UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



FORM
10-Q



[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For
the quarterly period ended December 31, 2019



[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT



For
the transition period from N/A to N/A



Commission
File No. 000-28745



Cipherloc
Corporation

(Name
of small business issuer as specified in its charter)



|Texas                               |  | 86-0837077             
|----------------------------------- |  | -----------------------
|(State
    or other jurisdiction of |  | (IRS
    Employer      
|incorporation
    or organization)  |  | Identification
    No.)



825
Main St, Suite 100

Buda,
TX 78610

(Address
of principal executive offices)



(512)
649-7700

Registrant’s
telephone number, including area code



Indicate
by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days:

Yes
[  ] No [X]



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes
[X] No [  ]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



| | Large
    accelerated filer | [  ] | Accelerated
    filer         | [  ]
| | --------------------------- | ---- | ----------------------------- | ----
| | Non–Accelerated
    filer   | [X]  | Smaller
    reporting company | [X] 
| | Emerging
    growth company | [  ] |                               |     



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).Yes [  ]
No [X]



As
of January 31, 2020, 40,792,510 shares of the issuer’s common stock were outstanding.






















CIPHERLOC
CORPORATION

INDEX
TO FORM 10-Q FILING

FOR
THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

TABLE
OF CONTENTS



|                               | PAGE                                                                                      
|------------------------------ | ------------------------------------------------------------------------------------------
|PART I - FINANCIAL INFORMATION |                                                                                           
|                               |                                                                                           
|Item 1.                        | Financial Statements (Unaudited)                                                          
|                               | Balance Sheets at December 31, 2019 and September 30, 2019                                
|                               | Statements of Operations for the three months ended December 31, 2019 and 2018            
|                               | Statements of Cash Flows for the three months ended December 31, 2019 and 2018            
|                               | Statement of Stockholders’ Equity for the three months ended December 31, 2019 and 2018   
|                               | Notes to Financial Statements                                                             
|Item 2.                        | Management Discussion & Analysis of Financial Condition and Results
    of Operations     
|Item 3                         | Quantitative and Qualitative Disclosures About Market Risk                                
|Item 4.                        | Controls and Procedures                                                                   
|                               |                                                                                           
|PART II - OTHER INFORMATION    |                                                                                           
|                               |                                                                                           
|Item 1.                        | Legal Proceedings                                                                         
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                               
|Item 3.                        | Defaults Upon Senior Securities                                                           
|Item 4.                        | Mining Safety Disclosures                                                                 
|Item 5                         | Other Information                                                                         
|Item 6.                        | Exhibits                                                                                  
|                               |                                                                                           
|CERTIFICATIONS                 |                                                                                           
|                               |                                                                                           
|31.1                           | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
|31.2                           | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
|32.1                           | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
|32.2                           | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act



2







PART
I

FINANCIAL
INFORMATION



ITEM
1. FINANCIAL STATEMENTS



The
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. Except as 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, 2019. 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 months ended December
31, 2019 are not necessarily indicative of the results that can be expected for the year ending September 30, 2020.



3







CIPHERLOC
CORPORATION

BALANCE
SHEETS

(UNAUDITED)



