CISO

MKT CAP $8.5MP/E —DIV YIELD —FCF YIELD —REV TTM $24.7M −14.1%NET INCOME −$2.9MNET DEBT $1.3M52W 0.16 – 1.16SEC XBRL · TTM TO Invalid Date

How CISO rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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This scalability will enable us to drive increased revenue and profit margins concurrently. - 36 - Financial Highlights Our operating results for the year ended December 31, 2025 included the following: ● Total current liabilities reduced by $17,217,158 to $7,738,489 as compared to December 31, 2024 of $24,955,647. ● Total gross profit increased to $6,819,977 for the year ended December 31, 2025 as compared to $4,507,645 for the year ended December 31, 2024. ● Reduced our loss from operations to $8,785,052 for the year ended December 31, 2025, as compared to $14,589,635 for the year ended December 31, 2024.
Results of Operations Comparison of the Year Ended December 31, 2025, to the Year Ended December 31, 2024 Our financial results for the year ended December 31, 2025 are summarized as follows in comparison to the year ended December 31, 2024: For the Year Ended December 31, 2025 December 31, 2024 Variance Revenue: Security managed services $ 23,773,050 $ 27,759,209 $ (3,986,159 ) Professional services 2,240,719 2,550,677 (309,958 ) Cybersecurity software 592,229 440,809 151,420 Total revenue 26,605,998 30,750,695 (4,144,697 ) Cost of revenue: Security managed services 7,322,440 9,296,185 (1,973,745 ) Professional services 231,154 465,952 (234,798 ) Cybersecurity software 202,720 119,900 82,820 Cost of payroll 10,432,447 12,023,206 (1,590,759 ) Stock-based compensation 1,597,260 4,337,807 (2,740,547 ) Total cost of revenue 19,786,021 26,243,050 (6,457,029 ) Total gross profit 6,819,977 4,507,645 2,312,332 Operating expenses: Professional fees 1,650,621 1,339,010 311,611 Advertising and marketing 1,012,140 - 1,012,140 Selling, general and administrative 10,592,957 13,081,606 (2,488,649 ) Stock-based compensation 2,349,311 4,676,664 (2,327,353 ) Total operating expenses 15,605,029 19,097,280 (3,492,251 ) Loss from operations (8,785,052 ) (14,589,635 ) 5,804,583 Other income (expense): Gain on extinguishment of convertible notes, net 4,432,434 - 4,432,434 Loss on issuance of convertible notes - (1,022,650 ) 1,022,650 Change in fair value of derivative liability 5,467,610 (593,083 ) 6,060,693 Interest expense, net (9,200,794 ) (3,584,172 ) (5,616,622 ) Other income (expense) 11,872 (116,061 ) 127,933 Total other income (expense) 711,122 (5,315,966 ) 6,027,088 Loss before income taxes $ (8,073,930 ) $ (19,905,601 ) $ 11,831,671 - 37 - Revenue Security managed services revenue decreased by $3,986,159, or 14%, for the year ended December 31, 2025, as compared to the year ended December 31, 2025, primarily due to loss of several higher-revenue customers, partially offset by newly acquired customers.
Professional services revenue decreased by $309,958, or 12%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to fewer customer projects.
Cybersecurity software revenue increased by $151,420, or 34%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to the initial launch of our suite of internally developed cybersecurity software products.
Expenses Cost of Revenue Security managed services cost of revenue decreased by $1,973,745, or 21%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to lower personnel related costs resulting from a reduction in headcount, as well as reduced costs related to the management of service vendors associated with our existing client base.
Professional services cost of revenue decreased by $234,798, or 50%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, due to decreased use of consultants.
Cybersecurity software cost of revenue increased by $82,820, or 69%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to the initial launch of our suite of internally developed cybersecurity software products.
Cost of payroll decreased by $1,590,759, or 13%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, due to headcount reductions.
Stock-based compensation decreased by $2,740,547, or 63%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to significantly lower grant date fair values on equity awards issued during the year, despite a higher number of grants.
