What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-12-18 compared with 2024-12-13 · 478 added, 532 removed, 471 unchanged (68% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID Number 587)

FINANCIAL STATEMENTS:

Balance Sheets as of September 30, 2025 and 2024

Statements of Operations for the years ended September 30, 2025 and 2024

Statements of Stockholders’ Equity for the years ended September 30, 2024 and 2023

Statements of Stockholders’ Equity for the years ended September 30,

2025 and 2024

Statements of Cash Flows for the years ended September 30, 2025 and 2024

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have audited the accompanying consolidated balance sheets of SideChannel, Inc., (the Company) as of September 30, 2025 and 2024, and

the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the

the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the

years in the two-year period ended September 30, 2025, and the related notes (collectively referred to as the consolidated financial

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that there are no critical audit matters.

We have served as the Company’s auditor since

Las Vegas, Nevada

December 12, 2024

RBSM LLP (PCAOB ID Number

served as the Company’s auditor since 2021.

Houston, Texas

LLP (PCAOB ID Number 587 )

BALANCE SHEETS

thousands, except share and per share data)

September 30, 2024

September 30, 2023

Current assets

Cash and cash equivalents

Cash and cash

Short-term investments

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Deferred costs

Prepaid expenses and other current assets

expenses and other current assets

Total current assets

Deferred costs

LIABILITIES & STOCKHOLDERS’ EQUITY

LIABILITIES & STOCKHOLDERS’

Current liabilities

Accounts payable and accrued liabilities

Accounts payable and accrued

Deferred revenue

Promissory note payable

Income taxes payable

taxes payable

Total current liabilities

Other liabilities

Total liabilities

Commitments and contingencies (Note 14)

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

225,975,331 and 213,854,781 shares issued and outstanding as of September 30, 2024, and 2023, respectively

Common stock, $ 0.001

par value, 681,000,000

shares authorized;

and 225,975,331

shares issued and outstanding as of September 30, 2025, and September 30,

2024, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

stockholders’ equity

liabilities and stockholders’ equity

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

STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Twelve Months Ended

September 30,

Cost of revenues

Operating expenses

General and administrative

Selling and marketing

Research and development

Intangible asset impairment

Business Combination related costs

Total operating expenses

and administrative

and marketing

and development

operating expenses

Operating loss

Other income, net

Net loss before income tax expense

Income tax expense (benefit)

Net loss per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

Net loss before income tax

loss after income tax expense

loss per common share – basic and diluted

Weighted average common shares

outstanding – basic and diluted

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

STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

Preferred Shares

Preferred Par Value

Common Shares

Common Par Value

Accumulated Deficit

For the Twelve Months Ended September 30, 2024 and 2023

Preferred Shares

Preferred Par Value

Common Shares

Common Par Value

Accumulated Deficit

Balance at September 30, 2022

Shares issued for services

Stock-based compensation

Conversion of Preferred to Common

Business Combination – Contingent Consideration

Balance at September 30, 2023

Shares issued for 2021 Investor Warrants

Legal settlement

Shares issued for services

Stock-based compensation

Balance at September 30, 2024

THE TWELVE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

thousands, except share data)

at September 30, 2023

issued for 2023 Warrant Exchange

issued for legal settlement

issued for services

at September 30, 2024

issued for legal settlement

at September 30, 2025

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

STATEMENTS OF CASH FLOWS

Twelve Months Ended September 30,

Twelve Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash flows provided by / (used in) operating activities:

Depreciation and amortization

Legal settlement paid in stock

Stock-based compensation and payments for services, net

Provision for doubtful accounts

Business Combination Costs

Intangible asset impairment

Changes in operating assets and liabilities:

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of short-term investments

Net sale (purchase) of short-term investments

Purchase of fixed assets

Net cash used in investing activities

Net cash provided by / (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Stock-based compensation included in accounts payable and accrued liabilities

Shares Issued for Services

Purchase of RSUs sold by employees to pay for taxes due on vested RSUs

TO FINANCIAL STATEMENTS

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

TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED SEPTEMBER 30, 2025 AND 2024

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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.

growth strategy focuses on these three initiatives:

Securing new vCISO clients

Adding new Cybersecurity Software and Services offerings

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

engagements typically contain a monthly subscription and rates for vCISO time and material projects ranging from $ 350

Each of our vCISOs is generally embedded into the C-suite executive teams of two (2) to four (4) of our clients.

augment our vCISO offering with a full range of other cybersecurity products and services including those delivered by our security

engineer employees and independent contractors in addition to reselling services and software provided by third-parties.

July 1, 2022, (the “Closing Date”) the Company, then known as Cipherloc Corporation, a Delaware corporation, completed

its acquisition (the “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

On September 9, 2022, SideChannel, Inc.

the acquired Massachusetts corporation and a subsidiary of the

registrant, changed its name to SCS, Inc.

(the “Subsidiary” or “SCS”) and Cipherloc Corporation, the

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

Following the closing of the Business

Combination, SCS, Inc.

became a wholly owned subsidiary of the Company.

As used herein, the words “the Company” refers

to, for periods following the Business Combination, SideChannel, Inc., together with its subsidiaries.

We continue to expand our catalogue

of services and solutions to address the cybersecurity needs of our customers, including virtual Chief Information Security Officer (“vCISO”),

cyber program strategy, zero trust, third-party risk management, compliance readiness, cloud security and architecture services, privacy,

threat intelligence, managed end-point security solutions, and cybersecurity awareness.

are marketing and selling Enclave, a proprietary software product that simplifies important cybersecurity tasks to achieve “microsegmentation.”

By combining zero trust network access with certificate management and machine identity, Enclave seamlessly creates a unified security

architecture that eliminates traditional network vulnerabilities.

This integration enables IT teams to enforce precise access policies

based on verified machine identities.

Certificate-based identities allow a simplified management for any certificate-based communication,

while the zero trust framework continuously validates every connection attempt.

This powerful combination delivers robust security without

the typical management overhead, allowing organizations to implement sophisticated microsegmentation strategies with remarkable simplicity

and minimal resource requirements.

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

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2 – GOING CONCERN ASSESSMENT

We are required to perform a going concern assessment for the annual reporting period.

The assessment uses a two-step

process to evaluate whether there are conditions and/or events that raise substantial doubt about our ability to continue as a going concern

within one year after the date on which the annual financial statements are issued.

The two steps are to:

are required to perform a going concern assessment for the annual reporting period.

The assessment uses a two-step process to evaluate

whether there are conditions and/or events that raise substantial doubt about our ability to continue as a going concern within one year

after the date on which the annual financial statements are issued.

two steps are to:

if “substantial doubt” is raised regarding the entity’s ability to continue as a going concern.

