Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Common Stock
Our Articles of Incorporation authorize us to issue fifty million (50,000,000) shares of common stock, par value $0.001.
The following statements relating to the capital stock set forth the material terms of the securities of the Company. Reference is also made to the more detailed provisions of the certificate of incorporation and the by-laws, copies of which are filed as exhibits to this registration statement.
Voting Rights
Except as otherwise required by law or as may be provided by the resolutions of the board of directors authorizing the issuance of Common Stock, all rights to vote and all voting power shall be vested in the holders of Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote.
No Cumulative Voting
Except as may be provided by the resolutions of the board of directors authorizing the issuance of Common Stock, cumulative voting by any shareholder is expressly denied.
No Preemptive Rights
Preemptive rights shall not exist with respect to shares of Common Stock or securities convertible into shares of Common Stock of the Company.
Dividends
We have not paid any cash dividends on our Common Stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our Common Stock will be paid in the future.
Rights upon Liquidation, Dissolution or Winding-Up of the Company
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the remaining net assets of the Company shall be distributed pro rata to the holders of the Common Stock.
Preferred Stock
The Company has no preferred stock authorized.
Warrants and Options
Options. The Company has not issued any options.
Common Stock Purchase Warrants. As of September 28, 2021, there are an aggregate 3,014,246 outstanding Common Stock Purchase Warrants (“Warrants”), the terms of which are summarized below:
Exercisability. The outstanding Common Stock Purchase Warrants (“Warrants”) are exercisable immediately upon issuance and at any time up to the date that is two years from the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below). Unless otherwise specified in the warrant, the holder will not have the right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise (or, upon election by a Holder prior to the issuance of any warrants, 9.99%), as such percentage ownership is determined in accordance with the terms of the Warrants.
Certain Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our common stock, and dilutive issuances as defined in the Warrants.
Transferability. Subject to applicable laws, the Warrants may be transferred at the option of the holders upon surrender of the Warrants to the Company together with the appropriate instruments of transfer.
Rights as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
Beneficial Ownership Limitation. Holder’s exercise shall be limited 4.99% of the Company’s outstanding common stock (or, upon election by a Holder prior to the issuance of any Warrants, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise. The Holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provided that the beneficial ownership limitation in no event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the warrant held by the Holder. Any increase in the beneficial ownership limitation will not be effective until the 61st day after such notice is delivered to the Company.
Governing Law. The Warrants are governed by New York law.
Holders
As of September 28, 2021, we have 23,755,321 issued and outstanding shares of Common Stock, which are held by approximately 230 shareholders of record.
Securities Authorized for Issuance Under Equity Compensation Plans
None
Transfer Agent and Registrar
Tego Cyber Inc. has appointed Signature Stock Transfer Inc. as its transfer agent. Signature’s address is 14673 Midway Road, Suite #220, Addison, Texas, 75001. The transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares.
Market Information
Our common shares are currently quoted on the OTCQB under the symbol "TGCB". The following table sets forth the range of the high and low sale prices of the common stock for the periods indicated. The quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions. Consequently, the information provided below may not be indicative of our common stock price under different conditions.
Trades in our common stock may be subject to Rule 15g-9 of the Exchange Act, which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction before the sale.
The Company’s common stock was approved for trading on the OTCQB on February 19, 2021. As of September 28, 2021, the high and low sales price of our common stock was $1.25 per share and $0.30 per share, respectively. As of September 28, 2021, there were 23,755,321 shares of common stock outstanding held by approximately 230 stockholders of record.
Penny Stock Regulation
Penny stocks generally are equity securities with a price of less than $5.00 per share other than securities registered on national securities exchanges or listed on the Nasdaq Stock Market, provided that current price and volume information with respect to transactions in such securities are provided by the exchange or system. The penny stock rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. Because of these penny stock rules, broker-dealers may be restricted in their ability to sell the Company’s common stock. The foregoing required penny stock restrictions will not apply to the Company’s common stock if such stock reaches and maintains a market price of $5.00 per share or greater.
Additional Information
We refer you to our Articles of Incorporation, Bylaws, and the applicable provisions of the Nevada Revised Statues for a more complete description of the rights and liabilities of holders of our securities.
Item 6. [Reserved]
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Registration Statement. Some of the statements under “Management’s Discussion and Analysis,” “Description of Business” and elsewhere herein may include forward-looking statements which reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us specifically and the renewable energy industry in general. Statements which include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. The safe harbor provisions of the federal securities laws do not apply to any forward-looking statements contained in this Registration Statement. All forward-looking statements address such matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read herein reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our written and oral forward-looking statements attributable to us or individuals acting on our behalf and such statements are expressly qualified in their entirety by this paragraph.
Overview
Tego Cyber, Inc. (was incorporated in the State of Nevada on September 6, 2019. We are an early-stage provider of advanced cyberthreat intelligence applications for larger business enterprises. The Company has developed a cyber threat intelligence application that integrates with top end security platforms to gather, analyze, then proactively identify threats to an enterprise network. The Tego Threat Intelligence Platform (TTIP) takes in vetted and curated threat data and after utilizing a proprietary process, the platform compiles, analyzes, and then delivers that data to an enterprise network in a format that is timely, informative, and relevant. The threat data provides additional context including specific details needed to identify and counteract threats so that security teams can spend less time searching for disparate information. The first version of the TTIP will integrate with the widely accepted SPLUNK platform to provide real-time threat intelligence to macro enterprises using the SPLUNK architecture. The Company plans on developing future versions of the TTIP for integration with other established SIEM systems and platforms including: Elastic, IBM QRadar, AT&T AlienVault, Exabeam, and LogRhythm.
