What changed in this filing

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Item 1. Financial Statements

2022-02-14 compared with 2021-08-16 · 291 added, 463 removed, 104 unchanged (88% of the section changed)

FINANCIAL STATEMENTS

accompanying interim financial statements have been prepared in accordance with the instructions to Form 10-Q.

Therefore, they do not

include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows,

and stockholders’ equity in conformity with accounting principles generally accepted in the United States of America.

disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in

the Company’s Annual Report on Form 10-K for the year ended September 30, 2020.

In the opinion of management, all adjustments considered

necessary for a fair presentation of the results of operations and financial position have been included, and all such adjustments are

of a normal recurring nature.

Operating results for the three and nine months ended June 30, 2021 are not necessarily indicative of the

results that can be expected for the year ending September 30, 2021.

September 30,

BALANCE SHEETS

current assets

Prepaid expenses

Total current assets

Operating lease ROU asset

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

lease ROU asset

& STOCKHOLDERS’ EQUITY

payable and accrued liabilities

current liabilities

Accounts payable and accrued liabilities

Accrued compensation

Operating lease liability – current portion

Paycheck protection program loan – current portion

Deferred revenue

Total current liabilities

Paycheck protection program loan – long term

Operating lease liability – long-term portion

Total liabilities

Series A convertible preferred stock, $ 0.01 par value, 10,000,000 shares authorized;

nil and 1,000,000 shares issued and outstanding as of June 30, 2021, and September 30, 2020, respectively

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

and contingencies

Stockholders’

stock, $ 0.001 par value, 681,000,000 shares authorized;

82,927,311 and 82,927,311 shares outstanding;

and 96,342,125 and 40,792,510 issued as of June 30, 2021, and September 30, 2020, respectively

Treasury stock, at cost 13,414,814 and 13,287,314 shares as of June 30, 2021, and September 30, 2020, respectively

Additional paid-in capital

Accumulated deficit

( 70,490,761 )

( 68,426,608 )

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

OF OPERATIONS

Three Months Ended

Nine Months Ended

and 96,342,125 and 96,342,125

issued as of December 31, 2021, and September 30, 2021, respectively

stock, at cost, 13,414,814 and 13,414,814 shares as of December 31, 2021, and September 30, 2021, respectively

paid-in capital

stockholders’ equity

liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

Cost of revenues

1 unchanged sentence

General and administrative

Selling and marketing

Research and development

Total operating expenses

Sales and marketing

and development

operating expenses

Operating loss

( 1,137,965 )

( 2,255,205 )

( 6,314,301 )

Other income (expense)

Loss on disposal of asset

Miscellaneous income

Interest expense

$ ( 175,580 )

$ ( 1,157,743 )

Other income (expenses)

income (expense), net

$ ( 652,048 )

$ ( 799,735 )

Net loss per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

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

OF CASH FLOWS

Nine Months Ended

Net loss per common

share – basic and diluted

Weighted average common

shares outstanding – basic and diluted

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

STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

$ ( 799,735 )

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

PPP loan forgiveness

Adjustments to reconcile

net loss to net cash flows used in operating activities:

Stock-based compensation

Net loss on disposal of asset

Impairment loss on ROU assets (gain on early termination of operating lease)

Changes in operating assets and liabilities:

Changes in operating assets

and liabilities:

Prepaid expenses and other

Accounts payable and accrued liabilities

Accounts payable and accrued

Accrued compensation

Deferred revenue

Net cash used in operating activities

( 2,566,292 )

( 5,798,100 )

cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of fixed assets

Net cash used in investing activities

of fixed assets

cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of treasury stock

Proceeds from PPA loan

Repayment PPA loan

Purchase of preferred stock

Proceeds from the issuance of common stock, net of costs

Net cash provided by financing activities

INCREASE (DECREASE) IN CASH

( 5,611,642 )

CASH, BEGINNING OF PERIOD

of treasury stock

cash used in financing activities

DECREASE IN CASH

CASH, BEGINNING OF

CASH, END OF PERIOD

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Capitalization of ROU asset

ST operating lease liability recorded

LT operating lease liability recorded

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

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

OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Nine Months ended

Preferred Stock

Additional Paid-in

For the Three Months ended

Stockholders’

June 30, 2021

Balance at September 30, 2021 -

1 unchanged sentence

$ ( 71,530,891 )

$ ( 137,962 )

