Please note this conference is being recorded. I will now turn the conference over to your host, Brian Haugli, Chief Executive Officer. You may begin.
Hey, thanks everybody for joining. I'm Brian Haugli, CEO of SideChannel. Ryan Polk, our CFO, is also with me. I'll give you the quarter, then I'm going to go straight at the liquidity question because I'd rather you hear that from me than find it in the filing. Ryan will take you through the financials, and then I'll cover where the business is heading, and we'll open it up. Q3 was our first quarter of year-over-year revenue growth in five quarters. Revenue was $1.8 million, up $21,000 or 1.2%. That's a small number, but I want to be clear about why it matters anyway. For more than a year, this company was shrinking. This quarter it didn't, and it stopped shrinking while we were also taking cost out.
Gross margin was 54.9%, up 790 basis points from 47% a year ago. Two things drove that. Enclave carries a high gross margin, and it made up more of the mix, and we got better utilization out of our delivery team. Operating expenses were up 1.6%, $18,000 on a $1.1 million base, essentially flat against a quarter a year ago that we've since restructured. Net loss was $134,000, or $0.03 a share, against $261,000 or $0.06 last year. We cut the quarterly loss roughly in half, and we grew cash sequentially in the quarter. Small, but the direction changed. Nine-month numbers are not as good, and I'm not going to present them as if they are.
Revenue is down 7.7% to $5.1 million. Net loss $974,000 against the $510,000. Most of that damage is in the first half before the cost structure changed. Cost reductions started landing in the March quarter. Q3 is the first clean look at the business after that work. Excuse me. Now the part I'm not going to make you ask about. Our 10-Q includes a going concern disclosure, and it states that substantial doubt about our ability to continue as a going concern is not alleviated. That is unchanged from our last filing. I want to tell you exactly what that means and what it doesn't. We end the quarter with $326,000 in cash and no debt. We have no credit facility. Net working capital is around $15,000.
Management's position, stated in the filing, is that to operate for the next 12 months, we need to either raise additional equity or debt on acceptable terms or eliminate a significant portion of our product offering and the cost structure that goes with it. Neither of those has happened yet. That is why the doubt is not alleviated. Here's what I'd ask you to hold alongside that. The accounting conclusion did not change this quarter. The operating trend underneath it did. Revenue grew. Margins expanded 790 basis points. Operating expenses were flat. We cut the quarterly loss in half, and the cash grew sequentially. Those are the inputs that eventually move the conclusion. One quarter doesn't move it. It's the right direction. One structural item worth noting, roughly 231,000 warrants from our 2021 private placement expired between March 31 and April 16.
Those warrants carried terms that significantly restricted our options for raising capital. They're gone. Our capital structure is cleaner today than it was two quarters ago. We also withdrew the Series A preferred designation in Delaware on July 27, which returns those shares to undesignated preferred available to the board. I'm not going to speculate about outcomes on this call. I'm just telling you what the filing says and what changed operationally. I'm going to ask Ryan Polk to take you through the numbers.
Thank you, Brian. As Brian mentioned, revenue up this quarter. The mix for that revenue continues to shift as we've seen so far this year with a growth in our services and software category. That category of revenue is now larger than our vCISO revenue. This is the first time that we've reported that. We're now at 51.6% of revenue from our cybersecurity software and services versus 48.4% for vCISO. Inside of that vCISO category, retained revenue is essentially flat. Our decline in that category year-over-year is really a new client acquisition gap, not delivery or a retention problem. Speaking of retention, trailing 12 months revenue retention, which we report each quarter, is up to 68.2% at the end of June versus 63.6% at September 30.
We saw improvements in both vCISO, up to 61.7%, and our cybersecurity software and services up to 77.6%. A second theme that I want to highlight in this update is also something Brian mentioned, which is our operating expenses. They were up just slightly for the quarter on a year-over-year basis, up just $18,000. The year-over-year trend of significant growth in operating expenses that we reported in the first half of the year has been reversed. We mentioned in some previous reports that we have cut significant amounts of operating expenses out of our structure, and you're seeing the benefit of that in Q3, and you'll see that again in the 10-Q that we file after our September year-end.
The balance sheet, as Brian mentioned, continues to hold no debt, cash up slightly on a quarter-over-quarter basis. We are reporting positive cash flow from operations for the third quarter. We end the quarter also with a healthy deferred revenue balance of $663,000. Brian, thanks for the opportunity to give that update. I will pass it back to you.
Thanks, Ryan. I want to point out one number Ryan just gave you because it is the most important number and thing in this filing, and it is not in the headline. For the first time, cybersecurity software and services is a bigger share of our revenue than vCISO services, 51.6% against 48.4%. A year ago, that was 42.7% against 57.3%. That crossover is a strategy working, and it is why gross margins moved 790 basis points. Underneath it, two things are true at once, and I would rather give you them both. The good one, our vCISO retention improved and retained revenue held flat at about $2 million. Clients who work with us stay, and the work is profitable.
What fell off is new vCISO logos, $486,000 this year against $1.2 million last year. That is a demand generation and a sales capacity problem. It is a fixable problem, and it is a different problem than clients leaving us. The hard one, we spent an additional $506,000 on selling and marketing over nine months and revenue went down. I own that. Some of that spend built the pipeline and the partner motion that produced this quarter's turn. Some of it did not keep, some of it did not earn, and we have reset the cost structure accordingly starting in March quarter. You are seeing the result in Q3 operating expenses being flat. On the platform side, Enclave brings asset intelligence, network segmentation, and certificate lifecycle management together in one place.
This quarter, we ship the integration that pushes Enclave data into GRC workflows as continuous compliance evidence. Asset inventory, certificate expiry, host firewall coverage, segmentation, and vulnerability status collected automatically instead of screenshotted once a year. That is the difference between an assessment and a program that you can actually run. It is the infrastructure I wanted when I was the one running security programs at the Pentagon and then as the CSO at The Hanover. The team should be able to deploy it and run it with their partners without adding headcount. On AI, and I will be precise, because there is a lot of noise in this word right now, we are using AI inside our own delivery to speed up assessments, policy documentation, and risk deliverables, and inside sales and marketing operations.
The objective is more client coverage per practitioner without proportional headcount and without taking our vCISOs out of the room with the clients. That's a margin story, not a product announcement. Where that leaves us, we're a smaller company than we were a year ago and a more efficient one. The quarter turned. The balance sheet is thin, and we've been direct with you about that. Our job for the next two quarters is to convert the pipeline into new logos and keep the cost line where we put it. Operator, I'll turn it over to you for questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star one if you have a question or a comment. We currently have no questions in the queue. I'd like to turn the floor back to management for any closing remarks.
Okay, I was expecting questions. Well, thanks, everybody. The short version, the quarter turned, the margin structure is materially better, and we've been straight with you about the balance sheet. Ryan Polk and I are reachable if you want to follow up. Thanks, everybody, and have a good one.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.