What changed in this filing

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Item 1. Financial Statements

2024-08-07 compared with 2024-05-07 · 352 added, 383 removed, 136 unchanged (84% of the section changed)

2 unchanged sentences

thousands, except share and per share data)

September 30, 2023

receivable, net

expenses and other current assets

current assets

Accounts receivable, net

Deferred costs

Prepaid expenses and other current assets

Total current assets

Deferred costs

LIABILITIES & STOCKHOLDERS’ EQUITY

& STOCKHOLDERS’ EQUITY

payable and accrued liabilities

taxes payable

current liabilities

Accounts payable and accrued liabilities

Deferred revenue

Promissory note payable

Income taxes payable

Total current liabilities

Other Liabilities

Total liabilities

Commitments and contingencies (Note 10)

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

224,355,805 and 213,854,781 shares issued and outstanding as of Mar 31, 2024 and Sep 30, 2023

Additional paid-in capital

Accumulated Deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

The consolidated balance sheet at September 30, 2023, has been derived from the audited consolidated financial statements at

that date but does not include all of the information and footnotes required by the United States generally accepted accounting principles

for complete financial statements.

and contingencies

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

225,975,331 and 213,854,781 shares issued and outstanding as of June 30,

2024 and September 30, 2023, respectively

paid-in capital

stockholders’ equity

liabilities and stockholders’ equity

The consolidated balance sheet at September 30, 2023, has been derived from the audited consolidated financial statements at that date

but does not include all of the information and footnotes required by the United States generally accepted accounting principles for

complete financial statements.

accompanying notes to unaudited consolidated financial statements.

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thousands, except share and per share data)

Three Months Ended

Six Months Ended

Cost of revenues

and administrative

and marketing

and development

combination related costs

operating expenses

General and administrative

Selling and marketing

Research and development

Total operating expenses

Operating income (loss)

Other income, net

Net income (loss) before income tax expense

Income tax expense

Net income (loss) after income tax expense

Net income (loss) per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

loss before income tax expense

Net loss after income tax expense

Net loss per common share – basic and diluted

average common shares outstanding – basic and diluted

accompanying notes to unaudited consolidated financial statements.

STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except share and per share data)

Stockholders’

the Six Months Ended March 31, 2024

Stockholders’

Balance at September 30, 2023

Shares issued for 2021 Investor Warrants

Shares issued for services

Stock-based compensation

Balance at December 31, 2023

Shares issued for services

Stock-based compensation expense

Balance at March 31, 2024

For the Six Months Ended March 31, 2023

Preferred Stock

Stockholders’

Balance at September 30, 2022

Shares issued for services

Stock-based compensation

Balance at December 31, 2022

Shares issued for services

Stock-based compensation

Stock-based compensation expense

Balance at March 31, 2023

thousands, except share data)

Additional Paid-in Capital

at September 30, 2023

issued for 2021 Investor Warrants

issued for services

at December 31, 2023

issued for services

at March 31, 2024

at June 30, 2024

Additional Paid-in Capital

at September 30, 2022

issued for services

at December 31, 2022

issued for services

at March 31, 2023

issued for services

compensation expense

of preferred to common

combination – contingent consideration

at June 30, 2023

accompanying notes to unaudited consolidated financial statements.

STATEMENTS OF CASH FLOWS

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Depreciation and amortization

Stock-based compensation and shares issued for services, net

Changes in operating assets and liabilities:

Accounts receivable, net

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Income taxes payable

Deferred revenue

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of fixed assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of note payable

Net cash used in financing activities

(DECREASE) INCREASE IN CASH

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Stock-based compensation included in accounts payable and accrued liabilities

Shares Issued for services

Purchase of restricted stock units (“RSUs”) sold by employees to pay for taxes due on vested RSUs

Months Ended June 30,

FLOWS FROM OPERATING ACTIVITIES:

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

and amortization

compensation and payments for services, net

combination costs

in operating assets and liabilities:

receivable, net

expenses and other assets

payable and accrued liabilities

cash provided by (used in) operating activities

FLOWS FROM INVESTING ACTIVITIES:

of fixed assets

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES:

of note payable

cash used in financing activities

INCREASE (DECREASE) IN CASH

BEGINNING OF PERIOD

END OF PERIOD

DISCLOSURES OF CASH FLOW INFORMATION:

compensation included in accounts payable and accrued liabilities

issued for services

of restricted stock units sold by employees to pay for taxes due on vested restricted stock units

accompanying notes to unaudited consolidated financial statements.

TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023

THE NINE MONTHS ENDED JUNE 30, 2024 AND 2023

1 – GENERAL INFORMATION

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Our website is https://sidechannel.com .

A history of the Company is disclosed

in our Form 10-K for the year ended September 30, 2023 (the “2023 Form 10-K”) filed on December 27, 2023, with the Securities and Exchange Commission (“SEC”).

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

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.

are offering proprietary software called Enclave which simplifies important cybersecurity tasks called “asset inventory”

and “microsegmentation.” Enclave seamlessly combines access control, microsegmentation, encryption and other secure networking

concepts to create a comprehensive solution.

It allows IT professionals to easily segment the enterprise network, place the right staff

in those segments and direct traffic.

July 1, 2022 we, then known as Cipherloc Corporation (“Cipherloc”), a Delaware corporation, 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.

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 Business Combination was accounted for as a reverse acquisition (“reverse merger”) in accordance with GAAP.

method of accounting, SCS was deemed to be the accounting acquirer for financial reporting purposes.

A history of the Company is

disclosed in our Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 Form 10-K”) filed on

December 27, 2023, with the Securities and Exchange Commission (“SEC”).

Our mission is to simplify cybersecurity for mid-market

and emerging companies, a market we believe is underserved.

Our products and services offer comprehensive cybersecurity and privacy risk

management solutions.

We anticipate ongoing demand for cost-effective security solutions and aim to provide tech-enabled services to meet

these needs, including virtual Chief Information Security Officer (“vCISO”), zero trust, third-party risk management, due

diligence, privacy, threat intelligence, and managed end-point security solutions.

Enclave, our proprietary SaaS platform, streamlines critical cybersecurity tasks such as asset inventory and microsegmentation.

Enclave integrates access control, microsegmentation, encryption, and secure networking concepts into a unified solution, enabling IT

professionals to efficiently segment networks, assign staff, and manage traffic.

July 1, 2022, we, then known as Cipherloc Corporation (“Cipherloc”), a Delaware corporation, 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,

(i) SideChannel, Inc., the acquired Massachusetts corporation and a subsidiary of the registrant, changed its name to SCS, Inc.

“Subsidiary” or “SCS”), and (ii) Cipherloc, the Delaware parent company of the Subsidiary,

changed its name to SideChannel, Inc.

part of the Business Combination, the former stockholders of SCS (the “Sellers”) exchanged all of their equity securities

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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 could have been reduced or increased, based upon whether SCS’s working capital as of the closing

date was less than or more than zero (“Closing Working Capital Adjustment”).

The number of the Second Tranche Shares was also

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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 the remaining 80% of their shares of Common Stock beginning twenty-four (24) months after the Closing Date .

2 – Summary of Significant Accounting Policies

have not made changes to the Significant Accounting Policies disclosed in our 2023 Form 10-K for the year ended September 30, 2023

filed on December 27, 2023, with the SEC.

have not made changes to the Significant Accounting Policies disclosed in our 2023 Form 10-K.

of Presentation

accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting

principles (“U.S.

GAAP”) for interim financial information and the rules and regulations of the SEC.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial

In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

results for the three and six months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the

year ending September 30, 2024.

These unaudited consolidated financial statements should be read in conjunction with the consolidated

financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.

prior period amounts have been reclassified to conform to the current year presentation or adjusted due to rounding and have had no impact

on net income or stockholders’ equity.

interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a

fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders’ equity for the

periods presented.

Except as otherwise disclosed, all such adjustments are of a normal recurring nature.

