CISO Global, Inc. 10-Q

Item 1. Financial Statements CISO GLOBAL, INC. and subsidiaries CONDENSED Consolidated Balance Sheets (Unaudited) September 30, December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 770,480 $ 1,833,163 Accounts receivable, net 6,070,619 7,862,297 Inventory 72,572 11,803 Prepaid cost of revenue 2,989,300 2,634,667 Prepaid expenses and other current assets 1,422,164 1,724,650 Contract asset 264,776 332,215 Total Current Assets 11,589,911 14,398,795 Property and equipment, net 3,983,840 4,680,495 Right of use asset, net 824,178 255,687 Intangible assets, net 4,164,782 8,475,229 Goodwill 35,557,637 76,664,017 Other assets 19,375 22,592 Total Assets $ 56,139,723 $ 104,496,815 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued expenses $ 13,161,294 $ 8,310,337 Deferred revenue 4,863,166 4,472,140 Lease liability 161,154 121,731 Loans payable 3,727,647 7,758,831 Convertible notes payable 1,050,000 2,550,000 Total Current Liabilities 22,963,261 23,213,039 Long-term Liabilities: Loans payable, net of current portion 3,277,174 4,243,802 Convertible notes payable, related party 5,000,000 - Lease liability, net of current portion 706,903 159,205 Deferred tax liability - 435,678 Total Liabilities 31,947,338 28,051,724 Commitments and Contingencies - - Stockholders’ Equity: Common stock, $ .00001 par value; 300,000,000 shares authorized; 178,176,477 and 146,395,807 issued and outstanding at September 30, 2023 and December 31, 2022, respectively 1,782 1,464 Preferred stock, $ .00001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively - - Additional paid-in capital 170,365,244 153,168,984 Accumulated other comprehensive income 1,290,578 1,062,247 Accumulated deficit ( 147,465,219 ) ( 77,787,604 ) Total Stockholders’ Equity 24,192,385 76,445,091 Total Liabilities and Stockholders’ Equity $ 56,139,723 $ 104,496,815 The accompanying footnotes are an integral part of these condensed consolidated financial statements. 5 CISO GLOBAL, INC. and subsidiaries CONDENSED Consolidated STATEMENTS OF OPERATIONS (Unaudited) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Revenue: Security managed services $ 12,266,690 $ 10,061,304 $ 37,623,328 $ 28,489,698 Professional services 1,798,431 1,191,728 5,693,468 3,320,689 Total revenue 14,065,121 11,253,032 43,316,796 31,810,387 Cost of revenue: Security managed services 5,574,180 4,310,378 18,444,204 10,678,728 Professional services 234,549 182,413 683,582 455,902 Cost of payroll 5,458,001 4,978,768 16,514,436 14,132,602 Stock based compensation 317,851 857,950 3,783,116 4,805,423 Total cost of revenue 11,584,581 10,329,509 39,425,338 30,072,655 Total gross profit 2,480,540 923,523 3,891,458 1,737,732 Operating expenses: Professional fees 745,426 624,391 3,086,365 2,192,600 Advertising and marketing 119,814 245,495 288,984 641,340 Selling, general and administrative 5,557,328 6,684,747 21,178,969 15,856,705 Stock based compensation 677,231 1,791,724 6,421,245 6,761,283 Impairment of goodwill - - 41,038,172 - Total operating expenses 7,099,799 9,346,357 72,013,735 25,451,928 Loss from operations ( 4,619,259 ) ( 8,422,834 ) ( 68,122,277 ) ( 23,714,196 ) Other income (expense): Other income ( 121,689 ) 29,968 ( 68,470 ) 134,447 Interest expense, net ( 766,315 ) ( 108,233 ) ( 1,922,546 ) ( 293,991 ) Total other income (expense) ( 888,004 ) ( 78,265 ) ( 1,991,016 ) ( 159,544 ) Loss before income taxes ( 5,507,263 ) ( 8,501,099 ) ( 70,113,293 ) ( 23,873,740 ) Benefit from income taxes - - ( 435,678 ) - Net loss ( 5,507,263 ) ( 8,501,099 ) ( 69,677,615 ) ( 23,873,740 ) Foreign currency translation adjustment ( 1,392,395 ) ( 908,987 ) 228,331 ( 2,207,256 ) Comprehensive loss $ ( 6,899,658 ) $ ( 9,410,086 ) $ ( 69,449,284 ) $ ( 26,080,996 ) Net loss per common share - basic and diluted $ ( 0.03 ) $ ( 0.06 ) $ ( 0.44 ) $ ( 0.17 ) Weighted average shares outstanding - basic 178,077,576 142,295,780 159,391,428 136,764,168 Weighted average shares outstanding - diluted 178,077,576 142,295,780 159,391,428 136,764,168 The accompanying footnotes are an integral part of these condensed consolidated financial statements. 6 CISO GLOBAL, INC. and subsidiaries CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Additional Other Common Stock Preferred Stock Paid-in Comprehensive Accumulated Shares Amount Shares Amount Capital Gain/(Loss) Deficit Total Balance at January 1, 2023 146,395,807 $ 1,464 - - $ 153,168,984 $ 1,062,247 $ ( 77,787,604 ) $ 76,445,091 Stock based compensation - stock options - - - - 9,190,027 - - 9,190,027 Stock based compensation - common stock 3,500,000 35 - - 733,465 - - 733,500 Stock issued for cash 26,739,853 268 - - 6,681,930 - - 6,682,198 Exercise of options 1,040,817 10 - - 491,843 - - 491,853 Stock issued for SB Cyber acquisition 500,000 5 - - 98,995 - - 99,000 Foreign currency translation - - - - - 228,331 - 228,331 Net loss - - - - - - ( 69,677,615 ) ( 69,677,615 ) Balance at September 30, 2023 178,176,477 $ 1,782 - $ - $ 170,365,244 $ 1,290,578 $ ( 147,465,219 ) $ 24,192,385 Balance at January 1, 2022 125,852,971 $ 1,258 - - $ 69,309,369 $ - $ ( 44,012,422 ) $ 25,298,205 Balance 125,852,971 $ 1,258 - - $ 69,309,369 $ - $ ( 44,012,422 ) $ 25,298,205 Stock based compensation - stock options - - - - 10,432,048 - - 10,432,048 Stock based compensation - common stock 736,819 7 - - 1,592,977 - - 1,592,984 Stock issued for cash 304,608 3 - - 1,040,962 - - 1,040,965 Exercise of options 2,459,809 25 - - 1,359,239 - - 1,359,264 Stock issued for cash in public offering 2,060,000 21 - - 9,521,777 - - 9,521,798 Stock issued for True Digital acquisition 8,229,000 82 - - 34,726,298 - - 34,726,380 Stock issued for VelocIT acquisition 256,678 3 - - ( 3 ) - - - Stock issued for Red74 acquisition 34,000 - - - - - - - Stock issued for Creatrix acquisition 600,000 6 - - 3,629,994 - - 3,630,000 Stock issued for CyberViking acquisition 499,000 5 - - 1,836,315 - - 1,836,320 Stock issued for CUATROi acquisition 2,166,922 22 - - 6,847,452 - 6,847,474 Stock issued for NLT Secure acquisition 2,745,872 27 - - 6,919,570 - - 6,919,597 Foreign currency translation - - - - - ( 2,207,256 ) - ( 2,207,256 ) Net loss - - - - - - ( 23,873,740 ) ( 23,873,740 ) Balance at September 30, 2022 145,945,679 $ 1,459 - $ - $ 147,215,998 $ ( 2,207,256 ) $ ( 67,886,162 ) $ 77,124,039 Balance 145,945,679 $ 1,459 - $ - $ 147,215,998 $ ( 2,207,256 ) $ ( 67,886,162 ) $ 77,124,039 The accompanying footnotes are an integral part of these condensed consolidated financial statements. 