8-K: Tego Cyber Acquires CloudCover's Patent Portfolio in Stock Deal

Tego Cyber Inc. has acquired certain assets of CloudCover, Ltd., including key patents, in exchange for 11 million shares of restricted common stock and 3 million shares of Series B Preferred Stock.

Summary

• Tego Cyber Inc. has entered into an Asset Purchase Agreement with CloudCover, Ltd. to acquire certain assets, including patents.
• The transaction closed on December 20, 2024, with Tego Cyber issuing 11 million shares of restricted common stock and 3 million shares of Series B Preferred Stock to CloudCover.
• The Series B Preferred Stock has a face value of $5.00 per share.
• The agreement includes standard representations, warranties, and covenants for this type of transaction.
• The deal is part of a larger series of transactions, with a potential unwinding clause if a subsequent transaction does not close within 180 days.
• If the deal is unwound, Tego Cyber may have to pay a break-up fee of up to $9 million depending on the access to CloudCover's proprietary systems.
• Tego Cyber gains full rights to the acquired patents, including the ability to monetize them.
• CloudCover grants Tego Cyber a right of first refusal to acquire all other assets and intellectual property of CloudCover.

Sentiment

Score: 7

Explanation: The document indicates a positive strategic move for Tego Cyber through the acquisition of valuable intellectual property. However, the potential break-up fee and the company's delinquent SEC filings introduce some uncertainty.

Positives

• Tego Cyber gains ownership of key patents related to data traffic monitoring and cyber insurance risk scoring systems.
• The acquisition includes the right to sue for past, present, and future infringement of the acquired patents.
• Tego Cyber has the potential to monetize the acquired patents through licensing, resale, or use as collateral.
• The right of first refusal provides Tego Cyber with an opportunity to acquire additional assets and intellectual property from CloudCover in the future.

Negatives

• The deal includes a potential break-up fee of up to $9 million if a subsequent transaction does not close and Tego Cyber chooses to unwind the deal.
• Tego Cyber is issuing a significant number of shares, which could dilute existing shareholders.
• Tego Cyber is delinquent in certain SEC filings, which could impact the availability of exemptions from registration and use of Rule 144 for the issued stock.

Risks

• The transaction is part of a series of transactions, and if the subsequent transaction does not close, Tego Cyber may have to unwind the deal and pay a break-up fee.
• The value of the issued stock could fluctuate, impacting the overall value of the acquisition.
• Tego Cyber's delinquent SEC filings could create regulatory challenges and impact the liquidity of the issued shares.
• There is a risk that the acquired patents may not be as valuable as anticipated or may be subject to legal challenges.

Future Outlook

The document outlines a potential second transaction (T2) to acquire substantially all of CloudCover's assets, with an option to unwind the initial transaction (T1) if T2 does not close within 180 days. Tego Cyber also has the right to monetize the acquired patents.

Management Comments

• Robert Mikkelsen, Chief Executive Officer of Tego Cyber Inc., signed the 8-K filing on behalf of the company.
• Stephen C Cardot, Chief Executive Officer of CloudCover, signed the Asset Purchase Agreement on behalf of the company.

Industry Context

This acquisition reflects a trend in the cybersecurity industry where companies are acquiring intellectual property to enhance their technology portfolios and competitive advantage. The patents acquired by Tego Cyber relate to data traffic monitoring and cyber insurance risk scoring, which are key areas of growth in the cybersecurity market.

Comparison to Industry Standards

• The acquisition of patents is a common strategy in the technology sector, with companies like IBM, Google, and Microsoft frequently acquiring patents to strengthen their intellectual property portfolios.
• The use of stock as consideration in acquisitions is also a common practice, particularly for smaller companies or those with limited cash reserves.
• The break-up fee structure is a standard clause in merger and acquisition agreements, designed to protect the seller in case the buyer fails to complete the transaction.
• The right of first refusal is a common clause in agreements where one party wants to secure the option to acquire additional assets from the other party in the future.

Legal Proceedings

• CloudCover USA, Inc. has a merchant cash advance of approximately $47,500.00 USD that has become due, payable within a judgement and will be retired by January 16, 2025.

Stakeholder Impact

• Shareholders of Tego Cyber may experience dilution due to the issuance of new shares.
• Employees of Tego Cyber may be impacted by the integration of the acquired assets.
• Customers of Tego Cyber may benefit from the enhanced technology portfolio.
• CloudCover shareholders will receive shares in Tego Cyber as part of the transaction.

Next Steps

• Tego Cyber will integrate the acquired patents into its technology portfolio.
• Tego Cyber will evaluate the potential for monetizing the acquired patents.
• Tego Cyber will decide whether to proceed with the second transaction (T2) to acquire additional assets from CloudCover.
• CloudCover will provide all necessary files and documents related to the assigned patents within 30 days of the closing date.
• Tego Cyber will record the executed assignment with any applicable patent and trademark office upon full payment being made.

Key Dates

Keywords

asset purchase, patent acquisition, intellectual property, cybersecurity, stock issuance, preferred stock, break-up fee, right of first refusal, Tego Cyber, CloudCover