What changed in this filing

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Item 1. Financial Statements

2023-02-09 compared with 2022-08-15 · 451 added, 427 removed, 54 unchanged (94% of the section changed)

1 unchanged sentence

BALANCE SHEETS

June 30, 2022

thousands, except share and per share data)

December 31, 2022

September 30, 2022

Current assets

Cash and cash equivalents

Accounts receivable, net

Deferred costs

Prepaid expenses

Prepaid expenses and other current assets

Total current assets

3 unchanged sentences

Accounts payable and accrued liabilities

Accrued compensation

Deferred revenue

Promissory note payable

Income taxes payable

Total current liabilities

Deferred tax liability

Total liabilities

Commitments and contingencies

Stockholders’ equity

Series A convertible preferred stock, $ 0.001 par value, 10,000,000 shares authorized;

100 and 100 shares issued and outstanding as of December 31, 2022 and September 30, 2022

Common stock, $ 0.001 par value, 681,000,000 shares authorized;

88,445,832 and 82,927,311 shares outstanding;

and 101,860,646 and 96,342,125 issued as of June 30, 2022, and September 30, 2021, respectively

Treasury stock, at cost, 13,414,814 and 13,414,814 shares as of June 30, 2022 and September 30, 2021, respectively

148,904,613 and 148,724,056 shares issued and outstanding;

December 31, 2022 and September 30, 2022

Additional paid-in capital

Accumulated deficit

( 74,363,914 )

( 71,530,891 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes to these unaudited condensed financial statements.

accompanying notes are an integral part of these unaudited consolidated financial statements.

STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Three Months Ended

Nine Months Ended

Cost of revenues

1 unchanged sentence

General and administrative

Selling and marketing

Sales and marketing

Research and development

Total operating expenses

Operating loss

( 1,380,918 )

( 2,833,023 )

( 2,255,205 )

Other income (expense)

Miscellaneous income

Interest expense

$ ( 1,380,918 )

$ ( 175,580 )

$ ( 2,833,023 )

$ ( 2,064,153 )

Operating income (loss)

Other income (expenses)

Other income (expense), net

Net income (loss)

Net loss per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

accompanying notes to these unaudited condensed financial statements.

accompanying notes are an integral part of these unaudited consolidated financial statements.

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except preferred shares)

December 31, 2021

For the Three Months ended

Preferred Stock

Stockholders’

December 31, 2021

Balance at September 30, 2021

Equity redemptions

Equity distributions

Balance at December 31, 2021

For the Three Months ended

Preferred Stock

Stockholders’

December 31, 2022

Balance at September 30, 2022

Shares issued for services

Stock-based compensation expense issued to directors & employees

Net income (loss)

Balance at December 31, 2022

accompanying notes are an integral part of these unaudited consolidated financial statements.

STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 2,833,023 )

$ ( 2,064,153 )

Adjustments to reconcile net loss to net cash flows used in operating activities:

PPP loan forgiveness

Net (loss) income

Adjustments to reconcile net (loss) income to net cash flows used in operating activities:

Stock-based compensation

Impairment loss on ROU assets (gain on early termination of operating lease)

Changes in operating assets and liabilities:

Prepaid expenses and other

Accounts receivable

Unbilled revenue

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Accrued compensation

Deferred revenue

Net cash used in operating activities

( 2,195,082 )

( 2,566,292 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of fixed assets

Purchase of fixed assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase of treasury stock

Proceeds from PPA loan

Repayment PPA loan

Purchase of preferred stock

Proceeds from the issuance of common stock, net of costs

Net cash provided by financing activities

INCREASE (DECREASE) IN CASH

( 2,195,082 )

Equity redemption

Equity distribution

Net cash used in financing activities

(DECREASE) INCREASE IN CASH

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

Stock-based compensation included in accounts payable and accrued liabilities

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Shares issued for services, previously in accrued expenses

Shares issued for legal settlement expenses

accompanying notes to these unaudited condensed financial statements.

OF STOCKHOLDERS’ EQUITY (DEFICIT)

Additional Paid-in

Stockholders’

For the Nine Months ended June 30, 2022

Balance at September 30, 2021 -

$ ( 590,000 )

$ ( 71,530,891 )

Stock compensation expense

Shares issued for services

Shares issued for RSU vesting

Shares issued for legal settlement

( 2,833,023 )

$ ( 2,833,023 )

Balance at June 30, 2022 -

$ ( 590,000 )

$ ( 74,363,914 )

Additional Paid-in

Stockholders’

For the Three Months ended June 30, 2022,

Balance at March 31, 2022 -

$ ( 590,000 )

$ ( 72,982,996 )

Stock compensation expense

Shares issued for services

Shares issued for RSU vesting

Shares issued for legal settlement

( 1,380,918 )

$ ( 1,380,918 )

Balance at June 30, 2022 -

$ ( 590,000 )

