(~~Name~~Exact name of ~~small business issuer~~registrant as specified in its charter)

~~6836 Bee Cave Road, Bldg. 1, S#279~~146 Main Street, Suite 405, Worcester, MA01608

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~[ ]~~☐ Yes ~~[X]~~ ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ~~[ ]~~☐ Yes ~~[X]~~ ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ~~[ ]~~☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

On March 31, ~~2020,~~2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the ~~Common Stock~~common equity held by non-affiliates of the registrant was ~~$22,051,118~~approximately $7.8 million based upon the closing price ~~on that date~~ of the common stock ~~of the registrant~~on that date on the OTCQB Venture Market of ~~$0.85.~~approximately $0.08.

As of December ~~23, 2020,~~22, 2023, there were ~~27,505,196~~ 214,117,267shares of the issuer’s common stock, par value ~~$0.01~~$0.001 per share, ~~issued~~outstanding.

Documents Incorporated by Reference: Portions of the Registrant’s Definitive Proxy Statement to be filed for its 2024 Annual Meeting of Stockholders are incorporated by reference into Part II, Item 5 and ~~outstanding.~~Part III of this Annual Report on Form 10-K.

~~Special Note Regarding~~ Except as otherwise required by the context, references to “SideChannel,” “SideChannel, Inc.,” the “Company,” “we,” “us” and “our” are to (i) Cipherloc Corporation, a Texas corporation, and its subsidiaries, for all periods prior to September 30, 2021, and to (ii) Cipherloc Corporation, a Delaware corporation, and its subsidiaries, for all periods after September 30, 2021, the date of the completion of the merger of the Texas corporation into the Delaware corporation, and to (iii) SideChannel, Inc., a Delaware corporation and its subsidiaries, for all periods after July 5, 2022, the date of the name change of Cipherloc Corporation’s name to SideChannel, Inc.

~~Some~~From time to time, we may provide information, whether orally or in writing, including certain statements in this Annual Report on Form 10-K, which are deemed to be “forward-looking.” These forward-looking statements and other information, express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results based upon information that is currently available.

The words “believe,” “plan,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Forward-looking statements include all matters that are not historical facts. Should one or more of ~~our~~these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar expressions. We do not intend to update these forward-looking statements, ~~under “Business,” “Properties,” “Legal Proceedings,”~~except as required by law.

Such forward-looking statements are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, any exhibits to this Annual Report on Form 10-K and other public statements we make. Such factors are discussed in the “Risk Factors” sections of this Annual Report on Form 10-K. However, forward-looking statements appear throughout this document, including in “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,” the Notes to Financial Statements and elsewhere~~Operations” in Part II, Item 7 of this Annual Report on Form 10-K constitute “forward-looking statements.” In some cases, forward-looking statements are identified by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “potential” or “continue”10-K. Unless otherwise indicated or the ~~negative of such terms~~context requires otherwise, the words “we,” “us,” “our,” the “Company” and ~~other comparable terminology. Forward-looking statements usually relate~~“SideChannel” refer to ~~future events~~SideChannel, Inc. and ~~anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements generally include statements containing:~~its wholly owned subsidiaries.

	●	~~projections about accounting and finances;~~

	●	~~plans and objectives for the future;~~

	●	~~projections or estimates about assumptions relating to our performance; or~~

	●	~~our opinions, views or beliefs about the effects of current or future events, circumstances or performance.~~3

You should view these statements with caution. Those statements are not guaranteeing future performance, circumstances or events. They are based on facts and circumstances known to us as of the date the statements are made. All phases of our business are subject to uncertainties, risks and other influences, many of which we do not control. Any of these factors either alone or taken together, could have a material adverse effect on us and could change whether any forward-looking statement ultimately turns out to be true. Additionally, we assume no obligation to update any forward-looking statement as a result of future events, circumstances or developments.

On July 1, 2022 (the “Closing Date”), the Company, then known as Cipherloc Corporation, a Delaware corporation, completed its acquisition (“Business Combination”) of all the outstanding equity securities of SideChannel, Inc., a Massachusetts corporation, pursuant to an Equity Securities Purchase Agreement dated May 16, 2022 (the “Purchase Agreement”). On September 9, 2022, SideChannel, Inc., the acquired Massachusetts corporation and a subsidiary of the registrant, changed its name to SCS, Inc. (the “Subsidiary” or “SCS”) and Cipherloc Corporation, the Delaware parent company of SCS, changed its name to SideChannel, Inc.

The transaction was accounted for as a reverse acquisition merger, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, SCS was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Business Combination: (1) the majority of the Board of Directors of the combined company will be composed of directors designated by the Sellers under the terms of the Purchase Agreement; and (2) existing members of SCS management constituted the management of the combined company. Because SCS has been determined to be the accounting acquirer in the Business Combination, but not the legal acquirer, the transaction is deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. As a result, the historical financial statements of SideChannel are the historical financial statements of the combined company.

Following the closing of the Business Combination, SCS became a wholly owned subsidiary of the Company. As used herein, the words “the Company” refers to SideChannel, Inc., together with its subsidiaries.

The Company is a provider of cybersecurity services and technology to companies; national, state and local municipalities; and non-profits. The Company’s website is www.sidechannel.com.

Our mission is to make cybersecurity easy and accessible for mid-market and emerging companies, a market that we believe is currently underserved. We believe that our cybersecurity offerings will reduce risks for our customers through identifying and developing cybersecurity, privacy, and risk management solutions. We anticipate that our target customers will continue to need cost-effective security solutions beginning with but not limited to what we refer to as virtual Chief Information Security Officer services (“vCISO” or “vCISO Services”).

We have developed a new software product, Enclave, that we believe offers companies of all sizes the means to simplify several crucial cybersecurity infrastructure procedures, including encryption, microsegmentation and access control. Enclave is a modern network segmentation platform that combines access control, asset inventory, encryption and zero trust network access to create a microsegmentation solution that prioritizes both IT and cybersecurity’s highest-level needs. Enclave is purpose-built to:

vCISO engagements typically include a fixed monthly subscription fee with durations longer than twelve (12) months. Rates for vCISO time and material projects range from $350 to $425 per hour. Each of our vCISOs is generally embedded into the C-suite executive teams of two (2) to four (4) of our clients. We augment our vCISO offering with a full range of other cybersecurity services through a team of security engineers combined with a network of third-party service providers and value-added resellers (“VARs”). Commercial relationships with VARs provide SideChannel with additional internal capabilities to mitigate cybersecurity risks. We earn a commission on software engagements we generate through VARs.

We have implemented an account management organization responsible for delivering services and software to our clients. Our vCISOs and the security and privacy engineers that support them are part of our account management organization. As this team delivers vCISO Services for our clients, we often identify projects to implement and maintain programs that reduce cybersecurity risks that expand our scope of work and increase our revenue generating potential. Similarly, as this team delivers a new cybersecurity service or installs cybersecurity software at a client, we often learn about opportunities to improve the protection of our clients’ digital assets through additional service and software engagements.

Our vCISO engagements provide our clients with the C-suite cybersecurity leadership needed to effectively mitigate cybersecurity risks and support ongoing operation of critical business functions. This strategic cybersecurity leadership will often result in additional statements of work for SideChannel to deliver the Cybersecurity Software and Services needed to address gaps in our clients’ cybersecurity framework. We track revenue and other key performance indicators using the vCISO Services category and Cybersecurity Software and Services category. Detail on the revenue performance of these categories is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K.

We currently provide Cybersecurity Software and Services and intend to increase our delivery of more tech-enabled services to address the needs of our customers, including:

We believe that our current and prospective customers in the mid-market will favor our approach, as it provides them with an efficient way to work with a single vendor to manage and oversee their cybersecurity programs. We also believe that our approach will reduce our customers’ overall security costs and streamline their ability to increase their sales, reduce regulatory risks, and monitor their risk posture.

We believe that we provide a full range of cybersecurity solutions through our employees, our network of subcontractors, and our array of partnerships with third-party service providers and software companies. We work with our clients to help them select the right cybersecurity tools, products, and solutions. We believe that our use of a combination of employees and subcontractors allows us to cost effectively grow our client base and broaden the subject matter expertise of our service delivery teams while maintaining the agility needed to move directly into implementation of projects, which we believe reduces the risk to our customers. Our subcontractors also provide us with sales leads and referrals and may resell our services to their own client base.

We are developing products and services around our unique insight into mid-market and emerging companies. During September 2022, SideChannel announced a proprietary product, Enclave, which simplifies a particularly important cybersecurity task called “microsegmentation.” Industry standard cybersecurity and risk management frameworks, such as National Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”) and Center for Internet Security Controls (“CIS”), prioritize inventory of assets and access control as top requirements for a sustainable and compliant cybersecurity program. CIS version 8 controls call for organizations to:

~~Cipherloc Corporation (the “Company” or “Cipherloc”)~~We built Enclave to address these extremely critical cybersecurity controls along with many others. Enclave seamlessly combines access control, microsegmentation, encryption and other secure networking concepts to create a comprehensive solution. Through software it allows Information Technology (IT) to easily segment the enterprise network, place the right staff in those segments and direct traffic. Unlike open, traditional models, Enclave allows for near-limitless micro-segmented networks to operate insulated from one another.

Further information about Enclave is available at https://sidechannel.com/enclave/.

The Company was incorporated in the State of Texas on June 22, 1953, as American Mortgage Company. During 1996, the Company acquired the operations of Eden Systems, Inc. (“Eden”), making it a wholly owned subsidiary. Eden was engaged in water treatment and the retailing of cleaning products. Eden’s operations were sold on October 1, 1997. On May 16, 1996, the Company changed its name to National Scientific Corporation. From September 30, 1997, through the year ended September 30, 2001, the company aimed its efforts in the research and development of semiconductor proprietary technology and processes and in raising capital to fund its operations and research. Effective August 27, 2014, wethe Company changed ~~our~~its name to “Cipherloc Corporation.” The Company became a Delaware corporation on September 30, 2021.

Business Combination Between Cipherloc ~~Corporation. Our headquarters are located at 6836 Bee Cave Road, Building 1, S#279, Austin, TX 78746. Our website is~~ ~~www.cipherloc.net~~Corporation and SideChannel, Inc. (now known as SCS, Inc.)

As part of the Business Combination, the former stockholders of SCS (the “Sellers”) exchanged all of their equity securities in SCS for a total of 59,900,000 shares of the Company’s common stock (the “First Tranche Shares”), and 100 shares of the Company’s newly designated Series A Preferred Stock, $0.001 par value (the “Series A Preferred Stock”). The ~~information contained, or referred~~In addition the Sellers were entitled to ~~on our website is not part~~receive up to an additional 59,900,000 shares of ~~this Annual Report on Form 10-K unless expressly noted.~~

~~We are developing products~~the Company’s common stock (the “Second Tranche Shares” and ~~services around our patented polymorphic encryption technology designed to enable a more efficient~~together with the First Tranche Shares and ~~stronger layer~~the Series A Preferred Stock, the “Shares”) at such time that the operations of protection to be added to existing solutions. Through a licensing program, we anticipate offering the first secure commercially viable advanced “Polymorphic Encryption Core” (“PEC”) software developers kit to 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.

During 2018 and 2019, we attempted to market several products, services and solutions. The initial solution suite was marketed under several product names. CipherLoc EDGE, a solution to be installed on mobile/handset devices, was designed to enable data to be securely sent between any two mobile devices. CipherLoc ENTERPRISE, a solution to be installed on desktops, laptops and tablet computers, was designed to enable data to be securely sent between any two platforms. CipherLoc GATEWAY, a solution to be installed on servers, was designed to enable end-to-end data protection to and from servers, computers, tablets, and/or mobile devices via the GATEWAY-protected servers. CipherLoc SHIELD was designedSCS, as a ~~solution~~subsidiary of the Company, achieved at least $5.5 million in revenue (the “Milestone”) for any twelve-month period occurring after the Closing Date and before the 48-month anniversary of the execution of the Purchase Agreement. The number of the Second Tranche Shares could have been reduced or increased, based upon whether SCS working capital as of the Closing Date is less than or more than zero (“Closing Working Capital Adjustment”). The number of the Second Tranche Shares was also subject to ~~be used as a data storage platform.~~

~~During 2018 and 2019, there were forward-looking public announcements~~adjustment based upon any successful indemnification claims made by the ~~Company’s then-management of product names or segments that were not delivered~~parties pursuant to the ~~market~~Purchase Agreement. The Closing Working Capital Adjustment increased the Second Tranche Shares by 2,116,618 shares of common stock. The 100 shares of Series A Preferred Stock were converted to common stock on May 4, 2023.

The Shares are subject to a Lock-Up/Leak-Out Agreement, pursuant to which, subject to certain exceptions, the Sellers may not directly or indirectly offer to sell, or otherwise transfer, any of the Shares for twenty-four months after the Closing Date without the prior written consent of the Company. Notwithstanding the foregoing, pursuant to the Lock-Up/Leak-Out Agreement, each of the Sellers may sell up to 20% of their Shares beginning twelve (12) months after the Closing Date, and ~~are not presently available to customers. Our current management restructured~~ the Company to invest material resources into only products and services that are deliverable, have viable economic potential, and may be publicly disclosed without adversely affecting our competitive position. The coreremaining 80% of our product and service offerings will continue to be built around our patents and our polymorphic encryption technology ,which is a highly secure, quantum-ready data protection technology carrying FIPS 140-2 (Federal Information Processing Standard 140-2) validation certificate #3381 fortheir shares of Common Stock beginning twenty-four (24) months after the “CipherLoc Polymorphic Encryption Engine Core” solution by the National Institute of Standards and Technology (NIST). We focused our development efforts during 2020 to develop commercial application of its technology by advancing a Software Development Kit (“SDK”) for the Polymorphic Encryption Core. By doing so, we have allowed potential customers to integrate and configure the PEC using the SDK.Closing Date.

Since Enclave is a proprietary software product, we classify all of our software development activities to be research and development. The success of our software product, Enclave, depends on our ability to provide our customers with reliable, innovative features and benefits that are delivered before, or at least no later than, our competitors. At September 30, 2023, we employed a total of three (3) software engineers engaged in product development. In addition, when the demands of product development exceed the capacity or knowledge of our in-house staff, we retain temporary third-party consultants to assist us.

Our research and development expenditures for the fiscal years ended September 30, ~~2020~~2023 and ~~2019~~September 30, 2022 were ~~$1,689,455~~$669,000 and ~~$1,744,480,~~$178,000, respectively. ~~During December 2019, management determined that~~These costs were incurred to develop Enclave which is a product acquired in the maturity of our patented technology justified a cessation of academic research activity and the elimination of the chief scientist’s role leading academic efforts. Cost savings from those actions are now allocated entirely to product development, product engineering, and revenue-generating sales activity. Management continued to emphasis these three areas during fiscal year 2020 and intends to do so during fiscal year 2021 as well.Business Combination.

The ~~encryption~~cybersecurity software and services market ~~sector~~ is highly competitive, subject to rapid change, and significantly affected by new product introductions and other activities of market participants.

Some of our competitors ~~in certain markets~~ have greater financial, technical, sales, marketing, and other resources than we do. Because of these and other factors, competitive conditions in ~~these industries~~the markets we operate in are likely to continue to intensify in the ~~future.~~future, as participants compete for market share. Increased competition could result in price reductions ~~reduced~~for our products and services, possibly reducing our net revenue and profit margins and resulting in a loss of our market share, any of which ~~could~~would likely harm our business.

We believe that our future results depend largely upon our ability to serve our clients and customers with the products and services described earlier better ~~serve customers~~than our competitors, and by offering new services and product enhancements, whether ~~by internal development~~such product and service offerings are developed internally or through acquisition. We also believe that we must ~~continue to~~ provide ~~existing~~ product and service offerings that compete favorably against those of our competitors with respect to ease of use, reliability, performance, range of useful features, reputation and price.

We anticipate that we will face increasing pricing pressures from our competitors in the future. ~~Given that~~Since there are low barriers to entry into the cybersecurity services and software ~~market and that the market is subject to rapid technological change,~~markets, we believe ~~that~~ competition in these markets will persist and intensify in the future.

Our chief services competitors include companies such as Optiv, NCC, Coalfire, PwC, EY, Deloitte, and GuidePoint. Our primary software competitors are companies such as Perimeter 81, Zscaler, Palo Alto, and Illumio.

~~Our~~We believe that our intellectual property is an important and vital asset, ~~of our company that~~which enables us to develop, market, and sell our products and services and enhance our competitive position. ~~Intellectual~~Our intellectual property includes our proprietary business and technical know-how, inventions, works of authorship, and confidential information. To protect our intellectual property, we rely primarily upon legal rights in trade secrets, patents, copyrights, and trademarks, in addition to ~~company~~our policies and procedures, security practices, contracts, and relevant operational measures.

We protect the confidentiality of our proprietary information by entering into non-disclosure agreements with our employees, contractors, and ~~channel and business partners, and~~other entities with which we ~~enter into~~do business. In addition, our license agreements ~~with respect~~related to our software and proprietary information ~~that~~ include confidentiality terms. These agreements are generally ~~non-transferable and have either a perpetual or time-limited term.~~non-transferable. We also employ access controls and associated security measures to protect our facilities, equipment, and networks.

Our products, particularly our software and related documentation, are protected under ~~U.S.~~domestic and international copyright laws and other laws related to the protection of intellectual property and proprietary rights. Currently, we have 6six patents ~~with approximately 5 patents pending~~filed with the U.S. Patent and Trademark Office. We employ procedures to label copyrightable works with the appropriate proprietary rights notices, and we actively enforce ~~these~~our rights in the ~~U.S.~~United States and abroad. However, these measures may not provide us with adequate protection from infringement, and our intellectual property rights may be challenged.

~~Cipherloc’s logo, is a~~Our SideChannel and Enclave logos are registered ~~trademark of the Company in~~trademarks with the U.S. Patent and Trademark Office. In the ~~U.S.,~~United States, we ~~are generally able to~~can maintain our trademark rights and renew trademark registrations for as long as the trademarks are in use.

Export Control Regulations. ~~It is expected~~We expect that all of our products will be subject to U.S. export control laws and applicable foreign government import, export and/or use requirements. The level of such control generally depends on the nature of the ~~goods and services~~products in question. ~~For example,~~Often, the level of export control is impacted by the nature of the software and ~~encryption~~cybersecurity incorporated into our products. ~~Where~~In those countries where such controls apply, the export of our products may require an export license or ~~authorization or that the~~authorization. However, even if a transaction qualifies for a license exception or the equivalent, ~~and~~it may ~~also~~still be subject to corresponding reporting requirements. For the export of some of our products, we may be subject to various post-shipment reporting requirements. Minimal U.S. export restrictions apply to all our products, whether or not they perform ~~encryption~~cybersecurity functions. ~~In the event~~If we become a Department of Defense contractor ~~there are~~in the future, certain registration requirements ~~that~~ may be triggered by our sales. In addition, certain of our ~~items and/or transactions~~products and related services may be subject to the International Traffic in Arms Regulations (ITAR) if our software or services are specifically designed or modified for defense purposes. ~~Companies~~If we become engaged in manufacturing or exporting ITAR-controlled goods and services (even if ~~these companies~~we do not export such items) ~~are~~, we will be required to register with the U.S. State Department.

To date, Export Control Regulations have had no material impact on our business.

Enhancements to our existing products may ~~and new products will,~~ be subject to review under the Export Administration Act to determine what export classification they will receive. In ~~light of the ongoing discussions regarding anti-terrorism legislation~~addition, any new products that we release in the future will also be subject to such review before we can export them. The U.S. Congress ~~there~~ continues to ~~be discussions regarding~~discuss the correct level of export ~~control. Export~~control in possible anti-terrorism legislation. Such export regulations may be modified at any time. Modifications to ~~the~~these export regulations could reduce or eliminate our ability to export some or all of our products from the ~~U.S. without a license~~United States in the future, which could put us at a disadvantage in competing ~~for international sales compared to~~with companies located outside of the U.S. ~~that would not be subject to these restrictions.~~ Modifications to ~~the~~U.S. export regulations could ~~prevent~~restrict us from exporting our existing and future ~~products in an unrestricted manner without a license or make it more difficult~~products. Any such modifications to ~~receive the desired classification. If~~ export regulations ~~were to be modified in such a way, we~~ may be put us at a competitive disadvantage with respect to selling our products internationally. ~~We will complete technical reviews on any new products that we acquire or develop that may be subject to these regulations before we can export them.~~

Privacy Laws. We may be subject to various international, federal and state regulations regarding the treatment and protection of personally identifying and other regulated information. Applicable laws may include ~~without limitation,~~ U.S. federal laws and implementing regulations, such as the GLBA and HIPAA, as well as state ~~laws and regulations,~~ and international laws and regulations, including the California Consumer Privacy Act (CCPA) and the European Union General Data Protection Regulation ~~or the GDPR, which replaced the European Union Data Protection Directive in May 2018. Additionally, some~~(GDPR). Some of these laws have requirements on the transmittal of data from one jurisdiction to another. In the event our systems are compromised, ~~by an unauthorized party,~~ many of these privacy laws require that we provide notices to our customers whose personally identifiable data ~~we reasonably believe~~ may have been compromised. Additionally, if we transfer data in violation of these laws, we could be subjected to substantial fines. To mitigate the risk of having such data compromised, ~~information,~~ we use ~~encryption~~cybersecurity, software and other security procedures to protect our databases.

As of ~~the date of this Annual Report on Form 10-K,~~September 30, 2023, we had 23 full-time employees. We also have ~~full-time employee, 1 part-time employee and two full-time contractors. These low employee and contractor counts reflect the actions made by the Company in March and April~~approximately 11 independent contractors that provide services to ~~reduce the monthly operating expenses. The Company has determined this level of staffing is appropriate to continue pursuing applications of its technology with prospective customers.~~

~~You are advised to read this Form 10-K in conjunction with other reports and documents~~us. We anticipate that we ~~file from time~~will need to ~~time with~~increase our staffing in the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.foreseeable future.

~~Outlined below~~Our business, financial condition and results of operations and the market price for our common stock are ~~some~~subject to numerous risks, many of ~~the risks~~which are driven by factors that we ~~believe could affect our business and financial statements.~~cannot control or predict. An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Annual Report on Form 10-K, including the information regarding “Forward-Looking Statements” earlier in this Form 10-K immediately prior to Part I, Item 1 and “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before investing in our common stock. If any of the events anticipated by the risks described below occur, our results of operations and financial condition could be adversely affected, which could result in a decline in the market price of our common stock, causing you to lose all or part of your investment. Additional risks that we do not yet know of, or that we currently think are immaterial, may also affect our business and results of operations.

The following list provides a summary of risk factors discussed in further detail below:

Risks Related to Regulations and Our Compliance with Such Regulations, including:

Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development of a new business enterprise. Our accumulated deficit as of September 30, 2023, was $18.9 million primarily driven by $11.9 million of one-time charges related to the Business Combination, which closed on July 1, 2022 and the $4.9 million of intangible asset impairment charge during the year ended September 30, 2023.

We cannot assure you that that any of our new products and services currently under development will be successfully commercialized, and the extent of our future losses and the timing of any possible profitability, if ever achieved, are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our operations.

Our ability to continue as a going concern may depend upon our ability to raise additional capital and such capital may not be available on acceptable terms, or at all.

We currently believe that our available cash will allow us to fund our operations through at least December 2024. Nevertheless, we may need to raise additional capital to fund operating losses, support future expansion, develop new or enhanced products and services, hire employees, respond to competitive pressures, acquire technologies, or respond to unanticipated events or requirements before then. Our management’s plans include attempting to improve our profitability and our ability to generate sufficient cash flow from operations to meet our operating needs on a timely basis, obtaining additional working capital funds through equity and debt financing arrangements, and restructuring on-going operations to eliminate inefficiencies and reduce our expenses. However, we are not assured that these plans and arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other requirements. The outcome of these actions cannot be predicted at this time. There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. If adequate funds are not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on our business, financial condition and operating results. If we raise additional funds through the issuance of equity securities, or convertible debt, the percentage ownership of our stockholders will be reduced, and holders may experience dilution in net book value per share.

The amount of capital we may need depends on many factors, including the progress, timing, scope and market acceptance of our product development programs; the time and cost required to obtain any necessary regulatory approvals; our ability to enter into and maintain collaborative, licensing and other commercial relationships; and our ability to secure commitment of time and resources from third-parties to the development and commercialization of our products.

The capital markets have been unpredictable for unprofitable companies such as ours. The amount of capital that we may be able to raise depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms acceptable to us, or at all. Even if we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.

If we can raise additional funding, we may be required to do so on terms that are dilutive to our stockholders.

Our future issuances of new equity may dilute the ownership percentage of our existing stockholders. The extent of such dilution will depend on the number of shares issued. Neither the amount of funds that may be received in such an equity financing, nor the price per share of our equity securities issued are known at this time.

Inflation and geo-political events increase the risk that we are unable to achieve and maintain profitable operations.

Inflation may cause our costs to increase, which we may not be able to pass onto customers. Inflation may also impact our customers’ profitability and the budgets they have available to spend on cybersecurity and other products we offer. The wars in Ukraine and the Middle East and tensions between China and the US could have impacts on many variables that impact our business or our customers’ businesses.

~~A pandemic, epidemic~~We depend significantly upon the continued involvement of our present management and on our ability to attract and retain talented employees.

Our success depends significantly upon our present management, who are involved in our strategic planning and operations. Our business requires that we successfully attract and retain talented employees and contractors. The competition for individuals with expertise in our industry is intense, and we cannot assure that such individuals will be available to us on acceptable terms, or ~~outbreak~~at all.

If we are less successful in our recruiting efforts, or if we are unable to retain key existing employees, our ability to develop and deliver successful products and services will be adversely affected. Effective succession planning is also important to our long-term success. Our failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

Our products and services face significant competition in our markets, and if they do not compete successfully, our business will suffer.

Our current and proposed products and services face, and will continue to face, intense competition from larger and smaller companies, as well as from academic and research institutions. We compete in an ~~infectious disease,~~industry that is characterized by: (i) rapid technological change, (ii) evolving industry standards, (iii) emerging competition, and (iv) new service and product introductions. Our competitors have existing products and technologies that will compete with our products and technologies and may develop and commercialize additional products and technologies that will compete with our products and technologies. Some of these new products and services may have functionality that ours do not have. Because many competing companies and institutions have greater financial resources than us, they may be able to: (i) provide broader services and product lines, and (ii) fully develop and deploy new products faster than we can with their larger and broader resources. Our competitors also generally have greater development capabilities than we do and have greater experience in undertaking testing of products, obtaining regulatory approvals, and manufacturing and marketing their products. They also have greater name recognition and better access to customers, clients, licensees, and resellers than we do. Our chief services competitors include companies such as ~~COVID-19, may materially~~Optiv, NCC, Coalfire, PwC, EY, Deloitte, and GuidePoint. Our primary product competitors for Enclave are companies such as Perimeter 81, Zscaler, Palo Alto, and Illumio.