Accordingly, they do not

include all of the information and footnotes required by United States generally accepted accounting principles (“U.S.

complete financial statements.

In the opinion of management, all adjustments considered necessary for a fair presentation have been

results for the three and nine months ended June 30, 2024, are not necessarily indicative of the results that may be expected for

the fiscal year ending September 30, 2024.

These unaudited consolidated financial statements should be read in conjunction with the

consolidated financial statements and notes included in the 2023 Form 10-K.

The year-end balance sheet data was derived from the

audited consolidated financial statements as of September 30, 2023, but does not include all the disclosures required by U.S.

Reclassifications

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

prior year amounts have been reclassified to be comparable with the current year’s presentation or adjusted due to rounding and have had no impact on net income or stockholders’ equity.

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

expect to incur continued operating losses until we generate revenues sufficient to cover our expected ongoing obligations and

For the nine months ended June 30, 2024, we have reported a net loss of $ 645

thousand which includes $ 587

thousand of non-cash expenses for stock-based compensation, depreciation, and amortization.

Our operating activities have provided

thousand in cash for the nine months ended June 30, 2024, and our cash balance increased by $ 52

thousand from September 30, 2023, to June 30, 2024, after using $ 65

thousand of cash for investing and financing activities.

intend to manage our business such that our current cash reserves will allow us to reach sustainable, positive cash flow from

our operations, but we cannot assure if and when that will be achieved.

We don’t currently have any credit facilities available

We believe that our existing cash and net working capital are sufficient to fund our operations through at least September 30,

Accounting 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 2023 Form 10-K.

The same accounting policies have been followed in these unaudited interim consolidated financial

statements as those applied in the preparation of our consolidated audited financial statements for the year ended September 30, 2023.

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 unaudited consolidated

financial statements.

Therefore, these unaudited consolidated financial statements should be read in conjunction with the

consolidated financial statements and accompanying footnotes included in our 2023 Form 10-K.

The same accounting policies have been

followed in these unaudited interim consolidated financial statements as those applied in the preparation of our consolidated

audited financial statements for the fiscal year ended September 30, 2023.

preparation of financial statements in conformity with 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.

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.

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 these accounting estimates and assumptions are particularly sensitive because of 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.

of March 31, 2024, there have been no significant changes to the accounting estimates that we have deemed critical.

Certain of our

accounts, including goodwill, identifiable intangibles, and deferred tax assets and liabilities, including related valuation allowances,

are based upon estimates.

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 these accounting estimates and assumptions are particularly

sensitive because of 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.

of June 30, 2024, there have been no significant changes to the accounting estimates that we have deemed critical.

Our critical accounting

estimates are more fully described in our 2023 Form 10-K.

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 15 to net 90 days.

of Products and Services

identify, develop, and deploy cybersecurity and privacy 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.

In addition to Enclave, our proprietary

software product, 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 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.

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.

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 .

to Obtain a Contract with a Customer

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.

Loss Per Share

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Pronouncements

did not adopt new accounting pronouncements during the six months ended March 31, 2024.

did not adopt new accounting pronouncements during the nine months ended June 30, 2024.

Issued Accounting Standards Not Yet Adopted

November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”

which provides guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant

segment expenses.

In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can

disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable

segment and contains other disclosure requirements.

The purpose of the guidance is to enable investors to better understand an entity’s

overall performance and assess potential future cash flows.

November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07,

“Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which provides guidance to improve

reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment

measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains

other disclosure requirements.

The purpose of the guidance is to enable investors to better understand an entity’s overall

performance and assess potential future cash flows.

The guidance is effective for fiscal years beginning December 15, 2023, and

interim periods within fiscal years beginning December 15, 2024.

For us, annual reporting requirements will be effective for our fiscal

year 2025 beginning on October 1, 2024 and interim reporting requirements will be effective beginning with our fourth quarter of fiscal

For us, annual reporting requirements will be effective for our

fiscal year 2025 beginning on October 1, 2024, and interim reporting requirements will be effective beginning with our fourth quarter

of fiscal year 2025.

