Notes to Financial Statements
March 31, 2023
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Cytta Corp., (“Cytta” or the “Company”) was incorporated on May 30, 2006, under the laws of the State of Nevada. It is located in Las Vegas, Nevada. Cytta is in the business of imagineering, developing and securing disruptive technologies.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2023, the Company had an accumulated deficit of $29,639,026 and has also generated losses since inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern.
The Company develops and distributes proprietary technology that radically shifts how video is streamed, consumed, transferred and stored. Our proprietary SUPR Stream is the technology at the core of our products, designed specifically for streaming and storing HD, 4K, and higher resolution video. The IGAN (Incident Global Area Network) Incident Command System (ICS) seamlessly streams and stores all relevant video and audio during emergency situations. This creates real-time situational awareness for police, firefighters, first responders, EMS, and their command centers. Our products work in size, weight, and power-constrained (SWaP) operating environments, and evolved through use in the military by meeting the need to stream multiple HD, 4K, and 4K+ video feeds with ultra-low latency, bandwidth, and power consumption. The Company is taking this streaming, storage, and transfer technology to enterprises that would like to send more high-quality videos with fewer resources. All of our products are manufactured in the USA.
The Company intends to fund operations through equity financing arrangements, which may not be sufficient to fund its capital expenditures, working capital and other cash requirements for the foreseeable future.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2023, and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended March 31, 2023, are not necessarily indicative of the operating results for the full fiscal year or any future period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalent balances may, at certain times, exceed federally insured limits. The Company has no cash equivalents as of March 31, 2023, and 2022.
Accounts Receivable
The Company records accounts receivable at the time products and services are delivered. An allowance for losses is established through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability is unlikely. The allowance (if any) is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience.
Prepaid expenses
The Company considers expenses or services paid for prior to the period the expense is completed to be recorded as a prepaid expense. Included in this account is the value of common stock issued to consultants. Such issuances are pursuant to consulting agreements that can have a one-to-two-year term. The Company amortized the value of the stock issued over the term of the agreement. The activity for six months ended March 31, 2023, and 2022, is summarized as:
| | March 31, | |
| | 2023 | | | 2022 | |
Balance beginning of period | | $ | 32,897 | | | $ | 772,394 | |
Value of common stock issued | | | - | | | | 894,841 | |
Amortization of stock-based compensation | | | - | | | | (1,249,967 | ) |
Other prepaid expense activity | | | 85,725 | | | | (5,536 | ) |
| | $ | 118,622 | | | $ | 411,732 | |
Inventory
Inventories are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs include finished goods and component parts. In evaluating the net realizable value of inventory, management also considers, if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues. Inventory as of March 31, 2023, and September 30, 2022, was $-0- and $-0-, respectively.
Property and equipment
Property and equipment are stated at cost, and depreciation is provided by use of a straight-line method over the estimated useful lives of the assets.
The Company reviews property and equipment for potential impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. The estimated useful lives of property and equipment is as follows:
| Vehicles and equipment | 5 years |
| Software | 3 years |
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
In August 2020, the FASB issued Accounting Standards Update 2020-06 (ASU 2020-06). ASU 2020-06 eliminates the beneficial conversion feature and cash conversion models in Accounting Standards Codification 470-20 that require separate accounting for embedded conversion features in convertible instruments. The new guidance also eliminates some of the conditions that must be met for equity classification under ASC 815-40-25. The standard is effective for smaller reporting companies for annual periods beginning after December 15, 2023. Early adoption is permitted. The Company chose to early adopt this standard. As a result, financial results contained herein are reported in accordance with this standard as applicable.”
The convertible debt issued by the company referred to in Note 7, did not require separate accounting for the conversion feature as it was not considered to be a derivative. The company issued warrants in connection with the debt financing and in accordance with ASC 470-20-25-2 the proceeds from the sale of the debt instruments have been allocated to the debt and warrants based on the relative fair value of the two components. The amount allocated to the warrants has been recorded as a debt discount to be amortized of the life of the note.
Fair value of financial instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| · | Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| · | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| · | Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
Revenue recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products by: (1) identify the contract (if any) with a customer; (2) identify the performance obligations in the contract (if any); (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract (if any); and (5) recognize revenue when each performance obligation is satisfied. The Company has no outstanding contracts with any of its’ customers. The Company recognizes revenue when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms.
