, common stock or common
stock equivalents at a price less than the then exercise price of the Offering Warrants, the exercise price of the Offering Warrants
is automatically reduced to such lower value, and the number of shares of common stock issuable upon exercise thereafter is adjusted
proportionately so that the aggregate exercise price payable upon exercise of such Offering Warrants is the same prior to and
after such reduction in exercise price.
Pursuant
to the Registration Rights Agreement (“RR Agreement”) we agreed to file a registration statement to register
the sale of the Offering Shares and the shares of common stock issuable upon exercise of the Warrants, prior to the 10th
day after the end of the Private Offering (provided that the Placement Agent has agreed that such 10 day period began on
April 19, 2021, regardless of the actual closing date of the Private Offering), and to obtain effectiveness of such registration
statement by the 60th calendar day following the date of the RR Agreement (March 31, 2021)(provided that in the event
we are required to file any additional registration statements under the RR Agreement, such required effectiveness date is the
90th day after such registration statement is required to be filed), which registration statement was timely filed
and has been declared effective to date.
On
January 11, 2021, we entered into a Placement Agent Agreement with the Placement Agent, pursuant to which we engaged the Placement
Agent as the Company’s exclusive placement agent in connection with the Private Offering. Pursuant to the Placement Agent
Agreement, we agreed to pay the Placement Agent a cash commission of 13% of the gross proceeds received in the Private Offering
($1,334,861), and to grant the Placement Agent or its assigns, a warrant to purchase 15% of the Offering Shares sold in the Private
Offering (i.e., warrants to purchase 8,332,439 shares in aggregate), which were granted to the Placement Agent effective on April
16, 2021. The Placement Agent Agreement has a term expiring on August 31, 2021, and includes a three-year tail period, pursuant
to which the Placement Agent is due the same fees payable in connection with the Private Offering, in the event the Company sells
any securities to any investor or potential investor who received Private Offering documents as part of the Private Offering.
In addition to the compensation payable upon completion of the Private Offering, we paid the Placement Agent a $35,000 cash retainer.
The
Placement Warrants are evidenced by Purchase Warrants, have a term of 10 years (i.e., through April 16, 2031), an exercise price
of $0.18 per share (the Offering Price), and cashless exercise rights. We are required to pay the Placement Agent liquidated damages
of $10 per day for each $1,000 of shares not timely delivered upon the exercise of the Placement Warrants. The Placement Warrants
include a weighted average anti-dilution right in the event we issue any shares of common stock or equivalents with a value less
than the then exercise price.
NOTE
3 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The
Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of
America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X.
In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have
been included.
Operating
results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2021. Notes to the unaudited interim financial statements that would substantially duplicate the
disclosures contained in the audited financial statements for the year ended September 30, 2020 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, 2020 included within the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of
America. Significant accounting policies are as follows:
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents.
At March 31, 2021 and September 30, 2020, cash includes cash on hand and cash in the bank. The balance of such accounts, 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 March 31, 2021, $5,378,853 of the Company’s cash balance was uninsured.
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 March 31, 2021, there were no
preferred shares of stock outstanding and as of March 31, 2020, the Company had 1,000,000 shares of preferred stock outstanding,
which were 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 and six months ended March 31, 2021,
warrants to purchase 60,364,253 shares of common stock, and stock options to purchase 699,999 shares of common stock were excluded
from the calculation of diluted loss per share because their effect would be anti-dilutive. During the three and six months ended
March 31, 2020, warrants to purchase 24,216,866 shares of common stock and 1,000,000 shares of convertible preferred stock were
excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.
Research
and Development and Software Development Costs
The
Company expenses all research and development costs, including patent and software development costs. Our research and development
costs incurred for the six months ended March 31, 2021 and 2020 were $296,876 and $1,338,592, respectively.
Revenue
Recognition
The
Company recognizes revenues in accordance with the provisions of Accounting Standards Update 2014-09, “Revenue from Contracts
with Customers,” and a series of amendments which together we identify as “ASC Topic 606”.
Central
to the new revenue recognition guidance is a five-step revenue recognition model that requires reporting entities to:
1.
|
Identify
the contract,
|
2.
|
Identify
the performance obligations of the contract,
|
3.
|
Determine
the transaction price of the contract,
|
4.
|
Allocate
the transaction price to the performance obligations, and
|
5.
|
Recognize
revenue.
|
The
Company accounts for a promise to provide a customer with a right to access the Company’s intellectual property as a performance
obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s
performance of providing access to its intellectual property as the performance occurs.