$ ( 74,363,914 )

Preferred Stock

Additional Paid-in

Stockholders’

For the Nine Months ended June 30, 2021

Balance at September 30, 2020

$ ( 550,000 )

$ ( 68,426,608 )

$ ( 137,962 )

Stock compensation expense

Preferred and treasury shares acquired

( 1,000,000 )

Issuance of common stock, net of issuance costs

( 2,064,153 )

$ ( 2,064,153 )

Balance at June 30, 2021

$ ( 590,000 )

$ ( 70,490,761 )

Preferred Stock

Additional Paid-in

Stockholders’

For the Three Months ended June 30, 2021,

Balance at March 31, 2021

$ ( 590,000 )

$ ( 70,315,181 )

Stock compensation expense

Issuance of common stock, net of issuance costs

$ ( 175,580 )

Balance at June 30, 2021

$ ( 590,000 )

$ ( 70,490,761 )

accompanying notes to these unaudited condensed financial statements.

TO FINANCIAL STATEMENTS

THE THREE AND NINE MONTHS ENDED JUNE 30, 2022, AND 2021

1 - DESCRIPTION OF BUSINESS

(the “Company” or “SideChannel”), formerly Cipherloc Corporation, was incorporated in the State of Texas

on June 22, 1953, under the name “American Mortgage Company.” Effective August 27, 2014, the Company changed its name to

“Cipherloc Corporation.” Effective July 5, 2022, the Company changed its name to “SideChannel, Inc.” following

its acquisition of SideChannel, Inc., a Massachusetts corporation, on July 1, 2022 (See Note 7 – Subsequent Events).

Prior to September

30, 2021, the Company was a Texas corporation.

The Company became a Delaware corporation effective September 30, 2021.

Company is a provider of cybersecurity services and technology to middle market companies.

The Company’s website is www.sidechannel.com.

August 2, 2022, the Company changed its ticker symbol from CLOK to SDCH.

2 - BASIS OF PRESENTATION OF INTERIM FINANCIAL STATEMENTS

Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America

The accompanying interim unaudited financial statements have been prepared in accordance with U.S.

interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X.

In the Company’s

opinion, it has included all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation.

Company’s operating results for the nine months ended June 30, 2022 are not necessarily indicative of the results that may be expected

for the entire fiscal year ending September 30, 2022.

The Company has omitted notes to the unaudited interim financial statements that

would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended September 30, 2021.

This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended September

30, 2021 included within the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

Equity redemption with notes payable

accompanying notes are an integral part of these unaudited consolidated financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED DECEMBER 31, 2022 AND 2021

in thousands except shares and per share data)

1 – NATURE OF OPERATIONS

mission is to make cybersecurity simple and accessible for mid-market and emerging companies, a market we believe is currently underserved.

Our cybersecurity offerings identify and develop cybersecurity, privacy, and risk management solutions for our customers.

We target customers

that need cost-effective security solutions.

Our growth plan to address the needs of our customers is to provide more effective and cost-efficient

products and tech-enabled services cybersecurity and related including virtual Chief Information Security Officer (“vCISO”),

zero trust, third-party risk management, due diligence, privacy, threat intelligence, and managed end-point security solutions.

growth strategy focuses on these three initiatives:

Securing new vCISO clients;

Adding new Cybersecurity Software and Services (“Cybersecurity

Software and Services”) offerings;

Increasing adoption of Cybersecurity Software, including

Enclave, and Services offerings at vCISO clients.

clients typically enter into twelve (12) month engagements consisting of a monthly subscription with an annual renewal option, as well

as additional vCISO time and material projects, which range from $ 350 to $ 450 per hour.

Each vCISO is embedded into the C-suite of from

two (2) to five (5) of our clients.

September 2022, we announced a proprietary product called Enclave, which simplifies an important cybersecurity tactic called “microsegmentation”.

Enclave seamlessly combines access control, microsegmentation, encryption, and other secure networking concepts to create a comprehensive

It allows information technology professionals to easily segment the enterprise network, place the right assets in those segments,

and direct network traffic.

We expect to begin recognizing revenue from Enclave during fiscal year 2023.

July 1, 2022 (the “Closing Date”) we completed an 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 wholly

owned subsidiary of the registrant, changed its name to SCS, Inc.

(the “Subsidiary” or “SCS”).

Cipherloc Corporation,

the Delaware parent company of the Subsidiary, has changed its name to SideChannel, Inc.

(“SideChannel”).

As used herein,

the words “the Company” refers to, for periods from July 1, 2022 and forward, SideChannel, and for periods prior to July

1, 2022, SCS, and its direct and indirect subsidiaries, as applicable.

Business Combination was treated as a reverse acquisition (reverse merger), in accordance with U.S.

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 immediately

following the Business Combination that:

(1) a 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.

As SCS was determined to be the accounting acquirer in the Business Combination, but not the legal acquirer,

the transaction was deemed a reverse acquisition under the guidance of the Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.

Mortgage Company, the predecessor in interest to the Company was incorporated in the State of Texas on June 22, 1953.

Effective August

27, 2014, American Mortgage Company changed its name to “Cipherloc Corporation.” Cipherloc Corporation (“Cipherloc”)

reincorporated in Delaware effective September 30, 2021, and on July 5, 2022, Cipherloc changed its name to “SideChannel, Inc.”

headquarters are located at 146 Main Street, Suite 405, Worcester, MA, 01608.

Our website is www.sidechannel.com.

are following the guidance of the Centers for Disease Control and Prevention and the local regulatory authorities in regions outside

While the negative impact of COVID-19 on our business was reduced significantly throughout 2022, the spread of the virus or

variants of the virus could worsen and one or more of our significant customers or suppliers could be impacted, or significant additional

governmental regulations and restrictions could be imposed, thus negatively impacting our business in the future.

We continue to monitor

the situation closely in the regions in which we operate in the U.S.

and abroad and will adjust our operations as necessary to protect

the health and well-being of our employees.

To the extent that further governmental mandates or restrictions are implemented in the future,

we currently expect to be able to continue to operate our business in a manner similar to how we have operated over the past two years.

2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

and Cash Equivalents

Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

The Company’s cash includes cash on hand and cash in the bank.

The balance of such accounts, at times, may exceed federally insured

limits, as guaranteed by the Federal Deposit Insurance Corporation (“FDIC”).

The FDIC insures these deposits up to $ 250,000 .

As of June 30, 2022, $ 3,338,912 of the Company’s cash balance was uninsured.

The Company has not experienced any losses related

to uninsured cash balances.

Basis of Presentation and Use of Estimates

accompanying consolidated financial statements include our accounts and 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 accounting

principles generally accepted in the United States of America (“U.S.

GAAP”) requires us to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

Certain of our accounts, including goodwill, identifiable intangibles, and deferred tax assets and liabilities, including related valuation

allowances, are based upon estimates.

the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal

recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim

periods presented.

Certain footnote information has been condensed or omitted from these consolidated financial statements.

these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes

included in our Form 10-K for the year ended September 30, 2022 (the “2022 Form 10-K”) filed on December 20, 2022, with the

Securities and Exchange Commission (“SEC”).

have assessed our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in,

our consolidated financial statements for the three months ended December 31, 2022 .

manage our operations as a single operating segment for the purposes of assessing performance and making operating decisions.

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 models prepared by our management and third-party

The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the operating results

are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition.

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

Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition,

are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements

of operations.

Value of Financial Instruments

financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, our note payable, and

embedded conversion features in our stock warrants.

Our cash and cash equivalents, accounts receivable, accounts payable and accrued

expenses are carried at cost which approximates fair value, due to the short maturities of the accounts.

Our note payable’s carrying

amount approximates it fair value due to the short remaining term.

Topic 820 (Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between

assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs).

The fair values of the warrants issued

by us as part of the Business Combination were determined using Level 2 inputs in accordance with the guidance in ASC Topic 820.

Intangible, and Long-Lived Assets

account for goodwill and intangible assets in accordance with ASC Topic 350 (Intangibles – Goodwill and Other) and ASC Topic 360

(Property, Plant and Equipment).

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 at the beginning of the fourth quarter on a reporting

unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.

considered to be impaired if the fair value of a reporting unit is less than its carrying amount.

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.

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.

recognize revenue in accordance with the guidance in ASC Topic 606 (Revenue from Contracts with 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 product or perform a service.

In certain cases, recognition of revenue is deferred until the product or service is received by the customer or at some other point

in the future when we have determined that we have satisfied our performance obligations under the contract.

Our contracts with customers

may include a combination of products and services, which are generally capable of being distinct and accounted for as separate performance

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 30 to net 90 days.

of Products and Services

identify, develop, and deploy cybersecurity, privacy, and risk management solutions for our clients and customers in North America.

categorize our products and services as either vCISO Services or Cybersecurity Software and Services.

As a result of the Business Combination,

we announced a proprietary cybersecurity software product called Enclave.

We also sell third party software and services through a network

of strategic partnerships.

of Contracts with Customers

contracts with customers are generally structured as annual subscription agreements or project specific statements of work.

subscription agreements include a minimum number of service hours per year or month and a specified rate for the minimum amount of services

to be delivered during the subscription period.

Payment terms and any other customer-specific acceptance criteria are also specified

in the contracts and statements of work.

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.

used, the allowance for doubtful accounts reflects our estimate of probable losses inherent in the accounts receivable balance.

the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.

to Obtain a Contract with a Customer

only costs we incur associated with obtaining contracts with customers are sales commissions that we pay to our internal sales personnel

or third-party sales representatives.

These costs are calculated based on set percentages of the revenue value of each product or service

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.