If we are unable to develop new and enhanced products and services, or if we are unable to continually improve the performance, features, and reliability of our existing products and services, our competitive position would weaken, and our business and operating results could be adversely affected.

Our future success depends on our ability to effectively respond to evolving threats to consumers and potential customers, as well as competitive technological developments and industry changes, by developing or introducing new and enhanced products and services on a timely basis. In the past, Cipherloc has incurred significant research and development expenses. As a result of the Business Combination, we expect to continue to incur research and development expenses as we strive to remain competitive and as we focus on organic growth through internal innovation. If we are unable to anticipate or react to competitive challenges or if existing or new competitors gain market share in any of our markets, our competitive position would weaken, and we could experience a decline in our revenues and net income, which could adversely affect our business and ~~operations.~~

~~On March 11, 2020,~~operating results. Additionally, we must continually address the ~~World Health Organization declared the COVID-19 outbreak~~challenges of dynamic and accelerating market trends, increasingly sophisticated cyber-attacks and intrusions and competitive developments. Customers may require features and capabilities that our current products do not have. Our failure to develop new products and improve our existing products to satisfy customer preferences and needs and effectively compete with other market offerings in a ~~pandemic. The COVID-19 pandemic is affecting the United States~~timely and global economies and may affect our operations and those of third parties on which we rely. While the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reducecost-effective manner will harm our ability to retain our customers (if any) and the ability of our licensees or resellers to retain their customers, and to create or increase demand for our products, which may adversely impact our operating results. The development and introduction of our new or enhanced products will involve a significant commitment of time and resources and will be subject to a number of risks and challenges, including but not limited to:

If we are not successful in managing these risks and challenges, or if our new or improved products and services are not technologically competitive in the market, or do not achieve market acceptance, our business and operating results would be adversely affected, our market share would decline, and our margins would contract.

Our operating results may vary significantly from period to period and have been unpredictable, which has and might continue to cause the market price of our common stock to be volatile.

Our operating results, in particular, our revenues, gross margins, operating margins, and operating expenses, have historically varied significantly from period to period, and we expect such variation to continue as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

Any one of the factors above, or the cumulative effect of some of the factors referred to above, may result in significant fluctuations in our operating results including our revenue and net income. This variability and unpredictability could result in our failure to meet our revenue, margin, or other operating result expectations, or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

We face intense competition in our market, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The market for cybersecurity technologies is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. Our main competitors fall into three categories:

Many of our existing competitors have, and some of our potential competitors may have, substantial competitive advantages such as:

In addition, some of our larger competitors have substantially broader and more diverse product and service offerings, which may make them less susceptible to downturns in a particular market and allow them to leverage their relationships based on other services and products or incorporate functionality into existing services and products to gain business in a manner that discourages users from purchasing our services, products and subscriptions, including through selling at zero or negative margins, offering concessions, product bundling, or closed technology platforms. Many of our smaller competitors that specialize in providing protection from a single type of security threat are often able to deliver these specialized cybersecurity or security products to the market more quickly than we can.

Organizations that use legacy products and services may believe that these products and services are sufficient to meet their security needs, or that our platform only serves the needs of a portion of the cybersecurity technology market. Accordingly, many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of cybersecurity services and products. As a result, these organizations may prefer to purchase from their existing suppliers rather than add or switch to a new supplier such as us, regardless of product performance, features, or greater services offerings, or may be more willing to incrementally add solutions to their cybersecurity infrastructure from existing suppliers than to replace it wholesale with our solutions.

Conditions in our market could change rapidly and significantly because of technological advancements, partnering or acquisitions by our competitors, or continuing market consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior services, products, and technologies that compete with our services and products. Some of our competitors have made or could make acquisitions of businesses that may allow them to offer more directly competitive and comprehensive solutions than they had previously offered and adapt more quickly to innovative technologies and changing needs. Our current and potential competitors may also establish cooperative relationships among themselves or with third-parties that may further enhance their resources and reduce their expenses. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, and loss of market share. Any failure to meet and address these factors could materially harm our business and operating results.

Our future revenue and operating results will depend significantly on our ability to retain clients and customers and the ability to add new clients and customers. Any decline in our retention rates or failure to add new clients and customers will harm our business prospects and operating results.

We anticipate that our future revenue and operating results will depend significantly on our ability to retain clients and customers and our ability add new clients and customers. In addition, we may not be able to predict or anticipate accurately future trends in retention or effectively respond to such trends. Our retention rates may decline or fluctuate due to a variety of factors, including the following:

If we do not retain our existing clients and customers, or add new clients and customers, we may not generate revenue and/or our revenue may grow more slowly than expected, or decline, and our operating results and gross margins will be negatively impacted. In addition, our business and operating results may be harmed if we are unable to increase our retention rates or if they decline.

We also must continually add new clients and customers, both to replace those who cancel or elect not to renew their agreements with us and to grow our business beyond our current level. If we are unable to attract new clients and customers in numbers greater than number that cancel or elect not to renew their agreements with us, our client base will decrease, and our business, operating results, and financial condition would be adversely affected.

A network or data security incident may allow unauthorized access ~~capital,~~to our or our end users’ network or data, harm our reputation, create additional liability and adversely impact our financial results.

Increasingly, companies are subject to a wide variety of attacks on their networks on an ongoing basis. In addition to traditional computer “hackers” malicious code (such as viruses and worms), phishing attempts, employee theft or misuse, and denial of service attacks, sophisticated nation-state and nation-state supported actors engage in intrusions and attacks (including advanced persistent threat intrusions) and add to the risks to internal networks, cloud deployed enterprise and customer-facing environments and the information they store and process. Despite significant efforts to create security barriers to such threats, it is virtually impossible for us to entirely mitigate these risks. We, and our third-party software and service providers, may face security threats and attacks from a variety of sources. Our data, corporate systems, third-party systems and security measures and/or those of our licensees, resellers, clients, customers, software providers, independent contractors, employees, end users may be breached due to the actions of outside parties, employee error, malfeasance, a combination of these, or otherwise, and, as a result, an unauthorized party may obtain access to our or our customers’ data. Furthermore, as a provider of cybersecurity technologies, we may be a more attractive target for such attacks. A breach in our data security or an attack against our service availability, or that of our third-party service providers, could impact our networks or networks secured by our services, products and subscriptions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our services, products, and the information stored on our networks or those of our third-party service providers could be accessed, publicly disclosed, altered, lost, or stolen, which could subject us to liability and cause us financial harm. Any actual or perceived breach of network security in our systems or networks, or any other actual or perceived data security incident we or our third-party service providers suffer, could result in damage to our reputation, negative publicity, loss of channel partners, licensees, resellers, clients, customers, and sales, loss of competitive advantages over our competitors, increased costs to remedy any problems and otherwise respond to any incident, regulatory investigations and enforcement actions, costly litigation, and other liability. In addition, we may incur significant costs and operational consequences of investigating, remediating, eliminating, and putting in place additional tools and devices designed to prevent actual or perceived security incidents, as well as the costs to comply with any notification obligations resulting from any security incidents. Any of these negative outcomes could adversely impact the market perception of our services, products and customer and investor confidence in our company and, moreover, could seriously harm our business or operating results.

It is essential to our business strategy that our technology and network infrastructure remain secure and are perceived by any clients and customers we have, and others, to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks by hackers and other security threats. We may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise disable our research, products and services, misappropriate our proprietary information, or that of our licensees and resellers, or their or our customers and partners, which may include personally identifiable information, or cause interruptions of our internal systems and services. Any cyber-attacks could negatively affect our reputation, damage our network infrastructure and our ability to deploy our products and services, harm our business relationships, and expose us to financial liability.

Our services, products, systems, and website and the data on these sources may be subject to intentional disruption that could materially harm our reputation and future sales.

Despite our precautions and ongoing investments to protect against security risks, data protection breaches, cyber-attacks, and other intentional disruptions of our products and services, we expect to be an ongoing target of attacks specifically designed to impede the performance and availability of our offerings and harm our reputation as a company. Similarly, experienced computer programmers or other sophisticated individuals or entities, including malicious hackers, state-sponsored organizations, and insider threats including actions by employees and third-party service providers, may attempt to penetrate our network security or the security of our systems and websites and misappropriate proprietary information or cause interruptions of our services. This risk has increased as more individuals are working from home and utilize home networks for the transmission of sensitive information. Such attempts are increasing in number and in technical sophistication, and if successful could expose us and the affected parties, to risk of loss or misuse of proprietary or confidential information or disruptions of our business operations. While we engage in a number of measures aimed to protect against security breaches and to minimize problems if a data breach were to occur, our information technology systems and infrastructure may be vulnerable to damage, compromise, disruption, and shutdown due to attacks or breaches by hackers or due to other circumstances, such as error or malfeasance by employees or third-party service providers or technology malfunction. The occurrence of any of these events, as well as a failure to promptly remedy these events should they occur, could compromise our systems, and the information stored in our systems could be accessed, publicly disclosed, lost, stolen, or damaged. Any such circumstance could adversely affect our ability to attract and maintain licensees and resellers, and/or for us or our licensees and resellers to retain customers, as well as strategic partners, cause us to suffer negative publicity, and subject us to legal claims and liabilities or regulatory penalties. In addition, unauthorized parties might alter information in our databases, which would adversely affect both the reliability of that information and our ability to market and perform our services. Techniques used to obtain unauthorized access or to sabotage systems change frequently, are constantly evolving and generally are difficult to recognize and react to effectively. We may be unable to anticipate these techniques or to implement adequate preventive or reactive measures. Several recent, highly publicized data security breaches at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our licensees, resellers, or strategic partners, or our or their customers.

Our products are complex and operate in a wide variety of environments, systems and configurations, which could result in failures of our products to function as designed and negatively impact our brand recognition and reputation.

Because we offer very complex products, errors, defects, disruptions, or other performance problems with our products may and have occurred. For example, we may experience disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our websites simultaneously, fraud, or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products could impact our revenues or cause licensees, resellers, clients, and customers to cease doing business with us. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose end user/customer data or experience material adverse interruptions to our operations or delivery of products and services to our clients in a disaster recovery scenario. Further, our business would be harmed if any of these types of events caused our licensees, resellers, or customers, or our licensees’ and resellers’ customers or potential customers, to believe that our products are unreliable. We believe that our brand recognition and reputation are critical to retaining existing licensees, resellers, clients and customers, and attracting new licensees, resellers, clients, and customers. Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, our strategic partners, our affiliates, or others associated with any of these parties, may tarnish our reputation and reduce the value of our brands. Damage to our reputation may reduce demand for our products and have an adverse effect on our business, operating results, and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands after such an event may be costly and time consuming, and such efforts may not ultimately be successful.

If our products and services do not work properly, our business, financial condition and financial results could be negatively affected, and we could experience negative publicity, declining sales, and legal liability.

We produce complex products that incorporate leading-edge technology that must operate in a wide variety of technology environments. Software may contain defects or “bugs” that can interfere with expected operations in these varying technological environments. There can be no assurance that our testing programs will be adequate to detect all defects prior to the product being introduced, which might decrease customer satisfaction with our products and services. The product reengineering cost to remedy a product defect could be material to our operating results. Our inability to cure a product defect could result in the temporary or permanent withdrawal of a product or service, negative publicity, damage to our reputation, failure to achieve market acceptance, lost revenue and increased expense, any of which could have a material adverse effect on our business, financial condition and financial results.

Outages or problems with systems and infrastructure supplied by third-parties could negatively affect our business, financial condition and financial results.

Our business relies on third-party suppliers of the telecommunications infrastructure. We, our clients and customers and our licensees and resellers, and their customers, will use various communications service suppliers and the global internet to provide network access between our data centers and our customers and end-users of our services. If those suppliers do not enable us to provide our clients and customers, or our licensees’ and resellers’ customers with reliable, real-time access to our systems (to the extent required), we may be unable to gain or retain clients, customers, licensees and resellers. These suppliers periodically experience outages or other operational problems as a result of internal system failures or external third-party actions. Supplier outages or other problems could materially adversely affect our business, financial results and financial condition.

Current global financial conditions have been characterized by increased volatility, which could negatively impact our ~~short-term~~business, prospects, liquidity and ~~long-term liquidity. The ultimate impact~~financial condition.

Current global financial conditions and recent market events have been characterized by increased volatility, and the resulting tightening of the ~~COVID-19 pandemic is highly uncertain~~credit and ~~subject to change.~~capital markets has reduced the amount of available liquidity and overall economic activity. We ~~do not yet know the full extent of potential delays~~cannot guarantee that debt or ~~impacts on our business,~~equity financing, or the ~~global economy~~ability to generate cash from operations, will be available or sufficient to meet or satisfy our initiatives, objectives or requirements. Our inability to access sufficient amounts of capital on terms acceptable to us for our operations will negatively impact our business, prospects, liquidity and financial condition.

If we experience delays and/or defaults in payments, we could be unable to recover all expenditures.

Because of the nature of our contracts, at times we will commit resources to projects prior to receiving payments from the counterparty in amounts sufficient to cover our expenditures on projects as they are incurred. Delays in payments may require us to make a ~~whole. However, these effects~~working capital investment. Defaults by any of our clients, customers, licensees, and resellers could have a significant adverse effect on our revenues, profitability and cash flow. Our clients, customers, licensees, and resellers may in the future default on their obligations to us or them due to bankruptcy, lack of liquidity, operational failure or other reasons deriving from the current general economic environment. If a client, customer, or licensee defaults on its obligations to us or our licensee, or a licensee or reseller defaults in its payments to us, it could have a material ~~impact~~adverse effect on our ~~liquidity, capital~~business, financial condition, results of operations or cash flows.

We expect to experience intense competition across all markets for our products and services. Our competitors that are focused on narrower product lines may be more effective in devoting technical, marketing, and financial resources to compete with us. In addition, barriers to entry in our businesses generally are low, and products and services, once developed, can be distributed broadly and quickly at a relatively low cost. Open-source software vendors are devoting considerable efforts to developing software that mimics the features and functionality of our current and anticipated products. These competitive pressures may result in decreased sales volumes, price reductions, and/or increased operating costs, such as for marketing and sales incentives, resulting in lower revenue, gross margins, and operating income.

Delays in product development schedules may adversely affect our revenues.

The development of cybersecurity products and services is a complex and time-consuming process. New products and services can require long development and testing periods. Future revenues may include the sale of new products and services that may not yet be developed. Significant delays in product development, including quality assurance testing or significant problems in creating new products and services, could adversely affect our revenue recognition from new products and services. Revenue in certain reporting periods could be lower than anticipated because product development problems could cause the loss of a competitive sale transaction, a delay in invoicing a client, customer, licensee, or reseller or the renegotiation of terms to retain a sale transaction.

If we do not accurately predict, prepare for, and respond promptly to rapidly evolving technological and market developments and successfully manage product introductions and transitions to meet changing needs in the cybersecurity technology market, our competitive position, financial results, and prospects will be harmed.

The cybersecurity technologies market has grown quickly and is expected to continue to evolve rapidly. Moreover, many of our potential licensees and resellers and their customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex enterprise networks, incorporating a variety of hardware, software applications, operating systems, and networking protocols. If we fail to accurately predict potential changing needs and emerging technological trends in the cybersecurity technology industry, including in the areas of mobility, virtualization, and cloud computing, our business could be harmed. If we experience unanticipated delays in the availability of new services, products, platform features, and subscriptions, or fail to meet expectations for such availability, our competitive position, financial results, and business prospects will be harmed.

Additionally, we must commit significant resources to developing new products and services before knowing whether our investments will result in services, products, subscriptions, and features that the market will accept. The success of new platform features depends on several factors, including appropriate new product definition, differentiation of new services, products, subscriptions, and platform features from those of our competitors, and market acceptance of these products, services and platform features. Moreover, successful new product introduction and transition depends on a number of factors including, our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, and the risk that new products may have quality or other defects or deficiencies, especially in the early stages of introduction. We cannot assure you that we will successfully identify opportunities for new products and services, develop and bring new products and subscriptions to market in a timely manner, or achieve market acceptance of our products and subscriptions, or that products, subscriptions, and technologies developed by others will not render our products, subscriptions, or technologies obsolete or noncompetitive.

Actual, possible, or perceived defects or vulnerabilities in our products or services, the failure of our products or services to detect or prevent a security breach or the misuse of our products could harm our reputation and divert resources.

Because our products and services are complex, they may contain defects or errors that are not detected until after their commercial release and deployment. Defects or vulnerabilities may impede or block network traffic, cause our products or services to be vulnerable to electronic break-ins or cause them to fail to help secure networks. We are also susceptible to errors, defects, vulnerabilities, or attacks that may arise at, or be inserted into our products, which are out of our control. Different users deploy and use cybersecurity products in different ways, and certain deployments and usages may subject our products to adverse conditions that may negatively impact the effectiveness and useful lifetime of our products. Our networks and products, including any cloud-based technology we utilize, could be targeted by attacks specifically designed to disrupt our business and harm our reputation. Our products may not prevent all security threats. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. An actual, possible, or perceived security breach or infection of the network of one of the users of our products, regardless of whether the breach is attributable to the failure of our products or services to prevent the security breach, could adversely affect the market’s perception of our security products and services and, in some instances, subject us to potential liability that is not contractually limited. We may not be able to correct any security flaws or vulnerabilities promptly, or at all. Our products may also be misused by potential end users or third-parties who obtain access to our products. For example, our products could be used to censor private access to certain information on the internet. Such use of our products for censorship could result in negative press coverage and negatively affect our reputation, even if we take reasonable measures to prevent any improper shipment of our products or if our products are being used improperly or provided by an unauthorized third-party.

Any actual, possible, or perceived defects, errors or vulnerabilities in our products and services, or misuse of our products and services, could result in:

Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our products without compensating us.

We rely primarily on patent, trademark, copyright and trade secrets laws and confidentiality procedures and contractual provisions to protect our technology. The claims eventually allowed on any patents issued in the future may not be sufficiently broad to protect our technology or products. Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate offensive scope, defensive protection or competitive advantages to us. Patent applications in the United States are typically not published until at least 18 months after filing, or, in some cases, not at all, and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be certain that we were the first to make the inventions claimed in our pending patent applications, or that we were the first to file for patent protection. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, recent changes to the patent laws in the United States, including but not limited to “adversary proceedings,” “first to file,” and “post-grant review” provisions, may bring into question the validity of certain software patents and may make it more difficult and costly to prosecute patent applications. As a result, we may not be able to obtain adequate patent protection or effectively enforce our issued patents.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. We generally enter into confidentiality or non-solicitation agreements with our employees, consultants, and vendors, as the case may be, and generally limit access to and distribution of our proprietary information. However, we cannot guarantee that the steps taken by us will prevent misappropriation of our technology. Policing unauthorized use of our technology or products is difficult. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States. From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition. If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that would compete with our products.

If our end users experience data losses, our brand, reputation and business could be harmed.

A breach of our end users’ network security and systems, or other events that cause the loss or public disclosure of, or access by third-parties to, our end users’ files or data, could have serious negative consequences for our business, including reduced demand for our services, an unwillingness of our clients and customers, and our licensees and resellers or their customers to use our products or services, harm to our brand and reputation. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated or remote areas around the world. As a result, our end users may be unable to proactively prevent these techniques, implement adequate preventative or remedial measures, or enforce the laws and regulations that govern such activities. If our end users experience any data loss, data disruption, or any data corruption or inaccuracies, whether caused by security breaches or otherwise, our brand, reputation and business could be harmed.

Our insurance may not be available now or in the future on acceptable terms, or at all. In addition, our policy may not cover claims against us for loss of data or other indirect or consequential damages. Defending a suit based on any data loss or system disruption, regardless of its merit, could be costly and divert our management’s attention.

Claims by others that we infringe their proprietary technology or other litigation matters could harm our business.

Patent and other intellectual property disputes are common in the cybersecurity and technology industries. Third-parties may in the future assert claims of infringement of intellectual property rights against us. They may also assert such claims against our licensees, resellers, end users or distribution partners whom we may have to indemnify against claims that our products infringe the intellectual property rights of third-parties. As the number of products and competitors in our market increases and overlaps in service and functionality occur, infringement claims may increase. Any claim of infringement by a third-party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business. In addition, litigation may involve patent holding companies, non-practicing entities, or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence to such plaintiffs we will counter-claim for infringement and invalidation of their patent(s).

Although third-parties may offer a license to their technology, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations to be materially and adversely affected. In addition, some licenses may be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. Alternatively, we may be required to develop non-infringing technology, which could require significant time, effort, and expense, and may ultimately not be successful. Furthermore, a successful claimant could secure a judgment, or we may agree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages (including treble damages if we are found to have willfully infringed such claimant’s patents), royalties or other fees. Any of these events could seriously harm our business, financial condition and results of operations.

We may be subject to lawsuits claiming patent infringement. We may also be subject to other litigation in addition to patent infringement claims, such as employment-related litigation and disputes, as well as general commercial litigation, and could become subject to other forms of litigation and disputes, including stockholder litigation. If we are unsuccessful in defending any such claims, our operating results and financial condition and results may be materially and adversely affected. For example, we may be required to pay substantial damages and could be prevented from selling certain of our products. Litigation, with or without merit, could negatively impact our business, reputation and sales in a material adverse fashion.

We rely on the availability of third-party licenses and our inability to maintain those licenses could harm our business.

Many of our products or products under development include software or other intellectual property licensed from third-parties. It may be necessary in the future to renew licenses relating to various aspects of these products or to seek new licenses for existing or new products. Licensors may claim we owe them additional license fees for past and future use of their software and other intellectual property or that we cannot utilize such software or intellectual property in our products going forward. There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.

The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms or for reasonable pricing, or the need to engage in litigation regarding these matters, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products. Further such events may result in significant license fees and have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products or software or other intellectual property licensed from third-parties on a non-exclusive basis or the inclusion in our products of opensource software may limit our ability to differentiate our products from those of our competitors. Not differentiating our products from those of our competitors may adversely affect our results of operations, including reducing our revenue and net income.

We also rely on technologies licensed from third-parties in order to operate functions of our business. If any of these third-parties allege that we have not properly paid for such licenses or that we have improperly used the technologies under such licenses, we may need to pay additional fees or obtain new licenses, and such licenses may not be available on terms acceptable to us or at all or may be costly. In any such case, or if we were required to redesign our internal operations to function with new technologies, our business, results of operations and financial condition could be harmed.

Our use of open-source software in our products could negatively affect our ability to sell our products and subject us to possible litigation.

Our current products, and/or those under development, contain software modules licensed to or used by us from third-party authors under “open-source” licenses. Some open-source licenses contain requirements that we make available applicable source code for modifications or derivative works we create based upon the type of open-source software we use. If we combine our proprietary software with open-source software in a certain manner, we could be required to release the source code of our proprietary software to the public under certain open-source licenses. This would allow our competitors to create similar products with lower development effort and time, and ultimately could result in a loss of product sales for us.

Although we monitor our use of open-source software to avoid subjecting our products and subscriptions to conditions we do not intend, the terms of many open-source licenses have not been interpreted by United States courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. From time to time, there have been claims against companies that distribute or use open-source software in their products, asserting that open-source software infringes the claimants’ intellectual property rights. We could be subject to suits by parties claiming infringement of intellectual property rights in what we believe to be licensed open-source software. If we are held to have breached the terms of an open-source software license, we could be required to seek licenses from third-parties to continue offering our products on terms that are not economically feasible, to reengineer our products, to discontinue the sale of our products if reengineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, financial condition and ability to differentiate our products and services.

In addition to risks related to license requirements, usage of open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks associated with usage of open-source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open-source software, but we cannot be sure that our processes for controlling our use of open-source software in our products will be effective.

Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Threats to IT security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, continuously undertake attacks that pose threats to our customers and our IT. These actors may use a wide variety of methods, which may include developing and deploying malicious software or exploiting vulnerabilities or intentionally designed processes in hardware, software, or other infrastructure in order to attack our products and services or gain access to our networks and datacenters, using social engineering techniques to induce our employees, users, partners, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users’ or customers’ data, or acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. Nation-state and state-sponsored actors can deploy significant resources to plan and carry out attacks. Nation-state attacks against us, our customers, or our partners may intensify during periods of intense diplomatic or armed conflict, such as the ongoing conflict in Ukraine. Inadequate account security or organizational security practices may also result in unauthorized access to confidential data. For example, system administrators may fail to timely remove employee account access when no longer appropriate. Employees or third-parties may intentionally compromise our or our users’ security or systems or reveal confidential information. Malicious actors may employ the IT supply chain to introduce malware through software updates or compromised supplier accounts or hardware.

Cyberthreats are constantly evolving and becoming increasingly sophisticated and complex, increasing the difficulty of detecting and successfully defending against them. We may have no current capability to detect certain vulnerabilities or new attack methods, which may allow them to persist in the environment over long periods of time. Cyberthreats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and customers. Breaches of our facilities, network, or data security could disrupt the ~~third parties~~security of our systems and business applications, impair our ability to provide services to our customers and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our reputation or competitive position, result in theft or misuse of our intellectual property or other assets, subject us to ransomware attacks, require us to allocate more resources to improve technologies or remediate the impacts of attacks, or otherwise adversely affect our business. We are also subject to supply chain cyberattacks where malware can be introduced to a software provider’s customers, including us, through software updates.

In addition, our internal IT environment continues to evolve. Often, we are early adopters of new devices and technologies. We embrace new ways of sharing data and communicating internally and with partners and customers using methods such as social networking and other consumer-oriented technologies. Increasing use of generative AI models in our internal systems may create new attack methods for adversaries. Our business policies and internal security controls may not keep pace with these changes as new threats emerge, or emerging cybersecurity regulations in jurisdictions worldwide.

Security of our products, services, devices, and customers’ data may be breached.

The security of our products and services is important in our customers’ decisions to purchase or use our products or services. Security threats are a significant challenge to companies like us whose business is providing technology products and services to others. Threats to our own IT infrastructure can also affect our customers. Customers using our cloud-based services rely on the security of our infrastructure, including hardware and other elements provided by third-parties, to ensure the reliability of our services and the protection of their data. Adversaries tend to focus their efforts on the most popular operating systems, programs, and services, including many of ours, and we expect that to continue. In addition, adversaries can attack our customers’ cloud environments, sometimes exploiting previously unknown vulnerabilities, Vulnerabilities in these or any product could persist if the attackers exploited the vulnerabilities with the installation of additional malware, to further compromise customers’ systems. Customers using our products will continue to get attacked as they move through their digital transformation projects. Inadequate account security practices may also result in unauthorized access, and user activity may result in ransomware or other malicious software impacting a customer’s use of our products or services. We are increasingly incorporating open-source software into our products. There may be vulnerabilities in open-source software that may make our products susceptible to cyberattacks.