Early adoption is permitted.

We are currently evaluating the impact that the new guidance will have on our consolidated financial

December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

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Early adoption is permitted.

We are currently evaluating the impact that the

new guidance will have on our consolidated financial statements.

Company does not believe that any recently issued, but not yet effective accounting standards, when adopted, will have a material effect

Company does not believe that the above recently issued, but not yet effective accounting standards, when adopted, will have a material effect

on the accompanying consolidated financial statements.

December 10, 2021, we entered into a lease for approximately 500 square 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.

In March 2024, the Securities and Exchange Commission issued a rule which

will require companies to make certain climate-related disclosures in periodic filings.

The rule includes certain disclosures in the footnotes

of the financial statements:

● capitalized costs, expenditures expensed, and losses incurred

as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme

temperatures, and sea level rise;

● capitalized costs, expenditures expensed, and losses related

to carbon offsets and renewable energy credits or certificates if they are used as a material component of a registrant’s plans

to achieve its disclosed climate-related targets or goals;

● whether estimates and assumptions used to produce the

financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions

or any disclosed climate-related targets or transition plans.

disclosures are effective for annual filings for the year ended September 30, 2026.

The Company is currently evaluating the impact of

the adoption of the rule.

December 10, 2021, we entered into a lease for approximately 500

square feet of office space at 146 Main Street

in Worcester, Massachusetts, with the option

to renew annually for three twelve-month periods through December 2025.

The annual renewal date is January 1 st .

Our current lease payment is $ 967 per month.

The lease allows for a two percent (2%) increase effective at the beginning of each renewal

Our current lease payment is $ 967 per

The lease allows for a 2% increase effective at the beginning of each renewal period.

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

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a straight-line basis over the lease term.

Following the guidance of ASC Topic 842, we are not required to record ROU assets and operating

lease liabilities.

We do not have any long-term operating leases or financing leases as of June 30, 2024.

4 – DEFERRED REVENUE

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While software contracts can be initiated

at any time of year, most of our annual agreements renew in our quarter ended March 31.

at any time of year, most of our annual agreements renew in our second fiscal quarter ending March 31.

payment received from a client in advance of receiving the product or service will be deferred and increase the balance of deferred revenue.

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revenue for a product or service paid for in advance by our clients will decrease the balance of deferred revenue.

revenue was $ 564,000 at March 31, 2024 and $ 280,000 at September 30, 2023.

The deferred revenue is expected to be earned within 12 months

of the balance sheet date.

in deferred revenue for the six months ended March 31, 2024 were as follows:

revenue was $ 647 thousand at June 30, 2024 and

September 30, 2023.

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

in deferred revenue for the nine months ended June 30, 2024 were as follows:

SCHEDULE OF CHANGES IN DEFERRED REVENUE

Deferred Revenue

(In thousands)

Balance at September 30, 2023

Deferral of revenue

Recognition of revenue

Balance at March 31, 2024

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 while we

operated as an LLC.

Desai was paid $ 50,000 at the execution of the Desai Redemption Agreement and the remaining $ 50,000 balance was

paid in December 2023.

at September 30, 2023

at June 30, 2024

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.

thousand, without interest, in exchange for Mr.

Desai’s right, title, and interest in us while we operated as a limited

liability company.

Desai was paid $ 50

the execution of the Desai Redemption Agreement and the remaining $ 50

thousand balance

was paid in December 2023.

6 - STOCKHOLDERS’ EQUITY

of March 31, 2024, we had 224,355,805 shares of common stock outstanding and were authorized to issue 681,000,000 shares of common stock

at a par value of $ 0.001 .

of June 30, 2024, we had 225,975,331

shares of common stock outstanding and were authorized to issue 681,000,000

shares of common stock, par value $ 0.001

had 213,854,781 shares of common stock outstanding as of September 30, 2023.

Stock Issued for Cash

did not issue shares of common stock for cash during the six months ended March 31, 2024.

Stock Issued for Business Combinations

did not issue shares for mergers or acquisitions related activity during the six months ended March 31, 2024.

