What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-07 · 276 added, 166 removed, 56 unchanged (89% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following information should be read in conjunction with the unaudited consolidated financial statements and the accompanying

notes included in Part I, Item 1 of this Report.

following information should be read in conjunction with the unaudited consolidated financial statements and the accompanying notes included

in Part I, Item 1 of this Quarterly Report on Form 10-Q.

the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “SideChannel,”

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and its consolidated subsidiaries.

addition, unless the context otherwise requires and for the purposes of this report only:

addition, unless the context otherwise requires and for the purposes of this Quarterly Report on Form 10-Q only:

“Business Combination” has the same meaning ascribed to it in Note 1 to the Company’s unaudited

consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q;

Act” refers to the Securities Exchange Act of 1934, as amended;

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references to years relate to the fiscal year ended September 30 of the particular year.

Forward-Looking Statements

This 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.” 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

the 2023 Form 10-K and elsewhere in this Quarterly Report on 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.

These 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.

Although 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 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

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.

This information should be read in conjunction with

the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, 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.

We are not aware of any misstatements regarding any

third-party information presented in this Quarterly Report on Form 10-Q;

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.

Risk Factors ” of this Quarterly

Report on Form 10-Q.

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, is also based on our good

faith estimates.

We are a cybersecurity advisory services and software

Our mission is to simplify cybersecurity for mid-market and emerging companies, a market we believe is underserved.

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 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.

efforts are focused on protecting and enabling the critical business functions of our clients and customers through comprehensive cybersecurity

This specifically includes:

virtual Chief Information Security Officers (“vCISOs”) as a fractional resource into the leadership teams of our clients,

a proprietary SaaS platform called Enclave that simplifies the segmentation of digital networks,

Embedding vCISOs as a fractional resource into the leadership teams of our clients,

Deploying Enclave to simplify the segmentation of digital networks,

identifying, and mitigating cybersecurity and privacy risks through tech-enabled security engineering processes, and

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of our clients use our vCISO services.

engagements typically include a fixed monthly subscription fee with durations longer than twelve (12) months.

Hourly rates for vCISO

time and material projects range from $350 to $425.

Each of our vCISOs is generally embedded into the C-suite executive teams of two

(2) to four (4) of our clients.

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”).

relationships with third-party service providers and VARs provide SideChannel with additional internal capabilities to mitigate cybersecurity

We earn licensing revenue from software contracts and commissions from third-party service provider partnerships which are included

in this revenue category.

engagements typically include a fixed monthly subscription fee and exceed periods of time longer than 12 months.

for vCISO time and material projects range from $350 to $425.

Each of our vCISOs is generally embedded into the C-suite executive teams

of two to four of our clients.

According to the 2023 vCISO Service Provider Survey

by Hitch Partners, the role of virtual CISOs (vCISOs) is becoming increasingly pivotal in today’s cybersecurity landscape.

which included responses from over 100 professionals, highlights a significant rise in the adoption of vCISO services, particularly among

small and cloud-enabled companies.

Key services provided by vCISOs include Governance, Risk, and Compliance (GRC), strategic planning,

and mentoring security teams.

The report notes that the flexibility and expertise

offered by vCISOs make them an attractive option for companies facing budget constraints and needing to establish a robust security posture

Many vCISO engagements extend beyond initial expectations, indicating a sustained need for their expertise.

Challenges identified

include limited budgets and the difficulty of fostering a security-conscious culture within organizations.

SideChannel, as a leading vCISO provider, leverages

these insights to offer tailored solutions that address the specific needs highlighted in the report.

With a comprehensive suite of services,

SideChannel provides strategic leadership and practical cybersecurity measures, ensuring their clients can navigate the complexities of

modern cybersecurity threats effectively.

The company’s approach aligns with the survey’s findings, emphasizing the importance of

flexibility, strategic guidance, and cost-effective solutions in the rapidly evolving cybersecurity landscape.