Stock-based compensation
The Company accounts for its stock based compensation under the recognition and measurement principles of the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123R”)(ASC 718) using the modified prospective method for transactions in which the Company obtains employee services in share-based payment transactions and the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18 “Accounting For Equity Instruments That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With Selling Goods Or Services” (“EITF No. 96-18”) for share-based payment transactions with parties other than employees provided in SFAS No. 123(R) (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur.
Income taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS No. 109”) (ASC 740). Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Cash flows reporting
The Company follows the provisions of ASC 230 for cash flows reporting and accordingly classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230 to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
Reporting segments
ASC 280 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. Currently, ASC 280 has no effect on the Company’s financial statements as substantially all of the Company’s operations are conducted in one industry segment.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables it will likely incur in the near future. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Earnings (Loss) Per Share of Common Stock
The Company has adopted ASC 260-10-20, “Earnings per Share,” (“EPS”) which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.
Recent Accounting Pronouncements
Other than the above there have no recent accounting pronouncements or changes in accounting pronouncements during the six months ended March 31, 2023, that are of significance or potential significance to the Company.
NOTE 4 - PROPERTY AND EQUIPMENT
The following table represents the Company’s property and equipment as of March 31, 2023, and September 30, 2022:
| | March 31, 2023 | | | September 30, 2022 | |
Property and equipment | | $ | 230,900 | | | $ | 230,900 | |
Accumulated depreciation | | | (131,552 | ) | | | (107,910 | ) |
Property and equipment, net | | $ | 99,348 | | | $ | 122,990 | |
Depreciation expenses was $11,738 and $23,642 for the three and six months ended March 31, 2023, respectively, and $11,904 and $23,808 for the three and six months ended March 31, 2022, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
Related Party agreements and fees
For the three and six months ended March 31, 2023, and 2022, the Company recorded expenses to related parties in the following amounts:
| | Three months ended March 31, | | | Six months ended March 31, | |
Description | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
CEO-Management fees | | $ | 45,000 | | | $ | 58,000 | | | $ | 105,000 | | | $ | 203,000 | |
Chief Technology Officer (CTO) | | | 45,000 | | | | 58,000 | | | | 105,000 | | | | 203,000 | |
Chief Administration Officer (CAO), through January 31, 2023 | | | 10,000 | | | | 45,000 | | | | 55,000 | | | | 165,000 | |
Chief Operating Officer | | | 20,000 | | | | - | | | | 20,000 | | | | - | |
Stock-based compensation expense, officers | | | 92,747 | | | | 39,063 | | | | 92,747 | | | | 78,126 | |
Office rent and expenses | | | 12,869 | | | | 12,801 | | | | 25,737 | | | | 29,020 | |
Total | | $ | 225,616 | | | $ | 212,864 | | | $ | 403,484 | | | $ | 678,146 | |
Effective June 1, 2021, the Company increased the monthly fee paid to its’ CEO and CTO, from $12,000 to $15,000, respectively. On January 1, 2022, the Company increased the monthly fee to $18,000 for the CEO and CTO, respectively, and on February 1, 2022, the monthly fee for the CEO and CTO was increased to $20,000. Effective January 1, 2023, the monthly fee for the CEO and CTO was reduced to $15,000. For the six months ended March 31, 2022, the Company also recorded bonus expenses of $100,000, $100,000, and $90,000 for the CEO, CTO and CAO, respectively. Included in the CAO’s compensation for the three and six months ended March 31, 2022, is the amortization of stock-based compensation expense of $39,063 and $78,126, respectively.