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whether such a plan alleviates the initial doubt, the guidance will require some level of disclosure in the financial statements.

Substantial doubt exists when it is probable (within one year after the date on which the financial statements are

issued) that the Company will be unable to meet its obligations as they become due.

Probable is used consistently with its use in ASC

450, Contingencies (the future event or events are likely to occur, which is a higher threshold than “more likely than not”

but lower than “virtually certain”).

This assessment is through December 31, 2025, because our fiscal year 2024 financial statements will be issued during

December 2024.

For the year ended September 30, 2024, we reported a net loss of $ 904 thousand which includes $ 755 thousand of non-cash

expenses for depreciation, amortization, and stock-based compensation.

Our operating activities generated $ 307 thousand in cash for the

year ended September 30, 2024, and our cash balance decreased by $ 8 thousand during that same period after using $ 315 thousand of cash

for investing and financing activities, including the purchase of $ 250 thousand in short-term investments.

We may incur continued net

losses until we generate revenues in excess of our expenses;

however, we intend to manage our business such that our current cash balance

and net cash provided by operations will allow us to sustainably fund our business.

We cannot be certain that this will be achieved.

don’t currently have any credit facilities available to us.

We have determined that substantial doubt does not exist about our ability to continue as a going concern through

December 31, 2025.

doubt exists when it is probable (within one year after the date on which the financial statements are issued) that the Company will

be unable to meet its obligations as they become due.

Probable is used consistently with its use in ASC 450, Contingencies (the future

event or events are likely to occur, which is a higher threshold than “more likely than not” but lower than “virtually

This assessment

is through December 31, 2026, because our fiscal year 2025 financial statements were issued during December 2025.

For the year ended

September 30, 2025, we reported a net loss of $ 892

thousand, which includes $ 498

thousand of non-cash expenses for depreciation, amortization,

and stock-based compensation.

Our operating activities used $ 130

thousand in cash for the year ended September 30, 2025, and

our cash balance increased by $ 20

thousand after gaining $ 150

thousand of cash for investing and financing activities.

may incur continued net losses until we generate revenues more than our expenses;

however, we intend to increase revenue or decrease expenses such that

our current cash balance and net cash provided by operations will allow us to sustainably fund our business.

We cannot be certain that

this will be achieved.

We don’t currently have any credit facilities available to us.

have determined that substantial doubt does not exist about our ability to continue as a going concern through December 31, 2026.

3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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deferred tax assets and liabilities, including related valuation allowances, are based upon estimates.

References to fiscal year 2025

and fiscal year 2024 used throughout this report shall mean the current fiscal year ending September 30, 2025, and the prior fiscal year

ended September 30, 2024, respectively.

Reclassifications

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have had no impact on net income or stockholders’ equity.

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

The Company operates as a single reportable segment focused on cybersecurity

solutions, which consists of two primary revenue-generating categories:

1) vCISO Services and 2) Cybersecurity Software and Services.

This category captures the revenue from the Chief Information Security Officer services that we provide to our clients

on a “virtual” or outsourced basis.

Embedded into the C-suite executive teams of our clients, our vCISOs deliver services

including 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.

Engagements typically

include a fixed monthly subscription fee and exceed 12 months because of renewal options of 1, 3, 6, or 12 months.

Cybersecurity

Software and Services:

This category encompasses an array of cybersecurity software and services that our clients deem necessary

to protect their digital assets, including Enclave.

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 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.

Chief Executive Officer is our Chief Operating Decision Maker (“CODM”).

Revenue is the primary segment performance measure

reviewed by the CODM for operational and capital allocation decisions.

following table presents revenue reviewed by the CODM for the twelve months ended September 30, 2025 and 2024:

OF DISAGGREGATED REVENUE

Twelve Months Ended

(in thousands)

September 30,

vCISO services

Cybersecurity software and services

businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net

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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

change in the fair value of acquisition-related contingent consideration after the acquisition date, including changes from events after

the acquisition date, will be recognized in the consolidated statement of operations in the period of the estimated fair value change.

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

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Cash Equivalents, and Short-Term Investments

Cash includes funds deposited in banks.

includes funds deposited in banks.

consider all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Highly liquid investments with original maturities of 91 days or more that will mature less than one year from the

balance sheet date are classified as short-term investments.

Securities with maturities of more than 360 days, if any, are included in

“Long-term investments.”

Our cash equivalents and short-term

investments are placed primarily in money market funds and time deposits and are classified as held-to-maturity based on our positive

intent and ability to hold the securities to maturity.

We value cash equivalents at their original purchase prices plus interest that

has accrued at the stated rate.

Highly liquid investments

with original maturities of 91 days or more that will mature less than one year from the balance sheet date are classified as short-term

Securities with maturities of more than 360 days, if any, are included in “long-term investments.”

cash equivalents and short-term investments are placed primarily in money market funds and time deposits and are classified as held-to-maturity

based on our positive intent and ability to hold the securities to maturity.

We value cash equivalents at their original purchase prices

plus interest that has accrued at the stated rate.

We value short-term investments at their original purchase prices.

Interest earned on short-term investments

is accrued in interest receivable which is included on our balance sheet in “Accounts receivable, net.”

Interest income

related to cash equivalents and short-term investments is reported in “Other income, net” on the Consolidated Statement of Operations.

Trade accounts receivable are recorded at the invoiced amounts and do not bear interest.

We grant credit to customers

and generally require no collateral.

To minimize our risk, we perform ongoing credit evaluations of our customers’

financial condition.

Effective January 1, 2023, we follow

the guidance in Accounting Standards Codification (“ ASC”) Topic 326 (Financial

Instruments – Credit Losses) in developing our estimate of the allowance for credit losses related to our accounts receivable.

allowance for credit losses is our best estimate of the amount of expected credit losses in our existing accounts receivable.

In establishing

the amount of allowance for credit losses, we consider all information available as of the reporting date including information related

to past events, such as historical loss rates and actual incurred losses, as well as current conditions that may indicate

future risk of loss and any other factors of which we are aware, that we believe could impact the ultimate collectability of the related

receivables in future periods.

Account balances are charged off against the allowance after all means of collection have been exhausted and the

potential for recovery is considered remote.

We do not have any

significant off-balance sheet credit exposure related to our customers.

Cash flows from accounts receivable are recorded in operating

For the year ended September 30, 2024 , there was no change in the amount of the allowance for credit

There was no bad debt expense recorded for the years ended September 30, 2024, and 2023.

