10-Q: Tego Cyber Inc. Reports Q1 2024 Results with Increased Net Loss and Ongoing Going Concern Uncertainty

Tego Cyber Inc. reported a net loss of $4.11 million for the quarter ended September 30, 2023, and faces substantial doubt about its ability to continue as a going concern.

Summary

• Tego Cyber Inc., a development stage cybersecurity company, reported its financial results for the quarter ended September 30, 2023.
• The company incurred a net loss of $4,110,014, which is significantly higher than the $1,318,130 loss in the same period last year.
• Operating expenses totaled $937,489, a decrease from $1,125,798 in the prior year's quarter.
• The company's cash balance is $0, and it has a working capital deficit of $1,069,404.
• Tego Cyber has a monthly burn rate of approximately $120,000.
• The company's ability to continue as a going concern is contingent upon its ability to raise additional financing and generate revenue.
• The company issued 5,433,334 shares during the quarter, including shares for private placements, services, and debt extensions.
• There is a material weakness in internal controls due to limited personnel and lack of segregation of duties.

Sentiment

Score: 2

Explanation: The document indicates a very negative outlook due to significant losses, a lack of cash, a going concern warning, and material weaknesses in internal controls. The company's financial situation is precarious, and its future is highly uncertain.

Positives

• Operating expenses decreased by $188,309 compared to the same quarter last year.
• The company completed its first sale of its threat intelligence application during the quarter.

Negatives

• The company's net loss increased significantly year-over-year, from $1,318,130 to $4,110,014.
• The company has a working capital deficit of $1,069,404.
• The company has a cash balance of $0.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company has a material weakness in its internal controls over financial reporting.
• The company incurred financing expenses of $3,164,219 related to note extensions.

Risks

• The company's ability to continue as a going concern is contingent upon its ability to raise additional financing and generate revenue.
• The company faces risks related to the competitive market, operation of its systems, ability to generate profit, retention of key personnel, and protection of intellectual property.
• The company has a material weakness in its internal controls over financial reporting, which could lead to misstatements in financial reporting.
• The company's reliance on equity sales and debt financing could result in dilution to existing stockholders.
• There is no assurance that the company will be able to obtain additional financing on favorable terms.

Future Outlook

The company intends to fund future operations through equity financing arrangements and is exploring debt and public or private placement offerings. There is no assurance that the company will be able to obtain additional financing on favorable terms.

Management Comments

• Management intends to raise additional funds through debt, public or private placement offerings.
• Management believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the three-months ended September 30, 2023, in accordance with GAAP.
• Management intends to seek qualified accounting staff to expand its internal accounting and reporting functions.

Industry Context

The company operates in the rapidly evolving cybersecurity market, which is characterized by increasing cyber threats and a need for advanced threat intelligence and correlation solutions. The company's focus on developing solutions for threat intelligence and autonomous threat hunting/correlation aligns with current industry trends.

Comparison to Industry Standards

• The company's financial performance is significantly below industry standards for established cybersecurity companies, which typically have recurring revenue streams and positive cash flow.
• The company's lack of revenue and high operating losses are not typical for companies that have a commercially available product.
• The company's reliance on debt and equity financing is common for early-stage companies, but the level of financial distress is concerning.
• The company's material weakness in internal controls is a significant concern and is not typical for publicly traded companies.

Management Changes

Corporate Governance

Related Party Transactions

• During the three-months ended September 30, 2023, there were transactions incurred between the Company and Shannon Wilkinson, a Director, former Chief Executive Office (CEO) of the Company, for gross wages of $15,000 and management fees of $26,000.
• During the three-months ended September 30, 2023, there were transactions incurred between the Company and Earl Johnson, former Chief Financial Officer (CFO) of the Company, for gross wages of $4,500 and management fees of $1,500.
• During the period the Company issued Mr. Johnson 100,000 common shares as part of a separation release agreement.
• During the three-months ended September 30, 2023, there were transactions incurred between the Company and Robert Mikkelsen, current CEO and CFO of the Company, for 250,000 common shares as part of a management consulting agreement.

Stakeholder Impact

• Shareholders face significant risk of dilution due to the company's reliance on equity financing.
• Employees may be concerned about the company's financial stability and its ability to continue operations.
• Customers may be concerned about the company's ability to provide ongoing support and updates to its products.
• Creditors face increased risk of non-payment due to the company's financial difficulties.

Next Steps

• The company intends to raise additional funds through debt, public or private placement offerings.
• The company intends to seek qualified accounting staff to expand its internal accounting and reporting functions.
• The company expects to appoint an Audit Committee and to identify a committee Chairman who is an audit committee financial expert.

Key Dates

Keywords

cybersecurity, threat intelligence, financial results, going concern, net loss, operating expenses, working capital, internal controls, share issuance, debt financing