|                                                                                                                                                                                |  | December
                                         31, 2019 |             |   | September
    30, 
    2019 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ----------- | - | --------------------------- | -
|ASSETS                                                                                                                                                                          |  |                                                            |             |   |                             |  
|Current assets                                                                                                                                                                  |  |                                                            |             |   |                             |  
|Cash                                                                                                                                                                            |  | $                                                          | 5,677,539   |   |                             | $
|Prepaid expenses                                                                                                                                                                |  |                                                            | 64,730      |   |                             |  
|Total current assets                                                                                                                                                            |  |                                                            | 5,742,269   |   |                             |  
|                                                                                                                                                                                |  |                                                            |             |   |                             |  
|Other assets                                                                                                                                                                    |  |                                                            | 7,566       |   |                             |  
|Operating lease ROU asset                                                                                                                                                       |  |                                                            | 209,419     |   |                             |  
|Fixed assets, net                                                                                                                                                               |  |                                                            | 48,619      |   |                             |  
|Total assets                                                                                                                                                                    |  | $                                                          | 6,007,873   |   |                             | $
|                                                                                                                                                                                |  |                                                            |             |   |                             |  
|LIABILITIES & STOCKHOLDERS’ EQUITY                                                                                                                                              |  |                                                            |             |   |                             |  
|Current liabilities                                                                                                                                                             |  |                                                            |             |   |                             |  
|Accounts payable and accrued liabilities                                                                                                                                        |  | $                                                          | 662,857     |   |                             | $
|Accrued compensation                                                                                                                                                            |  |                                                            | —           |   |                             |  
|Operating lease liability                                                                                                                                                       |  |                                                            | 102,251     |   |                             |  
|Deferred revenue                                                                                                                                                                |  |                                                            | 9,650       |   |                             |  
|Total current liabilities                                                                                                                                                       |  |                                                            | 774,758     |   |                             |  
|                                                                                                                                                                                |  |                                                            |             |   |                             |  
|Operating long-term lease liability                                                                                                                                             |  |                                                            | 102,413     |   |                             |  
|Total liabilities                                                                                                                                                               |  |                                                            | 817,732     |   |                             |  
|                                                                                                                                                                                |  |                                                            |             |   |                             |  
|Commitments and contingencies (Note 5)                                                                                                                                          |  |                                                            |             |   |                             |  
|                                                                                                                                                                                |  |                                                            |             |   |                             |  
|Series A convertible preferred stock, $0.01 par value, 1,000,000 shares authorized; 1,000,000
    issued and outstanding as of December 31, 2019 and September 30, 2019         |  |                                                            | 10,000      |   |                             |  
|Common stock, $0.01 par value, 681,000,000 shares authorized; 40,792,510 and 40,792,510
    issued and outstanding as of December 31, 2019 and September 30, 2019, respectively |  |                                                            | 407,925     |   |                             |  
|Additional paid-in capital                                                                                                                                                      |  |                                                            | 68,277,399  |   |                             |  
|Accumulated deficit                                                                                                                                                             |  |                                                            | (63,564,622 | ) |                             |  
|Total stockholders’
    equity                                                                                                                                                  |  |                                                            | 5,130,702   |   |                             |  
|Total liabilities and
    stockholders’ equity                                                                                                                                  |  | $                                                          | 6,007,873   |   |                             | $



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



4







CIPHERLOC
CORPORATION

STATEMENTS
OF OPERATIONS

(UNAUDITED)



|                                                                   |  | Three Months Ended |           
|------------------------------------------------------------------ |  | ------------------ | ----------
|                                                                   |  | December
    31,   |           
|                                                                   |  | 2019               |           
|Revenues                                                           |  | $                  | 18,570    
|Cost of revenues                                                   |  |                    | —         
|Gross profit                                                       |  |                    | 18,750    
|                                                                   |  |                    |           
|Operating expenses                                                 |  |                    |           
|General and administrative                                         |  |                    | 1,304,780 
|Sales and marketing                                                |  |                    | 256,044   
|Research and development                                           |  |                    | 566,015   
|Total operating expenses                                           |  |                    | 2,067,400 
|Operating loss                                                     |  |                    | (2,108,089
|                                                                   |  |                    |           
|Other income (expenses)                                            |  |                    |           
|Interest income (expense),
    net                                 |  |                    | —         
|Net loss                                                           |  | $                  | (2,108,089
|                                                                   |  |                    |           
|Net loss per common share – basic
    and diluted                  |  | $                  | (0.05     
|                                                                   |  |                    |           
|Weighted average common shares outstanding
    – basic and diluted |  |                    | 40,792,510