Stock Issued for Services

shares of common stock issued for services during the six months ended March 31, 2024 is 437,643 with a total fair value of $ 20,000 .

Board of Directors (“Board”) had 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.

On February 15, 2024,

and March 28, 2024, the Company issued 20,834

shares of common stock, respectively, as compensation to the non-executive members of our Board for a fair value of $ 12,000

for the services rendered during the second quarter of fiscal year 2024.

For the six months ended March 31, 2024 we have issued 347,226

shares of common stock as compensation for a value of $ 17,000 .

the six months ended March 31, 2024 we have issued 90,417 shares of common stock to an independent contractor with a fair value of $ 3,000 .

shares of common stock issued for services during the nine months ended June 30, 2024, was 437,643

with a total grant date fair value of $ 20 thousand.

May 6, 2024, our Board of Directors (“Board”) decided to eliminate quarterly Board fees paid in cash and stock.

May 6, 2024, our Board had 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 did not issue shares to the members of our Board for services

provided to us during the quarter ended June 30, 2024.

For the nine months ended June 30, 2024, we issued 347,226

shares of common stock as compensation with a total grant date fair value of $ 17 thousand.

also use stock as a form of compensation for independent contractors who provide professional services to us in sales, marketing, or

administration.

For the nine months ended June 30, 2024, we issued 90,417

shares of common stock to an independent contractor with a grant date fair value of $ 3 thousand.

Stock Issued Under Equity Incentive Plan

issued 2,792,423 shares of common stock for 4,039,824 Restricted Stock Units (“RSUs”) that vested during the six months ended March 31, 2024.

of RSUs sold by these employees to fund payroll taxes for the six months ended March 31, 2024 was 1,247,401 .

issued 4,411,949 shares of common stock for 6,537,045 restricted stock units (“RSUs”) that vested during the nine months

ended June 30, 2024.

The number of RSUs sold by these employees to fund payroll taxes for the nine months ended June 30, 2024, was 2,125,096 .

Stock Issued Under Tender Offer

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The New Warrants include these terms:

(1) New Warrant can subscribe for and purchase one (1) share of common stock from the Company at an exercise price of eighteen cents

($ 0.18 ) on or before December 29, 2028.

New Warrant can subscribe for and purchase one share of common stock from the Company at an exercise price of $ 0.18

per share on or before December 29, 2028.

New Warrant can be exercised on a cash or cashless basis.

New Warrants will automatically convert if the common stock trades at a bid price equal to or greater than thirty-six cents ($ 0.36 )

for thirty (30) consecutive trading days.

New Warrants will automatically convert if the common stock trades at a bid price equal to or greater than $ 0.36

per share for 30 consecutive trading days.

New Warrant holders will be notified if the automatic conversion is triggered and will

be provided with twenty (20) trading days to deliver a notice of exercise to the Company.

be provided with 20 trading days to deliver a notice of exercise to the Company.

New Warrants will be adjusted for stock dividends and stock splits should such an event occur during the term of the New Warrant.

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historical exercise patterns.

the November 2023 Warrant Exchange, we had a total of 43.2 million warrants outstanding comprised of 5.4 million from 2018 issued to

placement agents, 8.4 million from 2021 issued to placement agents, 12.0 million remaining 2021 investor warrants, and 17.4 million new

warrants issued on December 26, 2023.

of March 31, 2024, we had zero ( 0 ) shares of preferred stock outstanding.

following table summarizes warrant activity for the six months ended March 31, 2024:

the November 2023 Warrant Exchange, we had a total of 43.2

million warrants outstanding comprised of 5.4

million warrants from 2018 issued to placement agents, 8.4

million warrants from 2021 issued to placement agents, 12.0

million remaining 2021 Investor Warrants, and 17.4

million New Warrants issued on December 26, 2023.

of June 30, 2024, we had no

shares of preferred stock outstanding.

following table summarizes warrant activity for the nine months ended June 30, 2024:

SCHEDULE OF WARRANT ACTIVITY

5 unchanged sentences

Canceled/Forfeited

Outstanding at March 31, 2024

Outstanding at June 30, 2024

7 – DISAGGREGATED REVENUE

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.