Results of operations for fiscal year ended June 30, 2021 compared to period September 6, 2019 (inception) to June 30, 2020
Revenues
We are in our development stage and only generated $8,100 of revenue for the fiscal year ended June 30, 2021 compared to $2,325 for the period September 6, 2019 (inception) to June 30, 2020.
Operating Expenses
We incurred total operating expenses of $674,918 for the fiscal year ended June 30, 2021 compared to $79,527 for the period September 6, 2019 (inception) to June 30, 2020. Of that was $168,077 in legal and accounting expenses relating to the listing of our common shares on the OTCQB compared to $26,429 for the period September 6, 2019 (inception) to June 30, 2020. We also incurred $167,250 in management fees compared to $34,700 for the period September 6, 2019 (inception) to June 30, 2020. We also incurred consulting and contracting fees in the amount of $95,938 relating to the development of the threat intelligence application compared to $263 for the period September 6, 2019 (inception) to June 30, 2020. We incurred $67,597 in investor relations and shareholder communications compared to $nil for the period September 6, 2019 (inception) to June 30, 2020.
Net Loss
We incurred a net loss of $923,180 for the fiscal year ended June 30, 2021 compared to a net loss of $77,202 for the period September 6, 2019 (date of inception) to June 30, 2020.
Liquidity and Capital Resources
As at June 30, 2021, the Company has a working capital surplus of $652,296, a net loss of $923,180 and has earned limited revenue to cover its operating costs. We have $583,015 cash on hand and our burn rate is approximately $85,000 per month. Presently, our operations are being funded by funds previously raised and we believe our currently available capital resources are sufficient to sustain our operations for a minimum of six (6) months. The Company intends to fund future operations through equity financing arrangements. The ability of the Company to realize its business plan is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash Flow from Operating Activities
For the fiscal year ended June 30, 2021, the cash flows used in the Company’s operating activities was $578,415 compared to $45,690 for the period September 6, 2019 (date of inception) to June 30, 2020.
Cash Flow from Investing Activities
For the fiscal year ended June 30, 2021, the net cash used in investing activities by the Company was $54,250 compared to $18,250 for the period September 6, 2019 (date of inception) to June 30, 2020.
Cash Flow from Financing Activities
For the fiscal year ended June 30, 2021, the net cash provided by financing activities by the Company was $1,133,808 compared to $145,812 for the period September 6, 2019 (date of inception) to June 30, 2020. The cash provided by financing activities is related to the proceeds received from sales of our common stock.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Future Financings
We will continue to rely on equity sales of our common shares and debt proceeds in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Expected Purchase or Sale of Significant Equipment
We do not anticipate the purchase or sale of any significant equipment, as such items are not required by us at this time or in the next twelve months.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Disagreements with Accountants on Accounting and Financial Disclosure
Other than the disclosure of uncertainty regarding the ability for us to continue as a going concern which was included in our accountant’s report on the financial statements for the fiscal year ended June 30, 2021; Harbouside CPA’s (formerly known as Buckley Dodds) report on the financial statements of the Company for the fiscal year ended June 30, 2021 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audit and review of the financial statements of the Company from the fiscal year ended June 30, 2021, there were no disagreements on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with Harbouside CPA’s opinion to the subject matter of the disagreement.
In connection with the audited financial statements of the Company for the fiscal year June 30, 2021, there have been no reportable events with the Company as set forth in Item 304(a)(1)(v) of Regulation S-K.
Critical Accounting Policies
This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to US GAAP and have been consistently applied in the preparation of the financial statements.
Basis of Preparation
The accompanying financial statements have been prepared to present the statements of financial position, the statements of operations and comprehensive loss, statements of changes in shareholders’ deficit and cash flows of the Company for the fiscal year ended June 30, 2021 and have been prepared in accordance with US GAAP.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. During the fiscal period ended June 30, 2021, substantially all of the Company’s cash was held by major financial institutions located in the United States, which management believes are of high credit quality. With respect to accounts receivable, the Company extended credit based on an evaluation of the customer’s financial condition. The Company generally did not require collateral for accounts receivable and maintained an allowance for doubtful accounts of accounts receivable if necessary.
Cash
Cash consists of cash held at major financial institutions and is subject to insignificant risk of changes in value.
Receivables and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at net realizable value and do not bear interest. No allowance for doubtful accounts was made during the period ended June 30, 2021, based on management’s best estimate of the amount of probable credit losses in accounts receivable. The Company evaluates its allowance for doubtful accounts based upon knowledge of its customers and their compliance with credit terms. The evaluation process includes a review of customers’ accounts on a regular basis. The review process evaluates all account balances with amounts outstanding for more than 60 days and other specific amounts for which information obtained indicates that the balance may be uncollectible. As of June 30, 2021, there was no allowance for doubtful accounts and the Company does not have any off-balance-sheet credit exposure related to its customers.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, adopted January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The Company’s financial instruments include cash, current receivables and payables. These financial instruments are measured at their respective fair values. The three levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.
