What changed in this filing

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Item 1. Financial Statements

2021-02-16 compared with 2020-08-14 · 276 added, 330 removed, 204 unchanged (75% of the section changed)

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been included, and all such adjustments are of a normal recurring nature.

Operating results for the three and nine months ended

June 30, 2020 are not necessarily indicative of the results that can be expected for the year ending September 30, 2020 or any

future period.

CORPORATION AND SUBSIDIARIES

Operating results for the three months ended December

31, 2020 are not necessarily indicative of the results that can be expected for the year ending September 30, 2021.

September 30,

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Operating lease ROU asset

Fixed assets, net

LIABILITIES & STOCKHOLDERS’

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Accrued compensation

Operating lease liability

Paycheck Protection Program loan

Operating lease liability –

current portion

Paycheck protection program loan –

current portion

Deferred revenue

Total current liabilities

Paycheck protection program loan –

Operating lease liability –

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Total liabilities

Commitments and contingencies

Series A convertible preferred stock, $0.01 par value, 1,000,000 shares authorized;

1,000,000 shares issued and outstanding as of June 30, 2020 and September 30, 2019

nil and 1,000,000 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

Common stock, $0.01 par value, 681,000,000 shares authorized;

40,642,953 and 40,792,510 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively

Treasury stock, at cost 149,557 shares

27,377,696 and 27,505,196 shares outstanding;

and 40,792,510 and 40,792,510 issued as of December 31, 2020 and September 30, 2020, respectively

Treasury stock, at cost 13,414,814 and 13,287,314 shares as of December 31, 2020 and September 30, 2020, respectively

Additional paid-in capital

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

CORPORATION AND SUBSIDIARIES

OF OPERATIONS

Three Months Ended

Nine Months Ended

Cost of revenues

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General and administrative

Selling and marketing

Sales and marketing

Research and development

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Operating loss

Other income (expense)

Loss on disposal of asset

Interest income

$ (1,157,743 )

$ (2,123,227 )

$ (6,334,079 )

Other income (expenses)

Interest income (expense), net

$ (2,108,089 )

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

CORPORATION AND SUBSIDIARIES

OF CASH FLOWS

Nine Months Ended

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

$ (2,108,089 )

$ (4,633,027 )

Adjustments to reconcile net loss to net cash flows used in operating activities:

Stock-based compensation

Net loss on disposal of asset

Impairment loss

Changes in operating assets and liabilities:

Prepaid expenses and other

Prepaid expenses and other assets

Accounts payable and accrued liabilities

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of fixed assets

Purchase of fixed assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of preferred stock

Purchase of treasury stock

Proceeds from PPA loan

Refund of over subscription

Net cash provided (used) in financing activities

Net cash used in financing activities

DECREASE IN CASH

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NON-CASH INVESTING AND FINANCING ACTIVITIES:

Capitalization of ROU asset

ST operating lease liability recorded

LT operating lease liability recorded

ST operating lease liability

LT operating lease liability

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

CORPORATION AND SUBSIDIARIES

OF STOCKHOLDERS’

Stockholders’

For the Nine Months ended June

Balance at September 30, 2019

$ (61,456,533 )

Options issued to directors & employees

Purchase of treasury stock

$ (6,334,079 )

Balance at June 30, 2020

$ (67,790,612 )

Stockholders’

For the Three Months ended June

Balance at March 31,2020

$ (66,632,869 )

Options issued to directors & employees

Purchase of treasury stock

the Three Months ended December 31, 2020

at September 30, 2020

$ (68,426,608 )

Balance at June 30, 2020

Preferred and treasury

shares acquired

Stock option expense

issued to directors & employees

at December 31, 2020

$ (69,226,343 )

Stockholders’

For the Nine Months Ended June

the Three Months Ended December 31, 2019

Balance at September 30, 2019

$ (61,456,533 )

