Item 3. Legal Proceedings
ITEM
3. LEGAL PROCEEDINGS
As
of the filing date of this Annual Report on Form 10-K, there are no material pending legal proceedings. From time to time, we may be
involved in ordinary routine litigation incidental to our business, to which we are a party or which our property is the subject. In
addition, none of our officers, directors, affiliates or 5% stockholders (or any associates thereof) is a party averse to us, or has
a material interest adverse to us, in any material proceeding.
Currently
Pending Litigation
In
April 2021, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of the Company, and certain other plaintiffs,
filed a lawsuit against Cipherloc Corporation, our predecessor, and Michael De La Garza, Cipherloc’s former Chief Executive
Officer and President, in the 20 th Judicial District for Hays County, Texas (Case No. 20-0818). The lawsuit alleges
causes of action for fraud against Mr. De La Garza (for misrepresentations allegedly made by Mr. De La Garza); breach of contract,
for alleged breaches of Mr. Marquez’s alleged oral employment agreement, which Mr. Marquez claims required Cipherloc pay him
cash and shares of stock; unjust enrichment; quantum meruit; and rescission of certain stock purchases made by certain of the
plaintiffs, as well as declaratory relief and fraud. Damages sought exceeded $1 million. We reached a preliminary agreement with the
plaintiffs on November 13, 2024. A formal settlement agreement was negotiated and circulated to the plaintiffs on November 25, 2024.
The execution of the settlement agreement is in progress and, when complete, will trigger the formal dismissal of the lawsuit. The
terms of the agreement require the Company to issue the plaintiffs a combined 356,400 shares of common stock and pay a total of $95
thousand in cash in six equal, quarterly installments of approximately $16 thousand beginning on January 1, 2025, and ending on
April 1, 2026. We estimate the cost of the settlement fee paid as stock to be approximately $15 thousand using the closing price of
our common stock at September 30, 2024. A total of $110 thousand of expense has been recognized in our results for the year ended
September 30, 2024.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
31
PART
II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.