What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-14 compared with 2021-08-16 · 101 added, 179 removed, 66 unchanged (81% of the section changed)

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

statements in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, including estimates, projections,

statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements

are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section

27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These forward-looking statements generally

are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,”

“intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,”

“will be,” “will continue,” “will likely result,” and similar expressions.

Forward-looking statements

are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ

materially from the forward-looking statements.

A detailed discussion of risks and uncertainties that could cause actual results and

events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” in our

Annual Report on Form 10-K for the fiscal year ended September 30, 2021 and elsewhere in this Form 10-Q.

We undertake no obligation to

update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly

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Other Information – Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ”, contained in our Annual Report

on Form 10-K for the year ended September 30, 2020, filed with the Securities and Exchange Commission on December 29, 2020 (the “ Annual

Report ” or the “ Form 10-K ”).

capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated

financial statements included above under “ Part I – Financial Information ” – “ Item 1.

Statements ”.

Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the

year ended September 30, 2021, filed with the Securities and Exchange Commission on December 21, 2021.

logo and some of our trademarks and tradenames are used in this Report.

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the context requires otherwise, references to the “Company , ” “we , ” “us , ” “our,”

“ Cipherloc ”, and “ Cipherloc Corp.

” refer specifically to Cipherloc Corp.

and its consolidated subsidiaries.

“Cipherloc”, and “Cipherloc Corporation” refer specifically to Cipherloc Corporation and its consolidated subsidiaries.

addition, unless the context otherwise requires and for the purposes of this report only:

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Act ” refers to the Securities Act of 1933, as amended.

You Can Find Other Information

file annual, quarterly, and current reports, proxy statements and other information with the SEC.

Our SEC filings are available to the

public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports

are filed with or furnished to the SEC, on the “ Investor Relations ,” page of our website at https://cipherloc.net.

Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein.

of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can

be contacted at the address and telephone number set forth on the cover page of this Report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the

accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash

MD&A is organized as follows:

This MD&A is organized as follows:

Strategy and Plan of Operations .

Discussion of our strategy moving forward and how we plan to seek to increase stockholder

Discussion of our strategy moving forward.

of Operations .

An analysis of our financial results comparing the three and nine months ended June 30, 2021, and 2020.

An analysis of our financial results comparing the three months ended December 31, 2021 with the three months

ended December 31, 2020.

and Capital Resources .

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judgments incorporated in our reported financial results and forecasts.

following discussion should be read in conjunction with Cipherloc Corporation’s financial statements and accompanying notes included

elsewhere in this Report.

following discussion should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report.

references to years relate to the fiscal year ended September 30 of the particular year.

Strategy and Plan of Operations

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.

described above, our products are designed to encrypt and decrypt information.

Encryption means encoding information which is readable

into another form which is not readable, and which is therefore unable to be intercepted, read, or used, by someone other than the original

person who encrypted the information—unless such encryption can be broken.

believe that our 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

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.

anticipate the operating expenses for the next twelve months may require up to $7.5 million capital, which funds will come from amounts

raised in the Private Offering;

however, we hope to manage our business such that the existing liquidity carries the Company to positive

cash flow from operations, of which there can be no assurance.

This measured approach to managing cash initially emphasizes demonstrating

product capabilities with current customers which is followed by a scaling exercise in all functional areas, including product development,

marketing, sales, customer support, and administration.

As such, the cash required for operating expenses through June 30, 2022, will

most likely range from $2.4 million to $4.4 million.

A summary of the operating plan by functional area is provided below.

Development will focus on further maturing the products that we have developed.

Our plan is to build out our core technologies on multiple

operating system platforms as well as work with current customers to ensure our product is in line with their needs.

Once these items

are completed, we plan to shift to further expand our product suite to enable user-defined encryption cipher modes, as well as a remote

PEC management system.

This will require us to expand the team footprint rapidly to ensure that we can meet market demand.

efforts will require more personnel as well as more infrastructure.

This personnel expansion will likely require $1 million of capital.

The infrastructure needed to perform these new functions is planned to be built on modern technology with scale and reliability built

from the ground-up.

Utilizing cloud services, we plan to provide our customers with an interface that modern software provides, but an

ease of use that encryption technologies desperately need.

We believe that if we are able to meet these goals, we will be at a competitive

advantage from most other players in this space.

Marketing efforts will emphasize qualified lead generation using very focused industry

messaging and engagement.

We will be participating in relevant cybersecurity and quantum computing industry events.

Our advisors will

help us identify the right focus areas for lead generation.

Customer support teams will need to be put in place and are expected to be

built around each of our product offerings.

We anticipate our Support Team will scale as our business needs change.

The projected costs

for the first 12 months are likely to reach $500,000.

These funds will be used for salaries and technology in order for the Support Team

to provide the necessary support described above.

Administration requirements are currently minimal, but we expect that this will change

in the event the Company is able to generate revenues and add employees.

The administrative resources will be ramped according to the

Company’s demand to support employees, increase accounting capacity, and expand reporting and compliance capabilities.

leadership personnel in accounting and human resources are anticipated to precede staff additions.

We also plan to add software tools

to manage functional processes.

of Operations for the three and nine months ended June 30, 2021, and 2020

decreased to zero for the three months ended June 30, 2021, from $8,750 for the three months ended June 30, 2020.

Revenue decreased to

$15,417 for the nine months ended June 30, 2021, from $39,233 for the nine months ended June 30, 2020.

Revenues decreased due to no new

invoicing activity taking place in the current reporting period.

SoundFi has not been operating due to theater closures and Castle Shield

did not report revenue from the PEC license agreement under which it is currently operating because it didn’t launch products until

late during our third fiscal quarter (this reporting period).

and administrative expenses were $197,534 and $833,260 for the three months ended June 30, 2021, and 2020, respectively.

administrative expenses decreased primarily as a result of a gain recognized in the amount of $441,597 due to the write-off of the remaining

right-of-use (ROU) assets and operating lease liability after the early termination of our final operating lease.

Net of this gain, general

and administrative expenses were $639,131.

Compared to the same period one year ago, the current period amount reflects a decrease in

headcount related costs including payroll of $93,000, due to staffing reductions initiated during the prior fiscal year, a decrease in

legal fees of $146,000, due to the settlement of legal matters, decreases in board and professional fees of $51,000, and decreases in

various other expenses of $13,000, offset by increases in rent of $56,000, as a result of the Virginia office lease settlement (as discussed

under Note 5 – Commitments and Contingencies - Leases, to the unaudited financial statements included above) and in corporate

insurance of $53,000, primarily for directors and officers liability insurance premiums.

and administrative expenses were $1,748,398 and $4,114,084 for the nine months ended June 30, 2021, and 2020, respectively.

in general and administrative expenses was primarily due to a decrease in legal expenses of $1,055,000 because of settlements reached

during this fiscal year, a decrease in headcount related costs including payroll and travel costs of $483,000, due to staffing reductions

initiated during the prior fiscal year, a $824,000 favorable variance in the accounting for ROU assets and liability ($441,597 gain in

2021 discussed above versus a $382,625 impairment loss reported during 2020), a decrease in board and professional fees of $155,000,

and a decrease in various other expenses of $143,000, offset by increases in corporate insurance of $165,000, for directors and officers

liability insurance premiums and rent of $129,000 related to the Virginia office lease settlement (as discussed under Note 5 –

Commitments and Contingencies - Leases, to the unaudited financial statements included above).

and marketing expenses were zero and $107,842 for the three months ended June 30, 2021, and 2020, respectively.

Sales and marketing expenses

decreased primarily because of a decrease in payroll expenses of $79,000, a decrease in consulting related costs of $12,000, a decrease

in marketing related costs of 13,000 and a decrease in travel related costs of $4,000, all of these decreases were generated by spending

reductions initiated during the prior fiscal year.

We expect to resume incurring sales and marketing expenses during the fourth quarter

of our fiscal year ending September 30, 2021.

and marketing expenses were $56,250 and $695,245 for the nine months ended June 30, 2021, and 2020, respectively.

Sales and marketing

expenses decreased primarily because of a decrease in payroll related expenses of $323,000, a decrease in consulting related costs of

$206,000, a decrease in marketed related costs of $71,000 and a decrease in travel related costs of $39,000, all of which were generated

by spending reductions initiated during the prior fiscal year.

and development costs were $169,098 and $205,613 for the three months ended June 30, 2021, and 2020, respectively.

Research and development

costs decreased primarily because of a decrease in payroll related expenses of $26,000 and a decrease in consulting related expenses

of $11,000, both decreases were the result of the spending reductions initiated during the prior fiscal year.

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

Research and development

expenses decreased for the nine-month period ended June 30, 2021, primarily because of a decrease in consulting related costs of $750,000

and a decrease in payroll related expense of $329,000, both decreases were the result of the spending reductions initiated during the

prior fiscal year.

had a net loss of $175,580 or $0.00 per share for the three months ended June 30, 2021, compared to a net loss of $1,157,743 or $0.03

per share for the three months ended June 30, 2020.

The year-over-year decrease in net loss for the three months ended June 30, was a

result of a decrease in operating expenses, and the PPP loan forgiveness of $192,051.

For the nine months ended June 30, 2021, we had

a net loss of $2,064,153 or $0.05 per share, compared to a net loss of $6,334,079 or $0.16 per share for the nine months ended June 30,

Net loss for the nine months ended June 30, decreased year-over-year as a result of the decreases in legal and other operating

expenses discussed earlier.

are developing products and services around our core encryption technology, which is designed to enable secure and private data transmission

in a post-quantum computing world.

We plan to offer a new suite of products that can be used in virtually any commercial data security

We believe that our products will allow our customers to securely send sensitive data to others, with little setup time required.

in calendar 2019, we retained an entirely new management team.

That management team restructured our business to focus our resources

on only products and services that we believe will be deliverable, will have viable economic potential, and may be publicly disseminated

without adversely affecting our competitive position.

The core of our product and service offerings will be built around our patents

and proprietary encryption technology.

We believe that we have developed a highly secure data protection technology, which has received

a validation certificate from the National Institute of Standards and Technology (NIST).

have focused our product development efforts on the commercial application of our technology by advancing what we call a Software Development

Kit, or “SDK.” We believe that our product development efforts have advanced our technology to be ready for commercial application,

in the form of products we have named Sentinel, Armor, and Shield.

We intend to make these products available to our future licensees

through our SDK.

the past, we have primarily marketed our products through indirect sales efforts.

We are currently developing new products and services

designed for direct sales to customers, rather than sales through third parties.

February 14, 2022, we announced the launch of Cipherloc Enclave, our first internally developed product.

Cipherloc Enclave is a micro-segmentation

product designed as an easy-to-use platform designed for organizations that are seeking to control communication between devices and

fully encrypt traffic between those devices.

Enclave is designed to provide a simple and cost-effective solution, as compared to current

complex cost-prohibitive solutions, which we believe require technical personnel to operate.

Cipherloc Enclave is designed to make micro-segmentation

available to everyone at a low cost, and with minimum technical administration.

Enclave platform will be available through a free plan or a fee per user plan, designed to fit the needs of the two types of end users

of the platform.

The free tier will give individuals the ability to use the platform for hobby and educational purposes.

The paid tier

will focus on business users, allowing them to have a more private experience that addresses security and optimization gaps that many

companies face in today’s ever-changing technology environment.

have six patents related to our core technology, which expire between 2034 and 2037.

of Operations

Months Ended December 31, 2021 Versus Three Months Ended December 31, 2020

revenue decreased to zero for the three months ended December 31, 2021, from $8,750 for the three months ended December 31, 2020.

decrease was due to our having no new invoicing activity taking place in the reporting period.

Neither of our current licensees generated

any licensing revenue during the period.

general and administrative expenses were $469,016 and $661,692, respectively, for the three months ended December 31, 2021, and 2020.

General and administrative expenses decreased in fiscal 2021, primarily as a result of $140,000 in accrued board fees in fiscal 2020

that did not occur in fiscal 2021, a decrease in legal expenses of $82,486 as a result of the settlement of various litigations matters

in 2020, and a decrease in rent of $37,779, which was partially offset by an increase of $45,000 in amortization of deferred costs related

to the private placement fees paid to the placement agent for a private placement of shares of our common stock in March and April 2021.

sales and marketing expenses were $53,393 and $25,000, respectively, for the three months ended December 31, 2021, and 2020.

marketing expenses increased in fiscal 2021 due to new costs incurred for brand and website marketing and business development consulting.

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

research and development expense increased in fiscal 2021 primarily due to personnel related costs.

had a net loss of $652,048, or $0.01 per share, for the three months ended December 31, 2021, compared to a net loss of $799,735, or

$0.03 per share, for the three months ended December 31, 2020.

The year-over-year decrease in net loss for the three months ended December

31, 2021 was primarily due to a decrease in operating expenses.

and Capital Resources

had an accumulated deficit on June 30, 2021, of $70,490,761.

had an accumulated deficit of $72,182,939 as of December 31, 2021.

We expect to incur substantial expenses and generate continued operating

losses until we generate revenues sufficient to meet our obligations.

On June 30, 2021, we had cash of $6,848,508.

On March 31, 2021,

we completed the initial closing of the Private Offering in which we sold 35,757,942 shares of our common stock at a price to the public

of $0.18 per share, for net proceeds of $5,497,964.

During the month of April 2021, we completed additional closings pursuant to the

Private Offering, in which we sold 19,791,673 shares of our common stock at a price to the public of $0.18 per share, for net proceeds

of $2,850,383.

Private Offering is described in greater detail in Note 2 – New Equity Issuance , to the unaudited financial statements included

had working capital of $6,301,824 as of June 30, 2021, compared to working capital of $123,102 as of September 30, 2020.

Working capital

increased because of funds raised through the Private Offering.

losses until we generate revenues sufficient to cover our expected ongoing obligations.

On December 31, 2021, we had cash of $5,071,588,

primarily from the proceeds of the private placement of shares of our common stock in March and April 2021 for $0.18 per share.

had working capital of $4,171,607 as of December 31, 2021, compared to working capital of $4,756,094 as of September 30, 2021.

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

Nine Months Ended

Net cash provided by (used in):

Operating activities

$ (2,566,292 )

$ (5,798,100 )

Investing activities

Financing activities

used in operating activities was $2,566,292 and $5,798,100 for the nine months ended June 30, 2021, and 2020, respectively.

of cash during the nine months ended June 30, 2021, were mainly attributable to a net loss of $2,064,153, which was increased by the

ROU asset gain of $441,597, the PPP loan forgiveness of $192,052 and a decrease in net operating assets and liabilities of $135,910.

The change in our net operating assets and liabilities was primarily due to a decrease in prepaid and other assets of $450,257, offset

by a decrease in accounts payable and accrued liabilities of $298,930, and a decrease in deferred revenue of $15,417.

used in investing activities was zero and $28,792 for the nine months ended June 30, 2021, and 2020, respectively.

The cash used in investing

activities for the nine months ended June 30, 2020, was the result of fixed asset purchases.

provided by financing activities was $8,334,961 for the nine months ended June 30, 2021.

The Company sold certain securities pursuant

to the Private Offering, described in Note 2 – New Equity Issuance , to the unaudited financial statements included above,

and raised $8,558,339, net of issuance costs, partially offset by the cash used in relation to a lawsuit filed by the Company against

James LeGanke, as Trustee of Carmel Trust II, which 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 and the repayment of a portion of the PPP loan plus interest in the

amount of $173,928.

Cash provided in financing activities for the nine months ended June 30, 2020, was due to the proceeds from the PPP

loan, offset by the legal settlement with First Fire Global Opportunity Fund, LLC and the purchase of Treasury Stock for $150,000 in

connection therewith (see also Note 7 - Stockholders’ Equity (Deficit) , to the unaudited financial statements included above).

information regarding the Private Offering and the Company’s debt can be found under Note 2 – New Equity Issuance

and Note 6 – Debt , to the unaudited financial statements included above.

used cash in operating activities in the amounts of $712,406 and $629,963 for the three months ended December 31, 2021, and 2020, respectively.

Our uses of cash during the three months ended December 31, 2021, were mainly attributable to a net loss of $652,048, which was partially

offset by $45,000 in amortization of deferred costs, $22,561 in stock compensation expense, and an increase in our net operating assets

and liabilities of $127,919.

The change in our net operating assets and liabilities was primarily due to an increase in accounts payable

and accrued liabilities of $198,921, which was partially offset by a decrease in prepaid and other assets of $71,002.

uses of cash during the quarter ended December 31, 2020, were attributable to a net loss of $799,735, which was partially offset by a

non-cash stock compensation expense of $41,025 and a decrease in net operating assets and liabilities of $128,747.

The decrease in our

net operating assets and liabilities was primarily due to a decrease in prepaid and other assets of $136,392, which was partially offset

by an increase in accounts payable and accrued liabilities of $7,645.

used in investing activities was zero and zero for the three months ended December 31, 2021, and 2020, respectively.

used in financing activities was in relation to the settlement of a lawsuit in which we paid $50,000 in exchange for the return of 1,000,000

shares of our Series A Preferred Stock and 127,500 shares of our common stock.

Sheet Arrangements

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

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

have any such arrangements.

Accounting Policies and Estimates

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Note 4 of the unaudited financial statements included in “Part I—Item 1.

Financial Statements ”, above, for a

discussion of our significant accounting policies.

Financial Statements”, above, for a discussion

of our significant accounting policies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 2. Management’s Discussion and Analysis