What changed in this filing

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Item 1. Financial Statements

2025-05-07 compared with 2025-02-05 · 333 added, 349 removed, 259 unchanged (72% of the section changed)

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thousands, except share and per share data)

December 31, 2024

September 30, 2024

and cash equivalents

receivable, net

expenses and other current assets

current assets

Cash and cash equivalents

Short-term investments

Accounts receivable, net

Deferred costs

Prepaid expenses and other current assets

Total current assets

LIABILITIES & STOCKHOLDERS’ EQUITY

& STOCKHOLDERS’ EQUITY

payable and accrued liabilities

taxes payable

current liabilities

Accounts payable and accrued liabilities

Deferred revenue

Income taxes payable

Total current liabilities

Total liabilities

Commitments and contingencies (Note 14)

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

226,331,731 and 225,975,331 shares issued and outstanding as of December 31, 2024, and September 30, 2024, respectively.

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

and contingencies (Note 14)

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

231,229,054 and 225,975,331 shares issued and outstanding as of March 31,

2025, and September 30, 2024

paid-in capital

stockholders’ equity

liabilities and stockholders’ equity

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

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thousands, except share and per share data)

Three Months Ended

Cost of revenues

and administrative

and marketing

and development

operating expenses

General and administrative

Selling and marketing

Research and development

Total operating expenses

Operating loss

Other income, net

Net loss before income tax expense

Income tax expense

Net loss after income tax expense

Net loss per common share – basic and diluted

Weighted average common shares outstanding – basic and diluted

loss before income tax expense

loss per common share – basic and diluted

average common shares outstanding – basic and diluted

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

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thousands, except share data)

of Shares Outstanding

Accumulated Deficit

Balance at September 30, 2024

Shares issued for legal settlement

Stock-based compensation

Balance at December 31, 2024

of Shares Outstanding

Accumulated Deficit

Balance at September 30, 2023

Shares issued for 2021 Investor Warrants

Shares issued for services

Stock-based compensation

Balance at December 31, 2023

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

at September 30, 2024

issued for legal settlement

at December 31, 2024

at March 31, 2025

at September 30, 2023

issued for 2021 Investor Warrants

issued for services

at December 31, 2023

issued for services

at March 31, 2024

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended December 31,

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

Changes in operating assets and liabilities:

Accounts receivable, net

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Income taxes payable

Deferred revenue

Net cash provided by / (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of note payable

Net cash used in financing activities

INCREASE / (DECREASE) IN CASH

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Shares Issued for Services

Months Ended March 31,

FLOWS FROM OPERATING ACTIVITIES:

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

and amortization

Settlement Paid in Stock

compensation and payments for services, net

in operating assets and liabilities:

receivable, net

expenses and other assets

payable and accrued liabilities

taxes payable

cash provided by / (used in) operating activities

FLOWS FROM INVESTING ACTIVITIES:

of short-term investments

cash provided by investing activities

FLOWS FROM FINANCING ACTIVITIES:

of note payable

cash used in financing activities

/ (DECREASE) IN CASH

BEGINNING OF PERIOD

END OF PERIOD

DISCLOSURES OF CASH FLOW INFORMATION:

Issued for Services

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

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE MONTHS ENDED DECEMBER 31, 2024 AND 2023

in thousands except shares and per share data)

THE SIX MONTHS ENDED March 31, 2025 AND 2024

1 – DESCRIPTION OF BUSINESS

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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.

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 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.”

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

It allows Information Technology to easily segment the enterprise network, place the right staff in those segments, and direct

Our growth strategy focuses on these three initiatives:

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.

growth strategy focuses on these three initiatives:

adoption of Enclave,

new vCISO clients, and

new vCISO Services clients, and

new Cybersecurity Software and Services offerings.

vCISO agreements are in the form of a monthly subscription;

some clients select a prepaid block of hours or time and materials

vCISO Services agreements are in the form of a monthly subscription;

some clients select a prepaid block of hours or time and

materials engagements.

Rates for vCISO Services range 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 third-party software and

services that we resell and those delivered by our security engineer employees and independent contractors.

augment our vCISO Services offering with a full range of other cybersecurity products and services, including third-party software

and services that we resell and those delivered by our security engineer employees and independent contractors.

