ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
Table of Contents
While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern.
Results of Operations for the years ended September 30, 2024, and 2023:
The following tables set forth key components of our results of operations for the periods indicated:
Revenue
COGS
Gross Profit
Operating Expenses
Operating Loss
Net Loss
Revenues consist of our proprietary software, integration consulting services, tech support and product maintenance billed to the customer. Revenues decreased for the year ended September 30, 2024, compared to the year ended September 30, 2023, due to a decrease in customers and the associated deferred revenue recognized on subscription agreements entered and being recognized in the current year.
Operating expenses were $3,892,467 and $4,651,490 for the years ended September 30, 2024, and 2023, respectively, as shown in the table below:
September 30,
Description
Increase (decrease)
Stock-based compensation
Professional fees
Consulting expenses (excluding stock-based compensation)
Related party expenses (excluding stock-based compensation)
Depreciation expense
Software and demo expenses
General and Administrative officers
Auto, Travel and Meals and Entertainment
Rent expense
Transfer agent and filing fees
Investor relations
Other operating expenses
Total Operating expenses
Stock based compensation
Stock based compensation expense for the years ended September 30, 2024, and 2023, were comprised as follows:
Years ended September 30,
Related parties
Other
Total
Table of Contents
Stock based compensation, related parties, for the year ended September 30, 2024, was comprised pursuant to the agreement with the COO to issue 250,000 shares per month, to be certificated semi-annually. On May 8, 2024, the Company issued 3,000,000 shares of common stock for the months of February 2023, through January 2024. 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 years ended September 30, 2024, and 2023, the Company recorded expenses of $74,125 and $82,875, respectively, related to the 250,000 shares per month. 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, $213,181, and $142,121 is included in stock-based compensation expense-related party for the years ended September 30, 2024, and 2023, respectively. 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, $208,153, and $138,768 is included in stock-based compensation expense-related party for the years ended September 30, 2024, and 2023, respectively. 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 valued the shares at $0.04 per share and included stock-based compensation expense-related party of $200,000 for the year ended September 30, 2023. On July 10, 2023, the Company issued 15,000,000 shares of restricted common stock to Ms. Sokolova as a bonus pursuant to her Consulting Agreement. The Company valued the shares at $609,000 ($0.0406 per share, the market price, on the date the Company agreed to issue the shares). On September 7, 2023, the Company issued 5,000,000 shares of restricted common stock to Ms. Sokolova as a bonus pursuant to her Consulting Agreement. The Company valued the shares at $205,000 ($0.041 per share, the market price, on the date the Company agreed to issue the shares).
Stock based compensation, other, for the years ended September 30, 2024, and 2023, were related to shares issued to consultants of $469,200, and $803,725, respectively and the amortization of common stock (pursuant to the terms of each consultant’s contracts), options and warrants of $1,003,330 and $954,852, respectively.
Related party expenses (excluding stock based compensation)
For the years ended September 30, 2024, and 2023, the Company recorded expenses to related parties in the following amounts:
Years ended September 30,
Management fees, Chief Executive Officer (CEO)
Chief Technology Officer (CTO) through March 31, 2023
Chief Administration Officer (CAO) through January 31, 2023
President and Chief Operating Officer (COO)
Office rent and expenses
Total
As of October 1, 2022, the monthly fee for the CEO and CTO was $20,000. Effective January 1, 2023, the monthly fee for the CEO and CTO was reduced to $15,000. Effective April 1, 2023, the Company was no longer compensating the CTO and did not incur any additional CTO office rent and expenses.
Table of Contents
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 (the “COO”) of the Company. The monthly fee was increased to $15,000 per month effective September 1, 2023. On October 1, 2023, the BOD also appointed the COO as the President.
On October 25, 2020, the Company entered a sublease with its CTO, whereby the Company agreed to an annual lease payment of $50,000. On October 26, 2021, the Company renewed the 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. The last month to month lease payment was for March 2023, and accordingly, there is no rent expense for the year ended September 30, 2024, related to this lease. Included in office rent for the year ended September 30, 2023, is $21,000 respectively.