Interest earned

on short-term investments is accrued in interest receivable which is included on our balance sheet in “Accounts receivable, net.”

income related to cash equivalents and short-term investments is reported in “Other income, net” on the Consolidated Statement

of Operations.

accounts receivable are recorded at the invoiced amounts and do not bear interest.

We grant credit to customers and generally require

no collateral.

To minimize our risk, we perform ongoing credit evaluations of our customers’ financial condition.

Effective January

1, 2023, we follow the guidance in Accounting Standards Codification (“ASC”) Topic 326 (Financial Instruments

– Credit Losses) in developing our estimate of the allowance for credit losses related to our accounts receivable.

The allowance

for credit losses is our best estimate of the amount of expected credit losses in our existing accounts receivable.

In establishing the

amount of allowance for credit losses, we consider all information available as of the reporting date including information related to

past events, such as historical loss rates and actual incurred losses, as well as current conditions that may indicate future risk of

loss and any other factors of which we are aware, that we believe could impact the ultimate collectability of the related receivables

in future periods.

balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered

We do not have any significant off-balance sheet credit exposure related to our customers.

Cash flows from accounts receivable

are recorded in operating cash flows.

the year ended September 30, 2025 , there was no change in the amount of the allowance for credit losses.

There was no bad debt

expense recorded for the years ended September 30, 2025 and 2024.

Value of Financial Instruments

financial instruments consisted primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses.

The carrying amounts of such financial instruments approximate their respective estimated

fair value due to the short-term maturities and approximate market interest rates of these instruments.

financial instruments consisted primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable

and accrued expenses.

The carrying amounts of such financial instruments approximate their respective estimated fair value due to the

short-term maturities and approximate market interest rates of these instruments.

value is focused on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction

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three-level hierarchy for fair value measurements is defined as follows:

Level 1 – inputs to

the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 – inputs to

the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable

for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered

to be active;

Level 3 – inputs to

the valuation methodology are unobservable and significant to the fair value measurement.

For more information about the Company’s accounting policies surrounding fair value investments, see Note

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

2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs

that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets

that are not considered to be active;

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

more information about the Company’s accounting policies surrounding fair value investments, see Note 7.

Intangible, and Long-Lived Assets

account for goodwill and intangible assets in accordance with ASC Topic 350 (Intangibles

– Goodwill and Other).

Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at

cost less accumulated amortization.

Goodwill is assessed for impairment annually during the fourth quarter on a reporting unit basis,

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

Goodwill is considered

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

As a part of the goodwill impairment assessment,

we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting

unit is less than its carrying amount.

If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that

the fair value of the reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not required.

if, as a result of our qualitative assessment, we determine it is more-likely-than-not that the fair value of a reporting unit is less

than its carrying amount, or, if we choose not to perform a qualitative assessment, we are required to perform a quantitative goodwill

impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized.

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

Finite-lived intangible

assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization.

Goodwill is assessed

for impairment annually during the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating

that the recorded goodwill may be impaired.

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

As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not

that the fair value of a reporting unit is less than its carrying amount.

If, because of our qualitative assessment, we determine that

it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, a quantitative goodwill impairment

test is not required.

However, if, as a result of our qualitative assessment, we determine it is more-likely-than-not that the fair value

of a reporting unit is less than its carrying amount, or, if we choose not to perform a qualitative assessment, we are required to perform

a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss

to be recognized.

quantitative goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill.

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For fiscal years 2025 and 2024, we recorded no impairment of goodwill.

of the goodwill associated with the Business Combination is deductible for income tax purposes.

of the goodwill associated with business combinations is deductible for income tax purposes.

did not record indefinite-lived intangible assets in the fiscal years ended September 30, 2025 and 2024.

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determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.

recorded $ 4.9

million of finite-lived intangible assets in the form of Acquired In Process Research & Development (“AIPR&D”)

as a result of acquiring Enclave in the Business Combination as of September 30, 2022.

Under ASC 805, AIPR&D are initially

recognized at fair value and classified as finite-lived assets until the successful completion or abandonment of the associated

research and development efforts.

During the development period, these assets will not be amortized as charges to earnings;

these assets will be tested for impairment on an annual basis or more frequently if impairment indicators are identified.

impairment loss is measured based on the excess of the carrying amount over the asset’s fair value.

Our impairment testing as

of September 30, 2023, indicated the full value of this finite-lived intangible asset was impaired.

The difficulty of projecting the

amount and timing of future revenues caused us to conclude a full impairment of the asset was appropriate.

The $ 4.9 million of

intangible asset impairment charge recorded during fiscal year 2023 neither indicated a decrease in our emphasis on Enclave as a key

initiative nor did it suggest a lack of market interest in the product.

The Company did not record any finite-lived intangible asset

impairment for the year ended September 30, 2024.

We recognize revenue in accordance with the guidance in ASC Topic 606 (Revenue

from Contracts with Customers).

recognize revenue in accordance with the guidance in ASC Topic 606 (Revenue from Contracts with Customers).

of Products and Services

We identify, develop, and deploy cybersecurity and privacy risk management

solutions for our clients in North America.

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

and Services.

The revenue earned from Enclave, our proprietary software product, as well as the revenue from reselling third-party software and services

are included in Cybersecurity Software and Services.

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

We categorize our

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

The revenue earned from Enclave, our proprietary

software product, as well as the revenue from reselling third-party software and services are included in Cybersecurity Software and

performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of accounting

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Each MSA generally contains one or more Statement(s) of Work (“SOW”).

Each SOW specifies the products and services and their respective transaction prices.

We refer to an MSA and its SOW(s)

as a “Contract”.

Our Contracts generally contain monthly service subscriptions, annual software licenses, time and material

based billing, or fixed fee projects.

Each SOW specifies the products and services and their

respective transaction prices.

We refer to an MSA and its SOW(s) as a “Contract”.

Our Contracts generally contain monthly

service subscriptions, annual software licenses, time and material based billing, or fixed fee projects.

Contract’s transaction price is allocated to each distinct performance obligation.

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time when, or as, the performance obligation is satisfied for fixed fee projects and time and material based billing.

The assets we create for our clients do not have alternative uses to SideChannel and our Contracts created a right

to payment for work completed.

Each of the fixed fee project performance obligations we delivered in fiscal year 2024 were accompanied

by an upfront payment.

Our determination for point in time revenue recognition is based upon client acceptance of the performance obligation.

The completed

work products we create for our clients do not have alternative uses to SideChannel and our Contracts created a right to payment for

work completed.

Each of the fixed fee project performance obligations we delivered in fiscal year 2025 were accompanied by an

upfront payment.