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

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of Presentation and Use of Estimates

accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting

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

GAAP”) for interim financial information with the

instructions to Form 10-Q and Rule 8-01 of Regulation S-X.

Accordingly, they do not include all the disclosures required

for complete financial statements, and they do include our accounts and those of our wholly owned subsidiaries.

All significant

intercompany accounts and transactions have been eliminated upon consolidation.

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.

accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles

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

GAAP”) for interim financial information with the instructions

to Form 10-Q and Rule 8-01 of Regulation S-X.

Accordingly, they do not include all the disclosures required for complete financial statements,

and they do include our accounts and those of our wholly owned subsidiaries.

All significant intercompany accounts and transactions have

been eliminated upon consolidation.

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.

the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments

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consolidated financial statements.

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

consolidated financial statements and accompanying footnotes included in our 2024 Form 10-K for the year ended September 30, 2024.

The same accounting policies have been followed in these unaudited interim condensed consolidated financial statements as those

applied in the preparation of our consolidated audited financial statements for the year ended September 30, 2024.

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

the consolidated financial statements and accompanying footnotes included in our Form 10-K for the fiscal year ended September 30, 2024, filed with the Securities

and Exchange Commission on December 13, 2024 (“2024 Form 10-K”).

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

those applied in the preparation of our consolidated audited financial statements for the year ended September 30, 2024.

preparation of financial statements in conformity with U.S.

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

These reclassifications had no effect on the previous operations or financial condition of the Company.

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

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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.

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

Consolidated Statement of Operations.

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

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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.

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.

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

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are recorded in operating cash flows.

the three months ended December 31, 2024 , there was no change in the amount of the allowance for credit losses.

was no bad debt expense recorded for the three months ended December 31, 2024, and 2023.

Our analysis indicated we did require an allowance for credit losses at March 31, 2025;

therefore, we reversed the

$ 30 thousand balance we had previously recorded for an allowance for credit losses.

Value of Financial Instruments

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Within the measurement of fair value, the use of market-based information is prioritized

over entity specific information, and a three-level hierarchy for fair value measurements is used based on the nature of inputs used in

the valuation of an asset or liability as of the measurement date.

over entity specific information, and a three-level hierarchy for fair value measurements is used based on the nature of inputs used

in the valuation of an asset or liability as of the measurement date.

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

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

the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

If the carrying

amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to

the total amount of goodwill allocated to that reporting unit.

the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not impaired.

the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that

excess, limited to the total amount of goodwill allocated to that reporting unit.

assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes

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

There have been no significant events or changes in circumstances during the quarter ended December 31, 2024, that would indicate that

the carrying amount of the Company’s intangible asset, goodwill, may be impaired as of December 31, 2024.

There have been no significant events or changes in circumstances during the six-months ended March 31, 2025, that would indicate that

the carrying amount of the Company’s intangible asset, goodwill, may be impaired as of March 31, 2025.

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

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

Cybersecurity Software and Services includes revenue earned from both Enclave, our proprietary software product,

and third-party software and services that we resell.

Cybersecurity Software and Services includes revenue

earned from both Enclave, our proprietary software product, and third-party software and services that we resell.

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

the fixed fee project performance obligations we delivered in fiscal year 2024 were accompanied by an upfront payment.

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.

Our determination

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resell the software and services provided by third parties.

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

clients, 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.

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

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 with

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

client on our behalf.

Also consistent with our determination

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,

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to Obtain a Contract with a Customer

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 invoice value of each product or service sold.

Commissions are considered earned by our internal

sales personnel and third-party sales representatives at the time we receive payment from our customers.

record commission expense in our consolidated statements of operations at the time the commission is earned.

Commissions earned but

not yet paid are included in current liabilities on our balance sheets.

All costs to acquire new customers and contracts are reported in operating expenses.

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 invoice value of each product or service sold.

Commissions are considered earned by our internal sales personnel

and third-party sales representatives at the time we invoice our customers.

We record commission expense in our consolidated statements

of operations at the time the commission is earned.

Commissions earned but not yet paid are included in current liabilities on our balance

All costs to acquire customers and contracts are reported in operating expenses.

account for leases in accordance with ASC Topic 842 (Leases).

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

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

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.

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Loss Per Common Share

loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares

outstanding during the reporting period.

The weighted average number of shares is calculated by taking the number of shares

outstanding and weighting them by the amount of time that they were outstanding.

Diluted earnings per share reflects the potential

dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards

vest resulting in the issuance of common stock that could share in our earnings.

Diluted loss per share is the same as basic loss

per share during periods where net losses are incurred since the inclusion of the potential common stock equivalents would be

anti-dilutive because of the net loss.

loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding

during the reporting period.

The weighted average number of shares is calculated by taking the number of shares outstanding and weighting

them by the amount of time that they were outstanding.

Diluted earnings per share reflects the potential dilution that could occur if

stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of

common stock that could share in our earnings.

Diluted loss per share is the same as basic loss per share during periods where net losses

are incurred since the inclusion of the potential common stock equivalents would be anti-dilutive because of the net loss.

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

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

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

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

Upon exercise

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

The result of this accounting treatment is that the fair value

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

The change in fair value is recorded in our consolidated statement of operations as a component of other income or

Upon exercise of a warrant, it is marked to fair value at the exercise date and then that fair value is reclassified to

of Recently Issued Amendments to Authoritative Accounting Guidance

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 will be 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.

Early adoption is

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

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

Improvements to Income Tax Disclosures,”

which updates income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the

rate reconciliation table and disaggregation of income taxes paid, net of refunds, by jurisdiction.

All entities are required to

apply the guidance prospectively, with the option to apply it retrospectively.

The guidance is effective for fiscal years beginning

after December 15, 2024, which for us is our fiscal year 2026 beginning on October 1, 2025.

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.

The 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 will be 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.

Early adoption is permitted.

currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In November 2024, the FASB also issued ASU 2024-03, Disaggregation of Income

Statement Expenses, which will require the disclosure of additional information about specific expense categories in the notes to the

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

financial statements.

The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal

years beginning after December 15, 2027.

For us, annual reporting requirements will be effective for our fiscal year 2028 beginning on

October 1, 2027, and interim reporting requirements will be effective beginning with our first quarter of fiscal year 2029.

Early adoption

is permitted.

We are currently evaluating the impact of this amended disclosure guidance.

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

Improvements to Income Tax Disclosures,” which

updates income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation

table and disaggregation of income taxes paid, net of refunds, by jurisdiction.

All entities are required to apply the guidance prospectively,

with the option to apply it retrospectively.

The guidance is effective for fiscal years beginning after December 15, 2024, which for

us is our fiscal year 2026 beginning on October 1, 2025.

Early adoption is permitted.

We are currently evaluating the impact that the

new guidance will have on our consolidated financial statements.

November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which will require the disclosure of additional

information about specific expense categories in the notes to the financial statements.

The guidance is effective for fiscal years beginning

after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

For us, annual reporting requirements

will be effective for our fiscal year 2028 beginning on October 1, 2027, and interim reporting requirements will be effective beginning

with our first quarter of fiscal year 2029.

Early adoption is permitted.

We are currently evaluating the impact of this amended disclosure

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

on the accompanying consolidated financial statements.

on the accompanying condensed consolidated financial statements.

3 – LIQUIDITY AND CAPITAL RESOURCES

of December 31, 2024, and September 30, 2024, we had $ 1.1

of March 31, 2025, and September 30, 2024, we had $ 1.2

million and $ 1.0

million, respectively, of cash and cash equivalents.

In addition, we had $250 thousand in short-term investments in both periods.

incurred net losses during the three-month periods ended December 31, 2024 and 2023, of $ 195

thousand and $ 246 thousand, respectively.

primary requirements for liquidity and capital are working capital, research and development, sales and marketing activities, and other general

corporate needs.

Historically, these cash requirements have been met through cash provided by operating activities and cash and cash

As of December 31, 2024, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to

have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital

In addition, we had $ 100 thousand

in short-term investments as of March 31, 2025, and $ 250 thousand at September 30, 2024.

We incurred net losses during the six-month

periods ended March 31, 2025, and 2024, of $ 249

thousand and $ 499

thousand, respectively.

primary requirements for liquidity and capital are working capital, research and development, sales and marketing activities, and other

general corporate needs.