Software
License Agreements
During
the fiscal year ended September 30, 2019, the Company entered into a one-year agreement with SoundFi LLC (“SoundFi”)
which automatically renews for subsequent one-year periods unless otherwise terminated by either party. Cipherloc received $25,000
from SoundFi during the year ended September 30, 2020.
The
Company executed an annual software licensing agreement with Castle Shield during the year ended September 30, 2020 which also
includes auto-renewing terms. Castle Shield made a $10,000 payment to the Company based on the terms of their agreement with Cipherloc.
During
the six-months ended March 31, 2021, the Company recognized $15,417 in licensing revenue from the SoundFi and Castle Shield agreements.
Recent
Accounting Pronouncements
The
Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”)
to amend the authoritative literature in the Accounting Standards Codification (“ASC”) . There have been several
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
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This
guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the
income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is
not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This
standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early
adoption is permitted. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements, which is effective
for the Company in its fiscal year and interim periods beginning on October 1, 2021.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements for fair value measurements.
The ASU removes certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes
for Level 3 fair value measurements. It modifies certain disclosure requirements for investments in entities that calculate net
asset value. It adds certain disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements
and unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019.
The
Company adopted ASU 2018-13 on October 1, 2020, and the adoption of this update did not have a material impact on the Company’s
financial position, results of operations and cash flows.
In
July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities From Equity (Topic 480),
and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 eliminates the requirement that a down round feature precludes
equity classification when assessing whether an instrument is indexed to an entity’s own stock. A freestanding equity-linked
financial instrument no longer would be accounted for as a derivative liability at fair value as a result of the existence of
a down round feature. The Company has adopted ASU 2017-11 and implemented the pronouncement retrospectively. The adoption of this
guidance did not have an impact on its financial statements.
As
a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair
value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments
require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round
feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders
in basic EPS.
During
March and April 2021, the Company issued warrants to purchase 63,882,054 shares of common stock that have anti-dilution rights
that provide for adjustments in the exercise price and number of shares exercisable if there is an issuance of common stock or
common stock equivalents at a lower price (down round feature).
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Litigation
Other
than as set forth below, the Company is not currently involved in any litigation that it believes could have a material adverse
effect on its financial condition or results of operations.
In
December 2017, Robert LeBlanc, a disgruntled former consultant of the Company, filed a petition against the Company and Michael
De La Garza, our former Chief Executive Officer and President, in the in the 20th Judicial District for Hays County, Texas (Cause
No. 18-0005). The petition (which has been amended) alleges causes of action against us for alleged violation of the Texas Securities
Act (based on the allegation that the defendants sold securities by means of untrue statements of material facts), common law
fraud against Mr. De La Garza (for alleged misrepresentations alleged made by Mr. De La Garza); breach of fiduciary duty against
Mr. De La Garza; breach of contract; as well as declaratory relief. Damages sought exceed $1,000,000, but are less than $10,000,000.
The Company believes it has made all required payments and delivered the stock to the plaintiff and that the plaintiff’s
claims are without merit. The consultant also included a claim of partial ownership of certain of the Company’s patents,
which the Company believes is without merit. The case is currently being defended by the Company. The Company believes it has
meritorious defenses to the allegations, and the Company intends to continue to vigorously defend against the litigation.
In
April 2020, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of the Company, and certain other plaintiffs,
filed a lawsuit against the Company and Michael De La Garza, our former Chief Executive Officer and President, in the 20th
Judicial District for Hays County, Texas (Cause No. 20-0818). The lawsuit alleges causes of action for fraud against Mr.
De La Garza (for misrepresentations alleged made by Mr. De La Garza); Breach of Contract, for alleged breaches of Mr. Marquez’s
employment agreement, which required the Company pay him cash and shares of stock; unjust enrichment; quantum meruit; and rescission
of certain stock purchases made by certain of the plaintiffs, as well as declaratory relief and fraud. Damages sought exceed $1,000,000.
The Company believes it has made all required payments and delivered the stock to the plaintiffs. The case is currently being
defended by the Company. The Company believes it has meritorious defenses to the allegations, and the Company intends to continue
to vigorously defend against the litigation.