Our determination for point in time revenue recognition is based upon client acceptance of the performance

do not have any material variable consideration arrangements, client-specific acceptance criteria, or any material payment terms with

our clients other than standard payment terms which generally range from net 15 to net 30 days.

Principal vs Agent

We resell the software and services provided by third-parties.

When we have discretion over the pricing used in the Contracts with our clients then we deem ourselves to be the principal for purposes

of revenue recognition and record revenue on a gross basis using the price specified in the Contract.

This is the case for almost all

of the third-party software and services we sell.

Also consistent in our determinations to recognize revenue as the principal is our ability

to direct the third-party to provide the service to the client on our behalf.

Occasionally, we receive a commission from the sale

of third-party software and services in which case we are an agent and record revenue on a net basis equal to the amount of the commission

resell the software and services provided by third parties.

When we have discretion over the pricing used in the Contracts with our

clients then we deem ourselves to be the principal for purposes of revenue recognition and record revenue on a gross basis using the

price specified in the Contract.

This is the case for almost all the third-party software and services we sell.

Also consistent in

our determinations to recognize revenue as the principal is our ability to direct the third party to provide the service to the

client on our behalf.

Occasionally,

we receive a commission from the sale of third-party software and services in which case we are an agent and record revenue on a net

basis equal to the amount of the commission earned.

record accounts receivable at the time of invoicing.

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.

In these instances, the recognition of revenue is deferred until we have determined that we have satisfied

our performance obligations under the Contract.

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.

In these instances, the recognition of revenue is deferred until we have determined that we have satisfied our performance obligations

under the Contract.

to Obtain a Contract with a Customer

The 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.

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

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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.

the ability to obtain substantially all 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.

leases are included in property and equipment and financing lease liabilities.

leases are included in operating lease ROU assets and operating lease liabilities in our consolidated balance sheets.

Finance leases

are included in property and equipment and financing lease liabilities.

We do not currently have any financing leases.

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Our lease periods are less than one-year in duration.

expense for short-term lease payments is recognized on a straight-line basis over the lease term.

Lease expense

for short-term lease payments is recognized on a straight-line basis over the lease term.

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

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research and development costs, including patent and software development costs, are expensed as incurred.

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.

The Company estimates the fair

value of share-based payment awards on the date of grant using an option-pricing mode or the fair value of our stock on the grant

The value of the portion of the award that is ultimately expected to vest is recognized as stock compensation expense over the

requisite service period in the Company’s consolidated statements of income.

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.

The Company estimates the fair value of share-based

payment awards on the date of grant using an option-pricing mode or the fair value of our stock on the grant date.

The value of the portion

of the award that is ultimately expected to vest is recognized as stock compensation expense over the requisite service period in the

Company’s consolidated statements of income.

stock compensation expense recognized in the accompanying consolidated statements of income is based on awards ultimately expected to

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The Company has limited historical experience with forfeitures and were based on management’s

Excess tax benefits

or deficiencies from stock compensation are recognized in the income tax provision and are not estimated in the effective tax rate.

they are recorded as discrete tax items in the period they occur.

Excess income tax benefits from stock compensation arrangements are

classified as a cash flow from operations.

See further disclosures related to our stock-based

compensation plans in Note 15.

are subject to legal proceedings, claims, and liabilities which arise in the ordinary course of business, and we accrue for losses

associated with legal claims when such losses are probable and can be reasonably estimated.

These accruals are adjusted as

additional information becomes available or circumstances change.

Legal fees are charged to general and administrative expenses as

they are incurred.

tax benefits or deficiencies from stock compensation are recognized in the income tax provision and are not estimated in the effective

Rather, they are recorded as discrete tax items in the period they occur.

Excess income tax benefits from stock compensation

arrangements are classified as a cash flow from operations.

further disclosures related to our stock-based compensation plans in Note 13.

are subject to legal proceedings, claims, and liabilities which arise in the ordinary course of business, and we accrue for losses associated

with legal claims when such losses are probable and can be reasonably estimated.

These accruals are adjusted as additional information

becomes available or circumstances change.

Legal fees are charged to general and administrative expenses as they are incurred.

utilize the asset and liability method in accounting for income taxes.

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evaluate warrants in accordance with ASC Topics 480 (Distinguishing Liabilities from Equity) and 815 (Derivatives and Hedging).

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

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.

The change in fair value is recorded in the 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.

The change in fair value is recorded in the 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

Accounting Announcements

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

authoritative literature in the ASC.

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

literature in the ASC.

There have been several ASUs to date that amend the original text of the ASCs.

Other than those

discussed below, we believe those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections,

(iii) are not applicable to us, or (iv) are not expected to have a significant impact on us.

Other than those discussed below,

we believe those ASUs issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable

to us, or (iv) are not expected to have a significant impact on us.

Pronouncements Adopted

did not adopt new accounting pronouncements during the year ended September 30, 2024.

November 2023, the 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.

guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

December 15, 2024.

For us, annual reporting requirements were effective for our fiscal year 2025 beginning on October 1, 2024, and

interim reporting requirements will be effective beginning with our first quarter of fiscal year 2026.

We manage our operations as a

single operating segment for the purpose of assessing performance and making operating decisions.

Our Chief Executive Officer is our

No changes have been made to the presentation of our financial statements because of this

pronouncement.

did not adopt additional new accounting pronouncements during the year ended September 30, 2025.

Pronouncements Not Yet Adopted

2023, the FASB issued amendments to the guidance for disclosures about reportable segments which require disclosures of

significant expenses by segment and interim disclosure of items that were previously required on an annual basis.

The amendments are

to be applied on a retrospective basis and are effective for fiscal years beginning after December

15, 2023, and interim periods within fiscal years beginning after December 15,

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

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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 incurred because 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

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impact of the adoption of the rule.

4 – REVERSE MERGER BETWEEN CIPHERLOC CORPORATION AND SIDECHANNEL, INC.

(now known as SCS, Inc.)

of the Business Combination

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.

This determination was

primarily based on the facts that, immediately following the Business Combination:

(1) the majority of the Board of Directors of the

combined company would be composed of directors designated by the Sellers under the terms of the Purchase Agreement;

existing members of SCS management constituted the management of the combined company.

Because 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 ASC Topic 805, Business Combinations.

As a result, the historical financial statements of SideChannel are the

historical financial statements of the combined company.

of the Business Combination Terms

to the Purchase Agreement, on the Closing Date, the former shareholders of the Subsidiary (the “Sellers”) exchanged all of

their equity securities in the Subsidiary for a total of 59,900,000 shares of the Company’s common stock (the “First Tranche

Shares”), and 100 shares of the Company’s newly designated Series A Preferred Stock, $ 0.001 par value (the “Series

A Preferred Stock”).