Effective February 1, 2023, the Company entered a Consulting Executive Officer Agreement with a three- year term to an entity to provide the services of a Chief Operating Officer of the Company. Pursuant to the agreement, the Company agreed to a monthly fee of $10,000, and the issuance of 250,000 shares per month, to be certificated semi-annually. Additionally, the Company granted an option to purchase 10,000,000 shares of the Company’s common stock at $0.02 per share with an expiry date of July 1, 2025 (the CYCA Option”). The CYCA option vests at the rate of 25% beginning on the first six-month anniversary of the agreement, as well as a warrant to purchase 250,000 shares of the Reticulate Micro common stock the Company owns (the “RM Warrant”). The RM warrant has an exercise price of $1.00 per share and an expiry date of July 1, 2025. For the three and six months ended March 31, 2023, the Company recorded an expense of $22,525 related to the 250,000 shares per month for February and March 2023. The Company valued the CYCA Option at $639,543 based on the Black-Scholes option pricing method and will be amortized through the term of the agreement, and accordingly, $35,530 is included in stock-based compensation expense for the three and six months ended March 31, 2023. The Company valued the RM Warrant at $624,458 based on the Black-Scholes option pricing method and will be amortized through the term of the agreement, and accordingly, $34,692 is included in stock-based compensation expense for the three and six months ended March 31, 2023.
On October 25, 2020, the Company entered a sublease with its CTO, whereby the Company agreed to an annual lease payment of $50000. On October 26, 2021, renewed he lease for an additional year for $3,500 per month, and on October 26, 2022, the lease was renewed on a month-to-month basis. Included in office rent for the three and six months ended March 31, 2023, is $10,500 and $21,000 respectively, and $10,500 and $25,163, for the three and six months ended March 31, 2022, respectively.
Accounts payable, related parties
As of March 31, 2023, and September 30, 2022, the Company owes $289,595 and $180,407 respectively to related parties as follows:
| | March 31, 2023 | | | September 30, 2022 | |
Management fees, Chief Executive Officer (CEO) | | $ | 75,000 | | | $ | 30,000 | |
Bonus, CEO | | | 70,000 | | | | 100,000 | |
Management fees, CTO | | | 30,000 | | | | - | |
Stock payable, COO | | | 22,525 | | | | - | |
Option expense | | | 70,222 | | | | | |
Bonus and accounts payable, CTO | | | 21,848 | | | | 50,407 | |
Total | | $ | 289,595 | | | $ | 180,407 | |
NOTE 6 – NOTE PAYABLE
On January 10, 2023, the Company entered into a 8%, $40,000 face value promissory note with a third-party lender with a maturity date the earlier of the Company raising $1,000,000 in debt or equity, or January 10, 2024. The lender may extend the maturity date for an additional one year at their option by providing 30 day written notice to the Company before the maturity date.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
On February 10, 2023, (the “Issuance Date”) the Company issued a convertible promissory note, in the principal amount of $50,000, to an investor. The note bears an interest rate of 18% per annum and matures on July 1, 2024. Interest payments are due quarterly. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal, interest, and any other amounts due into fully paid and non-assessable shares of common stock of the Company or to the Class A common stock of Reticulate Micro (the “RM Stock”) owned by the Company. This note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025, or RM Stock at $1.00 per share. The note proceeds will be used by the Company for general working capital purposes. In conjunction with this note, the Company issued a warrant to purchase 2,000,000 shares of common stock at an exercise price of $0.025 with an expiration date of July 1, 2025, and a warrant to purchase 100,000 shares of RM Stock at $1.00 per share with an expiry date of July 1, 2025. The warrants issued to purchase the Company’s common stock and the RM Stock resulted in a debt discount of $43,416, with the offset to additional paid in capital. For the three and six months ended March 31, 2023, amortization of the debt discounts of $4,196 was charged to interest expense. As of March 31, 2023, the outstanding principal balance of this note was $50,000 with a carrying value of $10,780, net of unamortized discounts of $39,220. The Company also agreed to pledge RM stock at $1.00 per share to equal the outstanding principal and interest due upon any defaults of the note.
On February 17, 2023, (the “Issuance Date”) the Company issued a convertible promissory note, in the principal amount of $25,000, to an investor. The note bears an interest rate of 18% per annum and matures on February 17, 2024. Interest payments are due quarterly. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal, interest, and any other amounts due into fully paid and non-assessable shares of common stock of the Company or to the Class A common stock of Reticulate Micro (the “RM Stock”) owned by the Company. This note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025, or RM Stock at 1.00 per share. The note proceeds will be used by the Company for general working capital purposes. The Company also agreed to pledge RM stock at $1.00 per share to equal the outstanding principal and interest due upon any defaults of the note.
