CISO Global, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –NATURE OF THE ORGANIZATION AND BUSINESS

Unless otherwise indicated or the context requires otherwise, the terms ““we,” “us,” “our,” and “our company” refer to CISO Global, Inc., a Delaware corporation (“CISO Global”), and our wholly owned subsidiaries. All dollar amounts are expressed in United States dollars.

Nature of the Business

We are a cybersecurity, compliance, and software company comprised of highly trained and seasoned security professionals who work with clients to enhance or create a better cyber posture in their organization. We provide a full range of cybersecurity consulting, related services, and cybersecurity software, encompassing all four pillars of proprietary software stack, compliance, cybersecurity, and organizational culture. Our services include managed security, compliance services, security operations center (“SOC”) services, virtual Chief Information Security Officer (“vCISO”) services, incident response, certified forensics, technical assessments, and cybersecurity training. We believe that culture is the foundation of every successful cybersecurity and compliance program. To deliver that outcome, we developed our unique offering of MCCP+ (“Managed Compliance & Cybersecurity Provider + Culture”), which is a holistic solution that provides all four of these pillars under one roof 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 remaining technology agnostic, focusing on accumulating highly sought-after topic experts. 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 technology agnostic solutions to our clients in a business environment that has suffered from a chronic lack of highly skilled professionals, thereby setting us apart from competitors and in-house security teams. 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.

NOTE 2 –LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The accompanying 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 However, due to losses incurred, substantial doubt about the Company’s ability to continue as a going concern exists.

We are evaluating strategies to obtain the required 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. As such, there can be no assurance that we will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

The ability for us to continue as a going concern is dependent upon our ability to successfully accomplish the plan described in the Growth Strategy paragraph and eventually attain 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.

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of our management, who is responsible for their integrity and objectivity.

Reverse Stock Split

On February 29, 2024, our board of directors approved a 1-for-15 reverse stock split of our common stock. The record date for the reverse stock split was the close of business on March 7, 2024, with share distribution occurring on March 8, 2024. As a result of the reverse stock split, stockholders receivedone share of CISO Global, Inc. common stock, par value $0.00001, for each 15 shares they held as of the record date. All share and per share amounts have been retroactively restated for the effects of this reverse stock split. Common stock underlying our outstanding warrants, convertible notes, and options have been adjusted, and the conversion and exercise prices have also been adjusted.

Consolidation

The consolidated financial statements include the accounts of our company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Prior Period Reclassifications

Reclassification of certain immaterial prior period amounts have been made to conform to the current period presentation.

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

We believe the following critical accounting policies affect our more material judgments and estimates used in the preparation of the accompanying consolidated financial statements. Material estimates 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 estimated fair value of assets acquired, liabilities assumed and stock issued in business combinations, and assumptions used in the Black-Scholes-Merton pricing model, such as expected volatility, risk-free interest rate, share price, expected dividend rate, and the adequacy of insurance reserves.

Revenue

Our revenue is derived from three major types of services to clients: security managed services, professional services, and cybersecurity software. 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, disaster recovery and data backup solutions. With respect to cybersecurity software, we provide a comprehensive suite of proactive cybersecurity software solutions designed to protect organizations from evolving cyber threats. Their offerings encompass advanced threat detection, proactive monitoring, and robust risk management to ensure enterprise security and compliance.

Our revenue is categorized and disaggregated as reflected in our consolidated statements of operations and comprehensive loss, as follows:

Security Managed Services

Security managed services revenue primarily consists of risk compliance, cyber defense operations, and secured managed services. 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 security testing and training, and incident response and digital forensics. 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 software revenue primarily consists of our internally developed cybersecurity software designed to provide a security management platform, protect users from untrusted and malicious online threats, provide proactive security monitoring, and deliver continuous security assessments. We consider these services to be a single performance obligation, and revenue is recognized in the period in which the performance obligations are satisfied.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

Accounts Receivable

Accounts receivable are generally unsecured, non-interest bearing and reported at their outstanding unpaid principal balances, net of allowances for credit losses. We provide for allowances for credit losses based on our 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 credit losses when a balance is determined to be uncollectible. As of December 31, 2024 and 2023, our allowance for credit losses was $124,434 and $219,141, respectively.

Prepaid cost of revenue

Prepaid cost of revenue represents amounts charged by our vendors for licenses that we resell to our customers. These amounts are amortized to cost of revenue over the same period revenue is recognized for the related contract with our customers.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, generally between three andfive years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.

Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.

• Long-Lived and Finite-Lived Intangible Assets*

Finite-lived intangible assets are amortized over the following estimated useful lives:

Our finite lived intangible assets are amortized on a straight-line basis. We annually evaluate the estimate remaining useful lives of our intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.

We review long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. During the year ended December 31, 2024, we did not record a loss on impairment. During the year ended December 31, 2023, we recognized losses on impairment of intangible assets of $3,116,039, which is included in loss from discontinued operations on our statement of operations.

Goodwill and other 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.

