TEGO CYBER INC.
INTERIM CONDENSED STATEMENT OF CASH
FLOWS
FOR THE PERIODS ENDED MARCH 31, 2021 AND JUNE 30, 2020
(Expressed in US Dollars)
(Unaudited)
|
Nine-Months
Ended
March 31,
2021
|
September
6, 2019
(date of
inception) to March 31, 2020
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss for the period
|
$(396,276)
|
$(37,086)
|
Items not
affecting cash
|
|
|
Accretion
expense on convertible debts
|
71,725
|
-
|
Financing
fees
|
26,965
|
-
|
Shares issued
for services
|
25,000
|
18,000
|
Changes in
non-cash working capital items:
|
|
|
Accounts
receivable
|
(1,000)
|
-
|
Accounts
payable and accrued liabilities
|
16,336
|
-
|
Due
to related parties
|
(1,358)
|
1,284
|
Deferred
revenue
|
-
|
300
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(258,608)
|
(17,502)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
Acquisition
of software
|
(39,250)
|
(15,750)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(39,250)
|
(15,750)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
Proceeds
from shares issued
|
74,000
|
36,735
|
Proceeds from
convertible debt
|
260,000
|
-
|
Convertible
debt issuance costs
|
(28,250)
|
-
|
Collection of
subscription receivable
|
16,500
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
322,250
|
36,735
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
24,392
|
3,483
|
CASH
AT BEGINNING OF THE PERIOD
|
81,872
|
-
|
CASH
AT END OF THE PERIOD
|
$106,264
|
$3,483
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
Software included
in accounts payable and accrued liabilities
|
$5,000
|
$-
|
Shares issued with
convertible debt
|
$33,000
|
$-
|
Warrants issued
with convertible debt
|
$88,818
|
$-
|
Equity portion of
convertible debts
|
$124,453
|
$-
|
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
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 nine months ended March 31, 2021 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 March 31, 2021,
the Company had a working capital deficit of $13,645 (June 30, 2020
- surplus of $65,110). For the nine-month period ended March 31,
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 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 nine
month period ended March 31, 2021, and have been prepared in
accordance with US GAAP.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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 March 31, 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 nine month period ended March 31, 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 March 31, 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 March 31, 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,
convertible debts, and warrants. These financial instruments are
measured at their respective fair values.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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
March 31, 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).
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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
Balance, September
6, 2019
|
$-
|
Additions
|
21,500
|
Depreciation
|
-
|
Balance, June 30,
2020
|
21,500
|
Additions
|
44,250
|
Depreciation
|
-
|
Balance, March 31,
2021
|
$65,750
|
As of
June 30, 2020 and March 31, 2021, 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 three month and nine month period ended March 31, 2021, there
were transactions incurred between the Company and Shannon
Wilkinson, Director, CEO, CFO, Secretary and Treasurer for
management fees of $24,500 (three months ended March 31, 2020 -
$6,000) and $81,000 (nine months ended March 31, 2020 -
$11,200).
On
March 29, 2021, 100,000 shares were issued to Chris White, a
director of the Company at a value of $0.25 per share for a total
value of $25,000 in exchange for services.
At
March 31, 2021, there was a balance of $Nil (June 30, 2020 -
$1,358) due to directors of the Company.
NOTE 7 – COMMON SHARES
At
March 31, 2021, the Company’s authorized capital consisted of
50,000,000 of common shares with a $0.001 par value and 13,400,236
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 21, 2019 to March 31, 2020, the Company
completed various private placements whereby a total of 290,380
common shares were issued at a price of $0.05 per share for a total
value of $14,519.
During the nine- month period ended March 31, 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 March 31, 2021, the Company
completed various private placements whereby a total of 196,000
common shares were issued at a price of $0.25 per share for a total
value of $49,500.
As at
March 31, 2021, the Company had a remaining balance of share
subscriptions received of $8,000 for shares to be
issued.
NOTE 7 – COMMON SHARES (CONTINUED)
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).
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 $12,000 as
debt issuance costs related to the issuance of convertible debt on
Note 8 (c).
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.
Warrants
During
the nine-month period ended March 31, 2021, the Company granted an
aggregate of 2,200,000 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 $88,818 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
|
2,200,000
|
0.25
|
Exercised
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding, March
31, 2021
|
2,200,000
|
$0.25
|
As at
March 31, 2021, the weighted average remaining contractual life of
warrants outstanding was 1.24 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 were determined by
allocating the intrinsic value of the conversion features from
proceeds. As a result, all of $40,000 proceeds 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. Each
convertible debt was discounted by the amounts allocated to the
conversion features. As at March 31, 2021, the carrying value of
each convertible debt was $15,580 for a total of $31,160 (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
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 $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 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 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. As at March 31, 2020, the carrying value of this
convertible debt was $45,106 (December 31, 2019 - $Nil) net of
$74,894 unamortized discounts.
(c)
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 relative
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. As at March 31, 2020, the carrying value of this
convertible debt was $7,903 (December 31, 2019 - $Nil) net of
$112,097 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
March 31, 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 $473,478
for the nine month period ended March 31, 2021 (March 31 2020 -
$37,086). 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 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.