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



5







CIPHERLOC
CORPORATION

STATEMENTS
OF CASH FLOWS

(UNAUDITED)







|                                                                                      |  | Three Months Ended |           
|------------------------------------------------------------------------------------- |  | ------------------ | ----------
|                                                                                      |  | December
    31,   |           
|                                                                                      |  | 2019               |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |  |                    |           
|Net loss                                                                              |  | $                  | (2,108,089
|Adjustments to reconcile net loss to net cash
    flows used in operating activities: |  |                    |           
|Depreciation                                                                          |  |                    | 5,404     
|Stock-based compensation                                                              |  |                    | 51,574    
|Stock issued for services                                                             |  |                    | —         
|Changes in operating assets and liabilities:                                          |  |                    |           
|Prepaid expenses and other assets                                                     |  |                    | 56,641    
|Accounts payable and accrued liabilities                                              |  |                    | 7,423     
|Accrued compensation                                                                  |  |                    | (142,295  
|Deferred revenue                                                                      |  |                    | (18,750   
|Net cash used in operating
    activities                                             |  |                    | (2,148,092
|                                                                                      |  |                    |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |  |                    |           
|Purchase of fixed assets                                                              |  |                    | (13,841   
|Net cash used in investing
    activities                                             |  |                    | (13,841   
|                                                                                      |  |                    |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |  |                    |           
|Common stock issued for cash                                                          |  |                    | —         
|Proceeds from convertible
    note, net                                               |  |                    | —         
|Net cash provided by
    financing activities                                         |  |                    | —         
|                                                                                      |  |                    |           
|DECREASE IN CASH                                                                      |  |                    | (2,161,933
|CASH, BEGINNING OF PERIOD                                                             |  |                    | 7,839,472 
|CASH, END OF PERIOD                                                                   |  | $                  | 5,677,539 
|                                                                                      |  |                    |           
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                          |  |                    |           
|ROU asset                                                                             |  | $                  | 209,419   
|ST operating lease liability                                                          |  | $                  | 102,251   
|LT operating lease liability                                                          |  | $                  | 102,413   





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



6







CIPHERLOC
CORPORATION

STATEMENTS
OF STOCKHOLDERS’ EQUITY

(UNAUDITED)



|                                                                     |  | Preferred
    Stock |           |  | Common
    Stock |   |        | Additional
    Paid-in |  |  | Accumulated |  |  | Stockholders’ |        
|-------------------------------------------------------------------- |  | ------------------- | --------- |  | ---------------- | - | ------ | ---------------------- |  |  | ----------- |  |  | ------------- | -------
|                                                                     |  | Shares              |           |  | Amount           |   |        | Shares                 |  |  | Amount      |  |  | Capital       |        
|Balance
    at September 30, 2019                                    |  |                     | 1,000,000 |  |                  | $ | 10,000 |                        |  |  | 40,792,510  |  |  | $             | 407,925
|Stock
    option expense issued to directors, officers and employees |  |                     | —         |  |                  |   | —      |                        |  |  | —           |  |  |               | —      
|Net
    loss                                                         |  |                     | —         |  |                  |   | —      |                        |  |  | —           |  |  |               | —      
|Balance
    at December 31, 2019                                     |  |                     | 1,000,000 |  |                  | $ | 10,000 |                        |  |  | 40,792,510  |  |  | $             | 407,925





|                                     |  | Preferred
    Stock |           |  | Common
    Stock |   |        | Additional
    Paid-in |  |  | Accumulated |  |  | Stockholders’ |        
|------------------------------------ |  | ------------------- | --------- |  | ---------------- | - | ------ | ---------------------- |  |  | ----------- |  |  | ------------- | -------
|                                     |  | Shares              |           |  | Amount           |   |        | Shares                 |  |  | Amount      |  |  | Capital       |        
|Balance
    at September 30, 2018    |  |                     | 1,000,000 |  |                  | $ | 10,000 |                        |  |  | 40,743,917  |  |  | $             | 407,438
|Common
    stock issued for services |  |                     | —         |  |                  |   | —      |                        |  |  | 20,000      |  |  |               | 200    
|Net
    loss                         |  |                     | —         |  |                  |   | —      |                        |  |  | —           |  |  |               | —      
|Balance
    at December 31, 2018     |  |                     | 1,000,000 |  |                  | $ | 10,000 |                        |  |  | 40,763,917  |  |  | $             | 407,638



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



7







CIPHERLOC
CORPORATION

NOTES
TO FINANCIAL STATEMENTS

FOR
THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(Unaudited)



NOTE
1 - DESCRIPTION OF BUSINESS



Cipherloc
Corporation (the “Company” or “Cipherloc”) was incorporated in Texas on June 22, 1953 as American Mortgage
Company. Effective August 27, 2014, the Company changed its name to Cipherloc Corporation.