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 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.

OF DISAGGREGATED REVENUE

Nine Months Ended

(in thousands)

vCISO services

Cybersecurity software and services

8 – RELATED PARTY TRANSACTIONS

Haugli, our Chief Executive Officer and our stockholder in the Company, is also a principal shareholder of RealCISO Inc.

Haugli, our Chief Executive Officer, a member of the Board, and a significant stockholder of the Company, is also a principal

shareholder of RealCISO Inc.

(“RealCISO”).

On September 22, 2020, SideChannel assigned to RealCISO Inc.

certain contracts and intellectual property.

We are a reseller of the RealCISO

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

paid $ 20,160 to RealCISO in the six months ending March 31, 2024.

We paid $ 36,000 to RealCISO during the six months ended March 31, 2023.

received $ 76,500 from RealCISO for software development services that we provided RealCISO during the six months ending March 31, 2024.

October 13, 2023, the Association of the US Army (“AUSA”) signed an agreement for a cybersecurity risk assessment for

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

intellectual property.

We are a reseller of the RealCISO software.

We receive revenue from our customers for the use of RealCISO

software and pay licensing fees to RealCISO for such use.

thousand to RealCISO in the nine months ended June 30, 2024.

RealCISO during the nine months ended June 30, 2023.

received $ 119

thousand from RealCISO for software development services that we provided RealCISO during the nine months ended June 30,

October 13, 2023, the Association of the US Army (“AUSA”) signed an agreement for a cybersecurity risk assessment for approximately

On February 15, 2024, the President of AUSA, Retired U.S.

Army General Robert Brown, joined our Board.

The final payment of $ 6,106

for the agreement for the assessment was invoiced and paid during March 2024.

Hnatiw, our Chief Technology Officer and Director, has an amount payable to the Company in relation to the payroll taxes paid by the Company on

his behalf for RSUs that vested during calendar year 2022.

The balance due from Mr.

Hnatiw is $ 2,551

and is recorded in prepaid and other current assets as of March 31, 2024.

other related party transactions occurred during the six months ending March 31, 2024.

other material related party transactions occurred during the nine months ended June 30, 2024.

9 – CUSTOMER CONCENTRATION RISK

client individually accounted for over 10 % of our revenue during the three months or six months ended March 31, 2024;

no client individually

accounted for over 10 % of our revenue during the three months or six months ended March 31, 2023.

client individually accounted for over 10 %

of our revenue during the three or nine months ended June 30, 2024 or 2023.

No client individually accounted for over 10 % of accounts receivable on June 30, 2024.

One client accounted for 14.8 %

of accounts receivable on June 30, 2023.

10 – STOCK-BASED COMPENSATION

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

We have granted RSUs with service-based vesting conditions with vesting typically occurring over a 3-year period.

The following table summarizes the activity of our RSUs granted under our Equity Incentive Plan during the six months

ended March 31, 2024, and March 31, 2023.

of June 30, 2024, we had unvested restricted stock awards (“RSUs”) and stock options granted under the 2021 Omnibus

Equity Compensation Plan (the “2021 Plan”).

We typically have granted RSUs and stock options with a 3-year,

service-based vesting period.

unvested RSUs and stock options are accounted for based on their grant date fair value.

As of June 30, 2024, total compensation

expense to be recognized in future periods was $ 782

thousand over 2.4 years.

total stock-based compensation expense for the nine months ended June 30, 2024 was $ 561

thousand, comprised of $ 20

thousand for shares

issued for services and $ 541

thousand for the

cost of outstanding equity compensation grants.

employees opted to sell RSUs back to the Company at the fair market value on the vesting date to fund their portion of payroll taxes

due on the taxable income generated by the vested RSUs.

