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Item 9A. Controls and Procedures

2024-12-13 compared with 2023-12-27 · 122 added, 131 removed, 104 unchanged (71% of the section changed)

CONTROLS AND PROCEDURES

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.

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.

of Disclosure Controls and Procedures

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

of September 30, 2024, 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).

and CFO have concluded, based upon the evaluation described above, that, as of September 30, 2024, 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 weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is

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weaknesses identified included the following:

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;

had not developed and effectively communicated to our employees our accounting policies and procedures, which resulted in inconsistent

Since these entity level programs have a pervasive effect across the organization, management has determined that these

circumstances constitute a material weakness;

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.

we did not design and maintain formal accounting policies, processes and controls related to complex transactions necessary for an

effective financial reporting process;

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.

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.

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

As a high-growth, smaller

reporting company that became responsible for listed financial reporting, we have a limited staff and budget available to adequately

test and monitor the effectiveness of certain internal controls.

management is actively engaged and committed to taking the steps necessary to remediate the control deficiencies that constituted the

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During fiscal year 2024, we made the following enhancement to our control environment:

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;

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.

remediation activities are continuing during fiscal year 2024.

We continued 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;

remediation activities will continue during fiscal year 2025.

In addition to the above actions, we expect to engage in additional activities,

including, but not limited to:

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;

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;

improvements to our accounting system to enhance the accuracy of our financial records.

Hiring additional qualified

accounting staff to enable additional separation of duties;

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;

continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of

12 unchanged sentences

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.

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, 2024.

in Internal Control over Financial Reporting

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

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.

the Exchange Act) during the fiscal year ended September 30, 2024 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.

Limitation on the Effectiveness of Internal Control

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.

annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control

14 unchanged sentences

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.

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

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

12 unchanged sentences

filed as part of this report:

financial statements and schedules required by this Item 15 are set forth in Part II, Item 8 of this Form 10-K.

The following exhibits are filed as a part of this report:

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).

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).

(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 30, 2021).

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).

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).

of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).

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).

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).

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).

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.

The following

exhibits are filed as a part of this report:

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).

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).

Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on September 30, 2021).

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).

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).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed herewith).

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).

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).

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).

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.

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

Independent Contractor Agreement by and between the Company and Thomas Wilkinson (Thomas W.

1 unchanged sentence

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).

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).

Offer to Exchange Common Stock for Certain Outstanding Warrants, dated August 21, 2023 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed on August 22, 2023).

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.

7 unchanged sentences

2 filed on December 4, 2023).

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).

of the Registrant.

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).

Subsidiaries of the Registrant.

Consent of Independent Registered Public Accounting Firm.

of Attorney (included on signature page)

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.

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.

Certification

of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification

of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

XBRL Taxonomy Extension definition Linkbase Document.

Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments).

Power of Attorney (included on signature page)

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.

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.

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document.