UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________ to _________

Commission file number: 001-41227

CISO GLOBAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

83-4210278

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

6900 E. Camelback Road, Suite 900, Scottsdale, Arizona		85251
(Address of Principal Executive Offices)		(Zip Code)

(480) 389-3444

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.00001 par value		CISO		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 7, 2023, there were 178,006,398 shares of the registrant’s common stock outstanding.

CISO GLOBAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION		5

ITEM 1.	Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Operations and Comprehensive Loss	6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity	7

	Condensed Consolidated Statements of Cash Flows	8

	Notes to Condensed Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	27

ITEM 4.	Controls and Procedures	28

PART II. OTHER INFORMATION		29

ITEM 1.	Legal Proceedings	29

ITEM 1A.	Risk Factors	29

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 3.	Defaults Upon Senior Securities	29

ITEM 4.	Mine Safety Disclosures	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits	29

SIGNATURES		30

FORWARD-LOOKING STATEMENTS

The information contained in this report should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q. Certain statements made in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based upon beliefs of, and information currently available to, us as of the date hereof, as well as estimates and assumptions made by us. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions identify forward-looking statements. Such statements reflect our current view with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to our business, industry, and our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Forward-looking statements made in this Quarterly Report on Form 10-Q include statements about:

●	our ability to achieve and sustain profitability of our existing lines of business and through our wholly-owned subsidiaries;
●	our ability to raise sufficient capital to continue to acquire cybersecurity companies;
●	our ability to attract and retain qualified cybersecurity talent;
●	our ability to identify potential acquisition targets within predetermined parameters;
●	our ability to successfully execute acquisitions, integrate the acquired businesses, and create synergies as a global cybersecurity consolidator;
●	our ability to attract and retain qualified key technology or management personnel and to expand our management team;
●	the accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing;
●	our dependence on establishing and maintaining a strong brand;
●	the occurrence of service interruptions and security or privacy breaches and related remediation efforts and fines;
●	system failures or capacity constraints;
●	our ability to efficiently acquire customers and maintain high client retention rates;
●	the impact of fluctuations in foreign currency exchange rates on our business and our ability to effectively manage the exposure to such fluctuations;
●	our ability to maintain our relationships with our partners;
●	adverse consequences of our substantial level of indebtedness and our ability to repay our debt;
●	our ability to maintain, protect and enhance our intellectual property;
●	our ability to maintain or improve our market shares;
●	business interruptions resulting from geo-political actions, including war, terrorism, and disease outbreaks (such as COVID-19, the war in Ukraine, and geopolitical tensions involving China);
●	sufficiency of cash and cash equivalents to meet our needs for at least the next 12 months;
●	our ability to grow internationally;
●	beliefs and objectives for future operations;
●	our ability to stay in compliance with laws and regulations currently applicable to, or which may become applicable to our business both in the United States and internationally;
●	economic and industry trends or trend analysis;
●	anticipated income tax rates, tax estimates and tax standards;

●	expectations regarding the impact of inflation, action taken by central banks to counter inflation, rising interest rates, and changes in foreign exchange rates on our business and financial results;
●	the future trading price of our common stock;
●	our ability to maintain an effective system of internal controls and accurately report our financial results and remediate material weaknesses;
●	our expectation regarding the outcome of any regulator investigation or litigation;
●	the potential impact of shareholder activism on our business and operations;
●	our ability to navigate through the increasingly complex cybersecurity regulatory environment; and
●	any other statements regarding our future operations, financial condition, growth prospects and business strategies.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks detailed from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, any of which may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. These risks may cause our or our industry’s actual results, levels of activity, or performance to be materially different from any future results, levels of activity, or performance expressed or implied by these forward-looking statements.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CISO GLOBAL, INC. and subsidiaries

CONDENSED Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
	2023			2022

ASSETS

Current Assets:
Cash and cash equivalents	$	1,872,175		$	1,833,163
Accounts receivable, net		8,657,543			7,862,297
Inventory		57,232			11,803
Prepaid cost of revenue		2,807,001			2,634,667
Prepaid expenses and other current assets		2,252,813			1,724,650
Contract asset		376,022			332,215
Total Current Assets		16,022,786			14,398,795

Property and equipment, net		4,486,787			4,680,495
Right of use asset, net		889,010			255,687
Intangible assets, net		4,300,724			8,475,229
Goodwill		37,343,368			76,664,017
Other assets		18,597			22,592

Total Assets	$	63,061,272		$	104,496,815

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable and accrued expenses	$	13,258,971		$	8,310,337
Deferred revenue		5,049,998			4,472,140
Lease liability		191,995			121,731
Loans payable		3,593,253			7,758,831
Convertible notes payable		1,050,000			2,550,000
Total Current Liabilities		23,144,217			23,213,039

Long-term Liabilities:
Loans payable, net of current portion		3,745,586			4,243,802
Convertible notes payable, related party		5,000,000			-
Lease liability, net of current portion		732,675			159,205
Deferred tax liability		-			435,678

Total Liabilities		32,622,478			28,051,724

Commitments and Contingencies		-			-

Stockholders’ Equity:
Common stock, $.00001 par value; 300,000,000 shares authorized; 178,006,398 and 146,395,807 issued and outstanding at June 30, 2023 and December 31, 2022, respectively		1,777			1,464
Preferred stock, $.00001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding on June 30, 2023 and December 31, 2022, respectively		-			-
Additional paid-in capital		169,712,000			153,168,984
Accumulated translation adjustment		2,682,973			1,062,247
Accumulated deficit		(141,957,956	)		(77,787,604	)
Total Stockholders’ Equity		30,438,794			76,445,091

Total Liabilities and Stockholders’ Equity	$	63,061,272		$	104,496,815

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

CISO GLOBAL, INC. and subsidiaries

CONDENSED Consolidated STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
	Three Months Ended						Six Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Revenue:
Security managed services	$	13,590,505		$	10,376,169		$	25,356,638		$	18,428,394
Professional services		1,934,489			851,776			3,895,037			2,128,961
Total revenue		15,524,994			11,227,945			29,251,675			20,557,355

Cost of revenue:
Security managed services		7,309,461			3,765,426			12,870,024			6,368,350
Professional services		250,740			163,152			449,033			273,489
Cost of payroll		5,255,778			4,707,984			11,056,435			9,153,834
Stock based compensation		1,697,181			1,825,890			3,465,265			3,947,473
Total cost of revenue		14,513,160			10,462,452			27,840,757			19,743,146
Total gross profit		1,011,834			765,493			1,410,918			814,209

Operating expenses:
Professional fees		663,552			945,148			2,340,939			1,568,209
Advertising and marketing		53,776			240,504			169,170			395,845
Selling, general and administrative		6,112,875			4,468,415			15,621,641			9,171,958
Stock based compensation		2,115,039			2,404,049			5,744,014			4,969,559
Impairment of goodwill		20,838,804			-			41,038,172			-
Total operating expenses		29,784,046			8,058,116			64,913,936			16,105,571

Loss from operations		(28,772,212	)		(7,292,623	)		(63,503,018	)		(15,291,362	)

Other income (expense):
Other income		209,639			17,425			53,219			29,968
Interest expense, net		(766,090	)		(64,648	)		(1,156,231	)		(108,233	)

Total other income (expense)		(556,451	)		(47,223	)		(1,103,012	)		(78,265	)

Loss before income taxes		(29,328,663	)		(7,339,846	)		(64,606,030	)		(15,369,627	)
Benefit from income taxes		-			-			(435,678	)		-

Net loss		(29,328,663	)		(7,339,846	)		(64,170,352	)		(15,369,627	)
Foreign currency translation adjustment		(416,236	)		(2,200,710	)		1,620,726			(1,298,269	)

Comprehensive loss	$	(29,744,899	)	$	(9,540,556	)	$	(62,549,626	)	$	(16,667,896	)

Net loss per common share - basic and diluted	$	(0.18	)	$	(0.05	)	$	(0.42	)	$	(0.11	)

Weighted average shares outstanding - basic		165,105,048			136,127,157			151,406,985			134,738,684
Weighted average shares outstanding - diluted		165,105,048			136,127,157			151,406,985			134,738,684

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

CISO GLOBAL, INC. and subsidiaries

CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares		Amount		Shares		Amount		Capital			Gain/(Loss)			Deficit			Total
												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		-		-		-		-		8,635,778			-			-			8,635,778
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
Foreign currency translation		-		-		-		-		-			1,620,726			-			1,620,726
Net loss		-		-		-		-		-			-			(64,170,352	)		(64,170,352	)
Balance at June 30, 2023		177,676,477	$	1,777		-	$	-	$	169,712,000		$	2,682,973		$	(141,957,956	)	$	30,438,794

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		-		-		-		-		8,179,332			-			-			8,179,332
Stock based compensation - common stock		434,000		4		-		-		737,696			-			-			737,700
Exercise of options		454,111		5		-		-		277,707			-			-			277,712
Stock issued for cash in public offering		2,060,000		21		-		-		9,521,777			-			-			9,521,798
Stock issued for True Digital acquisition		7,406,100		74		-		-		34,726,306			-			-			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
Foreign currency translation		-		-		-		-		-			(1,298,269	)		-			(1,298,269	)
Net loss		-		-		-		-		-			-			(15,369,627	)		(15,369,627	)
Balance at June 30, 2022		137,097,860	$	1,371		-	$	-	$	126,382,178		$	(1,298,269	)	$	(59,382,049	)	$	65,703,231
Balance		137,097,860	$	1,371		-	$	-	$	126,382,178		$	(1,298,269	)	$	(59,382,049	)	$	65,703,231

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

CISO GLOBAL, INC. and subsidiaries

CONDENSED Consolidated STATEMENTS OF CASH FLOWS

(Unaudited)

	June 30, 2023			June 30, 2022
	Six Months Ended
	June 30, 2023			June 30, 2022
Cash flows from operating activities:
Net loss	$	(64,170,352	)	$	(15,369,627	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation - stock options		8,635,778			8,179,332
Stock based compensation - common stock		573,501			737,700
Depreciation and amortization		1,813,305			1,163,463
Right of use amortization		100,460			127,805
Other		43,750			(1,455	)
Impairment of intangible assets		3,116,039			-
Impairment of goodwill		41,038,172			-
Changes in operating assets and liabilities:
Accounts receivable, net		(617,138	)		1,416,754
Inventory		(46,776	)		(199,559	)
Contract assets		(43,807	)		(261,961	)
Prepaids and other current assets		(252,169	)		(2,131,480	)
Accounts payable and accrued expenses		4,172,201			2,675,346
Lease liability		(90,049	)		120,536
Settlement liability		-			(470,000	)
Deferred revenue		408,125			438,672

Net cash used in operating activities		(5,318,960	)		(3,574,474	)

Cash flows from investing activities:

Purchases of property and equipment		(148,866	)		(200,504	)
Cash (paid)/acquired in acquisitions, net		-			(4,914,196	)

Net cash (used in)/provided by investing activities		(148,866	)		(5,114,700	)

Cash flows from financing activities:
Proceeds from sale of common stock		6,682,198			9,521,798
Proceeds from stock option exercise		491,853

SEC Form 10-Q filed by CISO Global Inc.