Options issued to directors & employees

Purchase of treasury stock

Preferred and treasury shares acquired

( 1,000,000 )

Issuance of common stock, net of issuance costs

( 2,064,153 )

$ ( 2,064,153 )

Balance at June 30, 2021

Preferred and treasury shares acquired, shares

Stock option expense issued to directors &

Balance at December 31, 2021 -

$ ( 590,000 )

1 unchanged sentence

For the Three Months ended

Preferred Stock

Additional Paid-in

Stockholders’

June 30, 2021,

Balance at March 31, 2021

$ ( 590,000 )

$ ( 70,315,181 )

Options issued to directors & employees

Issuance of common stock, net of issuance costs

$ ( 175,580 )

Balance at June 30, 2021

$ ( 590,000 )

$ ( 70,490,761 )

For the Nine Months ended

Preferred Stock

Additional Paid-in

Stockholders’

June 30, 2020

Balance at September 30, 2020

$ ( 550,000 )

Options issued to directors & employees

Purchase of treasury stock

$ ( 68,426,608 )

$ ( 137,962 )

Balance at June 30, 2020

$ ( 150,000 )

$ ( 67,790,612 )

For the Three Months ended

Preferred Stock

Additional Paid-in

Stockholders’

June 30, 2020,

Balance at March 31, 2020

Preferred and treasury shares acquired

( 1,000,000 )

Stock option expense issued to directors &

$ ( 799,735 )

Options issued to directors & employees

Purchase of treasury stock

Balance at December 31, 2020

$ ( 590,000 )

Balance at June 30, 2020

$ ( 69,226,343 )

$ ( 946,672 )

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

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

TO FINANCIAL STATEMENTS

THE THREE AND NINE MONTHS ENDED JUNE 30, 2021 AND 2020

THE THREE MONTHS ENDED DECEMBER 31, 2021, AND 2020

1 - DESCRIPTION OF BUSINESS

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

” Our headquarters are located at 6836 Bee Cave Road, Building 1, S#279, Austin, Texas 78746.

Our website is www.cipherloc.net .

is seeking shareholder approval at its upcoming shareholders meeting to be held on September 13, 2021, to among other things, change

the Company’s state of incorporation from Texas to Delaware.

The full slate of proposals is summarized under Note 8 - Subsequent

Events section of this filing and are detailed in the Definitive Proxy Statement on Schedule 14A and related Amendments on file with

The Notice of Meeting and Proxy Statement may be viewed on http://annualgeneralmeetings.com/cipherloc/.

2 – NEW EQUITY ISSUANCE

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.

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

SCHEDULE OF OFFERING SHARES AND OFFERING WARRANTS

Date of Closing

Warrants Sold

Gross Proceeds

March 31, 2021

April 7, 2021

April 9, 2021

April 16, 2021

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.

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).

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.

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.

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.

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.

to the Registration Rights Agreement (“ RR Agreement ”), we agreed to file a registration statement to register the

sale of the Offering Shares and the shares of common stock issuable upon exercise of the Warrants, prior to the 10 th day after

the end of the Private Offering (provided that the Placement Agent agreed that such 10 day period began on April 19, 2021, regardless

of the actual closing date of the Private Offering), and to obtain effectiveness of such registration statement by the 60 th

calendar day following the date of the RR Agreement (March 31, 2021)(provided that in the event we are required to file any additional

registration statements under the RR Agreement, such required effectiveness date is the 90 th day after such registration statement

is required to be filed), which registration statement was timely filed and was timely declared effective.

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.

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

Management has evaluated the warrants for derivative

status and concluded the warrants are freestanding equity instruments.

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, the Company changed its name to “Cipherloc Corporation.”

Prior to September 30, 2021, the Company was a Texas corporation.

The Company became a Delaware corporation effective as of September

Company’s headquarters is located at 6836 Bee Cave Road, Building 1, Suite279, Austin, Texas 78746.

Its website is www.cipherloc.net .

2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

2 unchanged sentences

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.

results for the three and nine months ended June 30, 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

In the Company’s

opinion, it has included all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation.

results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year

ending September 30, 2022.

The Company has omitted notes to the unaudited interim financial statements that would substantially duplicate

the disclosures contained in the audited financial statements for the fiscal year ended September 30, 2021 ; this report should

be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30, 2021 included

within the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

4 unchanged sentences

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, 2021, and September 30, 2020, cash includes cash on hand and cash in the bank.

