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Item 1. Financial Statements

2022-05-13 compared with 2022-02-14 · 262 added, 259 removed, 136 unchanged (79% of the section changed)

1 unchanged sentence

BALANCE SHEETS

March 31, 2022

September 30, 2021

Current assets

lease ROU asset

& STOCKHOLDERS’ EQUITY

payable and accrued liabilities

Deferred costs

Prepaid expenses

Total current assets

Deferred costs

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities

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 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

Accounts payable and accrued liabilities

Accrued compensation

Total current liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity

liabilities and stockholders’ equity

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

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

87,560,647 and 82,927,311 shares outstanding;

and 100,975,461 and 96,342,125 issued as of March 31, 2022, and September 30, 2021, respectively

Treasury stock, at cost, 13,414,814 and 13,414,814 shares as of March 31, 2022, and September 30, 2021, respectively

Additional paid-in capital

Accumulated deficit

( 72,982,996 )

( 71,530,891 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes to these unaudited condensed financial statements.

STATEMENTS OF OPERATIONS

Three Months Ended

Six Months Ended

Cost of revenues

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General and administrative

Sales and marketing

and development

operating expenses

Selling and marketing

Research and development

Total operating expenses

Operating loss

Other income (expenses)

income (expense), net

( 1,088,838 )

( 1,452,105 )

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

( 1,888,573 )

$ ( 800,057 )

$ ( 1,088,838 )

$ ( 1,452,105 )

$ ( 1,888,573 )

Net loss per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

accompanying notes to these unaudited condensed financial statements.

OF CASH FLOWS

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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$ ( 1,888,573 )

Adjustments to reconcile

net loss to net cash flows used in operating activities:

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

Stock-based compensation

Changes in operating assets

and liabilities:

Changes in operating assets and liabilities:

Prepaid expenses and other

Accounts payable and accrued

Accounts payable and accrued liabilities

Accrued compensation

cash used in operating activities

Deferred revenue

Net cash used in operating activities

( 1,393,935 )

CASH FLOWS FROM INVESTING ACTIVITIES:

of fixed assets

cash used in investing activities

Purchases of fixed assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of treasury stock

Purchase of preferred stock

of treasury stock

cash used in financing activities

DECREASE IN CASH

CASH, BEGINNING OF

Proceeds from the issuance of common stock, net of costs

Net cash provided by financing activities

(DECREASE) INCREASE IN CASH

( 1,393,935 )

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

NON-CASH INVESTING AND FINANCING ACTIVITIES:

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

Shares issued for services, previously in accrued expenses

accompanying notes to these unaudited condensed financial statements.

OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three Months ended

For the Six Months ended March 31, 2022

Stockholders’

For the Six Months ended March 31, 2022

Balance at September 30, 2021

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$ ( 71,530,891 )

Preferred and treasury shares acquired

Preferred and treasury shares acquired, shares

Stock option expense issued to directors &

Options issued to directors & employees

Shares issued for services

( 1,452,105 )

$ ( 1,452,105 )

Balance at March 31, 2022

$ ( 590,000 )

$ ( 72,982,996 )

Additional Paid-in

Stockholders’

For the Three Months ended March 31, 2022,

Balance at December 31, 2021

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$ ( 72,182,939 )

For the Three Months ended

Options issued to directors & employees

Shares issued for services

$ ( 800,057 )

Balance at March 31, 2022

$ ( 590,000 )

$ ( 72,982,996 )

Additional Paid-in

Stockholders’

For the Six Months ended March 31, 2021

Balance at September 30, 2020

2 unchanged sentences

$ ( 137,962 )

Options issued to directors & employees

Preferred and treasury shares acquired

( 1,000,000 )

Stock option expense issued to directors &

Issuance of common stock, net of issuance costs

( 1,888,573 )

Balance at December 31, 2020

$ ( 1,888,573 )

Balance at March 31, 2021

$ ( 590,000 )

$ ( 70,315,181 )

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

Stockholders’

the Three Months ended March 31, 2021,

at December 31, 2020

issued to directors & employees

of common stock, net of issuance costs

at March 31, 2021

accompanying notes to these unaudited condensed financial statements.

TO FINANCIAL STATEMENTS

THE THREE MONTHS ENDED DECEMBER 31, 2021, AND 2020

THE THREE AND SIX MONTHS ENDED MARCH 31, 2022, AND 2021

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

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

The Company became a Delaware corporation effective September 30, 2021.

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

Its website is www.cipherloc.net .

The Company’s website

is www.cipherloc.net .

2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America

The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles

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

The accompanying interim unaudited financial statements have been prepared in accordance with U.S.

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

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.

Company’s operating results for the six months ended March 31, 2022 are not necessarily indicative of the results that may be expected

for the entire fiscal 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.

3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America.