Common stock issued for services

Correction of common stock outstanding

Common stock issued to employee

Refund oversubscription

Balance at June 30, 2019

$ (59,255,540 )

Stockholders’

For the Three Months Ended June 30, 2019

Balance at March 31, 2019

$ (57,132,313 )

Balance at June 30, 2019

Stock option expense issued to directors & employees

Balance at December 30, 2019

$ (63,564,622 )

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TO FINANCIAL STATEMENTS

THE THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019

1 - DESCRIPTION OF BUSINESS

Corporation (the “Company”

or “Cipherloc”) was incorporated in Texas on June 22, 1953 as American Mortgage

Effective August 27, 2014, the Company changed its name to Cipherloc Corporation.

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 .

2 - GOING CONCERN

do not believe that our existing cash balances are sufficient to fund future operations for the next 12 months.

We are considering

options to issue additional equity as a means to increase liquidity sufficient to fund operations into the start of calendar year

If we are unsuccessful doing so, then the Company will cease operations.

December 31, 2020, the Company had not yet achieved profitable operations.

We had a net loss of approximately $7.0 million for

the year ended September 30, 2020 and had an accumulated deficit in aggregate of approximately $69.2 million from our inception

through December 31, 2020.

We expect to incur further losses in the development of our business.

These conditions raise substantial

doubt about the Company’s ability to continue as a going concern.

Company’s ability to continue as a going concern is dependent on its ability to generate future profitable operations and/or

to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when

they come due.

Management’s plan to address the Company’s ability to continue as a going concern includes:

(1) obtaining

debt or equity funding from private placement or institutional sources;

(2) generating cash flow from operations.

Although management

believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods

discussed above, there can be no assurances that such methods will prove successful.

financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the financial

statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets

or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

3 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

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principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation

have been included.

results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for

the year ending September 30, 2020 or any future period.

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, 2019 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, 2019 included within the Company’s Form 10-K, as filed with the Securities and Exchange Commission.

In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have

been included.

results for the three months ended December 31, 2020 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 Form 10-K as filed with the Securities and Exchange Commission.

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents.

At June 30, 2020 and September 30, 2019, cash includes cash on hand and cash in the bank.

The Company maintains its cash in accounts

held by a large, globally recognized bank, and 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 June 30, 2020, $1,977,830 of the Company’s cash balance was uninsured.

At December 31, 2020 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”).

FDIC insures these deposits up to $250,000.

At December 31, 2020, $149,876 of the Company’s cash balance was uninsured.

and Diluted Net Loss per Common Share

net loss per share is computed by dividing net loss for the period 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 net loss 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.

net loss per share is the same as basic net loss per share during periods where net losses are incurred because the inclusion

of the potential common stock equivalents would be anti-dilutive as a result of the net loss.

As of June 30, 2020, and September

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, 2020, and December

31, 2019, the Company had 1,000,000 shares of preferred stock outstanding, which are convertible into 1,500,000 shares of common

During the three and nine months ended June 30, 2020, 24,146,866 warrants and 1,000,000 as converted shares of convertible

preferred stock were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

During the three and nine months ended June 30, 2019, 25,015,866 warrants to purchase common stock and 1,500,000 as converted

shares of convertible preferred stock were excluded from the calculation of diluted net loss per share because their effect would

be anti-dilutive.

loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential

common stock equivalents would be anti-dilutive as a result of the net loss.

During the three months ended December 31, 2020,

23,746,866 warrants, 800,000 stock options and 1,000,000 shares of convertible preferred stock were excluded from the calculation

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

During the three months ended December 31, 2019, 24,216,866

warrants and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per share because

their effect would be anti-dilutive.

and Development and Software Development Costs

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Our research and development

costs incurred for the nine months ended June 30, 2020 and 2019 were $1,544,205 and $1,303,680, respectively.

costs incurred for the three months ended December 31, 2020 and 2019 were $121,793 and $566,015, respectively.

