The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated audited financial statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in US Dollars)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Tego Cyber Inc. (the “Company”) was incorporated in the State of Nevada on September 6, 2019. It was created to capitalize on the emerging cyber threat intelligence market and has developed a state-of-the-art cyber threat intelligence application that enriches threat data to help enterprises identify cyber threats within their environments. Tego Guardian is a proactive intelligent cyberthreat hunting tool that gives enterprises the ability to quickly track threats throughout their networks, mapping out exposures and expediting remediation. Tego Guardian integrates with the widely used Splunk Security Information and Event Management (SIEM) platform. Tego Guardian is a Splunk approved app and available for download through Splunk’s marketplace. The Company plans on developing future versions of Tego Guardian for integration with other established SIEM systems and platforms including: Elastic, IBM QRadar, AT&T AlienVault, Exabeam, and Google Chronical.
The Company’s head office is at 8565 S. Eastern Ave. #150, Las Vegas, Nevada, 89123.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The Company prepares its financial statements in accordance with rules and regulations of the Securities and Exchange Commission (“SEC”) and GAAP in the United States of America. The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2022, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended June 30, 2022.
Going Concern
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 September 30, 2022, the Company had a negative working capital of $260,942. For the three months ended September 30, 2022, 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.
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 September 30, 2022, 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 and the year ended June 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 and June 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.
Software
Software is stated at cost less accumulated amortization and is amortized 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 amortized 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 amortization 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. 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.
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 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 September 30, 2022. 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 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.
The Company currently has not generated any revenue from its threat intelligence software.
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 (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.
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.
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.
NOTE 5 – PREPAID EXPENSES
Prepaid expense balance as of September 30, 2022 and June 30, 2022 consisted of the following:
| | September 30, 2022 | | | June 30, 2022 | |
Advertising & promotion | | $ | 10,109 | | | $ | 5,500 | |
Consultants & contractors | | | 10,055 | | | | 5,301 | |
Platform costs | | | 21,814 | | | | 30,318 | |
Software development | | | 70,000 | | | | 25,000 | |
Total | | $ | 111,978 | | | $ | 66,119 | |
NOTE 6 – SOFTWARE
The Company has developed an automated threat intelligence defense platform, marketed as Tego Guardian. Tego Guardian is a threat correlation and threat hunting application that integrates directly into existing Security Information and Event Management (SIEM) platforms to provide threat tracking, mapping of exposures, and assist with expediting remediation. With performance capable of querying over 1 million records in just 4 seconds, Tego Guardian saves security operations teams time and money in an environment where timing is everything as efforts are made to lower mean-time-to-detection (MTTD) and mean-time-to-response (MTTR). What makes Tego Guardian different from other cyber threat correlation applications, is that it is the first commercially available solution that was specifically developed for the customer’s existing SIEM platform. It operates within the platform environment, so security operations teams do not have to use multiple tools and views to complete a specific task or research a threat. Tego Guardian cross-correlates threats in real time and not only looks forward but also backwards in order to see if the organization’s network has been previously exposed (active foresight and hindsight). The first version of Tego Guardian integrates with the industry leading Splunk® SIEM platform. Tego Guardian is now available for download through Splunk’s app store and is compatible with Splunk Cloud and Splunk Enterprise versions: 9.0, 8.2, 8.1, and 8.0.
Balance, June 30, 2021 | | $ | 75,750 | |
Additions | | | 335,372 | |
Amortization | | | - | |
Balance, June 30, 2022 | | $ | 411,122 | |
Additions | | | 96,063 | |
Amortization | | | - | |
Balance, September 30, 2022 | | $ | 507,185 | |
As at September 30, 2022, the software was not generating revenue and no amortization has been recorded for the periods then ended. It is expected the software will begin to generate revenue in the quarter ending December 31, 2022.
