Item 3.02 Unregistered Sales of Equity Securities
On July 1, 2022 (the "Closing Date"), SideChannel, Inc. (the "Company")
completed its acquisition of all of the equity securities of SCS, Inc. ("SCS")
in exchange for shares of the Company's equity securities (the "Acquisition")
pursuant to that certain Equity Securities Purchase Agreement dated May 16, 2022
(the "Purchase Agreement") by and among the Company, SCS, SCS's stockholders
(collectively, the "Sellers") and Brian Haugli, as the Sellers' representative
(the "Representative") as previously disclosed in the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on May 18, 2022
(the "May 8-K").
Pursuant to the Purchase Agreement, on the Closing Date, the Sellers exchanged
all of their equity securities of SCS for 59,900,000 shares (the "First Tranche
Shares") of the Company's common stock, $0.001 par value (the "Common Stock"),
and 100 shares of the Company's newly designated Series A Preferred Stock,
$0.001 par value (the "Series A Preferred Stock") (which was erroneously
referred to as Series B Preferred Stock in the May 8-K). In addition, the
Purchase Agreement provided that the Sellers were entitled to receive up to an
additional 59,900,000 shares (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 SCS, as a subsidiary of the Company, achieve 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 number of the Second Tranche Shares
were subject to adjustment to the extent that SCS's working capital as of the
Closing Date was less than or greater than zero.
During April, 2023, the Company's management reported to its Board of Directors
(the "Board") that the operations of SCS had achieved revenue of $5.7 million
for the twelve months ended March 31, 2023 which is in excess of the Milestone.
The Board engaged the Company's independent registered public accounting firm,
RBSM, LLP ("RBSM"), to perform certain agreed upon procedures in connection with
the review of the revenue reported for the twelve months ended March 31, 2023.
At its May 4, 2023 meeting, the Board received a letter from RBSM indicating
that no exceptions were found in management's accounting and reporting of the
$5.7 million trailing twelve-month revenue based upon the agreed upon procedures
performed by RBSM. Consequently, the Board approved the issuance of the Second
Tranche to the Sellers including a Closing Working Capital Adjustment (the
"Adjustment") of 2,116,618 shares of common stock. The Adjustment was based upon
$380,991 of SCS working capital as of the Closing Date.
Combining the Second Tranche and the Adjustment, the Sellers received 62,016,618
shares of common stock. As a result of the Acquisition, the Sellers hold
approximately 57.6% of the Company's 211,587,899 outstanding common stock as
ofMay 4, 2023.
As previously disclosed in the May 8-K, the Shares are subject to a
Lock-Up/Leak-Out Agreement pursuant to which, subject to certain exceptions, the
Sellers may not directly or indirectly offer to sell, or otherwise transfer, any
of the Shares for 24 months after the Closing Date without the prior written
consent of the Company. Notwithstanding the foregoing, pursuant to the
Lock-Up/Leak-Out Agreement, the Sellers may sell up to 20% of their shares of
Common Stock beginning 12 months after the Closing Date, and the remaining 80%
of their shares of Common Stock beginning 24 months after the Closing Date.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. Description
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)© Edgar Online, source Glimpses
SIDECHANNEL INC. 