The 2024 Verizon Data Breach Investigations Report

(“DBIR”) provides critical insights into the current cybersecurity landscape, highlighting trends that emphasize the importance of robust

cybersecurity measures.

Financial motives are the primary driver behind 93% of cyber breaches, with espionage accounting for 7%.

end-user errors, particularly misdelivery, are responsible for 26% of breaches.

The MOVEit breach, characterized by its scalability and

ease of exploitation, had a significant impact, surpassing previous incidents like Log4Shell.

The report also points to the rapid response

to phishing attacks and the limited use of Generative AI by cybercriminals.

In response to these evolving threats, SideChannel

offers a comprehensive suite of cybersecurity solutions and services designed to protect digital assets effectively.

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 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.

Leveraging insights from the DBIR, SideChannel’s solutions are designed to address financial and espionage-driven

breaches effectively, minimize end-user errors, and ensure rapid incident response.

growth strategy focuses on these three initiatives:

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Increasing adoption of cybersecurity software, including Enclave and services offerings at vCISO clients.

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

“vulnerability management”, and “microsegmentation.” Enclave seamlessly combines access control, microsegmentation,

encryption and other secure networking concepts to create a novel solution for simplifying the deployment and management of these cybersecurity

It allows IT professionals to easily segment the enterprise network, place the right staff in those segments and direct traffic.

Enclave revenue is currently included within the Cybersecurity Software and Services category.

Category Performance for the Six Months Ended March 31, 2024 and 2023

revenue metrics discussed in this section are for the six months ended March 31, 2024, versus the same period in fiscal year 2023.

following table contains the revenue by category.

(in thousands)

vCISO Services

Cybersecurity Software & Services

Incorporating insights from a recent Gartner survey,

it is evident that implementing a zero-trust strategy has become a priority for a majority of organizations worldwide.

The survey revealed

that 63% of organizations have fully or partially adopted zero-trust frameworks.

Interestingly, for 78% of these organizations, the investment

in zero-trust constitutes less than 25% of their overall cybersecurity budget.

This strategic approach typically covers about half of

an organization’s environment, addressing approximately a quarter of overall enterprise risk.

Gartner emphasizes the importance of defining the scope

early in the zero-trust strategy.

Organizations must identify which domains are in scope and understand the extent of risk mitigation

achievable through zero-trust controls.

Despite the broad adoption, many enterprises struggle with best practices for implementation.

Gartner suggests three key practices:

establishing a clear scope, communicating success through strategic and operational metrics, and

anticipating increases in staffing and costs without delays.

In the context of SideChannel’s offerings, our

proprietary software, Enclave, is well-positioned to address these challenges.

Enclave simplifies crucial cybersecurity tasks such as

asset inventory, vulnerability management, and microsegmentation.

By integrating access control, microsegmentation, and encryption, Enclave

provides a comprehensive solution for managing cybersecurity controls effectively.

It allows IT professionals to segment enterprise networks

efficiently, allocate the right personnel to those segments, and direct traffic seamlessly.

This alignment with zero-trust principles

ensures that organizations can enhance their security posture and achieve measurable risk reduction.

By leveraging Enclave, SideChannel not only addresses the immediate cybersecurity needs of our clients but also aligns

with industry best practices as highlighted by Gartner.

This ensures that our clients are not only compliant but also resilient against

evolving cyber threats.

by Category Performance for the Nine Months Ended June 30, 2024 and 2023

revenue metrics discussed in this section are for the nine months ended June 30, 2024, versus the same period in fiscal year 2023.

Revenue from vCISO services increased by $68 thousand, or 2.1%, from 2023 to 2024, while revenue from cybersecurity software and

services increased by $528 thousand, or 31.8%.

Total revenue for the period increased by $596 thousand, or 12.1%.

The following

pie charts display the revenue by category.

growth in vCISO Services reflects both growth in clients served and an increase in revenue per client.

