Cytta Corp. - 10-K

ITEM 1A. RISK FACTORS

We are a smaller reporting Company and are not required to include disclosures under this item. However, the following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline, and investors could lose all or part of their investment.

There is substantial doubt about our ability to continue as a going concern.

The Company sustained losses during the years ended September 30, 2024, and 2023, and the Company had an accumulated deficit in excess of $36,850,000 as of September 30, 2024. These conditions factors raise substantial doubt that we will be able to continue operations as a going concern. Our ability to continue as a going concern is dependent upon our generating cash flow sufficient to fund operations and reducing operating expenses. Our business strategy may not be successful in addressing these issues. If we cannot continue as a going concern, our stockholders may lose their entire investment.

Our growth plan is based upon Management’s projection of what may happen in the future, and such predictions may not occur.

Our growth plan is based upon management’s projections of estimated available cash flow, expenses, revenue, revenue over profit, earnings before interest, taxes and depreciation, sales cycle time and other measures of projected economic performance. These projections are made in Management’s view of what may happen in the future and are not based upon historical projections. Projections or predictions of future events may not occur, and actual results may differ materially from those expressed in or implied by such forward-looking statements.

Our lack of operating/sales history makes it difficult to evaluate our future prospects.

The Company was formed on May 30, 2006. Since July 2009, substantially all of the Company’s efforts have been devoted to designing and developing its technologies and products. The Company has currently generated limited sales revenue from the sale of its products. Accordingly, the Company has a limited operating history, which makes it difficult to evaluate the Company’s business and future prospects. An investor should consider and evaluate the Company’s prospects in light of the risks and uncertainties frequently encountered by companies introducing new products in intensely competitive markets.

Investors may lose their entire investment if we fail to implement our business plan.

Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. These risks include, without limitation, competition, the absence of ongoing revenue streams, a competitive market environment, and lack of brand recognition. If we fail to implement and create a base of operations for our proposed business, we may be forced to cease operations, in which case investors may lose their entire investment.

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Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and OTC Link rules, and regulations governing our technologies and data protection are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Also, while there is limited regulation of our business at the state and federal level, any change to such regulation could adversely affect our business. Also, our clients are often tightly regulated governments or government agencies, and their ability to pay us or our ability to provide services may be impacted by changes in regulations and laws applying to them, which restrict the types of vendors they contract with. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our business may be materially impacted, and our reputation may be harmed.

We will require additional financing to accomplish our business strategy.

We require substantial working capital to fund our business development plans, and we expect to experience significant negative cash flow from operations for at least the next six (6) months. We currently estimate that current available capital will be sufficient to meet our anticipated capital needs through June 30, 2025. Depending upon sales volume generated by our business during that time, we also anticipate the possibility of having to raise additional funds in order to achieve our plans and accomplish our immediate and longer-term business strategy. These additional funds likely will be raised through the issuance of Company’s securities in debt and/or equity financings. If we are unable to raise these additional funds on terms acceptable to us, we will be required to limit our expenditures for continuing our product development activities and expanding our sales and marketing operations, reduce our work force, or find alternatives to fund our business on terms that are not as favorable to the Company. Any such actions would impair our product development and expansion plans, reduce potential revenues, increase operating losses, and adversely affect the value of the Company.

We have raised capital through the use of convertible debt instruments that causes substantial dilution to our stockholders.

Because of the size of our Company and its status as a “penny stock” as well as the current economy and difficulties in companies our size finding adequate sources of funding, we have been forced to raise capital through the issuance of convertible notes and other debt instruments. These debt instruments may carry favorable conversion terms to their holders to the market price of our common stock on conversion. Accordingly, this may cause dilution to our stockholders.

Our success depends on the reception by market for our technology products.

Our ability to generate revenues will depend significantly on our ability to attract a sufficient number of users of the Company’s CyttaCOMMS and CyttaCARES streaming products. If we are unable to successfully market our products to our target markets and gain a sufficient number of users, any future revenues will be significantly impacted. In addition, any factors adversely affecting the demand for, or market acceptance of, our products could materially reduce our revenues and result in adverse market perceptions of our Company and its products.

We face significant competition.