Company recognizes revenues in accordance with the provisions of Accounting Standards Update 2014-09, “Revenue from Contracts

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and a series of amendments which together we identify as “ASC Topic 606”.

This new accounting

standard, which we adopted on October 1, 2018 using the permitted modified retrospective method, outlines a single comprehensive

model for entities to use in accounting for revenues arising from contracts with customers.

The new standard supersedes most previous

revenue recognition guidance, including industry-specific guidance.

The effect of the adoption of ASC Topic 606 on retained earnings

as of October 1, 2018 was not material.

The differences between our reported operating results for the nine months ended June

30, 2020, which reflect the application of the new standard on our contracts, and the results that would have been reported if

the accounting was performed pursuant to the accounting standards previously in effect, also were not material.

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

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performance of providing access to its intellectual property as the performance occurs.

Software License Agreement

Company entered into a one-year agreement renewable for up to 4 years for an annual $50,000 Shield license fee and $25,000 watermark

base license fee with SoundFi LLC (“SoundFi”).

Residual income to the Company is earned based on the number of audio

files downloaded per year with residual earnings of $.012 per download exceeding 3,000,001 and scaling up to $.00075 per download

exceeding 100,000,000.

In February 2020, the company received $25,000 for the watermark base license fee.

In May 2020, the company

received $10,000 for Shield license fee.

During the nine months ended June 30, 2020, the Company recognized $39,233 in licensing

The Company has determined the best method for measuring licensing revenue to be the passage of time and more specifically

on a monthly basis.

The recognition of residual income occurs on an annual basis based on download volume provided by SoundFi.

A download is defined as an audio file downloaded to a mobile device from the SoundFi servers.

License Agreements

fiscal 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.

Company executed an annual software licensing agreement with Castle Shield during the year ended September 30, 2020 which also

include auto-renewing terms.

Castle Shield made a $10,000 payment to the Company based on the terms of their agreement with Cipherloc.

the three-months ended December 31, 2020, the Company recognized $8,750 in licensing revenue from the SoundFi and Castle Shield

Accounting Pronouncements

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corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the

income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is

not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

adoption is permitted.

The Company are currently evaluating the impact of ASU 2019-12 on its financial statements, which is effective

for the Company in its fiscal year and interim periods beginning on October 1, 2021.

August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) –

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periods within those fiscal years, beginning after December 15, 2019.

The Company adopted ASU 2018-13 on October 1, 2019 and the

adoption of this update did not have a material impact on the Company’s notes to the financial statements.

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.

June 2018, the FASB issued ASU 2018-07, Compensation –

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COMMITMENTS AND CONTINGENCIES

Company is currently not involved in any litigation that it believes could have a material adverse effect on its financial condition

or results of operations.

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

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

The Company believes

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

The consultant has also included a claim of partial

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

The case is currently being defended

by the Company and costs relating thereto have been submitted to the Company’s insurance carrier.

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.

December 2017, a disgruntled former consultant brought an action

in Texas state court against the Company and its former chief executive officer, alleging fraud and misrepresentation pertaining

to stock and payments alleged to be owed to the consultant.

The Company believes it has made all required payments and delivered

the stock to the consultant.

The consultant 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.

August 2019, the Board of Directors formed a special committee of independent directors (the “Special Committee”)

to investigate certain activities of Michael De La Garza (“De La Garza”), our former chief executive officer.

Special Committee has retained legal counsel, and is authorized to retain forensic accountants, to assist the investigation.

August 2019, the Company initiated litigation against De La Garza in the District Court of Travis Country, Texas (the “Court”)

in order to stop him from misappropriating the company’s trade secrets, depleting its monies and other assets, damaging

the value of the company in the marketplace, and holding himself out as the company’s CEO.

On September 25, 2019, the Court

entered a temporary injunction against De La Garza enjoining him from numerous acts including representing himself as the Company’s

CEO and from interfering with the current CEO’s management of the company.

This litigation is ongoing, and its resolution

The Special Committee is investigating certain activities of De La Garza, including the Ageos, LLC Operating Agreement,

the QHCI/Noun note receivable, an advance/bonus, personal expenditures, and other items.

All amounts expended have been expensed

as of September 30, 2019.

No amounts have been recorded in these financial statements as expected recoveries.

The Company is seeking to invalidate the

issuance of 10 million shares of Cipherloc preferred stock and the associated conversion of 9 million preferred shares into 13.5

million shares of common stock.

Specifically, the Company is asking the court to invalidate the unauthorized issuance of 3 million

shares of preferred stock to De La Garza and 1 million preferred shares to former director and chief financial officer, Pamela

Thompson, which stock is now being held by the Carmel Trust II, in or around 2011.

The Company is also seeking to invalidate the

subsequent issuance of 6 million preferred shares to De La Garza in 2015 and the conversion of the combined 9 million preferred

shares allegedly held by De La Garza into 13.5 million shares of common stock in 2018.

As such, the Company has sued both De La

Garza and James LaGanke, as Trustee of Carmel Trust II, in federal court as part of its efforts to invalidate those shares.

Company alleges that both De La Garza and Thompson failed to comply with both state law and Company bylaws when they caused the

Company to issue the preferred stock to themselves as purported compensation.

The lawsuit is ongoing, and its resolution is unknown.

March 2019, the Company guaranteed a lease on behalf of Ageos, LLC in McLean, Virginia.

The lease has a term of three years for

4,359 square feet of space in McClean, Virginia.

The initial rent cost is $7,991 per month and the lease agreement provides for

annual rent increases of approximately 4.0%.

The amount of future payments guaranteed is $267,389.

The agreement with Ageos was

terminated in August 2019 and the Company has made an unwritten offer to assume the lease.

No amounts have been accrued for this

commitment as of June 30, 2020.

February 2019, the Company and the landlord for its leased office space in Buda, Texas entered into a new lease agreement, and

the Company reduced its rented space from approximately 3,900 to 1,302 square feet.

The new lease was effective February 1, 2019

and has a three-year term.

The initial monthly rent is $2,566, and the lease agreement provides for annual rent increases of approximately

The lease automatically renews for a three-year term, unless either party to the lease agreement notifies the other of the

intent to terminate the lease in writing at least 180 days prior to the expiration of the current term.

In July 2020, the Company

executed a lease termination agreement with the landlord for an early termination fee of $10,546.20 and forfeited the existing

security deposit of $2,566.03.

There are no future payments related to this lease.

October 2018, the Company leased approximately 3,900 square feet of office space on North Scottsdale Road in Scottsdale, Arizona.

The lease for this facility began on October 4, 2018 and continues until October 31, 2021.

Annual rent of $77,180 was prepaid

for the first year from November 1, 2018 to October 31, 2019, and the lease agreement provides for annual rent increases of approximately

In June 2020, the Company executed a lease termination agreement with the landlord for an early termination fee of $27,013

and forfeited the existing security deposit of $9,796.03.

There are no future payments related to this lease.

in that same month, the Company initiated litigation against De La Garza in the District Court of Travis Country, Texas (the “Court”).

On September 25, 2019, the Court entered a temporary injunction against De La Garza enjoining him from numerous acts.

Committee investigated certain activities of De La Garza, including the Ageos, LLC Operating Agreement, the QHCI/Noun note receivable,

an advance/bonus, personal expenditures, and other items.

All amounts expended have been expensed as of September 30, 2019.

Company also sued De La Garza, among others, in federal district court seeking to invalidate the issuance of Series A preferred

stock to him in 2015.

The preferred shares were converted to 13.5 million shares of common stock by De La Garza during 2018.

litigation with De La Garza was settled on August 28, 2020 with De La Garza and the Company entering into a Settlement Agreement,

whereby De La Garza agreed to return 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.