Semple,
Marchal & Cooper, LLP (“SMC”), the Company’s former independent registered auditing firm, has brought
a demand for arbitration before the American Arbitration Association against the Company in October 2019, relating to amounts
which SMC has alleged are due to SMC for services rendered, which amount was alleged to exceed $75,000, but to be less than $150,000.
The parties entered into arbitration regarding the amounts owed and subsequently entered into a Settlement Agreement and Release
on April 26, 2021, to confidentially settle the matter and mutually release each other from any liabilities.
On
August 28, 2020, the Company settled all litigation matters which had previously been pending with Michael De La Garza, a former
chief executive officer of the Company. As a result of this settlement, De La Garza returned 13.1 million shares of common stock
to the Company and the Company agreed to pay De La Garza $400,000 between September 30, 2020 and September 30, 2021. The Company
has two remaining payments of $25,000 each payable to De La Garza by June 1, 2021 and September 1, 2021.
The
Company also sought to invalidate the issuance of 1 million shares of the Company’s Series A preferred stock in or around
2011 to former director and chief financial officer, Pamela Thompson, which stock was being held by the Carmel Trust II. In connection
therewith, the Company initiated an action against James LeGanke, as Trustee of Carmel Trust II, in federal district court as
part of its efforts to invalidate those shares. The Company alleged that Thompson failed to comply with both state law and the
Company bylaws when she caused the Company to issue the preferred stock to herself and Del La Garza as purported compensation.
The action was settled on January 11, 2021, for $50,000, in exchange for the return of the 1,000,000 shares of Series A preferred
stock and 127,500 shares of the Company’s common stock.
In
October 2020, Ageos, LLC, a Virginia limited liability company (“Ageos”), filed a Third-Party Complaint against
the Company (Third Party Case No. GV20015643-00) in connection with the pending action titled Scandium, LLC v. Ageos, LLC (Case
No. GV20014313-00) in the General District Court for Fairfax County in the Commonwealth of Virginia. The action relates to an
operating agreement, by and between the Company and Ageos, whereby the Company agreed to guarantee Ageos’s lease in order
to enable the leasing of space in Fairfax County, VA. The Company’s subsequently terminated the agreement with Ageos and
offered to take over the space as an accommodation. Ageos declined. Ageos’s third party complaint demands from the Company,
among other things, all damages obtained by Scandium, LLC against Ageos; (ii) other compensatory damages in connection with certain
lease payments under the lease discussed above; and (iii) pre-judgment interest. This lawsuit was subsequently settled on April
29, 2021 and the Company paid Scandium $60,000 in exchange for a release from all past, present, and future liabilities associated
with the lease.
Leases
As
of March 31, 2021, the Company had one lease agreement for facilities.
In
February 2020, the Company leased approximately 3,666 square feet of office space on 2107 Wilson Boulevard, Arlington, Virginia.
The lease for this facility began on February 1, 2020 and continues until July 31, 2025. The base annual rent is $159,471, a $100,000
security deposit was paid, and abatement of monthly rent payments was provided until August 1, 2020, and the lease provides for
annual rent increases of approximately 2.5%. The amount of future payments guaranteed is $741,680.
As
a result of restructuring actions intended to conserve cash during the COVID-19 crisis, the Company stopped occupying the space
in March 2020 and notified the landlord that the Company no longer needed the property and began seeking an amicable and reasonable
termination of the lease agreement. This discussion is ongoing, and the outcome is uncertain.
Tom
Wilkinson, the Company’s Chairman of the Board of Directors, provides the Company the use of office space which he rents,
at 6836 Bee Caves Road, Building 1, Suite 279, Austin, TX 78746 for its corporate headquarters. There is no formal lease or sublease
agreement with Mr. Wilkinson and Mr. Wilkinson does not charge the Company any rental fees in connection therewith.
The
Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenant.
Operating
Leases
Operating
leases are included in operating lease ROU lease assets, and operating lease liabilities and operating long-term lease liabilities
on the Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable
lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is included in
general and administrative expense in the statements of operations and is reported net of lease income. Lease income is not material
to the results of operations for the three and six months ended March 31, 2021.
Cash
Flows
An
initial right-of-use asset of $233,751 was recognized as a non-cash asset addition with the adoption of the new lease accounting
standard. In February 2020, the Company’s lease in Arlington, Virginia added approximately $746,000 in new lease obligations.
Cash paid for amounts included in the present value of operating lease liabilities was $80,402 for the six months ended March
31, 2021, and is included in operating cash flows.
