The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed financial
statements and related notes included in this Quarterly Report on Form 10-Q.
Overview
We were incorporated in the State of Nevada on September 6, 2019. We have
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 Guardian app takes in vetted and curated threat
data and through a proprietary process compiles, analyzes, and delivers that
data to an enterprise network in a format that is timely, informative and
relevant. The first version of the Tego Guardian app integrates with the Splunk
SIEM (Security Information and Event Management) platform. Splunk is a
recognized industry leader in data analytics and has an established user base of
over 22,000 enterprise clients including 90 of the Fortune 100 companies. The
Tego Guardian app will be marketed as a value-add enhancement to an existing
Splunk SIEM environment. Tego Guardian adds value by providing data enrichment:
a detailed 'who, what, when and where' of any potential cyberthreat within an
enterprise network environment. Other similar applications identify that
something is 'bad' but do not provide any additional context, so it is up to the
enterprise's cybersecurity team to analyze the threat data to establish which
threats need to be acted upon. It is then up to the enterprise's cybersecurity
team to analyze the threat data to establish which threats need to be acted
upon. Tego Guardian automates this process thereby saving the enterprise time
and money. The Tego Guardian app is now available to Splunk SIEM platform users
via direct download through Splunk's app store: Splunkbase. Tego Cyber plans to
develop future versions of the Tego Guardian app for integration with other
leading SIEM platforms including Elastic, Devo, IBM QRadar, AT&T Cybersecurity,
Exabeam and Google Chronical. The goal is to have a version of the Tego Guardian
available for integration with these SIEM platforms within the next two years.
For more information, please visit www.tegocyber.com.
Results of operations for the three months ended September 30, 2022 compared to
the three months ended September 30, 2021
Revenues
We are in development stage and generated $Nil revenue for the three months
ended September 30, 2022 compared to $Nil for the three months ended September
30, 2021.
Operating Expenses
We incurred total operating expenses of $1,125,798 for the three months ended
September 30, 2022, compared to $442,997 for the three months ended September
30, 2021. These amounts consisted of the following:
2022 2021
General & administration $ 255,145 $ 260,341
Professional fees 64,962 117,274
Sales & marketing 180,324 65,382
Share-based compensation 625,367 -
Total operating expenses $ 1,125,798 $ 442,997Overall operating expenses increased by $682,801 to $1,125,798 for the three
months ended September 30, 2022, as compared to $442,997 for the three months
ended September 30, 2021. Sales and marketing increased by $114,942 as a result
of the initial commercialization of the first version of the Tego Guardian.
Share-based compensation expense increased $625,367 as a result of the issuance
of the non-qualified stock options and performance stock units.
Net Loss
We incurred a net loss of $1,322,565 for the three months ended September 30,
2022 compared to a net loss of $472,212 for the three months ended September 30,
2021.
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Liquidity and Capital Resources
As at September 30, 2022, we have a working capital deficit of $255,007, a net
loss of $1,322,565 and have earned no revenue to cover our operating costs. We
have $37,459 cash on hand and our burn rate is approximately $150,000 per month.
We intend to fund future operations through debt or equity financing
arrangements. Our ability to realize our business plan is dependent upon, among
other things, obtaining additional financing to continue operations, and
development of our business plan. In response to these problems, management
intends to raise additional funds through debt, public or private placement
offerings. These factors, among others, raise substantial doubt about our
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 three months ended September 30, 2022, the cash flows used in our
operating activities was $404,220 compared to $416,680 for the three months
ended September 30, 2021. This amount was primarily related to a (i) net loss of
$2,219,528; (ii) share based compensation of $1,522,330; and (iii) shares issued
for services of $137,500.
Cash Flow from Investing Activities
For the three months ended September 30, 2022, the net cash used in investing
activities by the Company was $96,063 compared to $36,950 for the three months
ended September 30, 2021. The amount was related to the capitalization of
software development costs and purchase of computer equipment.
Cash Flow from Financing Activities
For the three months ended September 30, 2022, the net cash provided by
financing activities by the Company was $490,000 compared to $1,355,202 for the
three months ended September 30, 2021. The cash provided by financing activities
is related to the proceeds received from the issuance of convertible debt and
sales of our common stock.
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.
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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 balance
sheets the statements of operations, statements of changes in shareholders'
equity and cash flows of the Company for the fiscal year ended June 30, 2022 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 periods ended June 30, 2022 and 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 three month
period ended September 30, 2022, 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 September 30, 2022, 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.
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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
Revenue is recognized under ASC 606, "Revenue from Contracts with Customers"
using the modified retrospective method. Under this method, the Company follows
the five-step model provided by ASC Topic 606 in order to recognize revenue in
the following manner: 1) identify the contract; 2) identify the performance
obligations of the contract; 3) determine the transaction price of the contract;
4) allocate the transaction price to the performance obligations; and 5)
recognize revenue. The Company recognizes revenue for the transfer of promised
goods or services to customers in an amount that reflects the consideration for
which the entity expects to be entitled in exchange for those goods or services.
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.
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
periods ended June 30, 2022 and June 30, 2021.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, 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's management
is currently evaluating the effect of this ASU on the Company's financial
statements and related disclosures.
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In June 2020, the FASB issued ASU 2020-05 in response to the ongoing impacts to
U.S. businesses in response to the COVID-19 pandemic. ASU 2020-05, Revenue from
Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for
Certain Entities provide a limited deferral of the effective dates for
implementing previously issued ASU 606 and ASU 842 to give some relief to
businesses considering the difficulties they are facing during the pandemic.
These entities may defer application to fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. As the Company has already adopted ASU 606 and ASU 842, the Company does
not anticipate any effect on its financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in
an Entity's Own Equity. ASU 2020-06 reduces the number of accounting models for
convertible debt instruments and convertible preferred stock. For convertible
instruments with conversion features that are not required to be accounted for
as derivatives under Topic 815, Derivatives and Hedging, or that do not result
in substantial premiums accounted for as paid-in capital, the embedded
conversion features no longer are separated from the host contract. ASU 2020-06
also removes certain conditions that should be considered in the derivatives
scope exception evaluation under Subtopic 815-40, Derivatives and
Hedging-Contracts in Entity's Own Equity, and clarify the scope and certain
requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the
guidance related to the disclosures and earnings-per-share (EPS) for convertible
instruments and contract in entity's own equity. ASU 2020-06 is effective for
public business entities that meet the definition of a SEC filer, excluding
entities eligible to be smaller reporting companies as defined by the SEC, for
fiscal years beginning after December 15, 2021, including interim periods within
those fiscal years. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2023, including interim periods within
those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those
fiscal years. The Board specified that an entity should adopt the guidance as of
the beginning of its annual fiscal year. The Company's management is currently
evaluating the impact this ASU will have on its financial statements.
Management does not believe that any recently issued, but not yet effective,
accounting standards could have a material effect on the accompanying
consolidated financial statements. As new accounting pronouncements are issued,
we will adopt those that are applicable under the circumstances.
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