At December 31, 2021, the Company’s 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 June 30, 2021, $ 6,598,508 of the Company’s cash balance was uninsured.

The FDIC insures these

deposits up to $ 250,000 .

As of December 31, 2021, $ 5,071,588 of the Company’s cash balance was uninsured.

and Diluted Net Loss per Common Share

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 June 30, 2021, there were no preferred shares of stock outstanding

and as of June 30, 2020, the Company had 1,000,000 shares of preferred stock outstanding, which were convertible into 1,500,000 shares

of common stock.

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 because of the net loss.

During the three and nine months ended June 30, 2021, warrants

to purchase 79,461,481 shares of common stock were excluded from the calculation of diluted loss per share because their effect would

be anti-dilutive.

During the three and nine months ended June 30, 2020, warrants to purchase 24,216,866 shares of common stock and 1,000,000

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

Company’s basic loss per share is computed by dividing the net loss available to common stockholders 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 that number by the amount of time that the applicable shares were outstanding.

Diluted earnings per

share reflects the potential dilution that could occur if vested stock options, warrants, and other commitments of the Company to issue

common stock were exercised, resulting in the issuance of common stock that would share in the earnings of the Company.

As of December

31, 2021, the Company had no shares of preferred stock outstanding.

Company’s diluted loss per share was the same as basic loss per share during the periods in which net losses were incurred since

the inclusion of potential common stock equivalents would be anti-dilutive due to the net loss.

During the three months ended December

31, 2021, the Company excluded warrants to purchase 79,461,481 shares of common stock from the calculation of diluted loss per share

because the effect would be anti-dilutive.

During the three months ended December 31, 2020, the Company excluded warrants to purchase

24,216,866 shares of common stock and 1,000,000 shares of convertible preferred stock from the calculation of diluted loss per share

because the effect would be anti-dilutive.

and Development and Software Development Costs

Company expenses all research and development costs, including patent and software development costs.

Our research and development costs

incurred for the nine months ended June 30, 2021, and 2020 were $ 465,974 and $ 1,544,205 , respectively.

The research and development costs

incurred for the three months ended December 31, 2021 and 2020 were $ 129,639 and $ 121,793 , respectively.

Company recognizes revenues in accordance with the provisions of Accounting Standards Update (“ASU”) 2014-09, “Revenue

from Contracts with Customers, ” and a series of amendments which together we identify as “ ASC Topic 606 ”.

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

from Contracts with Customers , ” and a series of amendments, issued by the Financial Accounting Standards Board (“FASB”).

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

the contract,

3 unchanged sentences

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.

obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the Company’s providing

access to its intellectual property as the performance occurs.

License Agreements

the fiscal year ended September 30, 2019, the Company entered into a one-year agreement with SoundFi LLC (“ SoundFi ”) which

the fiscal year ended September 30, 2019, the Company entered into a one-year agreement with SoundFi LLC (“SoundFi”) that

automatically renews for subsequent one-year periods unless otherwise terminated by either party.

Cipherloc received $ 25,000

from SoundFi during the year ended September

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.

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

The Company received $ 25,000 from SoundFi

during the fiscal year ended September 30, 2020.

The Company has not received any payments from SoundFi so far in the current fiscal

year and is uncertain if such payments will resume.

Company executed a software licensing agreement with Castle Shield Holdings, LLC (“Castle Shield”) during the fiscal year

ended September 30, 2020, which agreement includes auto-renewing terms.

The Company received a $ 10,000 payment from Castle Shield during

the fiscal year ended September 30, 2020.

The Company did not receive any payments from Castle Shield during the fiscal year ended September

30, 2021, or during the first quarter of the current fiscal year, but anticipates receiving payments from Castle Shield during the remainder

of the fiscal year.

the three months ended December 31, 2020, the Company recognized a total of $ 8,750 in licensing revenue from the Company’s agreements

with SoundFi and Castle Shield.

The Company did no t recognize any licensing revenues from these agreements during the three months ended

December 31, 2021.

Accounting Pronouncements

Financial Accounting Standards Board (“ FASB ”) issues ASUs 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.

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.

FASB issues ASUs 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 ASC.

Other than those discussed below, the Company believes the 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.

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

1 unchanged sentence

This guidance

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

removed 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.

The Company adopted ASU 2019-12 on October

1, 2021, which adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.

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

9 unchanged sentences

after December 15, 2019.

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.

Company adopted ASU 2018-13 on October 1, 2020, which adoption did not have a material impact on the Company’s financial position,

results of operations and cash flows.

July 2017, the FASB issued ASU 2017-11—Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and

6 unchanged sentences

when assessing whether an instrument is indexed to an entity’s own stock.

A freestanding equity-linked financial instrument no

longer would be accounted for as a derivative liability at fair value because of the existence of a down round feature.

The Company has

adopted ASU 2017-11 and implemented the pronouncement retrospectively.

The adoption of this guidance did not have an impact on its financial

a result, a freestanding equity-linked financial instrument no longer would be accounted for as a derivative liability at fair value

because of the existence of a down round feature.

For freestanding equity classified financial instruments, the amendments require entities

that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered.

That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.

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).

As a result, a freestanding equity-linked financial instrument

would no longer be accounted for as a derivative liability at fair value because of the existence of a down round feature.

has adopted ASU 2017-11 and implemented the pronouncement retrospectively.

The adoption of this guidance did not have an impact on the

Company’s financial statements.

a result, a freestanding equity-linked financial instrument is no longer accounted for as a derivative liability at fair value because

of the existence of a down round feature.

For freestanding equity classified financial instruments, the amendments require entities that

present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered.

That effect is treated as a dividend and as a reduction of income available to common stockholders in basic EPS.

March and April 2021, the Company issued warrants to purchase 63,882,054

shares of its common stock at an average

exercise price of $ 0.33

per share, which warrants have anti-dilution

rights that provide for adjustments in the exercise price and number of shares exercisable upon exercise if there is an issuance of common

stock or common stock equivalents at a lower price than the exercise price of the warrants (down round feature).

October 2021, the FASB amended guidance to recognize and measure contract assets and contract liabilities from contracts with customers

acquired in a business combination.

Generally, this new guidance will result in the Company recognizing contract assets and contract

liabilities consistent with those reported by the acquiree immediately before the acquisition date.

The Company retroactively adopted

the guidance in the fourth quarter of fiscal 2021 for all business combinations completed since the beginning of fiscal 2021.

no material impact on the Company’s Financial Statements.

January 2021, the FASB issued guidance to clarify that all derivative instruments affected by changes to the interest rates used for

discounting, margining or contract price alignment can apply certain optional expedients and exceptions mentioned in its reference rate

reform guidance even though they do not reference to LIBOR or a rate being discontinued.

This guidance was effective upon issuance.

Company adopted the guidance in the first quarter of fiscal 2021.

There was no impact on the Company’s Financial Statements

upon such adoption.

June 2016, the FASB issued ASU 2016 - 13, Financial Instruments—Credit Losses, which requires a financial asset (or

a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

The allowance

for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net

carrying value at the amount expected to be collected on the financial asset.

The guidance is effective for fiscal years beginning after

December 15, 2019 .

In November 2019, the FASB issued ASU 2019 - 10, Financial Instruments—Credit Losses (Topic

326 ), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the

SEC, to fiscal years beginning after December 15, 2022 .

Early adoption is permitted.

January 2020, the FASB issued guidance to clarify certain interactions between the guidance to account for equity securities, the guidance

to account for investments under the equity method of accounting, and the guidance to account for derivatives and hedging.

The new guidance

clarifies the application of measurement alternatives and the accounting for certain forward contracts and purchased options to acquire

The Company is required to adopt the guidance in the first quarter of fiscal 2022.

Early adoption is permitted.

May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock

Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

The new ASU addresses

an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options.

This amendment

is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted.

November 2021, the FASB issued guidance to increase the transparency of government assistance received by an entity by requiring disclosures

relating to accounting policy, nature of the assistance, and the effect of the assistance on the financial statements.

The Company is

required to adopt the guidance in the first quarter of its fiscal 2023.

Early adoption is permitted.

The Company is currently evaluating

the impact of this guidance on its Financial Statements.

August 2020, the FASB issued ASU 2020-06— Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives

and edging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an

Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain

separation models in Subtopic 470- 20, Debt with Conversion and Other Options , for convertible instruments.

Under the amendments

in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion

features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in

substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument will be accounted for as a single

liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured

at its historical cost, as long as no other features require bifurcation and recognition as derivatives.

By removing those separation

models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance

in Topic 835, Interest.

The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point

to perform analyses across entities.

The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities

in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance.

Additionally,

for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures

about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the

premium amount recorded as paid-in capital.

amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies,

as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those

fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods

within those fiscal years.

Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt

the guidance through either a modified retrospective method of transition or a fully retrospective method of transition.

the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year

in which the amendments are adopted.

Transactions that were settled (or expired) during prior reporting periods are unaffected.

The cumulative

effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption.

entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment

to the opening balance of retained earnings in the first comparative period presented.

The Company is evaluating the impact of the revised

guidance and believes that it will not have a significant impact on its financial statements.

4– COMMITMENTS AND CONTINGENCIES

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.

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.

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 20th Judicial District for Hays County, Texas (Cause No.

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.

(for alleged misrepresentations alleged made by Mr.

Garza, the Company’s former Chief Executive Officer and President, in the 20th Judicial District for Hays County, Texas (Cause

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

De La Garza (for alleged misrepresentations alleged made by Mr.

De La Garza);

breach of fiduciary duty against Mr.

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.

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.

also made a claim of partial ownership of certain of the Company’s patents, which the Company believes is without merit.

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.

April 2020, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of the Company, and certain other plaintiffs, filed

a lawsuit against the Company and Michael De La Garza, our former Chief Executive Officer and President, in the 20 th Judicial

District for Hays County, Texas (Cause No.

a lawsuit against the Company and Michael De La Garza, the Company’s former Chief Executive Officer and President, in the 20 th

Judicial District for Hays County, Texas (Cause No.

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;

Garza (for misrepresentations alleged made by Mr.

De La Garza), breach of contract, for alleged breaches of Mr.

Marquez’s employment

agreement, which provided for 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.

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.

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 .

parties entered 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.

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 one remaining

payment of $ 25,000 due, payable to De La Garza by September 1, 2021.

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 to enable the leasing of space in Fairfax

The Company subsequently terminated the agreement with Ageos and offered to take over the space as an accommodation.

Ageos’s third party complaint demands from the Company, among other things, all damages obtained by Scandium, LLC against

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

and (iii) pre-judgment

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.

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

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

lease for this facility began on February 1, 2020 and was scheduled to continue until July 31, 2025.

The base annual rent was $ 159,471 ,

a $ 100,000 security deposit was paid, and abatement of monthly rent payments was provided until August 1, 2020.

The lease provided for

annual rent increases of approximately 2.5 %.

The amount of future payments guaranteed was $ 741,680 .

believes it has made all required payments and delivered all required shares of 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.

of the Company’s leases that were in place during the fiscal year ended September 30, 2020 have been terminated.

As of December

31, 2021, the Company has no financial obligations for facility lease agreements, except as set forth below.

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

Wilkinson and Mr.

Wilkinson does not charge the Company any rental fees in connection therewith.

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

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

the Balance Sheets.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Variable lease expense

is recognized in the period in which the obligation for those payments is incurred.

Lease expense is included in general and administrative

expense in the statements of operations and is reported net of lease income.

As a result of restructuring

actions intended to conserve cash during the COVID-19 crisis, the Company stopped occupying the space in March 2020 and notified the

landlord that the Company no longer needed the property and began seeking an amicable and reasonable termination of the lease agreement.

On June 9, 2021, a settlement of $ 150,000 was reached with 2111 Wilson Boulevard, Inc.

to terminate the lease effective June 2021.

the settlement agreement with 2111 Wilson Boulevard, Inc., as discussed above, the Company does not have any operating leases as of June

early termination of the 2111 Wilson Boulevard operating lease resulted in recognizing a $ 441,597 gain in this reporting period due to

the removal of the ROU assets and operating lease liabilities.

The balance for ROU assets and liabilities at June 30, 2021 is $ 0 each.

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

In February 2020, the Company’s lease in Arlington, Virginia added approximately $ 746,000 in new lease obligations.

Cash paid for

this lease was $ 80,402 for the nine months ended June 30, 2021 and is included in operating cash flows.

The landlord agreed to an early

termination and release from all past, present and future liabilities associated with the lease in exchange for a $ 150,000 one-time payment

which the company made during June 2021.

are no significant judgments.

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

The SBA loan 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

Trump on March 13, 2020.

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

The Company filed for partial loan forgiveness on January 29, 2021, which was approved

in the amount of $ 192,052 on June 11, 2021.