Historically, these cash requirements have been met through cash provided by operating activities and cash and

cash equivalents.

As of March 31, 2025, we are not party to any off-balance sheet arrangements that have had or are reasonably likely

to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital

Significant cash requirements for the remainder of the fiscal year include our working capital requirement.

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have financial instruments included as cash equivalents and short-term investments on our balance sheets.

Money market funds and

time deposits with original maturities of less than 90 days are included in “Cash and cash equivalents.” Time deposits

with original maturities from 91-360 days are included in “Short-term investments.” As of December 31, 2024, and

September 30, 2024, the Company had no long-term investments.

Money market funds and time

deposits with original maturities of less than 90 days are included in “Cash and cash equivalents.” Time deposits with original

maturities from 91-360 days are included in “Short-term investments.” As of March 31, 2025, and September 30, 2024, the Company

had no long-term investments.

following table presents the carrying amounts of cash equivalents and short-term investments:

OF CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

December 31, 2024

September 30, 2024

(in thousands)

cash equivalents

Money market funds

Total cash equivalents

short-term investments

Time deposits

Total short-term investments

Short Term Investment

Carrying Amount

Original Maturity Date

Time deposits

February 5, 2025

Term Investment

Maturity Date

more information about the fair value of the Company’s financial instruments, see Note 7.

5 – DEFERRED COSTS

July 23, 2021, we entered into a financial advisory and consulting agreement with Paulson Investment Company, LLC (“Paulson”).

July 23, 2021, Cipherloc Corporation (“Cipherloc”) entered into a financial advisory and consulting agreement with

Paulson Investment Company, LLC (“Paulson”).

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;

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;

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

(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 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 Paulson 4 million shares

of the Company’s common stock and agreed to reimburse Paulson for all reasonable and documented expenses incurred by Paulson in

connection with providing such services.

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.

The Company expensed $ 45 thousand in each of the quarters ended December

31, 2024, and 2023.

The unamortized balance of the deferred costs was $ 105 thousand at December 31, 2024.

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 Paulson 4

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

incurred by Paulson in connection with providing such services.

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.

The Company expensed $ 90

thousand the six months ended March 31, 2025, and 2024, respectively .

The unamortized balance of the deferred costs was $ 60

thousand at March 31, 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 for three twelve-month periods through December 2025.

square feet of office space at 146 Main Street in Worcester,

Massachusetts, with the option to renew

annually for three twelve-month periods through December 2025.

The annual renewal date is January 1 st .

Our current lease payment is $ 986 per month.

The lease allows

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

lease expenses were $ 3 thousand and $ 3 thousand for the three months ended December 31, 2024, and 2023, respectively.

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

current lease payment is $ 986 per month.

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

lease expenses were $ 6

thousand and $ 6

thousand for both the six months ended March 31, 2025, and 2024, respectively.

expect to pay approximately $ 9 thousand through December 2025, the remaining term of the Worcester lease .

7 – FAIR VALUE MEASUREMENT

5 unchanged sentences

OF FAIR VALUE OF FINANCIAL INSTRUMENTS

December 31, 2024

Fair Value Measured Using

(in thousands)

Short-term investments

Time deposits:

Value Measured Using

91 - 360 days

Total Short-term investments

September 30, 2024

Fair Value Measured Using

(in thousands)

Short-term investments

Time deposits:

Value Measured Using

91 - 360 days

Total Short-term investments

entire balance of time deposits maturing in 91 to 360 days at December 31, 2024, and September 30, 2024, are certificates of deposit

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

Short-term investments

entire balance of time deposits maturing in 91 to 360 days at March 31, 2025, and September 30, 2024, are certificates of deposit issued

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

Company has no debt.

9 - STOCKHOLDERS’ EQUITY

of December 31, 2024, we had 226,331,731 shares of common stock outstanding and were authorized to issue 681,000,000 shares of common

stock at a par value of $ 0.001 .

had 225,975,331 shares of common stock outstanding as of September 30, 2024.

of March 31, 2025, we had 231,229,054

shares of common stock outstanding and were authorized to issue

681,000,000 shares

of common stock at a par value of $ 0.001 .

We had 225,975,331 shares

of common stock outstanding as of September 30, 2024.

Common Stock Issued Under Equity Incentive

During the six months ended March 31, 2025, 6,398,717 Restricted Stock Units vested for which we issued 4,897,323

shares of common stock and 1,501,394 RSU’s were sold by employees to fund payroll taxes.

Stock Issued for Legal Settlement

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,

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

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

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

5 unchanged sentences

Stock Issued for Cash

did no t issue shares of common stock for cash during the three months ended December 31, 2024.

did no t issue shares of common stock for cash during the six months ended March 31, 2025.

Stock Issued for Business Combinations

did no t issue shares for mergers or acquisitions related activity during the three months ended December 31, 2024.

did no t issue shares for mergers or acquisitions related activity during the six months ended March 31, 2025.

Stock Issued for Services

did no t issue shares for services during the three months ended December 31, 2024.

Stock Issued Under Equity Incentive Plan

did no t issue shares for vested equity grants during the three months ended December 31, 2024.

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

following table summarizes warrant activity for the three months ended December 31, 2024:

did no t issue shares for services during the six months ended March 31, 2025.

of March 31, 2025, we had zero ( 0 ) shares of preferred stock outstanding.

following table summarizes warrant activity for the six months ended March 31, 2025:

OF WARRANT ACTIVITY

Outstanding Warrants

(In thousands, except prices and remaining lives)

Number of Warrants

Weighted Average Exercise Price

Weighted Average Remaining Life

Outstanding at September 30, 2024

thousands, except prices and remaining lives)

at September 30, 2024

Cancelled/Forfeited

Outstanding at December 31, 2024

at March 31, 2025

10 – REVENUE FROM CONTRACTS WITH CUSTOMERS

3 unchanged sentences

OF DISAGGREGATED REVENUE

Three Months Ended

(in thousands)

vCISO services

Cybersecurity software and services

revenue is comprised of payments received from our clients 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 software agreements renew in our second fiscal quarter ending March 31, 2025.

Cybersecurity

Software and Services

revenue is comprised of payments received from our clients 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 software agreements renewed in our second fiscal quarter ending March 31, 2025.

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

1 unchanged sentence

OF CHANGES IN DEFERRED REVENUE

(In thousands)

Balance at September 30, 2024

Deferral of revenue

Recognition of revenue

Balance at December 31, 2024

at September 30, 2024

at March 31, 2025

11 – BUSINESS RISK AND CREDIT RISK CONCENTRATION INVOLVING CASH

client individually accounted for over 10% of our revenue during the three months ended December 31, 2024, or 2023.

had one client with an accounts receivable balance equal to approximately 18 % of total accounts receivable at December 31, 2024.

maintain our cash, cash equivalents, and short-term investments 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.

As of December 31, 2024, approximately $ 870 thousand of our cash and cash equivalent balance and $ 250 thousand of our short-term investment balance were uninsured.

experienced any losses on cash.

client individually accounted for over 10% of our revenue during the three months or six months ended March 31, 2025, or 2024.

had three clients with accounts receivable balances together totaling approximately 45 % of our accounts receivable balance at March 31,

maintain our cash, cash equivalents, and short-term investments 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”).

insures these deposits up to $ 250

As of March 31, 2025, approximately

$ 994 thousand of our cash and cash equivalent balance and $ 100

thousand of our short-term investment balance

were uninsured.

We have not experienced any losses on cash.

12 – RELATED PARTY TRANSACTIONS

2 unchanged sentences

We are a reseller of RealCISO software.

We receive revenue from our customers for the use of RealCISO

software and pay licensing fees to RealCISO for such use.

For the three months ending December 31, 2024, we paid $ 14

thousand to RealCISO.

No amounts were paid to RealCISO for the three months ended December 31, 2023.

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

to RealCISO for such use.

For the six months ending March 31, 2025, and 2024, we paid $ 41 thousand and $ 20 thousand, respectively, to RealCISO.

also received $ 13

thousand and $ 43 thousand from RealCISO for software development services that we provided RealCISO during the three months ended

December 31, 2024 and 2023, respectively.

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

approximately $ 24

thousand and $ 77

thousand from RealCISO for software development

services that we provided RealCISO during the six months ended March 31, 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.

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

1 unchanged sentence

On July 8, 2024,

AUSA signed an agreement for recurring vCISO Services, which generated $ 27

thousand of revenue during the three months ended December 31, 2024.

SideChannel has reserved booth space at the AUSA Global Force

Symposium, to be held in March 2025.

In the three months ended December 31, 2024, the Company has paid $ 8

thousand to AUSA for this event.

other related party transactions occurred during the three months ended December 31, 2024.

AUSA signed an agreement for recurring vCISO Services, which generated $ 54 thousand of revenue during the six months ended March 31,

SideChannel reserved booth space at the AUSA Global Force Symposium held in March 2025.

In the six months ended March 31, 2025,

we paid $ 15 thousand to AUSA for this event.

other related party transactions occurred during the six months ended March 31, 2025.

13 – STOCK BASED COMPENSATION

3 unchanged sentences

over a 3 -year period.

following table summarizes the activity of our RSUs granted under our Equity Incentive Plan during the three months ended December 31,

following table summarizes the activity of our RSUs granted under our Equity Incentive Plan during the six months ended March 31, 2025:

SCHEDULE OF RESTRICTED STOCK UNITS VESTING

(In thousands)

Outstanding at September 30, 2024

Grants at September 30, 2024

( 6,398,717 )

Cancelled/Forfeited

Outstanding at December 31, 2024

December 20, 2024, our Board of Directors authorized awarding 1.1 million RSUs to each of the three independent directors with three-year vesting schedules beginning on March 1, 2025, and ending on March 1, 2027 .

The weighted average grant-date fair value of the RSUs

granted during the quarter ended December 31, 2024, was $ 0.03 per share.

The Company recognizes compensation cost for unvested share-based

awards on a straight-line basis over the requisite service period.

total stock-based compensation expense for the three months ended December 31, 2024, was $ 112

thousand for the amortization of outstanding equity compensation grants.

Grants at March 31, 2025

December 20, 2024, our Board of Directors authorized awarding 1.1 million RSUs to each of the three independent directors vesting over

three years beginning on March 1, 2025, and ending on March 1, 2027.

On March 3, 2025 we granted 7,937,706 RSU’s to officers and

The average grant date fair value of RSUs granted during the six months ended March 31, 2025 was $ 0.04 .

The Company recognizes

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

total stock-based compensation expense for the six months ended March 31, 2025, was $ 218

thousand for the amortization of outstanding equity

compensation grants.

Stock-based compensation of $ 185

thousand is included in general and administrative expense, $ 4

thousand in selling and marketing expense, and $ 13

thousand is included in general and administrative

expense, $ 9 thousand in selling and marketing expense, and

thousand in research and development expense.

unamortized stock compensation expense at December 31, 2024, is $ 555

thousand, and the remaining weighted average term to vesting is 1.8

following table summarizes the activity of our stock options granted under our Equity Incentive Plan during the three months ended December

unamortized stock compensation expense at March 31, 2025, is $ 701

thousand, and the remaining weighted average term

to vesting is 2.4

following table summarizes the activity of our stock options granted under our Equity Incentive Plan during the six months ended March

OF STOCK OPTION OUTSTANDING TRANSACTIONS

(In thousands)

Stock Options

Outstanding at September 30, 2024

at September 30, 2024

Cancelled/Forfeited

Outstanding at December 31, 2024

( 3,300,000 )

at March 31, 2025

December 20, 2024, our Board of Directors authorized the termination of stock options previously awarded to independent directors.

14 – COMMITMENTS AND CONTINGENCIES

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

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

of operations.

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.

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 instalments 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.

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

instalments 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.

Two payments totaling approximately $ 32 thousand

have been made as of March 31, 2025.

15 – SUBSEQUENT EVENTS

have assessed our operations through the filing date of this Quarterly Report on Form 10-Q and determined that there were no

material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the three months

ended December 31, 2024 .

material subsequent events requiring adjustment to, or disclosure in, our condensed consolidated financial statements for the six

months ended March 31, 2025 .

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

What changed 10-Q

Item 1. Financial Statements