NOTE 7 – ACCOUNTS PAYABLE & ACCRUED LIABILITIES
Accounts payable & accrued liabilities balance as of September 30, 2022 and June 30, 2022 consisted of the following:
| | September 30, 2022 | | | June 30, 2022 | |
Exchange & listing fees | | | 710 | | | | - | |
Legal & accounting | | | 13,213 | | | | 23,247 | |
Platform costs | | | 2,856 | | | | - | |
Software development | | | 50,898 | | | | 42,819 | |
Total | | $ | 67,677 | | | $ | 66,066 | |
NOTE 8 – 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.
During the three-month period ended September 30, 2022, there were transactions incurred between the Company and Shannon Wilkinson, Director, CEO, President, Secretary and Treasurer of the Company for management fees of $Nil (September 30, 2021 - $45,000) and gross wages of $30,000 (September 30, 2021 - $8,692).
During the three-month period ended September 30, 2022, there were transactions incurred between the Company and Earl Johnson, Chief Financial Officer of the Company for gross wages of $9,000 (September 30, 2021 - $Nil).
During the three-month period ended September 30, 2022, there were transactions incurred between the Company and Chris White, Director and Chief Information Security Officer of the Company for management fees of $Nil (September 30, 2021 - $12,500) and gross wages of $12,500 (September 30, 2021 - $6,519).
During the three-month period ended September 30, 2022, there were transactions incurred between the Company and Troy Wilkinson, Director of the Company for management fees of $10,000 (September 30, 2021 - $20,000).
NOTE 9 – NOTES PAYABLE (convertible only at default)
(a) | On July 12, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable in the principal amount of $300,000 at $270,000 with a $30,000 original issue discount. In connection with this note, the Company paid an additional $27,500 in cash transaction costs, issued 350,000 common shares valued at $175,000 in transaction costs, and issued 500,000 warrants exercisable at $0.25 per share, expiring on July 12, 2027. The warrants were calculated to have a fair value of $215,638 as at September 30, 2022. This note payable is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly. |
| |
| The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. |
| |
| The proceeds were allocated between the note payable, warrants and shares issued on a relative fair value basis. The fair value of the note payable 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 10) and the shares issued were allocated proportionately for issuance cost for liability and equity portions under ASC 470-20 Debt with Conversion and Other Options. The shares are valued based on a relative fair market value of the shares on the issuance date. |
| |
| In connection with the notes, the Company issued warrants indexed to an aggregate 500,000 shares of common stock. The warrants have a term of five years and an exercise price of $0.25. The Company evaluated the warrants under ASC 815 Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $93,740. |
| |
| The Company also agreed to pay a commitment fee of $175,000 by issuing that number of shares of the Company’s common stock equal to such amount, aggregating to a total of 350,000 common shares of the Company. Under ASC 1.2.2 Debt Issuance Costs, the Company recognized the commitment fee as incremental costs specifically attributable to issuing the promissory note, while the commitment fee share were recorded in additional paid-in capital under their aggregate relative fair value of $76,074. |
| |
| As at September 30, 2022, the carrying value of this note payable was $171,518 (September 30, 2021 - $Nil) net of $128,482 unamortized discounts. |
(b) | On July 15, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable in the principal amount of $150,000 at $135,000 with $15,000 original issue discount. In connection with this note, the Company paid an additional $11,250 in cash transaction costs, issued 175,000 common shares valued at $87,500 in transaction costs, and issued 250,000 warrants exercisable at $0.25 per share, expiring on July 15, 2027. This promissory note is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly. |
| |
| The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. |
| |
| The proceeds were allocated between the note payable, warrants and shares issued on a relative fair value basis. The fair value of the note payable 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 10) and the shares issued were allocated proportionately for issuance cost for liability and equity portions under ASC 470-20 Debt with Conversion and Other Options. The shares are valued based on a fair market value of the shares on the issuance date. |
| |