Cybersecurity Software & Services

Cybersecurity software and services

revenue grew from 2023 to 2024 because of an increase in the use of these services by existing clients and because of an expansion of

the services and software offered.

and Retained Revenue

also monitor new and retained revenue.

The revenue earned from clients during our first twelve months of working with them is classified

while the revenue earned with clients after our first twelve months of working with them is classified as retained.

The following

table provides details on our new and retained revenue for the six months ended March 31, 2024 and 2023.

(in thousands)

Cybersecurity Software & Services

Total Revenue

initiated fewer new vCISO Services engagements during the six months ended March 31.

2024 than we did during the six months ended March

The revenue earned from clients during our first twelve months of working with them is

classified as new;

while the revenue earned with clients after our first twelve months of working with them is classified as

For the nine months ended June 30, 2024 and 2023, vCISO retained revenue increased by 75.2%, or $960 thousand, from $1.3

million to $2.2 million, while vCISO new revenue decreased by 45.2%, or $892 thousand.

In the same period, cybersecurity software

and services retained revenue increased by 5.6%, or $65 thousand, while new revenue increased by 90.8%, or $463 thousand.

retained revenue increased by 42.2%, or $1.0 million for the period, while new revenue decreased by 17.3%, or $429 thousand.

following chart reflects these changes.

initiated fewer new vCISO services engagements during the nine months ended June 30, 2024, than we did during the nine months ended June

We attribute the decrease to ineffective lead generation campaigns launched during the last half of fiscal year 2023.

more success at securing Cybersecurity Software and Services work in new engagements during the six months ended March 31, 2024 than

more success at securing cybersecurity software and services work in new engagements during the nine months ended June 30, 2024, than

we did during the prior year.

we consider trailing twelve revenue retention a key performance indicator.

Revenue retention is calculated by dividing retained revenue

in the measurement period by the total revenue for the previous twelve-month time frame.

The following table shows the revenue retention

by category for the twelve months ended March 31, 2024 and September 30, 2023.

Trailing Twelve Months Ended

March 31, 2024

September 30, 2023

vCISO Services

Cybersecurity Software & Services

Increase in Cash from December 31, 2023 to March 31, 2024

May 2023, we announced our intention to accelerate the attainment of positive cash flow from operations by making significant

reductions in operating expenses.

For the three months ended March 31, 2024, our operating expenses are $467,000 lower than the

For the six months ended March 31, 2024, our operating expenses are $837,000 lower than the prior year.

On a percentage

basis these decreases equate to a 29.3% reduction for the three month period and a 27.2% reduction for the six month period.

expect decreases compared to the prior year to occur in the remaining two quarters of this fiscal year.

reductions have had the desired impact.

Our cash balance grew slightly, $32,000, from December 31, 2023 to March 31, 2024.

growth is also contributing to our improved profitability and cash flow.

If revenue continues to grow on a year-over-year basis and we

maintain our operating expenses in line with current revenues, then we may experience further improvements in profitability and cash

Twelve Months Revenue Retention

we consider trailing twelve months revenue retention a key performance indicator.

Revenue retention is calculated by dividing retained

revenue in the measurement period by the total revenue for the previous twelve-month time frame.

The following table shows the revenue

retention by category for the twelve months ended June 30, 2024, and September 30, 2023.

Twelve Months Ended

Cybersecurity

software & services

OF OPERATIONS

Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023

consolidated financial data for the three months ended March 31, 2024 and 2023 are as follows:

Three Months Ended

Cost of revenues

Months Ended June 30, 2024, Compared to the Three Months Ended June 30, 2023

consolidated financial data for the three months ended June 30, 2024 and 2023 are as follows:

and administrative

and marketing

and development

combination related costs

operating expenses

General and administrative

Selling and marketing

Research and development

Total operating expenses

Operating loss

Our revenue was $1.9 million for the quarter ended March 31, 2024, compared to $1.6 million for the three-month comparable prior

an increase of $310,000 or 19.5%.