The Sellers were entitled to receive up to an additional 59,900,000 shares of the Company’s common stock

(the “Second Tranche Shares” and together with the First Tranche Shares and the Series A Preferred Stock, the “Shares”)

at such time that the operations of the Subsidiary, as a subsidiary of the Company, achieved at least $ 5.5 million in revenue (the “Milestone”)

for any twelve-month period occurring after the Closing Date and before the 48-month anniversary of the execution of the Purchase Agreement.

The Second Tranche shares were valued using the closing price on July 1, 2022, of $ 0.10 per share which resulted in a fair value of $ 6.1

number of the Second Tranche Shares was increased, based upon the Subsidiary’s working capital as

of the Closing Date was more than zero.

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

Closing Working Capital Adjustment.

4 – CASH EQUIVALENTS AND INVESTMENTS

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following table presents the carrying amounts of cash equivalents and short-term investments as of September 30, 2025 and 2024:

OF CASH AND CASH EQUIVALENTS AND SHORT TERM INVESTMENTS

SCHEDULE OF CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

September 30,

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Money market funds

Time deposits

Total cash equivalents

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

The agreement with Paulson remains in place after the Business Combination.

Pursuant to the agreement,

Paulson will provide the following services at the Company’s request:

(a) familiarize itself with the Company’s

business, assets, and financial condition;

(b) assist the Company in developing strategic and financial objectives;

Company in increasing its exposure in the software industry;

(d) assist the Company in increasing its profile in the investment and

financial community through introductions to analysts and potential investors, participation in investment conferences and

exploitation of reasonably available media opportunities;

(e) identify potentially attractive merger and acquisition opportunities;

(f) review possible innovative financing opportunities and (g) render other financial advisory services as may be reasonably

The term of the agreement is four years from the date of the agreement, unless terminated earlier by either party as

provided therein.

As compensation for these services, the Company issued to Paulson 4

Pursuant to the agreement, Paulson will provide the following services at the Company’s request:

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

(b) assist the Company in developing

strategic and financial objectives;

(d) assist the

Company in increasing its profile in the investment and financial community through introductions to analysts and potential

investors, participation in investment conferences and exploitation of reasonably available media opportunities;

potentially attractive merger and acquisition opportunities;

(f) review possible innovative financing opportunities and (g) render

other financial advisory services as may be reasonably requested.

The term of the agreement is four years from the date of the

agreement, unless terminated earlier by either party as provided therein.

As compensation for these services, the Company issued to

million shares of the Company’s common stock and agreed to reimburse Paulson for all reasonable and documented expenses

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The fair value of the shares issued was $ 720

thousand which Cipherloc recognized as deferred costs which are amortized at a rate of $ 45

thousand per quarter.

thousand which the Company recognized as deferred costs, which were amortized at a rate of $ 15

thousand per month through July 2025.

The Company expensed $ 150

thousand in each of the fiscal years ended September 30, 2024, and 2023.

The unamortized balance of the deferred costs was $ 150

thousand at September 30, 2024.

7 – IDENTIFIABLE INTANGIBLE ASSETS

estimated fair values of the identifiable intangible assets acquired were calculated using an income valuation approach which requires

a forecast of expected future cash flows either through the use of relief-from-royalty method or multi-period excess earnings methods

conducted a fair value analysis of the intangible assets acquired as of September 30, 2023, and concluded that the full carrying value

of this asset should be impaired.

Our balance sheet as of September 30, 2023, reflects this conclusion.

Incurring impairment in fiscal

year 2023 neither indicated a decrease in our emphasis on Enclave as a key initiative nor did it suggest a lack of market interest in

did no t have identifiable intangible assets at September 30, 2024.

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.

thousand and $ 180

thousand in fiscal years ended September 30, 2025, and 2024, respectively.

The unamortized balance of the deferred costs was zero

at September 30, 2025.

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.

The annual renewal date is January 1 st .

Our current lease payment is $ 967 per month.

The lease allows

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

current lease payment is $ 986

The lease allows for a two percent ( 2 %)

increase effective at the beginning of each renewal period.

We anticipate the lease payment to be $1,006 per month during calendar year 2026.

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

Operating lease expenses were $ 12 thousand and $ 10 thousand for

the fiscal years ended September 30, 2024, and 2023, respectively.

lease expenses were $ 12 thousand and $ 12 thousand for the fiscal years ended September 30, 2025 and 2024, respectively.

have made an accounting policy election not to apply the recognition requirements of ASC Topic 842 (Leases) to short-term leases (leases

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expect to pay approximately $ 12 thousand over the next twelve (12) months for the Worcester lease .

NOTE 9 – FAIR VALUE MEASUREMENT

7 – FAIR VALUE MEASUREMENT

Topic 820 “Fair Value Measurement” (“Topic 820”) defines fair value, establishes a market-based framework or

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OF FAIR VALUE OF FINANCIAL INSTRUMENTS

(in thousands)

September 30, 2025

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Total Short-term investments

(in thousands)

September 30, 2024

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Total Short-term investments

The entire balance of time deposits maturing in 91 to 360 days are certificates

of deposit issued by a bank at which total deposits exceed the FDIC limit of $ 250 thousand.

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 thousand, without interest, in exchange for Mr.

Desai’s right, title, and interest in us.

Desai was paid $ 50 thousand at the execution of the Desai Redemption Agreement and the remaining $ 50 thousand was paid in December 2023.

entire September 30, 2025, balance of time deposits maturing in 91 to 360 days are certificates of deposit issued by a bank at which

total deposits are less than the FDIC limit of $ 250 thousand.

did not have debt at September 30, 2025.

9 – STOCKHOLDERS’ EQUITY

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Stock Issued for Cash

did no t issue shares of common stock for cash during the years ended September 30, 2024, and September 30, 2023.

common shares were issued for cash in fiscal year 2025 or fiscal

Stock Issued for Business Combinations

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

Adjustment ( 2,116,618 shares).

shares were issued for business combinations in fiscal year

2025 or fiscal year 2024.

Stock Issued for Services

shares were issued for services in fiscal year 2025.

March 31, 2024, our Board of Directors elected to have each of its members receive one-half of such member’s quarterly compensation

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During fiscal year 2024, the fair market

value of stock issued for services totaled $ 20 thousand for 437,643 shares of common stock compared to $ 66 thousand for 770,978 shares

of common stock in fiscal year 2023.