The staff reductions that occurred in 2020 prevented the Company from qualifying for full

forgiveness of its principal balance.

full principal balance of the loan, plus $ 1,000 of interest was set aside in an escrow account at Texas Capital Bank on April 15, 2021.

Upon receipt of the partial forgiveness approval, the remaining amount of the Paycheck Protection Program Loan was repaid using funds

in the escrow account and the remaining balance was returned to the Company’s operating account.

The balance of the loan was $ 0

as of June 30, 2021.

7 - STOCKHOLDERS’ EQUITY (DEFICIT)

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.

the nine months ended June 30, 2021, the Company issued 55,549,615 shares of common stock pursuant to the Private Offering.

was priced at $ 0.18 and the gross proceeds from the equity issuance were $ 9,998,931 .

The proceeds net of issuance costs were $ 8,558,339 .

the nine months ended June 30, 2021, the Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased

back 127,500 shares of common stock and recorded such shares as Treasury Stock.

LeGanke received a total payment of $ 50,000 as

a result of the settlement.

The Company attributed $ 40,000 of this settlement to the repurchase of common stock and the remaining $ 10,000

to the repurchase of Series A Preferred stock.

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 of which $ 300,000 was paid at the time of settlement and the

remaining $ 100,000 paid through four quarterly payments of $ 25,000 .

The final payment will be made on September 1, 2021.

the nine months ended June 30, 2020, the Company came to a settlement with First Fire Global Opportunity Fund, LLC and purchased back

149,55 7 shares of common stock for $ 150,000 and recorded such shares as Treasury Stock.

of June 30, 2021, we had issued 40,792,501 common shares of which 13,414,814 are now in treasury stock.

The net amount of common shares

outstanding as of June 30, 2021 was 82,927,311 .

A Preferred Stock

the nine months ended June 30, 2021, the Company came to a settlement with James LeGanke, as Trustee of Carmel Trust II and purchased

back 1,000,000 shares of Series A Preferred Stock.

LeGanke received a total payment of $ 50,000 as a result of the settlement.

The Company attributed $ 10,000 of this settlement to the repurchase of the Series A Preferred Stock and the remaining $ 40,000 to the

repurchase of common stock.

There is a sublease agreement with Mr.

Wilkinson charges the Company $ 500 a month rental fee.

lease agreement does not contain any material residual value guarantees or material restrictive covenant.

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

Cash the Company paid for amounts included in the present value of operating lease liabilities was $ 80,402 during the fiscal

year ended September 30, 2021, and is included in operating cash flows.

Company’s rent expense totaled $ 500 and $ 38,279 for the three months ended December 31, 2021, and 2020, respectively.

April 6, 2020, the Company submitted its application for a $ 365,430 Paycheck Protection Program (“PPP”) loan sponsored by

Small Business Administration (the “SBA Loan”).

On April 12, 2020, the SBA Loan application was approved, and the

Company received the loan proceeds on April 22, 2020.

The SBA Loan had an interest rate of 1 % and was scheduled to mature on April 12,

of September 30, 2020, the SBA Loan balance was $ 365,430 .

The Company filed for partial loan forgiveness on January 29, 2021, which was

approved on June 11, 2021 in the amount of $ 192,052 .

The Company’s staff reductions that occurred in 2020 prevented the Company

from qualifying for full forgiveness of the principal balance of the SBA Loan.

Company placed the full principal balance of the SBA Loan, plus $ 1,000 of interest, in an escrow account on April 15, 2021.

of the partial loan forgiveness, the Company paid the remaining amount of the SBA Loan, using funds in the escrow account, and the remaining

balance was returned to the Company’s operating account.

The balance of the SBA Loan was $ 0 as of September 30, 2021.

6 - STOCKHOLDERS’ EQUITY

Company is authorized to issue 681,000,000 shares of common stock and 10,000,000 shares of Series A convertible preferred stock, each

with a par value of $ 0.001 per share.

the three months ended December 31, 2020, and the three months ended December 31, 2021, the Company did not issue any shares of its common

stock or preferred stock, except as set forth below.

with the last quarter during the Company’s fiscal year ending September 30, 2021, its Board of Directors elected to begin receiving

one-half of their quarterly Board compensation in shares of common stock instead of cash.