The decrease also reflects the impact of forfeitures of options by terminated employees, which reduced recognized expense.
Operating Expenses Professional fees increased by $311,611, or 23%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, due to an increase in legal and accounting fees.
Advertising and marketing expenses increased by $1,012,140, or 100%, for the year ended December 31, 2025, as compared to December 31, 2024, due to marketing efforts initiated in 2025.
Selling, general, and administrative expenses decreased $2,488,649, or 19%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to reductions in headcount during 2024 resulting in lower costs for compensation and leases in 2025.
Stock-based compensation expenses decreased by $2,327,353, or 50%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to significantly lower grant date fair values on equity awards issued during the year, despite a higher number of grants.
The decrease also reflects the impact of forfeitures of options by terminated employees, which reduced recognized expense. - 38 - Other Income (Expense) The gain on extinguishment of convertible notes was $4,432,434 for the year ended December 31, 2025 due to the conversion of certain convertible notes into shares of our common stock and Series A Preferred Stock during 2025.
The loss on issuance of convertible notes was $1,022,650 during the year ended December 31, 2024 due to our costs associated with issuing the convertible notes exceeding the fair value of such convertible notes.
The change in fair value of derivative liability increased by $6,060,693 during the year ended December 31, 2025, as compared to the year ended December 31, 2024.
This increase was primarily due to changes in significant valuation inputs—such as the market price of CISO common stock—used in estimating the fair value of the derivative liability following the issuance of the related convertible notes payable in December 2024 and January 2025, as well as the subsequent conversion of certain convertible notes into shares of our common stock in 2025.
The estimated fair value of the conversion feature of the derivative liability is based on Monte Carlo simulations, a valuation model.
Interest expense increased by $5,616,622 for the year ended December 31, 2025, as compared to the year December 31, 2024, primarily due to the accretion of convertible notes payable and the amortization of debt issuance costs associated with the issuance of certain convertible notes payable during December 2024 and January 2025.
Working Capital Our working capital as of December 31, 2025, as compared to our working capital as of December 31, 2024, is summarized as follows: As of December 31, 2025 December 31, 2024 Current assets $ 3,264,224 $ 3,481,071 Current liabilities 7,738,489 24,955,647 Working capital deficit $ (4,474,265 ) $ (21,474,576 ) The decrease in current assets is primarily due to the $67,272 increase in prepaid expenses and other current assets being more than offset by decreases in accounts receivable and prepaid cost of revenue of $636,460 and $263,927, respectively.
Accounts receivable and prepaid cost of revenue decreased due to collection efforts and lower revenue in 2025.
Prepaid expenses increased due to increased prepaid marketing expenses.
The decrease in current liabilities is primarily due to decreases in accounts payable, accrued expenses and other current liabilities, debt obligations, and the derivative liability of $5,359,450, $9,425,380, and $2,102,927, respectively.
During the year ended December 31, 2025, we paid down accounts payable, accrued expenses, other current liabilities and loans payable outstanding, certain convertible notes payable were converted into shares of our common stock and Series A Preferred Stock, and the derivative liability was derecognized as a result of the conversion of the notes payable.
Cash Flows Our cash flows for the year ended December 31, 2025, as compared to our cash flows for the year ended December 31, 2024, can be summarized as follows: Year Ended December 31, 2025 2024 Net cash used in operating activities $ (7,971,902 ) $ (3,841,706 ) Net cash used in investing activities (7,491 ) (83,095 ) Net cash provided by financing activities 8,682,798 3,914,162 Effect of exchange rates on cash and cash equivalents - (59,214 ) Increase (decrease) in cash $ 703,405 $ (69,853 ) Operating Activities Net cash used in operating activities was $7,971,902 for the year ended December 31, 2025 and was primarily due to cash used to fund a net loss of $8,073,930, adjusted for non-cash expenses in the aggregate of $5,070,143 and additional cash decreases from changes in the levels of operating assets and liabilities in the aggregate of $4,968,115, primarily as a result of a decrease in accounts payable, accrued expenses, and other current liabilities.