Board of Directors elected to cease receiving quarterly compensation in the form of shares of the Company’s common stock after

April 1, 2024.

value of stock issued for services totaled $ 20

thousand for 437,643

shares of common stock.

Stock Issued Under Equity Incentive Plan

issued 4,897,323

shares of common stock for 6,398,717

restricted stock units (“RSUs”) that vested during

the year ended September 30, 2025.

The number of RSUs sold by these employees to fund payroll taxes for the year September 30, 2025,

was 1,501,394 .

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

The number of RSUs sold by these employees to fund payroll taxes for the year September 30, 2024, was 2,125,096 .

Stock Issued for Legal Settlement

issued 356,400

shares of common stock in fiscal year 2025 related to a legal

settlement and no shares were issued in fiscal year 2024 related to legal settlements.

Stock Issued for Tender Offer

August 22, 2023, the Company commenced a Tender Offer for the 69,281,020

Warrants subject to our Offer to Exchange.

Tender Offer (“Offer to Exchange”) was filed on November 7, 2023.

We closed the

November 7 Offer to Exchange on December 26, 2023, resulting in the issuance of 7,270,958

stock was issued for tender offers in fiscal year 2025.

August 22, 2023, the Company commenced a Tender Offer for the 69,281,020 Warrants subject to our Offer to Exchange.

A new Tender Offer

(“Offer to Exchange”) was filed on November 7, 2023.

closed the November 7 Offer to Exchange on December 26, 2023, resulting in the issuance of 7,270,958

shares of common stock and 17,415,437

new warrants in exchange for 2021 Investor Warrants totaling 43,538,501 .

of September 30, 2024, and 2023, we had zero ( 0 ) shares of preferred stock outstanding.

activity for years ended September 30, 2024, and 2023, is as follows:

OF WARRANT ACTIVITY

Outstanding Warrants

new warrants in exchange for 43,538,501 2021 Private Placement Warrants tendered (“2023 Warrant Exchange”) .

of September 30, 2025 and 2024, we had zero ( 0 )

shares of preferred stock outstanding.

have four categories of warrants outstanding which are summarized below along with exercise prices and expiration dates.

OF WARRANT OUTSTANDING

(In thousands, except prices and lives)

Number of Warrants

Weighted Average Exercise Price

Weighted Average Remaining Life

(In thousands, except prices and remaining lives)

Outstanding at September 30, 2022

Tendered during November 2023 Warrant Exchange

Exercise Price

Expiration Date

2018 Placement Agent

2021 Private Placement

2021 Placement Agent

2023 Warrant Exchange

Total Outstanding Warrants

did not have any warrant activity during fiscal year 2025.

activity for years ended September 30, 2025 and 2024, is as follows:

SCHEDULE OF WARRANT ACTIVITY

(In thousands, except prices and lives)

at September 30, 2023

in 2023 Warrant Exchange

Canceled/Forfeited

Outstanding at September 30, 2024

Outstanding at September 30, 2023

Granted through November 2023 Warrant Exchange

Tendered during November 2023 Warrant Exchange

Canceled/Forfeited

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10 – REVENUE FROM CONTRACTS WITH CLIENTS

Disaggregation

We disaggregate our revenue from contracts with clients by service type.

See the below table:

OF DISAGGREGATED REVENUE

(in thousands)

September 30,

vCISO services

Cybersecurity software and services

revenue is comprised of payments received from our clients and customers for products or services in advance of receiving the product

or service and primarily occurs for annual software and service contracts including Enclave.

While software contracts can be initiated

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

The deferred revenue is expected to be

earned within 12 months of the balance sheet date.

in deferred revenue were as follows:

The deferred revenue is expected to be earned

within 12 months of the balance sheet date.

OF CHANGES IN DEFERRED REVENUE

Ended September 30, 2023

at September 30, 2022

at September 30, 2023

Ended September 30, 2024

at September 30, 2023

(In thousands)

Balance at September 30,

September 30, 2024

at September 30, 2025

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client individually accounted for over 10 % of our revenue during the years ended September 30, 2025, or 2024.

did not have any customers with an accounts receivable balance that exceeded 10 % of accounts receivable at September 30, 2024.

We maintain our cash and cash equivalents

in accounts held by a highly reputable financial institution which, at times, may exceed federally insured limits as guaranteed by the

Federal Deposit Insurance Corporation (“FDIC”).

The FDIC insures these deposits up to $ 250 thousand.

had two clients each with an accounts receivable balance that exceeded 10 %

of accounts receivable at September 30, 2025.

maintain our cash, cash equivalents, and short-term investments in accounts held by highly reputable financial institutions (collectively

The Federal Deposit Insurance Corporation (“FDIC”) insures these Deposits up to $ 250 thousand per

financial institution.

At times our balance at each institution may exceed the $ 250 thousand FDIC insured limit.

As of September 30,

2024, approximately $ 795 thousand of our cash and cash equivalent balance was uninsured.

We have not experienced any losses on cash.

2025, we had insured Deposits totaling $ 424 thousand at three (3) distinct financial institutions leaving approximately $ 741

thousand of our Deposits uninsured.

We have not experienced any losses on Deposits.

12 – RELATED PARTY TRANSACTIONS

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

the years ended September 30, 2024, and 2023, SideChannel paid $ 30 thousand and $ 26 thousand to RealCISO for licenses, respectively.

also received $ 122 thousand and $ 63 thousand from RealCISO for software development services that we provided Real CISO during fiscal

fiscal years 2025, and 2024, SideChannel paid $ 75

thousand and $ 30

thousand to RealCISO for licenses, respectively.

also invoiced $ 34 thousand and $ 122 thousand from RealCISO for software development services that we provided RealCISO during fiscal

years 2025 and 2024, respectively.

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

$ 24 thousand.

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

approximately $ 24

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

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On July 8, 2024,

AUSA signed an agreement for recurring vCISO Services which will generate approximately $ 108 thousand of annual revenue for the Company.

AUSA signed an agreement for recurring vCISO Services which generated approximately $ 9 thousand of revenue in fiscal year 2024 and

thousand of annual revenue in fiscal year 2025 for the Company before terminating in March 2025.

SideChannel reserved booth space at

the AUSA Global Force Symposium held in March 2025 and paid $ 8

thousand to AUSA for this event.

other related party transactions occurred during the years ending September 30, 2025, and September 30, 2024.

