Item 9A. Controls and Procedures
ITEM
9A. CONTROLS AND PROCEDURES
Our
management is responsible for establishing and maintaining adequate “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in
reports that 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 principal executive
officer to allow timely decisions regarding required disclosure. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the
Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and
procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide
only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in
evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Evaluation
of Disclosure Controls and Procedures
As
of September 30, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).
Our CEO and CFO have concluded, based upon the
evaluation described above, that, as of September 30, 2023, our disclosure controls and procedures were not effective at the
reasonable assurance level because of the material weaknesses discussed below.
Notwithstanding the material weakness in internal control over financial reporting described below, our management
has concluded that our consolidated financial statements included in this Form 10-K are fairly stated in all material respects in accordance
with GAAP.
Material
Weaknesses
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented
or detected on a timely basis.
In
connection with the preparation of our audited financial statements for the year ended September 30, 2022, we identified material weaknesses
in our internal controls over financial reporting, as of September 30, 2022. These material weaknesses had not been fully remediated
as of September 30, 2023. The material weaknesses identified related to the fact that we did not design and maintain accounting policies,
procedures and controls to ensure complete, accurate and timely financial reporting in accordance with U.S. GAAP. Specifically, the material
weaknesses identified included the following:
●
Did
not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting,
reporting and disclosures, including controls over the preparation and review of account reconciliations, journal entries and classification
of certain costs;
●
We
had not developed and effectively communicated to our employees our accounting policies and procedures, which resulted in inconsistent
practices. Since these entity level programs have a pervasive effect across the organization, management has determined that these
circumstances constitute a material weakness;
●
We
do not have sufficient, qualified finance and accounting staff with the appropriate U.S. GAAP technical accounting expertise to identify,
evaluate and account for accounting and financial reporting, and effectively design and implement systems and processes that allow
for the timely production of accurate financial information in accordance with internal financial reporting timelines. As a result,
we did not design and maintain formal accounting policies, processes and controls related to complex transactions necessary for an
effective financial reporting process; and
●
As
a high-growth, smaller reporting company that became responsible for listed financial reporting within the last eighteen (18) months,
we have a limited staff and budget available to adequately test and monitor the effectiveness of certain internal controls.
69
Remediation
Plan
Our
management is actively engaged and committed to taking the steps necessary to remediate the control deficiencies that constituted the
material weaknesses. During fiscal year 2023, we made the following enhancement to our control environment:
●
In
February 2023, we hired a permanent Staff Accountant whose responsibilities include working with our CFO, existing employees and
third-party consultants to improve the design, implementation, execution and supervision of our controls. We expect to continue evaluating
our needs for additional personnel. We expect to provide enhanced training to existing and new employees in order to enhance the
level of communication and understanding of controls with personnel that provide key information and perform key roles within our
financial accounting and reporting function; and
●
We
began documenting accounting policies, procedures and controls to achieve complete, accurate, and timely financial accounting, reporting
and disclosures including controls over the preparation and review of account reconciliations, journal entries and classification
of certain costs.
Our
remediation activities are continuing during fiscal year 2024. In addition to the above actions, we expect to engage in additional activities,
including, but not limited to:
●
Engaging
external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP, and to assist us
with documenting and assessing our accounting policies and procedures until we have sufficient technical accounting resources;
●
Implementing
business process-level controls across all significant accounts and information technology general controls across all relevant systems.
This includes providing training for control owners that will present expectations as it relates to the control design, execution
and monitoring of such controls, including enhancements to the documentation to evidence the execution of the controls; and
●
Implementing
improvements to our accounting system to enhance the accuracy of our financial records.
We
continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of
authority, responsibility, and accountability to enable remediation of our material weaknesses. We believe that our remediation plan
will be sufficient to remediate the identified material weaknesses and strengthen our controls. As we continue to evaluate, and work
to improve our controls, management may determine that additional measures to address control deficiencies or modifications to the remediation
plan are necessary.
While
we have performed certain remediation activities to strengthen our controls to address the identified material weaknesses, control weaknesses
are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes
that these controls are operating effectively. We will continue to monitor the effectiveness of our remediation measures in connection
with our future assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures,
and we will make any changes to the design of our plan and take such other actions that we deem appropriate given the circumstances.