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

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 asset during the lease term.

The identified asset may be either explicitly or implicitly specified in the contract.

the supplier must not have any practical ability to substitute a different asset and would not economically benefit from doing so for

the lease contract to be in scope.

The lessee’s right to control the use of the asset during the term of the lease must include

the ability to 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 operating lease liabilities in our consolidated balance sheets.

not currently have any operating lease ROU assets and operating lease liabilities.

Finance leases are included in property and equipment

and financing lease liabilities.

We do not currently have any financing leases.

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

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 on a straight-line

basis over the lease term.

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 our stock-based

compensation plans in Note 8.

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 years 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

if it is more likely than not that such assets will not be realized.

and Diluted Net Loss per Common Share

Company computes its basic net loss per share by dividing the net loss available to common stockholders by the weighted average number

of shares of common stock outstanding during the reporting period.

The weighted average number of shares is calculated by taking the

number of shares outstanding and weighting that number by the amount of time that the applicable shares were outstanding.

loss per share reflects the potential dilution that could occur if vested stock options, warrants, and other commitments of the Company

to issue shares of common stock were exercised, resulting in the issuance of additional shares of common stock that would share in the

earnings of the Company.

As of June 30, 2022, the Company had no shares of preferred stock outstanding.

Company’s diluted loss per share was the same as the basic loss per share for the periods in which the Company incurred net losses

since the inclusion of potential common stock equivalents would be anti-dilutive due to the Company’s net loss.

For the three months

and nine months ended June 30, 2022, the Company excluded from the calculation of diluted loss per share warrants to purchase 79,461,481

shares of its common stock, and 1,981,484 shares of its common stock issued pursuant to restricted stock units because the effect of

including those shares would be anti-dilutive.

During the three and nine months ended June 30, 2021, the Company excluded from the calculation

of diluted loss per share warrants to purchase 79,461,481 shares of common stock because the effect of including those shares would be

anti-dilutive.

Reclassification

common stock and additional paid in capital line items on the balance sheet have been reclassified to be comparable to the current period’s

presentation.

The reclassification reflects the difference in the par value of the Company’s common stock when it was a Texas corporation,

prior to September 30, 2021, and the par value of the Company’s common stock after it became a Delaware corporation, on September

and Development Costs

Company expenses all research and development costs, including patent and software development costs.

Company recognizes revenues in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 606, “Revenue

from Contracts with Customers , ” including a series of amendments, issued by the Financial Accounting Standards Board (“FASB”).

to the Company’s revenue recognition guidance is a five-step revenue recognition model that requires reporting entities to:

the contract,

the performance obligations of the contract,

the transaction price of the contract,

the transaction price to the performance obligations, and

revenue when the performance obligations are satisfied.

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 access to the Company’s

intellectual property as the performance occurs.

License Agreements

Company executed a software license agreement with Castle Shield Holdings, LLC (“Castle Shield”) during the fiscal year ended

September 30, 2020.

That agreement includes an auto-renewing annual term.

The Company did not receive any payments from Castle Shield

during the fiscal year ended September 30, 2021.

The Company recognized $ 449 in licensing revenues from Castle Shield during the nine

months ended June 30, 2022.

of Recently Issued Amendments to Authoritative Guidance

Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (“ASU”) to amend the authoritative

literature in the Accounting Standards Codification (“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

(loss) per common share - basic is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding

during each period.

Earnings (loss) per common share - diluted is computed by dividing earnings (loss) by the weighted average number

of common shares and common share equivalents outstanding during each period.

Common share equivalents represent unvested shares of restricted

stock and stock options and are calculated using the treasury stock method.

Common share equivalents are excluded from the calculation

if their effect is anti-dilutive.

account for warrants in accordance with ASC Topics 480 and 815.

The result of this accounting treatment is that the fair value of the

embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability.

in fair value is recorded in our Consolidated Statement of Operations as a component of other income or expense.

Upon exercise of a warrant,

it is marked to fair value at the exercise date and then that fair value is reclassified to equity.

of Recently Issued Amendments to Authoritative Accounting Guidance

June 2016, the FASB issued amendments to 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 a methodology that reflects expected credit losses and requires the 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 first reporting period in which the guidance is

We plan to adopt the amendments when they become effective for us on October 1, 2023.

The adoption of this standard is not

expected to have a material impact on our consolidated financial statements.

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 adopted

ASU 2019-12 on October 1, 2021, and the adoption of this update did not have a material impact on the Company’s financial position,

results of operations or cash flows.

January 2020, the FASB issued guidance to clarify certain interactions between the guidance to account for equity securities, the guidance

to account for investments under the equity method of accounting, and the guidance to account for derivatives and hedging.

The new guidance

clarifies the application of measurement alternatives and the accounting for certain forward contracts and purchased options to acquire

The Company adopted this guidance on October

1, 2021, and the adoption of this update did not have a material impact on the Company’s financial position, results of operations

or cash flows.

