Item
8.01 Other Events (Conversion of Series A Preferred Stock)
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 2022 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 2022 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.
As
previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2023,
the Sellers received 62,016,618 shares of common stock combined for the Second Tranche and the Adjustment.
The
Certificate of Designation of Series A Preferred Stock (the “Series A Certificate of Designation”) provides that each share
of Series A Preferred Stock is convertible into 1 share of common stock, subject to adjustment as provided therein. The Series A Certification
of Designation provides for a mandatory conversion based on specific triggers including the issuance of the Second Tranche Shares pursuant
to the terms of the Purchase Agreement. On June 12, 2023, the Sellers converted all of the Series A Preferred into 100 shares of common
stock (the “Conversion”). All rights with respect to the converted Series A Preferred Stock terminated upon the issuance
of the Second Tranche Shares.
As
a result of the Acquisition and the Conversion, the Sellers hold approximately 57.6% of the Company’s 211,587,999 outstanding common
stock as of June 12, 2023 and no Preferred Stock of the Company remained issued or outstanding.
As
previously disclosed in the May 2022 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.