NOTE
2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS



The
Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of
America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X.
In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have
been included.



Operating
results for the three months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the
year ending September 30, 2020. Notes to the unaudited interim financial statements that would substantially duplicate the disclosures
contained in the audited financial statements for the year ended September 30, 2019 have been omitted; this report should
be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September 30,
2019 included within the Company’s Form 10-K as filed with the Securities and Exchange Commission.



NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The
Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of
America. Significant accounting policies are as follows:



Cash
and Cash Equivalents



The
Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents.
At December 31, 2019 and September 30, 2019, 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 December 31, 2019, $5,384,631 of the Company’s cash balance was uninsured.



Basic
and Diluted Net Loss per Common Share



Basic
loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares
outstanding during the reporting period. The weighted average number of shares is calculated by taking the number of shares outstanding
and weighting them by the amount of time that they were outstanding. Diluted earnings per share reflects the potential dilution
that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest,
resulting in the issuance of common stock that could share in the earnings of the Company. As of December 31, 2019, and September
30, 2019, the Company had 1,000,000 shares of preferred stock outstanding, which are convertible into 1,500,000 shares of common
stock.



Diluted
loss per share is the same as basic loss per share during periods where net losses are incurred since the inclusion of the potential
common stock equivalents would be anti-dilutive as a result of the net loss. During the three months ended December 31, 2019,
24,216,866 warrants and 1,000,000 shares of convertible preferred stock were excluded from the calculation of diluted loss per
share because their effect would be anti-dilutive. During the three months ended December 31, 2018, 25,015,866 warrants and 1,000,000
shares of convertible preferred stock were excluded from the calculation of diluted loss per share because their effect would
be anti-dilutive.



8







Research
and Development and Software Development Costs



The
Company expenses all research and development costs, including patent and software development costs. Our research and development
costs incurred for the three months ended December 31, 2019 and 2018 were $566,015 and $345,895, respectively.



Revenue
Recognition



The
Company recognizes revenues in accordance with the provisions of Accounting Standards Update 2014-09, “Revenue from Contracts
with Customers,” and a series of amendments which together we identify as “ASC Topic 606”. This new accounting
standard, which we adopted on October 1, 2018 using the permitted modified retrospective method, outlines a single comprehensive
model for entities to use in accounting for revenues arising from contracts with customers. The new standard supersedes most previous
revenue recognition guidance, including industry-specific guidance. The effect of the adoption of ASC Topic 606 on retained earnings
as of October 1, 2018 was not material. The differences between our reported operating results for the three months ended December
31, 2019, which reflect the application of the new standard on our contracts, and the results that would have been reported if
the accounting was performed pursuant to the accounting standards previously in effect, also were not material.



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



|1. | Identify
    the contract,                                            
|-- | ----------------------------------------------------------------------
|2. | Identify
    the performance obligations of the contract,             
|3. | Determine
    the transaction price of the contract,                  
|4. | Allocate
    the transaction price to the performance obligations, and
|5. | Recognize
    revenue.                                                



The
Company accounts for a promise to provide a customer with a right to access the Company’s intellectual property as a performance
obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s
performance of providing access to its intellectual property as the performance occurs.



SoundFi
– Software License Agreement



On
February 15, 2019, the Company entered into a one-year agreement renewable for up to 4 years for an annual $50,000 Shield license
fee and $25,000 watermark base license fee with SoundFi LLC (“SoundFi”). Residual income to the Company is earned
based on the number of audio files downloaded per year with residual earnings of $.012 per download exceeding 3,000,001 and scaling
up to $.00075 per download exceeding 100,000,000. During the three months ended December 31, 2019, the Company recognized $18,750
in licensing revenue. The Company has determined the best method for measuring licensing revenue to be the passage of time and
more specifically on a monthly basis. The recognition of residual income occurs on an annual basis based on download volume provided
by SoundFi. A download is defined as an audio file downloaded to a mobile device from the SoundFi servers.



Recent
Accounting Pronouncements



The
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.