For cash, accounts receivables, subscription receivables, and accounts payable and accrued liabilities, it is management’s opinion that the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.
Management believes it is not practical to estimate the fair value of related party receivables and payables because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), was adopted by the Company as of September 6, 2019. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from consulting and management services, and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue from providing consulting and management services under Topic 606 is recognized in a manner that reasonably reflects the delivery of services to customers in return for expected consideration and includes the following elements:
| - | executed contracts with the Company’s customers that it believes are legally enforceable; |
| | |
| - | identification of performance obligations in the respective contract; |
| | |
| - | determination of the transaction price for each performance obligation in the respective contract; |
| | |
| - | allocation of the transaction price to each performance obligation; and |
| | |
| - | recognition of revenue only when the Company satisfies each performance obligation. |
These five elements as applied to the Company’s consulting and management services results in revenue recorded as services are provided.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740 “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.
Foreign Currency Translation
The Company’s functional and reporting currency is United States dollars (“USD”). The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
Earnings per Share
Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments unless the effect is to reduce a loss or increase earnings per share. The Company had no dilutive securities for the period ended June 30, 2021.
Recently Issued Accounting Pronouncements
In June 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 simplifies the accounting for nonemployee share-based payments, aligning it more closely with the accounting for employee awards. At this time, the Company does not expect this standard to affect the Company’s financial position, results of operations or cash flows and disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) did not or are not expected to have a material impact on the Company's present or future financial statements.
Item 8. Financial Statements and Supplementary Data.
TABLE OF CONTENTS
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REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM |
To the Shareholders and Board of Directors of Tego Cyber Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Tego Cyber Inc. (the “Company”) as of June 30, 2021 and 2020, and the related statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the year June 30, 2021 then ended and for the period from September 6, 2019 (date of inception) to June 30, 2020 and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the year and period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures including examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that Tego Cyber Inc. will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HARBOURSIDE CPA LLP
(formerly Buckley Dodds LLP)
Vancouver, Canada
September 28, 2021
We have served as the Company’s auditor since July 2020.
TEGO CYBER INC.
BALANCE SHEET
(Expressed in US Dollars)
| | June 30, 2021 | | | June 30, 2020 | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash | | $ | 583,015 | | | $ | 81,872 | |
Accounts receivable | | | 1,450 | | | | 150 | |
Prepaid expenses | | | 113,462 | | | | - | |
Total current assets | | | 697,927 | | | | 82,022 | |
Software | | | 75,750 | | | | 21,500 | |
TOTAL ASSETS | | $ | 773,677 | | | $ | 103,522 | |
| | | | | | | | |
LIABILITIES & SHAREHOLDERS’ DEFICIT | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 23,010 | | | $ | 15,554 | |
Due to related parties | | | - | | | | 1,358 | |
Convertible debts | | | 22,621 | | | | - | |
TOTAL LIABILITIES | | | 45,631 | | | | 16,912 | |
SHAREHOLDERS’ EQUITY | | | | | | | | |
Common shares 50,000,000 shares authorized $0.001 par value18,296,511shares issued and outstanding at June 30, 2021 | | | 18,297 | | | | 12,406 | |
Additional paid in capital | | | 1,720,631 | | | | 175,906 | |
Subscriptions receivable | | | (10,500 | ) | | | (24,500 | ) |
Accumulated deficit | | | (1,000,382 | ) | | | (77,202 | ) |
TOTAL SHAREHOLDERS’ EQUITY | | | 728,046 | | | | 86,610 | |
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | | $ | 773,677 | | | $ | 103,522 | |
The accompanying notes are an integral part of these financial statements
TEGO CYBER INC.
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in US Dollars)
| | Year Ended June 30, 2021 | | | From September 6, 2019 (date of inception) to June 30, 2020 | |
REVENUE | | | | | | |
Consulting fees | | $ | 5,600 | | | $ | 2,325 | |
Subscription Revenue | | | 2,500 | | | | - | |
TOTAL REVENUE | | | 8,100 | | | | 2,325 | |
OPERATING EXPENSES | | | | | | | | |
Adverting & promotion | | | 62,238 | | | | 13,944 | |
Bank charges & fees | | | 3,199 | | | | 777 | |
Consultants & contractors | | | 95,938 | | | | 263 | |
Exchange & listing fees | | | 47,176 | | | | - | |
Interest on short term debt | | | 9,865 | | | | - | |
Investor relations & shareholder communications | | | 67,597 | | | | - | |
Legal & accounting | | | 168,077 | | | | 26,429 | |
Management fees | | | 167,250 | | | | 34,700 | |
Meals & entertainment | | | 4,138 | | | | 268 | |
Office & administration | | | 9,569 | | | | 798 | |
Rent & utilities | | | 488 | | | | 351 | |
Subscriptions & dues | | | 1,672 | | | | 493 | |
Travel & hotel | | | 1,794 | | | | 677 | |
Website & platform cost | | | 35,917 | | | | 827 | |
TOTAL OPERATING EXPENSES | | | 674,918 | | | | 79,527 | |
| | | | | | | | |
OTHER INCOME & EXPENSE | | | | | | | | |
Accretion expense | | | (168,638 | ) | | | - | |
Financing fees | | | (26,966 | ) | | | - | |
Gain on extinguishment of convertible debts | | | 36,731 | | | | - | |
Loss on settlement of convertible debts | | | (97,489 | ) | | | - | |
TOTAL OTHER INCOME & EXPENSE | | | (256,362 | ) | | | - | |
| | | | | | | | |
NET AND COMPREHENSIVE LOSS | | $ | (923,180 | ) | | $ | (77,202 | ) |
BASIC AND DILUTED LOSS PER COMMON SHARE | | $ | (0.07 | ) | | $ | (0.01 | ) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | 13,566,628 | | | | 7,790,648 | |
The accompanying notes are an integral part of these financial statements
TEGO CYBER INC.
