10-Q: Tego Cyber Inc. Reports First Revenue in Fiscal Q2 2024, Faces Going Concern Challenges

Tego Cyber Inc. reported its first revenue from its threat intelligence application in the second quarter of fiscal year 2024, while also disclosing a significant net loss and ongoing concerns 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 and six months ended December 31, 2023.
• The company generated its first revenue of $10,731 from subscription services during the quarter.
• Operating expenses totaled $1,014,030 for the three months and $1,951,519 for the six months ended December 31, 2023.
• The company incurred a net loss of $2,217,137 for the three months and $6,327,151 for the six months ended December 31, 2023.
• The net loss was significantly impacted by $4,378,057 in financing fees related to note extensions.
• As of December 31, 2023, Tego Cyber had a working capital deficit of $1,369,795 and cash of $37,820.
• The company's monthly burn rate is approximately $75,000.
• The company has an accumulated deficit of $21,213,827.
• Management has expressed substantial doubt about the company's ability to continue as a going concern without additional financing.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a substantial net loss, low cash reserves, and a going concern warning, which overshadow the positive note of initial revenue generation. The company's reliance on further capital raises and the material weaknesses in internal controls further contribute to a negative sentiment.

Positives

• The company successfully generated its first revenue from its threat intelligence application.
• The company is actively developing versions of its application for integration with AWS Security Lake and Elastic SIEM platform.

Negatives

• The company has a significant working capital deficit of $1,369,795.
• The company's cash balance is very low at $37,820.
• The company is experiencing a high monthly burn rate of approximately $75,000.
• The company incurred a substantial net loss of $6,327,151 for the six months ended December 31, 2023.
• The company has a large accumulated deficit of $21,213,827.
• The company's financial statements are prepared on a going concern basis, with substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is contingent upon its ability to earn adequate revenues and obtain additional financing.
• The company faces risks related to the competitive market, the efficient operation of its systems, and the retention of key personnel.
• The company's reliance on equity sales and debt financing may lead to dilution for existing stockholders.
• The company has material weaknesses in its internal control over financial reporting due to limited personnel and lack of segregation of duties.
• The company's notes payable are convertible only at default, which could lead to further dilution if the company defaults.
• The company is negotiating extensions with lenders on its notes payable, which may not be successful.

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 such financings or obtain them on favorable terms.

Management Comments

• Management has expressed substantial doubt about the company's ability to continue as a going concern.
• 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.

Industry Context

The company operates in the competitive cybersecurity market, focusing on threat intelligence and autonomous threat hunting/correlation. The company's technology integrates with top security and data lake platforms. The company is an early-stage company and is competing with established players in the cybersecurity market.

Comparison to Industry Standards

• The company's revenue of $10,731 is very low compared to established cybersecurity companies.
• The company's net loss of $6,327,151 for the six months is significant for a company of its size.
• The company's working capital deficit and low cash balance are concerning compared to industry benchmarks.
• The company's reliance on debt and equity financing is common for early-stage companies, but the level of dependence is high.
• The company's material weaknesses in internal controls are not uncommon for smaller companies, but need to be addressed.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently involved in any material legal proceedings.

Related Party Transactions

• The company had transactions with Shannon Wilkinson, a Director, Chief Technical Officer and former CEO, for gross wages of $15,000 and management fees of $47,504.
• The company had transactions with Earl Johnson, former CFO, for gross wages of $4,500 and management fees of $4,500.
• The company had transactions with Robert Mikkelsen, current CEO and CFO, for management fees of $1,000 and 250,000 common shares as part of a management consulting agreement.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and potential dilution from future equity offerings.
• Employees may be concerned about the company's ability to continue operations and their job security.
• Customers may be concerned about the company's long-term viability and its ability to provide ongoing services.
• 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 is negotiating extensions with lenders on its notes payable.
• 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, software subscription, financial results, going concern, net loss, working capital, debt financing, equity financing, internal control