We believe that our success will depend heavily upon achieving market acceptance of our CyttaCOMMS and CyttaCARES streaming products before our competitors introduce more advanced competing products. Current and new competitors, however, may be able to develop and introduce better or more desirable products in advance of us or at a lower cost. In addition, some of our current and potential competitors have longer and/or more established operating histories, greater industry experience, greater name recognition, established customer bases, and significantly greater financial, technical, marketing and other resources than we do. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and regulations, and our competitors’ innovations by continually working to improve the design of our products, enhancing our products, as well as improving and increasing our marketing and distribution channels. Increased competition could result in a decrease in the desirability of our products, a decrease in the use of our products by customers, loss of market share and brand recognition, and a reduction in the projected revenues from our products. We cannot assure you that we will be able to compete successfully against current and future competitors. Competitive pressures faced by us could have a material adverse effect on our business, operating results and financial condition.

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If we do not build brand awareness and brand loyalty, our business may suffer.

Due in part to the substantial resources available to many of our competitors, our opportunity to achieve and maintain a significant market share may be limited. The importance of brand recognition will increase as competition in our market increases. Successfully promoting and positioning of our brand will depend largely on the effectiveness of our marketing efforts, our ability to offer reliable and desirable products at competitive rates, and customer perceptions of the value of our products. If our planned marketing efforts are ineffective or if customer perceptions change, we may need to increase our financial commitment to creating and maintaining brand awareness and loyalty among customers, which could divert financial and management resources from other aspects of our business or cause our operating expenses to increase disproportionately to our revenues. This would cause our business and operating results to suffer.

Our success depends in large part on the continuing efforts of a few individuals and our ability to attract, retain and motivate new personnel to expand our operations.

We depend substantially on the continued services and performance of our existing management team, and we do not currently have formal employment agreements with them, and there is no guarantee that they will continue to be employed by us in the future. The loss of services of any of our non-long term current management team could hurt our business and our financial condition, and results of operations could suffer. Our success also will depend on our ability to attract, hire, train, retain and motivate other skilled technical, managerial, sales and marketing, and business development personnel. Competition for such personnel is intense. If we fail to successfully attract, assimilate and retain a sufficient number of qualified technical, managerial, sales and marketing, business development and administrative personnel, our ability to manage, maintain and expand our business could suffer.

Supply limitations may adversely affect our operations.

Our business strategy depends, to a significant extent, on the availability of relatively stable prices for costs of creative and technical contract workers used in the design, update and creation of our products. As a small company, we may not have much leverage in dealing with these third parties with respect to timeliness of delivery, costs, or quality or quantity of supplies or services. Our inability to acquire quality supplies or services in sufficient quantity and/or on a timely and/or cost-effective basis could materially adversely affect our financial performance.

Our success depends in significant part on our ability to develop and introduce innovative and competitive products. Our ability to compete and to achieve and maintain profitability depends significantly on our ability to protect our product designs through obtaining and enforcing patent rights, obtaining trademark and copyright protection, maintaining our trade secrets, and operating without infringing the intellectual property rights of others.

We also rely on trade secret protection for our confidential and proprietary information. The Company protects its trade secrets through access control as well as confidentiality and non-disclosure agreements with its employees, consultants and advisors. These agreements, however, may be breached, and the Company may not have adequate remedies for such a breach. In addition, the Company’s trade secrets may otherwise become known or be independently developed by competitors. Accordingly, it is uncertain whether the Company’s reliance on trade secret protection will be adequate to safeguard its confidential and proprietary information.

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Our ability to obtain and defend our patent position and to maintain our trade secrets will have a significant effect on the success of the Company. Although we intend to pursue patent protection and to aggressively enforce any issued patent against infringement by third parties, our ability to do so is dependent on our financial condition. Such efforts usually are both time consuming and consume significant financial resources. If third parties either challenge the Company’s patents, claim ownership of any Company intellectual property (including but not limited to design patents), proceed to make competitive products using the Company’s patents or other intellectual property, or in any other way impinge on the Company’s proprietary rights, substantial Company resources, in both time and money, are likely to be consumed. If any infringement claims against the Company are resolved unfavorably to the Company, we could be (a) enjoined from manufacturing or selling our products, (b) required to pay damages, (c) required to develop new designs, and/or (d) required to acquire licenses to intellectual property that are the subject of the infringement claims. These licenses, if required, may not be available on acceptable or commercially reasonable terms, or at all. As a result, intellectual property claims, whether initiated by us against third parties or asserted against us by others, could have a material adverse effect on our business, financial condition and operating results.

A small group of Company officers and directors hold a majority of the control of the Company.

As of January 6, 2025, the Company’s executive officers and directors beneficially owned approximately 23% of the Company’s outstanding common stock. Additionally, we have issued 50,000 shares of Series D Preferred Stock to our CEO and member of the Board of Directors, Gary Campbell, which shares entitle Mr. Campbell to two-thirds of the total votes of all outstanding capital stock of the Company. By virtue of such stock ownership, our CEO is able to control the election of the members of the Company’s Board of Directors and to generally exercise control over the affairs of the Company. Such concentration of ownership could also have the effect of delaying, deterring, or preventing a change in control of the Company that might otherwise be beneficial to stockholders. There can be no assurance that conflicts of interest will not arise with respect to such directors or that such conflicts will be resolved in a manner favorable to the Company.

Our officers and directors may have conflicts of interest.

Our officers and directors will devote such time as they deem necessary to the business and affairs of the Company. In most companies, there are certain inherent conflicts between the officers and directors and the investors which cannot be fully mitigated. Our directors and officers have interests in other businesses, and/or provide consulting or other services for their individual benefit and account. Because the officers and directors will engage in operations independent of the Company, some of these activities may conflict with those of the Company. The officers and directors thus may be placed in the position where their decisions could favor their own operations or other operations with which they are associated over those of the Company. The officers and directors of the Company are free to engage generally in business for their own account in addition to any participation arising out of the Company’s activities.

Our ability to protect our intellectual property is crucial to our operations .

Our success will depend in significant part on our ability to maintain intellectual property and maintain protection for our products and processes in order to preserve our trade secrets and proprietary technology and establish brand identity and to operate without infringing upon the patents, trademarks or proprietary rights of third parties in the United States and other countries. It is also possible that others could successfully sue the Company for violating their rights in such types of technology. In either case, such litigation can be expensive and time-consuming and can be used by well-funded adversaries as a strategy for depleting the resources of a small enterprise such as ours. It is also possible that our competitors will develop products using a technology that would provide the same end results, without violating our intellectual property rights. Failure to obtain or subsequent loss of our intellectual property protection could seriously harm our business.

Our products could become obsolete.

Technological obsolescence of our technologies and products is always a possibility. There is no assurance that our competitors will not succeed in developing related products using similar processes and marketing strategies, or that they will not develop technologies and products that are more effective than any which we are developing or will develop. Our ability to compete will depend on the continued timely enhancement and development of technologies and products. There is no assurance that we will be able to keep pace with technological developments or that our products will not become obsolete.

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Our initial product introductions could result in increased costs in the future.

Because we are still in the initial phase of introducing our initial CyttaCOMMS and CyttaCARES products to the market, we do not know whether there will be design defects or problems with programming, which we are not currently aware of but which could be identified by our customers, which problems could delay future sales, or result in product redesign, recall or repair, and, ultimately, loss of market share, and any of which could have a material adverse effect on our financial performance.

Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems.

Our business is highly dependent on maintaining effective information systems as well as the integrity and timeliness of the data we use to serve our customers, support them and operate our business. Because of the large amount of data that we collect and manage, it is possible that hardware or software failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain significant inaccuracies. If our data were found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact our participants and providers and hinder our ability to provide services, retain and attract participants, manage our participant risk profiles, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among other things.

Our information technology strategy and execution are critical to our continued success. We must continue to invest in long-term solutions that will enable us to anticipate participant needs and expectations, enhance the participant experience, act as a differentiator in the market and protect against cybersecurity risks and threats. Our success is dependent, in large part, on maintaining the effectiveness of existing technology systems and continuing to deliver technology systems that support our business processes in a cost-efficient and resource-efficient manner, including through maintaining relationships with third-party providers of technology. Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward greater participant engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Connectivity among technologies is becoming increasingly important. Our failure to effectively invest in and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems could adversely affect our results of operations, financial position and cash flow.

Our common shares will be subject to the “Penny Stock” Rules of the SEC, and the trading market in our securities will be limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

We will be subject to the penny stock rules adopted by the Securities and Exchange Commission (“SEC”) that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

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Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks;

Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.

Investors may never receive cash distributions, which could result in an investor receiving little or no return on his or her investment.

Distributions are payable at the sole discretion of our board of directors. We do not know the amount of cash that we will generate, if any, once we have more productive operations. Cash distributions are not assured, and we may never be in a position to make distributions.

We have issued Series D Preferred Stock, whose holders have rights superior to investors in our Common Stock.

We have issued 50,000 shares of Series D Preferred Stock to our CEO and member of the Board of Directors, Gary Campbell. While each share of Series D Preferred Stock is convertible into one share of fully paid and non-assessable Common Stock, the Series D Preferred Stock is super-voting preferred 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 Company capital stock eligible to vote on all matters submitted to a vote of the stockholders of the Company, meaning that the holders of the Series D Preferred Stock have two-thirds of the total votes associated with the capital stock of the Company.

Our shares may be thinly traded with wide share price fluctuations, low share prices and minimal liquidity.

Our share price may be volatile with wide fluctuations in response to several factors, including potential investors’ anticipated feeling regarding our results of operations; increased competition; and our ability or inability to generate future revenues. In addition, our share price may be affected by factors that are unrelated or disproportionate to our operating performance. Our share price might be affected by general economic, political, and market conditions, such as recessions, interest rates, commodity prices, or international currency fluctuations. Additionally, stocks traded on the OTC Link are usually thinly traded, highly volatile and not followed by analysts. These factors, which are not under our control, may have a material effect on our share price.

We could potentially need to sell shares in the future, which would result in a dilution to our existing shareholders.

We may seek additional funds through the sale of our common stock. This will result in a dilution effect to our shareholders whereby their percentage ownership interest in Cytta is reduced. The magnitude of this dilution effect will be determined by the number of shares we will have to issue in the future to obtain the funds required. The sale of additional stock to new shareholders will reduce the ownership position of the current shareholders. The price of each share outstanding common share may decrease in the event we sell additional shares.

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Since our securities are subject to penny stock rules, you may have difficulty reselling your shares.

Our shares are “penny stocks” and are covered by Section 15(d) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers including: disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and furnishing monthly account statements. For sales of our securities, the broker/dealer must make a special suitability determination and receive from its customer a written agreement prior to making a sale. The imposition of the foregoing additional sales practices could adversely affect a shareholder’s ability to dispose of his stock.

Current and future legal action would cause our costs to increase.

There are presently no legal actions pending against the Company or to which it or any of its property are subject, nor to its knowledge are any such proceedings contemplated. However, any legal action in the future will result in costs of defense that would be variable and would be expected to increase as compared to historic legal expenses incurred by the Company. Additionally, the Company anticipates a general increase in legal counsel cost going forward due to the increased compliance costs of running a public company and the legal work that may be necessary for implementing the Company’s business plan of expansion.

In the event of an investor’s life crisis, the Board may not buy back shares from the investor.

If crisis occurs, such as death of investor spouse or family member, at the request of the investor, Board of Directors may meet to discuss the possibility of buying back shares from investor, but is not required to do so.

All of these risks are uncertain, and there may be other risks that we have not identified.

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all such risk factors before making an investment decision with respect to our Common Stock.

You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.

Unless we file a registration statement on Form 8-A, which we have no obligation to file, we will not be a fully reporting company but will only comply with the limited reporting requirements of Securities Exchange Act of 1934 (“Exchange Act”) requiring us to file periodic reports (i.e., annual, quarterly and material events) with the SEC which will be immediately available to the public for inspection and copying. We would not be required to furnish proxy statements to security holders, and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Exchange Act. Previously, a company with more than 500 shareholders of record and $10 million in assets had to register under the Exchange Act. However, the JOBS Act raises the minimum shareholder threshold from 500 to either 2,000 persons or 500 persons who are not “accredited investors,” excluding securities received by employees pursuant to employee stock incentive plans for purposes of calculating the shareholder threshold. This means that unless we file a Form 8-A, access to information regarding our business and operations will likely be limited.

As a result of the effectiveness of our registration statement last filed with the SEC on October 18, 2021 (declared effective by the SEC on November 2, 2021), we are subject to the limited reporting requirements of the Exchange Act identified above (i.e., annual, quarterly and material events). Except during the fiscal year that our registration statement became effective (the fiscal year ending September 30, 2022), even these limited reporting obligations would be automatically suspended under Section 15(d) of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8-A (which we have no obligation to file). We would then no longer be obligated to file periodic reports with the SEC and your access to our business information would then be even more limited.

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.

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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

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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.

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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

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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.

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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.