10-Q: SideChannel Inc. Reports Q1 2025 Results: Revenue Up 9.9% Amidst Continued Growth in Cybersecurity Services

SideChannel Inc. announces a 9.9% increase in revenue for the quarter ended December 31, 2024, driven by growth in vCISO services and cybersecurity software and services.

Summary

• SideChannel Inc. reported its financial results for the first quarter of fiscal year 2025, which ended on December 31, 2024.
• The company's revenue increased by 9.9% to $1.908 million, compared to $1.736 million in the same period last year.
• vCISO services revenue grew by 8.0% to $1.254 million, while cybersecurity software and services revenue increased by 13.7% to $654 thousand.
• The company experienced a net loss of $195 thousand, compared to a net loss of $246 thousand in the prior year's quarter.
• Basic and diluted net loss per common share remained at $(0.00).
• The company's gross profit was $874 thousand, with a gross margin of 45.8%, compared to $845 thousand and 48.7% in the prior year's quarter.
• Operating expenses decreased by 2.2% to $1.080 million.
• As of December 31, 2024, the company had $1.120 million in cash and cash equivalents and $250 thousand in short-term investments.
• The company believes its existing cash, cash equivalents, and anticipated cash flows from operations will be sufficient to meet its working capital, expenditure, and contractual obligation requirements for the next 12 months.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. Revenue growth and reduced losses are positive signs, but the company is still operating at a loss and has identified material weaknesses in its internal controls.

Positives

• Revenue increased by 9.9% year-over-year, indicating growth in the company's core business.
• vCISO services and cybersecurity software and services both experienced revenue growth.
• Net loss decreased from $246 thousand to $195 thousand, showing improved profitability.
• The company believes it has sufficient liquidity to meet its obligations for the next 12 months.
• Operating expenses decreased $24 thousand or 2.2% for the three months ended December 31, 2024, compared to the three months ended to December 31, 2023.

Negatives

• The company still experienced a net loss of $195 thousand for the quarter.
• Gross margin decreased from 48.7% to 45.8%, primarily due to an increase in revenue derived from third-party software and services, which have a lower gross margin than our direct software and services.
• The company's disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report, at the reasonable assurance level.

Risks

• The company's success depends on the pace of sustainable growth in its markets and the global economic outlook.
• The company acknowledges material weaknesses in its internal controls over financial reporting.
• The company maintains 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 company is subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business.

Future Outlook

The company believes its existing cash, cash equivalents, and anticipated cash flows from operations will be sufficient to meet its working capital, expenditure, and contractual obligation requirements for the next 12 months.

Industry Context

The company operates in the cybersecurity market, which is experiencing significant growth due to increasing cyber threats and the need for cost-effective security solutions for mid-market and emerging companies.

Legal Proceedings

• A settlement agreement was executed with plaintiffs in a lawsuit, resulting in the dismissal of the lawsuit with prejudice on January 2, 2025.
• The settlement agreement required 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.

Related Party Transactions

• Brian Haugli, our Chief Executive Officer and stockholder in the Company, is also a principal shareholder of RealCISO Inc. (RealCISO).
• 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.
• We also received $ 4 thousand from RealCISO for software development services that we provided RealCISO during the three months ended December 31, 2024.
• On 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. Army General Robert Brown, joined our Board.
• 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.

Stakeholder Impact

• Shareholders: The report provides information on the company's financial performance and future outlook.
• Employees: The company's growth strategy and financial stability impact job security and opportunities.
• Customers: The report highlights the company's commitment to providing cost-effective security solutions.
• Suppliers: The company's financial performance affects its ability to pay suppliers.
• Creditors: The report provides information on the company's liquidity and ability to meet its obligations.

Next Steps

• The company intends to continue increasing adoption of Enclave.
• The company intends to continue securing new vCISO clients.
• The company intends to continue adding new Cybersecurity Software and Services offerings.
• SideChannel has reserved booth space at the AUSA Global Force Symposium, to be held in March 2025.

Key Dates

Keywords

cybersecurity, vCISO, revenue, financial results, SideChannel, Enclave, software, services