May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock

Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40).

The new ASU addresses

an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options.

This amendment

is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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, 2021.

Early adoption is permitted.

The Company does not expect the adoption of this guidance will have a material impact on its financial position,

results of operations or cash flows.

June 2016, the FASB issued ASU 2016 - 13, Financial Instruments—Credit Losses, which requires a financial asset

(or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

The allowance

for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s), to present the net

carrying value at the amount expected to be collected on the financial asset.

The guidance is effective for fiscal years beginning after

The adoption of this standard

is not expected to have a material impact on our consolidated financial statements.

3 – ACQUISITIONS

Merger Between Cipherloc Corporation and SideChannel, Inc.

(now known as SCS, Inc.)

discussed further in Note 3 to our consolidated financial statements in our 2022 Form 10-K, on the Closing Date, the former stockholders

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 are 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, achieves 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.

of December 31, 2022, our trailing twelve-month revenue was $ 5.3 million.

following presents the unaudited proforma combined results of operations of Cipherloc with SCS as if the entities were combined on October

1, 2021, and show activity for the three months ended December 31, 2021.

OF UNAUDITED PROFORMA OPERATIONS RESULTS

For the Three

December 31, 2021

In November 2019 , the FASB issued ASU 2019 - 10, Financial Instruments—Credit Losses

(Topic 326 ), which delays the effective date of the pronouncement for public business entities that are smaller reporting companies,

as defined by the SEC, to fiscal years beginning after December 15, 2022 .

Early adoption is permitted.

Company does not expect the adoption of this guidance will have a material impact on its financial position, results of operations or

November 2021, the FASB issued ASU 2021-10, Government Assistance, which provided guidance to increase the transparency of government

assistance received by an entity by requiring disclosures relating to the accounting policy, nature of the assistance, and the effect

of the assistance on the financial statements.

The Company is required to adopt the guidance in the first quarter of its fiscal year

Early adoption is permitted.

The Company does not expect the adoption of this guidance will have a material impact on its financial

position, results of operations or cash flows.

August 2020, the FASB issued ASU 2020-06— Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives

and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an

Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain

separation models in Subtopic 470- 20, Debt with Conversion and Other Options , for convertible instruments.

Under the amendments

in ASU 2020-06, the embedded conversion features in the instruments are no longer separated from the host contract for convertible instruments

with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do

not result in substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument will be accounted for

as a single liability measured at its amortized cost, and a convertible preferred stock will be accounted for as a single equity instrument

measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives.

By removing those separation

models, the interest rate of convertible debt instruments will typically be closer to the coupon interest rate when applying the guidance

in Topic 835, Interest.

The amendments in ASU 2020-06 are designed to provide financial statement users with a simpler and more consistent

starting point to perform analyses across entities.

The amendments also improve the operability of the guidance and reduce, to a large

extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of

the relevant guidance.

Additionally,

for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures

about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the

premium amount recorded as paid-in capital.

The Company adopted ASU 2020-06 on October 1, 2021, which adoption did not have a material

impact on the Company’s financial position, results of operations or cash flows.

Cost of revenues

Operating expenses

Operating loss

Net loss before income taxes

Basic loss per share (a)

forma weighted average shares outstanding were 148.1 million for the three months ended December 31, 2021.

4 – REVENUE FROM CONTRACTS FROM CUSTOMERS

Concentration

the three months ended December 31, 2022, eight customers accounted for approximately 42 % of our revenues.

During the three months ended

December 31, 2021, eight customers also accounted for approximately 38 % of our revenues.

None of the customers individually accounted

for over 10 % of our revenue during the three months ended December 31, 2022 and 2021.

revenue was $ 74,000 at December 31, 2022.

The deferred revenue is expected to be earned within 12 months of the balance sheet date.

in deferred revenue were as follows:

OF CHANGES IN DEFERRED REVENUE

Three Months Ended December 31, 2022

Balance on September 30, 2022

Deferral of revenue

Recognition of revenue

Balance at December 31, 2022

internally report our revenue using two categories.

The first, “vCISO Services”, captures the revenue for 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.

of our clients use our vCISO services.

second revenue category encompasses an array of “Cybersecurity Software and Services” that our clients deem necessary to

protect their digital assets.

These include cybersecurity software owned by SideChannel and software sourced from third parties.

earns commissions on third-party software sales which it recognizes as revenue.

Cybersecurity services are also delivered directly by

SideChannel employees and indirectly by third party service providers.

table below reflects the revenue by category for the three months ended December 31, 2022 and 2021:

OF REVENUE BY CATEGORY

Three Months Ended December 31

vCISO Services

Cybersecurity Software & Services

to a Membership Interest Redemption Agreement, dated November 3, 2021, by and between the SCS 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

Desai was paid $ 50,000 at the execution of the Desai Redemption Agreement and the remaining $ 50,000 is due on or before December

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

6 – RELATED PARTY TRANSACTIONS

Haugli, our Chief Executive Officer and one of our stockholders, is also a principal shareholder of RealCISO Inc.