As of December 31, 2024, we believe such assets are recoverable; however, there can be no assurance these assets will not be impaired in future periods. Any future impairment charges could adversely impact our results of operations. During the year ended December 31, 2023, we recognized losses on impairment of goodwill of $45,194,717, of which $9,261,353 is included in loss from discontinued operations in our statement of operations.

Advertising and Marketing Costs

We expense advertising and marketing costs as they are incurred. Advertising and marketing expenses were zero and $449,231 for the years ended December 31, 2024 and 2023, respectively, and are recorded in operating expenses on the consolidated statements of operations.

Fair Value Measurements

As defined in ASC 820,Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs 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 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

Fair Value of Financial Instruments

The carrying value of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities approximate their fair values using Level 3 inputs, based on the short-term maturity of these instruments. The carrying amount of loans and notes payable approximate the estimated fair value for this financial instrument as management believes that such debt and interest payable on the notes approximates our incremental borrowing rate. The long-lived assets (i.e., goodwill and intangible assets) were valued utilizing Level 3 inputs. Significant unobservable inputs used in fair value measurement of the intangible assets include projected revenue, gross profit and operating expenses, income tax rates, discount rates, royalty rates, and attrition rates.

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. All outstanding options are considered potentially outstanding common stock. The dilutive effect, if any, of stock options 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 have been excluded from our computation of net loss per common share for the years ended December 31, 2024 and 2023.

On March 8, 2024, we filed an amendment to our certificate of incorporation to effectuate a 1-for-15 reverse stock split. Our shares of outstanding common stock and earnings per share calculation have been retroactively restated for all periods presented. 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:

Stock-Based Compensation

We apply the provisions of ASC 718,Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and nonemployees, in the consolidated statements of operations.

For stock options issued to employees and members of our Board of Directors for their services, we estimate the grant date fair value of each option using the Black-Scholes-Merton option pricing model. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, we recognize stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred. We used the average of historical share prices of our common stock to calculate volatility for use in the Black-Scholes-Merton option pricing model.

We issued shares of our stock to vendors and nonemployee for services provided. We recognize the accounting grant date fair value of the stock award as compensation expense over the required service period of each award. Shares issued for services are measured based on the fair market value of the underlying common stock on their respective accounting grant dates. New shares are issued upon the exercise of stock options.

Derivatives

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815 “Derivatives and Hedging.” Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

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 consisted of the following:

The decrease in the deferred revenue balance is primarily driven by payments received in advance of satisfying our performance obligations, offset by $1,598,670 of revenue recognized during 2024, which was included in the deferred revenue balance as of December 31, 2023. The deferred revenue balance as of December 31, 2024 represents our remaining performance obligations that will be recognized as revenue over the period in which the performance obligations are satisfied, and is expected to be recognized in revenue as follows:

Foreign Currency

Our functional and reporting currency is the U.S. dollar. For certain of our foreign subsidiaries whose functional currency were other than the U.S. dollar, we translated revenue and expense transactions at average exchange rates. We translated assets and liabilities at period-end exchange rates and include foreign currency translation gains and losses as a component of accumulated other comprehensive income.

Leases

Leases in which our company is the lessee are comprised of our corporate office and one additional office, which is immaterial to our operations. All of the leases are classified as operating leases. Our office spaces have a remaining weighted average term of 3.22 years.

Right-of-use (“ROU”) assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise that option.

In accordance with ASC 842,Leases, we recognized a ROU asset and corresponding lease liability on our consolidated balance sheet for long-term office leases and a vehicle operating lease agreement. See Note 14 – Leases for further discussion, including the impact on our consolidated financial statements and related disclosures.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities 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 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 December 31, 2024 and 2023, our net deferred tax asset has been fully reserved.

For uncertain tax positions that meet a “more likely than not” threshold, we recognize the benefit of uncertain tax positions in the consolidated financial statements. Our practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations when a determination is made that such expense is likely.

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. We expect to use the extended transition period for any new or revised accounting standards during the period which we remain an emerging growth company.

Recently Issued Accounting Standards

In December 2023, the FASB issued Accounting Standards Update, or ASU, 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” or ASU 2023-09. ASU 2023-09 requires additional disaggregated disclosures on an entity’s effective tax rate reconciliation and additional details on income taxes paid. ASU 2023-09 is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2024 and early adoption is permitted. We do not expect the adoption of ASU 2023-09 to have a material impact on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses ASU 2024-03 is effective prospectively to financial statements issued for reporting period after the effective date or retrospectively to any or all prior periods presented in the financial statements, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. Adoption of this guidance will result in additional disclosures, but we do not expect the adoption of ASU 2024-03 will impact our consolidated financial position, results of operations or cash flows.

In November 2024, the FASB issued ASU 2024-04, Debt (Subtopic 470-20): Debt with Conversion and Other Options. ASU 2024-04 clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. ASU 2024-04 is effective for reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Early adoption is permitted for entities that have adopted ASU 2020-06. We do not expect the adoption of ASU 2024-04 to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” or ASU 2023-07. ASU 2023-07 enhances the disclosures required for reportable segments on an annual and interim basis. ASU 2023-07 is effective on a retrospective basis for annual periods beginning after December 15, 2023, for interim periods within fiscal years beginning after December 15, 2024. We adopted ASU 2023-07 for the fiscal year-ended December 31, 2024. The additional disclosure requirements of ASU 2023-07 did not have a material impact on our consolidated financial statements.