The factors driving this revenue increase include improved revenue retention and a growth in

both consulting engagements and sales of third-party services.

Our gross margin was 45.0% for the quarter ended March 31, 2024, compared 45.6% for the quarter ended March 31, 2023.

revenue was $1.85 million for the quarter ended June 30, 2024, compared to $1.75 million for the three-month comparable prior

period, representing an increase of $96 thousand, or 5.5%.

The factors driving this revenue increase included improved revenue

retention and a growth in both consulting engagements and sales of third-party services.

Our gross margin was 48.9% for the quarter ended June 30, 2024, compared to 49.9% for the quarter ended June 30, 2023.

decline in our gross margin was the result of less effective utilization of our service delivery employees and an increase in sales of

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We initiated expense reductions beginning in May 2023 that were fully implemented by March 2024.

These reductions impacted

all areas of our company.

These reductions resulted in a $467,000 or 29.3% decrease in total operating expenses for the three months

ended March 31, 2024, compared to the three months ended to March 31, 2023.

The changes for each operating expense area are discussed

The expense reductions were intended to increase the likelihood of achieving positive cash flow from operating activities during

fiscal year 2024.

These reductions

impacted all areas of our company.

These reductions resulted in a $512 thousand, or 32.7%, decrease in total operating expenses for

the three months ended June 30, 2024, compared to the three months ended to June 30, 2023.

The changes for each operating expense

area are discussed below.

The expense reductions were intended to increase the likelihood of achieving positive cash flow from

operating activities during fiscal year 2024.

and Administrative Expenses.

Our general and administrative expense was $849,000 for the three months ended March 31, 2024, compared

to $990,000 for the prior comparable period, a decrease of $141,000 or 14.2%.

The decrease was achieved by reducing executive positions

and eliminating investor relations costs.

Our general and administrative expense was $778 thousand for the three months ended June 30, 2024,

compared to $834 thousand for the prior comparable period, representing a decrease of $56 thousand, or 6.7%.

The decrease was achieved

by reducing executive positions.

and Marketing Expenses.

Our sales and marketing expense was $156,000 for the three months ended March 31, 2024, compared to $437,000

for the prior comparable period, a decrease of $281,000 or 64.3%.

The decrease was driven by a reduction in staff and third-party

service provider costs.

Our sales and marketing expense was $137 thousand for the three months ended June 30, 2024, compared to

$340 thousand for the prior comparable period, representing a decrease of $203 thousand, or 59.7%.

The decrease was driven by a

reduction in staff and third-party service provider costs.

and Development Expenses.

Our research and development expense was $123,000 for the three months ended March 31, 2024, compared

to $168,000 for the prior comparable period, a decrease of $45,000 or 26.8%.

The decrease is the result of a staff reduction as well

as some expenses being reallocated to cost of goods sold following the launch of Enclave.

Months Ended March 31, 2024, Compared to the Six Months Ended March 31, 2023

consolidated financial data for the six months ended March 31, 2024 and 2023 are as follows:

Six Months Ended

Cost of revenues

Our research and development expense was $141 thousand for the three months ended June 30, 2024,

compared to $180 thousand for the prior comparable period, representing a decrease of $39 thousand, or 21.7%.

The decrease was the

result of a staff reduction, as well as some expenses being reallocated to cost of goods sold following the launch of

Business Combination Related Costs.

recorded Business Combination related costs of $0 and $214 thousand for the three months ended June 30, 2024 and 2023, respectively.

These costs were associated with the shares issued during the three months ended June 30, 2023, in connection with the working

capital adjustment related to the Business Combination.

Months Ended June 30, 2024, Compared to the Nine Months Ended June 30, 2023

consolidated financial data for the nine months ended June 30, 2024 and 2023 are as follows:

and administrative

and marketing

and development

combination related costs

operating expenses

General and administrative

Selling and marketing

Research and development

Total operating expenses

Operating loss

Our revenue was $3.7 million for the six months ended March 31, 2024, compared to $3.2 million for the six-month comparable prior

an increase of $500,000 or 15.8%.