In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820) – Disclosure Framework – Changes
to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements for fair value measurements.
The ASU removes certain disclosure requirements related to transfers between fair value hierarchy levels and valuation processes
for Level 3 fair value measurements. It modifies certain disclosure requirements for investments in entities that calculate net
asset value. It adds certain disclosure requirements regarding gains and losses for recurring Level 3 fair value measurements
and unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. The Company is currently in the process of evaluating the
effect this guidance will have on its financial statements and related disclosures.



9







In
June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee
Share-Based Payment Accounting, to expand the scope of Topic 718, Compensation – Stock Compensation, which currently
only includes share-based payments to employees, to include share-based payments issued to nonemployees for goods or services.
Thus, accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted ASU 2018-07
on October 1, 2019 and the adoption of this update did not have a material impact on the Company’s financial position, results
of operations and cash flows.



In
February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing activities more transparent and comparable and
requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset (ROU) and corresponding
lease liability, including leases currently accounted for as operating leases. Leases of mineral reserves and related land leases
have been exempted from the standard. We adopted ASU 2016-02, Leases, on October 1, 2019. We elected the “package of practical
expedients” within the standard which permits us not to reassess prior conclusions about lease identification, lease classification
and initial direct costs. We made an accounting policy election to not separate lease and non-lease components for all leases.
The adoption of this standard resulted in the recognition of right-of-use assets and lease liabilities of $0.2 million, which
were not previously recorded on our balance sheet.



NOTE
4 – COMMITMENTS AND CONTINGENCIES



Litigation



The
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.



A
disgruntled former consultant has brought an action in Texas state court against the Company and its former chief executive officer,
alleging fraud and misrepresentation pertaining to stock and payments alleged to be owed to the consultant. The Company believes
it has made all required payments and delivered the stock to the consultant. The consultant has also included a claim of partial
ownership of certain of the Company’s patents, which management believes is without merit. The case is currently being defended
by the Company and costs relating thereto have been submitted to the Company’s insurance carrier.



In
August 2019, the Board of Directors formed a special committee of independent directors (the “Special Committee”)
to investigate certain activities of Michael De La Garza (“De La Garza”), our former chief executive officer. The
Special Committee has retained legal counsel, and is authorized to retain forensic accountants, to assist the investigation.



In
August 2019, the Company initiated litigation against De La Garza in the Discount Court of Travis Country, Texas (the “Court”)
in order to stop him from misappropriating the company’s trade secrets, depleting its monies and other assets, damaging
the value of the company in the marketplace, and holding himself out as the company’s CEO. On September 25, 2019, the Court
entered a temporary injunction against De La Garza enjoining him from numerous acts including representing himself as the Company’s
CEO and from interfering with the current CEO’s management of the company. This litigation is ongoing, and its resolution
is unknown. The Special Committee is investigating certain activities of De La Garza, including the Ageos, LLC Operating Agreement,
the QHCI/Noun note receivable, an advance/bonus, personal expenditures, and other items. All amounts expended have been expensed
as of September 30, 2019. No amounts have been recorded in these financial statements as expected recoveries.



Leases



In
March 2019, the Company guaranteed a lease on behalf of Ageos, LLC in McLean, Virginia. The lease has a term of three years for
4,359 square feet of space in McClean, Virginia. The initial rent cost is $7,991 per month and the lease agreement provides for
annual rent increases of approximately 4.0%. The amount of future payments guaranteed is $267,389. The agreement with Ageos was
terminated in August 2019 and the Company has made an unwritten offer to assume the lease. No amounts have been accrued for this
commitment as of December 31, 2019.



10







In
February 2019, the Company and the landlord for its leased office space in Buda, Texas entered into a new lease agreement, and
the Company reduced its rented space from approximately 3,900 to 1,302 square feet. The new lease was effective February 1, 2019
and has a three-year term. The initial monthly rent is $2,566, and the lease agreement provides for annual rent increases of approximately
2.7%. The lease automatically renews for a three-year term, unless either party to the lease agreement notifies the other of the
intent to terminate the lease in writing at least 180 days prior to the expiration of the current term. The amount of future payments
guaranteed is $66,690.