NOTE 4 –DISPOSITIONS

Latin America

On July 1, 2024, we entered into a Stock Purchase Agreement with Southford Equities, Inc. (the “Arkavia SPA”) to sell 100% of the outstanding shares of our wholly owned subsidiary Ocean Point Equities, Inc. in exchange for 194,267 shares of our common stock owned by the owners of Southford Equities, Inc. and nominal cash consideration ($1.00 dollar).

On July 1, 2024, we entered into a Stock Purchase Agreement with CT Group, LP, Datadeck LP, Woodface, LP, VMT Technologies, LP and Quijote Ventures, LP (the “CUATROi SPA”) to sell 100% of the outstanding shares of our wholly owned subsidiaries Servicios Informaticos CUATROi SpA, Comercializadora CUATROi SpA, CUATROi Peru, SAC, and CUATROi SAS in exchange for 135,795 shares of our common stock owned by the owners of CT Group, LP, Datadeck LP, Woodface, LP, VMT Technologies, LP and Quijote Ventures, LP and nominal cash consideration ($5.00 dollars).

On July 1, 2024, we entered into a Stock Purchase Agreement with Itada Equities, Inc. (the “NLT SPA”) to sell 100% of the outstanding shares of our wholly owned subsidiaries NLT Networks, S.P.A., NLT Technologias, Limitada, NLT Servicios Profesionales, S.P.A. and White and Blue Solutions LLC. in exchange for 172,075 shares of our common stock owned by the owners of Itada Equities, Inc. and nominal cash consideration ($1.00 dollar).

We committed to a formal plan to sell our former Latin America subsidiaries to focus on our U.S.-based operations and development and marketing of our internally developed cybersecurity software. The operating results of our former Latin America subsidiaries are reported within discontinued operations on our condensed consolidated statements of operation through July 1, 2024. As a result of the sale, we recorded a loss from discontinued operations of $4,338,318, which includes the release of associated accumulated translation adjustment from the net assets disposed of.

The table below provides the total revenue and loss of the discontinued operations presented in our statements of operations.

Cash flows from operating activities of discontinued operations was $223,831 and $3,283,088 for the years ended December 31, 2024 and 2023, respectively.

Cash used in investing activities of discontinued operations was $83,095 and $69,865 for the years ended December 31, 2024 and 2023, respectively.

vCISO

In September 2024, we entered into an Intellectual Property Purchase Agreement pursuant to which we sold our wholly owned subsidiary vCISO, LLC. (“vCISO”), for cash proceeds of $1,000,000. vCISO owns substantially all of our internally developed intellectual property currently marketed to our customers and also being developed for future deployment. As a condition of closing the Intellectual Property Purchase Agreement, we concurrently entered into a License-Back and Buy-Back Agreement which provides us with a perpetual, transferable and royalty-free license to use the intellectual property rights to sell such software to our customers. The license was exclusive for our use for the initial six months of the agreement. In exchange for these rights, we agreed to continue development of the intellectual property at our own cost.

We also retained the right to buy back the intellectual property at a price of $1,500,000, if repurchased within six months from the date of the agreement, $1,750,000 if repurchased within six to twelve months, or at an agreed upon purchase price if repurchased after twelve months. Upon execution of this divestiture, we did not have financial means nor the intent to execute the Buy-Back Agreement.

In November 2024, certain prospective investors required us, as a condition of securing their investment, to have direct and full ownership of the intellectual property disposed of when we sold vCISO. As a result, we entered into an Intellectual Property Buy-Back Purchase Agreement in which we reacquired vCISO and all intellectual property we previously owned, in exchange for a Promissory Note with a principal amount of $1,020,000.

vCISO did not hold any assets or liabilities reported in our consolidated financial statements at the time of disposal, as a result, we initially recorded a $1,000,000 gain on the disposition of vCISO. The repurchase of vCISO would result in the recognition of an asset on our consolidated balance sheet. The economic substance of these two transactions resulted in us receiving $1,000,000 of cash in exchange for a Promissory Note. Due to the close proximity in execution of these agreement, the second which was not previously contemplated, and their economic substance for the year-ended December 31, 2024, we netted the previously recorded gain on the sale of vCISO in the repurchase transaction to make our consolidated financial statements reflect the ultimate economics of these transactions.

NOTE 5 –PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of:

NOTE 6 –PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Total depreciation expense was $322,126 and $263,770 for the years ended December 31, 2024 and 2023, respectively.

NOTE 7 –INTANGIBLE ASSETS AND GOODWILL

Goodwill

The following table summarizes the changes in goodwill during the years ended December 31, 2024 and 2023, respectively:

Intangible Assets

Intangible assets, net are summarized as follows:

Amortization expense of identifiable intangible assets was $1,744,366 and $1,809,687, for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the weighted-average remaining amortization period for intangible assets was 2.28 years.