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
JUNE 30, 2021
(Expressed in US Dollars)
| | Number of Shares | | | Common Stock Amount | | | Additional Paid-In Capital | | | Subscriptions Receivable | | | Accumulated Deficit | | | Total Shareholders' Equity | |
Balance, September 6, 2019 (date of inception) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Shares issued to founders for services | | | 8,000,000 | | | | 8,000 | | | | - | | | | - | | | | - | | | | 8,000 | |
Shares issued for services | | | 1,000,000 | | | | 1,000 | | | | 9,000 | | | | - | | | | - | | | | 10,000 | |
Shares issued for cash | | | 3,406,236 | | | | 3,406 | | | | 166,906 | | | | (24,500 | ) | | | - | | | | 145,812 | |
Net loss for period ended June 30, 2020 | | | - | | | | - | | | | - | | | | - | | | | (77,202 | ) | | | (77,202 | ) |
Balance, June 30, 2020 | | | 12,406,236 | | | $ | 12,406 | | | $ | 175,906 | | | $ | (24,500 | ) | | $ | (77,202 | ) | | $ | 86,610 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Shares issued for cash | | | 5,041,190 | | | | 5,042 | | | | 1,155,256 | | | | 14,000 | | | | - | | | | 1,174,298 | |
Shares issued for services | | | 299,752 | | | | 300 | | | | 74,638 | | | | - | | | | - | | | | 74,938 | |
Shares issued as prepaid expenses | | | 300,248 | | | | 300 | | | | 74,762 | | | | - | | | | - | | | | 75,062 | |
Shares issued for settlement of debt | | | 51,085 | | | | 51 | | | | 38,449 | | | | - | | | | - | | | | 38,500 | |
Shares issued as transaction costs for convertible debts | | | 198,000 | | | | 198 | | | | 32,802 | | | | - | | | | - | | | | 33,000 | |
Equity portion of convertible debts | | | - | | | | - | | | | 10,167 | | | | - | | | | - | | | | 10,167 | |
Warrants issued with convertible debts | | | - | | | | - | | | | 158,651 | | | | - | | | | - | | | | 158,651 | |
Net loss for the year ended June 30, 2021 | | | - | | | | - | | | | - | | | | - | | | | (923,180 | ) | | | (923,180 | ) |
| | | - | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2021 | | | 18,296,511 | | | $ | 18,297 | | | $ | 1,720,631 | | | $ | (10,500 | ) | | $ | (1,000,382 | ) | | $ | 728,046 | |
The accompanying notes are an integral part of these financial statements
TEGO CYBER INC.
STATEMENT OF CASH FLOWS
(Expressed in US Dollars)
| | Year Ended June 30, 2021 | | | From September 6, 2019 (date of inception) to June 30, 2020 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net loss for the year | | $ | (923,180 | ) | | $ | (77,202 | ) |
Items not affecting cash | | | | | | | | |
Shares issued for services | | | 74,938 | | | | 18,000 | |
Interest on short term debt | | | 8,567 | | | | - | |
Accretion expense | | | 168,638 | | | | - | |
Financing fees | | | 26,966 | | | | - | |
Gain on extinguishment of convertible debts | | | (36,731 | ) | | | - | |
Loss on settlement of convertible debts | | | 97,489 | | | | - | |
Changes in non-cash working capital items: | | | | | | | | |
Accounts receivable | | | (1,300 | ) | | | (150 | ) |
Prepaid expenses | | | (38,400 | ) | | | - | |
Accounts payable and accrued liabilities | | | 45,956 | | | | 12,304 | |
Due to related parties | | | (1,358 | ) | | | 1,358 | |
NET CASH USED IN OPERATING ACTIVITIES | | | (578,415 | ) | | | (45,690 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
Software | | | (54,250 | ) | | | (18,250 | ) |
NET CASH USED IN INVESTING ACTIVITIES | | | (54,250 | ) | | | (18,250 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
Proceeds from shares issued | | | 1,149,798 | | | | 145,812 | |
Proceeds from issuance of convertible debt | | | 300,000 | | | | - | |
Repayment of convertible debt | | | (312,240 | ) | | | - | |
Convertible debt issuance costs | | | (28,250 | ) | | | - | |
Collection of subscription receivable | | | 24,500 | | | | - | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 1,133,808 | | | | 145,812 | |
| | | | | | | | |
NET INCREASE IN CASH | | | 501,143 | | | | 81,872 | |
CASH AT BEGINNING OF THE PERIOD | | | 81,872 | | | | - | |
CASH AT END OF THE PERIOD | | $ | 583,015 | | | $ | 81,872 | |
| | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | |
Software included in accounts payable | | $ | - | | | $ | 3,250 | |
Shares issued included in subscriptions receivable | | $ | 10,500 | | | $ | 24,500 | |
Shares issued for prepaid expenses | | $ | 75,062 | | | $ | - | |
Shares issued for settlement of debt | | $ | 38,500 | | | $ | - | |
Shares issued with convertible debts | | $ | 33,000 | | | $ | - | |
Equity portion of convertible debts | | $ | 10,167 | | | $ | - | |
Warrants issued with convertible debt | | $ | 158,651 | | | $ | - | |
The accompanying notes are an integral part of these audited financial statements
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Tego Cyber Inc. (the “Company”) was incorporated on September 6, 2019 in the State of Nevada. The Company has developed an automated threat intelligence defense platform that provides real-time protection against cyber-threats. The Company is focused on filling the cyber-security skills gap with automated cyber defense solutions, including a monthly software subscription to users of the multiple router and firewall manufacturers.
The Company’s head office is at at 8565 S. Eastern Ave. #150, Las Vegas, Nevada, 89123.
NOTE 2 – BASIS OF PRESENTATION
The accompanying audited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). In the opinion of management, the financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the results for the period presented.
The accompanying financial statements have been prepared to present the balance sheet, the statement of operations and comprehensive loss, statement of changes in shareholders’ equity and the statement of cash flows of the Company for the year ended June 30, 2021. The accompanying audited financial statements have been prepared in accordance with US GAAP using Company-specific information where available and allocations and estimates where data is not maintained on a Company-specific basis within its books and records. Due to the allocations and estimates used to prepare the financial statements, they may not reflect the financial position, cash flows and results of operations of the Company in the future or its operations, cash flows and financial position.
The preparation of financial statements in accordance with US GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.
NOTE 3 – GOING CONCERN UNCERTAINTY
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 the business. The Company has incurred material losses from operations and has an accumulated deficit. At June 30, 2021, the Company had a working capital surplus of $652,296. For the year ended June 30, 2021, the Company sustained net losses and generated negative cash flows from operations. In March 2020, the World Health Organization recognized the outbreak of COVID-19 as a global pandemic. The COVID-19 pandemic and government actions implemented to contain the further spread of COVID-19 have severely restricted economic activity around the world. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. These adjustments could be material. The Company’s continuation as a going concern is contingent upon its ability to earn adequate revenues from operations and to obtain additional financing. There is no assurance that the Company will be able to obtain such financings or obtain them on favorable terms.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to US GAAP and have been consistently applied in the preparation of the financial statements.
Basis of Preparation
The accompanying financial statements have been prepared to present the balance sheet, the statement of operations and comprehensive loss, statement of changes in shareholders’ equity and statement of cash flows of the Company for the period ended June 30, 2021 and have been prepared in accordance with US GAAP.
Use of Estimates
In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. As at June 30, 2021, substantially all of the Company’s cash was held by major financial institutions located in the United States, which management believes are of high credit quality. With respect to accounts receivable, the Company extended credit based on an evaluation of the customer’s financial condition. The Company generally did not require collateral for accounts receivable and maintained an allowance for doubtful accounts of accounts receivable if necessary.
Cash
Cash consists of cash held at major financial institutions and is subject to insignificant risk of changes in value.
Receivables and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at net realizable value and do not bear interest. No allowance for doubtful accounts was made during the period ended June 30, 2021, based on management’s best estimate of the amount of probable credit losses in accounts receivable. The Company evaluates its allowance for doubtful accounts based upon knowledge of its customers and their compliance with credit terms. The evaluation process includes a review of customers’ accounts on a regular basis. The review process evaluates all account balances with amounts outstanding for more than 60 days and other specific amounts for which information obtained indicates that the balance may be uncollectible. As of June 30, 2021, there was no allowance for doubtful accounts and the Company does not have any off-balance-sheet credit exposure related to its customers.
Software
Software is stated at cost less accumulated amortization and is depreciated using the straight-line method over the estimated useful life of the asset. The estimated useful life of the asset is 5 years and is not depreciated until it is available for use by the Company.
Leases
The Company determines if an arrangement is a lease at inception. Operating and financing right-of-use assets and lease liabilities are included on the balance sheet. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate, based on the information available at the commencement date, in determining the present value of future lease payments. Right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Operating lease expenses are recognized on a straight-line basis over the term of the lease, consisting of interest accrued on the lease liability and depreciation of the right-of-use asset. The lease terms may include options to extend or terminate the lease is it is reasonably certain the Company will exercise that option. As at June 30, 2021, the Company had no leases.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, adopted January 1, 2008, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The Company’s financial instruments include cash, current receivables and payables. These financial instruments are measured at their respective fair values. The three levels are defined as follows:
Fair Value of Financial Instruments (continued)
Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.
For cash, accounts receivable, accounts payable and accrued liabilities and due to related parties, it is management’s opinion that the carrying values are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.
For convertible debts, the carrying values, excluding any unamortized discounts, approximate the respective fair value. The convertible debts have been discounted to reflect their net present value as at June 30, 2021. The carrying values of embedded conversion features not considered to be derivative instruments were determined by allocating the remaining carrying value of the convertible debt after deducting the estimated carrying value of the liability portion.