Beginning in April 2024, the Company agreed to rent office space for the COO at $2,575 per month, on a month to month basis, accordingly, $15,602 is included in related party expenses for the year ended September 30, 2024.
Software and demo expenses
During the year ended September 30, 2024, software and demo expenses increased, compared to the year ended September 30, 2023, due to the Company engaging consultants in the transitioning from the product software development stage to the full SaaS commercial release stage of Cytta's proprietary technologies, including the CyttaCARES system for schools and the CyttaCOMMS IGAN Incident Command System.
Investor relation expenses
Investor relations fees increased for the year ended September 30, 2024, compared to the year ending September 30, 2023. The increases were primarily a result of the Company engaging additional consultants as well as the Company attending trade shows and conferences to expose the Company to potential investors.
Other expense, net, for the years ended September 30, 2024, and 2023, was $376,437 and $107,042, respectively.
Years ended
September 30,
Description
Interest expense
Interest income
Total
The increase in interest expense for the year ended September 30, 2024, is primarily a result of the interest on the significantly higher face value of convertible notes, as well as the amortization of note discounts.
The following tables set forth key components of our balance sheet as of September 30, 2024, and 2023.
Current Assets
Long term assets
Total Assets
Current Liabilities
Total Liabilities
Stockholders’ Deficit
Total Liabilities and Stockholders’ Deficit
Table of Contents
Liquidity and Capital Resources
As of September 30, 2024, we had limited operating capital. Our current capital and our other existing resources will not be sufficient to provide the working capital needed for our current business Additional capital will be required to meet our obligations, and to further expand our business. We may be unable to obtain the additional capital required. Our inability to generate capital or raise additional funds when required will have a negative impact on our business development and financial results. These conditions raise substantial doubt about our ability to continue as a going concern as well as our recurring losses from operations and the need to raise additional capital to fund operations. This “going concern” could impair our ability to finance our operations through the sale of debt or equity securities.
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 September 30, 2024, the Company had an accumulated deficit of $36,867,892 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.
For the year ended September 30, 2024, we primarily funded our business operations with our cash on hand as of October 1, 2023, and from the issuances of convertible notes of $2,593,450.
As of September 30, 2024, we had cash of $1,439,835 compared to $674,824 at September 30, 2023. As of September 30, 2024, we had current assets of $1,983,881 and current liabilities of $2,412,635, which resulted in working capital deficit of $428,754. The current liabilities are comprised of accounts payable and accrued expenses, related party payables, convertible note payable, notes payable, deferred revenue and dividends payable.
Operating Activities
For the year ended September 30, 2024, net cash used in operating activities was $1,813,732 compared to $1,435,298 for the year ended September 30, 2023. For the year ended September 30, 2024, our net cash used in operating activities was primarily attributable to the net loss of $4,264,412 and the gain on debt extinguishment of $4,565, adjusted by stock-based compensation of $1,967,989, amortization and depreciation expenses of $89,608. Net changes of $397,648 in operating assets and liabilities decreased the cash used in operating activities.
For the year ended September 30, 2023, our net cash used in operating activities was primarily attributable to the net loss of $4,728,473, adjusted by stock-based compensation of $3,136,341, amortization and depreciation expenses of $84,222 and loss on debt extinguishment of $20,171. Net changes of $52,441 in operating assets and liabilities decreased the cash used in operating activities.
Investing Activities
For the year ended September 30, 2024, the Company had $14,707 of cash used in investing activities, which was for purchase of fixed assets. There was no investment activity for the year ended September 30, 2023.
Financing Activities
For the year ended September 30, 2024, net cash provided by financing activities was $2,593,450, compared to $1,355,000 for the year ended September 30, 2023. During the year ended September 30, 2024, we received $2,593,450 from the issuances of convertible notes.
Table of Contents
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 3 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. The SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our management believes that given current facts and circumstances, there are no material estimates or assumptions with levels of subjectivity and judgement necessary to be considered critical accounting policies.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.