7 CISO GLOBAL, INC. and subsidiaries CONDENSED Consolidated STATEMENTS OF CASH FLOWS (Unaudited) September 30, 2023 September 30, 2022 Nine Months Ended September 30, 2023 September 30, 2022 Cash flows from operating activities: Net loss $ ( 69,677,615 ) $ ( 23,873,740 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation - stock options 9,190,027 10,432,048 Stock based compensation - common stock 733,500 1,134,658 Depreciation and amortization 2,411,989 2,138,493 Right of use amortization 165,291 184,167 Other 93,199 50,362 Impairment of intangible assets 3,023,709 - Impairment of goodwill 40,651,586 - Changes in operating assets and liabilities: Accounts receivable, net 1,689,837 887,816 Inventory ( 66,296 ) ( 106,246 ) Contract assets 67,440 ( 330,067 ) Prepaids and other current assets ( 232,829 ) ( 1,952,488 ) Accounts payable and accrued expenses 5,129,336 3,003,623 Lease liability ( 307,816 ) ( 154,816 ) Settlement liability - ( 470,000 ) Deferred revenue 424,144 1,205,893 Net cash used in operating activities ( 6,704,498 ) ( 7,850,297 ) Cash flows from investing activities: Purchases of property and equipment ( 166,278 ) ( 510,973 ) Cash (paid)/acquired in acquisitions, net 30,430 ( 5,533,244 ) Net cash used in investing activities ( 135,848 ) ( 6,044,217 ) Cash flows from financing activities: Proceeds from sale of common stock 6,682,198 10,562,763 Proceeds from stock option exercise 491,853 1,359,264 Proceeds from loan payable 4,448,641 5,000,000 Proceeds from convertible notes payable, related party 5,000,000 - Proceeds from convertible note payable 1,050,000 1,000,000 Proceeds from line of credit 173,477 86,585 Payment on line of credit ( 174,547 ) - Payment on loans payable ( 9,206,420 ) ( 369,829 ) Payment on notes payable, related party - ( 1,575,510 ) Payment of convertible note payable ( 2,550,000 ) - Payment of debt issuance cost ( 137,500 ) ( 25,000 ) Net cash provided by financing activities 5,777,702 16,038,273 Effect of exchange rates on cash and cash equivalents ( 39 ) 19,539 Net (decrease)/increase in cash and cash equivalents ( 1,062,683 ) 2,163,298 Cash and cash equivalents - beginning of the period 1,833,163 2,725,035 Cash and cash equivalents - end of the period $ 770,480 $ 4,888,333 Supplemental cash flow information: Cash paid for: Interest $ 2,094,020 $ 224,813 Income taxes $ - $ - Supplemental disclosure of non-cash transactions: Operating lease assets obtained in exchange for operating lease obligations $ 733,782 $ 476,986 Common stock issued in VelocIT acquisition $ - $ - Common stock issued in RED 74 acquisition $ - $ - Common stock issued in NLT Secure acquisition $ - $ 6,919,597 Common stock issued in SB Cyber acquisition $ 99,000 $ - Common stock issued in acquisition $ 99,000 $ - The accompanying footnotes are an integral part of these condensed consolidated financial statements. 8 CISO GLOBAL, INC. and subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Unless otherwise indicated or the context requires otherwise, the terms “we,” “us,” “our,” and “our company” refer to CISO Global, Inc., a Delaware corporation and its wholly owned subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars. NOTE 1 – ORGANIZATION OF BUSINESS AND GOING CONCERN Description of the Business We are a cybersecurity and compliance company comprised of highly trained and seasoned security professionals who work with clients to improve their cybersecurity posture. We provide a full range of cybersecurity consulting and related services, encompassing strategy and risk, cyber defense operations, architecture and engineering, and readiness and resiliency. Our services include secured managed services, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, digital forensics, technical assessments, and cybersecurity training. Our goal is to create a culture of security and to help quantify, define, and capture a return on investment from information technology and cybersecurity spending. We believe that culture is the foundation of every successful cybersecurity and compliance program, as it affects every area of the business, from policies and practices to technology settings and configurations. To deliver that outcome, we offer a holistic approach that provides these services in a unified way from a dedicated team of subject matter experts. In contrast to the majority of cybersecurity firms that are focused on a specific technology or service, we seek to differentiate ourselves by focusing on leveraging teams of highly sought-after practitioners, as well as designing best-in-class solutions to accompany them. We continually seek to identify and acquire cybersecurity talent to expand our service scope and geographical coverage to provide the best possible service for our clients. We believe that bringing together a world-class team of technological experts with multi-faceted expertise in the critical aspects of cybersecurity is key to providing solutions to our clients. As we help them build cyber resilience, we recognize that today’s business environment suffers from widespread cybersecurity ineffectiveness due to key challenges in attracting and retaining cybersecurity talent. This workforce shortfall drives consistent demand for both cybersecurity expertise and cutting edge, automated solutions that can supplement in-house teams’ existing capabilities. Our goal is to leverage thought leadership and innovation to help our clients create a culture of security across their people, processes, and technologies, helping them quantify, define, and capture a return on investment from information technology and cybersecurity spending. Our brand is founded on and rallies around a simple truth that experts learn through experience, “Cyber security is a Culture, not a Product™.” Basis of Presentation Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), the instructions to Form 10-Q pursuant to regulations of the SEC, and include our accounts and the accounts of our subsidiaries. All material intercompany accounts and transactions have been eliminated. Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2023. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2022. Going Concern The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2023, we incurred a net loss of $ 69,677,615 and had negative cash flows from operations of $ 6,704,498 . At September 30, 2023, we had total current assets of $ 11,589,911 and total current liabilities of $ 22,963,261 , resulting in a working capital deficit of $ 11,373,350 . At September 30, 2023, we had cash and cash equivalents of $ 770,480 . Based on our current business plan, we believe our cash balance as of the date of this filing, together with anticipated revenues, will be sufficient to meet our anticipated cash requirement for the near term. However, there can be no assurance that the current business plan will be achievable. Such conditions raise substantial doubts about our ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued. 9 Our existence is dependent upon our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business, reducing overhead costs, and raising capital, although there can be no assurance that our efforts will be successful. No assurance can be given that our actions will result in profitable operations or the resolution of liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should we be unable to continue as a going concern. In order to improve our liquidity, in addition to a planned reduction in overhead costs, we are actively pursuing additional debt and/or equity financing through discussions with investment bankers and private investors. There can be no assurance that we will be successful in our efforts to secure additional financing. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and the amount or classification of liabilities that might be necessary should we be unable to continue as a going concern. Reclassifications Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation. Use of Estimates GAAP requires management to make estimates and assumptions that affect the reported amounts in our unaudited condensed consolidated financial statements. We periodically evaluate our estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results could materially differ. We believe the critical accounting policies discussed below affects our more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Our revenue is derived from two major types of services to clients: security managed services and professional services. With respect to security managed services, we provide culture education and enablement, tools and technology provisioning, data and privacy monitoring, regulations and compliance monitoring, remote infrastructure administration, and cybersecurity services, including, but not limited to, antivirus and patch management. With respect to professional services, we provide cybersecurity consulting, compliance auditing, vulnerability assessment and penetration testing, and disaster recovery and data backup solutions. Our revenue is categorized and disaggregated as reflected in our unaudited condensed consolidated statement of operations as follows: Security Managed Services Security managed services revenue primarily consists of compliance, security managed services, SOC managed services, and vCISO. We considered these services to be a single performance obligation, and revenue is recognized as services and materials are provided to the customer. 10 Professional Services Professional services revenue primarily consists of technical assessments, incident response and forensics, training, and other cybersecurity services. We considered these services to be a single performance obligation, and revenue is recognized in the period in which the performance obligations are satisfied. Accounts Receivable Accounts receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. We periodically assess our accounts and other receivables for collectability on a current expected credits loss basis. We provide for allowances for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. Payments are generally due within 30 days of invoice. We write off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of September 30, 2023 and December 31, 2022, our allowance for doubtful accounts was $ 224,629 and $ 270,011 , respectively. Inventory Inventory consists of computer equipment for sale to customers. Inventory is measured using the first-in, first-out method and stated at lower of cost or net realizable value as of September 30, 2023 and December 31, 2022. The value of inventories is reduced for excess and obsolete inventories. We monitor inventory to identify events that would require impairment due to obsolete inventory and adjust the value of inventory when required. We recorded no inventory impairment losses for the three and nine months ended September 30, 2023 and 2022. Net Loss per Common Share Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. For dilutive securities, all outstanding options, warrants, and convertible debt is considered potentially outstanding common stock. The dilutive effect, if any, of stock options and warrants is calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options and shares issuable upon conversion thereof have been excluded from our computation of net loss per common share for the three and nine months ended September 30, 2023 and 2022. The following tables