For the nine months ended June 30, 2024, we purchased RSUs with a vesting

date value of $ 118

Our Statement of Stockholders Equity reflects the net increase of $ 423

of June 30, 2024 or $ 541

total stock-based compensation expense, less the $ 118

RSUs purchased.

incurred stock-based compensation expense of $ 372

thousand for the nine months ended June 30, 2023, which is comprised of $ 47

thousand for shares

issued for services and $ 325

thousand for the

amortization of outstanding equity compensation grants.

Total stock-based compensation is included in general

and administrative expense, selling and marketing expense, and research and development expense in our accompanying Consolidated Statements

of Operations.

Restricted Stock Units

We record compensation expense for RSUs based on the closing market price

of our stock at the grant date and amortize the expense over the vesting period which is typically three years.

For RSUs, the Company

recognizes compensation cost for unvested share-based awards on a straight-line basis over the requisite service period.

The following table summarizes the activity

of our RSUs granted under the 2021 Plan during the nine months ended June 30, 2024, and June 30, 2023.

SCHEDULE OF RESTRICTED STOCK UNITS VESTING

Outstanding Equity Compensation Grants

Restricted Stock Units

(In thousands)

Outstanding Grants at September 30, 2023

grants at September 30, 2023

Canceled/forfeited

Outstanding Grants at March 31, 2024

grants at June 30, 2024

grants at September 30, 2022

Canceled/forfeited

grants at June 30, 2023

weighted average grant-date fair value was $ 0.05 per share for all RSUs granted during the nine months ended June 30, 2024, and $ 0.10

per share for all awards granted during the nine months ended June 30, 2023.

Stock Options

We record compensation expense for the stock options

based on the fair market value of the options as of the grant date.

fair value for stock options granted during the three months ended June 30, 2024, was estimated at the date of grant using the

Black-Scholes option pricing model with the following weighted average assumptions:

OF STOCK OPTIONS WEIGHTED AVERAGE ASSUMPTIONS USED IN THE FAIR VALUE

Risk-free interest rate

Dividend yield

Expected common stock market price volatility factor

Weighted average expected live of stock options (years)

The following table summarizes the activity of our

stock options granted under the 2021 Plan during the nine months ended June 30, 2024.

We did not grant stock options during the year ended September 30, 2023.

OF STOCK OPTION OUTSTANDING TRANSACTIONS

Outstanding Stock Options

(In thousands)

Stock Options

Outstanding grants at September 30, 2023

Canceled/forfeited

Outstanding Grants at March 31, 2023

weighted average grant-date fair value was $ 0.05 per share for all awards granted during the six months ended March 31, 2024 and $ 0.14 per share for all awards granted during the six months ended March

Company recognizes compensation cost for unvested share-based awards on a straight-line basis over the requisite service period.

Total stock-based compensation is included in general and administrative expense, selling and marketing expense, and research and

development expense in our accompanying Consolidated Statements of Operations.

total stock-based compensation expense for the six months ended March 31, 2024 was $ 300,000 comprised of $ 20,000 for shares issued for

services and $ 280,000 for the amortization of outstanding equity compensation grants.

The unamortized stock compensation expense at March

31, 2024, is $ 757,000 , and the remaining weighted average term to vesting is 2.4 years.

employees opted to sell RSUs back to the Company at the fair market value on the vesting date to fund their portion of payroll taxes

due on the taxable income generated by the vested RSUs.

For the six months ended March 31, 2024, we have purchased RSUs with a vesting

date value of $ 66,000 .

Our Statement of Stockholders Equity reflects the net increase of $ 214,000 as of March 31, 2024 or $ 280,000 of

total stock-based compensation expense less the $ 66,000 of RSUs purchased.

incurred stock-based compensation expense of $ 266,000 for the six months ended March 31, 2023 which is comprised of $ 31,000 for shares

issued for services and $ 235,000 for the amortization of outstanding equity compensation grants.

Outstanding grants at June 30, 2024

No stock options were awarded prior to September 30, 2023

Stock options were issued to our independent directors on June 10, 2024.