In
October 2018, the Company leased approximately 3,900 square feet of office space on North Scottsdale Road in Scottsdale, Arizona.
The lease for this facility began on October 4, 2018 and continues until October 31, 2021. Annual rent of $77,180 was prepaid
for the first year from November 1, 2018 to October 31, 2019, and the lease agreement provides for annual rent increases of approximately
5.0%. The amount of future payments guaranteed is $152,430.



Our
significant accounting policies are detailed in Note 2 of our Annual Report on Form 10-K for the year ended September 30, 2019.
Changes to our accounting policies as a result of adopting ASU 2016-02 are discussed below.



The
Company has two lease agreements for facilities. Some leases include options to extend for one or more years. These options are
included in the lease term when it is reasonably certain that the option will be exercised.



Leases
with an initial term of 12 months or less are not recorded on our Balance Sheet; we recognize lease expense for these leases on
a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing
leases in our Balance Sheet.



Lease
assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the
lease term at commencement date. As most of our leases do not provide an implicit rate, we use a secured incremental borrowing
rates based on the information available at commencement date, including lease term, in determining the present value of future
payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs
incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will
be exercised.



At
inception, the Company determines if an arrangement contains a lease and whether that lease meets the classification criteria
of a finance or operating lease. Some of the Company’s lease arrangements contain lease components (e.g. minimum rent payments)
and non-lease components (e.g. maintenance, labor charges, etc.). The Company generally accounts for each component separately
based on the estimated standalone price of each component. For certain leases the Company accounts for the lease and non-lease
components as a single lease component.



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



Operating
Leases



Operating
leases are included in operating lease ROU lease assets, and operating lease liabilities and operating long-term lease liabilities
on the Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable
lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense is included in
general and administrative expense in the statements of operations and is reported net of lease income. Lease income is not material
to the results of operations for the quarter ended December 31, 2019.



11













Cash
Flows



An
initial right-of-use asset of $209,419 was recognized as a non-cash asset addition with the adoption of the new lease accounting
standard. Cash paid for amounts included in the present value of operating lease liabilities was $28,387 during first quarter
2020 and is included in operating cash flows.



The
weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of December 31, 2019:



|Remaining lease term and discount rate:        |  | December 31, 2019 |     
|---------------------------------------------- |  | ----------------- | ----
|Weighted average remaining lease terms (years) |  |                   |     
|Lease facilities                               |  |                   | 1.75
|                                               |  |                   |     
|Weighted average discount rate                 |  |                   |     
|Lease facilities                               |  |                   | 4.62



Significant
Judgements



Significant
judgements include the discount rates applied, the expected lease terms, and lease renewal options. There are two leases with
a renewal options. Using the practical expedient the Company utilized existing lease classifications as of September 30, 2019.
As a result the lease renewal options were not changed on implementation.



The
Company will reassess the lease terms and purchase options when there is a significant event of change in circumstances or when
the Company elects to exercise an option that had previously been determined that it was not reasonably certain to do so.



Future
annual minimum lease obligations at December 31, 2019 are as follows:



|Year Ending December 30, |  | Amount |        
|------------------------ |  | ------ | -------
|2020                     |  | $      | 84,438 
|2021                     |  |        | 87,433 
|2022                     |  |        | 47,249 
|                         |  | $      | 219,120



Rent
expense totaled $22,744 and $107,542 for the three months ended December 31, 2019 and 2018, respectively.



NOTE
5 - STOCKHOLDERS’ EQUITY



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





Common
Stock



During
the three months ended December 31, 2019, the Company issued 620,000 shares of stock options to the employees with a fair value
of $459,019, of which $12,751 was recorded as stock-based compensation expenses in research and development, marketing and general
administration expense. Options will vest over a three-year period ratably. Of the 620,000 options, 500,000 options have a strike
price of $0.78 and the remaining 120,000 have a strike price of $0.81. Total stock compensation expense was $51,574 for the quarter
ended December 31, 2019.



During
the three months ended December 31, 2018, the Company issued 20,000 shares of common stock with a fair value of $40,000 to Pycnocline,
LLC for management consulting services.



NOTE
6 – SUBSEQUENT EVENTS



On
January 17, 2020, a decision was made to form a new company to be incorporated in the state of Nevada. The new entity will be
a wholly owned subsidiary of Cipherloc Corporation and will become the commercial enterprise of the consolidated entity following
the completion of a trademark search before the end of the Company’s second quarter.



On
January 31, 2020, a commercial lease for office space in the state of Virginia between 2111 Wilson Boulevard Inc. and Cipherloc
Corporation was executed with a commencement date of February 1, 2020.



On
February 1, 2020, Cipherloc Corporation hired Ryan Polk as its Chief Financial Officer.



12







ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



In
this Quarterly Report, “Company,” “our company,” “us,” and “our” refer to Cipherloc
Corporation and its subsidiaries, unless the context requires otherwise.



Forward-Looking
Statements



The
following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the
happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking
terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,”
“plan,” “predict,” “probable,” “possible,” “should,” “continue,”
or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following
information have been compiled by our management on the basis of assumptions made by management and considered by management to
be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is
to be inferred from those forward-looking statements.



Our
Business



We
are developing products and services around its patented polymorphic encryption technology designed to enable a more efficient
and stronger layer of protection to be added to existing solutions which we believe could be the industry’s first “Polymorphic
Cipher Engine”, which we call Cipherloc®. We anticipate offering the first secure commercially viable advanced
“Polymorphic Key Progression Algorithmic Cipher Engine” (“PKPA”). We believe this morphing cipher can
be used in any commercial data security industry and/or in sensitive applications.



Our
innovative and patented polymorphic technology eliminates the flaws and inadequacies associated with today’s encryption
algorithms. Instead of dealing with large monolithic blocks of data, our approach decomposes the information to be protected into
multiple segments. These individual segments each have a unique encryption key, utilize different encryption algorithms, are randomly
grouped into different lengths, and can be further re-encrypted. Since segments are independent from each other and are individually
protected, our technology is not susceptible to computational attacks. In fact, the strength of our technology improves as compute
power increases.



Results
of Operations for the three months ended December 31, 2019 and 2018



Revenue
increased to $18,750 for the three months ended December 31, 2019 from $0 for the three months ended December 31, 2018. The increase
in revenue is related to the SoundFi license contract.



General
and administrative expenses increased to $1,304,780 for the three months ended December 31, 2019 from $532,974 for the three months
ended December 31, 2018. General and administrative expenses increased primarily as a result of higher legal fees of $470,000,
higher headcount related costs of $195,000, higher professional fees, consulting fees and contract services of $107,000.



Sales
and marketing expenses increased to $256,044 for the three months ended December 31, 2019 from $213,975 for the three months ended
December 31, 2018. Sales and marketing expenses increased primarily as a result of higher headcount related costs of $151,000.



Research
and development costs increased to $566,015 for the three months ended December 31, 2019 from $345,895 for the three months ended
December 31, 2018. Research and development expenses increased primarily as a result of higher consulting costs of $203,000 and
higher headcount related costs of $17,000.



Interest
income, net, was $897 for the three months ended December 31, 2018.



Liquidity
and Capital Resources



We
had an accumulated deficit at December 31, 2019 of $63,564,622. We expect to incur substantial expenses and generate continued
operating losses until we generate revenues sufficient to meet our obligations. At December 31, 2019, we had cash of $5,327,539.
We believe that our existing cash balances are sufficient to fund future operations for the next 9 to 12 months. We may need to
raise additional capital to increase liquidity and extend the period of time until we have positive cashflow from operations.
We believe the additional funding required can be obtained on terms acceptable to us, although there can be no assurance that
we will be successful.



13







Cash
Flow



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



|                     |  | Three Months Ended |           
|-------------------- |  | ------------------ | ----------
|                     |  | December
    31,   |           
|                     |  | 2019               |           
|Net cash (used in):  |  |                    |           
|Operating activities |  | $                  | (2,148,092
|Investing activities |  | $                  | (13,841   
|Financing activities |  | $                  | —         



Operating
Activities



Cash
used in operating activities was $2,148,092 and $986,146 for the three months ended December 31, 2019 and 2018, respectively.
The change in cash used in operating activities was primarily due to the increase in the net loss during 2019.



Investing
Activities



Cash
used in investing activities was $13,841 and $17,719 for the three months ended December 31, 2019 and 2018, respectively. The
cash used in investing activities was the result of fixed asset purchases.



Financing
Activities



Cash
provided by financing activities was $0 and $0 for the three months ended December 31, 2019 and 2018, respectively.



Off-Balance
Sheet Arrangements



We
have no off-balance sheet arrangements, including arrangements that would affect the liquidity, capital resources, market risk
support, and credit risk support or other benefits.



ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not
applicable



ITEM
4. CONTROLS AND PROCEDURES



This
report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities
Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning
the controls and control evaluations referred to in those certifications.



Evaluation
of Disclosure Controls and Procedures



We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed
to provide reasonable assurance that the controls and procedures would meet their objectives.



14







As
required by SEC Rule 13a-15(b), our Cheif Executive Officer and Chief Financial Officer need to carry out an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
report.



Management’s
Report on Internal Control over Financial Reporting



Our
Principal Executive Officer and the Principal Financial Officer are responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting.
Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and
procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made
only in accordance with appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material
effect on the financial statements.



In
connection with the preparation of our Annual Report on Form 10-K for the year ended September 30, 2019, our Principal Executive
Officer and Principal Financial Officer evaluated the effectiveness of our internal control over financial reporting as of September
30, 2019 and concluded that we did not maintain effective internal control over financial reporting as of September 30, 2019 due
to the identification of material weaknesses. Certain transactions that occurred from October 1, 2018 through August 31, 2019
validated that the material weakness had not been remedied as of September 30, 2019. We intend to remediate these material weaknesses
during the 2020 fiscal year.



Changes
in Internal Control over Financial Reporting



We
intend to begin implementing a remediation plan to address the material weaknesses identified during the year ended September
30, 2020. The remediation efforts will focus on:



| | ● | Enhancing
    monitoring and review controls over financial reporting and disclosures;               
| | - | -----------------------------------------------------------------------------------------------------
| |   |                                                                                                      
| | ● | Enhancing
    review and approval controls around transaction processing;                            
| |   |                                                                                                      
| | ● | Enhancing
    controls around proving the delivery of software; and                                  
| |   |                                                                                                      
| | ● | Enhancing
    and maintaining written policies and procedures for accounting and financial reporting.



We
expect that remediation, including testing of related controls, will be completed during the balance of the 2020 fiscal year.



Inherent
Limitations on Internal Controls



It
should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute
assurance that the objectives of the control system are met. In addition, the design of any control system is based in part upon
certain assumptions about the likelihood of certain events. Limitations inherent in any control system include the following:



| | ● | Judgments
    in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes;                                                                                                                         
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                            
| | ● | Controls
    can be circumvented by individuals, acting alone or in collusion with others, or by management override;                                                                                                                                      
| |   |                                                                                                                                                                                                                                                            
| | ● | The
    design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there
    can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
| |   |                                                                                                                                                                                                                                                            
| | ● | Over
    time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated
    policies or procedures; and                                                                                
| |   |                                                                                                                                                                                                                                                            
| | ● | The
    design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered
    relative to their costs.                                                                                      



Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected.



15







PART
II

OTHER
INFORMATION



ITEM
1. LEGAL PROCEEDINGS



See
“Litigation” in Note 5 – Commitments and Contingencies of the Notes to the Financial Statements in Part I, Item
I of this document.



ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None

ITEM
3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM
4. MINING SAFETY DISCLOSURES



Not
applicable.



ITEM
5. OTHER INFORMATION



None.



ITEM
6. EXHIBITS



|31.1 |  | Certification of Principal Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Principal Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                     
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                     



16







SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.



|Registrant                  | Cipherloc
    Corporation
|--------------------------- | -------------------------
|                            |                          
|Date:
    February 14, 2020 | By:                      
|                            |                          
|                            |                          



17







SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.



|Registrant                  | Cipherloc
    Corporation
|--------------------------- | -------------------------
|                            |                          
|Date:
    February 14, 2020 | By:                      
|                            |                          
|                            |                          



18