Based on the balance of intangibles assets at December 31, 2024, expected future amortization expense is as follows:

NOTE 8 –ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following amounts:

Note 9 -RELATED PARTY TRANSACTIONS

Independent Consulting Agreement with Stephen Scott

In August 2020, we entered into an Independent Consulting Agreement with Stephen Scott, a significant stockholder due to his beneficial ownership, with respect to advisory and consulting services relating to our strategic and business development, and sales and marketing. Mr. Scott received a consulting fee of $11,500 per month for such services until July 2023.

In July 2023, we entered into an Independent Consulting Agreement with Mr. Scott, as amended in July 2024, to provide, on a non-exclusive basis, advisory and consulting services relating to our strategic and business development, intellectual property development, banking relationships, and strategic mergers and acquisitions for a period of one year. Mr. Scott will receive a consulting fee of $15,000 per month for such services under the terms of this agreement. During the years ended December 31, 2024 and 2023, we paid consulting fees to Mr. Scott in the amounts of $180,000 and $159,000, respectively.

Convertible Note Payable – Related Party

In March 2023, we issued an unsecured convertible note to Hensley & Company in the principal amount of $5,000,000 bearing an interest rate of 10.00% per annum. The principal amount, together with accrued and unpaid interest is due on March 20, 2025. At any time prior to or on the maturity date, Hensley & Company is permitted to convert all or any portion of the outstanding principal amount and all accrued but unpaid interest thereon into shares of our common stock at a conversion price of $18.00 per share. During the years ended December 31, 2024 and 2023, we recorded interest expense of $500,000 and $388,888, respectively. Accrued interest as of December 31, 2024 and 2023 was $888,888 and $388,888, respectively. Mr. McCain, a director of our company, is President and Chief Executive Officer of Hensley & Company.

Managed Services Agreement with Hensley Beverage Company – Related Party

In July 2021, we entered into a 1-year Managed Services Agreement with Hensley Beverage Company, an entity affiliated with Mr. McCain, a director of our company, to provide secured managed services. We also may be engaged by Hensley Beverage Company from time to time to provide other related services outside the scope of the Managed Services Agreement. While the agreement provides for a term through December 31, 2021, the agreement will continue until terminated by either party. For the years ended December 31, 2024 and 2023, we received $2,283,995 and $1,417,398, respectively from Hensley Beverage Company for contracted services and had an outstanding receivable balance ofzero and $152,213 as of December 31, 2024 and 2023, respectively. The payments received during the year ended December 31, 2024 included payments for future services, of which $191,633 remains outstanding at December 31, 2024.

Note 10 -STOCKHOLDERS’ EQUITY

Our amended and restated certificate of incorporation authorized the issuance of up to 300,000,000 shares of common stock and 50,000,000 shares of undesignated preferred stock, each having a par value of $0.00001 per share. Shares of common stock have both economic and voting rights.

Equity Transactions

During the years ended December 31, 2024 and 2023, we issued an aggregate of 126,688 and 1,782,658 shares of common stock to investors for cash proceeds of $154,947 and $6,682,198, respectively.

During the years ended December 31, 2024 and 2023, we issued an aggregate of 200,000 and 366,667 shares of common stock, respectively, to consultants, lenders, and vendors for services rendered.

On December 10, 2024, we issued warrants to the Purchasers and the Placement Agent of the Securities Purchase Agreement to purchase 6,500,000 shares and 224,945 shares of our common stock, respectively. The warrants issued to the Purchasers and Placement Agent are exercisable for a period offive years from the date of issuance with an exercise price of $1.00 per share and $1.66 per share, respectively.

The following table summarizes warrant activity:

Note 11 –STOCK-BASED COMPENSATION

2023 Equity Incentive Plan

Our 2023 Equity Incentive Plan (the “2023 Plan”), which replaced our 2019 Equity Incentive Plan (the “2019 Plan”), became effective on September 13, 2023. As of December 31, 2024,4,814,330 shares were available for issuance under the 2023 Plan.

Equity Plan Activity

In applying the Black-Scholes option pricing model to stock options granted, we used the following assumptions:

The following table summarizes stock option activity:

The aggregate intrinsic value for stock options outstanding and exercisable is defined as the positive difference between the fair market value of our common stock and the exercise price of the stock options.

Total compensation expense related to the options was $8,956,571 and $11,469,667 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was future compensation expense of $6,034,145 with a weighted average recognition period of 0.99 years related to the options. The weighted-average grant-date fair value of options granted during the years 2024 and 2023 was $1.34 and $2.57, respectively. The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023, waszero and $887,595, respectively.

During the year-ended December 31, 2024,284,838 options vested, net of forfeitures.

NOTE 12 –COMMITMENTS AND CONTINGENCIES

Legal Claims

From time-to-time, we are a party to litigation and subject to claims, suits, regulatory and government investigation, other proceedings, and consent decrees in the ordinary course of business. We investigate claims as they arise and accrue estimates for resolutions of legal and other contingencies when losses are probable and reasonably estimable.

There are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our directors, officers or affiliates, any owner of record orbeneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us. While the results of such normal course claims and legal proceedings, regardless of the underlying nature of the claims, cannot be predicted with certainty, management believes, based on current knowledge and the likely timing of resolution of various matters, any additional reasonably possible potential losses above the amounts accrued for such matters would not be material. However, the outcome of claims, legals proceedings, or investigations are inherently unpredictable and subject to uncertainty, and may have an adverse effect on us because of defense costs, diversion of management resources, and other factors that are not known to us or cannot be quantified at this time. We may also receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. The final outcome of any current or future claims or lawsuits could adversely affect our business, financial condition, or results of operations. We periodically evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued or the reasonably possible losses that we have disclosed, and make adjustments as appropriate.

Indirect Taxes

We are subject to indirect taxation in some, but not all, of the various states and foreign jurisdictions in which we conduct business. Laws and regulations attempting to subject commerce conducted over the Internet to various indirect taxes are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on us in the future. Increased regulation could negatively affect our business directly, as well as the business of our customers. Taxing authorities may impose indirect taxes on the Internet-related revenue we generated based on regulations currently being applied to similar, but not directly comparable industries. There are many transactions and calculations where the ultimate indirect tax determination is uncertain. In addition, domestic and international indirect taxation laws are complex and subject to change. We may be audited in the future, which could result in changes to our indirect tax estimates. We continually evaluate those jurisdictions in which nexus exists, and believe we maintain adequate indirect tax accruals.

As of December 31, 2024 and 2023, our accrual for estimated indirect tax liabilities was $32,959 and $53,277, respectively, reflecting our best estimate of the potential liability based on an analysis of our business activities, revenues subject to indirect taxes, and applicable regulations. Although we believe our indirect tax estimates and associated liabilities are reasonable, the final determination of indirect tax audits, litigation, or settlements could be materially different than the amounts established for indirect tax contingencies.

Warranties

Our services are generally warranted to deliver and operate in a manner consistent with general industry standards that are reasonably applicable and materially conform with our documentation under normal use and circumstances.

We offer a limited warranty to certain customers, subject to certain conditions, to cover certain costs incurred by the customer in case of a security breach. We have entered into an insurance policy to cover our potential liability arising from this limited warranty arrangement. We have not incurred any material costs related to such obligations and have not accrued any liabilities related to such obligations in the consolidated financial statements as of December 31, 2024 and 2023.

In addition, we also indemnify certain of our directors and executive officers against certain liabilities that may arise while they are serving in good faith in their company capacities. We maintain director and officer liability insurance coverage that would generally enable us to recover a portion of any future amounts paid.

NOTE 13 –LOANS PAYABLE, CONVERTIBLE NOTE PAYABLE AND LINES OF CREDIT

Loans Payable

Loans payable was as follows:

Term Loans

Our subsidiaries are borrowers under certain term loans. These term loans require monthly principal and interest payments. The term loans are secured by various assets owned by our subsidiaries. We recorded aggregate interest expense of these term loans of $4,547 and $20,605 for the years ended December 31, 2024 and 2023, respectively. Accrued interest for the loans waszero as of December 31, 2024 and 2023. The aggregate effective interest rate of the terms loans was 3.62% for the year ended December 31, 2024.

In March 2023, we entered into a cash advance agreement, pursuant to which we received gross proceeds of $2,000,000 and paid $87,500 in upfront fees. The terms of the cash advance agreement called for us to remit aggregate weekly payments of $99,398 until such time as we had repaid $2,870,000. This cash advance agreement was secured by the accounts receivable of us and our wholly owned subsidiaries, Talatek, LLC and True Digital Security, Inc. This loan was repaid in full in 2023. We recorded interest expense of $978,833 for the year ended December 31, 2023.

In August 2023, we entered into a second cash advance agreement, pursuant to which we received gross proceeds of $2,000,000 and paid $50,000 in upfront fees. The terms of the second cash advance agreement called for us to remit weekly payments of $80,588 until such time as we had repaid $2,740,000. This cash advance agreement was secured by the accounts receivable of us and our wholly owned subsidiaries, Talatek, LLC and True Digital Security, Inc. This loan was repaid in full in 2023. We recorded interest expense of $468,707 for the year ended December 31, 2023.

In November 2023, we entered into a business loan and security agreement, pursuant to which we obtained a loan with a principal amount of $2,200,000 and paid an origination fee of $44,000. The business loan bears interest at a rate of 53.44% per annum and is payable in 52 weekly installments of $53,731. The business loan is secured by all of the assets of our US subsidiaries. The proceeds of the loan were used to repay in full the amount owned under our cash advance agreements that we entered into in March and August 2023. For the years ended December 31, 2024 and 2023, we recorded interest expense of $564,529 and $200,881, respectively.

In connection with the business loan, we entered into a fee agreement pursuant to which we issued 133,334 shares of our common stock as partial consideration for the lender to enter into the business loan and extend credit to us. We recorded the issuance of our common stock as a discount to the business loan, which is amortized using the effective interest method over the term of the loan.

On March 28, 2024, under a troubled debt restructuring, we entered into a Business Loan and Security Agreement (the “Loan Agreement” with LendSpark Corporation (the “Lender”), pursuant to which we obtained a restructured loan with a principal amount of $2,200,000 (the “Restructured Loan”) from the Lender. Pursuant to the Loan Agreement, we paid the Lender a $44,000 origination fee. The Restructured Loan bears interest at a rate of 51.73% per annum and is payable in 52 weekly installments of $53,308, commencing on April 5, 2024.

Pursuant to the Loan Agreement, we granted the Lender a security interest in all if our assets and the assets of our U.S. subsidiaries (the “Collateral”) that is secondary to the security interest held by Aion Financial Technologies, Inc. (“Aion”). Upon the occurrence of an event of default, the Lender may, among other things, accelerate the Loan and declare all obligations immediately due and payable or take possession of the Collateral.

In connection with the Restructured Loan, we entered into a Fee Agreement (the “Fee Agreement”) with the Lender pursuant to which we issued 100,000 shares of our common stock, as partial consideration for the Lender’s agreement to enter into the Loan Agreement and extend credit to us. The Fee Agreement contains customary representations, warranties, agreements and obligations of the parties. For the year ended December 31, 2024, we recorded interest expense of $683,480. This loan was repaid in full on March 26, 2025.

In June 2024, we entered into a Subordinated Business Loan and Security Agreement with Agile Capital Funding, LLC (“Agile”), pursuant to which we obtained a loan with a principal amount of $2,000,000 plus an administrative agent fee paid of $100,000. The Subordinated Business Loan was in excess of 100% per annum and is payable in 30 weekly installments. The first four installments due were $75,000 followed by 26 installments of $103,154. For the year ended December 31, 2024, we recorded interest expense of $1,026,058.

Pursuant to the Subordinated Business Loan Agreement, we granted Agile a security interest in the Collateral that is tertiary to the security interest held by Aion and LendSpark. Upon the occurrence of an event of default, Agile may, among other things, accelerate the Subordinated Business Loan and declare all obligations immediately due and payable or take possession of the Collateral. We may use proceeds from the Subordinated Business Loan for general corporate purposes, which includes working capital, capital expenditures, and repayment of debt. This loan was repaid in full in February 2025.

In November 2024, we entered into a Note Purchase Agreement, pursuant to which we obtained a loan with a principal amount of $540,000 and paid an original issue discount of $140,000. The effective interest rate on Note Purchase Agreement exceeded 100% per annum. This loan matured on January 1, 2025 and was repaid in full..

Line of Credit

On January 31, 2024, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Aion, pursuant to which we may borrow up to $3,500,000. The amount available for borrowing at any one time is limited to 80% of our eligible accounts receivable. The Loan and Security Agreement will bear interest at a rate of 19.25% per annum (based on a 360-day year), payable on the first business day of each month following the accrual thereof. The Loan and Security Agreement, together with accrued and unpaid interest thereon, is due on January 30, 2025 (the “Maturity Date”). Upon providing 30 days written notice we may terminate the Loan and Security Agreement, subject to an early termination fee of $35,000. Upon the occurrence of an “Event of Default” (as defined in the Loan Security Agreement and including the failure to make required payments when due after specified grace periods, certain breaches and certain specified insolvency events), Aion would have the right to accelerate payments due, which from after such acceleration would bear interest at a default rate of 29.25% per annum. The Loan and Security Agreement is secured by our assets.

We used proceeds from the Loan and Security Agreement to repay our business loan entered into November 2023 and may use for general corporate purposes, which includes working capital, capital expenditures, and repayment of debt. For the year ended December 31, 2024, we recorded interest expense of $374,521. Accrued interest as of December 31, 2024 waszero.

Convertible Notes Payable

In June 2023, we issued an unsecured convertible note in the principal amount of $1,050,000 bearing an interest rate of 10.00% per annum payable monthly. The principal amount, together with accrued and unpaid interest was due on June 7, 2024. At any time prior to or on the maturity date the holder is permitted to convert all of the outstanding principal amount into 4.20% of the authorized units of our wholly owned subsidiary vCISO, LLC. We recorded interest expense of $61,954 for the year ended December 31, 2023. Accrued interest as of December 31, 2023 was $61,954.

In June 2024, we entered into Amendment #1 to extend the maturity date of the $1,050,000 unsecured convertible note to December 15, 2024. In exchange for an extension of the maturity date, we agreed to repay on September 30, 2024, all accrued, but unpaid interest as of June 30, 2024 on the convertible note. All remaining accrued, but unpaid interest was due at maturity on December 15, 2024.

In December 2024, we entered into Amendment #2 to extend the maturity date of the $1,050,000 unsecured convertible note to December 15, 2025. In exchange for the extension of the maturity date, interest beginning from the date of Amendment #2 increased to 12.00% per annum and $25,000 of accrued interest to be repaid on or before December 31, 2024, with remaining accrued interest due on or before March 31, 2025.