(“RealCISO”).

On September 22, 2020, SideChannel assigned to RealCISO certain contracts and intellectual property.

We are a reseller of RealCISO software.

We receive revenue from our customers for the use of RealCISO software and we pay licensing fees to RealCISO for such use.

three months ended December 31, 2022, we paid $ 36,000 to RealCISO for additional licenses that SideChannel can resell to its clients.

Polk, our Chief Financial Officer, David Chasteen, our Executive Vice President of Sales and Nick Hnatiw, our Chief Technology Officer

each have amounts payable to the Company in relation to the payroll taxes paid by the Company on their behalf for RSU’s that vested

during calendar year 2022.

The combined balance due from these three individuals is $ 16,622 and is recorded in prepaid and other current

assets as of December 31, 2022.

At the time of this Quarterly Report on Form 10-Q (“this Report”) was filed, Mr.

paid the Company in full for his portion of this obligation.

other related party transactions occurred during the three months ended December 31, 2022.

7 – COMMITMENTS AND CONTINGENCIES

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.

December 2017, Robert LeBlanc filed a petition against the Company and Michael De La Garza, the Company’s former Chief Executive

Officer and President, in the 20th Judicial District for Hays County, Texas (Cause No.

LeBlanc sought damages against the

Company exceeding $ 1 million, but less than $ 10 million.

On May 19, 2022, Mr.

LeBlanc entered into a joint settlement agreement with

the Company, the Company’s directors and officer’s liability carrier, and Mr.

As part of this settlement agreement,

the Company paid Mr.

LeBlanc $ 109,432 in cash and issued him 200,000 shares of the Company’s common stock in exchange for his release

of the Company from all past and future liabilities associated with this matter.

April 2020, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of the Company, and certain other plaintiffs filed

a lawsuit against the Company and Michael De La Garza, the Company’s former Chief Executive Officer and President, in the 20 th

Judicial District for Hays County, Texas (Cause No.

are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results

of operations.

April 2021, Eric Marquez, our former Secretary/Treasurer and Chief Financial Officer, and certain other plaintiffs, filed a lawsuit against

Michael De La Garza, our former Chief Executive Officer and President, and us in the 20 th Judicial District for Hays County,

Texas (Cause No.

The lawsuit alleges causes of action for fraud against Mr.

Garza (for misrepresentations allegedly made by Mr.

De La Garza (for misrepresentations allegedly made

De La Garza);

breach of contract, for alleged breaches of Mr.

Marquez’s alleged

oral employment agreement with the Company, which Mr.

Marquez claims required the Company to pay him cash and issue him shares of the

Company’s stock;

Marquez’s alleged oral employment agreement, which Mr.

claims required that we 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 requests for declaratory relief.

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 it has made all required payments

and delivered all required shares of 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 the litigation.

of June 30, 2022, the Company had no financial obligations for facility lease agreements, except as set forth below.

to December 1, 2021, Tom Wilkinson, the Company’s Chairman of the Board, provided the Company with the use of office space that

he rents, located at 6836 Bee Caves Road, Building 1, Suite 279, Austin, TX 78746, for its corporate headquarters.

After December 1,

2021, the Company entered into a month-to-month lease agreement for this office space with Nolen & Associates, under which the Company

pays Nolen & Associates $ 500 per month in rent.

Company’s rent expense totaled $ 1,500 and $ 3,641 for the three and nine months ended June 30, 2022, and $ 170,265 and $ 306,453 for

the three and nine months ended June 30, 2021, respectively.

April 6, 2020, the Company submitted an application for a $ 365,430 loan under the Paycheck Protection Program sponsored by the U.S.

Business Administration (the “SBA Loan”).

On April 12, 2020, the SBA Loan application was approved, and the Company received

the loan proceeds on April 22, 2020.

The SBA Loan matured on April 12, 2022 .

January 29, 2021, the Company filed for partial forgiveness of $ 192,052 of the SBA Loan, which was approved on June 11, 2021.

The Company’s

reductions in staff that occurred in 2020 prevented the Company from qualifying for forgiveness of the entire principal balance of the

April 15, 2021, the Company placed the entire $ 365,430 principal balance of the SBA Loan, plus an additional $ 1,000 , into an escrow account.

Upon receiving the partial forgiveness of the SBA Loan described above, the Company paid the remaining balance of the SBA Loan, using

funds in the escrow account.

The Company transferred the remaining balance of the escrow account to the Company’s operating account.

The balance of the SBA Loan was $ 0 as of September 30, 2021.

We believe we have made

all required payments and delivered the stock to the plaintiffs.