Company prepares its financial statements in accordance with U.S.

Significant accounting policies are as follows:

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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 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 .

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

At March 31, 2022, the Company’s cash included 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 .

As of March 31, 2022, $ 4,140,059 of the Company’s cash balance was uninsured.

The Company has not experienced any

losses of uninsured cash.

and Diluted Net Loss per Common Share

Company’s basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number

Company’s computes its basic loss per share by dividing the net loss available to common stockholders by the weighted average number

of common shares outstanding during the reporting period.

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

As of December

As of March 31,

2022, 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.

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

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

For the three and six month periods

ended March 31, 2022, the Company excluded warrants to purchase 79,461,481 shares of its common stock, and 2,000,001 shares of its common

stock issued pursuant to restricted stock units from the calculation of diluted loss per share because the effect would be anti-dilutive.

During the three and six months ended March 31, 2021, the Company excluded warrants to purchase 60,364,253 shares of common stock and

stock options to purchase 699,999 shares of common stock from the calculation of diluted loss per share because their effect would be

anti-dilutive .

and Development and Software Development Costs

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

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, 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 research and development expenses

incurred by the Company for the three months ended March 31, 2022 and 2021 were $ 140,919 and $ 175,083 , respectively which is a 19.5%

The research and development costs incurred by the Company for the six months ended March 31, 2022 and 2021 were $ 270,558 and

$ 296,876 , respectively.

Company recognizes revenues in accordance with the provisions of ASC 606, “Revenue from Contracts with Customers , ”

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

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

the contract,

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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 Company’s 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 access to the Company’s

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”) that

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

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.

the fiscal year ended September 30, 2019, the Company entered into an agreement with SoundFi LLC (“SoundFi”).

agreement provides for a one-year term that automatically renews for subsequent one-year periods unless otherwise terminated by either

The Company received a payment of $ 25,000 from SoundFi during the fiscal year ended September 30, 2020.

However, the Company has

not yet received any payments from SoundFi in the current fiscal year and is uncertain if there will be any such payments.

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.

ended September 30, 2020.

That agreement includes an auto-renewing annual term.

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

during the fiscal year ended September 30, 2020, but did not receive any payments from Castle Shield during the fiscal year ended September

However, the Company did receive payments totaling $ 15,417 from Castle Shield during the six months ended March 31, 2021.

Company recognized $ 251 in licensing revenues from Castle Shield during the six months ended March 31, 2022.

Accounting Pronouncements

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.

Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative

literature in the ASC.

There have been several ASUs to date that amend the original text of the ASCs.

Other than those discussed below,

the Company believes those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not

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

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

1 unchanged sentence

This guidance

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

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.

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

Disclosure Requirements for Fair Value Measurement , to modify the disclosure requirements for fair value measurements.

The ASU removes

certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes for Level 3 fair value

measurements.

It modifies certain disclosure requirements for investments in entities that calculate net asset value.

It adds certain

disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements and unobservable inputs used to develop

Level 3 fair value measurements.

ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2019.

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

Derivatives and Hedging (Topic 815):

Accounting for Certain Financial Instruments with Down Round Features and II.

Replacement of

the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable

Noncontrolling Interests with a Scope Exception.

ASU 2017-11 eliminates the requirement that a down round feature precludes equity classification

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

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 .

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 adopted

ASU 2019-12 on October 1, 2021, and the adoption of this update did not have a material impact on the Company’s financial position,

results of operations and cash flows.

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

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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.

The Company adopted this guidance on October

1, 2021, and the adoption of this update did not have a material impact on the Company’s financial position, results of operations

and cash flows.

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

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Early adoption is permitted.

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.

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

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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.

other entities, the amendments are effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted, but no

earlier than fiscal years beginning after December 15, 2020.

The Company adopted ASU 2020-06 on October 1, 2021, and the adoption of

this update did not have a material impact on the Company’s financial position, results of operations and cash flows.

4– COMMITMENTS AND CONTINGENCIES

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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, 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.

December 2017, Robert LeBlanc filed a petition against the Company and Michael De La Garza, the Company’s former Chief Executive

Officer and President, in the 20th Judicial District for Hays County, Texas (Cause No.

LeBlanc claims that he is a former

consultant, employee, and/or officer of the Company, Mr.

LeBlanc’s petition (which has been amended) alleges causes of action against

the Company for alleged violation of the Texas Securities Act, common law fraud against Mr.

breach of fiduciary duty against

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.

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.

LeBlanc seeks damages exceeding $ 1,000,000 , but less than $ 10,000,000 .

The Company believes that Mr.

LeBlanc was fully compensated for his services, and that his claims are without merit.

LeBlanc is also

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

believes it has meritorious defenses to Mr.

LeBlanc’s 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

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The lawsuit alleges causes of action for fraud against Mr.