Our customers operate complex IT systems with third-party hardware and software from multiple vendors that may include systems acquired over many years. They expect our products and services to support all these systems and products, including those that no longer incorporate the strongest current security advances or standards. As a result, we may not be able to discontinue support in our services for a product, service, standard, or feature solely because a more secure alternative is available. Failure to utilize the most current security advances and standards can increase our customers’ vulnerability to attack. Further, customers of widely varied size and technical sophistication use our technology, and consequently may still have limited capabilities and resources to help them adopt and implement state of the art cybersecurity practices and technologies. In addition, we must account for this wide variation of technical sophistication when defining default settings for our products and services, including security default settings, as these settings may limit or otherwise impact other aspects of IT operations and some customers may have limited capability to review and reset these defaults.

Cyberattacks may adversely impact our customers even if our product services are not directly compromised. We are committed to notifying our customers whose systems have been impacted as we become aware and have actionable information for customers to help protect themselves. We are also committed to providing guidance and support on detection, tracking, and remediation. We may not be able to detect the existence or extent of these attacks for all of our customers or have information on how to detect or track an attack, when we may have no or limited visibility into our customers’ computing environments.

To defend against security threats to our internal IT systems, our cloud-based services, and our customers’ systems, we must continuously engineer more secure products and services, enhance security, threat detection, and reliability features, improve the deployment of software updates to address security vulnerabilities in our own products as well as those provided by others, develop mitigation technologies that help to secure customers from attacks even when software updates are not deployed, maintain the digital security infrastructure that protects the integrity of our network, products, and services, and provide security tools such as firewalls, anti-virus software, and advanced security and information about the need to deploy security measures and the impact of doing so. Customers in certain industries such as financial services, health care, and government may have enhanced or specialized requirements to which we ~~rely.~~must engineer our products and services.

The cost of measures to protect products and customer-facing services could reduce our operating margins. If we fail to do these things well, actual or perceived security vulnerabilities in our products and services, data corruption issues, or reduced performance could harm our reputation and lead customers to reduce or delay future purchases of products or subscriptions to services, or to use competing products or services. Customers may also spend more on protecting their existing computer systems from attack, which could delay adoption of additional products or services. Customers, and third-parties granted access to their systems, may fail to update their systems, continue to run software or operating systems we no longer support, or may fail timely to install or enable security patches, or may otherwise fail to adopt adequate security practices. Any of these could adversely affect our reputation and revenue. Actual or perceived vulnerabilities may lead to claims against us. Our license agreements typically contain provisions that eliminate or limit our exposure to liability, but there is no assurance these provisions will withstand legal challenges. At times, to achieve commercial objectives, we may enter into agreements with larger liability exposure to customers.

Our products operate in conjunction with and are dependent on products and components across a broad ecosystem of third-parties. If there is a security vulnerability in one of these components, and if there is a security exploit targeting it, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position.

Disclosure and misuse of personal data could result in liability and harm our reputation.

As we continue to grow the number, breadth, and scale of our cloud-based offerings, we store and process increasingly large amounts of personal data of our customers and users. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Despite our efforts to improve the security controls across our business groups and geographies, it is possible our security controls over personal data, our training of employees and third-parties on data security, and other practices we follow may not prevent the improper disclosure or misuse of customer or user data we or our vendors store and manage. In addition, third-parties who have limited access to our customer or user data may use this data in unauthorized ways. Improper disclosure or misuse could harm our reputation, lead to legal exposure to customers or users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. Our software products and services also enable our customers and users to store and process personal data on-premises or, increasingly, in a cloud-based environment we host. Government authorities can sometimes require us to produce customer or user data in response to valid legal orders. In the U.S. and elsewhere, we advocate for transparency concerning these requests and appropriate limitations on government authority to compel disclosure. Despite our efforts to protect customer and user data, perceptions that the collection, use, and retention of personal information is not satisfactorily protected could inhibit sales of our products or services and could limit adoption of our cloud-based solutions by consumers, businesses, and government entities. Additional security measures we may take to address customer or user concerns, or constraints on our flexibility to determine where and how to operate datacenters in response to customer or user expectations or governmental rules or actions, may cause higher operating expenses or hinder growth of our products and services.

Historically, the market price for our common stock has been volatile, and you may not be able to sell our stock at a favorable price, or at all.

You should consider an investment in our common stock to be risky, and you should invest in our common stock and securities convertible into our common stock only if you can withstand a complete loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere are:

In addition, if the market for stock of companies in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Substantial sales of our common stock, or the perception that such sales might occur, could depress the market price of our common stock.

We cannot predict whether future issuances of our common stock, or resale of shares in the open market, will decrease the market price of our common stock. The consequence of any such issuances or resale of our common stock on our market price may be increased as a result of the fact that our common stock is thinly, or infrequently, traded. The exercise of any outstanding options, or the vesting of any restricted stock, that we may grant to directors, executive officers and other employees in the future, or the issuance of common stock in connection with acquisitions and other issuances of our common stock, may decrease the market price of our common stock.

Holders of our common stock have a risk of potential dilution if we issue additional shares of common stock in the future.

The exercise of outstanding options and warrants to purchase our common stock will dilute existing stockholders’ ownership percentage. On November 7, 2023, we offered to exchange certain outstanding warrants for shares of common stock and new warrants. We closed the November 7 Offer to Exchange on December 26, 2023, resulting in the issuance of 7,270,958 shares of common stock and 17,415,437 new warrants. On September 13, 2021, our stockholders approved an employee stock option plan authorized by our Board of Directors under which we may issue equity awards that may increase the number of outstanding shares of common stock. In the future, we may grant additional stock options, warrants, preferred stock or convertible securities. The exercise or conversion of stock options, warrants, preferred stock, or convertible securities will dilute the ownership percentage of our then existing stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert their securities when we are able to obtain additional equity capital on terms more favorable than these securities.

The anti-dilutive rights of certain warrants could result in significant dilution to our existing stockholders and/or require us to issue a substantially greater number of shares, which may adversely affect the market price of our common stock.

The warrants to purchase 55,549,615 shares of our common stock issued to investors in a private placement transaction that closed on April 16, 2021, contain anti-dilution rights such that if we issue, or are deemed to have issued, common stock or common stock equivalents at a price less than the then exercise price of those warrants, the exercise price of those warrants will automatically be reduced to such lower value, and the number of shares of common stock issuable upon exercise thereafter will be adjusted proportionately, so that the aggregate exercise price payable upon exercise of such warrants is the same prior to and after such reduction in exercise price. As a result, the effect of the anti-dilution right may cause significant dilution to our other stockholders.

The warrants to purchase 8,332,439 shares of our common stock issuable upon exercise of warrants issued to the placement agent in the private placement include a weighted average anti-dilution right in the event we issue any shares of common stock or equivalents with a value less than the then exercise price. As a result, the effect of the anti-dilution right may cause significant dilution to our other stockholders. The triggering of the anti-dilution rights in the warrants issued in the private placement may result in such securities being exercisable for a significant number of additional shares of common stock and/or exercisable for a reduced exercise price. As a result, the number of shares issuable could prove to be significantly greater than they are currently and could result in substantial dilution to our other stockholders. As of September 30, 2023, no anti-dilution triggers have occurred.

On August 22, 2023, the Company commenced a Tender Offer for the 69,281,020 Warrants subject to our Offer to Exchange consisting of (i) warrants to purchase an aggregate of 5,398,966 Shares issued to certain designees of Paulson Investment Company, LLC (“Paulson”) in 2018 with a ten-year term and with an exercise price of $1.00 (“2018 Paulson Warrants”), (ii) warrants to purchase an aggregate of 8,332,439 Shares that were issued to certain designees of Paulson in 2021 with a ten-year term and that had an exercise price of $0.18 (“2021 Paulson Warrants”); and (iii) warrants to purchase an aggregate of 55,549,615 Shares issued to certain investors in 2021 with a five-year term and with an exercise price of $0.36 (“2021 Investor Warrants”). The 2018 Paulson Warrants and the 2021 Paulson Warrants are collectively referred to as the “Paulson Warrants.” Under the Offer to Exchange, the holders of the Paulson Warrants were entitled to receive one (1) share of Common Stock for each four (4) Paulson Warrants exchanged (“Paulson Exchange Ratio”), and (ii) the holders of the Investor Warrants were entitled to receive one (1) share of Common Stock for each six (6) Investor Warrants exchanged (“Investor Exchange Ratio”). This Offer to Exchange was withdrawn by the Company on November 1, 2023 after deciding that the 24,008,341 warrants that had been validly tendered into and not validly withdrawn, represented 42.3% of the warrant subject to the Offer to Exchange, were insufficient to close the Offer to Exchange.

A new Tender Offer (“Offer to Exchange”) was filed on November 7, 2023. The November 7, 2023 Tender Offer contained two material differences from the Tender Offer filed on August 22, 2023:

The 55,549,615 2021 Investor Warrants were subject to the November 7, 2023, Offer to Exchange. We closed the November 7 Offer to Exchange on December 26, 2023, resulting in the issuance of 7,270,958 shares of common stock and 17,415,437 new warrants in exchange for 43,538,501 2021 Investor Warrants.

Our common shares are thinly traded, and in the future may continue to be thinly traded, and you may be unable to sell your shares at or near ask prices or at all, if you need to sell your shares to raise money or otherwise desire to liquidate such shares.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on its share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that even current trading levels will be sustained. You may be unable to sell your common stock at or above your purchase price, if at all, which may result in substantial losses to you. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price. As a consequence of this enhanced risk, more risk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

A significant number of our shares have been registered for resale, and their sale or potential sale may depress the market price of our common stock.

As of September 30, 2023, we had 213,854,781 shares of common stock outstanding and total warrants issued for 69,281,020 shares of common stock. If all 69,281,020 warrants are exercised in full for cash, then they would represent 24.5% of the total shares outstanding. Sales of a significant number of shares of our common stock in the public market, or the potential or expectation of such sales, could harm the market price of our common stock. As large numbers of our common stock are sold, it would increase the supply of our common stock, which would thereby cause a decrease in its price.

Future sales and issuances of our securities could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

We expect that we will need significant additional capital in the future to continue our planned operations, including research and development, increased marketing, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent that we raise additional capital by issuing equity securities, our existing stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions, at prices and in a manner that we determine from time to time, in our discretion. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Our common stock is subject to restrictions on sales by broker-dealers and penny stock rules, which may be detrimental to investors.

Our common stock is subject to Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which impose certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(a) of the Securities Act of 1933, as amended (the “Securities Act”)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and holders of our common stock to sell their shares of our common stock.

Additionally, our common stock is subject to SEC regulations applicable to “penny stocks.” Penny stocks include any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that, prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable and the current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of a penny stock that disclose recent price information for the penny stock and information regarding the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

Because our common stock is quoted on the OTCQB instead of a national exchange, our investors may have a difficulty selling their stock or may experience negative volatility on the market price of our common stock.

Our common stock is ~~traded~~quoted on the OTCQB ~~Venture~~ Market, ~~(“OTCQB”)~~ operated by the OTC Markets Group. The OTCQB is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares, except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that trade on the OTCQB, as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price ~~from~~for their shares when they determine to sell them or may have to hold them for a substantial period of time until the liquidity of the market for our common stock improves.

We previously identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. Our disclosure controls and procedures and internal controls over financial reporting are currently ineffective and have in the past been subject to 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. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

We cannot assure you that additional material weaknesses will not arise in the future. The development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock, and/or result in litigation against us or our management.

U.S. government agencies continue to implement extensive requirements on our industry. These regulations have both positive and negative impacts, with much remaining uncertainty as to how various provisions will ultimately affect our customers, clients, licensees, resellers, end users, and our business. As to prospective legislation and regulation concerning collection, transmission, storage and use of personal data, we cannot determine what effect additional state or federal governmental legislation, regulations, or administrative orders would have on our business in the future. New legislation or regulation may require the reformulation of our business to meet new standards, require us to cease operations, impose stricter qualification and/or registration standards, impose additional record keeping, or require expanded consumer protection measures (such as heightened notification procedures and data subject access rights).

~~We depend significantly upon the continued involvement of our present management.~~

The Company’s success depends significantly upon the involvement of our present management, who are in charge of our strategic planning and operations. We may need to attract and retain additional talented individuals in order to carry out our business objectives. The competition for individuals with expertise in this industry could be intense and there are no assurances that these individuals will be available to us.

~~Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management.~~

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated there under, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our ~~management team will need to devote significant time and financial resources~~failure to comply with ~~both existing~~laws and ~~evolving standards~~regulations applicable to our business could subject us to fines and penalties and could also cause us to lose potential customers, clients, licensees, resellers and/or for licensees and resellers to lose potential customers in the public ~~companies, which~~sector or negatively impact our ability to contract with the public sector.

Our business is subject to regulation by various federal, state, regional, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, product labeling, environmental laws, consumer protection laws, anti-bribery laws, data privacy laws, import and export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages and civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be adversely affected. In addition, responding to any legal action will ~~lead to increased general and administrative expenses and~~likely result in a significant diversion of ~~management time~~our management’s attention and ~~attention from revenue generating activities~~resources and an increase in professional fees and expenses. Enforcement actions and sanctions could harm our business, operating results and financial condition.

Additionally, we may be subject to other laws and regulations throughout the world governing data handling, protection and privacy. For example, in June of 2018, California passed the California Consumer Privacy Act, or the “CCPA,” which provides new data privacy rights for consumers and new operational requirements for companies, became effective in 2021, and in March 2022, Virginia passed a consumer data protection law, the “VCDPA,” which includes similar rights as set forth in the CCPA. Fines for noncompliance may be up to $7,500 per violation. Additionally, many other states have passed differing privacy and data protection laws in recent years. Significantly, several bills are being worked on in the Senate and the House dealing with these issues, and while it is uncertain that any of them will reach the floor of either chamber, if they do so they will likely impose substantial additional burdens on companies. The costs of compliance ~~activities.~~

~~We expect to experience intense competition across all markets for~~with, and other burdens imposed by, the CCPA, the VCDPA and other state or foreign laws, may limit the use and adoption of our products and ~~services. Although we believe~~services and would have an adverse impact on our business. These laws and regulations impose added costs on our business, and ~~product portfolio will be a competitive advantage,~~failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our ~~competitors that are focused on narrower product lines may be more effective in devoting technical, marketing, and financial resources to compete with us. In addition, barriers to entry~~channel partners, penalties, termination of contracts, loss of exclusive rights in our ~~businesses generally are low,~~intellectual property and products, once developed, can be distributed broadly and quickly at a relatively low cost. Open-source software vendors are devoting considerable efforts to developing software that mimics the features and functionality of our anticipated products. These competitive pressures may resulttemporary suspension or permanent debarment from government contracting. Any such damages, penalties, disruptions, or limitations in ~~decreased sales volumes, price reductions, and/or increased operating costs, such as for marketing and sales incentives, resulting in lower revenue, gross margins, and operating income.~~

~~Our business depends on~~ our ability to ~~attract and retain talented employees.~~

~~Our~~do business is based on successfully attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry is extremely competitive. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employeeswith the public sector could ~~hinder our strategic planning and execution.~~

~~Delays in product development schedules may adversely affect our revenues.~~

The development of software products is a complex and time-consuming process. New products can require long development and testing periods. Our increasing focus on innovative and new software presents new and complex development issues. Significant delays in new product releases or significant problems in creating new products could adversely affect our revenue.

~~Acquisitions and joint ventures may~~ have an adverse effect on our ~~business.~~business and operating results.

Governmental restrictions on the sale of our products and services in non-U.S. markets could negatively affect our business, financial condition, and financial results.

Exports of software products and services using cybersecurity technology such as ours are generally restricted by the U.S. government. In addition, some countries impose restrictions on the use of cybersecurity products and services such as ours. The cost of compliance with U.S. and other export laws, or our failure to obtain governmental approvals to offer our products and services in non-U.S. markets, could affect our ability to sell our products and services and could impair our international expansion. We face a variety of other legal and compliance risks. If we or our distributors fail to comply with applicable law and regulations, we may become subject to penalties, fines or restrictions that could materially adversely affect our business, financial condition and financial results.

If we made acquisitions or entered into joint ventures as part of our long-term business strategy, these transactions would involve significant challenges and risks including that the transactions do not advance our business strategy, that we don’t realize a satisfactory return on our investment, or that we experience difficulty in the integration of new employees, business systems, and technology, or diversion of management’s attention from our other businesses. These events could harm our operating results or financial condition.

The ~~market~~accounting treatment of the recently issued warrants could have a material adverse impact on our financial statements and reduce our net income.

The warrants we issued in the 2021 private placement described in Part II, Item 8, Financial Statements, Note 8, contain various provisions including, but not limited to, various price ~~for our common stock may be volatile,~~reset and ~~you may not be able to sell our stock at a favorable price or at all.~~

~~Many factors could cause the market price of our common stock to rise and fall, including:~~

~~Substantial sales of our common stock, or the perception that such sales might occur, could depress the market price of our common stock.~~

anti-dilution provisions. We cannot predict ~~whether future issuances~~the financial impact of our common stock or resale in the open market will not decrease the market price of our common stock. The consequence of any such issuances or resale of our common stock on our market price may be increased as a result of the fact that our common stock is thinly, or infrequently, traded. The exercise of any options, or the vesting of any restricted stock that we may grant to directors, executive officers and other employees in the future, the issuance of ~~common stock~~the warrants on our financial statements, specifically our balance sheet. We also cannot predict the financial impact of the various provisions included in the warrant agreements.

The purchase agreement related to our 2021 private placement includes customary covenants that we must comply with, or we may suffer potential monetary and other penalties.

The securities purchase agreement we entered into in connection with ~~acquisitions and other issuances~~the recent private placement contains certain customary covenants. If we do not comply with these covenants, we will be in breach of our ~~common stock,~~obligations under the securities purchase agreement, which may ~~decrease~~lead to exercise by the ~~market price of our common stock.~~

~~Holders of our common stock have a risk of potential dilution if we issue additional shares of common stock in the future.~~

The exercise of options and warrants and/or the conversion of preferred stock will dilute the shareholder’s ownership percentage. We may issue options to purchase or grant up to an aggregate of 3,000,000 shares of common stock under our 2019 Stock Grant/Option Plan. We also have outstanding warrants to purchase 24,290,866 shares of our common stock. In the future, we may grant additional stock options, warrants, or convertible securities. The exercise or conversion of stock options, warrants, preferred stock, or convertible securities will dilute the ownership percentage of our other stockholders. The dilutive effectinvestors of the ~~exercise or conversion of these~~remedies available to them under the securities purchase agreement, which may ~~adversely affect~~cause a material impact upon our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert their securities when we are able to obtain additional equity capital on terms more favorable than these securities.financial condition.

~~We do not intend to pay cash dividends to our stockholders, so you will not receive any return on your investment in our Company prior to selling your interest in the Company.~~General Risk Factors

The Company has never paid any cash dividends to our stockholders. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any cash dividends in the foreseeable future. As a result, you will not receive any return on your investment prior to selling your shares in our Company, and for the other reasons discussed in this “Risk Factors” section, you may not receive any return on your investment even when you sell your shares in our Company.

Our ~~common stock is subject to restrictions on sales by broker-dealers and penny stock rules, which may be detrimental to investors.~~

Our common stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(a) of the Securities Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock.

Additionally, our common stock is subject to SEC regulations applicable to “penny stocks.” Penny stocks include any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock; a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of a penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.

~~Our Articles of Incorporation allow~~charter allows us to issue “blank check” preferred stock and establish its terms, conditions, rights, powers and preferences without ~~shareholder~~stockholder approval.

~~Our board~~Pursuant to our certificate of ~~directors~~incorporation, our Board of Directors has ~~“blank check”~~the authority to issue up to ~~10,000,000~~10 million shares of “blank check” preferred stock and to determine the price, rights, preferences, privileges, and restrictions, including voting rights, of those shares without any additional vote or action by our ~~shareholders. The~~stockholders. Because our Board of Directors is able to designate the terms, conditions, rights, powers, and preferences of the ~~holders~~preferred stock without the vote of ~~the common~~a majority of our stockholders, our stockholders will have no control over what designations and preferences our preferred stock will ~~be subject to, and could be materially adversely affected by,~~have. The issuance of shares of preferred stock, or the rights ofassociated therewith, could cause substantial dilution to our existing stockholders. Additionally, the ~~holders~~dilutive effect of any preferred stock that we may issue may be ~~issued~~exacerbated given the fact that such preferred stock may have voting rights, liquidation and/or other rights or preferences that could provide the preferred stockholders with substantial voting control over us and/or give those holders the power to prevent or cause a change in our control. As a result, the issuance of shares of preferred stock may cause the value of our common stock to decrease.

We will continue to incur increased costs as a result of being a reporting company and, given our limited capital resources, such additional costs may have an adverse impact on our profitability.

We are a reporting company to the Securities and Exchange Commission, or SEC. The rules and regulations under the Exchange Act require reporting companies to provide periodic reports with interactive data files, which require that we engage legal, accounting and auditing professionals, and XBRL (eXtensible Business Reporting Language) and EDGAR (Electronic Data Gathering, Analysis, and Retrieval) service providers. The engagement of such services can be costly, and we may continue to incur additional financial losses, which may adversely affect our ability to continue as a going concern. In addition, the Sarbanes Oxley Act of 2002, as well as a variety of new related and unrelated rules implemented by the SEC, have required changes in corporate governance practices and generally increased the disclosure requirements of public companies. For example, as a result of being a reporting company, we are required to file periodic and current reports and other information with the SEC, and we are adopting and revising policies regarding disclosure controls and procedures, including internal controls over financial reporting.

The additional costs we continue to incur in connection with being a reporting company (expected to be approximately seven to eight hundred thousand dollars per year) will continue to further stretch our limited capital resources. Due to our limited resources, we have to allocate resources away from other productive uses in order to continue to comply with our obligations as an SEC reporting company. Further, there is no guarantee that we will have sufficient resources to continue to meet our reporting and filing obligations with the SEC as they come due.

If securities or industry analysts do not initiate research coverage on us and, if initiated, fail to publish research or reports, or publish unfavorable research or reports, about our business, our stock price and trading volume may decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets, and our competitors. We do not currently have any securities or industry analysts that have initiated research coverage on our business. If and when any securities or industry analysts initiate research coverage on our business, we will not control these analysts. If securities analysts do not cover our common stock, the lack of research or other coverage may adversely affect the market price and decrease the trading volume of our common stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock, or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the ~~future.~~ market, and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business and attract new clients and customers to purchase our cybersecurity products and services.

Market and economic conditions may negatively impact our business, financial condition, and share price.

Concerns over increasing inflation, increasing energy costs, geopolitical issues, unstable global credit markets and financial conditions, and volatile oil prices have in the past led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments, and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate, or do not improve once they occur, it may make any necessary debt or equity financing needed by us more difficult to complete, more costly, if possible, at all, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and share price, and could require us to delay or abandon development or commercialization plans.

Failure to adequately manage our planned aggressive growth strategy may harm our business or increase our risk of failure.

For ~~example,~~the foreseeable future, we intend to pursue an aggressive growth strategy for the expansion of our operations through increased product development and marketing. Our ability to rapidly expand our operations will depend upon many factors, including our ability to work in a regulated environment, market value-added products effectively to mid-market and emerging companies and organizations, establish and maintain strategic relationships with suppliers, acquire companies or establish joint ventures to add new features, services or products to our offerings, and obtain adequate capital resources on acceptable terms. Any restrictions on our ability to expand may have a materially adverse effect on our business, results of operations, and financial condition. Accordingly, we may be unable to achieve our targets for sales growth, and our operations may not be successful or achieve anticipated operating results.

Additionally, our growth may place a significant strain on our managerial, administrative, operational, and financial resources. Our future success will depend, in part, upon the ability of our management to manage growth effectively. This will require us to, among other things:

As a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of these requirements could impair our ability to deliver our products and services in a timely fashion or attract and retain new licensees and resellers.

If we do not successfully implement any acquisition strategies, our operating results and prospects could be harmed.

We face intense competition within our industry for acquisitions of businesses, technologies and assets. In the future, such competition may become more intense. As such, even if we are able to identify an acquisition target that we would like to acquire, we may not be able to complete the acquisition on commercially reasonable terms, or at all, because of such competition. Furthermore, if we enter into negotiations that are not ultimately consummated, those negotiations will result in diversion of management time and significant out-of-pocket costs. Even if we are able to complete such acquisitions, we may additionally expend significant amounts of cash or incur substantial debt to finance them, which indebtedness could result in restrictions on our business and use of available cash. In addition, we may finance or otherwise complete acquisitions by issuing equity or convertible debt securities, which could result in dilution of our existing stockholders. If we fail to evaluate and execute acquisitions successfully, we may not be able to realize their benefits. If we are unable to successfully address any of these risks, our business, financial condition, and operating results could be harmed.

If we make any acquisitions, they may disrupt or have a negative impact on our business.

If we make acquisitions in the future, funding permitting, which may not be available on favorable terms, if at all, we could ~~issue preferred stock~~have difficulty integrating the acquired company’s assets, personnel and operations with our own. We do not anticipate that any further acquisitions or mergers we may enter into in the future would result in a change of control of the Company. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect any expansion may have on our core business. Regardless of whether we are successful in closing an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition, many of which cannot be presently identified. These risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations, including reducing our revenue and net income.

We may apply working capital and future funding to uses that ultimately do not improve our operating results or increase the market price of our securities.

In general, we have complete discretion over the use of our working capital and any new investment capital we may obtain in the future that has ~~superior rights~~no dedicated use of proceeds. Because of the number and variety of factors that could determine our use of funds, our ultimate expenditure of funds (and their uses) may vary substantially from our current intended operating plan for such funds.

We intend to ~~dividends~~use existing working capital and future funding to support the development of our products and services, the expansion of our marketing, or ~~is convertible into~~the support of operations to educate the end users of the software we sell. We will also use capital for market and network expansion, acquisitions, and general working capital purposes. However, we do not have more specific plans for the use and expenditure of our capital. Our management has broad discretion to use any or all of our available capital reserves. Our capital could be applied in ways that do not improve our operating results or otherwise increase the market value of a stockholder’s shares.

Our websites may in the future experience slower response times or interruptions as a result of increased traffic or other reasons. These delays and interruptions resulting from failure to maintain Internet service connections to our site could frustrate visitors and reduce our future web site traffic, which could have a material adverse effect on our business including a reduction in our sales and net income.

The sale of shares of our common stock by our directors and officers may adversely affect the market price for our common stock.

Sales of significant amounts of shares of common ~~stock. This might~~stock by our officers and directors, or the prospect of such sales, could adversely affect the market price of ~~the~~our common stock. Our management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock’s market price.

IfStockholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional shares of our common stock.