Net cash used in operating activities was $3,841,706 for the year ended December 31, 2024 and was primarily due to cash used to fund a net loss of $24,243,919, adjusted for non-cash expenses in the aggregate of $17,100,898 and additional cash increases from changes in the levels of operating assets and liabilities in the aggregate of $3,301,315, primarily as a result of an increase in accounts receivable, accounts payable and accrued expenses, and deferred revenue.
Investing Activities Net cash used in investing activities were $7,491 and $83,095 for the years ended December 31, 2025 and 2024, respectively, which were due to cash paid to purchase property and equipment. - 39 - Financing Activities Net cash provided by financing activities for the year ended December 31, 2025 was $8,682,798, which was primarily due to $2,816,075 cash received from the sale of our common stock, $1,774,935 cash received from the sale of our Series B Preferred Stock, $1,949,999 from the exercise of warrants, cash received from borrowings on our convertible loans payable and line of credit (net of debt issuance costs) of $23,072,983, offset by $20,934,296 in repayments of our loans payable and line of credit.
Net cash provided by financing activities for the year ended December 31, 2024 was $3,914,162, which was primarily due to $154,947 cash received from the sale of our common stock, cash received from borrowings on our loans, line of credit, and convertible notes payable (net of debt issuance costs) of $10,984,412, offset by $7,225,197 in repayment of our loans payable and line of credit.
Liquidity and Capital Resources The accompanying 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 year ended December 31, 2025, we incurred a net loss of $8,073,930, reported cash used in operations of $7,971,902, and expect to incur further losses through the end of 2026.
Further, we have a working capital deficit of $4,474,265 as of December 31, 2025.
As a result, substantial doubt about our ability to continue as a going concern exists.
The Company’s ability to fund ongoing operations is highly dependent upon raising additional capital through the issuance of equity securities and issuing debt or other financing vehicles.
These strategies may include obtaining equity financing, issuing debt or entering into other financing arrangements, and restructuring operations to grow revenues and decrease expenses.
Series A Preferred Stock On August 4, 2025, we entered into Exchange Agreements with each of the Holders.
Pursuant to the Exchange Agreements, the Holders exchange certain outstanding convertible notes payable with aggregate principal and accrued interest of approximately $ 9,297,894 (collectively, the “Exchange Notes”) for an aggregate of 9,297,894 newly authorized shares of Series A Preferred Stock.
Upon the closing of the transactions contemplated by the Exchange Agreements, the Exchange Notes were cancelled, and the Holders relinquished all rights, powers, privileges, remedies, or interest under such securities.
On November 6, 2025, we converted all 9,297,894 outstanding shares of Series A Preferred Stock, together with $ 222,815 in accrued and unpaid dividends to 9,520,709 shares of Common Stock.
Series B Preferred Stock On September 24, 2025, we entered into a Preferred Equity Purchase Agreement (the “Purchase Agreement”) with B.

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This scalability will enable us to drive increased revenue and profit margins concurrently. - 31 - Financial Highlights Our operating results for the year ended December 31, 2024 included the following: ● Total revenue decreased by $3.2 million to $30.8 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. ● Total gross profit increased by $1.9 million to $4.5 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023.