In March 2023, we issued an unsecured convertible note to Hensley & Company in the principal amount of $5,000,000 bearing an interest rate of 10.00% per annum. The principal amount, together with accrued and unpaid interest is due on March 20, 2025. At any time prior to or on the maturity date, Hensley & Company is permitted to convert all or any portion of the outstanding principal amount and all accrued but unpaid interest thereon into shares of our common stock at a conversion price of $18.00 per share. During the years ended December 31, 2024 and 2023, we recorded interest expense of $500,000 and $388,888, respectively. Accrued interest as of December 31, 2024 and 2023 was $888,888 and $388,888, respectively. Mr. McCain, a director of our company, is President and Chief Executive Officer of Hensley & Company.

In October 2023, we issued an unsecured convertible note in the principal amount of $1,000,000 bearing an interest rate of 12.00% per annum payable monthly. The principal amount, together with accrued and unpaid interest is due on October 12, 2024. At any time prior to or on the maturity date the holder is permitted to convert all of the outstanding principal amount into shares of our common stock at a conversion price of $1.7595 per share. We recorded interest expense of $26,983 for the year ended December 31, 2023. Accrued interest as of December 31, 2023 was $26,983.

In June 2024, we entered into Amendment #1 to extend the maturity date of the $1,000,000 unsecured convertible note to December 15, 2024. In exchange for an extension of the maturity date, we agreed to repay on September 30, 2024, all accrued, but unpaid interest as of June 30, 2024 on the convertible note. All remaining accrued, but unpaid interest was due at maturity on December 15, 2024.

In December 2024, we entered into Amendment #2 to extend the maturity date of the $1,000,000 unsecured convertible note to December 15, 2025. In exchange for the extension of the maturity date, interest beginning from the date of Amendment #2 increased to 12.00% per annum and $25,000 of accrued interest to be repaid on or before December 31, 2024, with remaining accrued interest due on or before March 31, 2025.

In November 2024, we entered into an Intellectual Property Buy-Back Purchase Agreement (the “Buy-Back Agreement”), pursuant to which we reacquired vCISO, LLC in exchange for a Promissory Note with a face value $1,020,000 and bears interest of 8.00% per annum. The Promissory Note matures in November 2025. We may not prepay any principal amount due under this Promissory Note without the consent of the holder. For the year-ended December 31, 2024, we recorded interest expense of $11,136, and accrued interest as of December 31, 2024 was $11,136.

In December 2024, we entered into a Securities Purchase Agreement (the “Agreement”) with several purchasers (the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate of up to $8,125,000, including convertible notes and warrants to purchase our common stock. The convertible notes have a face value of up to $8,125,000 and was subject to an original issue discount of 20%. The convertible notes do not bear a stated rate of interest and mature one year from the date of issuance. The effective interest rate of these convertible notes exceeds 100% per annum. At any time prior to or on the maturity date, the Purchasers, may in part or in whole convert the outstanding principal amount into shares of our common stock at a Conversion Price equal to 90% of the lowest volume weighed average price of our common stock during the ten Trading Day period immediately preceding the Conversion Date. At no time shall the Conversion Price be below $0.394 per share.

The Agreement initially funded us with gross proceeds of $3,125,000. Funding of the remaining $5,000,000 was contingent upon the effectiveness of a change in majority of directors of CISO Global, which occurred on January 7, 2025, at which time we received the remaining unfunded amount.

We issued 6,500,000 warrants pursuant to the Agreement to purchase shares of our common stock with an exercise price of $1.00 per share.

We initially recorded these convertible notes at a fair value ofzero, recognized the fair value of a derivative liability of $1,509,844, and recorded a loss of $1,022,650 upon issuance of the Agreement, as our issuances costs exceeded the fair value of the convertible notes. The allocation of fair value to the convertible notes was made on a relative fair value basis as the free-standing warrants issued in connection with the Agreement are equity classified. We accreted interest expense using the effective interest method over the expected term of the Agreement through December 31, 2024. For the year ended December 31, 2024, we accreted interest expense of $2.

The conversion feature of the Agreement was determined to be an embedded derivative requiring bifurcation accounting as (1) the feature is not clearly and closely related to the debt host and (2) the feature meets the definition of a derivative under ASC 815 and has been record at fair value on our balance sheet. Subsequent changes in the fair value of embedded derivative flows through the Statements of Operations.

The proceeds from the Agreement will be used to repay outstanding principal amounts of short-term indebtedness and for general corporate purposes, which may include working capital, capital expenditures, research and development, acquisitions of additional companies or technologies, and investments.

Future minimum payments under the above debt instruments following the year ended December 31, 2024, are as follows:

NOTE 14 –LEASES

During the years ended December 31, 2024 and 2023, we recognized additional ROU assets and lease liabilities of $60,215 and $733,782, respectively. We elected to not recognize ROU assets and lease liabilities arising from short-term office leases, leases with initial terms of twelve months or less (deemed immaterial) on the consolidated balance sheets.

When measuring lease liabilities for leases that were classified as operating leases, we discounted lease payments using its estimated incremental borrowing rate. The weighted average incremental borrowing rate applied was 11.54%. As of December 31, 2024, our leases had a remaining weighted average term of 3.22 years.

The following table presents net lease cost and other supplemental lease information:

Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the year ended December 31, 2024, are as follows:

NOTE 15 –FAIR VALUE MEASUREMENT

The following table sets forth our material liabilities measured and recorded at fair value on a recurring basis:

The estimated fair value of the conversion feature of the derivative liability is based on Monte Carlo simulations, a traditional valuation model. The derivative liability component of the convertible notes are classified as Level 3 due to significant unobservable inputs.