On February 24, 2023, (the “Issuance Date”) the Company issued a convertible promissory note, in the principal amount of $25,000, to an investor. The note bears an interest rate of 18% per annum and matures on February 24, 2024. Interest payments are due quarterly. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal, interest, and any other amounts due into fully paid and non-assessable shares of common stock of the Company or to the Class A common stock of Reticulate Micro (the “RM Stock”) owned by the Company. This note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025, or RM Stock at $1.00 per share. The note proceeds will be used by the Company for general working capital purposes. The Company also agreed to pledge RM stock at $1.00 per share to equal the outstanding principal and interest due upon any defaults of the note.
On February 28, 2023, (the “Issuance Date”) the Company issued a convertible promissory note, in the principal amount of $10,000, to an investor. The note bears an interest rate of 18% per annum and matures on February 28, 2024. Interest payments are due quarterly. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal, interest, and any other amounts due into fully paid and non-assessable shares of common stock of the Company or to the Class A common stock of Reticulate Micro (the “RM Stock”) owned by the Company. This note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025, or RM Stock at $1.00 per share. The note proceeds will be used by the Company for general working capital purposes. The Company also agreed to pledge RM stock at $1.00 per share to equal the outstanding principal and interest due upon any defaults of the note.
On March 3, 2023, (the “Issuance Date”) the Company issued a convertible promissory note, in the principal amount of $50,000, to an investor. The note bears an interest rate of 18% per annum and matures on July 1, 2024. Interest payments are due quarterly. The Holder shall have the right to convert all or any part of the outstanding and unpaid principal, interest, and any other amounts due into fully paid and non-assessable shares of common stock of the Company or to RM Stock owned by the Company. This note is convertible into shares of the Company’s common stock beginning on the Issuance Date at $0.025, or RM Stock at 1.00 per share. The note proceeds will be used by the Company for general working capital purposes. In conjunction with this note, the Company issued a warrant to purchase 2,000,000 shares of common stock at an exercise price of $0.025 with an expiration date of July 1, 2025, and a warrant to purchase 100,000 shares of RM Stock at $1.00 per share with an expiry date of July 1, 2025. The warrants issued to purchase the Company’s common stock and the RM Stock resulted in a debt discount of $43,585, with the offset to additional paid in capital. For the three and six months ended March 31, 2023, amortization of the debt discounts of $2,511 was charged to interest expense. As of March 31, 2023, the outstanding principal balance of this note was $50,000 with a carrying value of $8,926, net of unamortized discounts of $41,074. The Company also agreed to pledge RM stock at $1.00 per share to equal the outstanding principal and interest due upon any defaults of the note.
NOTE 8 - CAPITAL STOCK
Common Stock
The Company has authorized 500,000,000 common shares, par value $0.001. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought. As of March 31, 2023, and September 30, 2022, there were 392,815,420 and 379,760,670, respectively, common shares issued and outstanding.
During the six months ended March 31, 2023, the following shares of common stock were issued:
| · | 7,750,000 shares of common issued for services. The Company valued the shares at $682,575 based on the price of the common stock on the date the Company agreed to issue the shares. |
| | |
| · | 750,000 shares issued for payment of $30,000 of accounts payable. The value of the shares issued was $39,375 based upon the share price of the Company’s common stock on the date the Company agreed to issue the common stock. The Company included $9,375 in stock-based compensation for the three and six months ended March 31, 2023. |
| | |
| · | 54,750 shares of common stock were issued in settlement of stock payable. |
| | |
| · | 4,000,000 shares of common stock were issued pursuant to a stock subscription agreement. The Company sold the shares $0.02 and sold 1) a warrant to purchase 2,000,000 shares of common stock for $5,000. The warrant has an exercise price of $0.02 and expires July 1, 2024. The Company also sold or $5,000 a warrant to purchase 100,000 shares of RM Stock for $1.00 with an expiry date of July 1, 2024. |
Preferred Stock
The Company has 100,000,000 shares authorized as preferred stock, par value $0.001 (the “Preferred Stock”), which such Preferred Stock shall be issuable in such series, and with such designations, rights and preferences as the Board of Directors may determine from time to time.