Estimating fair value for warrants require determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate requires determining the most appropriate inputs to the valuation model including the expected life of the warrant, volatility, dividend yield, and rate of forfeitures and making assumptions about them.
Revenue Recognition
Revenue from providing consulting and management services is recognized in a manner that reasonably reflects the delivery of services to customers in return for expected consideration and includes the following elements:
| - | executed contracts with the Company’s customers that it believes are legally enforceable; |
| | |
| - | identification of performance obligations in the respective contract; |
| | |
| - | determination of the transaction price for each performance obligation in the respective contract; |
| | |
| - | allocation of the transaction price to each performance obligation; and |
| | |
| - | recognition of revenue only when the Company satisfies each performance obligation. |
These five elements as applied to the Company’s consulting services results in revenue recorded as services are provided.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes pursuant to ASC 740 “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.
Foreign Currency Translation
The Company’s functional and reporting currency is United States dollars (“USD”). The Company maintains its financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss).
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. If applicable, diluted earnings (loss) per share assume the conversion, exercise or issuance of all common stock instruments unless the effect is to reduce a loss or increase earnings (loss) per share. The Company had no dilutive securities for the year ended June 30, 2021.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-2, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) did not or are not expected to have a material impact on the Company's present or future financial statements.
NOTE 5 – SOFTWARE
Balance, September 6, 2019 | | $ | - | |
Additions | | | 21,500 | |
Depreciation | | | - | |
Balance, June 30, 2020 | | | 21,500 | |
Additions | | | 54,250 | |
Depreciation | | | - | |
Balance, June 30, 2021 | | $ | 75,750 | |
As at June 30, 2021 and 2020, the software is not in use and no depreciation has been recorded for the periods then ended.
NOTE 6 – RELATED PARTY TRANSACTIONS
Related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Related parties are natural persons or other entities that have the ability, directly, or indirectly, to control another party or exercise significant influence over the party in making financial and operating decisions. Related parties include other parties that are subject to common control or that are subject to common significant influences.
On the date of incorporation 8,000,000 shares were issued to directors and founders at par value as per the following in exchange for concept and services valued at $8,000: Shannon Wilkinson, Director, CEO, CFO, Secretary, Treasurer: 3,000,000; Troy Wilkinson, Director, President: 3,000,000; Michael De Valera, Director: 1,000,000; and Stephen Seminew, Co-Founder 1,000,000.
During the year ended June 30, 2021, there were transactions incurred between the Company and Shannon Wilkinson, Director, CEO, CFO, Secretary and Treasurer for management fees of $134,750 (June 30, 2020 - $29,700) and reimbursement of expenses incurred on behalf of the Company. As of June 30, 2021, included in due to related parties, is $Nil (June 30, 2020 - $1,308) due to this officer.
During the year ended June 30, 2021, there were transactions incurred between the Company and Chris White, Director and President of the Company for management fees of $32,500 (June 30, 2020 - $Nil). As of June 30, 2021, included in due to related parties, is $Nil (June 30, 2020 - $Nil) due to this officer.
During the year ended June 30, 2021, there were transactions incurred between the Company and other related parties for management fees of $Nil (June 30, 2020 - $5,000) and reimbursement of expenses incurred on behalf of the Company. As of June 20, 2021, included in due to related parties, is $Nil (June 30, 2020 - $50) due to them.
NOTE 7 – COMMON SHARES
At June 30, 2021, the Company’s authorized capital consisted of 50,000,000 of common shares with a $0.001 par value and 18,296,511 shares were issued and outstanding.
During the period ended June 30, 2020, the Company incurred the following transactions:
On November 4, 2019, the Company issued 8,000,000 shares to the founders with a fair value of $8,000 in exchange for services.
On November 15, 2019, the Company issued 1,000,000 shares to two non-related parties with a fair value of $10,000 in exchange for services.
During the period from November 15, 2019 to June 30, 2020, the Company completed various private placements whereby a total of 3,406,236 common shares were issued at a price of $0.05 per share for a total value of $170,312. As at June 30, 2020, $24,500 of the subscriptions still remained receivable.
During the year ended June 30, 2021, the Company incurred the following transactions:
During the period from July 2, 2020 to July 31, 2020, the Company completed various private placements whereby a total of 500,000 common shares were issued at a price of $0.05 per share for a total value of $25,000.
During the period from November 24, 2020 to June 30, 2021, the Company completed various private placements whereby a total of 4,541,190 common shares were issued at a price of $0.25 per share for a total value of $1,135,298. As at June 31, 2021, $10,500 of the subscriptions still remained receivable.
On December 28, 2020, the Company issued 110,000 shares to a non-related party at a price of $0.10 per share for a total value of $11,000 as commitment shares in exchange for services related to the issuance of convertible debt on Note 8 (c).
On March 29, 2021, the Company issued 88,000 shares to a non-related party at a price of $0.25 per share for a total value of $22,000 as debt issuance costs related to the issuance of convertible debt on Note 8 (d).
On March 29, 2021, the Company issued 100,000 shares to a director of the Company at a price of $0.25 per share for a total value of $25,000 in exchange for services.
On April 12, 2021, the Company issued 400,000 shares to a non-related party at a price of $0.25 per share for a total value of $100,000 in exchange for services. A portion of the services are yet to be incurred and have been recorded as prepaid expenses for a total value of $56,312.