Management’s
Annual Report on Internal Control over Financial Reporting
We are engaged in the process of design and implementation of our internal control over financial reporting in a
manner commensurate with the scale of our operations subsequent to the Business Combination, including the enhancement of our internal
and external technical accounting resources (as well as to address the material weaknesses discussed above). However, the design of internal
control over financial reporting for our company post-business combination has required and will continue to require significant time
and resources from management and other personnel. As a result, management was unable, without incurring unreasonable effort or expense
to fully assess our internal control over financial reporting as of September 30, 2023.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the fiscal year ended September 30, 2023 covered by this Form 10-K that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting, other than described herein. We are continuing to take steps to remediate the material weakness in our internal control over financial reporting,
as discussed above.
Inherent Limitation on the Effectiveness of Internal
Control
Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations
and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable
assurance with respect to the financial statement preparation and presentation.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in
this annual report.
ITEM
9B. OTHER INFORMATION
None.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
70
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information
regarding directors and executive officers of the Company, as well as the required disclosures with respect to the Company’s audit
committee financial expert, is incorporated herein by reference to the information included in our Proxy Statement for our next Annual
Meeting of Stockholders which will be filed with the SEC within 120 days after the end of our fiscal year 2023.
The
Company has adopted a Code of Ethics that applies to all of our directors, officers and employees, including our Chief Executive Officer
and Chief Financial Officer. The complete text of this Code of Ethics is available on the SEC’s EDGAR system as described in Part
IV, Item 15 of this Form 10-K.
ITEM
11. EXECUTIVE COMPENSATION
Information regarding executive compensation of our directors and officers, is incorporated herein by reference to
the information included in our Proxy Statement for our next Annual Meeting of Stockholders which will be filed with the SEC within 120
days after the end of our fiscal year 2023.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information
regarding security ownership of certain beneficial owners and management and the Company’s equity compensation plans are incorporated
herein by reference to the information included in our
Proxy Statement for our next Annual Meeting of Stockholders which will be filed with the SEC within 120 days after the end of our fiscal
year 2023.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information
regarding certain relationships and related transactions and director independence is incorporated herein by reference to the information
included in our Proxy Statement for our next Annual Meeting
of Stockholders which will be filed with the SEC within 120 days after the end of our fiscal year 2023.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information
regarding principal accounting fees and services is incorporated herein by reference to the information included in
our Proxy Statement for our next Annual Meeting of Stockholders which will be filed with the SEC within 120 days after the end of our
fiscal year 2023.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents
filed as part of this report:
1.
Financial
Statements
The
financial statements and schedules required by this Item 15 are set forth in Part II, Item 8 of this Form 10-K.
71
(b)
Exhibits .
The following exhibits are filed as a part of this report:
Exhibit
Number
Description
of Document
2.1
Agreement
and Plan of Merger by and between Cipherloc Corporation, a Texas corporation and Cipherloc Corporation, a Delaware corporation (incorporated
by reference to Exhibit 2.1 to Current Report on Form 8-K filed September 17, 2021).
3.1
Certificate
of Incorporation of Cipherloc Corporation, a Delaware corporation (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on September 30, 2021).
3.2
Bylaws
(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 30, 2021).
3.3
Certificate
of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current
Report on Form 8-K filed July 6, 2022).
3.4
Certificate
of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form
8-K filed July 6, 2022).
4.1
Description
of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).
10.1
Form
of Securities Purchase Agreement between Cipherloc, a Texas corporation and the several purchasers of the Company’s units (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 8, 2021).
10.2
Form
of Registration Rights Agreement dated March 31, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed on April 8, 2021).
10.3
Form
of Lockup Agreement between Cipherloc Corporation, a Texas corporation and the several purchasers of the Company’s Units (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 8, 2021).
10.4
Placement Agent Agreement between Cipherloc Corporation, a Texas corporation and Paulsen Investment Company, LLC related to the Company’s sole of Units incorporated by reference to Exhibit 10.4.
10.5
Indemnification
Agreement by and between the Company and Paulson Investment Company, LLC (incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K filed on April 8, 2021).
