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Hi Richard,
Your steps 1 – 4 are all correct. However… Continuing….
5. Sign out of AxCrypt and Windows.
6. Sign in to Windows.
7. Double-click one of the previously V1-encrypted files opened in step 3 or 4.
8. AxCrypt prompts you for the sign in password, i.e. “ABC” above.
9. The file opens without further prompting, because step 3 or 4 above caused the V1-encrypted file to be re-encrypted as a V2-file, using the sign in password “ABC” instead of the old V1 file passphrase”XYZ”.