On April 15, 2021, the Company issued 100,000 shares to a non-related party at a price of $0.25 per share for a total value of $25,000 in exchange for services. A portion of the services are yet to be incurred and have been recorded as prepaid expenses for a total value of $18,750.
On June 21, 2021, the Company issued 41,085 shares to a non-related party at a price of $0.73 per share for a total value of $30,000 as settlement of debt.
On June 25, 2021, the Company issued 10,000 shares to a non-related party at a price of $0.85 per share for a total value of $8,500 as settlement of debt.
Warrants
On December 28, 2020, the Company granted 1,100,000 warrants with a contractual life of two years and exercise price of $0.25 per share to a lender as part of the convertible debt financing transaction (Note 8 (b)). The warrants were valued at $145,744 using the Black Scholes Option Pricing Model.
On March 25, 2021, the Company granted 1,100,000 warrants with a contractual life of two years and exercise price of $0.25 per share to a lender as part of the convertible debt financing transaction (Note 8 (c)). The warrants were valued at $147,266 using the Black Scholes Option Pricing Model.
On April 22, 2021, the Company granted 506,838 warrants with a contractual life of two years and exercise price of $0.25 per share to a lender as part of the convertible debt financing transaction (Note 8 (a)). The warrants were valued at $399,087 using the Black Scholes Option Pricing Model.
On April 28, 2021, the Company granted 307,408 warrants with a contractual life of two years and exercise price of $0.25 per share to a lender as part of the convertible debt financing transaction (Note 8 (a)). The warrants were valued at $196,399 using the Black Scholes Option Pricing Model.
The Black Scholes Option Pricing Model assumptions used in the valuation of the warrants are outlined below. The stock price was based on recent issuances. Expected life was based on the expiry date of the warrants as the Company did not have historical exercise data of such warrants.
| March 31, 2021 |
Stock price | $0.85 - $0.25 |
Risk-free interest rate | 0.13% - 0.17% |
Expected life | 2 years |
Expected dividend rate | 0% |
Expected volatility | 102.03% - 206.63% |
Continuity of the Company’s common stock purchase warrants issued and outstanding is as follows:
| | Number of Warrants | | | Weighted Average Exercise Price | |
Outstanding, June 30, 2020 | | | - | | | $ | - | |
Granted | | | 3,014,246 | | | | 0.25 | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding, June 30, 2021 | | | 3,014,246 | | | $ | 0.25 | |
As at June 30, 2021, the weighted average remaining contractual life of warrants outstanding was 1.21 years with an intrinsic value of $0.25.
NOTE 8 – CONVERTIBLE DEBTS
(a) On November 10, 2020, the Company issued a convertible debt in the principal amount of $20,000 each in exchange for cash. The convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days lapsed, is convertible at $0.10 per 1 common share, and has a maturity date of May 10, 2021. The carrying value of beneficial conversion features not considered to be derivative instruments were determined by allocating the intrinsic value of the conversion features from proceeds. As a result, total proceeds of $20,000 were allocated to the beneficial conversion feature, recorded as equity portions of convertible debt and there were no remaining proceeds available for allocation to the liability portion of the convertible debt. The convertible debt was discounted by the amounts allocated to the conversion features.
On April 22, 2021, the Company renegotiated the terms of the convertible debt in exchange for a new convertible debt in the principal amount of $55,245 at $50,684, with $4,561 original issue discount, for additional cash proceeds of $30,000 and surrender of the convertible note previously issued. In connection with the note, the Company issued 506,838 warrants exercisable at $0.25 per share, expiring on April 22, 2023. The warrants were calculated to have a relative fair value of $44,088. The convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days elapsed, is convertible at $0.10 per 1 common share, and matures on January 22, 2022. The terms of the new convertible debt were substantially different and deemed extinguished resulting in a gain of $18,049 recorded on extinguishment of convertible debt.
The proceeds were allocated between the convertible debt and warrants on a relative fair value basis, and the issuance costs were proportioned accordingly. The fair value of the convertible debt was calculated using the present value of the debt and related interest at 12% incremental borrowing rate as the discount rate. The warrants were valued using the Black Scholes Option Pricing Model (Note 7).
The carrying value of beneficial conversion features not considered to be derivative instruments was determined by allocating $5,912 for the intrinsic value of the conversion features from the remaining proceeds allocated to the convertible debt after deducting the amount allocated to the warrants. As such, there were no remaining proceeds available for allocating to the liability portion of the convertible debt. As at June 30, 2021, the carrying value of this convertible debt was $14,374 (June 30, 2020 - $Nil) net of $40,871 unamortized discounts.
(b) On November 10, 2020, the Company issued a convertible debt in the principal amount of $20,000 each in exchange for cash. The convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days lapsed, is convertible at $0.10 per 1 common share, and has a maturity date of May 10, 2021. The carrying value of beneficial conversion features not considered to be derivative instruments were determined by allocating the intrinsic value of the conversion features from proceeds. As a result, total proceeds of $20,000 were allocated to the beneficial conversion feature, recorded as equity portions of convertible debt and there were no remaining proceeds available for allocation to the liability portion of the convertible debt. The convertible debt was discounted by the amounts allocated to the conversion features.