Whenever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we ~~experience delays and/~~believe that the non-cash consideration will consist of restricted shares of our common stock, or ~~defaults in customer payments, we could be unable~~when shares are issued to ~~recover all expenditures.~~

~~Because~~our officers, directors and applicable consultants as compensation. Our Board of Directors has authority, without action or vote of the ~~nature~~stockholders, to issue all or part of the authorized but unissued shares of our ~~contracts,~~common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at ~~times we commit resources~~a discount to ~~projects prior~~market. These actions will result in dilution of the ownership interests of existing stockholders, which may further dilute our common stock book value, and that dilution may be material. Such issuances may also serve to ~~receiving payments from~~enhance existing management’s ability to maintain control of us because the ~~customer in amounts sufficient~~shares may be issued to ~~cover expenditures on projects as they are incurred. Delays in customer payments may require us~~parties or entities committed to make a working capital investment. If a customer defaults in making their payments on a project in which we have devoted resources, it could have a material negative effect on our working capital and results of operations.supporting existing management.

If we do not effectively manage our growth, our ~~existing infrastructure~~business resources and systems may become strained, and we may be unable to increase revenue growth.

~~Our past~~We plan to grow aggressively and, if successful, our future growth ~~that we have experienced, and in the future may experience,~~ may provide challenges to our organization, requiring us to expand our personnel and our operations. Future growth may strain our infrastructure, operations and other managerial and operating resources. If our business resources become strained, our earnings may be adversely affected, and we may be unable to increase revenue growth. Further, we may undertake contractual commitments that exceed our labor resources, which could also adversely affect our earnings and our ability to increase revenue growth.

~~The future issuance~~Our growth depends in part on the success of ~~equity~~our strategic relationships with third-parties.

In order to grow our business, we anticipate that we will need to continue to depend on our relationships with third-parties, including our technology providers. Identifying such third-parties, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third-parties to favor their products or services over utilization of ~~other securities that are convertible into equity may dilute your investment~~our products and ~~reduce your equity interest.~~

~~We may choose to raise additional capital~~services. In addition, acquisitions of our business partners by our competitors could result in a decrease in the number of our current and potential clients, customers, licensees, resellers, and end users. If we are unsuccessful in establishing or maintaining our relationships with third-parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased use of our products or increased revenue.

Claims, litigation, government investigations, and other proceedings may adversely affect our business and results of operations.

As a company offering a wide range of products and services, we are regularly subject to actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings relating to goods and services offered by us and by third-parties, and other matters. Any of these types of proceedings, including currently pending proceedings as discussed herein, may have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity, and other factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. Determining legal reserves and possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material effect on our business, consolidated financial position, results of operations, or cash flows. In addition, it is possible that a resolution of one or more such proceedings, including as a result of a settlement, could require us to make substantial future ~~depending~~payments, prevent us from offering certain products or services, require us to change our business practices in a manner materially adverse to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material adverse effect on ~~market conditions, strategic considerations and operational requirements. To the extent that additional capital is raised through the issuance of shares of~~our operations.

We have never paid or declared any dividends on our common stock or preferred stock; however, prior to December 29, 2021, we operated as a limited liability company (“LLC”) and made distributions of profits to our members. There were equity distributions to LLC members of $461,000 in 2022 and zero ($0) in 2023.

We do not anticipate paying, in the near future, dividends or distributions on our common stock. Any future dividends on our common stock will be declared at the discretion of our Board of Directors and will depend on, among other ~~securities convertible into shares~~things, our earnings, our financial requirements for future operations and growth, and other facts as we may then deem appropriate. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock, our stockholders’ ownership interests in our Company will be diluted. Future issuances of our common stock, other equity securities or other securities convertible into shares of our common stock or other equity securities, the exercise of currently outstanding or future options or warrants for our common stock, or the perception that such sales or exercises may occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise capital through future offerings of equity or equity-linked securities.stock.

~~Our auditor indicated that certain factors raise substantial doubt about our ability to continue as a going concern.~~

The financial statements included with this report are presented under the assumption that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. We had a net loss of approximately $7.0 million for the year ended September 30, 2020 and an accumulated deficit in aggregate of approximately $68.4 million at year end. We are not generating sufficient operating cash flows to support continuing operations and expect to incur further losses in the development of our business.

In our financial statements for the year ended September 30, 2020, our auditor indicated that certain factors raised substantial doubt about our ability to continue as a going concern. These factors included our accumulated deficit, as well as the fact that we were not generating sufficient cash flows to meet our regular working capital requirements. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management’s plan to address our ability to continue as a going concern includes: (1) obtaining debt or equity funding from private placement or institutional sources; and (2) generating cash flow from operations. Although management believes that it will be able to obtain the necessary funding to allow us to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Not applicable.~~This disclosure is not required as the Company is not an accelerated filer, large accelerated filer, nor a well-known seasoned issuer.

SideChannel, Inc. recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data.

SideChannel, Inc. has strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our risk management team works closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.

Recognizing the complexity and evolving nature of cybersecurity threats, SideChannel, Inc. engages with a range of external experts, including cybersecurity assessors, consultants, and auditors in evaluating and testing our risk management systems. These partnerships enable us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes remain at the forefront of industry best practices. Our collaboration with these third-parties includes regular audits, threat assessments, and consultation on security enhancements.

Because we are aware of the risks associated with third-party service providers, SideChannel, Inc. implements stringent processes to oversee and manage these risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring includes quarterly assessments by our Chief Information Security Officer (“CISO”) and on an ongoing basis by our security engineers. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third-parties.

We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.

The Board of Directors is acutely aware of the critical nature of managing risks associated with cybersecurity threats. The Board has established robust oversight mechanisms to ensure effective governance in managing risks associated with cybersecurity threats because we recognize the significance of these threats to our operational integrity and stakeholder confidence,

The Audit Committee is central to the Board’s oversight of cybersecurity risks and bears the primary responsibility for this domain. The Audit Committee is composed of board members with diverse expertise including, risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively.

The CISO and the Chief Executive Officer (“CEO”) play a pivotal role in informing the Audit Committee on cybersecurity risks. They provide comprehensive briefings to the Audit Committee on a regular basis, with a minimum frequency of once per year. These briefings encompass a broad range of topics, including:

In addition to our scheduled meetings, the Audit Committee, CISO and CEO maintain an ongoing dialogue regarding emerging or potential cybersecurity risks. Together, they receive updates on any significant developments in the cybersecurity domain, ensuring the Board’s oversight is proactive and responsive. The Audit Committee actively participates in strategic decisions related to cybersecurity, offering guidance and approval for major initiatives. This involvement ensures that cybersecurity considerations are integrated into the broader strategic objectives of SideChannel, Inc. The Audit Committee conducts an annual review of the company’s cybersecurity posture and the effectiveness of its risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with the overall risk management framework.

Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO, Mr. Bill Roberts. With over 25 years of experience in the field of cybersecurity, Mr. Roberts brings a wealth of expertise to his role. His background includes extensive experience as an enterprise CISO and is well-recognized within the industry. His in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies. Our CISO oversees our governance programs, tests our compliance with standards, remediates known risks, and leads our employee training program.

The CISO is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. This ongoing knowledge acquisition is crucial for the effective prevention, detection, mitigation, and remediation of cybersecurity incidents. The CISO implements and oversees processes for the regular monitoring of our information systems. This includes the deployment of advanced security measures and regular system audits to identify potential vulnerabilities. In the event of a cybersecurity incident, the CISO is equipped with a well-defined incident response plan. This plan includes immediate actions to mitigate the impact and long-term strategies for remediation and prevention of future incidents.

The CISO, in his capacity, regularly informs the Chief Financial Officer (CFO) and Chief Executive Officer (CEO) of all aspects related to cybersecurity risks and incidents. This ensures that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing SideChannel, Inc. Furthermore, significant cybersecurity matters, and strategic risk management decisions are escalated to the Board of Directors, ensuring that they have comprehensive oversight and can provide guidance on critical cybersecurity issues.

~~We lease office space at 2107 Wilson Blvd. S#530, Arlington, Virginia. In February 2020,~~On December 10, 2021, we entered into a lease ~~agreement with our landlord~~ for approximately ~~3,666~~500 square ~~feet.~~feet of office space at 146 Main Street in Worcester, Massachusetts, with the option to renew annually for three (3) twelve (12) month periods through December 2025. The annual renewal date is January 1^st. Our current lease payment is $948 per month. The lease ~~was~~allows for a two percent (2%) increase effective ~~February 1, 2020 and has a five year and six months term. The initial monthly rent is $13,289, and~~at the beginning of each renewal period. We anticipate the lease agreement provides for annual rent increases of approximately 2.7%. The amount of future payments guaranteed is $822,082. We terminated the employment with all of the employees working in the Arlington spacepayment to be $967 per month during ~~the restructure completed in April. As such, we have surrendered the space to the landlord and are actively negotiating an exit from the lease.~~calendar year 2024.

~~See “Litigation” in Note 7 – Commitments and Contingencies~~As of the ~~Notes to the Financial Statements in Part II, Item 8~~filing date of this Annual Report on Form ~~10-K.~~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 adverse to us, or has a material interest adverse to us, in any material proceeding.

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 exceed $1,000,000. The Company believes Cipherloc made all required payments and delivered the stock to the plaintiffs. The case is currently being defended by the Company. The Company believes it has meritorious defenses to the allegations, and the Company intends to continue to vigorously defend against the litigation.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the over-the-counter market and is quoted on the OTCQB Venture Market run by OTC Markets Group under the symbol ~~“CLOK.~~“SDCH.”

The OTC Markets Group is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. The trading of securities on the OTC Markets is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock.

The following table sets forth, for the periods indicated the high and low closing bid quotations for our common stock. These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions.

As of ~~December 23, 2020,~~September 30, 2023, there were ~~27,505,196~~213,854,781 shares of our common stock ~~of the Company~~ issued and outstanding, and there were ~~1,121 holders of the Company’s common stock. The actual number of~~approximately 3,100 record holders of our common ~~stock is greater than this number~~stock.

Also as of ~~record holders,~~September 30, 2023, there were zero (0) shares of Series A Preferred Stock issued and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.outstanding.

We ~~did not declare~~have never declared any dividends ~~for the~~on our common stock; however, prior to December 29, 2021, we operated as a limited liability company (“LLC”) and made distributions of profits to LLC members. There were equity distributions to LLC members of $461,000 when we operated as an LLC during fiscal year ~~ended September 30, 2020.~~ 2022.

Our Board of Directors does not intend to declare dividends in the foreseeable future. The declaration, payment, and amount of any future dividends will be made at the discretion our Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and such other factors as ~~the~~our Board of Directors ~~considers relevant. There is no assurance~~consider relevant at that time. We currently expect to use all available funds to finance the future development and expansion of our business, and we do not anticipate paying dividends ~~will be paid, and if dividends are paid, there is no assurance with respect to~~on our common stock in the ~~amount of any such dividend.~~foreseeable future.

The Transfer Agent and Registrar for our common stock is ~~Pacific Stock Transfer Company~~Computershare Limited located in ~~Las Vegas, Nevada.~~Canton, Massachusetts.

Except as previously disclosed in Form 8-K dated May 9, 2023, respecting the issuance of 62,016,618 shares of common stock in the Business Combination, and as previously disclosed in the Form 8-K dated June 15, 2023, respecting the issuance of 100 shares of common stock upon the conversion of the outstanding 100 shares of Series A Preferred Stock, ~~Issued for Cash~~

~~During~~there have been no sales of unregistered securities during the year ended September 30, ~~2020, there was no stock~~2023.

Please refer to the information contained in Item 1. Business under the caption “Business Combination Between Cipherloc Corporation and SideChannel, Inc. (now known as SCS, Inc.)” of this Form 10-K with respect to shares of our equity securities issued ~~for cash.~~

~~During~~during the ~~year~~twelve-month period ended September 30, ~~2020, the Company issued 620,000 stock options to employees that were subsequently forfeited due to employee terminations. Stock compensation expense for $194,896 was recognized in the period.~~2022.

During the year ended September 30, 2019, the Company issued 9,346 shares of common stock with a fair value of $11,216 to its employees as part of their compensation. The Company also issued 1,100,000 stock options to members of the board of directors and officers with a Black Scholes value of $862,000 to vest ratably over a three-year period. Stock compensation expense for $45,942 was recognized in the period.

During the year ended September 30, 2020, 300,000 stock options were cancelled due to the termination of employment. As of September 30, 2020, 800,000 stock options are outstanding. None of the shares are in the money and the unamortized amount of stock compensation as of September 30, 2020 is $383,453.

~~During the year ended September 30,2020, the Company did not issue any stock for services.~~

~~During the year ended September 30, 2019, the Company issued 20,000 shares of common stock with a fair value of $40,000 to a consultant for consulting services rendered.~~

~~The foregoing offers, sales and issuances were exempt from registration under Section 4(a)(2) of the Securities Act.~~

~~The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).~~

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The following discussion~~This Management’s Discussion and ~~analysis~~Analysis of Financial Condition and Results of Operations should be read in conjunction with ~~our~~the accompanying consolidated financial statements ~~including~~and the notes ~~thereto, appearing elsewhere~~thereto. In addition, please refer to the discussion of our business and markets contained in Part 1, Item 1 of this Annual Report on Form 10-K.

Our mission is to make cybersecurity simple and accessible for mid-market and emerging companies, a market that we believe is currently underserved. We believe that our cybersecurity offerings will identify and develop cybersecurity, privacy, and risk management solutions for our customers. We anticipate that our target customers will continue to need cost-effective security solutions. We intend to provide more tech-enabled services to address the needs of our customers, including virtual Chief Information Security Officer (vCISO), zero trust, third-party risk management, due diligence, privacy, threat intelligence, and managed end-point security solutions.

3. Increasing adoption of Cybersecurity Software, including Enclave and Services offerings at vCISO clients

We internally report our revenue using two categories. The first, “vCISO Services,” captures the revenue the Chief Information Security Officer services that we provide to our clients on a “virtual” or outsourced basis, thus the acronym “vCISO.” Services delivered by SideChannel through our team of vCISOs include assessing the cybersecurity risk profile, implementing policies and programs to mitigate risks, and managing the day-to-day tasks to ensure compliance with the adopted cybersecurity framework. Most of our clients use our vCISO services.

~~We are developing~~vCISO engagements typically include a fixed monthly subscription fee with durations longer than twelve (12) months. Hourly rates for vCISO time and material projects range from $350 to $425. Each of our vCISOs is generally embedded into the C-suite executive teams of two (2) to four (4) of our clients.

Our second revenue category encompasses an array of Cybersecurity Software and Services that our clients deem necessary to protect their digital assets. These augment our vCISO offering and include a full range of other cybersecurity products and services ~~around our patented polymorphic~~delivered through a team of security engineers along with a network of third-party service providers and value-added resellers (“VARs”). Commercial relationships with third-party service providers and VARs provide SideChannel with additional internal capabilities to mitigate cybersecurity risks. We earn licensing revenue from software contracts and commissions from third-party service provider partnerships which are included in this revenue category.

During September 2022 we announced a proprietary product called Enclave which simplifies important cybersecurity tasks called “asset inventory” and “microsegmentation.” Enclave seamlessly combines access control, microsegmentation, encryption ~~technology designed~~and other secure networking concepts to ~~enable~~create a ~~more efficient~~comprehensive solution. It allows Information Technology to easily segment the enterprise network, place the right staff in those segments and ~~stronger layer~~direct traffic.

The following revenue metrics are for the twelve months ended September 30, 2023, versus the same period in 2022. These summary metrics are accompanied by a table that reflects the revenue by category in fiscal years 2023 and 2022.

The growth in vCISO Services reflects both growth in clients served and an increase in revenue per client. Cybersecurity Software & Services revenue grew from 2022 to 2023 primarily because of protection to be added to existing solutions. Through a licensing program, we anticipate offering the first secure commercially viable advanced “Polymorphic Encryption Core” (“PEC”) software developers kit to be usedan increase in ~~any commercial data security industry and/or in sensitive applications.~~

~~Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires~~ the use of ~~estimates~~these services by existing Cybersecurity Software and ~~assumptions that affect the reported amounts~~Services clients and secondarily because of ~~assets and liabilities and the disclosure of contingent liabilities at the date~~an expansion of the ~~financial statements~~services and software offered.

We also monitor new and retained revenue. The revenue earned from clients during our first twelve months of working with them is classified as new; while the ~~reported amount~~revenue earned with clients after our first twelve months of ~~revenues~~working with them is classified as retained. The following table provides details on our new and ~~expenses during the reporting period. Our management periodically evaluates the estimates~~retained revenue for fiscal years 2023 and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as2022:

Further, we consider revenue retention a ~~result of different assumptions or conditions.~~

The methods, estimates, and judgment we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined “critical accounting policies” as those accounting policies that are most important to the portrayal of our financial condition and results and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based upon this definition, our most critical estimates are accounting for convertible debt and embedded derivatives, softwarekey performance indicator. Revenue retention is calculated by dividing retained revenue recognition, and stock issued to employees and non-employees. Our most critical accounting policies applicable to the periods presented are noted below. For additional information see Note 2, “Significant Accounting Policies” in the notes to our financial statements appearing elsewhere in this report. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available, and actual results may differ significantly from these estimates.

~~Our critical accounting policies and estimates are those related to revenue recognition, deferred income taxes, accounting for share-based payments, and litigation.~~

~~Revenue Recognition~~. We adopted the new accounting revenue standard for revenue recognition effective October 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under this new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous revenue guidance. See Note (1) Summary of Significant Accounting Policies.

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

The Company’s perpetual and term software licenses have significant standalone functionality and therefore revenue allocated to these performance obligations are recognized at a point in time upon electronic delivery of the download link and the license keys. For certain arrangements revenue is recognized based on usage or ratably over the term of the arrangement.

Product maintenance and support services are satisfied over time as they are stand-ready obligations throughout the support period. As a result, revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract.

~~Revenues associated with professional services are recognized at a point in time upon customer acceptance.~~

~~Accounting for Share-Based Payments~~~~. As discussed further in Note (10) Share-Based Payment Arrangements~~, ~~to our consolidated financial statements, we account for share-based awards in accordance with the authoritative guidance issued~~ by the ~~FASB on stock compensation.~~prior year total revenue. The following table shows the revenue retention for fiscal years 2023 and 2022 by revenue category.

We have used and expect to continue to use the Black-Scholes option-pricing model to compute the estimated fair value of share-based compensation expense. The Black-Scholes option-pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. The assumptions used in computing the fair value of share-based compensation expense reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected volatility based primarily on historical daily price changes of our stock and other factors. The expected option term is the number of years that we estimate that the stock options will be outstanding prior to exercise. The estimated expected term of the stock awards issued has been determined pursuant to SEC Staff Accounting Bulletin SAB No. 110. If other assumptions or estimates had been used, the share-based compensation expense that was recorded for the years ended September 30, 2019 and 2018 could have been materially different. Furthermore, if different assumptions or estimates are used in future periods, share-based compensation expense could be materially impacted in the future.

Under ASC 718-20-35-7, Repurchase or Cancellation of equity awards, the amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost.

Fiscal Year Ended September 30, ~~2020~~2023, Compared to Fiscal Year Ended September 30, ~~2019~~2022

~~Revenue increased to $47,983~~Revenue. Our revenue was $6.6 million for the year ended September 30, ~~2020~~2023, compared to $4.8 million in the prior year, an increase of $1.8 million or 37.2%. We believe this increase reflects the factors previously discussed in the Overview section above.

Gross Margins. Gross margins increased to 50.7% in fiscal year 2023 from ~~$46,600~~48.5% in fiscal year 2022, which we attribute to better utilization of our service delivery team.

General and Administrative Expenses. Our general and administrative expenses were $3.6 million for the year ended September 30, ~~2019. There was no cost of revenues~~2023, compared to $1.5 million for the ~~years ended September 30, 2020~~prior year, an increase of $2.1 or ~~September 30, 2019.~~

~~General and administrative expenses increased to $4,573,673 for the year ended September 30, 2020 from $3,372,047 for the year ended September 30, 2019.~~142.5%. The ~~increases~~increase in general and administrative expenses primarily resulted from increased staff and related costs including equity-based compensation; higher ~~legal expenses of $1,043,820, an impairment loss~~professional fees and insurance related to the ~~operating leases~~listed nature of ~~$382,962, increase~~the Company. To a lesser extent there were increases in ~~stock compensation of $153,355 , an increase in corporate insurance of $142,197~~amortization and an increase in salary expense of $101,099 offset by decrease in payroll taxes of $236,369 along with, the decrease in miscellaneous expense over last year that included payments totaling $416,000 to Quality Healthcare International, Inc. (“QHI”)travel-related costs.

~~Sales~~Marketing Expenses. Our sales and marketing expenses ~~decreased to $710,595~~were $1.3 million for the year ended September 30, ~~2020~~2023, compared to $367,000 for the prior year, an increase of $970,000 or 264.3% resulting from ~~$1,772,197~~our increase in sales and marketing staff and the related costs combined with a higher spend on third-party marketing services.

Research and Development Expenses. Our research and development expenses were $669,000 for the year ended September 30, ~~2019. Sales and marketing expenses decreased primarily due~~2023, compared to ~~non-recurring payments made to Ageos during 2019 to hire individual sales consultants under contract with~~$178,000 for the ~~Company for $1,217,072 and a decrease in travel related costs of $49,559 offset by~~prior year, an increase ~~in salary expense~~ of ~~$205,029.~~$491,000 or 275.8%. These costs arose as a result of the Business Combination and are driven by personnel expenses and costs incurred from independent contractors related to the development of Enclave.

~~Research and development expenses decreased to $1,689,455~~Goodwill Impairment. The goodwill impairment was zero ($0) for the year ended September 30, ~~2020 from $1,744,480~~2023. We recorded a $5.7 million goodwill impairment charge during the year ended September 30, 2022. The goodwill was related to the acquisition that occurred on July 1, 2022.

Intangible Asset Impairment. The intangible asset impairment was $4.9 million for the year ended September 30, ~~2019. Research~~2023, and ~~development expenses decreased primarily~~zero ($0) for the prior year. We recorded a finite-lived intangible asset of $4.9 million as a result ~~lower salary expense~~ of ~~$604,489,~~acquiring Enclave in the Business Combination. Our impairment testing indicated the full value of this finite-lived intangible asset should be impaired as of September 30, 2023. Incurring impairment neither indicates a decrease in ~~stock compensation~~our emphasis on Enclave as a key initiative nor does it suggest a lack of ~~$15,615 offset by an increase~~market interest in ~~consulting expense of $565,079~~the product.

~~Total other expenses, net, increased to $44,332~~Acquisition Costs. Acquisition costs were $214,000 for the year ended September 30, ~~2020~~2023, which are attributed to an increase in the Second Tranche shares due to the Closing Working Capital Adjustment from ~~$8,101~~the Business Combination. The costs totaling $6.2 million in the prior year were driven by the Business Combination.

Other Income. Other Income was $29,000 and $13,000 for fiscal years 2023 and 2022 respectively, which reflect interest income from the cash on deposit at our bank.

Income Tax Expense (Benefit). We recorded an income tax benefit of $379,000 for the year ended September 30, ~~2019.~~2023, compared to an income tax expense of $195,000 for the year ended September 30, 2022. The ~~increase~~fiscal year 2022 expense was an estimate of federal and state income tax liability for SCS which was accounted for as a liability on our September 30, 2022, balance sheet. The actual amount of federal and state income taxes due by SCS of $27,000. The net of these two amounts is a ~~result~~$168,000 tax benefit that we recognized in the current fiscal year. In addition, a deferred state tax liability was recognized for a book versus tax basis difference upon the Business Combination. During the year ended September 30, 2023, this deferred tax liability was reduced to zero resulting in a deferred income tax benefit of ~~losses on the disposal of fixed assets.~~$211,000.

During fiscal year 2023, we incurred a net loss of $7.0 million and used $1.9 million of cash in operations. Our primary source of liquidity and capital resources has been the $3.6 million in cash received from Cipherloc in the Business Combination in the prior fiscal year. We had an accumulated deficit of $11.9 million as of September 30, ~~2020~~2022. Three (3) non-recurring expenses totaling $16.8 million are included in our accumulated deficit. The non-recurring expenses are $6.2 million for the acquisition costs, including $6.1 million related to the contingent consideration from the Business Combination, $5.7 million impairment of ~~$68,426,608. We expect to generate continued operating losses until we generate revenues sufficient to exceed our operating expenses. At~~goodwill recorded as a result of the Business Combination, and $4.9 million impairment of intangible assets.

Our accumulated deficit at September 30, 2020, we had $1,079,839 in cash. We do not believe that our existing cash balances are sufficient to fund future operations for the next 12 months. We are considering options to issue additional equity as a means to increase liquidity sufficient to fund operations through December 31, 2021.

The following table summarizes, for the periods indicated, selected items in our Statements of Cash ~~Flows:~~Flows ($000’s):

~~For~~. Net cash used in operations for the year ended September 30, ~~2020, cash used in operating activities~~2023, was ~~$6,646,091, primarily attributable~~$1.9 million as compared to ~~a net loss~~$396,000 for the year ended September 30, 2022. During fiscal year 2023, we recorded intangible asset impairment of ~~$6,970,072~~$4.9 million and non-cash ~~items~~charges of ~~$640,433~~$805,000 for amortization and ~~a net change in net operating assets and liabilities of $316,452. Non-cash items primarily consisted of an impairment loss of $382,961 related to operating leases,~~ stock compensation ~~expense of $194,896, a~~expense. Our net ~~loss on disposal of assets of $44,332 and depreciation of $18,243. The change in our net operating assets and liabilities was primarily~~accounts receivable grew by $222,000 compared to one year ago due to ~~an increase in prepaid~~increased sales activity and ~~other assets of $322,912 and an increase~~we experienced a $547,000 decrease in accounts payable and accrued liabilities primarily due to adjustments made to tax liabilities. These uses of ~~$6,460. The Company~~cash were offset by a $150,000 increase in our deferred revenue balance.

Investing Activities. We used ~~cash~~$32,000 on the purchase of fixed assets during the ~~year to pay for the cost of general and administrative, sales and marketing, and research and development activities which combined to be $6,973,723.~~twelve months ended September 30, 2023.

~~For~~Financing Activities. During the year ended September 30, ~~2019,~~2023, there was no cash provided by or used in financing activities.

As of September 30, 2023, we had $1.1 million in cash and our working capital was $1.5 million. We believe that our existing cash balances are sufficient to fund our operations through at least December 31, 2024.