At December 31, 2020, Cipherloc owed $75,000 in settlement payments

which will be made in $25,000 equal payments on March 1, 2021, June 1, 2021, and September 1, 2021, respectively.

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.

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 De La Garza caused the Company to issue the preferred stock to themselves 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.

The settlement payment was included in the December 31, 2020 balance sheet as an accrued

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;

other compensatory damages in connection with certain lease payments under the lease discussed above;

and (iii) pre-judgment interest.

This lawsuit is ongoing, and its resolution is unknown.

of December 31, 2020, the Company had one lease agreement for facilities.

February 2020, the Company leased approximately 3,666 square feet of office space on 2107 Wilson Boulevard, Arlington, Virginia.

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The amount of future payments guaranteed is $782,214.

the result of restructuring actions intended to conserve cash during the COVID-19 crisis, the landlords of the North Scottsdale

Road and the Wilson Boulevard spaces were notified that the Company no longer needed the spaces and is seeking an amicable and

reasonable termination of the lease agreements.

significant accounting policies are detailed in Note 2 of our Annual Report on Form 10-K for the year ended September 30, 2019.

Changes to our accounting policies as a result of adopting ASU 2016-02 are discussed below.

of June 30, 2020, the Company had two lease agreements for facilities.

Some leases include options to extend for one or more years.

These options are included in the lease term when it is reasonably certain that the option will be exercised.

with an initial term of 12 months or less are not recorded on our Balance Sheet;

we recognize lease expense for these leases on

a straight-line basis over the lease term.

Leases with initial terms in excess of 12 months are recorded as operating or financing

leases in our Balance Sheet.

assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the

lease term at commencement date.

As most of our leases do not provide an implicit rate, we use a secured incremental borrowing

rates based on the information available at commencement date, including lease term, in determining the present value of future

The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will

be exercised.

inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria

of a finance or operating lease.

Some of the Company’s lease arrangements contain lease components (e.g.

minimum rent payments)

and non-lease components (e.g.

maintenance, labor charges, etc.).

The Company generally accounts for each component separately

based on the estimated standalone price of each component.

For certain leases, the Company accounts for the lease and non-lease

components as a single lease component.

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

the result of restructuring actions intended to conserve cash during the COVID-19 crisis, the landlord of the Wilson Boulevard

space was notified that the Company no longer needed the space and is seeking an amicable and reasonable termination of the lease

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

leases are included in operating lease ROU lease assets, and operating lease liabilities and operating long-term lease liabilities

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Lease income is not material

to the results of operations for the quarter ended June 30, 2020.

The Company announced a corporate restructuring on June 30,

2020 which will result in the abandonment of certain office spaces.

The Company has recorded an impairment charge of approximately

$382,962 which is the estimate of the future payments less projected sublease income from the abandoned office space.

to the results of operations for the three months ended December 31, 2020.

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

Cash paid for amounts included in the present value of operating lease liabilities was $28,534 during third quarter

2020 and is included in operating cash flows.

In February 2020, the Company’s new lease in Arlington, Virginia added approximately

$734,000 in new lease obligations.

weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of June 30, 2020:

In February 2020, the Company’s new 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 $39,868 during first quarter 2021 and is

included in operating cash flows.

weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of December 31, 2020:

Remaining lease term and discount rate:

June 30, 2020

December 31, 2020

Weighted average remaining lease terms (years)

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judgements include the discount rates applied, the expected lease terms, and lease renewal options.

There are three leases with

a renewal option.

Using the practical expedient, the Company utilized existing lease classifications as of September 30, 2019.

As a result, the lease renewal options were not changed on implementation.

annual minimum lease obligations at June 30, 2020 are as follows:

annual minimum lease obligations at December 31, 2020 are as follows:

Year ending September 30

expense totaled $177,785 and $118,602 for the nine months ended June 30, 2020 and 2019, respectively

April 6, 2020, to supplement its cash balance, the Company submitted their application for a Paycheck Protection Program loan

(“SBA loan”) 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 in April 12, 2022.

1106 of the 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 Trump on March 13, 2020.

expense totaled $38,279 and $22,744 for the three months ended December 31, 2020 and 2019, respectively.

April 6, 2020, to supplement its cash balance, the Company submitted their application for a Paycheck Protection Program (“PPP”)

loan (the “SBA loan”) sponsored by the U.S.

Small Business Administration in the amount of $365,430.

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

has an interest rate of 1% and matures on April 12, 2022.

1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for forgiveness of up to the

full principal amount of qualifying loans guaranteed under the PPP.

The PPP and loan forgiveness are intended to provide economic

relief to small businesses, such as the Company, that are adversely impacted under the COVID-19 Emergency Declaration issued by

President Donald J.

Trump on March 13, 2020.

a result of staff reductions during 2020, the Company expects the ultimate amount of loan forgiveness to be less the original

principal of the PPP SBA loan.

PPP loan balance at December 31, 2020 was $365,430.

The Company filed for partial loan forgiveness on January 29, 2021 but has

not received approval of its forgiveness application as of the time of this filing.

7 - STOCKHOLDERS’

Company is authorized to issue 681,000,000 common shares and 10,000,000 preferred shares at a par value of $0.01 per share.

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

the nine months ended June 30, 2020, the Company came to a settlement with First Fire and purchased back 149,557 shares and recorded

such shares as Treasury Stock.

First Fire received $150,000 in exchange for the 149,557 shares and associated warrants.

outstanding share of preferred stock is convertible into the Company’s common stock at a rate of one 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.

EQUITY (DEFICIT)

Company is authorized to issue 681,000,000 common shares and 1,000,000 preferred shares, each at a par value of $0.01 per share.

the three months ended December 31, 2020, there were no issuances of common stock.

the three months ended December 31, 2019, the Company issued 620,000 shares of stock options to the employees with a fair value

of $459,019, of which $12,751 was recorded as stock-based compensation expenses in research and development, marketing and general

administration expense.

Options will vest over a three-year period ratably.

Of the 620,000 options, 500,000 options have a strike

price of $0.78 and the remaining 120,000 have a strike price of $0.81.

Total stock compensation expense was $51,574 for the quarter

ended December 31, 2019.

A Preferred Stock

outstanding share of Series A preferred stock is convertible into the Company’s common stock at a rate of one 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 upon approval of the Company’s board of directors.

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.

7 - RELATED PARTY TRANSACTIONS

were no related party transactions.

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.

SUBSEQUENT EVENTS

were no subsequent events as of the filing of this report.

January 11, 2021, settlement was reached in relation to suit filed by the Company against James LeGanke, as Trustee of Carmel

Trust II, and was settled for $50,000 in exchange for the return of 1,000,000 shares of Series A Preferred Stock and 127,500 shares

of common stock to the Company.

February 5, 2021 the Company filed amendments to its Articles of Incorporation with the Texas Secretary of State.

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

this Quarterly Report, “Cipherloc,”

“Company,”

this Quarterly Report on Form 10-Q, “Company,”

“Cipherloc,”

“our company,”

1 unchanged sentence

and “our”

refer to Cipherloc Corporation, unless the context requires otherwise.

refer to Cipherloc Corporation and its subsidiaries, unless the context requires otherwise.

Forward-Looking

21 unchanged sentences

is a data security solutions company.

We are developing an innovative, polymorphic encryption technology designed to enable a

significant additional layer of protection to existing solutions.

The Company has five international patents and four US patents.

We expect to be the industry’s first “Polymorphic Cipher Engine,”

called Cipherloc ®

to offer the first secure commercially viable advanced “Polymorphic Key Progression Algorithmic Cipher Engine”

(“PKPA”)

that can be used in any commercial data security industry and/or in sensitive applications.

of Operations for the three and nine months ended June 30, 2020 and 2019

Revenue decreased to $8,750 for the

three months ended June 30, 2020 compared with $27,850 for the same period in 2019.