At its April, 2021 meeting, the Company’s

Board of Directors also approved a one time award of 100,000 shares of common stock to each director, subject to approval of the Company’s

Equity Incentive Compensation Plan by its stockholders, which was received at the annual meeting of stockholders in September 2021.

date, the directors have received a total of 522,224 shares of the Company’s common stock through the one-time grant and two quarterly

compensation payments.

The one-time award and the fiscal year 2021 fourth quarter award of a total of 411,112 shares was made on January

The fiscal year 2022 first quarter awards were made on January 31, 2022.

Common Stock Units

October 22, 2021, the Company entered into restricted stock unit award agreements with five separate individuals.

The Company granted

a total of 2,000,001 shares of restricted stock to these individuals, which shares vest in equal tranches on the next three anniversary

dates of the award.

The value of the shares of restricted stock on the grant date was $ 260,000 , based upon the then current market price

of the Company’s common stock of $ 0.13 per share on October 22, 2021.

During the three months ended December 31, 2021, the Company

recorded $ 22,561 in stock compensation expense related to these award agreements.

7 – SUBSEQUENT EVENTS

On July 14, 2021, we entered into an employment

agreement with Nick Hnatiw to fulfill the role of Chief Technology Officer (“CTO”).

The effective date of the employment

agreement was June 1, 2021.

Hnatiw began providing CTO services to Cipherloc as an independent contractor during November 2020.

July 19, 2021, the Company filed a Definitive Proxy Statement on Schedule 14A announcing a shareholders meeting to be held on September

13, 2021 for shareholders of record as of July 15, 2021, to elect a Board of Directors and to seek approval of five other proposals.

On July 28, 2021, the Definitive Proxy Statement was amended to add two additional proposals relating to executive compensation.

meeting will be held at the Company’s headquarters at 6836 Bee Cave Road in Austin, Texas at 9:00 AM Central Time on September

Shareholders will be voting on the following proposals:

elect four (4) members to our Board of Directors;

ratify the appointment of Briggs & Veselka Co.

as our independent registered public accounting firm for our fiscal year ending

September 30, 2021;

approve the Company’s 2021 Omnibus Equity Incentive Plan and the reservation of 8,000,000 shares for issuance thereunder;

approve the reincorporation of the Company from the State of Texas to the State of Delaware;

grant discretionary authority to our board of directors to (i) amend our proposed Delaware certificate of incorporation, after the

Company effectuates its reincorporation to the State of Delaware, to combine outstanding shares of our common stock into a lesser

number of outstanding shares, or a “reverse stock split,” at a specific ratio within a range of 1-for-2 to a maximum

of a 1-for-20 split, with the exact ratio to be determined by our board of directors in its sole discretion;

and (ii) effect the

reverse stock split, if at all, within one year of the date the proposal is approved by stockholders ;

approve an amendment of the Company’s Amended and Restated Articles of Incorporation, as amended, to eliminate the shareholders’

statutory preemptive rights pursuant to Section 21.208 of the Texas Business Organizations Code in the event that the reincorporation

of the Company from the State of Texas to the State of Delaware is not consummated;

approve, by non-binding advisory vote, of the resolution approving named executive officer compensation;

approve, by non-binding advisory vote, of the frequency of future non-binding advisory votes on resolutions approving future named

executive officer compensation.

July 23, 2021, the “ Company entered into a financial advisory and consulting agreement with Paulson Investment Company,

LLC (“ Paulson ”).

Pursuant to the agreement, Paulson will provide the following services at our request:

(a) familiarize

itself with our business, assets and financial condition;

(b) assist us in developing strategic and financial objectives;

us in increasing our exposure in the software industry;

(d) assist us in increasing our profile in the investment and financial community

through introductions to analysts and potential investors, participation in investment conferences and exploitation of reasonably available

media opportunities;

(e) identify potentially attractive merger and acquisition opportunities;

(f) review possible innovative financing

opportunities and (g) render other financial advisory services as may be reasonably requested.

The term of the Agreement is four years

from the date of the Agreement, unless terminated earlier by either party as provided therein.

As compensation for these services, we

are issuing to Paulson 4,000,000 shares of our common stock and agreeing to reimburse them for all reasonable and documented expenses

incurred by Paulson in connection with providing such services.

February 14, 2022 the Company announced the launch of Cipherloc Enclave, a new micro-segmentation product, through a press release and

Cipherloc Enclave is further discussed in Item 2 of this Form 10-Q.

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