CISO Global, Inc. — Fiscal 2023 Form 10-K Summary
Business context and reporting period
CISO Global provides technology-agnostic cybersecurity and compliance services, including managed security, compliance, security operations center services, vCISO services, incident response, digital forensics, assessments, training, and related software-enabled solutions. The company operates primarily in the United States and Latin America and pursues growth through acquisitions, cross-selling, and development of proprietary AI- and machine-learning-enabled intellectual property.
This Form 10-K covers the fiscal year ended December 31, 2023, compared with the year ended December 31, 2022. It is an annual filing rather than a quarterly report, although the request references 2023 Q4.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $57.1 million | $46.5 million | +$10.5 million, 22.6% |
| Security managed services revenue | $50.1 million | $40.9 million | +$9.2 million, 22% |
| Professional services revenue | $7.0 million | $5.6 million | +$1.4 million, 24% |
| Gross profit | $6.0 million | $2.7 million | +$3.3 million |
| Gross margin | 10.6% | 5.9% | Improved approximately 4.7 percentage points |
| Loss from operations | $(77.8) million | $(33.1) million | Loss increased $44.6 million |
| Net loss | $(80.2) million | $(33.8) million | Loss increased $46.5 million |
| Net loss per diluted share | $(7.22) | $(3.64) | Loss increased |
| Cash flow from operations | $(5.9) million | $(10.7) million | Used $4.8 million less cash |
| Cash flow from investing | $(0.2) million | $(6.0) million | Lower acquisition-related spending |
| Cash flow from financing | $6.2 million | $15.8 million | Down $9.6 million |
| Cash and equivalents at year-end | $1.1 million | $1.8 million | Down $0.8 million |
Operating expenses increased to $83.8 million from $35.9 million. The increase was driven principally by a $45.2 million goodwill impairment charge, higher selling, general and administrative costs, and higher professional fees. The company also recorded $3.1 million of intangible-asset impairment. Excluding these impairment charges, the filing does not present a non-GAAP profitability measure that would establish profitability.
At December 31, 2023, current assets were $11.0 million and current liabilities were $26.1 million, resulting in a working-capital deficit of $15.1 million. Total liabilities were $35.5 million, including $6.4 million of current and long-term loans payable, $7.1 million of convertible notes payable, and lease liabilities. Accumulated deficit was $158.0 million.
Material changes versus the prior comparable period
- Revenue increased 23%, primarily reflecting a full year of contributions from the CUATROi and NLT Secure acquisitions and growth from new and existing customers.
- Gross profit more than doubled, although gross margin remained modest at approximately 10.6%.
- The company incurred a $45.2 million goodwill impairment charge in 2023, compared with none in 2022. Management attributed the impairment primarily to the decline in the company’s share price, uncertainty, and lower forecasted near-term cash flows.
- Intangible-asset impairment of $3.1 million was recorded in 2023.
- Net interest expense increased to $2.9 million from $0.7 million, reflecting debt assumed through acquisitions and short-term borrowing used to fund operations.
- Accounts payable and accrued expenses increased to $16.0 million from $8.3 million, while cash declined to $1.1 million.
- Revenue from Chile increased to $22.6 million from $9.6 million, while U.S. revenue declined to $34.0 million from $36.6 million.
- SB Cyber Technologies was acquired in July 2023. The company reported 402 employees at year-end, including 397 full-time employees.
Liquidity, debt, outlook, and risks
Management expects to incur additional losses through the end of 2024. The auditor’s report and the financial statement notes identify substantial doubt about the company’s ability to continue as a going concern because of recurring losses, negative operating cash flows, and a net capital deficiency. Management expects to seek additional equity, debt, or other financing and may need to restructure operations, reduce expenses, or curtail strategic plans.
The filing states that approximately $291.4 million remained available under the company’s Form S-3 registration statement at December 31, 2023; however, the availability of registered capacity does not ensure that financing can be obtained on acceptable terms. As of March 31, 2024, management reported approximately $1.6 million of available cash resources.
Debt maturities and minimum payments following year-end totaled approximately $13.8 million before discounts, including approximately $5.9 million due in 2024 and $6.5 million in 2025. Notable obligations include a $5.0 million related-party convertible note due March 2025, a $1.05 million convertible note due June 2024, and a $1.0 million convertible note due October 2024. The company also entered into a high-cost $2.2 million business loan in November 2023 bearing a stated annual interest rate of 53.44%.
Subsequent to year-end, the company entered into a borrowing facility of up to $3.5 million with Aion Financial Technologies at 19.25% interest, secured by company assets, and a March 2024 $2.2 million loan from LendSpark bearing 51.73% interest and payable in 52 weekly installments. These transactions are intended partly to refinance debt and provide working capital.
Key risks include the need for additional capital, continued operating losses, substantial debt service obligations, high borrowing costs, acquisition and integration risk, dependence on cybersecurity talent, customer retention and sales-cycle risk, cybersecurity incidents, regulatory changes, foreign currency and international operating risks, competition from larger providers, potential future impairment charges, stock dilution, and Nasdaq listing compliance.
The company completed a 1-for-15 reverse stock split effective March 8, 2024. Nasdaq notified the company on March 22, 2024 that it had regained compliance with the minimum bid-price requirement. Continued listing remains dependent on maintaining applicable Nasdaq requirements.
Management reported that disclosure controls and procedures were effective as of December 31, 2023 and that a previously identified material weakness in internal control over financial reporting had been remediated. Because CISO Global remains an emerging growth company and non-accelerated filer, its auditor was not required to provide an attestation opinion on internal control effectiveness.
Most important facts for investors to verify
- Whether the company can raise sufficient capital to fund operations, debt maturities, acquisitions, and working capital needs.
- Whether revenue growth and gross-margin improvement can continue and translate into positive operating cash flow and profitability.
- The terms, collateral, repayment schedules, and effective costs of the Aion, LendSpark, and other debt facilities.
- The potential dilution from equity financing, stock options, warrants, convertible notes, lender shares, and related-party instruments.
- The sustainability of the company’s goodwill and intangible-asset balances and the risk of additional impairment charges.
- The company’s ability to integrate acquired businesses, retain customers and technical personnel, and achieve expected cross-selling benefits.
- The impact of the reverse stock split and the company’s ability to maintain Nasdaq listing compliance.
- The nature and governance implications of the $5.0 million convertible note issued to Hensley & Company, whose chief executive officer is a company director.
- The auditor’s going-concern warning and management’s plans to address liquidity constraints.