The factors driving this revenue increase include improved revenue retention and growth in

vCISO engagements.

Our gross margin was 46.8% for the six months ended March 31, 2024, compared to 50.6% for the six months ended March 31,

revenue was $5.5 million for the nine months ended June 30, 2024, compared to $4.9 million for the nine-month comparable prior

period, representing an increase of $596 thousand, or 12.1%.

The factors driving this revenue increase include improved revenue

retention and growth in vCISO engagements.

Our gross margin was 47.5% for the nine months ended June 30, 2024, compared to 50.4% for the nine months ended June 30,

The decline in our gross margin was the result of less effective utilization of our service delivery employees and an increase

in sales of third-party software and services, which have a lower margin.

We initiated expense reductions beginning in May 2023 that were fully implemented by March 2024.

These reductions impacted

all areas of our company.

These reductions resulted in a $835,000 or 27.2% decrease in total operating expenses for the six months ended

March 31, 2024 compared to the six months ended March 31, 2023.

The changes for each operating expense area are discussed below.

expense reductions were intended to increase the likelihood of achieving positive cash flow from operating activities during fiscal year

We initiated expense reductions in May 2023 that were fully implemented by March 2024.

These reductions impacted all

areas of our company.

These reductions resulted in a $1,347 thousand, or 29.1%, decrease in total operating expenses for the nine

months ended June 30, 2024, compared to the nine months ended June 30, 2023.

The changes for each operating expense area are

discussed below.

The expense reductions were intended to increase the likelihood of achieving positive cash flow from operating

activities during fiscal year 2024.

and Administrative Expenses.

Our general and administrative expense was $1.6 million for the six months ended March 31, 2024,

compared to $2.0 million for the prior comparable period, a decrease of $462,000 or 22.9%.

The decrease was achieved by reducing

executive positions and eliminating investor relations costs.

Our general and administrative expense was $2.34 million for the nine months ended June 30, 2024,

compared to $2.85 million for the prior comparable period, representing a decrease of $518 thousand, or 18.2%.

The decrease was

achieved by reducing executive positions and eliminating investor relations costs.

and Marketing Expenses.

Our sales and marketing expense was $425,000 for the six months ended March 31, 2024, compared to $744,000

for the prior comparable period, a decrease of $319,000 or 42.9%.

The decrease was driven by a reduction in staff and third-party

service provider costs.

Our sales and marketing expense was $562 thousand for the nine months ended June 30, 2024, compared to

$1,084 thousand for the prior comparable period, representing a decrease of $522 thousand, or 48.2%.

The decrease was driven by a

reduction in staff and third-party service provider costs.

and Development Expenses.

Our research and development expense was $249,000 for the six months ended March 31, 2024, compared

to $303,000 for the prior comparable period, a decrease of $54,000 or 17.8%.

The decrease is the result of a staff reduction as well

as some expenses being reallocated to cost of goods sold as Enclave has been launched.

Our research and development expense was $390 thousand for the nine months ended June 30, 2024,

compared to $483 thousand for the prior comparable period, representing a decrease of $93 thousand, or 19.3%.

The decrease was the

result of a staff reduction, as well as some expenses being reallocated to cost of goods sold as Enclave has been

Business Combination Related Costs.

recorded Business Combination related costs of $0 and $214 thousand for the nine months ended June 30, 2024 and 2023, respectively.

These costs were associated with the shares issued during the nine months ended June 30, 2023 in connection with the working capital

adjustment related to the Business Combination.

AND CAPITAL RESOURCES

had an accumulated deficit of $19.4 million as of March 31, 2024.

Our accumulated deficit has been primarily driven by three non-recurring

had an accumulated deficit of $19.6 million as of June 30, 2024.