10.6
Letter
Agreement with Paulson Investment Company, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on July 28, 2021).
10.9†
Ryan
Polk Executive Employment Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on October 12, 2021).
10.10†
2021 Omnibus Equity Incentive Plan approved by the Company’s stockholders at the 2021 Annual Meeting held September 13, 2021 (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on July 20, 2021).
10.12
Purchase
Agreement between the Company and SideChannel, Inc. and The Sellers Therein and Brian Haugli, as the Seller Representative (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 18, 2022).
10.13†
Brian
Haugli Executive Employment Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on July 6, 2022).
10.14
Independent Contractor Agreement by and between the Company and Thomas Wilkinson (Thomas W. Wilkinson, CPA, PLLC) dated December 28, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 30, 2022).
72
10.15†
Ryan Polk 2023 Compensation Change Authorization (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 5, 2023).
10.16
Offer to Exchange Common Stock for Certain Outstanding Warrants, dated August 21, 2023 (i ncorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed on August 22, 2023).
10.17
Notice of Extension of the Offer to the Holders of the Warrants, dated September 19, 2023 (incorporated by reference to Exhibit (a)(1)(I) to the Schedule TO Amendment No. 2 filed on September 20, 2023.
10.18
Notice of Withdrawal of the Offer to the Holders of Warrants, dated November 3, 2023 (incorporated by reference to Exhibit (a)(1)(J) to the Schedule TO Amendment No. 3 filed on November 3, 2023).
10.19
Offer to Exchange Common Stock for Certain Outstanding Warrants, dated November 6, 2023 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed on November 7, 2023).
10.20
2023 Common Stock Purchase Warrant as Amended on November 14, 2023, dated November 14, 2023 (incorporated by reference to Exhibit (a)(1)(F) to the Schedule TO Amendment No. 1 filed on November 14, 2023).
10.21
Offer to Exchange Common Stock and New Warrants for 2021 Investor Warrants and Amended on December 1, 2023 (incorporated by reference to Exhibit (a)(1)(H) to the Schedule TO Amendment No. 2 filed on December 4, 2023).
14.1
Code
of Ethics for Directors, Officers and Employees of SideChannel and its Affiliates, dated August 8, 2019 (incorporated by reference
to Exhibit 14.1 to the Company’s Current Report on Form 8-K, filed on August 12, 2019).
21.1
Subsidiaries
of the Registrant.
23.1*
Consent of Independent Registered Public Accounting Firm.
24.1*
Power
of Attorney (included on signature page)
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
of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification
of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Inline
XBRL Instance Document.
101.SCH*
Inline
XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*
Inline
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*
Inline
XBRL Taxonomy Extension definition Linkbase Document.
104*
Cover
Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments).
†
Indicates management or compensatory plan or arrangement
*
Filed herewith
**
Furnished herewith
EXHIBIT
16. FORM 10-K SUMMARY
None
73
SIGNATURES
In
accordance with 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, there unto duly authorized.
SideChannel,
Inc.
Date:
December 27, 2023
By:
/s/
Brian Haugli
Brian
Haugli
President
and Chief Executive Officer
Date:
December 27, 2023
By:
/s/
Ryan Polk
Ryan
Polk
Chief
Financial Officer
POWER
OF ATTORNEY
Each
person whose signature appears below hereby appoints Brian Haugli and Ryan Polk, and each of them, as attorney-in-fact with full power
of substitution to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated
below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact
acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date:
December 27, 2023
By:
/s/
Brian Haugli
Brian
Haugli
President,
Chief Executive Officer, and Director (principal executive officer)
Date:
December 27, 2023
By:
/s/
Ryan Polk
Ryan
Polk
Chief
Financial Officer (principal financial officer and principal accounting officer)
Date: December 27, 2023
By:
/s/ Deborah MacConnel
Deborah MacConnel
Chairwoman of the Board
Date:
December 27, 2023
By:
/s/
Anthony Ambrose
Anthony
Ambrose
Director
Date:
December 27, 2023
By:
/s/ Kevin Powers
Kevin Powers
Director
Date:
December 27, 2023
By:
/s/ Hugh Regan, Jr.
Hugh Regan, Jr.
Director
74