We believe we have meritorious defenses to the allegations, and we intend

to continue to vigorously defend against the litigation.

8 – STOCK BASED COMPENSATION

grant equity compensation awards to employees, directors, and contractors under the 2021 Omnibus Equity Compensation Plan (“Equity

Incentive Plan”) approved by stockholders on September 13, 2021.

2022 the Company granted restricted stock units (“RSU’s”) to directors and employees with service-based vesting conditions.

The restricted stock units vest over a 3 -year service period.

following table summarizes the activity for unvested RSU’s granted to directors and employees during the quarter ended December

OF UNVESTED RESTRICTED STOCK UNITS ACTIVITY

Weighted Average Grant Date Fair Value

Number of RSU’s

Outstanding Grants at September 30, 2022

Canceled/Forfeited

Outstanding Grants at December 31, 2022

We incurred stock-based compensation

expense of $ 115,000 for the three months ended December 31, 2022.

stock compensation expense is $ 727,000 as

of December 31, 2022.

9 - STOCKHOLDERS’ EQUITY

Company’s certificate of incorporation authorizes the issuance of up to 681,000,000 shares of common stock and 10,000,000 shares

of blank check preferred stock, each with a par value of $ 0.001 per share.

As of June 30, 2022, the Company had 88,445,832 shares of

common stock outstanding, and had no shares of preferred stock outstanding.

the nine months ended June 30, 2022, the Company issued 5,518,521 shares of its common stock as described below.

with the last quarter of the Company’s fiscal year ended September 30, 2021, the Company’s board of directors 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.

At its meeting in April 2021, the Company’s board of directors also approved a one-time award of

100,000 shares of the Company’s common stock to each member of the board of directors, subject to the pending approval of the Company’s

Equity Incentive Compensation Plan by the Company’s stockholders.

The Company received that approval at the Company’s annual

meeting of stockholders held in September 2021.

As a result, the members of the Company’s board of directors have received a total

of 744,448 shares of the Company’s common stock through the grants described above.

The Company issued the shares for the one-time

awards, and the fiscal year 2021 fourth quarter awards, totaling 411,112 shares, on January 13, 2022.

The Company issued the remaining

shares for the fiscal year 2022, totaling 111,112 shares, on each of January 31, 2022, March 28, 2022 and June 15, 2022.

July 23, 2021, the Company entered into a four year financial advisory and consulting agreement with Paulson Investment Company, LLC

Pursuant to that agreement, at the Company’s request, Paulson provides the following services:

(a) familiarizing

itself with the Company’s business, assets and financial condition;

(b) assisting the Company in developing strategic and financial

(d) assisting 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;

€ identifying potentially attractive merger and acquisition

opportunities;

(f) reviewing possible innovative financing opportunities and (g) rendering other financial advisory services as may be

reasonably requested by the Company.

The Paulson agreement may be terminated prior to the end of the four year term by either party,

as provided in the agreement with Paulson.

As compensation for the services provided by Paulson under the agreement, on March 20, 2022,

the Company issued to Paulson and three of its employees a total of 4,000,000 shares of the Company’s common stock.

of common stock issued to Paulson and its employees were valued at $ 720,000 as of the date of the consulting agreement.

The Company capitalized

the value of the common shares issued to Paulson as deferred contract costs, which the Company is amortizing to expense straight-line

over the four year contract term.

June 1, 2022, the Company issued a total of 574,073 shares of the Company’s common stock to four employees pursuant to the vesting

of restricted stock units held by those employees.

June 6, 2022, the Company entered into the mediated settlement agreement with Robert LeBlanc described above.

Pursuant to that agreement,

the Company issued a total of 200,000 shares of the Company’s common stock to Mr.

Common Stock Units

October 22, 2021, the Company entered into restricted stock unit award agreements with four employees and one contractor.

agreements, the Company granted a total of 2,000,001 shares of restricted stock.

The restricted stock unit awards vest in three equal

tranches on the next three anniversaries of the date of the applicable award agreements.

The value of the issued shares of restricted

stock was $ 260,000 , based upon the $ 0.13 per share market price of the Company’s common stock on the date of grant.

June 1, 2022, the Company entered into restricted stock unit award agreements with two employees.

Under those agreements, the Company

granted a total of 555,556 shares of restricted stock.

The granted restricted stock vests in three equal tranches on the next three anniversaries

of the date of the applicable award agreements.

The value of the granted restricted stock was $ 53,889 , based upon the $ 0.10 per share

market price of the Company’s common stock on the date of grant.

For the nine months ended June 30, 2022, the Company recorded

$ 84,305 in stock compensation expense related to the restricted unit award agreements described above.

7 – SUBSEQUENT EVENTS

July 1, 2022 (the “Closing Date”), the Company completed its acquisition of all of the outstanding equity securities of SideChannel,

Inc., a Massachusetts corporation (the “Subsidiary”), in exchange for shares of the Company’s equity securities (the

“Acquisition”), pursuant to an Equity Securities Purchase Agreement, dated May 16, 2022 (the “Purchase Agreement”).

The Acquisition was previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission

on May 18, 2022.

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 are 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, achieves 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 Closing Date, the Sellers acquired approximately 40.4% of the Company’s outstanding common stock.

If the Subsidiary achieves

the Milestone, and the Sellers are issued the Second Tranche Shares, and assuming that there is no other change in the number of shares

outstanding prior to the issuance of the Second Tranche Shares, the Sellers will hold a total of approximately 57.5% of the Company’s

outstanding common stock .

The number of the Second Tranche Shares may be 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 may also be subject to

adjustment based upon any successful indemnification claims made by the Company pursuant to the Purchase Agreement.

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 months after the Closing Date, and the remaining 80% of their shares of Common Stock beginning twenty-four

months after the Closing Date .

The Company is currently performing a formal valuation of the acquisition, including an analysis of any

purchase price adjustments, and a review of the assts and liabilities acquired to determine appropriate fair values.

July 1, 2022, Sammy Davis and David Chasteen resigned from the Company’s Board of Directors (the “Board”).

same date, the Board appointed Deborah MacConnel and Kevin Powers to fill the vacancies resulting from those resignations.

date, the Board expanded the number of members of the Board by two members and approved the appointments of Brian Haugli and Hugh Regan

to fill the vacancies caused by the expansion, to be effective on July 19, 2022.

MacConnel, Mr.

Powers, and Mr.

Regan are considered

independent directors.

As of July 19, 2022, the total number of members of the Board was six (6), including four (4) independent directors.

July 1, 2022, the Board appointed Brian Haugli to the position of Chief Executive Officer of the Company, following the resignation of

David Chasteen from that position.

Chasteen assumed the role of Executive Vice President of the Company on that same date.

July 1, 2022, the Board approved the Company’s entry into restricted stock unit award agreements with two employees and five members

of the Board.

Under those agreements, the Company granted a total of 2,705,556 shares of restricted stock.

The restricted stock awards

vest in three equal tranches on the next three anniversaries of the date of the applicable awards.

The total value of the shares of restricted

stock awarded was $ 270,556 , based upon the market price of $ 0.10 per share of the Company’s common stock on the grant date.

July 5, 2022, the Company filed a Schedule 14-F Information Statement with the Securities and Exchange Commission disclosing the change

in the majority of the members of the Board.

July 5, 2022, the Company changed its name to SideChannel, Inc., the same name as the Subsidiary The Company is in the process of changing

the name of the Subsidiary.

August 2, 2022 the Company changed its ticker symbol from CLOK to SDCH .

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 exchanged for 59,900,000 shares of Cipherloc Common Stock common stock and 100 shares of Series A Preferred Stock of Cipherloc.

As a result, the financial statements have been adjusted retroactively to reflect these shares as being outstanding as of September 30,

explained in Note 5, in December 2021, we promised to pay Mr.

Desai $ 100,000 , without interest, in exchange for Mr.

Desai’s right,

title, and interest in SCS.

LLC made profit sharing distributions of $ 489,000 during the three months ended December 31, 2021.

in accordance with its partnership

of December 31, 2022, and 2021, we had 148,904,613 and 59,900,000 shares of common stock outstanding, respectively, and were authorized

to issue 681,000,000 shares of common stock at a par value of $ 0.001 .

Stock Issued for Cash

did not issue shares of common stock for cash during the three months ended December 31, 2022.

Stock Issued for Business Combinations

did not issue shares for mergers or acquisitions related activity during the three months ended December 31, 2022.

Stock Issued for Services

Board of Directors (“Board”) has 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.

On December 27, 2022, the Company issued 180,557 shares of

common stock as compensation for a value of $ 18,000 to the Board for the first quarter of fiscal year 2023.

Stock Issued Under Equity Incentive Plan

did not issue shares of common stock as incentive compensation during the three months ended December 31, 2022.

of December 31, 2022, we had 100 shares of Series A Preferred Stock outstanding.

These shares were issued as part of the Business Combination .

The 100 shares of Series A Preferred Stock that were exchanged for SCS, Inc.

common stock have been retroactively reflected as issued

and outstanding as of September 30, 2020.

The Series A Preferred Stock contains a Board Designation Right which provides that the holders

of the majority of the Series A Preferred Stock have the right to elect a majority of our Board of Directors.

to the July 1, 2022 Business Combination, Cipherloc had outstanding warrants which continue to be binding on the Company after the Business

following table summarizes warrant activity for the period from September 30, 2022 to December 31, 2022:

OF WARRANT ACTIVITY

Number of Warrants

Weighted Average Exercise Price

Weighted Average Remaining Life

Outstanding at September 30, 2022

Canceled/Forfeited

Outstanding at December 31, 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements