CISO Global, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

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 U.S. dollars.

First Quarter 2025 Highlights

Our operating results for the three months ended March 31, 2025 included the following:

Results of Operations

Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024

Our financial results for the three months ended March 31, 2025 are summarized as follows in comparison to the three months ended March 31, 2024:

20

Revenue

Security managed services revenue decreased by $713,400, or 10%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to lower hardware and software sales.

Professional services revenue decreased by $196,675, or 26%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to fewer customer projects.

Cybersecurity software revenue increased by $46,983, or 47%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to an increase in subscriptions for our Checklight cybersecurity software.

Expenses

Cost of Revenue

Security managed services cost of revenue decreased by $550,102, or 22%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to lower hardware and software sales.

Professional services cost of revenue decreased by $105,388, or 68%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to a decreased use of consultants.

Cybersecurity software cost of revenue increased by $2,725, or 9%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to our increase in Checklight subscriptions.

Cost of payroll decreased by $729,862, or 21%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to headcount reductions in 2024.

Stock-based compensation expenses decreased by $555,845, or 51%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, due to the forfeiture of options by terminated employees and options that contractually expired.

Operating Expenses

Professional fees increased by $22,612, or 5%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, due to an increase in legal and accounting fees offset by a decrease in consultant fees.

Advertising and marketing expenses decreased by $22,708, or 86%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, due to utilizing internal resources for advertising and marketing activities.

Selling, general, and administrative expenses decreased by $1,321,703, or 33%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to reductions in headcount during 2024 resulting in lower costs for compensation, insurance, and leases in 2025.

Stock based compensation expenses decreased by $790,175, or 71%, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to the forfeiture of options by terminated employees and options that contractually expired.

Liquidity and Capital Resources

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfying liabilities in the normal course of business. For the three months ended March 31, 2025, we incurred a net loss of $5,379,604 and negative cash flows from operations of $2,953,508 and expect to incur further losses through the end of 2025. In the report accompanying our financial statements for the year ended December 31, 2024, our independent registered public accounting firm stated that our financial statements were prepared assuming that we would continue as a going concern and that they have substantial doubt as to our ability to do so based on our recurring losses from operations and need to raise additional capital. These 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.

As of March 31, 2025, we had $289,409,103 of available funding under our Shelf Registration Statement on Form S-3 from which we may issue our securities to fund current and future operations, assuming there is adequate demand for our securities. Although we have access to our Shelf Registration Statement on Form S-3, based on our public float, as of the filing date of our Annual Report on Form 10-K for the year ended December 31, 2024, we are only permitted to utilize a “shelf” registration statement for primary offerings, including the Shelf Registration Statement, subject to Instruction I.B.6 to Form S-3, which is referred to as the “baby shelf” rules. For so long as our public float is less than $75,000,000, we may not sell more than the equivalent of one-third of our public float during any twelve consecutive months pursuant to the baby shelf rules. While alternative public and private transaction structures may be available, these may require additional time and costs, may result in substantial dilution to existing stockholders, in light of our current stock price, may impose operational restrictions on us, and may not be available on attractive terms or at all.

Working Capital Deficit

Our working capital deficit as of March 31, 2025 in comparison to our working capital deficit as of December 31, 2024, is summarized as follows:

The increase in current assets is primarily due to an increase in cash and cash equivalents and prepaid expenses and other current assets of $794,271 and $944,858, respectively, offset by a decrease in accounts receivable, net, and prepaid cost of revenue of $95,814 and $114,135, respectively. The decrease in current liabilities is primarily due to a decrease in accounts payable and accrued expenses, loans payable, and derivative liability of $1,338,235, $1,629,647, and $2,023,008, respectively.

Cash Flows

Our cash flows for the three months ended March 31, 2025 in comparison to our cash flows for the three months ended March 31, 2024, can be summarized as follows:

Operating Activities

Net cash used in operating activities was $2,953,508 for the three months ended March 31, 2025 and was primarily due to cash used to fund a net loss of $5,379,604, adjusted for non-cash expenses in the aggregate of $4,563,916 and additional cash inflow by changes in the levels of operating assets and liabilities, primarily as a result of a decrease in accounts payable and accrued expenses, and prepaids and other current assets. Net cash used in operating activities was $1,408,633 for the three months ended March 31, 2024 and was primarily due to cash used to fund a net loss of $6,609,199, adjusted for non-cash expenses in the aggregate of $3,207,036 and additional cash inflow by changes in the levels of operating assets and liabilities, primarily as a result of a decrease in accounts receivables, net, and an increase in deferred revenue.

Investing Activities

Net cash used in investing activities of zero and $75,571 for the three months ended March 31, 2025 and 2024, respectively, was due to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $3,747,779, which was primarily due to $1,719,556 from the sale of our common stock, cash received from borrowings on our convertible loans payable and line of credit, net of debt issuance cost, of $4,591,358, offset by $2,563,135 in repayments of our loans payable and lines of credit. Net cash provided by financing activities for the three months ended March 31, 2024 was $2,014,034, which was primarily due to cash received from borrowings on our loans payable and lines of credit, net of debt issuance cost, of $4,571,583, offset by $2,605,636 in repayments of our loans payable and lines of credit.

The accompanying financial statements have been prepared on a going concern basis, which assumes the realization of assets and satisfaction of liabilities in the normal course of business. However, due to losses incurred, substantial doubt about our ability to continue as a going concern exists.

We are actively evaluating strategies to obtain the necessary additional funding for future operations. These strategies may include, obtaining equity financing, issuing debt, or entering into other financing arrangements, and restructuring of operations to grow revenues and decrease expenses. However, we may be unable to access further equity or debt financing when needed. Consequently, there is no assurance that we will be able to obtain the necessary liquidity when needed or under acceptable terms, if at all.

Our ability to continue as a going concern depends on successfully executing the plan outlined in our growth strategy and eventually achieving profitable operations. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern.

Critical Accounting Policies and Estimates

Our critical accounting policies are more fully described in the notes to our condensed consolidated financial statements included herein for the quarter ended March 31, 2025 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 31, 2025.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the periods. Our significant estimates and assumptions include the allowance for credit losses, the carrying value of intangible assets and goodwill, deferred tax asset and valuation allowance, the valuation of convertible notes, derivative liabilities, the adequacy of insurance reserves, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, share price, and expected dividend rate could be affected by external conditions, including those unique to us and general economic conditions. It is reasonably possible that these external factors could have an effect on our estimates and could cause actual results to differ from those estimates.

Fair Value Measurement

The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are assessed for impairment annually, or more frequently, if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. We perform our annual impairment review of goodwill at the reporting unit level. If we determine the fair value of the reporting unit’s goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of an annual or interim test, an impairment loss is recognized and reflected in operating income or loss in the consolidated statements of operations during the period incurred. We perform our impairment assessment based on a quantitative analysis performed for our reporting unit.

We review finite-lived intangible assets for impairment whenever an event occurs or circumstances change that indicate that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows resulting from the use of an asset and its eventual disposition. Should an asset not be recoverable, an impairment loss is measured by comparing the fair value of the asset to its carrying value. If we determine the fair value of an asset is less than the carrying value, an impairment loss is recognized in operating income or loss in the consolidated statements of operations during the period incurred.

Impairment of Long-Lived Assets

We will periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily by using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.

Stock-Based Compensation

We measure and recognize compensation expense for equity-based awards based on the grant date fair values of the awards. For options with service or performance-based vesting conditions, the grant date fair value is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions and apply judgment in determining the grant date fair value.

The most significant assumptions and judgments include estimating the expected option term, the expected stock price volatility, and the risk-free interest rates. The assumptions used in our option pricing model represent management’s best estimates. If factors change and different assumptions are used, our equity-based compensation expense could be materially different in the future. We record forfeitures when they occur, based on our lack of historical data available to estimate an appropriate forfeiture rate. Changes in our forfeiture rate can have a significant impact on our equity-based compensation expense since the cumulative effect of adjusting the forfeiture rate is recognized in the period in which the estimate is changed.

We will continue to use judgment in evaluating the assumptions related to our equity-based awards on a prospective basis. As we continue to accumulate additional data related to our awards, we may refine our estimates, which could materially impact our future equity-based compensation expense.

Revenue Recognition

Our agreements with clients are primarily service contracts that range in duration from a few months to three year. We recognize revenue when control of these services is transferred to the client for an amount, referred to as the transaction price, which reflects the consideration to which we are expected to be entitled in exchange for those goods or services.

A contract with a client exists only when:

• the parties to the contract have approved it and are committed to perform their respective obligations;
• we can identify each party’s rights regarding the distinct services to be transferred (“performance obligations”);
• we can determine the transaction price for the services to be transferred; and
• the contract has commercial substance, and it is probable that we will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the client.

We do not adjust the promised amount of consideration for the effects of a significant financing component since we expect, at contract inception, that the period between the time of transfer of the promised goods or services to the client and the time the client pays for these goods or services to be generally one year or less. Our credit terms to clients generally average 30 days, although in some cases payments are required in 15 days.

We do not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.

Our revenue is categorized and disaggregated as reflected in our statements of operations as follows:

Security Managed Services

Security managed services revenue primarily consists of compliance, security managed services, SOC managed services, and vCISO. We consider 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 consider these services to be a single performance obligation, and revenue is recognized in the period in which the performance obligations are satisfied.

Cybersecurity Software

Cybersecurity revenue primarily consists of our internally developed software products, CHECKLIGHT Endpoint Security Monitoring, ARGO Security Management, CISO Edge Cloud Security Platform, DISC Net Gen VPN, and Skanda Breach Assessment Tool. Each software offering is a single performance obligation, and we begin revenue recognition upon provisioning of our cybersecurity software to our customers and recognize ratably over the duration of the service period. We currently do not bundle our cybersecurity software with other product offerings, and as a result, judgment is not required to determine standalone selling price.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective. This does not include an evaluation by our independent registered public accounting firm regarding our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2025, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025, risk factors that materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.