Results of Operations Comparison of the Year Ended December 31, 2024, to the Year Ended December 31, 2023 Our financial results for the year ended December 31, 2024 are summarized as follows in comparison to the year ended December 31, 2023: For the Year Ended December 31, 2024 December 31, 2023 Variance Revenue: Security managed services $ 27,759,209 $ 30,309,510 $ (2,550,301 ) Professional services 2,550,677 3,631,629 (1,080,952 ) Cybersecurity software 440,809 - 440,809 Total revenue 30,750,695 33,941,139 (3,190,444 ) Cost of revenue: Security managed services 9,296,185 9,951,160 (654,975 ) Professional services 465,952 594,248 (128,296 ) Cybersecurity software 119,900 - 119,900 Cost of payroll 12,023,206 15,992,060 (3,968,854 ) Stock based compensation 4,337,807 4,823,829 (486,022 ) Total cost of revenue 26,243,050 31,361,297 (5,118,247 ) Total gross profit 4,507,645 2,579,842 1,927,803 Operating expenses: Professional fees 1,339,010 3,210,625 (1,871,615 ) Advertising and marketing - 449,231 (449,231 ) Selling, general and administrative 13,081,606 18,237,796 (5,156,190 ) Stock-based compensation 4,676,664 7,712,671 (3,036,007 ) Impairment of goodwill - 35,933,364 (35,933,364 ) Total operating expenses 19,097,280 65,543,687 (46,446,407 ) Loss from operations (14,589,635 ) (62,963,845 ) 48,374,210 Other income (expense): Other income (expense) (116,061 ) 245,920 (361,981 ) Loss on issuance of convertible notes (1,022,650 ) - (1,022,650 ) Change in fair value of derivative liability (593,083 ) - (593,083 ) Interest expense, net (3,584,172 ) (2,266,573 ) (1,317,599 ) Total other income (expense) (5,315,966 ) (2,020,653 ) (3,295,313 ) Loss before income taxes $ (19,905,601 ) $ (64,984,498 ) $ 45,078,897 - 32 - Revenue Security managed services revenue decreased by $2,550,301, or 8%, for the year ended December 31, 2024, as compared to the year ended December 31, 2024, primarily due to lower hardware and software sales.
Professional services revenue decreased by $1,080,952, or 30%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to lower customer projects.
Cybersecurity software revenue increased by $440,809, or 100%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to our initial launch of our suite of internally developed cybersecurity software products.
Expenses Cost of Revenue Security managed services cost of revenue decreased by $654,975, or 7%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due primarily to lower hardware and software sales.
Professional services cost of revenue decreased by $128,296, or 22%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to decreased use of consultants.
Cybersecurity software cost of revenue increased by $119,900, or 100%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to our initial launch of our suite of internally developed cybersecurity software products.
Cost of payroll decreased by $3,968,854, or 25%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to headcount reduction.
Stock-based compensation decreased by $486,022, or 10%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to the timing of recognition of the reversal of expense for options forfeited by former employees, a decrease in the number of options granted in 2024 and certain option grants that had fully vested.
Operating Expenses Professional fees decreased by $1,871,615, or 58%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to a decrease in accounting, legal and other professional fees incurred related to our periodic SEC filings and our efforts to raise additional capital.
Advertising and marketing expenses decreased by $449,231, or 100%, for the year ended December 31, 2024, as compared to December 31, 2023, due to utilizing internal resources for advertising and marketing activities.
Selling, general, and administrative expenses decreased $5,156,190, or 28%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to our analysis of our carrying amount of intangible assets being impaired for the year ended December 31, 2023, reductions in head count, and lower costs for insurance and lease expenses for the year ended December 31, 2024.
Stock-based compensation expenses decreased by $3,036,007, or 39%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to the timing of recognition of the reversal of expense for options forfeited by former employees, a decrease in the number of options granted in 2024 and certain option grants that had fully vested. - 33 - Impairment of goodwill decreased by $35,933,364, or 100%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to our analysis of our carrying amount of goodwill being impaired in 2023.
Other Income (Expense) Interest expense, net increased by $1,317,599, or 58%, during the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to an increase in our debt assumed and the effective interest rate on such debt.
Loss on issuance of convertible notes increased by $1,022,650, or 100%, during the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to our costs associated with issuing convertible notes exceeding the fair value of convertible notes.
Change in fair value of derivative liability increased by $593,083, or 100%, during the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to an increase in the share price of our common stock to $3.47 per share on December 31, 2024, providing more value as of December 31, 2024 to the holders of the convertible note if they were converted at such time.
Working Capital Our working capital as of December 31, 2024, as compared to our working capital as of December 31, 2023, is summarized as follows: As of December 31, 2024 December 31, 2023 Current assets $ 3,481,071 $ 3,690,125 Current liabilities 24,955,647 13,094,693 Working capital (deficit)/surplus $ (21,474,576 ) $ (9,404,568 ) The decrease in current assets is primarily due to an increase in cash and cash equivalents and prepaid cost of revenues of $750,946 and $89,445, respectively, offset by decreases to accounts receivable and prepaid expenses and other current assets of $962,688 and $68,194 respectively.
The increase in current liabilities is primarily due to the increase in accounts payable and accrued expenses, loans payable, line of credit, derivative liability, and convertible notes payable of $2,037,617, $817,845, $1,957,938, $2,102,927, and $5,000,002, respectively.
Cash Flows Our cash flows for the year ended December 31, 2024, as compared to our cash flows for the year ended December 31, 2023, can be summarized as follows: Year Ended December 31, 2024 2023 Net cash used in operating activities $ (3,841,706 ) $ (5,920,112 ) Net cash used in investing activities (83,095 ) (160,158 ) Net cash provided by financing activities 3,914,162 6,193,046 Effect of exchange rates on cash and cash equivalents (59,214 ) (883,497 ) Decrease in cash $ (69,853 ) $ (770,721 ) Operating Activities Net cash used in operating activities was $3,841,706 for the year ended December 31, 2024 and was primarily due to cash used to fund a net loss of $24,243,919, adjusted for non-cash expenses in the aggregate of $17,013,753 and additional cash increases from changes in the levels of operating assets and liabilities in the aggregate of $3,388,460, primarily as a result of an increase in accounts receivable, accounts payable and accrued expenses, and deferred revenue.
Net cash used in operating activities was $5,920,112 for the year ended December 31, 2023 and was primarily due to cash used to fund a net loss of $80,231,083, adjusted for non-cash expenses in the aggregate of $64,085,528 and additional cash increases from changes in the levels of operating assets and liabilities in the aggregate of $10,225,443, primarily as a result of an increase in accounts receivable, accounts payable and accrued expenses, and deferred revenue.
Investing Activities Net cash used in investing activities of $83,095 for the year ended December 31, 2024, was primarily due to cash paid to purchase property and equipment.
Net cash used in investing activities of $160,158 for the year ended December 31, 2023, was primarily due to cash paid to purchase property and equipment. - 34 - Financing Activities Net cash provided by financing activities for the year ended December 31, 2024 was $3,914,162, which was primarily due to cash received from the sale of our common stock, net proceeds from loans and lines of credit, and convertible notes payable of $154,947, $8,919,412, and $2,065,000, respectively, and offset by the payment of loans and convertible notes payable, and lines of credit of $6,157,484 and $1,067,713, respectively.
Net cash provided by financing activities for the year ended December 31, 2023 was $6,193,046, which was primarily due to cash received from the sale of our common stock, and net proceeds from loans and convertible notes payable of $6,655,493 and $11,975,631, respectively, and offset by the payment of loans and convertible notes payable of $12,929,931.
Liquidity The accompanying consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business.
At December 31, 2024, we had an accumulated deficit of $182,262,606 and working capital deficit of $21,474,576.
For the year ended December 31, 2024, we had negative cash flows from operations of $3,841,706.
Although our company is showing positive operating cash flows and gross profit trends, we expect to incur further losses through the end of 2025.
To date, we have funded operations primarily through the sale of equity in public offerings, private placements, loan proceeds, and revenue generated by our services.
During the year ended December 31, 2024, we received $154,947 from public and private offerings of our common stock and $3,759,215 in net proceeds from our loans and convertible notes payable.
On June 27, 2022, our Registration Statement on Form S-3 was declared effective, and we may offer and sell from time to time, in one or more series, any of our securities, for total gross proceeds up to $300,000,000.
As of December 31, 2024, we had $291,190,324 of available funding from our S-3 Registration Statement from which we may issue our securities to fund current and future operations.
Going Concern 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 the Company’s 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 the Company were unable to continue as a going concern.
Recently Issued Accounting Pronouncements See Note 3 to our consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this Annual Report. - 35 - Critical Accounting Policies and Estimates Use of Estimates The preparation of financial statements in conformity with U.S.

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