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 September 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 November 13, 2023, there were 180,176,477 shares of the registrant’s common stock outstanding.

CISO GLOBAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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:

●	that 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;

●	our belief that 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;

●	the doubt about our ability to continue as a going concern;

●	our efforts to developing our business, reducing overhead costs, and capital raising;

●	our plan to improve our liquidity by a planned reduction in overhead costs and actively pursuing additional debt and/or equity financing through discussions with investment bankers and private investors;

●	our estimate for indirect tax liabilities; and

●	our expectation that we will incur further losses through the end of 2023.

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 consolidated 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 consolidated 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 consolidated 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)

	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.

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.

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.

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.

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.

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.

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:

	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.

Deferred 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:

	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

SEC Form 10-Q filed by CISO Global Inc.