Total operating ~~activities was $6,139,815, primarily attributable~~expenses during fiscal year 2023 were $5.6 million excluding $214,000 of acquisition costs and intangible asset impairment of $4.9 million. Since May, 2023 through the date of this report, we have eliminated approximately $1.2 million of annual operating expenses which have enabled us to lower our breakeven revenue point and allowed us to expect a ~~net loss~~lower amount of ~~$6,834,023, partially offset~~total operating expenses for fiscal year 2024 than we incurred during 2023. The operating expense reductions are being achieved by staff reductions in all areas of the ~~net change~~business and the elimination of non-essential third-party supplier relationships.

We anticipate total operating expenses to range between $3.7 million and $4.3 million in the next fiscal year with cash flow from operations ranging between negative $300,000 and positive $100,000, which, if negative, will be funded with our ~~net operating~~existing cash balances. We intend to manage our business such that our current cash reserves will allow us to reach positive cash flow from our operations, but we cannot assure if and when positive cash flow will be achieved. We don’t currently have any credit facilities available to us; however, we have had discussions with several lenders about establishing a line of credit secured by our accounts receivable.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to long-lived assets, goodwill, identifiable intangibles and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of ~~$580,123~~these accounting estimates and ~~non-cash charges~~assumptions are particularly sensitive because of ~~$114,085.~~their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared.

We account for goodwill and intangible assets in accordance with Accounting Standards Codification (“ASC”) Topic 350 (Intangibles- Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, as a result of our qualitative assessment, we determine this is the case, we are required to perform a goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The ~~change~~test is discussed below. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amounts, the goodwill impairment test is not required.

The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in ~~our net operating assets and liabilities was primarily due~~an amount equal to an increase in prepaid expenses and other assets of $116,719 and an increase in accounts payable and accrued liabilities of $696,842. Non-cash charges consisted of stock compensation of $57,158, shares issued in exchange for services of $40,000 and depreciation of $16,927.

~~Cash used in investing activities was $28,972 and $37,059, attributable~~that excess, limited to the ~~purchases~~total amount of ~~property~~goodwill allocated to that reporting unit. The goodwill impairment assessment is based upon the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and ~~equipment for~~assumptions including the ~~years ended~~selection of control premiums, discount rates, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge. At September 30, ~~2020~~2023 and ~~2019, respectively.~~

~~For~~2022, goodwill was $1.4 million. In 2022, we evaluated the initial goodwill recorded from the Business Combination of $7.1 million and determined that the carrying value exceeded the fair value and recorded $5.7 million impairment of goodwill during the year ended September 30, ~~2020, cash provided~~2022. The fair value of the goodwill at September 30, 2023, as determined by ~~financing activities was $215,430, primarily derived from~~our impairment analysis, is in excess of the ~~proceeds from the PPA loan~~carrying value; thus, we have incurred no impairment of ~~$365,430, offset by a payment of $450,000 for the repurchase of treasury stock.~~goodwill in fiscal year 2023.

~~For~~We did not record indefinite-lived intangible assets in the fiscal years ended September 30, ~~2019, cash used~~2023, and 2022.

Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in ~~financing activities was $40,000, was due to a payout related to an oversubscription~~business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a ~~capital raise.~~comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time. We have a finite-lived intangible asset of $4.9 million and we have less than $30,000 in property and equipment. At September 30, 2023 and 2022, finite-lived intangibles and long-lived assets were zero ($0) and $4.9 million, respectively. The intangible impairment was $4.9 million for the year ended September 30, 2023 and zero ($0) for the prior year. We recorded a finite-lived intangible asset of $4.9 million as a result of acquiring Enclave through the Business Combination. The difficulty of projecting the amount and timing of future revenues caused us to conclude a full impairment of the asset was appropriate.Incurring impairment neither indicates a decrease in our emphasis on Enclave as a key initiative nor does it suggest a lack of market interest in the product.

We did not have during the periods presented, nor do we currently have, any off-balance sheet arrangements as defined under applicable SEC rules.

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1). of Regulation S-K promulgated by the SEC.

We have audited the accompanying consolidated balance sheets of ~~Cipherloc Corporation~~SideChannel, Inc., (the ~~“Company”)~~Company) as of September 30, ~~2020~~2023 and ~~2019,~~2022, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, ~~(deficit),~~ and cash flows for each of the years in the two-year period ended September 30, ~~2020,~~2023, and the related notes (collectively referred to as the ~~“financial statements”)~~consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, ~~2020~~2023 and ~~2019,~~2022, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses from its operations, has negative working capital, and a significant accumulated deficit, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~(“PCAOB”)~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our ~~audit,~~audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

~~The accompanying notes are an integral part of these financial statements.~~SIDECHANNEL, INC.

~~The accompanying notes are an integral part of these financial statements.~~SIDECHANNEL, INC.

Our mission is to make cybersecurity simple and accessible for mid-market and emerging companies, a market that we believe is currently underserved. We believe that our cybersecurity product and service offerings provide cybersecurity and privacy risk management solutions for our customers. We anticipate that our target customers will continue to need cost-effective security solutions. We intend to provide more tech-enabled services to address the needs of our customers, including virtual Chief Information Security Officer (vCISO), zero trust, third-party risk management, due diligence, privacy, threat intelligence, and managed end-point security solutions.

3. Increasing adoption of Cybersecurity Software, including Enclave and Services offerings, at vCISO clients

vCISO engagements typically contain a monthly subscription and rates for vCISO time and material projects ranging from $350 to $425 per hour. Each of our vCISOs is generally embedded into the C-suite executive teams of two (2) to four (4) of our clients. We augment our vCISO offering with a full range of other cybersecurity products and services through a team of security engineer employees combined with a network of third-party service providers and value-added resellers.

On July 1, 2022 (the “Closing Date”) the Company, then known as Cipherloc Corporation, a Delaware corporation, completed its acquisition (“Business Combination”) of all the outstanding equity securities of SideChannel, Inc., a Massachusetts corporation pursuant to an Equity Securities Purchase Agreement dated May 16, 2022 (the ~~“Company” or “Cipherloc”~~“Purchase Agreement”) ~~was incorporated in~~. On September 9, 2022, SideChannel, Inc. the ~~State~~acquired Massachusetts corporation and a subsidiary of ~~Texas on June 22, 1953 as American Mortgage Company. Effective August 27, 2014,~~ the ~~Company~~registrant, changed its name to SCS, Inc. (the “Subsidiary” or “SCS”) and Cipherloc ~~Corporation.~~

~~We do not believe that our existing cash balances are sufficient~~Corporation, the Delaware parent company of the subsidiary has changed its name to fund future operations for the next 12 months. We are considering options to issue additional equity as a means to increase liquidity sufficient to fund operations into the start of calendar year 2022. If we are unsuccessful doing so, then the Company will cease operations.

At September 30, 2020, the Company had not yet achieved profitable operations. We had a net loss of approximately $7.0 million for the year ended September 30, 2020 and had an accumulated deficit in aggregate of approximately $68.4 million since our inception. We expect to incur further losses in the development of our business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.SideChannel, Inc.

The ~~Company’s ability to continue~~transaction was accounted for as a going concern is dependent on its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management’s plan to address the Company’s ability to continue as a going concern includes: (1) obtaining debt or equity funding from private placement or institutional sources; (2) generating cash flow from operations. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.

These financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

~~The Company prepares its financial statements~~reverse acquisition (“reverse merger”) in accordance with GAAP. Under this method of accounting, ~~principles generally accepted~~SCS was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Business Combination: (1) the majority of the Board of Directors of the combined company will be composed of directors designated by the Sellers under the terms of the Purchase Agreement; and (2) existing members of SCS management constituted the management of the combined company. Because SCS has been determined to be the accounting acquirer in the ~~United States~~Business Combination, but not the legal acquirer, the transaction is deemed a reverse acquisition under the guidance of ~~America~~the Financial Accounting Standards Board (“~~U.S. GAAP”~~FASB”)~~. Significant accounting policies~~ Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. As a result, the historical financial statements of SideChannel are ~~as follows:~~the historical financial statements of the combined company.

Following the closing of the Business Combination, SCS, Inc. became a wholly owned subsidiary of the Company. As used herein, the words “the Company” refers to, for periods following the Business Combination, SideChannel, Inc., together with its subsidiaries.

Our headquarters are located at 146 Main Street, Suite 405, Worcester, MA, 01608. Our website is www.sidechannel.com.

The accompanying consolidated financial statements include our accounts and ~~Assumptions~~

those of our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with U.S. GAAP requires ~~management~~us to make estimates and assumptions that affect ~~(i)~~ the reported amounts of assets and liabilities ~~(ii) the~~and disclosure of contingent assets and liabilities ~~known to exist as of~~at the date of the financial statements ~~are published,~~ and ~~(iii)~~ the reported ~~amount~~amounts of ~~net revenues~~revenue and expenses ~~recognized~~ during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actualreporting period. Actual results could differ from ~~these~~those estimates. ~~The Company’s most significant estimate relates~~Certain of our accounts, including goodwill, identifiable intangibles, and deferred tax assets and liabilities, including related valuation allowances, are based upon estimates.

Certain prior year amounts have been reclassified to be comparable with the current year’s presentation.

Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation ~~of its convertible note.~~

models prepared by our management and third-party advisors. The ~~Company is subject to legal proceedings, claims~~assets purchased and liabilities ~~which arise~~assumed have been reflected in our consolidated balance sheets, and the operating results are included in the ~~ordinary course~~consolidated statements of ~~business. The Company accrues for losses associated with~~operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in the consolidated statement of operations in the period of the estimated fair value change. Acquisition-related transaction costs, including legal ~~claims when such losses~~and accounting fees and other external costs directly related to the acquisition, are ~~probable~~recognized separately from the acquisition and ~~can be reasonably estimated. These accruals are adjusted~~expensed as ~~additional information becomes available or circumstances change. Legal fees are charged to~~incurred in general and administrative expense ~~as they are incurred.~~in the consolidated statements of operations.

~~The Company considers~~We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. ~~The Company~~We did not have any cash equivalents as of September 30, ~~2020~~2023, and ~~2019. At~~2022. As of September 30, ~~2020~~2023, and ~~2019,~~2022, our cash ~~includes~~included cash on hand and cash in the bank. ~~The Company maintains its~~We maintain our cash in accounts held by ~~large, globally recognized banks~~highly reputable financial institutions which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation ~~(FDIC)~~(“FDIC”). The FDIC insures these deposits up to ~~$250,000.~~$250,000. As of September 30, ~~2020, $829,839~~2023, approximately $0.8 million of ~~the Company’s~~our cash balance was uninsured. ~~The Company has~~We have not experienced any losses on cash.

~~Fixed assets~~Trade accounts receivable are recorded at ~~cost~~the invoiced amount and ~~depreciation is provided over the estimated useful lives~~do not bear interest. We grant credit to customers and generally require no collateral. We do not have any significant off-balance sheet credit exposure related to our customers. We had one (1) customer with an accounts receivable balance that exceeded 10% of the related assets using the straight-line method for financial statement purposes. Equipment and furniture are depreciated over an estimated useful life of three (3) to five (5) years. Leasehold improvements are depreciated over the lesser of the related lease term or a useful life of ten (10) years. Software is depreciated over an estimated useful life of three (3) years.

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. There was no impairment recorded during the year endedaccounts receivable at September 30, ~~2019. During the year ended September 30, 2020, the Company~~2023. Cash flows from accounts receivable are recorded ~~an impairment loss of $382,961 related to its Virginia lease. In addition, the Company recorded a loss of $44,336 on the disposal of fixed assets.~~in operating cash flows.

~~The Company’s~~Our financial instruments consisted primarily of cash, accounts receivable, accounts payable and accrued expenses, ~~deferred revenue, convertible note payable, as well as~~and embedded conversion ~~features.~~features in stock warrants. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Fair value is focused on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Within the measurement of fair value, the use of market-based information is prioritized over entity specific information and a three-level hierarchy for fair value measurements is used based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The fair values ~~of the embedded conversion features in the Company’s convertible notes and~~ of the warrants issued by the Company as part of the acquisition price were determined using level 2 measurements and are discussed in further detail in ~~Notes 5~~Note 3.

We account for goodwill and intangible assets in accordance with Accounting Standards Codification (“ASC”) Topic 350 (Intangibles – Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually during the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. Goodwill is considered to be impaired if the fair value of a reporting unit is less than its carrying amount. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not required. However, if, as a result of our qualitative assessment, we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or, if we choose not to perform a qualitative assessment, we are required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized.

The quantitative goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The goodwill impairment assessment is based upon the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of control premiums, discount rates, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization, and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge. The goodwill was evaluated at the acquisition date of July 1, 2022, and the fair value of the goodwill was determined to be less than the carrying amount of the goodwill by $5.702 thousands. As a result, an impairment charge was recorded on the acquisition date of $5.7 million was recorded, and the net carrying amount of goodwill was $1.4 million as of September 30, 2022.

The goodwill was evaluated at the balance sheet date of September 30, 2023. For fiscal year 2023, we recorded no impairment of goodwill. For fiscal year 2022, we incurred $5.7 million of goodwill impairment.

None of the goodwill associated with the Business Combination is deductible for income tax purposes.

We did not record indefinite-lived intangible assets in the fiscal years ended September 30, 2023, and 2022.

Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.

We recorded $4.9 million of finite-lived intangible assets in the form of Acquired In Process Research & Development (“AIPR&D”) as a result of acquiring Enclave in the Business Combination as of September 30, 2022. Under ASC 805, AIPR&D are initially recognized at fair value and classified as finite-lived assets until the successful completion or abandonment of the associated research and development efforts. During the development period, these assets will not be amortized as charges to earnings; instead, these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified. An impairment loss is measured based on the excess of the carrying amount over the asset’s fair value. Our impairment testing as of September 30, 2023, indicated the full value of this finite-lived intangible asset should be impaired. The difficulty of projecting the amount and timing of future revenues caused us to conclude a full impairment of the asset was appropriate.Incurring impairment neither indicates a decrease in our emphasis on Enclave as a key initiative nor does it suggest a lack of market interest in the product. The Company did not record any finite-lived intangible asset impairment for the year ended September 30, ~~2020 two customers accounted for approximately 100% of the Company’s revenues. During the year ended September 30, 2019, one customer accounted for approximately 100% of the Company’s revenues.~~2022.

~~The Company recognizes revenues~~We recognize revenue in accordance with the ~~provisions of Accounting Standards Update 2014-09, “Revenue~~guidance in ASC Topic 606 (Revenue from Contracts with ~~Customers,”~~Customers). We recognize revenue for the sale of products or services when our performance obligations under the terms of a contract with a customer are satisfied and control of the product or service has been transferred to the customer. Generally, this occurs when we deliver a ~~series~~product or perform a service. In certain cases, recognition of ~~amendments which together~~revenue is deferred until the product or service is received by the customer or at some other point in the future when we ~~identify as “ASC Topic 606”. This new accounting standard, which~~have determined that we ~~adopted on October 1, 2018 using~~have satisfied our performance obligations under the ~~permitted modified retrospective method, outlines a single comprehensive model for entities to use in accounting for revenues arising from~~contract. Our contracts with ~~customers. The new standard supersedes most previous revenue recognition guidance, including industry-specific guidance. The effect~~customers may include a combination of ~~the adoption~~products and services, which are generally capable of ~~ASC Topic 606 on retained earnings~~being distinct and accounted for as of October 1, 2018 was not material. The differences between our reported operating results for the nine months ended June 30, 2020, 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.separate performance obligations.

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

~~1. Identify~~Revenue is recorded in an amount that reflects the ~~contract,~~consideration we expect to receive in exchange for those products or services. We do not have any material variable consideration arrangements, or any material payment terms with our customers other than standard payment terms which generally range from net 15 to net 90 days.

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.

~~Licenses~~We identify, develop, and deploy cybersecurity and privacy risk management solutions for ~~on-premises~~our clients and customers in North America. We categorize our products and services as either vCISO Services or Cybersecurity Software and Services. In addition to Enclave, our proprietary software ~~provide~~product, we also sell third-party software and services through a network of strategic partnerships.

Our contracts with customers are generally structured as annual subscription agreements or project specific statements of work. Our annual subscription agreements include a minimum number of service hours purchased during the subscription time period. Payment terms and any other customer-specific acceptance criteria are also specified in the contracts and statements of work.

We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, is included in current assets on our balance sheet. To the extent that we do not recognize revenue at the same time as we invoice, we record a liability for deferred revenue. In certain instances, we also receive customer deposits in advance of invoicing and recording of accounts receivable. Deferred revenue and customer deposits are included in current liabilities on our consolidated balance sheets.

We maintain an allowance for doubtful accounts (“allowance”) equal to 3% of the ending quarterly accounts receivable balance. The allowance is rounded up to the nearest $10,000.

The only costs we incur associated with obtaining contracts with customers are marketing costs incurred with third-party service providers and sales commissions that we pay to our employees, contractors, or third-party sales representatives. Commissions are calculated based on set percentages of the revenue value of each product or service sold. Commissions are considered earned by our internal sales personnel at the time we recognize revenue for a particular transaction. Commissions are considered earned by third-party sales representatives at the time that revenue is recognized for a particular transaction. We record commission expense in our consolidated statements of operations at the time the commission is earned. Commissions earned but not yet paid are included in current liabilities on our balance sheets.

See Note 4 for further information about our revenue from contracts with customers.

We account for leases in accordance with ASC Topic 842 (Leases). We determine if an arrangement is a lease at inception. A lease contract is within scope if the contract has an identified asset (property, plant, or equipment) and grants the lessee the right to control the use of the ~~software as it exists when made available to~~asset during the ~~customer. Customers~~lease term. The identified asset may ~~purchase perpetual licenses~~be either explicitly or ~~subscribe to licenses, which provide customers with the same functionality and differ mainly~~implicitly specified in the ~~duration over which~~contract. In addition, the ~~customer benefits~~supplier must not have any practical ability to substitute a different asset and would not economically benefit from doing so for the ~~software. Revenue from distinct on-premises licenses is recognized upfront at~~lease contract to be in scope. The lessee’s right to control the ~~point in time when the software is made available to the customer. In cases where the license is being modified at the direction~~use of the ~~customer the revenue is being recognized ratably over~~asset during the term of the ~~arrangement. Revenue allocated~~lease must include the ability to ~~software maintenance~~obtain substantially all of the economic benefits from the use of the asset as well as decision-making authority over how the asset will be used. Leases are classified as either operating leases or finance leases based on the guidance in ASC Topic 842. Operating leases are included in operating lease ROU assets and ~~support services~~operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment and financing lease liabilities. We do not currently have any financing leases.

Operating lease payments are included in cash outflows from operating activities on our consolidated statements of cash flows.

We have made an accounting policy election not to apply the recognition requirements of ASC Topic 842 to short-term leases (leases with a term of one year or less at the commencement date of the lease). Lease expense for short-term lease payments is recognized ~~ratably~~on a straight-line basis over the ~~contractual support period.~~lease term.

Following the guidance of ASC Topic 842, we are ~~primarily~~not required to record ROU assets and operating lease liabilities.

We expense all research and development costs, including patent and software development costs. Our research and development costs incurred for the year ended September 30, 2023, were $669,000.

We account for stock-based compensation in accordance with ASC Topic 718 (Compensation – Stock Compensation) which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of awards, which is then amortized to expense over the service periods. See further disclosures related to ~~software implementation services~~our stock-based compensation plans in Note 8.

We are subject to legal proceedings, claims, and liabilities which arise in the ordinary course of business, and we accrue for losses associated ~~revenue~~with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.

We utilize the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

We use the two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ~~customer acceptance.~~ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments. We did not record any liabilities for uncertain tax positions during the years ended September 30, 2023, or 2022.

~~Timing~~Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of ~~revenue recognition may differ~~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 our earnings.

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 year ended September 30, 2023, 69,281,020 warrants and 8,636,973 restricted stock units were excluded from the ~~timing~~calculation of ~~invoicing~~diluted loss per share because their effect would be anti-dilutive. At September 30, 2022, anti-dilutive warrants and restricted stock units outstanding were 87,628,920 and 4,309,262, respectively.

We manage our operations as a single operating segment for the purposes of assessing performance and making operating decisions. Our focus is on the research, development, and commercialization of our technology.

We evaluate warrants in accordance with Topic 480 of the FASB ASC and Topic 815 of the FASB ASC. The result of this accounting treatment is that the fair value of the embedded derivative, if required to ~~customers.~~be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The ~~Company records~~change in fair value is recorded in the Statement of Operations as a ~~contract asset~~component of other income or ~~receivable when revenue~~expense. Upon exercise of a warrant, it is ~~recognized prior~~marked to ~~invoicing,~~fair value at the exercise date and then that fair value is reclassified to equity.

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, we believe those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us, or ~~unearned revenue when revenue~~(iv) are not expected to have a significant impact on us.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is ~~recognized subsequent~~not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. We adopted it on October 1, 2022, without material impact on our financial statements.

In June 2016, the FASB issued amendments to ~~invoicing. For perpetual licenses~~the guidance for accounting for credit losses. In November 2019, the FASB deferred the effective date of these amendments for certain companies, including smaller reporting companies. As a result of the deferral, the amendments are effective for us for reporting periods beginning after September 30, 2023. The amendments replace the incurred loss impairment methodology under current GAAP with ~~multi-year product maintenance agreements,~~a methodology that reflects expected credit losses and requires the ~~Company generally invoices customers at~~use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The amendments require a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the ~~coverage period. For multi-year subscription licenses,~~first reporting period in which the ~~Company generally invoices customers annually at~~guidance is effective. We plan to adopt the ~~beginning~~amendments when they become effective for us on October 1, 2023. The adoption of ~~each annual coverage period. The Company records~~this standard is not expected to have a ~~contract asset related to revenue recognized for multi-year on-premises licenses as its right to payment is conditioned upon providing product support and services in future years.~~

There were no accounts receivable balances on September 30, 2020 and 2019. There was no adjustment needed to the accounts receivable for the cumulative effect of applying ASC 606 under the modified retrospective method. There was nomaterial impact on the ~~opening balance contract~~Company’s consolidated financial statements.

NOTE 3 – REVERSE MERGER BETWEEN CIPHERLOC CORPORATION AND SIDECHANNEL, INC. (now known as SCS, Inc.)

On July 1, 2022 (the “Closing Date”) the Company, then known as Cipherloc Corporation, a Delaware corporation, completed its acquisition (“Business Combination”) of all the outstanding equity securities of SideChannel, Inc., a Massachusetts corporation pursuant to an Equity Securities Purchase Agreement dated May 16, 2022 (the “Purchase Agreement”). On September 9, 2022, SideChannel, Inc. the acquired Massachusetts corporation and a subsidiary of the registrant, changed its name to SCS, Inc. (the “Subsidiary” or “SCS”) and Cipherloc Corporation, the Delaware parent company of the subsidiary has changed its name to SideChannel, Inc.

The transaction was accounted for as a reverse acquisition (“reverse merger”) in accordance with GAAP. Under this method of accounting, SCS was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Business Combination: (1) the majority of the Board of Directors of the combined company will be composed of directors designated by the Sellers under the terms of the Purchase Agreement; and (2) existing members of SCS management constituted the management of the combined company. Because SCS has been determined to be the accounting acquirer in the Business Combination, but not the legal acquirer, the transaction is deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. As a result, the historical financial statements of SideChannel are the historical financial statements of the combined company.

Pursuant to the Purchase Agreement, on the Closing Date, the former shareholders of the Subsidiary (the “Sellers”) exchanged all of their equity securities in the Subsidiary for a total of 59,900,000 shares of the Company’s common stock (the “First Tranche Shares”), and 100 shares of the Company’s newly designated Series A Preferred Stock, $0.001 par value (the “Series A Preferred Stock”). The Sellers were entitled to receive up to an additional 59,900,000 shares of the Company’s common stock (the “Second Tranche Shares” and together with the First Tranche Shares and the Series A Preferred Stock, the “Shares”) at such time that the operations of the Subsidiary, as a subsidiary of the Company, achieved at least $5.5 million in revenue (the “Milestone”) for any twelve-month period occurring after the Closing Date and before the 48-month anniversary of the execution of the Purchase Agreement. The Second Tranche shares were valued using the closing price on July 1, 2022 of $0.10 per share which resulted in a fair value of $6.1 million.

The number of the Second Tranche Shares could have been reduced or increased, based upon whether the Subsidiary’s working capital as of the Closing Date was less than or more than zero. The number of the Second Tranche Shares was also subject to adjustment based upon any successful indemnification claims made by the Company pursuant to the Purchase Agreement.

As previously disclosed in Form 8-K dated May 9, 2023, a total of 62,016,618 shares of common stock were issued for the Second Tranche and Closing Working Capital Adjustment.

The Business Combination was accounted for as a reverse merger involving only the exchange of equity. SCS is the accounting acquirer and Cipherloc is the legal acquirer. In order to account for the ~~cumulative effect~~acquisition, management closed the books of ~~applying ASC 606 under~~Cipherloc on the ~~modified retrospective method~~Closing Date, closed all equity accounts to additional paid in capital and merged the balance sheets as of the Closing Date. SCS maintained its historical financial statements, only consolidating Cipherloc’s assets, liabilities, and equity as of the Closing Date.

Because the transaction was between two operating companies, the consideration for Cipherloc assumed by SCS to effectuate the Business Combination was fair valued at approximately $15.2 million composed of $9.0 million in market capitalization of Cipherloc on July 1, 2022 (88.4 million shares outstanding and a per share price of $0.101 plus $6.2 million for the fair value of warrants outstanding on July 2, 2022).

Cipherloc consolidated SCS as of the closing date of the agreement, and the results of operations of Cipherloc include those of SCS. The historical financial statements of Cipherloc before the Business Combination have been replaced with the historical financial statements of SCS before the Business Combination in all future filings with the SEC.

On July 5, 2022, Cipherloc amended and restated its articles of incorporation with the office of the Secretary of State of Delaware to change the Company’s name to SideChannel, Inc.

The Company valued Cipherloc’s equity to determine the consideration paid and the purchase price allocation.

The Company utilized the following assumptions in its Black-Scholes warrant valuation model to calculate the estimated fair value of the financing warrants as of July 1, 2022:

The Company’s objective in estimating expected volatility is to ascertain the assumption about expected volatility that marketplace participants would likely use in determining an exchange price for an option. The Company estimates expected volatility by considering its historical volatility and also considers, based on available information, how the expected volatility of its share price may differ from historical volatility. The Company believes the implied volatility can be useful in estimating expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility. The Company has made a good faith effort to estimate volatility utilized which will result in the best estimate of expected volatility. As of July 1, 2022, the volatility rate used was 168.3%.

The acquisition purchase price is allocated based on the fair values of the assets acquired and liabilities assumed, which are based on management estimates and third-party appraisals. The Company engaged a valuation expert to provide guidance to management which was considered and in part relied upon in completing its purchase price allocation. The excess of the purchase price over the aggregate estimated fair value of net assets acquired was allocated to goodwill.