13 – STOCK-BASED COMPENSATION

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

Equity Compensation Plan (the “2021 Equity Incentive Plan”) approved by stockholders on September 13, 2021.

stockholder approval of the 2021 Equity Incentive Plan included a reserve of 8.0

million shares for awards.

of September 30, 2025, we had 15.3 million unvested RSUs granted

under the 2021 Omnibus Equity Compensation Plan (the “2021 Equity Incentive Plan”) approved by stockholders on September

stockholder approval of the 2021 Equity Incentive Plan included a reserve of 8.0 million shares for awards.

The 2021 Equity Incentive

Plan also allows for an annual increase in the reserve up to an amount approximately equal to five percent ( 5 %)

of the fully diluted outstanding shares at the end of the prior calendar year.

On June 29, 2022, the Board of Directors authorized an

increase in the shares reserved for the 2021 Equity

Incentive Plan.

Plan also allows for an annual increase in the reserve up to an amount approximately equal to five percent ( 5 %) of the fully diluted

outstanding shares at the end of the prior calendar year.

On June 29, 2022, the Board of Directors authorized an 8,186,106 increase in

the shares reserved for the 2021 Equity Incentive Plan.

On February 15, 2024, the Board of Directors authorized an increase of 13,599,334

in the shares reserved for the 2021 Equity Incentive

Awards granted under the 2021 Equity Incentive Plan in lieu of compensation are exempt from counting against the reserve.

in the shares reserved for the 2021 Equity Incentive Plan.

On February 3, 2025, the Board of Directors authorized an increase of 14,196,898

in the shares reserved for the 2021 Equity Incentive Plan.

Awards granted under the 2021 Equity Incentive Plan in lieu of compensation

are exempt from counting against the reserve.

OF COMMON STOCK SHARES RESERVED FOR EQUITY GRANTS

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Reserve percent of outstanding shares at September 30, 2025

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

service-based vesting period.

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

September 30, 2024, total compensation expense to be recognized in future periods was $ 667

typically have granted RSUs and stock options with a 3 -year, service-based vesting period.

Our unvested RSUs and stock options are accounted

for based on their grant date fair value.

As of September 30, 2025, total compensation expense to be recognized in future periods was

$ 525 thousand.

That cost is expected to be recognized over the remaining vesting period.

total stock-based compensation expense for the year ended September 30, 2024, was $ 682

thousand, comprised of $ 20

thousand for shares issued for services and $ 662

thousand for the amortization of outstanding equity compensation grants.

total stock-based compensation expense for the year ended September 30, 2025, was $ 395 thousand for the amortization 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

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For the year ended September 30, 2025, we purchased RSUs with a vesting date

value of $ 119 thousand.

Our Statement of Stockholders Equity reflects the net increase of $ 543 thousand as of September 30, 2024, or

$ 662 thousand of total stock-based compensation expense, less the $ 119 thousand of RSUs purchased.

value of $ 63

Our Statement of Stockholders Equity reflects the net increase of $ 332

thousand as of September 30, 2025, or $ 395

thousand of total stock-based compensation expense, less the $ 63

thousand of RSUs purchased.

Forfeitures are recognized as they occur and result in an increase to our reserve,

incurred stock-based compensation expense of $ 682 thousand for the year ended September 30, 2024, which is comprised of $ 20 thousand

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30, 2024, we purchased RSUs with a vesting date value of $ 119 thousand.

compensation of $ 568 thousand, $ 22 thousand, and $ 92 thousand was included in general and administrative expense, selling and

marketing expense, and research and development expense respectively in our accompanying Consolidated Statements of Operations for

the year ended September 30, 2024.

compensation of $ 338 thousand, $ 15 thousand, and $ 42 thousand was included in general and administrative expense, selling and marketing

expense, and research and development expense respectively in our accompanying Consolidated Statements of Operations for the year ended

September 30, 2025.

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

For RSUs, we recognize compensation cost for unvested share-based awards on

a straight-line basis over the requisite service period.

The fair value of stock awards is based on the quoted price of our common stock on the grant date.

The fair value of stock awards is based on the quoted price of our common stock

on the grant date.

following table summarizes the activity of our RSUs granted under the 2021 Equity Incentive Plan during the years ended September 30,

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SCHEDULE OF RESTRICTED STOCK UNITS VESTING

Outstanding Restricted Stock Unit Grants

Weighted Average Grant Date

Value Per RSU

Restricted Stock Unit Grants

Average Grant Date Value Per RSU

(In thousands)

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Canceled/Forfeited

Outstanding Grants at September 30, 2023

Outstanding Grants at

September 30, 2024

Canceled/Forfeited

Outstanding Grants at September 30, 2024

The weighted-average remaining vesting period of RSUs

at September 30, 2024 was 1.92 years.

Grants at September 30, 2025

weighted-average remaining vesting period of RSUs at September 30, 2025, was 1.85 years.

The total grant-date fair value of RSUs vested

during 2024 and 2023, was $ 190

thousand, and $ 353

thousand, respectively.

during fiscal years 2025 and 2024, was $ 414 thousand, and $ 554 thousand, respectively.

intrinsic value of RSUs represents the applicable number of awards multiplied by the Company’s closing share price on the last

trading day of the relevant fiscal period.

The approximate aggregate intrinsic value of RSUs outstanding at September 30, 2025, was $ 995

The approximate aggregate intrinsic values of RSUs awarded during 2024 and 2023 were $ 475

thousand and $ 572

thousand, respectively.

Aggregate intrinsic value of RSUs represents the applicable number of awards multiplied by the

Company’s closing share price on the last trading day of the relevant fiscal period.

The Company’s closing share price

on September 30, 2024, and $ 0.07

on September 30, 2023.

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 twelve months ended September 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)

following table summarizes the activity of our stock options granted under the 2021 Plan during the year ended September 30, 2024.

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

OF STOCK OPTION OUTSTANDING TRANSACTIONS

Outstanding Stock Option Grants

(In thousands)

The approximate aggregate intrinsic values of RSUs awarded during fiscal years 2025 and 2024 were $ 747 thousand and $ 475 thousand,

respectively.

The Company’s closing share price was approximately $ 0.07 on September 30, 2025, and $ 0.04 on September 30, 2024.

Stock Options

Outstanding grants at September 30, 2023

Canceled/forfeited

Outstanding grants at September 30, 2024

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 10, 2034.

One independent director resigned from our Board on

June 18, 2024, resulting in the forfeiture of 1.1 million stock options.

weighted-average remaining vesting period of stock options at September 30, 2024, was 2.67 years.

The following table summarizes the activity of our

stock options granted under our Equity Incentive Plan during the nine months ended June 30, 2025:

SCHEDULE OF STOCK OPTION OUTSTANDING TRANSACTIONS

of Stock Options

Options at September 30, 2024

Cancelled/Forfeited

( 3,300,000 )

Options at June 30, 2025

On December 20, 2024, our Board of Directors authorized

the termination of stock options previously awarded to independent directors.

have no other forms of equity compensation outstanding as of September 30, 2025.