NOTE 16 –INCOME TAXES

No current or deferred income tax benefit or expense was recognized in the years ended December 31, 2024 and 2023.

A reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended December 31, 2024 and 2023 is as follows:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were as follows as of December 31, 2024 and 2023:

We account for deferred taxes under ASC 740, Income Taxes, which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization threshold criterion. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, legislative developments, and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that we weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified.

We have provided a valuation allowance for our net deferred tax assets at December 31, 2024 and 2023, due to the uncertainty surrounding the future realization of such assets and the cumulative losses we have generated. Therefore, no benefit has been recognized in the financial statements for the net operating loss carryforwards and other deferred tax assets. During the years ended December 31, 2024 and 2023, respectively, the valuation allowance increased by $4,712,900 and $22,344,508, respectively.

As of December 31, 2024, we had approximately $42,059,091 of consolidated federal net operating loss carryforwards and $39,977,845 of apportioned state net operating loss carryforwards available to offset future taxable income, respectively. If unused, the federal and state net operating loss carryforwards will begin to expire in 2032.

Utilization of net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (“IRC”), and similar state provisions. We have not performed a detailed analysis to determine whether an ownership change under Section 382 of the IRC has occurred or will occur. We will perform an analysis as soon as is practicable to determine the extent of limitations. It is possible that additional limitations may arise in future years, even after an analysis is completed, due to future changes in the ownership of our Company.

We file federal and state income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, we are no longer subject to federal or state income tax examinations by tax authorities for tax years prior to 2022 and 2021, respectively. We believe our income tax filing positions and deductions are more likely than not to be sustained on audit. Therefore, no liabilities for uncertain tax positions have been recorded.

As of the date of this filing, we have not filed our 2024 federal and state income tax returns. We expect to file these documents as soon as practicable.

NOTE 17 –DEFINED CONTRIBUTION PLAN

We sponsor a defined contribution 401(k) plans covering eligible U.S. employees, who may contribute up to 80% of their compensation, subject to limitations established by the Internal Revenue Code. We matched employee contributions on a discretionary basis in 2023 and amended our plan in 2024 to remove the matching feature. Expenses for our matching contributions were zero and $637,365 for the years-ended December 31, 2024 and 2023.

NOTE 18 –CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Cash Deposits

Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Although we deposit cash with multiple banks, these deposits may exceed the amount of insurance provided on such deposits. These deposits may generally be redeemed upon demand and bear minimal risk.

Revenue

No single customer represented over 10% of our total revenue for the years ended December 31, 2024 and 2023.

NOTE 19 –ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents AOCI activity in equity:

NOTE 20 –SEGMENT INFORMATION

Our Chief Operating Decision Maker (“CODM”), as of December 31, 2024, was our Chief Executive Officer. Our CODM evaluates the performance of and allocates resources to our segment based on our consolidated net loss and earnings before interest, taxes, depreciation and amortization (Segment EBITDA). Segment EBITDA is defined as segment revenue less operating costs and expenses, excluding depreciation and amortization interest income or expense (net), provision or benefit for income taxes, change in fair value of derivative liabilities, loss on issuance of convertible notes, impairment of goodwill and intangible assets, and stock-based compensation expense. We believe Segment EBITDA serves as a measure that assists our CODM and our investors in comparing our segment performance on a consistent basis.

Net loss and Segment EBITDA are used to monitor budgeted versus actual results. Additionally, review of budgeted versus actual results is used in assessing performance of the segment.

Our CODM does not use assets by segment to evaluate performance or allocate resources; therefore, we do not provide disclosure of assets by segment.

The following table presents our segment information for the periods indicated and, because we currently only haveone segment, net loss is identical to the information presented in our “Consolidated Statement of Operations” above:

NOTE 21 –SUBSEQUENT EVENTS

On January 10, 2025, we received a notification letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, since we have not yet held an annual meeting of stockholders within twelve months of the end of its December 31, 2023 fiscal year, we are out of compliance with the Nasdaq rules for continued listing (Listing Rules 5620(a) and 5810(c)(2)(G)). The notification letter has no immediate effect on the listing of our securities on the Nasdaq Capital Market.

Under the applicable Nasdaq rules, we had 45 calendar days to submit a plan to regain compliance. If Nasdaq accepted our plan, Nasdaq can grant an exception of up to 180 calendar days from our most recent fiscal year end, or until June 30, 2025, to regain compliance.

We filed a definitive proxy statement on March 5, 2025 for an annual meeting to be held on April 25, 2025 to regain compliance with the applicable Nasdaq Listing Rules.

On March 25, 2025, we entered into Amendment Number One to the Purchase Agreement with Hensley & Company dba Hensley Beverage Company, a related party, pursuant to which we extended the Maturity Date to March 20, 2026.

On January 1, 2025 and March 26, 2025, we repaid in full the outstanding balances of our loans with Agile and LendSpark, respectively, our highest interest rate term loans.