The following table summarizes the allocation of the purchase price of the assets and liabilities acquired related to the acquisition as of the closing date (in thousands):

SUMMARY OF ALLOCATION OF THE PURCHASE PRICE OF THE ASSETS AND LIABILITIES ACQUIRED RELATED TO THE ACQUISITION

On July 23, 2021, Cipherloc entered into a financial advisory and consulting agreement with Paulson Investment Company, LLC (“Paulson”). The agreement with Paulson remains in place after the Business Combination. Pursuant to the agreement, Paulson will provide the following services at the Company’s request: (a) familiarize itself with the Company’s business, assets, and financial condition; (b) assist the Company in developing strategic and financial objectives; (c) assist the Company in increasing its exposure in the software industry; (d) assist the Company in increasing its profile in the investment and financial community through introductions to analysts and potential investors, participation in investment conferences and exploitation of reasonably available media opportunities; (e) identify potentially attractive merger and acquisition opportunities; (f) review possible innovative financing opportunities and (g) render other financial advisory services as may be reasonably requested. The term of the agreement is four years from the date of the agreement, unless terminated earlier by either party as provided therein. As compensation for these services, the Company issued to Paulson 4,000,000 shares of the Company’s common stock and agreed to reimburse Paulson for all reasonable and documented expenses incurred by Paulson in connection with providing such services. The fair value of the shares issued was $720,000, which Cipherloc recognized as deferred costs which are amortized at a rate of $45,000 per quarter. The unamortized balance of the deferred cost was $555,000 at June 30, 2022. During the years ended September 30, 2023, and September 30, 2022, the Company expensed $180,000 and $45,000 in amortization expenses respectively. The unamortized balance of the deferred costs was $330,000 at September 30, 2023.

The estimated fair values of the identifiable intangible assets acquired were calculated using an income valuation approach which requires a forecast of expected future cash flows either through the use of relief-from-royalty method or multi-period excess earnings methods (“MPEEM”). The estimated useful lives are based on the Company’s experience and expectations as to the duration of the time the Company expects to realize benefits of the assets.

The estimated fair values of the identifiable intangible assets acquired, estimated useful lives and related valuation methodology are as follows as of September 30, 2022:

SCHEDULE OF ESTIMATED FAIR VALUES OF THE IDENTIFIABLE INTANGIBLE ASSETS ACQUIRED, ESTIMATED USEFUL LIVES

We conducted a fair value analysis of the intangible assets acquired as of September 30, 2023 and concluded that the full carrying value of this asset should be impaired. Our balance sheet as of September 30, 2023 reflects this conclusion. Incurring impairment neither indicates a decrease in our emphasis on Enclave as a key initiative nor does it suggest a lack of market interest in the product.

As part of the Business Combination, we acquired federal tax net operating loss carryforwards of approximately $35 million. In addition, the intangible asset acquired, AIPR&D, has no basis for tax and resulted in a temporary difference of $4.9 million. These two items were offset and resulted in a deferred tax asset of approximately $7.0 million, which was fully reserved.

For state tax purposes, there were only limited state net operating loss carryforwards; consequently, the temporary difference from the intangible asset acquired resulted in a state deferred tax liability of $211,000 at September 30, 2022. At September 30, 2023, there were additional state net operating loss carryforwards to offset the temporary difference from the intangible asset acquired, resulting in a state deferred tax liability of zero ($0).

The following presents the unaudited proforma combined results of operations of Cipherloc with SCS for the year ended September 30, 2022 as if the entities were combined on October 1, ~~2018.~~2020.

No one customer accounted for more than ten percent (10%) of our revenues during the years ended September 30, 2023, and 2022.

Deferred revenue is comprised mainly of unearned revenue related ~~maintenance~~to CISO, risk management, and ~~technical support on term and perpetual licenses. Maintenance and technical support revenue are recognized ratably over the coverage period.~~other professional services. Deferred revenue also includes contracts for professional services to be performed in the future which are recognized as revenue when ~~the company delivers~~we deliver the related service pursuant to the terms of the customer arrangement.

*See Note (1) Summary of Significant Accounting Policies, section ~~(s)~~ ~~to our Financial Statements for further information.~~

Deferred revenue includes invoiced revenue allocated to remaining performance obligations that has not yet been recognized and will be recognized as revenue in future periods. Deferred revenue was ~~$15,417 as of~~$280,000 at September 30, ~~2020,~~2023, and $130,000 at September 30, 2022. The deferred revenue is expected to be earned within 12 months of the balance sheet date.

During the year ended September 30, 2022, we recognized a minimal amount in licensing revenue from a licensing agreement between Castle Shield Holdings LLC (“Castle Shield”) and Cipherloc. We and Castle Shield mutually agreed to terminate this agreement on October 14, 2022.

We announced Enclave in September 2022 which is a proprietary software product developed to provide network microsegmentation capabilities, also referred to as zero trust network access (“ZTNA”).

Pursuant to a Membership Interest Redemption Agreement, dated November 3, 2021, by and between us and Akash Desai (“Desai Redemption Agreement”), we promised to pay Mr. Desai $100,000, without interest, in exchange for Mr. Desai’s right, title, and interest in us. Mr. Desai was paid $50,000 at the execution of the Desai Redemption Agreement and the remaining $50,000 is due on or before December 31, 2023.

The implied interest on the note payable component of the Desai Redemption Agreement was deemed insignificant.

Brian Haugli, our Chief Executive Officer and our stockholder in the Company, ~~expects~~is also a principal shareholder of RealCISO Inc. (“RealCISO”). On September 22, 2020, SideChannel assigned to ~~recognize 100%~~RealCISO Inc. certain contracts and intellectual property. We are a reseller of the ~~revenue over the next 12 months.~~

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its products and services, not toRealCISO software. We receive ~~financing~~revenue from our customers ~~or to provide customers with financing. Examples include invoicing at~~for the ~~beginning~~use of a subscription term with maintenance and support revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with product revenue recognized upon delivery.

Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. For products and services aside from maintenance and support, the Company estimates SSP by adjusting the list price by historical discount percentages. SSP forRealCISO software and ~~hardware maintenance and support~~pays licensing fees ~~is based on the stated percentages of the fees charged~~to RealCISO for the respective products. The Company’s perpetual and term software licenses may have significant standalone functionality and therefore revenue allocated to these performance obligations are recognized at a point in time upon electronic delivery of the download link and the license keys. In cases where the license is being modified at the direction of the customer the revenue is being recognized ratably over the term of the arrangement. Product maintenance and support services are satisfied over time as they are stand-ready obligations throughout the support period. As a result, revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract.

~~Revenues associated with professional services are recognized at a point in time upon customer acceptance.~~

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that its sales commission program meets the requirements for cost capitalization. Total capitalized costs to obtain a contract were immaterial during the periods presented. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.

Software license revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis, and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period. When the fair value of VSOE of post contract customer support cannot be determined, the revenue is recognized ratably over the contract period. The only remaining undelivered element was post contract support services, and accordingly, the revenues were recognized on a pro rata basis prospectively over the terms of the related contracts. Deferred revenue results from fees billed to or collected from customers for which revenue has not yet been recognized.

~~The Company had deferred revenue of $15,417 and $28,400 as of September 30, 2020 and 2019, respectively.~~

~~The Company expenses all research and development costs, including patent and software development costs. Our research and development costs incurred for~~such use. For the years ended September 30, ~~2020~~2023, and ~~2019~~2022, SideChannel paid $26,000 and $98,000 to RealCISO for licenses, respectively.

We also received $63,000 from RealCISO for software development services that we began providing Real CISO during fiscal year 2023.

No other related party transactions occurred during the years ending September 30, 2023, and September 30, 2022.

We are currently not involved in any litigation that we believe could have a material adverse effect on its financial condition or results of operations.

In April 2021, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of Cipherloc Corporation, and certain other plaintiffs, filed a lawsuit against Cipherloc Corporation and Michael De La Garza, Cipherloc’s former Chief Executive Officer and President, in the 20^thJudicial District for Hays County, Texas (Cause 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 exceed $1,000,000. We believe we have made all required payments and delivered the stock to the plaintiffs. The case is currently being defended by us. We believe we have meritorious defenses to the allegations, and we intend to continue to vigorously defend against the litigation.

In December 2021, we and our landlord for our leased office space in Worcester, Massachusetts, entered into a lease agreement. The lease became effective on January 1, 2022 and has a one-year term. The initial monthly rent was $930 and increased to $948 on January 1, 2023 a 2% increase, per the lease agreement. The lease automatically renews for a one-year term, unless either party to the lease agreement notifies the other of the intent to terminate the lease in writing at least 60 days prior to the expiration of the current term. The landlord of the property leased at 146 Main Street in Worcester, Massachusetts, is not an affiliate of ours.

This lease has been accounted for as a month-to-month lease, and no right of use asset or lease liability has been recorded at September 30, 2023.

We are not carrying any assets or liabilities associated with leases for the fiscal years 2023 or 2022. We lease an office at 146 Main Street in Worcester, Massachusetts, for which we expect to pay approximately $12,000 over the next twelve (12) months.

Effective December 29, 2021, SCS was authorized to issue 1,000 shares of common stock with a $0.01 per share par value. The 1,000 shares of common stock were ~~$1,689,455~~exchanged for 59,900,000 shares of Cipherloc common stock and ~~$1,744,480, respectively.~~100 shares of Series A Preferred stock as a result of the Business Combination. The financial statements have been adjusted retroactively to reflect the Cipherloc shares received as being outstanding the outstanding shares of SCS as of September 30, 2020.

~~Stock-Based Compensation~~SCS did not have any convertible debt or issued preferred stock.

~~The~~As explained in Note 5, in December 2021, while it was SideChannelSec LLC, the Company ~~measures the cost of services provided by employees and non-employees~~promised to pay Mr. Desai $50,000, without interest, in exchange for Mr. Desai’s right, title, and interest in the Company.

SideChannel LLC made profit sharing distributions of $461,000 during the fiscal year ended September 30, 2022, in accordance with its partnership agreements. We ceased operations as an ~~award~~LLC on December 29, 2021, and since then have had zero ($0) equity distributions.

As of September 30, 2023, and 2022, we had 213,854,781 and 148,724,056 shares of common stock outstanding, respectively, and was authorized to issue 681,000,000 shares of common stock at a par value of $0.001.

We did not issue shares of common stock for cash during the years ended September 30, 2023, and September 30, 2022.

On July 1, 2022, we issued a total of 59,900,000 shares of common stock related to the Business Combination detailed in Note 3 of this Form 10-K.

On May 4, 2023, we issued a total of 62,016,618 shares of common stock for the Second Tranche (59,900,000 shares) and Closing Working Capital Adjustment (2,116,618 shares).

Our Board of Directors have elected to have each of its members receive one-half of such member’s quarterly compensation in the form of shares of the Company’s common stock instead of cash. We also use stock as a form of compensation for independent contractors who provide professional services to us in sales, marketing, or administration. During fiscal year 2023, the fair market value of stock issued for services totaled $66,000 for 770,978 shares of common stock compared to $43,000 for 280,557 shares of common stock in fiscal year 2022.

On June 6, 2022, Cipherloc entered into a mediated settlement agreement with Robert LeBlanc. Pursuant to that agreement, Cipherloc had issued a total of 200,000 shares of the Company’s common stock to Mr. LeBlanc.

As of this filing, we are granting equity compensation awards to employees, directors, and contractors using the 2021 Omnibus Equity Compensation Plan (“Equity Incentive Plan”) approved by stockholders on September 13, 2021. The approval on September 13, 2021, included a reserve of 8.0 million shares for awards. The Equity Incentive Plan also allows for an ~~equity instrument based on~~annual increase in the reserve up to an amount approximately equal to five percent (5%) of the fully diluted outstanding shares at the end of the prior calendar year. On June 29, 2022, the Board of Directors authorized an 8,186,106 increase in the shares reserved for the Equity Incentive Program. Awards granted under the Equity Incentive Plan in lieu of compensation are exempt from counting against the reserve.

We have granted and intend to continue granting restricted stock units (“RSU’s”) to directors, employees, and contractors with service-based vesting conditions. The restricted stock units vest over a 3-year service period. The following table summarizes the activity of our restricted stock units granted under our Equity Incentive Plan.

The weighted average grant-date fair value of ~~the award. There were stock options issued~~all awards granted during the year ended September 30, ~~2020, however, awards~~2023, was $0.10 per share.

The unamortized stock compensation expense at September 30, 2023, is $694,000 and the remaining weighted average term to vesting is 2.3 years.

As of September 30, 2023, and 2022, we had zero (0) and 100 shares of preferred stock outstanding, respectively. The shares of Series A Preferred Stock were ~~subsequently forfeited. Outstanding awards are~~issued as part of the ~~awards~~Business Combination. The 100 shares of preferred stock that were exchanged for SCS, Inc. common stock have been retroactively reflected as issued and outstanding on September 30, 2020. A The Series A Preferred Stock contained a Board Designation Right which provides that the holders of the majority of the Series A Preferred Stock had the right to elect a majority of our Board of Directors. All 100 shares of Series A Preferred Stock were converted to common stock on June 12, 2023.

On July 1, 2022, following the Business Combination, we assumed the outstanding warrants of Cipherloc.

Warrant activities for the ~~fiscal year 2019. There were both fully vested stock grants and stock options granted~~period from July 1, 2022, to ~~employees and non-employees during the year ended~~ September 30, ~~2019. As such, compensation cost was recognized for grant~~2023, are as ~~well as a ratable portion for the stock options vesting over a three-year time frame.~~follows:

The Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the ~~award,~~warrants was considered as part of the acquisition costs of Cipherloc as described in Note 3.

From SCS’s inception to December 29, 2021, SCS was not subject to federal and state income taxes since it was operating as a Limited Liability Company (LLC). Effective with the conversion to a corporation, the stockholders of SCS elected to be taxed as a Subchapter C corporation under the provisions of Subchapter C of the Internal Revenue Code. Federal income taxes were the responsibility of SCS’s stockholders during the audited periods, as were certain state income taxes. Therefore, no provision or liability for income taxes is ~~recognized as an expense over~~reflected in the ~~requisite employee service period (generally~~financial statements.

SCS has adopted the ~~vesting period), net~~provisions related to accounting for uncertainty in income taxes, which defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of actual forfeitures. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. All share-based awards area tax position taken or expected to be ~~fulfilled with new shares of common stock.~~

Under ASC 718-20-35-7, Repurchase or Cancellation of equity awards, the amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extenttaken in a tax return. Management has considered its tax positions and believes that ~~the amount paid does not exceed the fair value~~all of the ~~equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall~~positions taken by SCS in its federal and state tax returns are more likely than not to be ~~recognized~~sustained upon examination.

SCS is subject to tax examinations by federal and state tax authorities for years after 2018.

SideChannelSec, LLC converted to a Massachusetts corporation on December 29, 2021. Upon this conversion SCS will be taxed as ~~additional compensation cost.~~

~~The Company~~a corporation. SCS utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

The Company uses the two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. The Company did not record any liabilities for uncertain tax positions during the years ended September 30, 2020 or 2019.

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 September 30, 2020, and 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 year ended September 30, 2020, 24,146,866 warrants, 800,000 stock options 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 year ended September 30, 2019, 24,290,866 warrants, 1,100,000 stock options, 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.

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 December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~ This guidance removes certain exceptions to the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company are currently evaluating the impact of ASU 2019-12 on its financial statements, which is effective for the Company in its fiscal year and interim periods beginning on October 1, 2021.

~~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 adopted ASU 2018-13 on October 1, 2019 and the adoption of this update did not have a material impact on the Company’s notes to the financial statements.

~~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.

~~As of September 30, 2020, and 2019, fixed assets consisted of the following:~~

~~Depreciation expense for the years ended September 30, 2020 and 2019 was $18,243 and $16,927, respectively. The fixed assets were disposed of during 2020.~~

During fiscal year 2019, the Company entered into a one-year agreement with SoundFi LLC (“SoundFi”) which will automatically renew for subsequent one-year periods unless otherwise terminated by either party. Cipherloc received $25,000 from SoundFi during the year ended September 30, 2020.

The Company executed an annual software licensing agreement with Castle Shield during the year ended September 30, 2020 which also include auto-renewing terms. Castle Shield made a $10,000 payment to the Company based on the terms of their agreement with Cipherloc.

~~During the year ended September 30, 2020, the Company recognized $47,983 in licensing revenue from the SoundFi and Castle Shield agreements.~~

On April 6, 2020, to supplement its cash balance, the Company submitted their application for a Paycheck Protection Program (“PPP”) loan (the “SBA loan”) sponsored by the U.S. Small Business Administration in the amount of $365,430. On April 12, 2020, Company’s SBA loan application was approved, and the Company received loan proceeds on April 22, 2020. The SBA loan has an interest rate of 1% and matures on April 12, 2022.

Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP. The PPP and loan forgiveness are intended to provide economic relief to small businesses, such as the Company, that are adversely impacted under the COVID-19 Emergency Declaration issued by President Donald J. Trump on March 13, 2020.

~~As a result of staff reductions during 2020, the Company expects the ultimate amount of loan forgiveness to be minimal.~~

~~The Paycheck Protection Program loan balance at September 30, 2020 was $365,430~~

Skylar, Olivia and Robin De La Garza, immediate family members of former CEO Michael De La Garza, earned $52,278, $47,176 and $53,000, respectively, in compensation for the year ended September 30, 2019. In August 2019, Robin and Skylar De La Garza were terminated as employees of the Company. The Company also paid $11,394 in educational costs of Skylar De La Garza and $6,200 in moving expenses of Olivia De La Garza. Michael De La Garza was the CEO and director of the Company during the period of time when these payments were made.

~~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. Also in that same month, the Company initiated litigation against De La Garza in the District Court of Travis Country, Texas (the “Court”). On September 25, 2019, the Court entered a temporary injunction against De La Garza enjoining him from numerous acts. The Special Committee investigated 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.

The Company also sued De La Garza, among others, in federal district court seeking to invalidate the issuance of preferred stock to him in 2015. The preferred stock shares were converted to 13.5 million shares of common stock by De La Garza during 2018.

All litigation matters with Michael De La Garza were settled on August 28, 2020 with De La Garza agreeing to return 13.1 million shares of common stock to the Company and the Company agreeing to pay De La Garza $400,000 between September 30, 2020 and September 30, 2021. At September 20, 2020, Cipherloc owed $100,000 in settlement payments which will be made in $25,000 payments on December 1, 2020, March 1, 2021, June 1, 2021, and September 1, 2021.

The Company is seeking to invalidate the issuance of 1 million shares of Cipherloc preferred stock to former director and chief financial officer, Pamela Thompson, which stock is now being held by the Carmel Trust II, in or around 2011. As such, the Company has sued James LeGanke, as Trustee of Carmel Trust II, in federal court as part of its efforts to invalidate those shares. The Company alleges that Thompson failed to comply with both state law and Company bylaws when she and then CEO, Michael De La Garza, caused the Company to issue the preferred stock to themselves as purported compensation. The lawsuit is ongoing, and its resolution is unknown.

On October 13, 2020, Ageos, LLC, a Virginia limited liability company (“Ageos”), filed a Third Party Complaint against Cipherloc (Third Party Case No. GV20015643-00) in connection with the pending action titled Scandium, LLC v. Ageos, LLC (Case No. GV20014313-00) in the General District Court for Fairfax County in the Commonwealth of Virginia. The action relates to an operating agreement, by and between Cipherloc and Ageos, whereby Cipherloc agreed to guarantee Ageos’s lease in order to enable the leasing of space in Fairfax County, VA. Cipherloc subsequently terminated the agreement with Ageos and offered to take over the space as an accommodation. Ageos declined. Ageos’s third party complaint demands from Cipherloc, among other things, all damages obtained by Scandium, LLC against Ageos; (ii) other compensatory damages in connection with certain lease payments under the lease discussed above; and (iii) pre-judgment interest. This lawsuit is ongoing, and its resolution is unknown.

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 became effective on February 1, 2019 and has a three-year term. The initial monthly rent is $2,566, and the lease agreement provided 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. In July 2020, the Company executed a lease termination agreement with the landlord for an early termination fee of $10,546 and forfeited the existing security deposit of $2,566. There are no future payments related to this lease.

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 originally continued 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%. In June 2020, the Company executed a lease termination agreement with the landlord for an early termination fee of $27,013 and forfeited the existing security deposit of $9,796. There are no future payments related to this lease.

In February 2020, the Company leased approximately 3,666 square feet of office space on 2107 Wilson Boulevard, Arlington, Virginia. The lease for this facility began on February 1, 2020 and continues until July 31, 2025. The base annual rent is $159,471, a $100,000 security deposit was paid, and abatement of monthly rent payments was provided until August 1, 2020, and the lease provides for annual rent increases of approximately 2.5%. The amount of future payments guaranteed is $822,082.

As the result of restructuring actions intended to conserve cash during the COVID-19 crisis, the landlord of the Wilson Boulevard space was notified that the Company no longer needed the space and is seeking an amicable and reasonable termination of the lease agreement.

~~As of September 30, 2020, the Company had one lease agreements for facilities.~~

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 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 June 30, 2020. The Company announced a corporate restructuring on June 30, 2020 which will result in the abandonment of certain office spaces. The Company has recorded an impairment charge of approximately $382,962 which is the estimate of the future payments less projected sublease income from the abandoned office space.

An initial right-of-use asset of $233,751 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 $28,534 during third quarter 2020 and is included in operating cash flows. In February 2020, the Company’s new lease in Arlington, Virginia added approximately $746,000 in new lease obligations.

~~The weighted average remaining lease terms and discount rates for all of our operating lease were as follows as of September 30, 2020:~~

Significant judgements include the discount rates applied, the expected lease terms, and lease renewal options. There are three leases with a renewal option. 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.

~~Future annual minimum lease obligations at September 30, 2020 are as follows:~~

~~Rent expense totaled $218,997 and $150,575 for the years ended September 30, 2020 and 2019, respectively.~~

As of September 30, 2020, and 2019, the Company had 27,505,196 and 40,792,510 shares of common stock outstanding, respectively, and were authorized to issue 681,000,000 shares of common stock at a par value of $0.01.

~~Management determines the fair value of stock issuances using the closing stock price on the grant date.~~

During the year ended September 30, 2020, the Company came to a settlement with First Fire and purchased back 149,557 shares and recorded such shares as Treasury Stock. First Fire received $150,000 in exchange for the 149,557 shares.

~~During the year ended September 30, 2020, the Company reached a settlement and as result received surrendered shares of 13,137,757 share and recorded such shares as Treasury Stock.~~

During the year ended September 30, 2019, the Company refunded $40,000 for an oversubscription of common stock made by an investor related to the private placement of shares in fiscal year 2018. The refund was made in lieu of an issuance of shares.

During the year ended September 30, 2019, the Company issued 9,346 vested shares of common stock with a fair value of $11,216 to an employee, which was recorded as stock-based compensation expenses in research and development expense in the statement of operations.

During the year ended September 30, 2019, the Company issued 1,100,000 shares of stock options to the Board of Directors and officers with a fair value of $862,000, of which $42,942 was recorded as stock-based compensation expenses in research and development and general administration expense. Options will vest over a three-year period ratably. Of the 1,100,000, 1,000,000 options have a strike price of $0.85 and the remaining 100,000 have a strike price of $0.75.

During 2020, 620,000 stock options were granted to employees. Also during 2020, 920,000 stock options were cancelled due to the termination of employment. As of September 30, 2020, 800,000 stock options are outstanding. None of the stock options are in the money and the unamortized amount of stock compensation as of September 30, 2020 is $383,453.

During the year ended September 30, 2019, the Company issued 20,000 shares of common stock with a fair value of $40,000 to Pycnocline, LLC for management consulting services, which was recorded in research and development expense.

As of September 30, 2020, and 2019, the Company had 1,000,000 and 1,000,000 shares of restricted preferred stock outstanding, respectively. Each share of preferred stock is convertible into the Company’s common stock at a rate of one (1) preferred share to 1.5 common shares. Each share of preferred stock has 1.5 votes on all matters presented to be voted by the holders of common stock. The holders of preferred stock can only convert the shares if agreed to by the Board of Directors. If declared by the Board of Directors, holders of preferred stock are entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company. In the event of liquidation or dissolution of the Company, holders of preferred stock shall be paid out of the assets of the Company prior and in preference to any payment or distribution to holders of common stock of the Company.

During the year ended September 30, 2018, the Company issued warrants to purchase 75,000 shares of common stock. These warrants were issued with an exercise price of $2.00 and a term of five years. No warrants were issues during fiscal years 2020 and 2019.

Additionally, in connection with shares sold through a PPM, the Company issued warrants to purchase 144,000 shares of common stock. These warrants were issued with an exercise price of $4.50 and a term of two years.

Lastly, in connection with shares sold through an additional PPM, the Company issued warrants to purchase 18,837,900 shares of common stock. These warrants were issued with an exercise price of $1.20 and a term of five years. The company issued warrants to purchase an additional 5,398,970 shares of common stock to its underwriters. These warrants were issued with an exercise price of $1.00 and a term of ten years.

~~Warrant activity for the years ended September 30, 2020 and 2019 is as follows:~~

The provision (benefit) for income taxes from continued operations for the years ended September 30, ~~2020~~2023, and ~~2019~~2022 consist of the following:

The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:

For the years ended September 30, 2023, and 2022, the difference between the amounts of income tax expense or benefit that would result from applying the statutory rates to pretax income to the reported income tax benefit $379,000 for the year ended September 30, 2023, and income tax expense of $195,000 for the year ended September 30, 2022. The September 30, 2022, expense of $195,000 was accrued as an estimate of income taxes due by SCS, Inc. for activity prior to the Business Combination. The actual taxes due by SCS, Inc. for such activity was zero ($0) resulting in a reversal of the $195,000 accrual during fiscal year 2023. The reversal was partially offset by $27,000 of state income taxes incurred by the Company during fiscal year 2023. In addition, a deferred tax liability was recognized for a book versus tax basis difference for state income taxes upon the business combination with Cipherloc in 2022. During the year ended September 30, 2023 this deferred tax liability was reduced to zero resulting in a deferred income tax benefit of $211,000.

Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

The Company has a net operating loss carry forward of ~~$29.2~~$36.2 million available to offset future taxable ~~income. Of~~income, of which, ~~$2.6~~$2.6 million will expire within the next five years, $12.5 million will expire thereafter, and the remaining ~~$26.6~~$21.1 million will ~~expire thereafter.~~not expire. For income tax reporting purposes, the Company’s aggregate unused net operating losses were subject to the limitations of Section 382 of the Internal Revenue Code, as amended. The Company has adjusted the net operating losses incurred prior to 2015 to reflect only the losses not subject to limitation. The Company has provided for a valuation reserve against the net operating loss benefit, because in the opinion of management based upon the earning history of the ~~Company;~~Company, it is more likely than not that the benefits will not be realized. For income tax reporting purposes, Management has determined that net operating losses prior to February 5, 2015, are subject to an annual limitation of approximately ~~$525,000.~~$525,000.