| In connection with the notes, the Company issued warrants indexed to an aggregate 250,000 shares of common stock. The warrants have a term of five years and an exercise price of $0.25. The Company evaluated the warrants under ASC 815 Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $46,878. |
| |
| The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. |
| |
| The Company also agreed to pay a commitment fee of $87,500 by issuing that number of shares of the Company’s common stock equal to such amount, aggregating to a total of 175,000 common shares of the Company. Under ASC 1.2.2 Debt Issuance Costs, the Company recognized the commitment fee as incremental costs specifically attributable to issuing the promissory note, while the commitment fee share were recorded in additional paid-in capital under their aggregate relative fair value of $38,033. |
| |
| As at September 30, 2022, the carrying value of this note payable was $86,129 (September 30, 2021 - $Nil) net of $63,871 unamortized discounts. |
| |
(c) | On July 18, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable e in the principal amount of $150,000 at $135,000 with $15,000 original issue discount. In connection with this note, the Company paid an additional $11,250 in cash transaction costs, issued 175,000 common shares valued at $87,500 in transaction costs, and issued 250,000 warrants exercisable at $0.25 per share, expiring on July 18, 2027. This note payable is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly. |
| The Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. None of the embedded terms required bifurcation and liability classification. |
| |
| The proceeds were allocated between the note payable, warrants and shares issued on a relative fair value basis. The fair value of the note payable 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 10) and the shares issued were allocated proportionately for issuance cost for liability and equity portions under ASC 470-20 Debt with Conversion and Other Options. The shares are valued based on a fair market value of the shares on the issuance date. |
| |
| In connection with the notes, the Company issued warrants indexed to an aggregate 250,000 shares of common stock. The warrants have a term of five years and an exercise price of $0.25. The Company evaluated the warrants under ASC 815 Derivatives and Hedging (“ASC 815”) and determined that they did not require liability classification. The warrants were recorded in additional paid-in capital under their aggregate relative fair value of $46,871. |
| |
| The Company also agreed to pay a commitment fee of $87,500 by issuing that number of shares of the Company’s common stock equal to such amount, aggregating to a total of 175,000 common shares of the Company. Under ASC 1.2.2 Debt Issuance Costs, the Company recognized the commitment fee as incremental costs specifically attributable to issuing the promissory note, while the commitment fee share were recorded in additional paid-in capital under their aggregate relative fair value of $38,034. |
| |
| As at September 30, 2022, the carrying value of this note payable was $85,055 (September 30, 2021 - $Nil) net of $64,945 unamortized discounts. |
NOTE 10 – COMMON SHARES
Common Stock
At September 30, 2022, the Company’s authorized capital consisted of 50,000,000 of common shares with a par value of $0.001
During the three-month period ended September 30, 2022, the Company incurred the following transactions:
On July 12, 2022, the Company issued 350,000 common shares at a relative fair value of $0.22 per share for transaction costs associated with the issuance of a note payable.
On July 15, 2022, the Company issued 175,000 common shares at a relative fair value of $0.22 per share for transaction costs associated with the issuance of a note payable.
On July 18, 2022, the Company issued 175,000 common shares at a relative fair value of $0.22 per share for transaction costs associated with the issuance of a note payable.
On July 26, 2022, the Company issued 275,000 common shares at a price of $0.50 per share for marketing and branding services valued at $137,500.
During the year ended June 30, 2022, the Company incurred the following transactions:
During the period July 1, 2021 to October 28, 2021, the Company completed various private placements whereby a total of 5,558,810 common shares were issued for a total proceeds of $1,425,202.
On October 15, 2021, the Company issued 125,000 common shares at a price of $0.80 per share for marketing services valued at $100,000.
On October 28, 2021, the Company issued 28,572 common shares at a price of $0.70 per share for legal services valued at $20,000.
On December 8, 2021, the Company issued 50,000 common shares at a price of $0.71 per share for consulting services valued at $35,250.