Our accumulated deficit was primarily driven by three non-recurring

expenses totaling $16.8 million:

$6.2 million for acquisition costs, including $6.1 million related to the contingent consideration from

the Business Combination;

$5.7 million impairment of goodwill recorded as a result of the Business Combination, and $4.9 million impairment

of intangible assets.

On March 31, 2024, we had cash of $851,000.

We maintain our cash in accounts held by reputable financial institutions which, at times,

may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”).

The FDIC insures these

deposits up to $250,000.

As of March 31, 2024, approximately $601,000 of the Company’s cash balance was uninsured.

has not experienced any losses of cash in any of these financial institutions.

had working capital of $1.3 million as of March 31, 2024, compared to working capital of $1.5 million as of September 30, 2023.

in working capital is primarily attributed to the use of cash to fund operating losses during the last six months.

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

obligations and expenses.

W e 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 to us.

We believe that our existing cash balance is sufficient

to fund our operations through at least June 30, 2025.

following table summarizes selected items in our Consolidated Statements of Cash Flows for the six months ended March 31:

(In thousands)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

(i) $6.2 million for acquisition costs, including $6.1 million related to the contingent

consideration from the Business Combination;

(ii) $5.7 million impairment of goodwill recorded as a result of the Business

Combination, and (iii) $4.9 million impairment of intangible assets.

June 30, 2024, we had cash of $1.1 million.

We maintain our cash in accounts held by reputable financial institutions which, at

times, may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”).

insures these deposits up to $250 thousand.

As of June 30, 2024, approximately $855 thousand of the Company’s cash balance was

The Company has not experienced any losses of cash in any of these financial institutions.

had working capital of $1.4 million as of June 30, 2024, compared to working capital of $1.5 million as of September 30, 2023.

decline in working capital was primarily attributed to a reduction in prepaid expenses and an increase in deferred revenue offset by

a reduction in accrued liabilities during the nine months ended June 30, 2024.

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

W e 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 do not currently have any credit facilities available

We believe that our existing cash balance is sufficient to fund our operations through at least September 30, 2025.

following table summarizes selected items in our unaudited consolidated statements of cash flows for the nine months ended June 30, 2024 and 2023:

cash provided by (used in):

receive cash each month from revenue generated from our clients.

1 unchanged sentence

Material cash requirements include personnel costs and the expenses associated with being a public reporting company.

used $152,000 of cash for operating activities during the six months ended March 31, 2024 and recorded a net loss of $499,000.

the same period, our non-cash charges totaled $330,000 comprised of $234,000 in stock-based compensation expense net of cash used to

purchase RSUs from employees to cover income taxes due on vested RSU’s and $96,000 in amortization and depreciation.

in our net operating assets and liabilities was primarily due to a $126,000 decrease in accounts payable and accrued liabilities primarily

because of payments made on our directors and officers insurance note payable and a $284,000 increase in our deferred revenue balance.

were no cash activities in investing for this reporting period.

paid a $50,000 note payable to Mr.

Akash Desai in December 2023.

The note payable was related to a December 2021 agreement for the redemption

generated $117 thousand of cash from operating activities during the nine months ended June 30, 2024 and recorded a net loss of $645

During the same period, our non-cash charges were $583 thousand, comprised of (i) $443 thousand in stock-based

compensation expense, net of cash used to purchase RSUs from employees to cover income taxes due on vested RSUs, and (ii) $144

thousand in amortization and depreciation.

The change in our net operating assets and liabilities was primarily due to a

$ 274 thousand decrease in accounts payable and accrued liabilities, primarily because of payments made on our directors

and officers insurance note payable and a $367 thousand increase in our deferred revenue balance.

had fixed asset purchases of $15 thousand during the nine months ended June 30, 2024, related to an upgrade of our

paid a $50 thousand note payable to Akash Desai in December 2023.

The note payable was related to a December 2021 agreement for the

redemption of Mr.

Desai’s interest in SideChannel LLC.

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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 2. Management’s Discussion and Analysis