For the years ended September 30, 2020 and 2019, the difference between the amounts of income tax expense or benefit that would result from applying the statutory rates to pretax income to the reported income tax expense of $0 is the resultUtilization of the pre-Business Combination net operating loss ~~carry forward and~~carryforwards (“pre-Combination NOL’s”) attributable to Cipherloc may become subject to a substantial annual limitation under Section 382 of the ~~related valuation allowance,~~Internal Revenue Code of 1986 due to ownership changes occurred during the tax year associated with the Business Combination. In general, an ownership change, as ~~well as non-deductible stock-based compensation.~~

~~The Company anticipates it will continue to record a valuation allowance against~~defined by Section 382, results from transactions increasing the ~~losses~~ownership of certain ~~jurisdictions, primarily federal~~stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. Future ownership changes may trigger Section 382 and ~~state, until such time as it is able~~therefore, substantially limit the amount of pre-Combination NOLs that can be utilized annually to ~~determine it is “more-likely-than-not” the deferred tax asset will be realized. Such position is dependent on whether there will be sufficient~~offset future taxable income to realize such deferred tax assets. The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.income.

The Company is current on all its federal income tax filings. ~~An extension~~The Company is subject to IRS examinations for periods beginning after September 30, 2019, and all net operating losses we may use in future federal tax filings are subject to IRS examination.

On November 6, 2023, Anthony Ambrose, a current Member of our Board of Directors (“Board”), and the Chairman of the Nomination and Corporate Governance Committee, informed us of his upcoming retirement from the Board.

Mr. Ambrose will remain a member of the Board until our next Annual Meeting of Stockholders (“Annual Meeting”), at which time Mr. Ambrose will not stand for re-election as a Member of the Board.

Mr. Ambrose’s departure is not the result of any disagreement with our management, our Board, or us on any matter related to its operations, policies, or practices.

In recognition of Mr. Ambrose’s tenure and contributions to us during his nearly five years of service as a member of the Board, we will accelerate the vesting of Mr. Ambrose’s 333,334 restricted stock units, which were awarded to Mr. Ambrose on July 2, 2022 and previously scheduled to vest pro-ratably on June 1, 2024 and on June 1, 2025. The full amount of unvested restricted stock units will now vest on January 2, 2024. The full terms of Mr. Ambrose’s separation will be formalized in a forthcoming Separation Agreement between us and Mr. Ambrose.

Also on November 7, 2023, we announced an offer (“Offer to Exchange”) made to certain holders of 55,549,615 of our warrants issued during 2021 with an exercise price of $0.36 and expiration dates between March 31, 2026 and April 16, 2026 (“2021 Investor Warrants”). The Offer to Exchange provided 2021 Investor Warrant holders one (1) share of common stock for every six 2021 Investor Warrants and one (1) New Warrant for every two and one-half (2.5) 2021 Investor Warrants. The Offer to Exchange expired at 5:00 PM EST on December 26, 2023 (“Expiration Date”).The New Warrants being offered have a five (5) year term, an exercise price of $0.18, and an automatic conversion if the bid price of the stock is equal to or greater than $0.36 for 30 consecutive days.

On November 14, 2023, the Offer to Exchange was amended to include an Amended New Warrant Agreement which removed a restriction on the cashless exercise of the New Warrant.

On November 21, 2023, we received a Comment Letter from the SEC about the Offer to Exchange. On December 1, 2023 we filed a response with the SEC to the Comment Letter and on December 4, 2023, we filed an Amended Offer to Exchange which reflected the clarifications and corrections requested by the SEC.

The Offer to Exchange was made as an offer for all or none of the ~~September 30, 2020 tax return.~~2021 Investor Warrants. At its meeting on December 11, 2023, our Board approved waiving the all or nothing clause and authorized us to close the offer on the Expiration Date if the percentage of 2021 Investor Warrants validly tendered and not validly withdrawn exceed 65% of the total 2021 Investor Warrants outstanding. The Expiration Date was also changed to December 26, 2023.

On December ~~22, 2017,~~11, 2023, we received a Comment Letter from the ~~Tax Cuts and Jobs Act (“Tax Act”) was signed into law in~~SEC requesting clarifications on three responses we submitted regarding the ~~U.S. The Tax Act has resulted in significant changes~~November 21, 2023 Comment Letter. On December 21, 2023, we filed an Amended Offer to Exchange which reflected the ~~U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%,~~clarifications requested by the elimination or reduction of certain domestic deductions and credits, and limitations on the deductibility of interest expense and executive compensation. These changes were effective beginning in 2018.

On ~~October 16, 2020, David Chasteen, a director, was appointed~~December 26, 2023, we closed the ~~Chief Executive Officer~~Offer to Exchange and issued 7,270,958 shares of common stock and 17,415,437 New Warrants in exchange for 43,538,501 2021 Investor Warrants (78.4% of the ~~Company.~~total outstanding 2021 Investor Warrants).

On November 12, 2020, Milton Mattox, Cipherloc Chief Operating Officer, tendered his resignation which was accepted by the Chief Executive Officer. Mattox assisted in the transition to interim Chief Technology Officer Nick Hnatiw who was engaged as an independent contractor on November 18, 2020. Mattox’s last day with the Company was December 15, 2020.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

~~Evaluation of Disclosure Controls~~Our management is responsible for establishing and ~~Procedures~~

~~We maintain disclosure~~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 ~~the~~ reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the ~~Securities and Exchange Commission’s (the “SEC”)~~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 ~~Principal~~Chief Financial Officer ~~as appropriate,~~(“CFO”), to allow ~~for~~ timely decisions regarding required disclosure. In designing and evaluating ~~the~~our disclosure controls and procedures, ~~management recognizes~~the Company recognized that ~~any~~disclosure controls and procedures, no matter how well ~~designed~~conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and ~~management is~~we necessarily are required to apply ~~its~~our judgment in evaluating the cost-benefit relationship of possible ~~controls and procedures. Our~~ disclosure controls and ~~procedures have not been formally designed~~procedures.

Evaluation of Disclosure Controls and ~~evaluated to provide reasonable assurance that~~Procedures

As of September 30, 2023, our management, with the ~~controls and procedures would meet their objectives.~~

~~As required by SEC Rule 13a-15(b),~~participation of our Chief Executive Officer and ~~Principal~~Chief Financial Officer, ~~need to carry out an evaluation of~~evaluated the effectiveness ~~of the design and operation~~ 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 ~~the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Principal Financial Officer concluded that~~September 30, 2023, our disclosure controls and procedures were not effective ~~as of September 30, 2020, due to 1) no formal evaluation has been performed by us and 2)~~at the ~~existence~~reasonable assurance level because of the material weaknesses discussed below.

Notwithstanding the material weakness in internal control over financial reporting described below, ~~(which we view as an integral part of~~ our ~~disclosure controls and procedures). Based on the performance of additional procedures designed to ensure the reliability of~~management has concluded that our ~~financial reporting, we believe that the~~consolidated financial statements included in this ~~Annual Report~~Form 10-K are fairly ~~present,~~stated in all material respects in accordance with GAAP.

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 ~~position, results of operations and cash flows~~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 ~~dates,~~fact that we did not design and ~~for the periods, presented,~~maintain accounting policies, procedures and controls to ensure complete, accurate and timely financial reporting in ~~conformity~~accordance with U.S. GAAP. Specifically, the material weaknesses identified included the following:

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:

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:

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.

~~Our Chief Executive Officer~~We are engaged in the process of design and ~~the Principal Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness~~implementation of our internal control over financial ~~reporting.~~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.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and ~~15d(f)~~15d-15(f) under the Exchange Act) ~~is a process designed to provide reasonable assurance regarding~~during 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 the Annual Report on Form 10-K for the~~fiscal year ended September 30, 2019, our Chief 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 had not implemented effective internal control over financial reporting during the reporting year.

~~Management executed a remediation plan to address the material weaknesses discussed above. These remediation efforts focused on:~~

Subsequent to September 30, 2019, management designed and implemented review and approval controls around transaction processing, including written policies and procedures. In addition, management has continued to train key accounting staff to improve controls that will eliminate the material weaknesses discussed above, as well as improve the accounting and financial reporting process.

Management has also evaluated the effectiveness of its internal control over financial reporting in accordance with generally accepted accounting principles within the guidelines of the Committee of Sponsoring Organizations of the Treadway Commission framework (2013). Based on the results of2023 covered by this ~~evaluation, management has determined that the Company’s internal control over financial reporting was effective as of September 30, 2020.~~

~~During the year ended September 30, 2020, there were no changes in our internal control over financial reporting~~Form 10-K that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting, other than described herein. We are continuing to take steps to remediate the ~~remediation actions~~material weakness in our internal control over financial reporting, as discussed above.

~~Inherent Limitations on Internal Controls~~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.

~~It should be noted~~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 ~~any system of controls, however well designed and operated, can~~permit the Company to 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~~management’s report in ~~part upon certain assumptions about the likelihood of certain events. Limitations inherent in any control system include the following:~~this annual report.

~~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.~~

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

~~Set forth below is information~~Information regarding the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. The directors are elected annually by our stockholders. The executive officers serve at the pleasure of the Board of Directors.

~~The background and principal occupations of the~~ directors and executive officers of the Company, ~~are~~ as ~~follows:~~

~~Mr. Wilkinson serves~~well as the required disclosures with respect to the Company’s ~~Chairman~~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 ~~Board~~SEC within 120 days after the end of ~~Directors. He is~~our fiscal year 2023.

The Company has adopted a ~~licensed CPA in Texas~~Code of Ethics that applies to all of our directors, officers and Colorado. From 2014 to October, 2015 he was the Chief Financial Officer of Amherst Holdings, LLC. Mr. Wilkinson joined Xplore Technologies Corp., a NASDAQ traded company, in 2015 where he served as the Chief Financial Officer until 2017 when he took on the position of Chief Executive Officer until the sale of the company to Zebra Technologies in August 2018. He presently owns and operates Wilkinson & Company, a financial and business consulting firm focused on emerging growth pre-IPO and public companies. Mr. Wilkinson has also been a member of the board of directors of Astrotech Corporation (NASDAQ: ASTC) since October 2018. He received his Bachelor of Business Administration and Master of Professional Accounting from the University of Texas in 1992. We believe Mr. Wilkinson is qualified to serve onemployees, including our ~~board of directors based on his financial experience.~~

Mr. Ambrose serves a director of the Company. Mr. Ambrose has served as a director, President and Chief Executive Officer of Data I/O, the leading global provider of advanced data and security programming solutions, and a NASDAQ listed company (NASDAQ: DAIO). Prior to Data I/O, Mr. Ambrose was Owner and Principal of Cedar Mill Partners, LLC, a strategy consulting firm since 2011. From 2007 to 2011, he was Vice President and General Manager at RadiSys Corporation, a leading provider of embedded wireless infrastructure solutions, where he established the telecom platform business and grew it to over $125M in annual revenues. He was previously general manager and held several other progressively responsible positions at Intel Corporation, where he led development and marketing of standards-based communications platforms and grew the industry standard server business to over $1B in revenues. Mr. Ambrose has a Bachelor of Science degree in Engineering from Princeton University, and has completed the Stanford University Director Symposium. ~~We believe Mr. Ambrose is qualified to serve on our board of directors based on his data security and industry experience.~~

Mr. Chasteen serves as a director of the Company. Since 2018, Mr. Chasteen has been the Chief Information Security Officer for the City and County of San Francisco Police Department. From 2015 to 2018, Mr. Chasteen was a Threat Intelligence Strategist for the City and County of San Francisco where he was responsible for managing city, state and federal intelligence relationships and managing cybersecurity operations for the City and County of San Francisco. From 2015 to 2016 Mr. Chasteen was the Western Regional Director for Iraq and Afghanistan Veterans of America. From 2006 to 2014 Mr. Chasteen worked for the Central Intelligence Agency as a Collection Management Officer, Specialized Skills Officer, and finally an Executive Officer, Covert Action Staff. Mr. Chasteen received a B.S. in Political Science from Ball State University in 2000. We believe Mr. Chasteen is qualified to serve on our board of directors based on his cybersecurity and industry experience.

Dr. Davis serves as a director of the Company. Dr. Davis has over 20 years’ experience in operations, finance, budgeting, financial reporting, revenue cycle management, inventory, payroll, accounts receivable and payable, and information systems in the healthcare industry. Since 2009 Dr. Davis has been a Senior Marketing Liaison with Physician Reliance Corporation. From 2005 to 2009, Dr. Davis was the Chief Executive officer of Renaissance Hospital in the Dallas/Fort Worth Area. From 2004 to 2005, Dr. Davis was the interim Chief Executive Officer of Transition Health Care LTAC in Corpus Christi, TX. Dr. Davis holds a Doctor of Public Health degree from the University of Texas. We believe Dr. Davis is qualified to serve on our board of directors based on his leadership experience.

Ms. Young serves as a director of the Company. Since 2017, Ms. Young has been a Venture Partner with Next Coast Ventures, a venture capital firm focused on providing early-stage capital to high-growth startups. In 2017 Ms. Young served as interim chief executive officer of Milk & Honey, a wellness and beauty company with a portfolio of day spas, salons and products in the organic, luxury market. From 2009 to 2016, Ms. Young was the Founder and Chief Executive Officer of Double Line, Inc., a management consulting firm. Ms. Young received a B.A. in Economics and Sociology from Rice University in 1992 and an M.B.A. from Northwestern University – Kellogg School of Management in 1997. We believe Ms. Young is qualified to serve on our board of directors based on her business and leadership experience.

~~Ryan Polk serves as the Company’s~~ Chief Financial Officer. ~~Mr. Polk has served in leadership roles in both public and private companies after a brief time at accounting firm Ernst & Young. He is a part-time employee~~The complete text of Cipherloc and is engaged in providing CEO and CFO related services to other companies as an independent contractor. He is a graduate of Purdue University with two Bachelor of Science degrees from the Krannert School of Management. His career has focused on both the consumer products and technology industries.

Milton Mattox serves as the Company’s Chief Operating Officer. Mr. Mattox is an experienced, senior technology executive with an extensive background in software engineering, application development, IT infrastructure, and offshore research and development team management. His accomplishments include transforming and accelerating technology development and delivery in alignment with worldwide business goals. His professional experience includes an executive vice president position at Lucent Technologies with executive-level experience at Intuit, Mitel, SHPS, Narus India, Signa, and CGI. Mr. Mattox holds a Doctorate in Organization and Leadership from the University of San Francisco, an MBA from City University of Seattle, and a Bachelor of Science in Electronic Engineering Technology from DeVry University.

Nicholas Hnatiw serves as the Company’s Chief Technology Officer. Mr. Hnatiw has more than 15 years of experience creating software technologies from network security to artificial intelligence. Mr. Hnatiw has led the design and development of a security risk assessment SaaS platform, run a security monitoring service with a custom-built next generation automation and SIEM system. Prior to the Company, Mr. Hnatiw served as the technical director for network operations supporting U.S. Cyber Command, U.S. Intelligence Agencies, and other Department of Defense research organizations from October 2010 to October 2014. From June 2015 to September 2019, Mr. Hnatiw was the Chief Executive Officer of Loki Labs, a cyber security firm. Mr. Hnatiw is also currently a consultant with Cuesta Partners (since January 2020); a partner and Chief Technology Officer of Sidechannel Security (since February 2020), and the Chief Technology Officer of RealCISO.io (since October 2020). Mr. Hnatiw earned a bachelor of science degree in computer engineering and computer science at the University of Massachusetts, Amherst.

There are no family relationships among our directors and executive officers. Other than Mr. Chasteen’s appointment as a chief executive officer in connection with his employment agreement, there are no arrangements or understandings between or among our executive officers and directors pursuant to which any director or executive officer was or is to be selected as a director or executive officer.

Our Board has established an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which operate pursuant to a charter adopted by our Board. Each committee has the composition and responsibilities described below. Our Board may establish other committees from time to time.

~~The following table identifies the current members of each of our committees:~~

Our Board has determined that a majority of the Board consists of members who are currently “independent” as that term is defined under the rules of the Nasdaq Stock Market LLC. As our common stock is traded over the counter on the OTCQB, we are not required to comply with such requirements. Nevertheless, the Board considers Ms. Young, Dr. Davis, and Mr. Ambrose to be “independent” under such rules.

~~Messrs. Ambrose, Wilkinson, Davis and Ms. Young serve on the Audit Committee, which is chaired by Mr. Ambrose.~~

~~Messrs. Ambrose, Wilkinson, Davis and Ms. Young serve on the Compensation Committee, which is chaired by Ms. Young~~

~~Messrs. Ambrose, Wilkinson, Davis and Ms. Young serve on the Corporate Governance/Nominating Committee, which is chaired by Mr. Ambrose.~~

~~The nominating and corporate governance committee’s responsibilities include:~~

Members of our management are associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of our company. Although the directors are engaged in other business activities, we anticipate they will devote an important amount of time to our affairs.

Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be formed for the purpose of engaging in business activities similar to ours. Accordingly, additional direct conflicts of interest may arise in the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.

Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors are affiliated both desires to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.

~~We have adopted a formal~~ Code of Ethics ~~applicable to all Board members, officers and employees. A copy~~is available on the SEC’s EDGAR system as described in Part IV, Item 15 of ~~our Code of Ethics may be obtained without charge upon written request to Secretary, Cipherloc Corporation, 6836 Bee Cave Road, Bldg. 1, S#279, Austin, TX 78746.~~this Form 10-K.

~~The following tables set forth certain~~Information regarding executive compensation of our directors and officers, is incorporated herein by reference to the information ~~concerning all compensation paid, earned or accrued~~included in our Proxy Statement for ~~service by (i)~~ our ~~Principal Executive Officer and Principal Financial Officer and (ii) all other executive officers who earned in excess~~next Annual Meeting of ~~$100,000 in~~Stockholders which will be filed with the ~~fiscal years ended September 30, 2020 and 2019, and each of the other two most highly compensated executive officers of the Company who served in such capacity at~~SEC within 120 days after the end of ~~the~~our fiscal year ~~whose total salary and bonus exceeded $100,000 (collectively, the “Named Executive Officers”):~~2023.

~~(1) All other compensation consists primarily of remunerations for legal settlements, severance, auto and health insurance costs.~~

~~(2) Mr. Andrew Borene was terminated as Chief Executive Officer on April 3, 2020.~~

~~(4) Mr. Mauriello was terminated as Chief Financial Officer on December 13, 2019.~~

We changed our compensation policy for directors include quarterly fees as well as stock options. Annual director compensation will be $60,000 for the Chairman of the Board and Lead Independent Director, $40,000 for directors with an additional $4,000 for additional committees. During the years ended September 30, 2020 and 2019, the company paid $170,000 and $40,000 in board fees, respectively. During July 2020, the board of directors temporarily deferred cash director payments.

We entered into an Employment Agreement with Andrew Borene (the “Borene Employment Agreement”), our Chief Executive Officer, on November 25, 2019, pursuant to which he received a base annual salary of $350,000, payable in accordance with the Company’s standard payroll schedule, and other customary benefits. Mr. Borene also received options to purchase up to 500,000 shares of the Company’s common stock (the “Borene Options”). The Borene Options had an exercise price of $0.75 per share and were to vest as follows: 166,666 shares vest on November 26, 2020, 166,667 shares vest on November 26, 2021, and 166,667 shares vest on November 26, 2022. Additionally. Mr. Borene received a signing bonus in the amount of $150,000 which is payable in equal installments at the end of each of the first three months of his employment.

~~Mr. Andrew Borene was terminated on April 3, 2020. No future payments are expected under his former employment contract.~~

We previously entered into an employment agreement with Albert Carlson as our Chief Scientific Officer. Dr. Carlson resigned from his positions as Chief Scientific Officer and director on December 17, 2019. The agreement was for a term of one year, commencing on September 1, 2015 and initially expired on August 31, 2016 with three one-year extensions. The Agreement provided that, in addition to receiving paid vacation in accordance with the Company’s policies as well as other customary benefits and provisions, Dr. Carlson received an annual base salary of $150,000. If, at any time during the term of the Agreement, Dr. Carlson was terminated “without cause,” he was entitled to receive a cash payment equal to the aggregate compensation payable to him during the remaining term of the Agreement. During the year ended September 30, 2019, prior to his resignation, Dr. Carlson’s annual base salary was increased to $300,000.

The Company entered into an employment agreement with Michael De La Garza, its former Chief Executive Officer, on January 1, 2013. The employment agreement was initially set to expire on January 1, 2018 and automatically renews for another five years unless Mr. De La Garza was terminated in accordance with the provisions of the employment agreement. Mr. De La Garza was terminated on August 11, 2019. The employment agreement provided for:

~~Mr. De La Garza was terminated on August 11, 2019 for cause. No future payments are expected under his former employment contract.~~

~~All Claims with MDLG were settled. Please refer to Note 8 to our audited financial statements included in this Annual Report on Form 10-K.~~

Our Board adopted our 2019 Stock Incentive Plan on August 8, 2019. Our stockholders have not yet approved the adoption of the 2019 Stock Incentive Plan. Our 2019 Stock Incentive Plan is intended to align the interests of our stockholders and the recipients of awards under the 2019 Stock Incentive Plan, and to advance our interests by attracting and retaining directors, officers, employees and other service providers and motivating them to act in our long-term best interests. The material terms of the 2019 Stock Incentive Plan are as follows:

~~Plan term~~~~. The 2019 Stock Incentive Plan terminates on August 7, 2029 (the day before the tenth anniversary of the adoption of the plan), unless terminated earlier by our Board.~~

~~Eligible participants~~. All officers, directors, employees, consultants, agents and independent contractors, and persons expected to become officers, directors, employees, consultants, agents and independent contractors of our Company or any of our subsidiaries are eligible to receive awards under the 2019 Stock Incentive Plan. The compensation committee of our Board will determine the participants under the 2019 Stock Incentive Plan.

~~Shares authorized~~. 3,000,000 shares of common stock are available for awards granted under the 2019 Stock Incentive Plan, subject to adjustment for stock splits and other similar changes in capitalization. The number of available shares will be reduced by the aggregate number of shares that become subject to outstanding awards granted under the 2019 Stock Incentive Plan. To the extent that shares subject to an outstanding award granted under the 2019 Stock Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of an award in cash, then those shares will again be available under the 2019 Stock Incentive Plan. In addition, any shares covered by an award that have been surrendered in connection with the payment of the award exercise or purchase price or in satisfaction of tax withholding obligations incident to the grant, exercise, vesting or settlement of an award will be deemed not to have been issued for purposes of determining the maximum number of shares which may be issued pursuant to all awards under the 2019 Stock Incentive Plan.

~~Award types~~~~. Awards include options (non-qualified and incentive stock options) and restricted stock.~~

~~Administration~~. The compensation committee will interpret and administer the 2019 Stock Incentive Plan. The compensation committee’s interpretation, construction and administration of the 2019 Stock Incentive Plan and all its determinations thereunder will be conclusive and binding on all persons.

The compensation committee shall have the authority to determine the participants in the 2019 Stock Incentive Plan, the form, amount and timing of any awards, the performance goals, if any, and all other terms and conditions pertaining to any award. The compensation committee may take any action such that (i) any outstanding options become exercisable in part or in full, (ii) all or any portion of a restriction period on any restricted stock will lapse, (iii) all or a portion of any performance period applicable to any performance-based award will lapse and (iv) any performance measures applicable to any outstanding award will be deemed satisfied at the target level or any other level. Subject to the terms of the 2019 Stock Incentive Plan relating to grants to our executive officers and directors, the compensation committee may delegate some or all of its powers and authority to the Chief Executive Officer or other executive officer as the compensation committee deems appropriate.

~~Stock options~~. The 2019 Stock Incentive Plan provides for the grant of stock options. Stock options may be either tax-qualified incentive stock options or non-qualified stock options. The compensation committee will determine the terms and conditions to the exercisability of each option.

The period for the exercise of a non-qualified stock option will be determined by the compensation committee provided that no option may be exercised later than ten years after its date of grant. The exercise price of a non-qualified stock option will not be less than 100% of the fair market value of a share of our common stock on the date of grant.

Each incentive stock option will be exercisable for not more than 10 years after its date of grant, unless the optionee owns greater than 10% of the voting power of all shares of our capital stock, or a “ten percent holder,” in which case the option will be exercisable for not more than five years after its date of grant. The exercise price of an incentive stock option will not be less than the fair market value of a share of our common stock on its date of grant, unless the optionee is a ten percent holder, in which case the option exercise price will be the price required by the Internal Revenue Code of 1986, as amended, or the “Code,” currently 110% of fair market value.

Upon exercise, the option exercise price may be paid in cash, by the delivery of previously owned shares of our common stock, share withholding or through a cashless exercise arrangement, as permitted by the applicable award agreement. All of the terms relating to the exercise, cancellation or other disposition of an option upon a termination of employment, whether by reason of disability, retirement, death or any other reason, will be determined by the compensation committee.

The compensation committee, without stockholder approval, may (i) reduce the exercise price of any previously granted option, or (ii) cancel any previously granted option at a time when its exercise price exceeds the fair market value of the underlying shares, in exchange for another option, or other award or for cash.

~~Stock awards~~. The 2019 Stock Incentive Plan provides for the grant of stock awards. The compensation committee may grant a stock award as a restricted stock award and the compensation committee may determine that such award will be subject to the attainment of performance measures over an established performance period. All of the terms relating to the satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a stock award upon a termination of employment, whether by reason of disability, retirement, death or any other reason, will be determined by the compensation committee.

Unless otherwise set forth in a restricted stock award agreement, the holder of shares of restricted stock will have rights as our stockholder, including the right to vote and receive dividends with respect to the shares of restricted stock, except that distributions other than regular cash dividends and regular cash dividends with respect to shares of restricted stock subject to performance-based vesting conditions will be held by us and will be subject to the same restrictions as the restricted stock.

~~Performance goals~~. Under the 2019 Stock Incentive Plan, the vesting or payment of performance-based awards will be subject to the satisfaction of certain performance goals. The performance goals applicable to a particular award will be determined by the compensation committee at the time of grant. The performance goals may be one or more of the following corporate-wide or subsidiary, division, operating unit or individual measures, stated in either absolute terms or relative terms.

~~Individual Limits~~. With respect to non-employee directors, the maximum grant date fair value of shares that may be granted to an individual non-employee director during any fiscal year of the Company is $150,000. In connection with a non-employee director’s commencement of service with the Company, the per person limit set forth in the previous sentence will be $150,000.