On April 28, 2021, the Company renegotiated the terms of the convertible debt in exchange for a new convertible debt in the principal amount of $33,508 at $30,741, with $$2,767 original issue discount, for additional cash proceeds of $10,000 and surrender of the convertible note previously issued. In connection with the note, the Company issued 307,408 warrants exercisable at $0.25 per share, expiring on April 28, 2023. The warrants were calculated to have a relative fair value of $25,745. The convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days elapsed, is convertible at $0.10 per 1 common share, and matures on January 28, 2022. The terms of the new convertible debt were substantially different and deemed extinguished resulting in a gain of $18,682 recorded on extinguishment of convertible debt.
The proceeds were allocated between the convertible debt and warrants on a relative fair value basis, and the issuance costs were proportioned accordingly. The fair value of the convertible debt was calculated using the present value of the debt and related interest at 12% incremental borrowing rate as the discount rate. The warrants were valued using the Black Scholes Option Pricing Model (Note 7).
The carrying value of beneficial conversion features not considered to be derivative instruments was determined by allocating $4,255 for the intrinsic value of the conversion features from the remaining proceeds allocated to the convertible debt after deducting the amount allocated to the warrants. As such, there were no remaining proceeds available for allocating to the liability portion of the convertible debt. As at June 30, 2021, the carrying value of this convertible debt was $8,247 (June 30, 2020 - $Nil) net of $25,261 unamortized discounts.
(c) On December 28, 2020, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a convertible debt in the principal amount of $120,000 at $110,000 with $10,000 original issue discount. In connection with this note, the Company paid an additional $15,000 in cash transaction costs, issued 110,000 common shares valued at $11,000 in transaction costs, and issued 1,100,000 warrants exercisable at $0.25 per share, expiring on December 28, 2022. The warrants were calculated to have a fair value of $67,555, which was reduced by the equity components of the transaction costs of $20,657, leaving a value of $46,898 as at March 31, 2021. This convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days lapsed, is convertible at $0.10 per 1 common share, and matures on September 28, 2021.
The proceeds were allocated between the convertible debt and warrants on a relative fair value basis, and the issuance costs were proportioned accordingly. The fair value of the convertible debt was calculated using the present value of the debt and related interest at 12% incremental borrowing rate as the discount rate. The warrants were valued using the Black Scholes Option Pricing Model (Note 7).
The carrying value of beneficial conversion features not considered to be derivative instruments was determined by allocating $41,961 for the intrinsic value of the conversion features from the remaining proceeds allocated to the convertible debt after conducting the amount allocated to the warrants. As such, there were no remaining proceeds available for allocating to the liability portion of the convertible debt.
On June 18, 2021, the Company settled the convertible debt with a payment of $165,360 resulting in a loss on settlement of convertible debt of $41,037.
(d) On March 25, 2021, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a convertible debt in the principal amount of $120,000 at $110,000 with $10,000 original issue discount. In connection with this note, the Company paid an additional $13,250 in cash transactions, issued 88,000 common shares valued at $22,000 in transaction costs, and issued 1,100,000 warrants exercisable at $0.25 per share, expiring on March 25, 2023. The warrants were calculated to have a fair value of $74,026, which was reduced by the equity components of the transaction costs of $32,106, leaving a value of $41,920 as at March 31, 2021. This convertible debt is unsecured, bears interest at 8% per annum compounded on the basis of a 365-day year and actual days lapsed, is convertible at $0.10 per 1 common share, and matures in nine months on December 25, 2021.
The proceeds were allocated between the convertible debt and warrants on a relative fair value basis, and the issuance costs were proportioned accordingly. The fair value of the convertible debt was calculated using the present value of the debt and related interest at 12% incremental borrowing rate as the discount rate. The warrants were valued using the Black Scholes Option Pricing Model (Note 7).
The carrying value of beneficial conversion features not considered to be derivative instruments was determined by allocating $42,492 for the intrinsic value of the conversion features from the remaining proceeds allocated to the convertible debt after conducting the amount allocated to the warrants. As such, there were no remaining proceeds available for allocating to the liability portion of the convertible debt.
On June 29, 2021, the Company settled the convertible debt with a payment of $146,880 resulting in a loss on settlement of convertible debt of $56,452.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company leases its corporate office located at 8565 S. Eastern Ave. #150, Las Vegas, Nevada. The initial lease term is for 12 months commencing on September 8, 2019 after which the term is on a month-to-month basis. After the initial term, the Company may cancel the lease agreement at any time by providing 30 days written notice. The Company has elected the short-term lease practical expedient of 12 months and has not recorded a lease.
NOTE 10 – INCOME TAXES
As of June 30, 2021, the Company was in a loss position; therefore no deferred tax liability was recognized related to the undistributed earnings subject to withholding tax.
Net operating loss carry forward of the Company, amounted to $701,884 (June 30, 2020 - $79,527) for the period ended June 30, 2021. The net operating loss carry forwards are available to be utilized against future taxable income for years through calendar year 2041. In assessing the reliability of deferred income tax assets, management considers whether it is more likely than not that
NOTE 10 – INCOME TAXES (CONTINUED)
some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled projected future taxable income, and tax planning strategies in making this assessment.
NOTE 11 – SUBSEQUENT EVENTS
Subsequent to June 30, 2021, the Company completed various private placements whereby a total of 5,458,810 common shares were issued at a price of $0.25 per share for a total value of $1,364,703.