NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2020
(Expressed
in US Dollars)
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
a threat intelligence platform designed to source then identify
threats to an enterprise network before the threat has entered and
caused irreparable harm. Tego also offer advanced cybersecurity
consulting services including vulnerability assessments,
penetration testing, vCISO services, dark web monitoring,
cybersecurity policy creation and employee training.
The
Company’s head office is at at 8565 S. Eastern Ave. #150, Las
Vegas, Nevada, 89123.
NOTE 2 – BASIS OF PRESENTATION
The
accompanying interim condensed financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States of America (“US
GAAP”).
Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with US GAAP have been condensed
or omitted pursuant to US GAAP rules and regulations for
presentation of interim financial information. Therefore, the
unaudited interim condensed financial statements should be read in
conjunction with the financial statements and the notes thereto,
included in the Company’s audited financial statements for
the year ended June 30, 2020. Current and future financial
statements may not be directly comparable to the Company’s
historical financial statements. However, except as disclosed
herein, there have been no material changes in the information
disclosed in the notes to the financial statements for the year
ended June 30, 2020. In the opinion of management, all adjustments
considered necessary for a fair presentation, consisting solely of
normal recurring adjustments, have been made. Operating results for
the six months ended December 31, 2020 are not necessarily
indicative of the results that may be expected for the year ending
June 30, 2021.
NOTE 3 – GOING CONCERN UNCERTAINTY
The
accompanying unaudited interim condensed 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 December 31,
2020, the Company had a working capital surplus of $39,973 (June
30, 2020 - $65,110). For the six-month period ended December 31,
2020, 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 interim condensed 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 financing 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 interim condensed financial statements. The
interim condensed 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 interim condensed financial
statements.
Basis of Preparation
The
accompanying interim condensed 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 six month
period ended December 31, 2020, and have been prepared in
accordance with US GAAP.
Use of Estimates
In
preparing the interim condensed 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 interim condensed 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. Significant
estimates made by management affecting the consolidated financial
statements include:
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(i)
Discount rates used
for convertible debt
The
Company estimates the fair value of the convertible debt by
calculating the present value of the debt and related interest,
using a discounted rate equal to the incremental borrowing rate
that would be given for similar debt.
(ii)
Fair value of
warrants
Estimating the fair
value for warrants requires determining the most appropriate
valuation model which is dependent on the terms and conditions of
the grant. This estimate also requires determining the most
appropriate model including the expected life of the warrant,
volatility, dividend yield, and rate of forfeitures and making
assumptions about them.
(iii)
Recovery of
deferred tax assets
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.
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 December 31, 2020, 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 six month period ended December 31, 2020, 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 December 31, 2020, 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 December 31, 2020, the Company had no
leases.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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,
convertible debts, and warrants. 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
December 31, 2020.
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.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 per share.
Recently Issued Accounting Pronouncements
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
Software
consisted of the following:
|
|
|
|
Software, as at
June 30, 2020
|
$21,500
|
$-
|
$1,500
|
Software, as at
December 31, 2020
|
$50,750
|
$-
|
$50,750
|
As of
December 31, 2020, the software is not in use and no depreciation
has been recorded for the period 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 six month period ended December 31, 2020, there were
transactions incurred between the Company and Shannon Wilkinson,
Director, CEO, CFO, Secretary and Treasurer for management fees of
$56,500 (June 30, 2020 - $29,700) and reimbursement of expenses
incurred on behalf of the Company. As of December 31, 2020,
included in due to related parties, is $1,308 (June 30, 2020 -
$1,308) due to this officer.
NOTE 7 – COMMON SHARES
At
December 31, 2020, the Company’s authorized capital consisted
of 50,000,000 of common shares with a $0.001 par value and
13,070,236 shares were issued and outstanding.
NOTE 7 – COMMON SHARES (CONTINUED)
During the six-months ended December 31, 2020
Between
July 2, 2020 and 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.
Between
November 24, 2020 and December 11, 2020, the Company completed
various private placements whereby a total of 54,000 common shares
were issued at a price of $0.25 per share for a total value of
$13,500.
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 (b).
During the year ended June 30, 2020
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.
Between
November 21, 2019 and 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.
Warrants
During
the six-month period ended December 31, 2020, the Company granted
an aggregate of 1,100,000 warrants with a contractual life of two
years and exercise price of $0.25 per share to lenders as part of
the convertible debt financing transaction (Note 8
(b)).
The
warrants were valued at $0.13 per warrant, using the Black Scholes
Option Pricing Model with the assumptions 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.
|
|
Stock
price
|
$0.25
|
Risk-free interest
rate
|
1.06%
|
Expected
life
|
2 years
|
Expected dividend
rate
|
0%
|
Expected
volatility
|
102.03%
|
Continuity
of the Company’s common stock purchase warrants issued and
outstanding is as follows:
|
|
Weighted Average
Exercise Price
|
Outstanding, June
30, 2020
|
-
|
$-
|
Granted
|
1,100,000
|
0.25
|
Exercised
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding,
December 31, 2020
|
1,100,000
|
$0.25
|
As at
December 31, 2020, the weighted average remaining contractual life
of warrants outstanding was 1.99 years with an intrinsic value of
$0.13.
NOTE 8 – CONVERTIBLE DEBTS
(a)
On November 10,
2020, the Company issued two convertible debts in the principal
amount of $20,000 each in exchange for cash. Each 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 six months on May 10,
2021. The carrying value of beneficial conversion features not
considered to be derivative instruments was determined by
allocating the intrinsic value of the conversion features from
proceeds. As a result, all of $20,000 proceeds was allocated to the
beneficial conversion feature, recorded as an equity portion of
convertible debt, and there were no remaining proceeds available
for allocation to the liability portion of the convertible debt.
Each convertible debt was discounted by the amounts allocated to
the conversion features. As at December 31, 2020, the unamortized
discount on each convertible debt was $14,365 (December 31, 2019 -
$Nil) and the carrying value of each convertible debt was $5,635
(December 31, 2019 - $Nil).
(b)
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
purchase price 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 relative fair value of $66,997, which was
reduced by the equity components of the transaction costs of
$20,099, leaving a value of $46,898 as at December 31, 2020. 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 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 deducting the
amount allocated to the warrants. As such, there were no remaining
proceeds available for allocation to the liability portion of the
convertible debt. As at December 31, 2020, the carrying value of
this convertible debt was $7,866 (December 31, 2019 - $Nil) net of
$112,134 unamortized discounts.
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
December 31, 2020, 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 $273,948
for the six-month period ended December 31, 2020 (June 30, 2020 -
$77,202). The net operating loss carry forwards are available to be
utilized against future taxable income for years through calendar
year 2040. In assessing the reliability of deferred income tax
assets, management considers whether it is more likely than not
that 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.