~~Amendment or termination of the 2019 Stock Incentive Plan~~~~. Our Board may amend or terminate the 2019 Stock Incentive Plan as it deems advisable, subject to any requirement of stockholder approval required by law, rule or regulation.~~

~~Change in control~~. In the event there is a change in control and/or the Company is a party to a merger or acquisition or reorganization or Change in Control event or similar transaction, outstanding awards shall be subject to the merger agreement or other applicable transaction agreement. Such agreement may provide, without limitation, that subject to the consummation of the applicable transaction, for the assumption (or substitution) of outstanding awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration, or for the mandatory exercise or conversion of awards into shares and/or cash whether by net exercise or otherwise, in all cases without the consent of a participant of the 2019 Stock Incentive Plan.

Additionally, in the event a change in control occurs and there is no assumption, substitution or continuation of awards, the compensation committee in its discretion may provide that all awards shall vest and become exercisable as of immediately before such change in control. The compensation committee may also in its discretion include in an award agreement a requirement that unless approval under Section 280G of the Code has been obtained, no acceleration of vesting shall occur with respect to an award to the extent that such acceleration would, after taking into account any other payments in the nature of compensation to which the participant would have a right to receive from the Company and any other person contingent upon the occurrence of such change in control, result in a “parachute payment” as defined under Code Section 280G.

Under the 2019 Stock Incentive Plan, a change of control will occur upon: (i) the consummation of an acquisition, a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such acquisition, merger, consolidation or other reorganization is owned by persons who in the aggregate owned less than 20% of the Company’s combined voting power represented by the Company’s outstanding securities immediately prior to such acquisition, merger, consolidation or other reorganization; (ii) A sale of more than fifty percent (50%) of the outstanding shares of each class of capital stock of the Company to a person, entity or group other than a person, entity or group affiliated with the Company, or (iii) he sale, transfer or other disposition of all or substantially all of the Company’s assets to a person, entity or group other than a person, entity or group affiliated with the Company.

~~New plan benefits~~. The benefits that might be received by officers, employees and non-employee directors cannot be determined at this time. All officers, employees and non-employee directors are eligible for consideration to participate in the 2019 Stock Incentive Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

~~The following table sets forth certain information~~Information regarding ~~beneficial~~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 ~~common stock as~~Proxy Statement for our next Annual Meeting of ~~January 9, 2021 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%) of~~Stockholders which will be filed with the ~~outstanding shares~~SEC within 120 days after the end of our common stock, (ii) each director and executive officer, and (iii) all of our directors and executive officers as a group. As of January 9, 2021, there were 27,505,196 shares of our common stock issued and outstanding.fiscal year 2023.

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person currently owns or has the right to acquire within 60 days of the date of this prospectus. With respect to options and warrants, this would include options and warrants that are currently exercisable within 60 days. With respect to convertible securities, this would include securities that are currently convertible within 60 days.

Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Cipherloc Corporation, 6836 Bee Cave Road, Bldg. 1, S#279, Austin, TX 78746.

(1) Solely based on the Company’s review of public filings made with the SEC. Includes shares that are directly owned by Manchester Explorer, L.P. The shares are indirectly beneficially owned by Manchester Management PR, LLC and Manchester Management Company, LLC as a result of having investment discretion over certain advisory accounts they manage. Manchester Management PR, LLC, a Puerto Rico limited liability company, provides investment management services to private individuals and institutions. The reported securities may also be deemed to be indirectly beneficially owned by James E. Besser, as the Managing Member of Manchester Management PR, LLC and Manchester Management Company, LLC. The principal business address for Manchester Management PR, LLC is 53 Palmeras Street, Caribe Plaza Building, 6th Floor, San Juan, Puerto Rico, 00901

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

~~The following includes a summary of~~Information regarding certain relationships and related transactions ~~during our fiscal years ended September 30, 2020~~ and September 30, 2019 to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual Report on Form 10-K.

~~On August 28, 2020, we entered into a Settlement Agreement and Mutual General Release (the “Settlement”) with Michael De La Garza, a former~~ director of the Company. The Settlement related to certain actions, including (i) CipherLoc Corporation vs. Michael De La Garza, MSR, LLC, and James LaGanke, as Trustee of the Caramel Trust II, Civil Action No. 1:19-CV-01147-LY in the United States District Court for the Western District of Texas, Austin Division, (ii) CipherLoc Corporation vs. Michael De La Garza, Cause No. D-1-GN-19-005253 in the 53^rd Judicial District Court of Travis County, Texas, and (iii) Michael De La Garza and CipherLoc, Inc. v. Tom Wilkinson, Anthony Ambrose, Manchester PR, LLC and Manchester Explorer, LP; Cause No. D-1-GN-19-004708 in the 53^rd ~~Judicial District Court of Travis County, Texas. Under the Settlement, all of the foregoing actions were dismissed with prejudice. Pursuant~~independence is incorporated herein by reference to the ~~Settlement, Mr. De La Garza, agreed to, among other things, (i) resign as a director~~information included in our Proxy Statement for our next Annual Meeting of ~~the Company and confirmed that he had no disagreements~~Stockholders which will be filed with the Board of Directors, and (ii) return 13,137,757 shares of the Company’s common stock, $0.01 par value per share (the “Forfeited Stock”), held by him to the Company’s treasury. We agreed to pay Mr. De La Garza an aggregate sum of $400,000 (the “Settlement Amount”), payable as follows: (A) $300,000 on or before ten (10) businessSEC within 120 days after the last to occur (the “Settlement Date”) of (i) the execution of the Settlement by Mr. De La Garza, (ii) actual receipt by the Company of the Forfeited Stock and consummation of the deliveries contemplated by the Settlement, and (iii) the receipt by the Company of a completed Internal Revenue Service Form W-9 from Mr. De La Garza; and (B) $25,000 on each of the four (4) succeeding quarterly anniversaries of the Settlement Date. Notwithstanding the foregoing, in the event that Mr. De La Garza is not in compliance with the Settlement on any such payment date, then no payment shall be due and we will have the right to pursue any and all remedies against De La Garza including, without limitation, seeking the return of all amounts paid. In exchange for the consideration described above, and subject to the terms and conditions set forth in the Settlement, the Company and Mr. De La Garza mutually agreed to grant each other a general release.

Skylar, Olivia and Robin De La Garza , the immediate family members of former CEO Michael De La Garza, earned $52,278, $47,176 and $53,000, respectively, in compensation for the year ended September 30, 2019. In August 2019, Robin and Skylar De La Garza were terminated as employees of the Company. The Company also paid $11,394 in educational costs of Skylar De La Garza and $6,200 in moving expenses of Olivia De La Garza. Michael De La Garza was the CEO and director of the Company during the period of time when these payments were made.

~~Our Board of Directors reviews and approves transactions with directors, officers and holders of five percent or more~~end of our voting securities and their affiliates, each a related party. The material facts as to a related party’s relationship or interest in the transaction are disclosed to our Board of Directors prior to their consideration of such transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction are disclosed to the stockholders, who must approve the transaction in good faith. The Company does not have a related party transactions policy in place.fiscal year 2023.

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.

~~The aggregate fees billed to the Company by~~ ~~its principal accountants~~ ~~for each of the last two fiscal years were as follows:~~

~~Audit Fees.~~ The aggregate fees billed by Briggs & Veselka Co. for the audit of the Company’s annual financial statements were $83,200 for the year ended September 30, 2020. The aggregate fees billed by Briggs & Veselka Co. for the audit of the Company’s annual financial statements were $5,000 for the fiscal year ended September 30, 2019. The aggregate fees billed by Armanino, LLP of the Company’s interim financial statements were $36,778 for the year ended September 30, 2019.

~~Audit-Related Fees.~~ The aggregate fees billed by Briggs & Veselka Co., for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements for the fiscal years ended September 30, 2020 and2019 that are not disclosed in the paragraph captioned “Audit Fees” above, were $0.00.

~~Tax Fees.~~ The aggregate fee billed by The Wenmohs Group for professional services rendered for tax compliance, tax advice and tax planning for the fiscal year ended 2020 were $12,250. The aggregate fees billed by Eide Bailly LLP for professional services rendered for tax compliance, tax advice and tax planning for the fiscal years ended September 30, 2019 were $18,500.

~~All Other Fees.~~ The aggregate fees billed by Briggs & Veselka Co. for products and services, other than the services described in the paragraphs “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” above for the fiscal years ended September 30, 2020 and 2019 were $0.

The Board of Directors has received and reviewed the written disclosures and the letter from the Company’s independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with its auditors its independence from the Company. The Board of Directors has considered whether the provision of services other than audit services is compatible with maintaining auditor independence.

Based on the review and discussions referred to above, the Board of Directors approved the inclusion of the audited financial statements be included in the Company’s Annual Report on Form 10-K for its 2020 fiscal year for filing with the SEC.

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.

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.

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

PART I

ITEM 1.	BUSINESS	4

ITEM 1A.	RISK FACTORS	9

ITEM 1B.	UNRESOLVED STAFF COMMENTS	36

ITEM 1C.	CYBERSECURITY	36
~~ITEM 1.~~	~~BUSINESS~~	2
ITEM 2.	PROPERTIES	37
~~ITEM 1A.~~	~~RISK FACTORS~~	4

~~ITEM 1B.~~	~~UNRESOLVED STAFF COMMENTS~~	7

~~ITEM 2.~~	~~PROPERTIES~~	7

ITEM 3.	LEGAL PROCEEDINGS	737

ITEM 4.	MINE SAFETY DISCLOSURES	737

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	838

ITEM 6.	~~SELECTED FINANCIAL DATA~~[Reserved]	839

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	939

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	1243

ITEM 8.	FINANCIAL STATEMENTS ~~AND SUPPLEMENTARY DATA~~	1344

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	3269

ITEM 9A.	CONTROLS AND PROCEDURES	3269

ITEM 9B.	OTHER INFORMATION	3370

ITEM 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	70

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	3471

ITEM 11.	EXECUTIVE COMPENSATION	3971

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	4371

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	4471

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	4471

PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	4571

	SIGNATURES	4674

	Low		High
Fiscal Year 2022
First Quarter (October 1, 2021 to December 31, 2021)	$	0.07	$	0.19
Second Quarter (January 1, 2022 to March 31, 2022)	$	0.08	$	0.14
Third Quarter (April 1, 2022 to June 30, 2022)	$	0.07	$	0.10
Fourth Quarter (July 1, 2022 to September 30, 2022)	$	0.08	$	0.16

Fiscal Year 2023
First Quarter (October 1, 2022 to December 31, 2022)	$	0.09	$	0.14
Second Quarter (January 1, 2023 to March 31, 2023)	$	0.04	$	0.12
Third Quarter (April 1, 2023 to June 30, 2023)	$	0.04	$	0.11
Fourth Quarter (July 1, 2023 to September 30, 2023)	$	0.05	$	0.10

Fiscal Year 2024
First Quarter (October 1, 2023 to December 31, 2023) (1)	$	0.03	$	0.07

	2023					2022
	(000’s)		% of Total			(000’s)		% of Total			$ Change		% Change
Revenue
vCISO Services	$	4,383		66.7	%	$	3,077		64.3	%	$	1,306		42.4	%
Cybersecurity Software & Services		2,189		33.3	%		1,712		35.7	%		477		27.9	%
Total	$	6,572				$	4,789				$	1,783		37.2	%

	2023					2022
Revenue	(000’s)		% of Total			(000’s)		% of Total			$ Change			% Change
vCISO
New	$	2,512		57.3	%	$	1,923		62.5	%	$	589			30.6	%
Retained		1,871		42.7	%		1,154		37.5	%		717			62.1	%
Total	$	4,383				$	3,077				$	1,306			42.4	%

Cybersecurity Software & Services
New	$	659		30.1	%	$	813		47.5	%	$	(154	)		(18.9	)%
Retained		1,530		69.9	%		899		52.5	%		631			70.2	%
Total	$	2,189				$	1,712				$	477			27.9	%

Total Revenue
New	$	3,171		48.3	%	$	2,736		57.1	%	$	435			15.9	%
Retained		3,401		51.7	%		2,053		42.9	%		1,348			65.7	%
Total	$	6,572				$	4,789				$	1,783			37.2	%

Large accelerated filer	~~[ ]~~☐	Accelerated filer	~~[ ]~~☐
~~Non–Accelerated~~Non-accelerated filer	~~[X]~~☒	Small reporting company	~~[X]~~☒
		Emerging growth company	~~[ ]~~☐

	●	Simultaneously secure and segment networks
	●	Limit the damage a bad actor can do by decreasing the digital square footage they can explore
	●	Easily implement access controls for employees, support staff, and third-party vendors while never disrupting current operations

	1.	Securing new vCISO clients
	2.	Adding new Cybersecurity Software and Services offerings such as Enclave
	3.	Increasing adoption of Cybersecurity Software and Services offerings at vCISO clients, including Enclave

	●	Additional Virtual Chief Information Security Officers
	●	Zero trust
	●	Third-party risk management
	●	Due diligence
	●	Privacy
	●	Threat intelligence, and
	●	Managed end-point security solutions

	●	Control 1 - “Establish and maintain an accurate, detailed, and up-to-date inventory of all enterprise assets with the potential to store or process data.”
	●	Control 2 - “Actively manage (inventory, track, and correct) all software (operating systems and applications) on the network so that only authorized software is installed and can execute, and that unauthorized and unmanaged software is found and prevented from installation or execution.”
	●	Control 3 - “Configure data access control lists based on a user’s need to know. Apply data access control lists, also known as access permissions, to local and remote file systems, databases, and applications.”

	●	We have incurred net losses and may never achieve profitability.
	●	Our ability to continue as a going concern may depend upon our ability to raise additional capital and such capital may not be available on acceptable terms, or at all.
	●	If we can raise additional funding, we may be required to do so on terms that are dilutive to our stockholders.

	●	We depend significantly upon the continued involvement of our present management and on our ability to attract and retain talented employees.
	●	Our products and services face significant competition in our markets.
	●	We face intense competition in our market, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position. If we are unable to develop new and enhanced products and services, or if we are unable to continually improve the performance, features, and reliability of our existing products and services, our competitive position would weaken, and our business and operating results could be adversely affected.
	●	Our operating results may vary significantly from period to period and have been unpredictable, which has and might continue to cause the market price of our common stock to be volatile.
	●	Our future revenue and operating results will depend significantly on our ability to retain clients and customers and the ability to add new clients and customers.
	●	A network or data security incident may allow unauthorized access to our or our end users’ network or data, harm our reputation, create additional liability and adversely impact our financial results.
	●	Our services, products, systems, and website and the related data may be subject to intentional disruption that could materially harm our reputation and future sales.
	●	Our products are complex and operate in a wide variety of environments, systems and configurations, which could result in failures of our products to function as designed.
	●	Outages or problems with systems and infrastructure supplied by third-parties could negatively affect our business, financial condition and financial results.
	●	Current global financial conditions have been characterized by increased volatility, which could negatively impact our business, prospects, liquidity and financial condition.
	●	If we experience delays and/or defaults in payments, we could be unable to recover all expenditures.

	●	We previously identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting, which have not yet been remediated by us.
	●	We are subject to changing laws and regulations.

	●	The accounting treatment of the proposed exchange offer of our issued warrants could have a material adverse impact on our financial statements and reduce our net income.
	●	The purchase agreement related to our 2021 private placement includes customary covenants that we must comply with, or we may suffer potential monetary and other penalties.

	●	~~actual or anticipated variations in our quarterly results of operations;~~

	●	~~changes in market valuations of companies in our industry;~~

	●	~~changes in expectations of future financial performance;~~

	●	~~fluctuations in stock market prices and volumes;~~

	●	~~issuances of dilutive common stock or other securities in the future;~~

	●	~~the addition or departure of key personnel;~~

	●	~~announcements by us or our competitors of acquisitions, investments or strategic alliances; and~~

	●	~~it is possible that the proceeds from sales of our common stock may not equal or exceed the prices you paid for the shares after including the costs and fees of making the sales~~

	●	Current cybersecurity landscape and emerging threats;
	●	Status of ongoing cybersecurity initiatives and strategies;
	●	Incident reports and learnings from any cybersecurity events; and
	●	Compliance with regulatory requirements and industry standards.

	●	Total revenue grew by $1.8 million or 37.2%.
	●	vCISO Services category revenue grew by $1.3 million or 42.4%.
	●	Cybersecurity Software and Services category revenue grew by $0.5 million or 27.9%.

	Year Ended September 30,
Year Ended September 30,							2023			2022
	2020			2019
Net cash (used in) provided by:
Operating activities	$	(6,646,091	)	$	(6,139,815	)	$	(1,945	)	$	(396	)
Investing activities	$	(28,972	)	$	(37,059	)	$	(32	)	$	3,589
Financing activities	$	(84,570	)	$	(40,000	)	$	—		$	(511	)

TABLE OF CONTENTS		Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID Number 587)		1445

FINANCIAL STATEMENTS:

Balance Sheets as of September 30, ~~2020~~2023 and ~~2019~~2022		1546

Statements of Operations for the years ended September 30, ~~2020~~2023 and ~~2019~~2022		1647

Statements of Stockholders’ Equity ~~(Deficit)~~ for the years ended September 30, ~~2020~~2023 and ~~2019~~2022		1748

Statements of Cash Flows for the years ended September 30, ~~2020~~2023 and ~~2019~~2022		1849

NOTES TO FINANCIAL STATEMENTS		1950

/s/ ~~Briggs & Veselka Co.~~RBSM LLP

We have served as the Company’s auditor since ~~2019.~~2021.
~~Houston, Texas~~Las Vegas, Nevada
December 27, 2023
~~December 28, 2020~~
RBSM LLP (PCAOB ID Number 587)

	September 30, 2020			September 30, 2019
ASSETS
Current assets
Cash	$	1,079,839		$	7,839,472
Prepaid expenses		258,424			121,371
Total current assets		1,338,263			7,960,843

Other assets		200,000			7,566
Operating lease ROU asset		291,140			—
Fixed assets, net		—			40,182
Total assets	$	1,829,403		$	8,008,591

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities	$	840,234		$	650,681
Accrued compensation		10,000			142,293
Operating lease liability – current portion		132,608			—
Paycheck protection program loan – current portion		216,902			—
Deferred revenue		15,417			28,400
Total current liabilities		1,215,161			821,374

Paycheck protection program loan – long term		148,528			—
Operating lease liability – long-term portion		603,676			—
Total liabilities		1,967,365			821,374

Commitments and contingencies

Series A convertible preferred stock, $0.01 par value, 1,000,000 shares authorized; 1,000,000 shares issued and outstanding as of September 30, 2020 and September 30, 2019		10,000			10,000
Common stock, $0.01 par value, 681,000,000 shares authorized; 27,505,196 and 40,792,510 shares outstanding; and 40,792,510 and 40,792,510 issued as of September 30, 2020 and September 30, 2019, respectively		407,925			407,925
Treasury stock, at cost 13,287,314 shares		(550,000	)		—
Additional paid-in capital		68,420,721			68,225,828
Accumulated deficit		(68,426,608	)		(61,456,536	)
Total stockholders’ equity (deficit)		(137,962	)		7,187,217
Total liabilities and stockholders’ equity (deficit)	$	1,829,403		$	8,008,591

	September 30, 2023			September 30, 2022

ASSETS
Current assets
Cash	$	1,053		$	3,030
Accounts receivable, net		834			612
Deferred costs		180			180
Prepaid expenses and other current assets		381			320
Total current assets		2,448			4,142

Fixed assets, net		30			—
Goodwill		1,356			1,356
Intangible assets		—			4,940
Deferred costs		150			330
Total assets	$	3,984		$	10,768

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	613		$	786
Deferred revenue		280			130
Promissory note payable		50			50
Income taxes payable		11			195
Total current liabilities		954			1,161

Deferred tax liability		—			211
Total liabilities		954			1,372

Commitments and contingencies		-			-

Series A convertible preferred stock, $0.001 par value, 10,000,000 shares authorized; 0 and 100 shares issued and outstanding as of September 30, 2023 and 2022, respectively		—			—
Common stock, $0.001 par value, 681,000,000 shares authorized; 213,854,781 and 148,724,056 shares issued and outstanding as of September 30, 2023 and 2022, respectively		214			149
Additional paid-in capital		21,755			21,180
Accumulated deficit		(18,939	)		(11,933	)
Total stockholders’ equity		3,030			9,396
Total liabilities and stockholders’ equity	$	3,984		$	10,768

	For the Year Ended
	September 30,
	2020			2019
Revenues	$	47,983		$	46,600

Cost of revenues		—			—
Gross profit		47,983			46,600

Operating expenses:
General and administrative		4,573,673			3,372,047
Sales and marketing		710,595			1,772,197
Research and development		1,689,455			1,744,480
Total operating expenses		6,973,723			6,888,724

Operating loss		(6,925,740	)		(6,842,124	)

Other (expenses) income:
Loss on disposal of asset		(44,332)			—
Interest income, net		—			8,101
Total other income, net		(44,332	)		8,101

Net loss	$	(6,970,072	)	$	(6,834,023	)

Net loss per common share - Basic and diluted:	$	(0.18	)	$	(0.17	)

Weighted average common shares outstanding - Basic and diluted		39,495,185			40,792,510

	2023			2022
	Twelve Months Ended
	September 30,
	2023			2022

Revenues	$	6,572		$	4,789
Cost of revenues		3,240			2,468
Gross profit		3,332			2,321

Operating expenses
General and administrative		3,586		$	1,482
Selling and marketing		1,337			367
Research and development		669			178
Goodwill impairment		—			5,702
Intangible asset impairment		4,940			—
Acquisition costs		214			6,186
Total operating expenses		10,746			13,915
Operating loss		(7,414	)		(11,594	)

Other income, net		29			13
Net loss before income tax expense	$	(7,385	)	$	(11,581	)
Income tax expense (benefit)		(379	)		195
Net loss after income tax expense (benefit)	$	(7,006	)	$	(11,776	)
Net loss per common share – basic and diluted	$	(0.04	)	$	(0.14	)
Weighted average common shares outstanding – basic and diluted		175,274,762			81,997,953

	Preferred Shares			Preferred Par Value		Common Shares		Common Par Value		Additional Paid-in-Capital		Accumulated Earnings / (Deficit)			Stockholders’ Equity
	For the Twelve Months Ended September 30, 2023 and 2022
	Preferred Shares			Preferred Par Value		Common Shares		Common Par Value		Additional Paid-in-Capital		Accumulated Earnings / (Deficit)			Stockholders’ Equity
Balance at September 30, 2021		100		$	—		59,900	$	60	$	23	$	344		$	427
Equity redemptions		—			—		—		—		—		(100	)		(100	)
Equity distributions		—			—		—		—		—		(461	)		(461	)
Shares issued for services		—			—		281		1		42		—			43
Shares issued for vesting of RSUs		—			—		98		—		30		—			30
Acquisition costs – contingent consideration		—			—		—		—		6,061		—			6,061
Cipherloc Business Combination		—			—		88,445		88		15,024		60			15,172
Net loss		—			—		—		—		—		(11,776	)		(11,776	)
Balance at September 30, 2022		100		$	—		148,724	$	149	$	21,180	$	(11,933	)	$	9,396
Balance		100		$	—		148,724	$	149	$	21,180	$	(11,933	)	$	9,396
Shares issued for services		—			—		771		—		66		—			66
Stock-based compensation expense		—			—		2,343		3		357		—			360
Conversion of Preferred to Common		(100	)		—		—		—		—		—			—
Business Combination – Contingent Consideration							62,017		62		152					214
Net loss		—			—		—		—		—		(7,006	)		(7,006	)
Balance at September 30, 2023		—		$	—		213,855	$	214	$	21,755	$	(18,939	)	$	3,030
Balance		—		$	—		213,855	$	214	$	21,755	$	(18,939	)	$	3,030

	Preferred Stock				Common Stock							Additional						Stockholders’
	Shares		Amount		Shares Issued		Amount		Treasury Stock			Paid-in Capital			Accumulated Deficit			Equity (Deficit)
Balance at, September 30, 2018		1,000,000	$	10,000		40,743,917	$	407,438	$	0		$	68,169,157		$	(54,622,513	)	$	13,964,082
Common stock issued to an employee		—		—		9,346		94					11,122			—			11,216
Stock option expense issued to directors and officers		—		—		—		—					45,942			—			45,942
Common stock issued for services		—		—		20,000		200					39,800			—			40,000
Correction of shares outstanding		—		—		19,247		193					(193	)		—			—
Refund of oversubscription		—		—		—		—					(40,000	)		—			(40,000
Net loss		—		—		—		—					—			(6,834,023	)		(6,834,023	)
Balance at September 30, 2019		1,000,000	$	10,000		40,792,510	$	407,925	$	0		$	68,225,825		$	(61,456,536	)	$	7,187,217
Stock option expense issued to directors and officers		—		—		—		—					194,896			—			194,896
Purchase of treasury stock		—		—		—		—	$	(550,000	)		—			—		$	(550,000	)
Net loss		—		—		—		—					—			(6,970,072	)		(6,970,072	)
Balance at September 30, 2020		1,000,000	$	10,000		40,792,510	$	407,925	$	(550,000	)	$	68,420,721		$	(68,426,608	)	$	(137,962	)

	●	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

	●	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active;

	●	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

	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.


Shares outstanding		88,445,832
Closing stock price on July 1, 2022	$	0.10
Market capitalization on July 1, 2022	$	8,949,834
Fair value of warrants vested at July 1, 2022	$	6,222,412
Total fair value of Cipherloc at July 1, 2022	$	15,172,246

	●	Exercise prices: $0.18 to $1.20 ($0.56 weighted average)
	●	Expected life in years: 1 to 8.5 years (3.7 weighted average)
	●	Annualized volatility: 168.3%
	●	Risk free rate: 2.9% to 3.0%
	●	Annual Rate of dividends: 0%


Cash	$	3,589
Prepaid expenses and deferred costs		583
Intangible assets (AIPR&D)		4,940
Goodwill		7,058
Accounts payable and accrued liabilities		(612	)
Deferred Tax Liability		(211	)
Accrued compensation		(175	)
Consideration	$	15,172

Intangible Assets:		Preliminary Fair Value (in thousands)				Estimated Life in Years		Discount Rate				Valuation Method
AIPR&D		$	4,940			5-15			22.75	%		Income (MPEEM)

(In thousands, except per share data)	For the Year Ended September 30, 2022
Revenues	$	4,789
Cost of revenues		2,467
Gross profit		2,322
Operating expenses (a)		4,860
Operating income (loss)		(2,538	)
Other income and (expenses)		13
Net income (loss) before income taxes		(2,525	)
Income taxes		195
Net income (loss)	$	(2,720	)

Basic loss per share (b)	$	(0.03	)

	(a)	All costs incurred in connection with the acquisition have been removed from operating expenses in the proforma statement of operations. In fiscal year 2022, Cipherloc incurred $479,000 of transaction expenses and SCS incurred $109,000 of transaction expenses.
	(b)	Pro forma weighted average shares outstanding are 82.0 million for the year ended September 30, 2022.