summarize the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive due to our net loss position even though the exercise price could be less than the average market price of the common shares: SUMMARY OF SECURITIES EXCLUDED FROM DILUTED PER SHARE September 30, 2023 December 31, 2022 Stock options 33,820,457 36,397,521 Warrants 744,200 144,200 Convertible debt 4,166,667 430,718 Total 38,731,324 36,972,439 Deferred Revenue Deferred revenue primarily consists of billings or payments received from customers in advance of revenue recognized for the services provided to our customers or annual licenses and is recognized as services are performed or ratably over the life of the license. We generally invoice customers in advance or in milestone-based installments. Deferred revenue of $ 3,629,416 was recognized as revenue for the nine months ended September 30, 2023, which was included in the deferred revenue balance as of December 31, 2022. As of September 30, 2023, deferred revenue is expected to be recognized during the succeeding 12-month period and is therefore presented as current. 11 D eferred revenue consisted of the following: SCHEDULE OF DEFERRED REVENUE September 30, 2023 December 31, 2022 Security managed services $ 4,131,529 $ 3,609,087 Professional services 731,637 863,053 Total deferred revenue $ 4,863,166 $ 4,472,140 Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities, including tax loss and credit carry forwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We utilize ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. We account for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At September 30, 2023, our net deferred tax asset has been fully reserved due to our current period impairment, we expect to be in a net deferred tax asset position in Chile, and a valuation allowance has been recorded for this jurisdiction during the current period. For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations when a determination is made that such expense is likely. NOTE 3 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS September 30, 2023 December 31, 2022 Prepaid expenses $ 572,285 $ 987,651 Prepaid taxes 785,456 572,645 Prepaid insurance 64,423 164,354 Total prepaid expenses and other current assets $ 1,422,164 $ 1,724,650 NOTE 4 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT September 30, 2023 December 31, 2022 Computer equipment $ 1,284,250 $ 1,264,713 Building 1,697,296 1,776,040 Leasehold improvements 522,255 541,647 Vehicles - 28,229 Furniture and fixtures 166,210 151,142 Software 1,721,170 1,667,283 Property and equipment gross 5,391,181 5,429,054 Less: accumulated depreciation ( 1,407,341 ) ( 748,559 ) Property and equipment, net $ 3,983,840 $ 4,680,495 Total depreciation expense was $ 220,703 and $ 186,738 for the three months ended September 30, 2023 and 2022, respectively, and was $ 762,514 and $ 519,121 for the nine months ended September 30, 2023 and 2022, respectively. 12 NOTE 5 – INTANGIBLE ASSETS AND GOODWILL Goodwill During the quarterly period ended September 30, 2023, our share price reduction was determined to be an indicator of impairment under ASC 350 of our two reporting units, United States and Latin America. We performed an ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value. The valuation limitation from our recent share price decline caused us to perform an interim goodwill impairment test as of September 30, 2023. Based on the results of this testing, we did not record a pre-tax, non-cash impairment charge related to the United States reporting unit and Latin America reporting unit, respectively, for the three-months ended September 30, 2023. For the nine-months ended September 30, 2023, we recorded $ 31,776,819 and $ 9,261,353 of pre-tax, non-cash impairment charges related to the United States reporting unit and Latin America reporting units, respectively. This charge is recorded as Impairment of goodwill on the Consolidated Statements of Operations and Comprehensive Loss. The overall enterprise fair value was limited by the recent decline in our share price. The reduction in fair value for the reporting units, and corresponding impairment charge, was primarily driven by an increase in the discount rate arising from higher equity premiums that reflect significant uncertainty surrounding our company and a decrease in forecasted near-term cashflows of our reporting units. As part of our quantitative testing process for goodwill of the reporting units, we estimated fair values using a revenue multiple analysis, a form of the income approach, from the perspective of a market participant. Significant assumptions used in the revenue multiple approach are revenue growth rates and revenue multiples of key comparable companies within our industry. The following table summarizes the changes in goodwill during the nine months ended September 30, 2023: SCHEDULE OF CHANGES IN GOODWILL Balance December 31, 2022 $ 76,664,017 Impairment ( 41,038,172 ) Foreign currency translation adjustment ( 68,208 ) Ending balance, September 30, 2023 $ 35,557,637 The remaining balance of goodwill for the reporting units continue to be at risk for future impairment. There continues to be uncertainty surrounding the factors impacting our business, and a sustained downturn, significantly extended recovery, or a change in long-term revenue growth or profitability for our reporting units could increase the likelihood of an additional future impairment. Additionally, changes in market participant assumptions or further share price reductions could increase the likelihood of further future impairment. Intangible Assets We performed an interim impairment test of our intangible assets based upon the conditions that precipitated the interim goodwill impairment test described above. Based on the results of this testing, we recorded pre-tax, non-cash impairment charges totaling zero and $ 3,116,039 for the three and nine-months ended September 30, 2023, respectively, related to our customer base, intellectual property, tradenames-trademarks and non-compete, which is included in the net carry amount of intangibles in the table below. These charges were recorded in Selling, general and administrative expenses on the Consolidated Statement of Operations and Comprehensive Loss. Fair values used in testing for potential impairment of our intangible assets are calculated using a discounted cash flows method by applying estimated cash flows from our forecasted revenue and expenses of the business that utilize those assets. The assumed cash flows from this calculation are discounted at a rate based on a market participant discount rate. 13 There is uncertainty surrounding the revenue growth factors for these assets and a change in the long-term revenue growth rate or increase in the discount rate assumption could increase the likelihood of a future impairment. Following the recognition of the impairment losses, the affected assets had an aggregate carrying value of $ 483,738 as of September 30, 2023. Intangible assets, net are summarized as follows: SUMMARY OF IDENTIFIABLE INTANGIBLE ASSETS Gross Carrying Amount Accumulated Amortization Net Carrying Amount September 30, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Tradenames – trademarks $ 4,024,463 $ ( 2,124,575 ) $ 1,899,888 Customer base 1,191,491 ( 610,927 ) 580,564 Non-compete agreements 665,855 ( 590,003 ) 75,852 Intellectual property/technology 2,562,917 ( 954,439 ) 1,608,478 Intangible Asset $ 8,444,726 $ ( 4,279,944 ) $ 4,164,782 Gross Carrying Amount Accumulated Amortization Net Carrying Amount December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Tradenames – trademarks $ 4,744,409 $ ( 1,167,476 ) $ 3,576,933 Customer base 2,949,143 ( 449,565 ) 2,499,578 Non-compete agreements 796,583 ( 436,611 ) 359,972 Intellectual property/technology 2,659,391 ( 620,645 ) 2,038,746 Intangible Asset $ 11,149,526 $ ( 2,674,297 ) $ 8,475,229 The weighted average remaining useful life of identifiable amortizable intangible assets remaining is 3.29 years as of September 30, 2023. Amortization of identifiable intangible assets for the three months ended September 30, 2023 and 2022 was $ 384,126 and $ 797,703 , respectively, and was $ 1,655,911 and $ 1,615,170 for the nine months ended September 30, 2023 and 2022, respectively. Based on the balance of intangible assets at September 30, 2023, expected future amortization expense is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE 2023 (remainder of) $ 397,060 2024 1,323,051 2025 1,134,113 2026 1,020,342 2027 290,216 Future Amortization Expense $ 4,164,782 NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following amounts: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES September 30, 2023 December 31, 2022 Accounts payable $ 8,631,762 $ 5,267,492 Accrued payroll and bonuses 1,883,593 1,274,919 Accrued expenses 2,251,244 1,296,382 Accrued commissions 93,449 305,768 Accrued interest 301,246 165,776 Total accounts payable and accrued expenses $ 13,161,294 $ 8,310,337 14 Note 7 – RELATED PARTY TRANSACTIONS Independent Consulting Agreement with Stephen Scott In August 2020, we entered into an Independent Consulting Agreement with Stephen Scott, a then director of our company, with respect to advisory and consulting services relating to our strategic and business development and sales and marketing. Mr. Scott receives a consulting fee of $ 11,500 per month for such services. In July 2023, we entered into an Independent Consulting Agreement with Mr. Scott to provide, on a non-exclusive basis, advisory and consulting services relating to our strategic and business development, intellectual property development, banking relationships, and strategic M&A for a period of one year. Mr. Scott will receive a consulting fee of $ 15,000 per month for such services under the terms of this agreement. During the three and nine months ended September 30, 2023, we paid consulting fees to Mr. Scott in the amount of $ 45,000 and $ 114,000 , respectively. Mr. Scott resigned from his position as a director of our company in May 2023. Mr. Scott remains a significant stockholder of our company due to his beneficial ownership. Managed Services Agreement with Hensley Beverage Company – Related Party In July 2021, we entered into a 1-year Managed Services Agreement with Hensley Beverage Company to provide secured managed services. We also may be engaged by Hensley Beverage Company from time to time to provide other related services outside the scope of the Managed Services Agreement. While the agreement provides for a term through December 31, 2021, the agreement will continue until terminated by either party. For the three and nine months ended September 30, 2023, we received $ 416,058 and $ 923,150 , respectively, from Hensley Beverage Company for contracted services, and had an outstanding receivable balance of $ 176,944 and $ 39,615 as of September 30, 2023 and 2022, respectively. Andy McCain, a director of our company, is President and Chief Operating Officer of Hensley & Company, the parent company of Hensley Beverage Company. Convertible Note Payable with Hensley & Company In March 2023, we issued an unsecured convertible note to Hensley & Company in the principal amount of $ 5,000,000 bearing an interest rate of 10.00 % per annum. The principal amount, together with accrued and unpaid interest is due on March 20, 2025 . At any time prior to or on the maturity date, Hensley & Company is permitted to convert all or any portion of the outstanding principal amount and all accrued but unpaid interest thereon into shares of our common stock at a conversion price of $ 1.20 per share. During the three and nine months ended September 30, 2023, we recorded interest expense of $ 125,000 and $ 263,888 , respectively. At September 30, 2023, we had accrued interest of $263,888. Mr. McCain, a director of our company, is President and Chief Operating Officer of Hensley & Company. Note 8 – STOCKHOLDERS’ EQUITY In May 2023, we completed a $ 4,000,000 registered direct offering of shares of our common stock, pursuant to which an aggregate 20,000,000 shares of our common stock were issued. In addition, we granted the placement agent warrants to purchase 600,000 shares of our common stock. We have used the net proceeds from the offering to repay $ 2.0 million in outstanding principal of short-term indebtedness and for general corporate purposes. For the nine months ended September 30, 2023, we sold 6,739,853 shares of our common stock for net proceeds of $ 3,283,165 through our at-the-market offering under our S-3 Registration Statement. Our 2023 Equity Incentive Plan (the “2023 Plan”), which replaces our 2019 Equity Incentive Plan (the “2019 Plan”), became effective on September 13, 2023. T he total number of shares of our common stock reserved and available for delivery under the 2023 Plan at any time during the term of the 2023 Plan will be 40,000,000 shares plus any shares remaining available for delivery under the 2019 Plan on the effective date of the 2023 Plan. As of the effective date of the 2023 Plan, there were 21,839,752 shares remaining available for delivery under the 2019 Plan. Therefore, as of September 13, 2023, there were an aggregate of 61,839,752 shares reserved and available for delivery under the 2023 Plan. In addition, to the extent that any stock options pursuant to the 2019 Plan expire, terminate, or are canceled or forfeited under the terms of the 2019 Plan, the shares of common stock reserved for issuance pursuant to such stock options will become available for issuance under the 2023 Plan. Options We granted stock options vesting solely upon the continued service of the recipient. We recognize the accounting grant date fair value of equity-based awards as compensation expense over the required service period of each award. The following table summarizes stock option activity: SCHEDULE OF STOCK OPTIONS ACTIVITY Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at January 1, 2023 36,397,521 $ 2.45 - - Granted 4,414,833 0.40 - - Exercised ( 1,040,817 ) 0.48 - - Expired or cancelled ( 5,951,080 ) 2.99 - - Outstanding at September 30, 2023 33,820,457 $ 2.12 4.78 $ 70,000 Exercisable at September 30, 2023 22,812,881 $ 1.80 3.34 $ 70,000 15 Total compensation expense related to the options was $ 554,249 and $ 2,252,716 for the three months ended September 30, 2023 and 2022, respectively, and $ 9,190,027 and $ 10,432,048 for the nine months ended September 30 2023 and 2022, respectively. As of September 30, 2023, there was future compensation expense of $ 21,175,369 with a weighted average recognition period of 2.09 years related to the options. Warrant Activity Summary The following table summarizes warrant activity: SCHEDULE OF STOCK WARRANT ACTIVITY Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at January 1, 2023 144,200 $ 5.00 4.06 $ - Granted 600,000 0.25 5.00 - Exercised - - - - Expired or cancelled - - - - Outstanding at September 30, 2023 744,200 $ 1.17 4.37 $ - Exercisable at September 30, 2023 744,200 $ 1.17 4.37 $ - NOTE 9 – COMMITMENTS AND CONTINGENCIES Legal Claims There are no material pending legal proceedings in which we or any of our subsidiaries are a party or in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us . Indirect Taxes We are subject to indirect taxation in some, but not all, of the various states and foreign jurisdictions in which we conduct business. Laws and regulations attempting to subject commerce conducted over the Internet to various indirect taxes are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on us in the future. Increased regulation could negatively affect our business directly, as well as the business of our customers. Taxing authorities may impose indirect taxes on the Internet-related revenue we generated based on regulations currently being applied to similar, but not directly comparable, industries. There are many transactions and calculations where the ultimate indirect tax determination is uncertain. In addition, domestic and international indirect taxation laws are complex and subject to change. We may be audited in the future, which could result in changes to our indirect tax estimates. We continually evaluate those jurisdictions in which nexus exists, and believe we maintain adequate indirect tax accruals. As of September 30, 2023 and December 31, 2022, our accrual for estimated indirect tax liabilities was $ 556,151 and $ 409,187 , respectively, reflecting our best estimate of the potential liability based on an analysis of our business activities, revenues subject to indirect taxes, and applicable regulations. Although we believe our indirect tax estimates and associated liabilities are reasonable, the final determination of indirect tax audits, litigation, or settlements could be materially different than the amounts established for indirect tax contingencies. 16 NOTE 10 – LOANS PAYABLE AND LINES OF CREDIT Loans Payable Loans payable was as follows: SCHEDULE OF LOAN PAYABLE Interest Rate Maturities September 30, 2023 December 31, 2022 Term loans (US dollar denominated) 5.00 % – 155.11 % 2023 - 2027 $ 1,934,663 $ 5,461,520 Term loans (Chilean peso denominated) 3.48 % - 7.14 % 2023 - 2029 5,070,158 6,541,113 7,004,821 12,002,633 Less, current portion ( 3,727,647 ) ( 7,758,831 ) Long term loans payable $ 3,277,174 $ 4,243,802 In June 2022, we entered into a bridge loan, secured by substantially all of our assets, in the principal amount of $ 5,000,000 bearing an interest rate of 4.00 % per annum payable monthly with a maturity date of December 14, 2022 , which was extended to March 14, 2023. We did not repay this bridge loan on the maturity date, which resulted in an event of default under the terms thereof. As a result, the interest rate applicable to amounts due under this bridge loan increased from 4.00 % to 7.50 % . This bridge loan was repaid in full on March 20, 2023. We recorded interest expense of zero and $ 116,667 during the three months and nine months ended September 30, 2023, respectively. Various subsidiaries in the United States are borrowers under certain unsecured term loans. These term loans require monthly principal and interest payments. We recorded aggregate interest expense on these term loans of $ 8,536 and $ 47,015 for the three and nine months ended September 30, 2023, respectively. Accrued interest as of September 30, 2023 was zero . The aggregate effective interest rate of the term loans is 9.87 % . Our Latin America subsidiaries are the borrowers under certain term loans denominated in Chilean Pesos. These term loans require monthly principal and interest payments. These term loans are secured by various assets owned by our subsidiaries. We recorded aggregate interest expense on these term loans of $ 141,269 and $ 396,679 for the three and nine months ended September 30, 2023. Accrued interest as of September 30, 2023 was zero . The aggregate effective interest rate of the term loans is 9.11 % . In March 2023, we entered into a Cash Advance Agreement, pursuant to which we received gross proceeds of $ 2,000,000 and paid $ 87,500 in upfront fees. The terms of the Cash Advance Agreement call for us to remit aggregate weekly payments of $ 99,398 until such time as we have repaid $ 2,870,000 . The effective interest rate of the Cash Advance Agreement is 155.11 % . This Cash Advance Agreement is secured by the accounts receivable of CISO Global Inc. and our wholly owned subsidiaries, Talatek, LLC and True Digital Security, Inc. We recorded interest expense of $ 237,964 and $ 822,017 for the three and nine months ended September 30, 2023, respectively. In August 2023, we entered into a second Cash Advance Agreement, pursuant to which we received gross proceeds of $ 2,000,000 and paid $ 50,000 in upfront fees. The terms of the Cash Advance Agreement call for us to remit weekly payments of $ 80,588 until such time as we have repaid $ 2,740,000 . The effective interest rate of the Cash Advance Agreement is 112.00 % . This Cash Advance Agreement is secured by the accounts receivable of CISO Global Inc. and our wholly owned subsidiaries, Talatek, LLC and True Digital Security, Inc. We recorded interest expense of $ 226,164 for the three and nine months ended September 30, 2023. Convertible Notes Payable In October 2021, we issued a convertible note to Neil Stinchcombe in the principal amount of $ 1,500,000 bearing an interest rate of 5.00 % per annum payable at maturity with a maturity date of January 27, 2022 , with a conversion price of $ 5.00 per share. On March 10, 2022, we entered into an amendment to the note pursuant to which the maturity date was extended to October 27, 2022 . In March 2023, we entered into a letter agreement with Neil Stinchcombe to resolve certain payment terms of his convertible note. We agreed to repay the principal amount of the note in three equal installments of $ 500,000 on each of March 31, April 28, and May 31, 2023, with accrued interest to be paid on May 31, 2023. The principal amount of this note, plus all accrued interest was repaid in full as of June 30, 2023. At December 31, 2022, we had accrued interest of $ 119,007 . We recorded interest income of zero and interest expense of $ 632 during the three and nine months ended September 30, 2023. 17 In June 2022, we issued an unsecured convertible note in the principal amount of $ 1,000,000 bearing an interest rate of 5.00 % per annum payable monthly with a maturity date of June 2023, with a conversion price of $ 7.83 per share. The outstanding principal of this note can be redeemed at any time by us or at maturity at 105% . At maturity in June 2023, we repaid the unpaid accrued interest on this convertible note and rolled the principal amount of $ 1,050,000 into a new convertible note with the lender. We recorded interest expense of zero and $ 22,101 for the three and nine months ended September 30, 2023. In June 2023, we issued an unsecured convertible note in the principal amount of $ 1,050,000 bearing an interest rate of 10.00 % per annum payable monthly. The principal amount, together with accrued and unpaid interest is due on June 7, 2024 . At anytime prior to or on the maturity date, the holder is permitted to convert all of the outstanding principal amount into 4.20 % of the authorized units of our wholly owned subsidiary vCISO, LLC. We recorded interest expense of $ 27,603 and $ 33,083 for the three and nine months ended September 30, 2023. At September 30, 2023 we had accrued interest of $ 33,083 . In March 2023, we issued an unsecured convertible note to Hensley & Company in the principal amount of $ 5,000,000 bearing an interest rate of 10.00 % per annum. The principal amount, together with accrued and unpaid interest is due on March 20, 2025 . At any time prior to or on the maturity date, Hensley & Company is permitted to convert all or any portion of the outstanding principal amount and all accrued but unpaid interest thereon into shares of our common stock at a conversion price of $ 1.20 per share. During the three and nine months ended September 30, 2023, we recorded interest expense of $ 125,000 and $ 263,888 , respectively. At September 30, 2023, we had accrued interest of $ 263,888 . Mr. McCain, a director of our company, is President and Chief Operating Officer of Hensley & Company. Future minimum payments under the above loans payable and convertible notes payable due as of September 30, 2023 were as follows: SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR LONG TERM DEBT 2023 (remainder of) $ 1,504,990 2024 4,187,156 2025 6,024,936 2026 524,275 2027 287,141 Thereafter 570,624 Total future minimum payments 13,099,122 Less: discount ( 44,301 ) Total 13,054,821 Less: current ( 4,777,647 ) Long term debt, net of current portion $ 8,277,174 NOTE 11 – LEASES We have entered into various non-cancellable operating lease agreements for