Each of our four independent directors received 1.1 million stock options priced at $ 0.18 with a 3 -year vesting period, expiring on June

One independent director resigned from our Board on June 18, 2024, resulting in the forfeiture of 1.1 million stock options.

11 – COMMITMENTS AND CONTINGENCIES

April 2020, 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 th Judicial District for Hays County, Texas (Cause No.

The lawsuit alleges causes of action for fraud against

De La Garza (for misrepresentations allegedly made by Mr.

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

a lawsuit against Cipherloc and Michael De La Garza, Cipherloc’s former Chief Executive Officer and President, 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);

breach of contract, for alleged breaches of Mr.

alleged oral employment agreement, which 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.

sought exceed $ 1,000,000 .

Damages sought

exceed $ 1.0 million.

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.

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.

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

1 unchanged sentence

12 – SUBSEQUENT EVENTS

April 15, 2024, we filed a Form 8-K with the SEC for the following resolutions passed with unanimous vote by our Board:

Board eliminated two of the Committees of the Board of Directors including:

Compensation Committee comprised of the following directors:

Robert Brown, Deborah MacConnel, and Kevin Powers

Nomination and Corporate Governance Committee comprised of the following directors:

James Hansen, Brian Haugli, Deborah MacConnel,

Kevin Powers, and Hugh Regan, Jr.

Board eliminated all cash compensation paid to its directors.

Board eliminated all stock compensation paid to its directors.

No agreements have been entered for this arrangement

but are forthcoming.

Board has determined to implement an equity incentive plan for its directors.

Board determined to compensate Director Hugh Regan, Jr.

at a rate of $ 7,500 per quarter for services provided as chair of the

Audit Committee.

No agreements have been entered for this arrangement but are forthcoming.

LOOKING STATEMENTS

Quarterly Report on Form 10-Q, including estimates, projections, statements relating to our business plans, objectives and expected operating

results, and the assumptions upon which those statements are based, contains “forward-looking statements” within the meaning

of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities

Exchange Act of 1934.

These forward-looking statements generally are identified by the words “believe,” “project,”

“expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,”

“may,” “should,” “will,” “would,” “will be,” “will continue,”

“will likely result,” and similar expressions.

Forward-looking statements are based on current expectations and assumptions

that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking

statements is included in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended

September 30, 2023 and elsewhere in this Form 10-Q.

We undertake no obligation to update or revise publicly any forward-looking statements,

whether as a result of new information, future events, or otherwise.

forward-looking statements are based on management’s current expectations.

These statements are neither promises nor guarantees,

but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements

to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate;

therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate.

In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be

regarded as a representation by us or any other person that our objectives and plans will be achieved.

Some of these and other risks

and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described

in our 2023 Annual Report on Form 10-K, elsewhere in this Quarterly Report on Form 10-Q, or those discussed in other documents we filed

with the SEC.

Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any

forward-looking statement, whether as a result of new information, future events, or otherwise.

In making these statements, we disclaim

any obligation to address or update each factor in future filings with the SEC or communications regarding our business or results, and

we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings

or communications.

In addition, any of the matters discussed above may have affected our past results and may affect future results,

so that our actual results may differ materially from those expressed in this Quarterly Report on Form 10-Q and in prior or subsequent

communications.

information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Report,

and the audited financial statements and notes thereto and “Part II.

Other Information - Item 7.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations”, contained in our 2023 Form 10-K.

are not aware of any misstatements regarding any third-party information presented in this Report;

however, their estimates, in particular,

as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based

on various factors, including those discussed under, and incorporated by reference in, the section entitled “ Item 1A.

Factors ” of this Report.

These and other factors could cause our future performance to differ materially from our assumptions

and estimates.

Some market and other data included herein, as well as the data of competitors as they relate to SideChannel (as defined

herein), is also based on our good faith estimates.

On July 25, 2024, the Company filed Form 8-K, stating that Matt Klein had been appointed Chief Operating Officer.

The Company does not deem Mr.

Klein to be an “executive officer,” as such term is defined in Rule 3b-7, promulgated under

the Securities Exchange Act of 1934, as amended.

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