On December 31, 2021, the Company issued 583,936 common shares for the conversion of debt at a conversion price of $0.10 per share for a total value of $58,394.
On December 31, 2021, the Company issued 353,215 common shares for the conversion of debt at a conversion price of $0.10 per share for a total value of $35,321. See Note 10 (b).
On January 1, 2022, the Company issued 100,000 common shares at a price of $0.65 per share for consulting services valued at $65,000.
On March 25, 2022, the Company issued 12,000 shares to a non-related party at a price of $0.60 per share for a total value of $7,200 in exchange for services.
On May 19, 2022, the Company issued 400,000 shares to a non-related party at a price of $0.577 per share for investor relations services valued at $230,800.
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. The warrants were valued at $146,942 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. The warrants were valued at $148,438 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. 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. The warrants were valued at $196,399 using the Black Scholes Option Pricing Model.
On July 12, 2022, the Company granted 500,000 warrants with a contractual life of five years and exercise price of $0.25 per share to a lender as part of a note payable financing transaction (Note 9). The warrants were valued at $215,638 using the Black Scholes Option Pricing Model and they were recorded at $93,740 in additional paid-in capital under using the relative fair value method.
On July 15, 2022, the Company granted 250,000 warrants with a contractual life of five years and exercise price of $0.25 per share to a lender as part of a note payable financing transaction (Note 9). The warrants were valued at $107,848 using the Black Scholes Option Pricing Model and they were recorded at $46,878 in additional paid-in capital under using the relative fair value method.
On July 18, 2022, the Company granted 250,000 warrants with a contractual life of five years and exercise price of $0.25 per share to a lender as part of a note payable financing transaction (Note 9). The warrants were valued at $107,831 using the Black Scholes Option Pricing Model and they were recorded at $46,871 in additional paid-in capital under the using relative fair value method.
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.
| | September 30, 2022 | | |
Stock price | | $0.50 - $0.51 | | |
Risk-free interest rate | | 3.19%-3.22 | % | |
Expected life | | 5 Years | | |
Expected dividend rate | | 0 | | |
Expected volatility | | 103.20% - 103.28 | % | |
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, 2022 | | | 3,014,246 | | | $ | 0.25 | |
Granted | | | 1,000,000 | | | | 0.25 | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding, September 30, 2022 | | | 4,014,246 | | | $ | 0.25 | |
As at September 30, 2022, the weighted average remaining contractual life of warrants outstanding was 4.80 years with an intrinsic value of $0.25.
Stock Options
On December 8, 2021, the Board of Directors of the Company approved the adoption of the 2021 Equity Compensation Plan (the “Equity Compensation Plan”) to provide employees, certain consultants and advisors who perform services for the Company, and non-employee members of the Board of Directors of the Company with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units and other stock-based awards.
The following is a continuity schedule for the Company’s outstanding non-qualified stock options:
| | Number of options | | | Weighted Average Exercise Price | |
Outstanding, June 30, 2022 | | | 6,000,000 | | | $ | 0.65 | |
Granted | | | - | | | | - | |
Exercised | | | - | | | | - | |
Cancelled | | | - | | | | - | |
Outstanding, September 30, 2022 | | | 6,000,000 | | | $ | 0.65 | |
At September 30, 2022, the Company had the following stock options outstanding:
Grant Date | | Number Outstanding | | | Number Exercisable | | | Exercise Price | | | Weighted Average Life (Years) | | | Expiry Date | |
January 3, 2022 | | | 125,000 | | | | 125,000 | | | $ | 0.65 | | | | 9.27 | | | January 3, 2032 | |
January 4, 2022 | | | 5,875,000 | | | | 5,875,000 | | | | 0.65 | | | | 9.27 | | | January 4, 2032 | |
Total | | | 6,000,000 | | | | 6,000,000 | | | $ | 0.65 | | | | 9.27 | | | | |
During the three-month period ended September 30, 2022, the Company recorded $382,577 as share-based compensation relating to the issuance of the non-qualified stock options.
The fair value of the options granted during the year ended September 30, 2022 was estimated on the date of the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
Expected volatility | | | 91.03 | % |
Expected option life (years) | | 6 years | |
Risk-free interest rate (10-year U.S. treasury yield) | | 1.55 - 1.66 | % |
Expected dividend yield | | | 0 | % |
Performance Stock Units
On December 8, 2021, the Board of Directors of the Company approved the adoption of the 2021 Equity Compensation Plan (the “Equity Compensation Plan”) to provide employees, certain consultants and advisors who perform services for the Company, and non-employee members of the Board of Directors of the Company with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units and other stock-based awards.
The following is a continuity schedule for the Company’s outstanding performance stock units:
| | Number of Performance Units | | | Weighted Average Exercise Price | |
Outstanding, June 30, 2022 | | | 4,000,000 | | | $ | - | |
Granted | | | - | | | | - | |
Released | | | - | | | | - | |
Forfeited or cancelled | | | - | | | | - | |
Outstanding, September 30, 2022 | | | 4,000,000 | | | $ | - | |
At September 30, 2022, the Company had the following performance units outstanding:
Grant Date | | Number Outstanding | | | Number Exercisable | | | Exercise Price | | Weighted Average Life (Years) | | | Expiry Date | |
March 8, 2022 | | | 4,000,000 | | | | 4,000,000 | | | USD $0.00 | | | 4.25 | | | December 31, 2026 | |
Total | | | 4,000,000 | | | | 4,000,000 | | | USD $0.00 | | | 4.25 | | | | |
During the three-month period ended September 30, 2022, the Company recorded $242,790 as share-based compensation relating to the issuance of the performance units.
The fair value of the performance units granted during the year ended September 30, 2022 was estimated on the date of the grant date using N(d2) output from a Black-Sholes model to calculate the value of the award multiplying N(d2) by the current stock price as of the valuation date with the following weighted average assumptions:
Expected volatility | | | 85.0 | % |
Requisite period | | 4.25 years | |
Risk-free interest rate (US Treasury Bond rate as of the grant date) | | | 1.80 | % |
Expected dividend yield | | | 0 | % |
NOTE 11 – INCOME TAXES
As of September 30, 2022, 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 $3,406,686 (June 30, 2022 - $2,909,935) for the three-month period ended September 30, 2022. The net operating loss carry forwards are available to be utilized against future taxable income for years through calendar year 2042. 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.
NOTE 12 – RECLASSIFICATION OF PRIOR YEAR PRESENTATION
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications are limited to the Statement of Operations and have no effect on the reported results of operations.
NOTE 13 – SUBSEQUENT EVENTS
On October 13, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable in the principal amount of $150,000 at $135,000 with $15,000 original issue discount. In connection with this note, the Company paid an additional $23,750 in cash transaction costs, issued 416,667 common shares valued at $50,000 in transaction costs, and issued 500,000 warrants exercisable at $0.25 per share, expiring on October 13, 2027. This note payable is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly, and matures on April 13, 2023 (the “Maturity Date”). The Maturity Date may be extended by up to 6 months following the date of the original Maturity Date. In the event that the Maturity Date is extended, the interest rate shall increase to 18% per annum for any period following the original Maturity Date, payable monthly.
On October 13, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable in the principal amount of $75,000 at $135,000 with $7,500 original issue discount. In connection with this note, the Company paid an additional $5,625 in cash transaction costs, issued 208,300 common shares valued at $25,000 in transaction costs, and issued 250,000 warrants exercisable at $0.25 per share, expiring on October July 13, 2027. This note payable is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly, , and matures on April 13, 2023 (the “Maturity Date”). The Maturity Date may be extended by up to 6 months following the date of the original Maturity Date. In the event that the Maturity Date is extended, the interest rate shall increase to 18% per annum for any period following the original Maturity Date, payable monthly.
On October 13, 2022, the Company entered into a securities purchase agreement with a non-related party. Pursuant to this agreement, the Company issued a note payable in the principal amount of $75,000 at $135,000 with $7,500 original issue discount. In connection with this note, the Company paid an additional $5,625 in cash transaction costs, issued 208,300 common shares valued at $25,000 in transaction costs, and issued 250,000 warrants exercisable at $0.25 per share, expiring on October July 13, 2027. This note payable is unsecured, bears interest at 10% per annum compounded on the basis of a 365-day year and actual days lapsed payable monthly, and matures on April 13, 2023 (the “Maturity Date”). The Maturity Date may be extended by up to 6 months following the date of the original Maturity Date. In the event that the Maturity Date is extended, the interest rate shall increase to 18% per annum for any period following the original Maturity Date, payable monthly.
On November 29, 2022, the Company completed a private placement whereby a total of 100,000 common shares were issued for cash at a price of $0.10 per share for a total value of $10,000.
On December 5, 2022, the Company completed a private placement whereby a total of 400,000 common shares were issued for cash at a price of $0.10 per share for a total value of $40,000.
On January 6, 2023, the Company completed a private placement whereby a total of 100,000 common shares were sold for cash at a price of $0.10 per share for a total value of $10,000. Shares have yet to be issued.
On January 9, 2023, the Company issued 500,000 shares with a fair value of $100,000 to a non-related party in exchange for services.
On January 9, 2023, the Company issued 45,000 shares with a fair value of $9,000 to a non-related party in exchange for settlement of a debt.
On January 11, 2023, the Company completed a private placement whereby a total of 300,000 common shares were sold for cash at a price of $0.10 per share for a total value of $30,000.
On January 15, 2023, the Company completed a private placement whereby a total of 600,000 common shares were sold for cash at a price of $0.10 per share for a total value of $60,000.
On January 16, 2023, the Company completed a private placement whereby a total of 150,000 common shares were sold for cash at a price of $0.10 per share for a total value of $15,000.
On January 17, 2023, the Company completed various a private placement whereby a total of 70,000 common shares were sold for cash at a price of $0.10 per share for a total value of $7,000.
On January 21, 2023, the Company completed various private placements whereby a total of 1,115,000 common shares were issued for cash at a price of $0.10 per share for a total value of $111,500.
On January 22, 2023, the Company completed a private placement whereby a total of 15,000 common shares were sold for cash at a price of $0.10 per share for a total value of $1,500.
On January 23, 2023, the Company completed various private placements whereby a total of 430,000 common shares were sold for cash at a price of $0.10 per share for a total value of $43,000.
On January 24, 2023, the Company completed a private placement whereby a total of 1,000,000 common shares were sold for cash at a price of $0.10 per share for a total value of $100,000.
On January 25, 2023, the Company completed a private placement whereby a total of 100,000 common shares were sold for cash at a price of $0.10 per share for a total value of $10,000.
On January 28, 2023, the Company completed a private placement whereby a total of 150,000 common shares were sold for cash at a price of $0.10 per share for a total value of $15,000.
On January 30, 2023, the Company completed various private placement whereby a total of 850,000 common shares were sold for cash at a price of $0.10 per share for a total value of $85,000.
On February 6, 2023, the Company completed a private placement whereby a total of 225,000 common shares were sold for cash at a price of $0.10 per share for a total value of $22,500. Shares have yet to be issued.
On February 6, 2023, the Company issued 1,000,000 shares with a fair value of $200,000 to a non-related party in exchange for services.
On February 7, 2023, the Company completed a private placement whereby a total of 215,000 common shares were sold for cash at a price of $0.10 per share for a total value of $21,500.
On February 14, 2023, the Company completed a private placement whereby a total of 1,000,000 common shares were sold for cash at a price of $0.10 per share for a total value of $100,000. Shares have yet to be issued.