The
weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of March 31, 2021:
Remaining lease term and discount rate:
|
|
March 31, 2021
|
|
Weighted average remaining lease terms (years)
|
|
|
|
|
Lease facilities
|
|
|
4.33
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Lease facilities
|
|
|
4.35
|
%
|
Significant
Judgments
Significant
judgments include the discount rates applied, the expected lease terms, and lease renewal options.
Future
annual minimum lease obligations on March 31, 2021 are as follows:
Year ending September 30
|
|
Amount
|
|
2021
|
|
$
|
81,733
|
|
2022
|
|
|
166,180
|
|
2023
|
|
|
170,322
|
|
2024
|
|
|
174,575
|
|
2025
|
|
|
148,870
|
|
|
|
$
|
741,680
|
|
Rent
expense totaled $136,188 and $63,353 for the six months ended March 31, 2021 and 2020, respectively.
NOTE
6 – DEBT
On
April 6, 2020, to supplement its cash balance, the Company submitted their application for a Paycheck Protection Program (“PPP”)
loan (the “SBA loan”) sponsored by the U.S. Small Business Administration in the amount of $365,430. On April
12, 2020, Company’s SBA loan application was approved, and the Company received loan proceeds on April 22, 2020. The SBA
loan has an interest rate of 1% and matures on April 12, 2022.
Section
1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for forgiveness of up
to the full principal amount of qualifying loans guaranteed under the PPP. The PPP and loan forgiveness are intended to provide
economic relief to small businesses, such as the Company, that are adversely impacted under the COVID-19 Emergency Declaration
issued by President Donald J. Trump on March 13, 2020.
The
PPP loan balance on March 31, 2021 was $365,430. The Company filed for $179,000 of loan forgiveness on January 29, 2021 but at
the time of this filing has not received an approval of its forgiveness application. The staff reductions that occurred in 2020
prevented the Company from qualifying for full forgiveness of its principal balance.
The
principal balance plus $1,000 of interest was set aside in an escrow account at Texas Capital Bank on April 15, 2021. Upon receipt
of the forgiveness approval, the Paycheck Protection Program Loan will be repaid using funds in the escrow account and the remaining
balance will be returned to the Company’s operating account.
NOTE
7 - STOCKHOLDERS’ EQUITY (DEFICIT)
The
Company is authorized to issue 681,000,000 common shares and 10,000,000 preferred shares, each at a par value of $0.01 per share.
Common
Stock
During
the six months ended March 31, 2021, the Company issued 35,757,942 shares of common stock pursuant to the Private Offering.
During
the six months ended March 31, 2021, the Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased
back 127,500 shares of common stock and recorded such shares as Treasury Stock.
During
the twelve months ended September 30, 2020, the Company came to a settlement with Michael De La Garza and purchased 13,137,757
shares of common stock held by Mr. De La Garza in consideration for $400,000.
During
the six months ended March 31, 2020, the Company came to a settlement with First Fire and purchased back 149,557 shares of common
stock for $150,000 and recorded such shares as Treasury Stock.
Series
A Preferred Stock
During
the six months ended March 31, 2021, the Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased
back 1,000,000 shares of Series A Preferred Stock.
NOTE
8 – SUBSEQUENT EVENTS
On
April 16, 2021, the Company closed its Private Offering. The total net proceeds to the Company from this offering were $8.7 million.
The Company received $3.1 million between April 1, 2021 and the closing date of April 16, 2021.
There
were 82,927,311 shares of common stock issued and outstanding as of April 26, 2021, held by approximately 1,210 shareholders of
record. The actual number of holders of our common stock is greater than this number of record holders, and includes shareholders
who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders
of record also does not include shareholders whose shares may be held in trust by other entities.
On
April 29, 2021, the Company filed a Form S-1 Registration Statement with the SEC, which was declared effective by the SEC on May
7, 2021.
On
April 15, 2021, the Company funded an escrow account to repay its Paycheck Protection Program loan. The principal balance is $365,430.
The Company has a pending application requesting $179,000 in loan forgiveness.
During
July 2020, the Board of Directors deferred their quarterly director fees. On March 31, 2021, the Company had accrued $160,000
of unpaid director fees. On April 8, 2021, the Board of Directors approved paying the accrued fees. During that same meeting,
the Directors approved one-time performance bonuses totaling $275,000 for the Chairman, Chief Executive Officer, Chief Technology
Officer, and Chief Financial Officer. The executive performance bonuses and the accrued director fees were paid the following
week.