We did not have grants, vesting, or forfeitures of any

other forms of equity compensation during fiscal year 2025.

14 – COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

of operations.

Pending Litigation

April 2021, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of Cipherloc Corporation, and certain other

plaintiffs, filed a lawsuit against Cipherloc Corporation and Michael De La Garza, Cipherloc’s former Chief Executive Officer

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

20-0818) (“OLWM Matter”).

lawsuit alleges causes of action for fraud against Mr.

De La Garza (for misrepresentations allegedly made by Mr.

De La Garza);

breach of contract, for alleged breaches of Mr.

Marquez’s alleged oral employment agreement, which Mr.

Marquez claims required

Cipherloc pay him cash and shares of stock;

unjust enrichment;

quantum meruit;

and rescission of certain stock purchases made by

certain of the plaintiffs, as well as declaratory relief and fraud.

Damages sought exceeded $ 1

We reached a preliminary agreement with the plaintiffs on November 13, 2024.

A written settlement agreement was negotiated

and circulated to the plaintiffs on November 25, 2024.

The execution of the settlement agreement is in progress and, when complete, will trigger the formal dismissal of the lawsuit.

The terms of the

agreement require the Company to issue the plaintiffs a combined 356,400

shares of common stock and pay a total of $ 95

thousand in cash in six equal, quarterly installments of approximately $ 16

thousand beginning on January 1, 2025, and ending on April 1, 2026.

We estimate the cost of the settlement fee paid as stock to be

approximately $ 15

thousand using the closing price of our common stock at September 30, 2024.

A total of $ 110

thousand of expense has been recognized in our results for the year ended September 30, 2024.

Settled Litigation

April 2021, Eric Marquez, the former Secretary/Treasurer and Chief Financial Officer of Cipherloc Corporation, and certain other plaintiffs,

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

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

We executed a settlement agreement with the plaintiffs

on December 13, 2024, resulting in the dismissal of the lawsuit with prejudice on January 2, 2025.

The settlement agreement requires

the Company to issue the plaintiffs a combined 356,400 shares of common stock and pay a total of $ 95 thousand in cash in six equal, quarterly

installments of approximately $ 16 thousand each, beginning by January 1, 2025, and ending by April 1, 2026.

The expenses associated with

this settlement were included in our results for the fiscal year ended September 30, 2024.

Four payments totaling approximately $ 63 thousand

have been made and 356,400 shares of common stock have been issued as of September 30, 2025.

15 - INCOME TAXES

4 unchanged sentences

We have considered

our tax positions and believe that all of the positions taken by us in our federal and state tax returns are more likely than not to

be sustained upon examination.

our tax positions and believe that all the positions taken by us in our federal and state tax returns are more likely than not to be

sustained upon examination.

utilize the asset and liability method in accounting for income taxes.

9 unchanged sentences

unless it is more likely than not that the value of such assets will be realized.

provision (benefit) for income taxes from continued operations for the years ended September 30, 2024, and 2023 consist of the following:

SCHEDULE OF PROVISION (BENEFIT) FOR INCOME TAXES FROM CONTINUED OPERATIONS

provision for income taxes from continued operations for the years ended September 30, 2025 and 2024 consist of the following:

SCHEDULE OF PROVISION FOR INCOME TAXES FROM CONTINUED OPERATIONS

(In thousands)

1 unchanged sentence

(In thousands)

Provision (benefit) for income taxes, net

Provision for income taxes, net

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

9 unchanged sentences

the years ended September 30, 2025 and 2024, the difference between the amounts of income tax expense or benefit that would result from

applying the statutory rates to pretax income to the reported income tax expense of $ 5 thousand for the year ended September 30, 2024

due to state income taxes payable to the jurisdictions in which we have nexus, and income tax benefit of $ 379 thousand for the year ended

September 30, 2023.

applying the statutory rates to pretax income to the reported income tax expense of $ 14

thousand for the year ended September 30, 2025, and $ 5

thousand for the year ended September 30, 2024, due to state

income taxes payable to the jurisdictions in which we have nexus.

income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for

16 unchanged sentences

available to offset future taxable income, of which, $ 2.6 million

will expire within the next five years, $ 10.9 million

will expire thereafter, and the remaining $ 20.7 million

will expire within the next five years, $ 10.4

million will expire thereafter, and the remaining $ 21.2 million

will not expire.

10 unchanged sentences

may become subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes

occurred during the tax year associated with the Business Combination.

occurred during the tax year during the tax year ended September 30, 2022.

In general, an ownership change, as defined by Section 382, results

7 unchanged sentences

16 - SUBSEQUENT EVENTS

As stated in Note 16, we reached a preliminary agreement with the plaintiffs in the OLWM Matter on November 13, 2024.

A written settlement agreement was circulated to the plaintiffs on November 25, 2024, and the execution of the settlement agreement in progress and, when complete, will trigger the formal dismissal of the

Company has evaluated events through, December 12, 2024, the filing date of this Annual Report on Form 10-K, and determined that

there have been no additional subsequent events that occurred that would require adjustments to our disclosures in the consolidated

financial statements.

December 8, 2025, Anna Seacat was appointed to our Board.

The Board considers Ms.

Seacat to be “independent”

under the independent director requirements of the Nasdaq Stock Market LLC.

December 9, 2025, Deborah MacConnel, a current Member of the Board of Directors (“Board”) of SideChannel, Inc., (the “Company”),

and the Chairwoman of the Board informed the Company of her upcoming retirement from the Board of Directors.

MacConnel will remain a member of the Board and the Chairwoman until the Company’s next Annual Stockholders Meeting (“Annual

Meeting”), at which time Ms.

MacConnel will not stand for re-election as a Member of the Board.

MacConnel’s departure is not the result of any disagreement with the Company’s management, the Company’s Board or the

Company on any matter related to its operations, policies or practices.

recognition of Ms.

MacConnel’s tenure and contributions to the Company during her service as a member of the Board, the Company

will provide her with the vesting of 333,667 restricted stock units (“RSUs”), which were awarded to her on December 23, 2024,

and are scheduled to vest on March 1, 2026.

The remaining 333,667 RSUs from the December 23, 2024, award will be forfeited by Ms.

Company has evaluated events through December 18, 2025, the filing date of this Annual Report on Form 10-K and determined that there

have been no additional subsequent events that occurred that would require adjustments to our disclosures in the consolidated financial

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data