certain offices. These leases currently have lease periods expiring between 2023 and 2028. The lease agreements may include one or more options to renew. Renewals were not assumed in our determination of the lease term unless the renewals were deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease costs, weighted-average lease term, and discount rates are detailed below. When measuring lease liabilities for leases that were classified as operating leases, we discounted lease payments using our estimated incremental borrowing rate at the commencement date of each lease. The weighted average incremental borrowing rate applied was 9.99 % . As of September 30, 2023, our leases had a remaining weighted average term of 3.96 years. Operating leases are included in the unaudited condensed Consolidated Balance Sheets as follows: SCHEDULE OF LEASE COST AND OTHER SUPPLEMENT LEASE INFORMATION Classification September 30, 2023 December 31, 2022 Lease assets Operating lease cost ROU assets Assets $ 824,178 $ 255,687 Total lease assets $ 824,178 $ 255,687 Lease liabilities Operating lease liabilities, current Current liabilities $ 161,154 $ 121,731 Operating lease liabilities, non-current Liabilities 706,903 159,205 Total lease liabilities $ 868,057 $ 280,936 18 The components of lease costs, which are included in loss from operations in our unaudited condensed consolidated Statements of Operations, were as follows: SCHEDULE OF LEASE COST 2023 2022 Nine Months Ended September 30, 2023 2022 Leases costs Operating lease costs $ 196,642 $ 277,842 Short term lease cost 78,307 - Total lease costs $ 274,949 $ 277,842 Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the nine months ended September 30, 2023 were as follows: SCHEDULE OF FUTURE MINIMUM UNDER NON-CANCELLABLE LEASES FOR OPERATING LEASES Fiscal Year Operating Leases 2023 (remainder of) $ 73,996 2024 294,383 2025 252,513 2026 199,177 2027 205,145 Thereafter 51,661 Total future minimum lease payments 1,076,875 Amount representing interest 208,818 Present value of net future minimum lease payments $ 868,057 NOTE 12 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Although we deposit cash with multiple banks, these deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may generally be redeemed upon demand and bear minimal risk. No single customer represented over 10 % of our total revenue for any period presented. NOTE 13 – GEOGRAPHIC INFORMATION Revenue by geography is based on the customer’s billing address and was as follows: SCHEDULE OF REVENUE BY GEOGRAPHY IS BASED ON CUSTOMERS BILLING ADDRESS 2023 2022 2023 2022 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 U.S. $ 8,835,728 $ 9,000,560 $ 25,921,186 $ 26,764,895 Chile 5,157,981 2,148,503 16,840,734 4,941,523 All other countries 71,412 103,969 554,876 103,969 Revenue $ 14,065,121 $ 11,253,032 $ 43,316,796 $ 31,810,387 Property and equipment, net by geography was as follows: SCHEDULE OF PROPERTY AND EQUIPMENT, NET BY GEOGRAPHIC AREAS September 30, 2023 December 31, 2022 U.S. $ 1,181,275 $ 1,198,057 Chile 2,801,543 3,480,911 All other countries 1,022 1,527 Property and equipment net $ 3,983,840 $ 4,680,495 No other international country represented more than 10% of property and equipment, net in any period presented. NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME The following table presents AOCI activity in equity: SCHEDULE OF ACCUMULATED OTHER COMPREHENSIVE INCOME Foreign Currency Translation Adjustments Total AOCI Balance as of December 31, 2022 $ 1,062,247 $ 1,062,247 Other comprehensive income 228,331 228,331 Amounts reclassified from AOCI - - Balance as of September 30, 2023 $ 1,290,578 $ 1,290,578 NOTE 15 – SUBSEQUENT EVENTS On November 9, 2023, we and our US subsidiaries entered into a Business Loan and Security Agreement (the “Loan Agreement” with LendSpark Corporation (the “Lender”), pursuant to which we obtained a loan with a principal amount of $ 2,200,000 (the “Loan”) from the Lender. Pursuant to the Loan Agreement, we paid the Lender a $ 44,000 origination fee. The Loan bears interest at a rate of 53.44 % per annum and is payable in 52 weekly installments of $ 53,731 , commencing on November 16, 2023. We may prepay the Loan in whole or in part, but partial repayments do not reduce the total interest payable on the Loan, or $ 594,000 . If the Loan is prepaid in full prior to the 90-day anniversary of the date of the Loan Agreement, the total interest is reduced as follows: (i) if the Loan is repaid within 30 days, the total amount of interest due will be $ 464,000 , (ii) if the Loan is repaid within 60 days, the total amount of interest due will be $ 508,000 , and (iii) if the Loan is repaid within 90 days, the total amount of interest due will be $ 552,000 . Pursuant to the Loan Agreement, we granted the Lender a security interest in all if its assets and the assets of our US subsidiaries (the “Collateral”). Upon the occurrence of an event of default, the Lender may, among other things, accelerate the Loan and declare all obligations immediate due and payable or take possession of the Collateral. The proceeds from the Loan were used to repay in full the amount owed under Cash Advance Agreement with Cedar Advance, LLC that we entered into in March 2023. In connection with Loan, we entered into a Fee Agreement (the “Fee Agreement”) with the Lender pursuant to which we issued 2,000,000 shares of our common stock, par value $ 0.00001 per share (the “Shares”) as partial consideration for the Lender’s agreement to enter into the Loan Agreement and extend credit to us. Pursuant to the Fee Agreement, if we repay the Loan in full by (i) December 9, 2023, the Lender will return all of the Shares to us, (ii) January 8, 2023, the Lender will return 1,500,000 of the Shares to us and (iii) February 8, 2024, the Lender will return 1,000,000 of the Shares to us. The Fee Agreement contains customary representations, warranties, agreements and obligations of the parties. 19