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;

Garza (for misrepresentations allegedly made by Mr.

De La Garza);

breach of contract, for alleged breaches of Mr.

Marquez’s alleged

oral employment agreement, which Mr.

Marquez claims required the Company pay him cash and shares of stock;

unjust enrichment;

quantum meruit;

and rescission of certain

stock purchases made by certain of the plaintiffs, as well as declaratory relief and fraud.

Damages sought exceed $ 1,000,000 .

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.

and rescission of certain stock purchases made by certain of the plaintiffs, as well as requests for declaratory relief.

sought exceed $ 1,000,000 .

The Company believes it has made all required payments and delivered the stock to the plaintiffs.

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 March 31, 2022, the Company had no financial obligations for facility lease agreements, except as set forth below.

to December 1, 2021, Tom Wilkinson, the Company’s Chairman of the Board of Directors, provided the Company with the use of office

space that he rents, located at 6836 Bee Caves Road, Building 1, Suite 279, Austin, TX 78746, for its corporate headquarters.

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 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

1, 2021, the Company entered into a month-to-month lease agreement for this office space with Nolen & Associates, under which the

Company pays Nolen & Associates $ 500 per month in rent.

Company’s rent expense totaled $ 1,641 and $ 2,141 for the three and six months ended March 31, 2022, and $ 97,910 and $ 136,188 for

the three and six months ended March 31, 2021, respectively.

April 6, 2020, to supplement its cash balances, the Company submitted an application for a $ 365,430 loan under the Paycheck Protection

Program (“PPP”) sponsored by the U.S.

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.

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, 2022.

January 29, 2021, the Company filed for partial forgiveness of $ 192,052 of the SBA Loan, which was approved on June 11, 2021.

The Company’s

reductions in staff that occurred in 2020 prevented the Company from qualifying for full forgiveness of the principal balance of the

April 15, 2021, the Company placed the full $ 365,430 principal balance of the SBA Loan, plus an additional $ 1,000 , in an escrow account.

Upon approval of the partial SBA Loan forgiveness, the Company paid the remaining balance of the SBA Loan, using funds in the escrow

The Company transferred the remaining balance of the escrow account to the Company’s operating account.

As a result, 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.

Company’s certificate of incorporation authorizes the issuance of up to 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.

As of March 31, 2022, the Company had 87,560,647

shares of common stock, and no shares of preferred stock, outstanding.

the six months ended March 31, 2022, the Company issued 4,633,336 shares of its common stock as set forth below.

No preferred stock has

been issued during this six-month period.

with the last quarter of the Company’s fiscal year ended September 30, 2021, the Company’s Board of Directors elected to

receive one-half of the members’ quarterly compensation in shares of the Company’s common stock, instead of cash.

April 2021 meeting, the 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 new Equity Incentive Compensation Plan by its stockholders.

That approval was received at the Company’s

annual meeting of stockholders in September 2021.

As a result, the Company’s directors have received a total of 633,336 shares

of the Company’s common stock through the one-time grant and three quarterly compensation payments discussed above.

issued the shares for the one-time awards and the fiscal year 2021 fourth quarter awards, totaling 411,112 shares, on January 13, 2022.

The Company issued the shares for the fiscal year 2022 first quarter awards totaling 111,112 on January 31, 2022, and shares for the

second quarter awards totaling 111,112 on March 28, 2022.

July 23, 2021, the Company entered into a financial advisory and consulting agreement with Paulson Investment Company, LLC (“ Paulson ”).

Pursuant to that agreement, Paulson will provide the following services at the Company’s request:

(a) familiarize itself with the

Company’s business, assets and financial condition;

(b) assist the Company in developing strategic and financial objectives;

assist the Company in increasing its exposure in the software industry;

(d) assist the Company in increasing its 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 by the Company.

term of the agreement is four years from the date of the agreement, unless terminated earlier by either party as provided therein.

compensation for the services provided by Paulson under the agreement, on March 20, 2022, the Company issued a total of 4,000,000 shares

of the Company’s common stock to Paulson and three of its employees.

This was valued at $ 720,000 at the date of the consulting

The contract amount was capitalized as deferred contract costs and is being amortized to expense straight-line over the 4-

year service period.

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.

October 22, 2021, the Company entered into restricted stock unit award agreements with four employees and one contractor.

granted a total of 2,000,001 shares of restricted stock to these individuals.

The restricted stock awards vest in three equal tranches

on the next three anniversaries of the date of the applicable awards.

The value of the shares of restricted stock was $ 260,000 , based

upon the then current market price of the Company’s common stock of $ 0.13 per share on the grant date.

For the six months ended

March 31, 2022, the Company recorded $ 51,568 in stock compensation expense related to these agreements.

7 – SUBSEQUENT EVENTS

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.

The Company does not have any subsequent events to report as of

the date of this filing.

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