Series C Preferred Stock
Under the terms of the Certificate of Designation of Series C Preferred Stock, 12,000,000 shares of the Company’s preferred shares are designated as Series C Preferred Stock. Each share of Series C Preferred Stock is convertible into one hundred shares Common Stock and each share of Series C Preferred Stock is entitled to one hundred votes. As of March 31, 2023, and September 30, 2022, there were 600,000 shares of Series C Preferred Stock issued and outstanding.
Series D Preferred Stock
On September 30, 2020, the Company filed an Amended and Restated Certificate of Designation with the State of Nevada of the Company’s Series D Preferred Stock. Under the terms of the Amendment to Certificate of Designation of Series D Preferred Stock, 50,000 shares of the Company’s preferred shares are designated as Series D Preferred Stock. Each share of Series D Preferred Stock is convertible into one share of fully paid and non-assessable Common Stock. For so long as any shares of the Series D Preferred Stock remain issued and outstanding, the Holders thereof, voting separately as a class, shall have the right to vote on all shareholder matters equal to two times the sum of all the number of shares of other classes of Corporation capital stock eligible to vote on all matters submitted to a vote of the stockholders of the Corporation. On September 30, 2020, the Company issued 50,000 shares of Series D Preferred Stock to a Company controlled by the Company’s CEO, in satisfaction of $1,347,894 of capital stock to be issued. As of March 31, 2023, and September 30, 2022, there were 50,000 shares of Series D Preferred Stock issued and outstanding.
Series E Preferred Stock
On June 2, 2021, the Company filed a Certificate of Designation with the State of Nevada. Under the terms of the Certificate of Designation 13,650,000 (as amended on June 10, 2021) were designated as Series E Preferred Stock. Each share of Series E Preferred Stock is convertible into one share of fully paid and non-assessable Common Stock. For so long as any shares of the Series E Preferred Stock remain issued and outstanding, the Holders thereof, voting separately as a class, shall have the right to vote one share on all matters submitted to a vote of the stockholders of the Corporation. As of March 31, 2023, and September 30, 2022, there were no shares of Series E Preferred stock issued and outstanding.
Series F Preferred Stock
On November 24, 2021, the Company filed a Certificate of Designation with the State of Nevada. Under the terms of the Certificate of Designation 59,270,000 were designated as Series F Preferred Stock. Each share of Series F Preferred Stock is convertible into one share of fully paid and non-assessable Common Stock at any time by the holder. For so long as any shares of the Series F Preferred Stock remain issued and outstanding, the Holders thereof, voting separately as a class, shall have the right to vote one share on all matters submitted to a vote of the stockholders of the Corporation. The Series F Preferred Stock automatically converts to common stock after the shares of common stock closing market price is at least $0.20 for twenty (20) consecutive trading days. As of March 31, 2023, and September 30, 2022, there were no shares of Series F Preferred Stock issued and outstanding.
Stock Payable (Capital stock to be issued)
As of September 30, 2021, the Company had $323,583 of capital stock to be issued. During the year ended September 30, 2022, 4,000,000 shares of common stock was issued, which reduced the capital stock to be issued by $268,833. During the six months ended March 31, 2023, the Company issued 54,750 shares of common stock. As of March 31, 2023, and September 30, 2022, the Company has $-0- and $54,750, respectively, of capital stock to be issued, which is included in the liability section of the balance sheets presented herein.
Stock Options
On February 1, 2023, pursuant to a three-year consulting agreement, the Company granted an option to purchase 10,000,000 shares of common stock with an exercise price of $0.02 and an expiration date of July 1, 2025. The options vest over a two-year period at the rate of 25% every six months beginning on the six-month anniversary date of the agreement. The Company valued the option at $639,543 and will amortize the value over the three-year term of the agreement. For the three and six months ended March 31, 2023, the Company has included $35,530 in stock-based compensation expense, related party.
On March 3, 2023, pursuant to a one-year consulting agreement, the Company granted an option to purchase 10,000,000 shares of common stock with an exercise price of $0.02 and an expiration date of July 1, 2025. The options vest over a two-year period at the rate of 25% every six months beginning on the six-month anniversary date of the agreement. The Company valued the option at $449,651 and will amortize the value over the one-year term of the agreement. For the three and six months ended March 31, 2023, the Company has included $37,471 in stock-based compensation expense.