Revenue increased to $39,233 for the

nine months ended June 30,2020 compared with $27,850 in 2019.

The current fiscal year revenue is attributed to a contract

with SoundFi.

and administrative expenses were $833,260 and $947,309 for the three months ended June 30, 2020 and 2019, respectively.

The decreases

in general and administrative expenses primarily resulted from a decrease in miscellaneous expense of $416,000 as a result of

payments to QHI and Noun Energy, a decrease in headcount related expenses of $156,000 and a decrease in various other expenses

$7,000 offset by an increase in legal fees of $465,000.

and administrative expenses were $4,114,084 and $1,986,090 for the nine months ended June 30, 2020 and 2019, respectively.

increase in general and administrative expenses were primarily due to the increase in legal expenses of $1,584,000, an increase

in impairment loss on the ROU assets of $382,962, an increase in headcount related expenses of $271,000, an increase in board

and professional fees of $170,000, and an increase in various other expenses of $135,000 offset by decrease in miscellaneous expense

of $416,000 as a result of payments to QHI and Noun Energy.

and marketing expenses decrease to $107,842 from $728,270, for the three months ended June 30, 2020 and 2019, respectively.

decrease is a result of lower consultant fees of $297,000 and lower marketing expense of $35,000.

Selling and marketing expenses decreased to

$695,245 from $1,377,045 for the nine months ended June 30, 2020 and 2019, respectively.

Sales and marketing expenses

decreased due to lower consultant fees of $897,000 offset by an increase in headcount related costs of $232,000.

and developments costs were $205,613 and $478,108 for the three months ended June 30, 2020 and 2019.

The decrease is in headcount

related costs of $264,000 and a decrease in consultant fees of $9,900.

and development costs were $1,338,592 and $1,303,680 for the nine months ended June 30, 2020 and 2019, respectively.

and development expenses increased primarily as a result of higher consultant costs of $561,000 offset by a decrease in headcount

related expense of $321,000.

income, net, decreased to $0 from $5,938 for the nine months ended June 30, 2020 and 2019, respectively.

We are developing products and services around our patented polymorphic encryption technology

designed to enable a more efficient and stronger layer of protection to be added to existing solutions.

Through a licensing program,

we anticipate offering the first secure commercially viable advanced “Polymorphic Encryption Core”

(“PEC”)

software developers kit to be used in any commercial data security industry and/or in sensitive applications.

innovative and patented polymorphic technology eliminates the flaws and inadequacies associated with today’s encryption

Instead of dealing with large monolithic blocks of data, our approach decomposes the information to be protected into

multiple segments.

These individual segments each have a unique encryption key, utilize different encryption algorithms, are randomly

grouped into different lengths, and can be further re-encrypted.

Since segments are independent from each other and are individually

protected, our technology is not susceptible to computational attacks.

In fact, the strength of our technology improves as compute

power increases.

of Operations for the three months ended December 31, 2020 and 2019

decreased to $8,750 for the three months ended December 31, 2020 from $18,750 for the three months ended December 31, 2019.

and administrative expenses decreased to $661,692 for the three months ended December 31, 2020 from $1,304,780 for the three months

ended December 31, 2019.

General and administrative expenses decreased primarily as a result of a decrease in legal fees of $370,000,

a decrease headcount related costs including combined payroll, consulting, and travel costs of $243,000, decreases in various

other expenses of $47,000, decreases in professional fees, consulting fees and contract services of $40,000 offset by an increase

in corporate insurance of $57,000.

and marketing expenses decreased to $25,000 for the three months ended December 31, 2020 from $256,044 for the three months ended

December 31, 2019.

Sales and marketing expenses decreased primarily as a result of a decrease in consultant expenses of $134,000,

a decrease in headcount related costs of $67,000, a decrease in travel related costs of $17,000 and a decrease in marketing spend

related costs of $13,000.

and development costs decreased to $121,793 for the three months ended December 31, 2020 from $566,015 for the three months ended

December 31, 2019.

Research and development expenses decreased primarily as a result of a decrease in consulting costs of $248,000

and a decrease in headcount related costs of $196,000.

and Capital Resources

At June 30, 2020, the Company had cash

of $2,227,830 and an accumulated deficit at June 30, 2020 of $67,790,612.

We expect to decrease expenses but will still generate

continued operating losses until we develop revenues in excess of our operating costs.

In assessing its liquidity, management

monitors and analyzes the Company’s cash balance, the ability to generate sufficient revenue sources in the future, and

its operating and capital expenditure commitments.

The Company plans to fund the business through its operations, bank borrowings

and, if necessary, additional financing from investors.

Based on the current operating plan, management believes that the above-mentioned

measures collectively will provide sufficient liquidity for the Company to meet its future operating and capital requirements

for at least the next twelve months from the date of this report.

If necessary, we believe we can raise capital on terms that

are favorable to the Company;

however, there are risks which may inhibit the Company’s ability to raise capital sufficient

to continue funding the business long term.

following table summarizes, for the periods indicated, selected items in our statements of cash flow:

Nine Months Ended

Net cash (used in) provided by:

had an accumulated deficit at December 31, 2020 of $69,226,343.

We expect to incur substantial expenses and generate continued

operating losses until we generate revenues sufficient to meet our obligations.

At December 31, 2020, we had cash of $399,876.

We do not believe that our existing cash balances are sufficient to fund future operations for the next 12 months.

We are considering

options to issue additional equity as a means to increase liquidity sufficient to fund operations and resources needed to add

new customers and products.

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

Three Months Ended

Net cash (used in):

Operating activities

$ (2,148,092 )

$ (4,324,550 )

Investing activities

Financing activities

used in operating activities was $5,798,100 and $4,324,550 for the nine months ended June 30, 2020 and 2019, respectively.

change in cash used in operating activities was primarily due to increases in net loss because of increases in operating expenses

described above.

The net loss increase was partially offset by positive changes in accounts payable and prepaid expenses.

used in investing activities was $28,972 and $37,059 for the nine months ended June 30, 2020 and 2019, respectively.

provided/(used) in financing activities was $215,430 and $(40,000) for the nine months ended June 30, 2020 and 2019, respectively.

The increase in cash provided by financing activities was due to the PPA Loan of $356,430 offset by the legal settlement with

First Fire and the purchase of Treasury Stock for $150,000.

Last year, a single investor was refunded $40,000 which had been refunded

as an oversubscription, and for which shares were not issued.

used in operating activities was $679,963 and $2,148,092 for the three months ended December 31, 2020 and 2019, respectively.

The uses of cash during the quarter ended December 31, 2020 were attributable to a net loss of $899,735 which was offset by a

non-cash stock compensation expense of $41,025 and a decrease in net operating assets and liabilities of $128,748.

in our net operating assets and liabilities was primarily due to a decrease in prepaid and other assets of $136,393 and an increase

in accounts payable and accrued liabilities of $51,105.

The Company used cash during the year to pay for the cost of general and

administrative, sales and marketing, and research and development activities which combined to be $858,485.

used in financing activities was $50,000 and $0 for the three months ended December 31, 2020 and 2019, respectively.

used in financing activities was in relation to suit filed by the Company against James LeGanke, as Trustee of Carmel Trust II,

and was settled for $50,000 in exchange for the return of 1,000,000 shares of Series A Preferred Stock and 127,500 shares of common

stock to the Company.

used in investing activities was $0 and $13,841 for the three months ended December 31, 2020 and 2019, respectively.

used in investing activities was the result of fixed asset purchases.

Sheet Arrangements

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.

did not have during the periods presented, nor do we currently have, any off-balance sheet arrangements as defined under applicable

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements