Sidechannel Inc

Good day, everyone, and welcome to today's Side Channel Fiscal Third Quarter 2022 Investor Update. At this time, all participants are in a listen-only mode. I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Matt Krebs, who works in Investor Relations for Side Channel Inc.

Thank you, Chloe, and welcome to the SideChannel Inc. Fiscal Third Quarter 2022 Results Conference Call for the period ended June 30, 2022. With me today are Brian Hoaglick, President and CEO of SideChannel, and Ryan Polk, CFO of SideChannel. Before we begin, I'd like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of federal securities laws, including SideChannel's financial outlook and SideChannel's plans and timing for professional services, product development, and sales. These forward-looking statements involve material risks and uncertainties, and SideChannel's actual results may differ materially. For discussion of our business lines and risk factors, I encourage you to review the company's most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 15, 2022. Except as required by law, SideChannel undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this call. And now I'd like to turn the call over to Brian Hovely, President and CEO of SideChannel. Brian, please go ahead.

Thank you very much, Matt. You can hear me still okay. Hope everyone's doing well out there. Again, thanks for everybody taking the time today to jump on this call with us. So I want to go over a number of things and then I'll turn it over to Ryan for financials and then we'll open up for Q&A. So first, the June quarter has been transformative for SideChannel and our predecessor, Cypherlock. Obviously in May, we announced Cypherlock's acquisition of SideChannel Incorporated, a private business providing virtual chief information security officer services, primarily to middle market companies. SideChannel is a growing business with 2.6 million in revenue through September 30th, 2021, and on track for continued revenue growth and cash positive operations. We will report a higher revenue number for the next fiscal year. The acquisition itself included consideration of approximately 60 million shares of Cypherlock common stock, plus an opportunity for SideChannel shareholders to receive an additional almost 60 million shares of Cypherlock common stock when SideChannel itself achieves 5.5 million revenue as a milestone. It should be clear that our focus is on growth and winning growth in the right way to create long-term sustainable value. We believe the combination created a unique business with both the technology and the services needed to provide effective, affordable, and responsive security to middle market companies. The Conline Company will be known as SideChannel going forward. We changed our stock ticker to SDCH recently, reflecting the new name, and we will file on a consolidated basis starting from our next financial report. Additionally, we intend to file an AKS pro forma that will give greater insight into the business operations. This is due by September 15th. Of course, we'll accelerate this timeline as we can, and we intend to do so. So looking ahead, we intend to deliver on the rationale that brought us into this transaction in the first place. Middle market faces growing needs for encryption and cybersecurity, and the rising costs and rapid turnover of CISOs leaves them priced out of the market for the talent and access to that talent that they truly need. Likewise, CISOs are burning out and looking for a better way to practice the profession that they love and bring real value to the companies that need their services. SideChannel marries these two together, offering senior, experienced CISOs to middle market companies on a fractional, cost-effective basis. This offers SideChannel customers unparalleled expertise and support, but at the fraction of a price that is appropriate to their budgets. Moreover, they can also benefit from our expansive team, our deep vertical expertise, and opportunity to source from a wide variety and array of software and hardware solutions from across the industry. The addition of Cycrolox assets provided a means of tapping growth capital to accelerate our business, as well as technology resources to develop our own software and solutions to meet middle market customer needs, something that we're seeing extensively across our current customer base. Now, for example, micro-segmentation platform enclaves that we will be that was announced in May and will be released soon for general availability or the GA version. It allows our clients to reduce risk, enhance productivity, and make zero trust a reality. This product is built on a very successful open source platform called Nebula. This was developed by members of the cybersecurity team at Slack and currently runs on over 150,000 endpoints, causing zero disruption or downtime. The scale and stability of Nebula, along with the reliance by Slack for its own security, is why we've chosen it as a core base to our own commercially available product, Enclave. We are very supportive of the open source initiatives and look forward to increased involvement with the Nebula community. Enclave is just our first product, and it stands apart in the field for its ease of use, cost effectiveness, especially something important to the mid-market, and its own cloud-based policy management. In addition to direct license sales, we also can offer a managed service behind it for customers who need even more support. This additional service line will increase usage and revenue from Enclave and its own sales cycle. And the key three points to really look at that we are seeing inside of the client base, micro-segmentation, right? It's a way to walk towards zero trust security, and Enclave itself can deploy different types of encryption into instances where it was previously difficult to implement. For instance, we've heard stories of organizations that have regulatory requirements that they need to implement encryption but don't have a means to do so inside of traditionally flat or legacy-style networks. Enclave can enable that. So how do we deliver encryption through micro-segmentation? It's more than just encryption itself. We want to watch what NIST is doing and the evolving views on encryption and its application in the real world. And we're going to build on Cypherlock's previous work and the other platforms based on standards and customer preferences. We intend to incorporate the Cypherlock Polymorphic Encryption Core, or the PEC, into Enclave as part of our development roadmap. The PEC is quantum resistant and FIPS 140-2 certified, hold two FIPS 142 certificates, numbers 3645 and 3381 from this. Specifically with FIPS, this clears the road for us to sell to federal and state governments where products are required to be FIPS certified. So we see a real prevalent need for this type of, technology, coupled with side channel services of building programs and changing cultures, really the three legs to the stool to any type of zero trust initiative. So regarding this, I just want to be transparent, and I read quite a bit on the Internet, and I just read quite a bit, period. I enjoy reading. I'm well aware of the interest in where the Cypherlock technology stands. NIST has been running a six-year competition since 2016 to choose the first group of encryption tools that are designed to withstand the assault of a future quantum computer, which could potentially crack the security used to protect privacy in the digital systems we rely on every day, such as online banking and email software. As of July 5, 2022, NIST has chosen the four selected encryption algorithms that will become part of NIST's post-quantum cryptographic standards. expected to be finalized in about two years. When NIST chooses its finalists, the Cypherlock polymorphic encryption will be deployable either standalone or via Enclave to leverage and use those NIST-selected algorithms. So overall, it's very good news. I'm very excited about what we're doing with SideChannel and we're on the other side of this merger. What we're doing is working for the mid-market. We've added a number of outstanding logos to our client roster over the past few months. Virgin Voyages, for example, we're currently handling their ship and shore, and we're focusing their business, allowing them to focus on their business while outsourcing their security to the experts at SideChannel to be able to implement what is right, what is required, and what is effective for their own operations. We recently landed one of the larger Bitcoin mining operations in the United States and even the world looking for more cost-effective and efficient security solutions, advisory, and guidance. EasyCater is a recent win. They're a platform for corporate catering events. Their full-time CISO decided to leave and pursue new opportunities of professional growth. And the company decided to transition to a VCISO for more cost-effective service and access to broader talent than an internal hire could offer. And they chose SideChannel. So you'll probably recognize many of these names. Maybe some of them you don't. But know them to be significant businesses in their own right. They and other customers see the value of using a vCISO solution and the capabilities that we bring to bear along with it. And in fact, we're expanding and re-upping our services with them and our other clients within our portfolio. We're excited about our growth opportunities, which can be lumpy throughout the year. For example, November and December can be slow months as companies close out their year. In January, we can usually see a wave of new activity corresponding to new budget years, right? Our goal is to continue to build a strong base of customers generating predictable revenue and augment it with a broad funnel of new business prospects. And we'll do that through a variety of ways. One of them is new talent. We're excited to... We haven't publicly announced online. If you follow any of what we're doing on social media, a predominant amount of information comes out that. But we recently hired Trent. He starred with us in this last month as our new vice president of sales. We're building out a very robust sales team with him coming on board. We're also keeping... eyes on a select list of M&A targets in areas that are complementary to our services. And where we traditionally have gone to partners, we can now deliver these ourselves directly instead. And we see a very rich pipeline and continue to evaluate that pipeline of M&A targets and opportunities very closely. Overall, very excited about the direction we're going and what we've been stepping down as far as our plan. Finally, I just want to call out we've expanded our board. We've got some great additions to the board. You would have seen the press releases recently. Debbie McConnell, she's been involved in the computer industry for more than three decades, recently retired from IBM. She was instrumental in transforming IT for IBM's human resources function, which supports upwards of about half a million employees. So no small feat there, along with enhancing the processes for mergers and acquisition management and talent acquisition. So we welcome Debbie. Very excited to have her on board. Kevin Powers is the founder and director of the Masters of Science in Cybersecurity Policy and Governance Programs at Boston College. Go Eagles. Mr. Powers is also a cybersecurity research affiliate at the MIT Sloan School of Management, and he's taught courses at the U.S. Naval Academy, where he is also deputy general counsel to the superintendent. So we welcome Kevin. Last but not least, Hugh Regan recently retired from his role as CFO of Intext, a publicly traded manufacturer of capital equipment used in the semiconductor industry. Mr. Regan will serve as the chairperson of the company's audit committee. I'm very excited to have Hugh and discussions with him. He was very thoughtful and very insightful addition to the team, obviously, amongst Kevin and Debbie. So that rounds out our new board. We're excited about our path forward, both our team and our opportunities for growth, and we look forward to reporting progress ahead. With that, I am going to turn it over to our CFO, Ryan Polk.