The following table summarizes activities related to stock options of the Company for the six months ended March 31, 2023.
| | Number of Options | | | Weighted- Average Exercise Price per Share | | | Weighted- Average Remaining Life (Years) | |
Outstanding at October 1, 2022 | | | - | | | $ | - | | | | - | |
Issued | | | 20,000,000 | | | $ | 0.02 | | | | 2.37 | |
Outstanding at March 31, 2023 | | | 20,000,000 | | | $ | 0.02 | | | | 2.25 | |
Exercisable at March 31, 2023 | | | -0- | | | $ | -0- | | | | - | |
As of March 31, 2023, 20,000,000 options to purchase shares of common stock remain unvested and $1,106,193 of stock compensation expense remains unrecognized and is being expensed over a weighted average period of xx years from the date of the grant.
Warrants
On February 1, 2023, pursuant to a three-year consulting agreement, the Company granted a warrant to purchase 250,000 shares of RM common stock with an exercise price of $1.00 and an expiration date of July 1, 2025. The Company valued the warrant at $624,458 and will amortize the value over the three-year term of the agreement. For the three and six months ended March 31, 2023, the Company has included $34,692 in stock-based compensation expense, related party.
On February 8, 2023, an investor paid $5,000 to acquire a warrant to purchase 2,000,000 shares of common stock. The warrant has an exercise price of $0.02 per share and expires July 1, 2024. The Company also issued a warrant to purchase 100,000 shares of RM Stock, with an exercise price of $1,00 and an expiration date of July 1, 2024.
On February 10, 2023, pursuant to a convertible note with a current shareholder of the Company, the Company issued a warrant to the investor to purchase 2,000,000 shares of common stock at an exercise price of $0.025 per share and an expiration date of July 1, 2025. The Company valued the warrant at $79,914, based on the Black Scholes option pricing model. The Company also issued a warrant to purchase 100,000 shares of RM Stock at an exercise price of $1.00 and an expiration date of July 1, 2025. The Company valued the RM Stock warrant at $249,811, based on the Black Scholes option pricing model. The Company applied $43,416 to the note as a discount based on the allocations of the fair values of the warrants and the note. The Company will charge the note discount to interest expense over the term of the note. For the three and six months ended March 31, 2023, the Company recorded interest expense of $4,196.
On March 1, 2023, an investor paid $5,000 to acquire a warrant to purchase 2,000,000 shares of common stock. The warrant has an exercise price of $0.02 per share and expires July 1, 2024. The Company also issued a warrant to purchase 100,000 shares of RM Stock, with an exercise price of $1,00 and an expiration date of July 1, 2024.
On March 3, 2023, pursuant to a convertible note with a current shareholder of the Company, the Company issued a warrant to the investor to purchase 2,000,000 shares of common stock at an exercise price of $0.025 per share and an expiration date of July 1, 2025. The Company valued the warrant at $89,916, based on the Black Scholes option pricing model. The Company also issued a warrant to purchase 100,000 shares of RM Stock at an exercise price of $1.00 and an expiration date of July 1, 2025. The Company valued the RM Stock warrant at $249,822, based on the Black Scholes option pricing model. The Company applied $43,585 to the note as a discount based on the allocations of the fair values of the warrants and the note. The Company will charge the note discount to interest expense over the term of the note. For the three and six months ended March 31, 2023, the Company recorded interest expense of $2,511.
On March 3, 2023, pursuant to a one-year consulting agreement with a Company shareholder, the Company issued to the shareholder a warrant to purchase 250,000 shares of RM Stock with an exercise price of $1,00 and an expiration date of July 1, 2025. The Company valued the warrant at $624,556 and will amortize the value over the one-year term of the agreement. For the three and six months ended March 31, 2023, the Company has included $52,046 in stock-based compensation expense.
The following table summarizes activities related to warrants of the Company for the six months ended March 31, 2023.
| | Number of Warrants | | | Weighted Average Exercise Price Per Share | | | Weighted Average Remining Life (Years) | |
Outstanding at October 1, 2022 | | | -0- | | | $ | -0- | | | | -0- | |
Issued | | | 8,000,000 | | | | 0.0225 | | | | | |
Outstanding and exercisable at March 31, 2023 | | | 8,000,000 | | | $ | 0.0225 | | | | 1.75 | |
The following table summarizes activities related to warrants to purchase RM Stock from the Company for the six months ended March 31, 2023.
| | Number of Warrants | | | Weighted Average Exercise Price Per Share | | | Weighted Average Remining Life (Years) | |
Outstanding at October 1, 2022 | | | -0- | | | $ | -0- | | | | -0- | |
Issued | | | 900,000 | | | | 1.00 | | | | 2.15 | |
Outstanding and exercisable at March 31, 2023 | | | 900,000 | | | $ | 1.00 | | | | 2.03 | |
NOTE 9 - COMMITMENTS AND CONTINGENCIES
On November 24, 2020, a plaintiff (the “Plaintiff”) filed a complaint in the State District Court for Clark County, Nevada, naming Cytta as a Defendant. The Plaintiff contended that the Company had breached a written contract, or, in the alternative was liable to the Plaintiff for unjust enrichment. Cytta contended that no contract formation had ever occurred and that it had not been unjustly enriched by the Plaintiff. On or about January 15, 2021, the Defendant filed an Answer and Counterclaim in the litigation and contended that in fact the Plaintiff owed money to Cytta. A bench trial was held in June of 2022. In May of 2023, the Court which had presided over the bench trial ruled against the Plaintiff and in favor of Cytta, as to all of the Plaintiff’s claims against Cytta, all of which were rejected. The Court also awarded damages to Cytta, and against the Plaintiff, on one of Cytta’s counterclaims. Cytta is now in the process of seeking costs and fees against the Plaintiff. It is not yet known whether the Plaintiff will appeal.
On July 19, 2022, the Company entered an Investor Awareness Advisory Services Agreement with a third party. Pursuant to the agreement in exchange for $10,000 per month over the three-month term (the “Term”) of the agreement, the third party will provide investor awareness advisory services (the “Services”). In addition, at the end of the Term, based upon the Company’s satisfaction with the Services, the Company will issue 500,000 shares of common stock to the provider’s designee. The shares were issued in December 2022.
On August 4, 2022 (the “Effective Date”), the Company entered a Consulting Agreement with a third party. Pursuant to the agreement in exchange for 1,300,000 shares of restricted common stock over the one-year term of the agreement, the third party will provide financial consulting services to the Company. The shares are to be issued on a pro-rata basis, whereby the initial shares were issued on August 8, 2022, with an additional issuance of 325,000 shares to be issued every 90 days thereafter. On December 2, 2022, and February 14, 2023, the Company issued the second and third tranches, respectively of 325,000 shares.
On November 16, 2022 (the “Effective Date”), the Company entered a Consulting Agreement with a third party. Pursuant to the agreement in exchange for 1,000,000 shares of restricted common stock over the one-year term of the agreement the third party will provide financial consulting services to the Company. On December 5, 2022, the Company issued 500,000 shares and agreed to issue 250,000 shares each at the beginning of months seven and eight of the agreement.
On December 2, 2022 (the “Effective Date”), the Company entered a Consulting Agreement with a third party. Pursuant to the agreement in exchange for 1,000,000 shares of restricted common stock. The shares were issued March 22, 2023.
On December 5, 2022, the Company issued 1,200,000 shares of common stock for services rendered pursuant to a consulting agreement. The Company also agreed to pay a monthly of $5,000 per month. Additionally for the six months ended March 31, 2023, the Company recorded stock compensation expense of $55,393, for the obligation to issue 500,000 shares of restricted common stock. The shares were issued February 14, 2023.
Effective February 1, 2023, the Company entered a Consulting Executive Officer Agreement with a three- year term to an entity to provide the services of a Chief Operating Officer of the Company. Pursuant to the agreement, the Company agreed to a monthly fee of $10,000, and the issuance of 250,000 shares per month, to be certificated semi-annually. Additionally, the Company granted an option to purchase 10,000,000 shares of the Company’s common stock at $0.02 per share with an expiry date of July 1, 2025 (the CYCA Option”). The CYCA option vests at the rate of 25% beginning on the first six-month anniversary of the agreement, as well as an option to purchase 250,000 shares of the Reticulate Micro common stock the Company owns (the “RM Option”). The RM option has an exercise price of $1.00 per share and an expiry date of July 1, 2025.
On March 3, 2023, the Company entered Consulting Agreement with an investor. Pursuant to the agreement, the Company issued 2,000,000 shares of common stock for one year of services. The Company valued the shares at $80,000 based on the price of the common stock on the date the Company agreed to issue the common stock. The Company also issued the consultant 1) an option to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $0.02 per share with an expiry date of July 1, 2025. The options vest over the two-year period in 25% increments beginning on the six- month anniversary of the agreement and 2) an option to purchase 250,000 shares of RM Stock at an exercise price of $1,00 per share with an expiry date of July 1, 2025. The warrant to purchase the Company’s common stock was valued at $449,651 based on the Black Scholes option pricing model and will be amortized over the one-year term of the agreement. For the three and six months ended March 31, 2023, $74,942 is included in stock-based compensation expense. The warrant to purchase the RM Stock was valued at $624,556 based on the Black Scholes option pricing model and will be amortized over the one-year term of the agreement. For the three and six months ended March 31, 2023, $104,493 is included in stock-based compensation expense.
NOTE 10 – LICENSE AGREEMENT
On August 9, 2022, the Company signed an Intellectual Property License Agreement (the “IPLA”) with Reticulate Micro, Inc. (“RM”). Pursuant to the ten-year term (the “Term”) of IPPA, RM agreed to issue to the Company 5,100,000 shares of RM’s Class A Common Stock and a royalty of 5% of net sales during the Term in exchange for the licensing of the Company’s technology related to its’ SUPR ISR (the Superior Utilization of Processing Resources- Intelligence, Surveillance and Reconnaissance).
RM, a Nevada corporation, was formed on June 22, 2022. Mr. Collins, the Company’s’ CTO is a founder, Director and President and Treasurer of RM. Mr. Chermak, the Company’s COO is a founder, Director and Vice-president and Secretary of RM. Mr. Ansari isa founder and Director of RM. RM has also agreed to issue 1,600,000, 1,000,000 and 1,000,000 shares of Class B Common Stock to Mr. Collins. Mr. Chermak and Mr. Ansari, respectively. As of September 30, 2022, RM has 3,600,000 Class B Common Stock shares outstanding. Each share of the Class B Common Stock has voting rights whereby each share of Class B Common Stock equals 100 voting shares. Accordingly, as of December 31, 2022, and September 30, 2022, the Company’s 5,100,000 shares of Class A Common Stock represent approximately 1.39% and 1.4%, respectively of the voting stock of RM. Each share of the Class B Common stock is also convertible into one share of Class A Common Stock.
The Company accounts for its interest in RM under the cost method of accounting. Due to RM just being formed at the time of the license agreement no value has been assigned to the investment.
NOTE 11 - INCOME TAXES
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely- than not that some or all of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future income, management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability. Accordingly, there is a full valuation allowance provided against the Company’s deferred tax assets as of March 31, 2023, and September 30, 2022.
As of March 31, 2023, and September 30, 2022, the Company has approximately $8,353,000 and $7,804,000, respectively, net operating loss carryforwards available to reduce future taxable income. As of March 31, 2023, and September 30, 2022, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the six months ended March 31, 2023, and 2022, and no provision for interest and penalties is deemed necessary as of March 31, 2023, and September 30, 2022.
NOTE 12 - DEFERRED REVENUE
During the six months ended March 31, 2023, the Company delivered $32,470 in the aggregate of software products to customers under one year subscription periods. The Company records the agreed to amounts over the one-year term of the subscription agreements as deferred revenue, classified as a liability on the balance sheet, and amortizes the deferred revenue over the subscription period. For the three and six months ended March 31, 2023, the Company recognized $8,117 and $13,824, respectively, of revenue from these agreements. For the three and six months ended March 31, 2022, the Company recognized $936 and $1,873, respectively, of revenue from these agreements. As of March 31, 2023, the balance of deferred revenues of $18,646 is included in the balance sheet.
NOTE 13 - SUBSEQUENT EVENTS
On May 4, 2023, in exchange for $50,000 the Company issued an 18% $50,000 convertible promissory note due May 4, 2024.
On May 11, 2023, the Company issued 5,000,000 shares of common stock to a consultant pursuant to a Revised Consulting Agreement.
On May 11, 2023, the Company issued 5,000,000 shares to the Company’s COO as a bonus pursuant to their Consulting Agreement.
The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements.