GZ6G Technologies Corp S-1/A, filed Feb 7, 2023
GZ6G Technologies Corp. (GZIC)
As filed with the Securities and Exchange Commission on February 7, 2023
Registration No. 333-268149
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
S-1/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GZ6G TECHNOLOGIES CORP
(Exact name of registrant as specified in its charter)
| Nevada | 7375 | 20-0452700 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
GZ6G Technologies Corp.
1 Technology Drive, Bldg B, Suite no. B123
Irvine, CA 92618
(949) 872-1965
(Name, Address, including zip code, and telephone and facsimile number,
including area code, of registrants’ principal executive offices)
Copy to:
Sharon Mitchell
SD Mitchell & Associates, PLC
829 Harcourt Rd.
Grosse Pointe Park, MI 48230
(248) 515-6035
(Name, Address, including zip code, and telephone number,
including area code, of agent of service)
Approximate date of commencement sales to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Class of Shares to be Registered |
Amount to be Registered | Maximum Offering Price Per Share | Maximum Aggregate Offering Price (1) | Amount of Registration Fee (1)(2) | ||||||||||||
| Common Stock, $0.001 par value per share issuable pursuant to MHFLP (3) | 50,000,000 | $ | 0.03 | $ | 1,500,000 | $ | 165.30 | |||||||||
| 50,000,000 | $ | 1,500,000 | $ | 165.30 | ||||||||||||
| (1) | Estimated solely for the purpose of calculating the registration fee under Rule 457(a) and (o) of the Securities Act of 1933. |
| (2) | Based on the calculation of multiplying the aggregate offering amount by $0.0001102 |
| (3) | Represents common shares for resale by Mast Hill Fund L.P. (MHFLP), a Delaware limited partnership (the Selling Stockholder”), which shares are issuable by GZ6G Technologies Corp. (the “Company”) pursuant to the Equity Purchase Agreement (the “EPA”) entered into with Mast Hill Fund L.P. (MHFLP) on 11/10/2021. Although we are not mandated to sell shares under the Equity Purchase Agreement, the Equity Purchase Agreement gives us the option to sell to MHFLP, up to $1,500,000 worth of our common stock over the period ending twenty-four months following the Effect of this Registration Statement, and MHFLP is obligated to purchase the shares upon a Put notice from the Company. The $1,500,000 was stated as the total amount of available funding in the Equity Purchase Agreement because this was the maximum amount that MHFLP agreed to offer us in funding. Additionally, MHFLP will purchase the shares at a price equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date for the duration of the Offering (the “Offering”). |
The Registrant hereby amends this Registration Statement (the “Registration Statement”) on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where an offer or sale is not permitted.
Subject to Completion, Dated February [*], 2023
PROSPECTUS
GZ6G Technologies Corp.
Selling Shareholders
50,000,000 Shares of Common Stock (Mast Hill Fund, L.P. Equity Line)
Equity Line
In November 2021, we entered into a Equity Purchase Agreement with Mast Hill Fund, LP (“MHFLP”, or a “Selling Stockholder”), pursuant to which, upon the terms and subject to the conditions thereof, MHFLP is committed to purchase, on an unconditional basis, shares of our common stock (the “Put Shares”) at an aggregate price of up to $10,000,000 (the “Maximum Commitment Amount”) over the course of its term. The term of the Equity Purchase Agreement will end on the earlier of (i) the date on which such Selling Stockholder has purchased Common Stock pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) two years from the date this Registration Statement is deemed effective, or (iii) written notice of termination by us.
From time to time over the term of the Equity Purchase Agreement, commencing on the date on which a registration statement registering Put Shares becomes effective, we may, in our sole discretion, provide MHFLP with a put notice (each a “Put Notice”) to purchase a specified number of Put Shares (each a “Put Amount Requested”) subject to the limitations discussed below and contained in the Equity Purchase Agreement. Upon delivery of a Put Notice, we must deliver the Put Amount Requested as Deposit Withdrawal at Custodian (DWAC) shares to Selling Stockholder within five trading days.
The actual amount of proceeds we receive pursuant to each Put Notice (each, the “Put Amount”) is determined by multiplying the Put Amount Requested by the applicable purchase price. The purchase price for each of the Put Shares equals 90% of the “Market Price,” which is defined as the average of the two (2) lowest volume weighted average prices of our Common Stock during the Valuation Period. The Valuation Period is the seven (7) trading days immediately following the date MHFLP receives the Put Shares in its brokerage account.
In order to deliver a Put Notice, certain conditions set forth in the Equity Purchase Agreement must be met. In addition, we are prohibited from delivering a Put Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause us to issue and sell to Selling Stockholder, or the Selling Stockholder to acquire or purchase, a number of shares of our common stock that, when aggregated with all shares of Common Stock purchased by Selling Stockholder pursuant to all prior Put Notices issued under the Equity Purchase Agreement, would exceed the Maximum Commitment Amount; or (ii) the issuance of the Warrant Shares upon exercise of the Warrants would cause us to issue and sell to Selling Stockholder, or the Selling Stockholder to acquire or purchase, an aggregate number of shares of Common Stock that would result in Selling Stockholder beneficially owning more than 4.99% of the issued and outstanding shares of our common stock (the “Beneficial Ownership Limitation’).
If issued presently, the 50,000,000 shares of common stock registered for resale by MHFLP would represent approximately 59% of our existing issued and outstanding shares of common stock as of February 2, 2023, which totals 85,136,902, and approximately 20% of the fully diluted outstanding share capital, including issuance of the 50,000,000 shares.
There is no minimum number of shares that must be sold by us for the Offering to be completed, and we will retain the proceeds from the sale of any of the offered shares, which are sold. None of our Officers and Directors will receive commission or any other remuneration for such sales. In offering the securities on our behalf, our Officers and Directors will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities and Exchange Act of 1934.
Use of Proceeds
We intend to use the proceeds from the Equity Line for general corporate and working capital purposes and other purposes that the Board of Directors deems to be in the best interest of the Company.
We intend to raise additional capital through equity and debt financings as needed, though there cannot be any assurance that such funds will be available to us on acceptable terms, on an acceptable schedule, or at all.
Our Company is a controlled company as our sole officer and a member of our board of directors owns 100% of our Series B preferred stock and has majority voting rights.
Our independent registered public accountant has issued an audit opinion for the year ended December 31, 2021, which includes a statement expressing substantial doubt as to our ability to continue as a going concern. Accordingly, any investment in the shares offered hereby involves a high degree of risk and you should only purchase shares if you can afford a loss of your entire investment.
Our shares are currently trading on the OTCQB Market.
You should rely only on the information contained in this prospectus. We have not authorized any persons to provide you with information different from that contained in this prospectus. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. We are a smaller reporting company, as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such we may take advantage of reduced reporting burdens. Investing in our common stock involves risk. Please see “Risk Factors” beginning on page 7.
THE PURCHASE OF THE SECURITIES OFFERED THROUGH THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 7 BEFORE BUYING ANY SHARES OF OUR COMMON STOCK.
NEITHEIR THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MR. WILLIAM COLEMAN SMITH OWNS THE ONLY ISSUED AND OUTSTANDING SHARE OF SPECIAL 2018 SERIES B PREFERRED STOCK WHICH ALLOWS FOR 51% OF ALL VOTES WITH RESPECT TO ANY AND ALL MATTERS PRESENTED TO STOCKHOLDERS FOR ACTION OR CONSIDERATION. AS SUCH, MR. SMITH COULD SELL ALL, OR A PORTION ,OF HIS COMMON STOCK AND HIS SHARES OF SERIES A PREFERRED STOCK AND STILL MAKE ALL MATERIAL DECISIONS REGARDING CORPORATE GOVERNANCE OF THE COMPANY.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until February [*], 2025, all dealers that effect transactions in these securities, whether or not participating in this Offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by reference to this prospectus in deciding whether to purchase our Common Stock. We have not authorized anyone to provide you with information different from that contained in this prospectus. Under no circumstances should the delivery to you of this prospectus or any sale made pursuant to this prospectus create any implication that the information contained in this prospectus is correct as of any time after the date of this prospectus. To the extent that any facts or events arising after the date of this prospectus, individually or in the aggregate, represent a fundamental change in the information presented in this prospectus, the prospectus will be updated to the extent required by law.
TABLE OF CONTENTS
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The following summary highlights material information contained in this prospectus. The summary does not contain all of the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the risk factors section, the financial statements and the notes to the financial statements.
GZ6G Technologies Corp Mission
Our mission is to be one of the industry’s most innovative and trusted 5G & Wi-Fi 6 and beyond enterprise smart technology solutions providers globally. Enabling enterprise technology and expertise consulting together to build smarter cities and venues of the future. Staff enterprise smart solutions consultants to provide a comprehensive and consolidated group of technology services to expedite enterprise client decisions, billing and support under one company and its divisions. Acquire industry supporting core business models that supports growth and scalability, while providing exceptional customer support for all stakeholders at the enterprise level.
GZ6G expects to be the operating parent company to all its divisions and subsidiaries leveraging the purchasing power to reduce operational expenses while improving overall benefits throughout the organization.
Expanding GZ6G Subsidiaries and Divisions to focus on 4 core areas of expertise to support Enterprise smart solutions: 1. Wireless networking, security managed services; 2. Data Center Services; 3. IOT software development; 4. Marketing, advertising, sponsorship services. We expect each subsidiary or division to operate on its own until GZ6G requires the expertise to fulfil all or part of GZ6G technologies enterprise smart solutions products and services as required by contracts.
As a smart technology solutions provider our overall mission is to enhance wireless network capabilities for high-density locations, incorporating next generation wireless networks to meet future wireless speeds such as WiFi 6 and 5G, improve in venue monetization solutions to help venue owners expedite infrastructure technologies, innovate reliable in venue mobile application, integrated Internet of Things (IoT) as the industry evolves that provides venue specific artificial intelligence data insights to enhance user engagement and experience.
GZ6G will provide infrastructure, data management, software development, and cyber security to its clients (hereinafter, also referred to as “Venues”).
Green Zebra Smart Networks (GZSN) Division Overview
GZ6G Technologies Corp (GZ6G), offers enterprise level IT and wireless networking services to national accounts while GZSN division, located in Irvine, CA, offers local enterprise level IT and wireless network technology consulting service, business technology infrastructure strategy and planning services, as well as IT networking hardware & security cloud software products and services. In addition, GZSN will provide businesses with monthly remote managed and monitoring service to the Orange County, California markets.
Green Zebra Smart Networks offers innovative solutions to help midsize business owners, post Covid, to upgrade, manage and provide remote work force IT technology infrastructure. GZSN services will provide opportunities to reduce IT infrastructure costs, reduce business labor costs by offering a local IT monitoring and managed service (MSP) solution that provides remote network engineering support.
Vision
Green Zebra Smart Networks plans to open the first of three IT Wireless MSP offices. We plan on revolutionizing the wireless managed service provider market (MSP) by focusing on the local business market that needs wireless IoT and remote network technology upgrades enabling businesses to grow with advanced security tools and network infrastructure technologies to operate their business much more efficiently with cloud technologies and resources.
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Marketing
Starting July 5, 2021, began aggressively advertising Green Zebra Smart Network services to small to medium size businesses that need IT infrastructure upgrades, remote networking services and cloud security solutions in Orange County, Ca. Advertising initially for lead generation through social media, email marketing, and digital marketing campaigns to drive product and service awareness to create Green Zebra Smart Networks as the IT authority in the local market.
GZSN intends to provide educational videos and blogs on cyber security technology and the benefits of having Green Zebra Smart Networks as their trusted technology advisors, to encourage businesses to become our clients.
GZ6G Sales Methods: We intend to use the following methods to drive and increase sales:
| ● | Digital Marketing |
| ● | Social Media Marketing |
| ● | Inside Sales teams |
| ● | Channel Partners |
Revenue Model
We are unable to provide an estimated revenue for GZ6G at this time; however, our Green Zebra Smart Network Irvine, California local office began generating recurring revenue during the first quarter of 2022. We expect to continue onboarding clients during the remainder of 2022 and into the 2023 fiscal year.
Clients, when they are signed up, will incur recurring $5,000 monthly fees for IT security monitoring services and Local CCNA engineering with remote troubleshooting support capabilities and senior IT network engineers.
Additional non-recurring business revenue would be generated from IT infrastructure network Upgrades purchased from our smart solutions advisors.
In September 2022, the Company signed an exclusive, strategic partnership with MLB team, the Texas Rangers. Green Zebra will be managing sponsorship opportunities within the venue across IPTV (internet protocol television) and fans’ mobile devices during live games and other events. When a stadium guest logs into the venue’s Wi-Fi network, Green Zebra’s interface launches to provide fans with quick and secure Internet access on their mobile devices including relevant messaging, such as food and merchandise discounts, and urgent updates such as stadium or security information across the venue’s IPTVs.
Additionally, in September 2022, the Company entered into an engagement agreement with an Orange County, California-based real estate chain, RE/MAX, as its IT service provider. This Orange County engagement will provide an opportunity to service other RE/MAX locations as the environment is similar office to office.
Future Plans
GZ6G has future plans to roll up several complementary companies in the wireless, Wi-Fi security IoT and digital marketing sectors. GZ6G is able to provide wireless and digital promotion rights for certain events including WiFi media network advertising rights and the development of smart venue wireless networks and software engagement technology products for airports, stadiums, campuses and cities in the United States and International markets.
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We believe that this Offering will provide us with added flexibility to raise capital in today’s financial climate. We believe that investors in today’s markets demand more transparency. By our registering this Offering and becoming a reporting company, we will provide that transparency to our investors. While we believe that our limited reporting requirements will satisfy most investors seeking transparency in any potential investment, we still caution that simply because we have a registration statement declared effective (when in fact, it does become effective) we will not become a “fully reporting” company, but rather, we will be only subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934. Accordingly, unless we subsequently register our shares of Common Stock pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1943, except during the year that our registration statement becomes effective, these reporting obligations may be automatically suspended under Section 15(d) if we have less than 300 shareholders at the beginning of our fiscal year. Further, our required disclosure is less extensive than the disclosures required of “fully reporting” companies. For example, we are not subject to disclose, in our Form 10K, risk factors, unresolved staff comments, or selected financial data, pursuant to Items 1A, 1B, 6, respectively.
We currently are generating limited revenues. Accordingly, our independent registered public accountants have issued an opinion expressing substantial doubt regarding our ability to continue as a going concern (please refer to the audit report to the financial statements). Until such time that we are able to establish a consistent flow of revenues from our operations which is sufficient to sustain our operating needs, management intends to rely primarily upon debt and equity financings to supplement cash flows, if any, generated by our services. We will seek out such financing as necessary to allow us to continue to grow our business operations, and to cover such costs, including professional fees, associated with being a reporting company with the Securities and Exchange Commission (“SEC”). We estimate such costs to be approximately $80,000 for the 12 months following this Offering. We have included such costs to become a publicly reporting company in our targeted expenses for working capital expenses and intend to seek out reasonable loans. Depending upon our growth, the funds raised in the Registration Statement may not be enough to fund operations for the twenty-four months following Effect of this Registration Statement and we may have to seek additional funding.
Our current cash and working capital is not sufficient to cover our current estimated expenses for our planned growth over the next 12 months, including; growing our engineering and marketing team, as well as our sales team; adding key technical software developers, and launching meaningful marketing awareness. However, we do expect that the funds we have received thus far, will allow us to continue our plans for the next six months. Our estimated expenses also include those fees associated with obtaining a Notice of Effectiveness from the SEC for this Registration Statement. We hope that we will be able to secure additional financing, and complete this Offering within the coming months, in order to initiate our marketing and anticipated growth. Upon obtaining effectiveness, we will conduct the Offering contemplated hereby, and anticipate raising sufficient capital from the offering to market and grow our Company. We believe that the maximum amount of funds generated from the Offering will provide us with enough proceeds to fund our plan for marketing and operations for up to twelve months after the completion of the Offering. Assuming we generate only nominal revenues, we will require additional financing to fund our operations during the twelve-month period following the completion of the Offering if all or substantially all of the shares offered hereby are not sold. While our ability to generate revenue is not correlated directly to the number of shares sold by us under the Offering, our potential to generate revenue can be affected by our marketing and advertising strategies and the amount of personnel we employ. These factors are directly related to the amount of proceeds we receive from the Offering, which corresponds to the number of shares we are successful in selling under the Offering (see “Use of Proceeds”). We believe we can begin generating accelerating revenues within the first six months following the successful completion of the Offering. It is unclear how much revenue our operations will generate; however, it is our hope that our revenues will exceed our costs. Our revenues will be impacted by how successful and well-targeted execution of our marketing campaign, the general condition of the economy, and the number of clients we will attract. For a further discussion of our initial operations, plan of operations, growth strategy and marketing strategy see the below section entitled “Description of Business”.
We are neither a “Shell Company” as defined in Rule 405 under the Securities Act of 1933 as amended, or a “Blank Check Company” as defined in Rule 419 (a2) under the Securities Act of 1933, as amended. We have a detailed business plan and business related assets and have no present plans or intentions to engage in a merger or acquisition with an identified company or companies, or other entity or person.
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Corporate Information
Our principal executive offices are located at 1 Technology Drive, Bldg B, Irvine, CA 92618, Suite No. B123. Our telephone number is (949) 872-1965. Our website address is http://www.GZ6G.com. The information on, or that can be accessed through, our website is not part of this prospectus.
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| The Issuer | GZ6G Technologies Corp.
| |
| Number
of Shares Currently Outstanding |
50,000,000 Common Shares | |
| Securities being offered by selling stockholders | The selling stockholders identified in this prospectus may offer and sell up to 50,000,000 shares of our common stock to be sold by Mast Hill Fund L.P. (MHFLP), a Delaware corporation, pursuant to the Equity Purchase Agreement. The 50,000,000 shares of common stock registered for resale by MHFLP represent approximately 59% of our current issued and outstanding shares of common stock, which totals 85,136,902 as of February 2, 2023, and will represent approximately 20% of the fully diluted outstanding common stock assuming all 50,000,000 shares are issued under this Offering. Mast Hill Fund, L.P., will not hold more than 4.99% of the issued and outstanding shares of our Common Stock at any one time. | |
| Offering Price | The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus following the effectiveness of this Form S-1 Registration Statement, or not at all. | |
| Public Market | We are currently traded on the OTCQB market under the symbol GZIC. We cannot give any assurance that the shares being offered will have a market value, or that they can be resold at the offered price if and when an active secondary market might develop. | |
| Duration of Offering | The shares offered pursuant to “Put Notices” are offered for a period of twenty-four months following effectiveness of this Registration Statement, unless extended by our Board of Directors for an additional 90 days. | |
| Number of Shares Outstanding Before the Offering | There are 5,000,001 shares of Preferred Stock issued and outstanding as of the date of this prospectus, and 85,136,902 shares of Common Stock issued and outstanding as of the date of this prospectus, 0 Stock Options granted as of the date of this prospectus, and 18,931,271 Warrants issued as of the date of this prospectus. | |
| Registration Costs | We estimate our total costs relating to the registration herein to be approximately $50,000. | |
| Net Proceeds to the Company | If the Company is successful in issuing all available “Put Notices” to Mast Hill Fund, LP, we will issue 50,000,000 shares of Common Stock, $0.001 par value at an offering price equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date for the duration of the Offering (the “Offering”) for maximum net proceeds to the Company of $1,500,000 if all the shares are sold. | |
| Use of Proceeds | We will receive proceeds from our sales of Common Stock to the Selling Stockholder under the Equity Line. We intend to use such proceeds for general corporate purposes and working capital requirements. | |
| Risk Factors | An investment in our Common Stock involves a high degree of risk. You should carefully consider the risk factors set forth under the “Risk Factors” section herein and the other information contained in this prospectus before making an investment decision regarding our Common Stock. |
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any and all statements contained in this prospectus that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this prospectus may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.
The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, our inability to obtain adequate financing, related insufficient cash flows and resulting illiquidity, our inability to expand our business, existing or increased competition, results of arbitration and litigation, stock volatility and illiquidity, and our failure to implement our business plans or strategies. A description of some of the risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this prospectus appears in the section captioned “Risk Factors” and elsewhere in this prospectus.
Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors.
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An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before investing in our Common Stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. Currently, shares of our Common Stock are not publicly traded. In the event that shares of our Common Stock become publicly traded, the trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment. In the event our Common Stock fails to become publicly traded you may lose all or part of your investment.
RISKS RELATED TO THE OFFERING
Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the Mast Hill Fund, LP (MHFLP) Equity Purchase Agreement.
The sale of our common stock to MHFLP in accordance with the Equity Purchase Agreement may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. Additionally, the issuance of common stock pursuant to the Loan Treaty and subsequent convertible note(s) will have a dilutive impact on our shareholders.
The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
MHFLP may not have sufficient capital to meet our Put notices.
MHFLP may not have sufficient capital to meet our requests. Additionally, MHFLP may enter into similar arrangements with different companies and if so, the amount of available funds may be significantly less than we anticipate.
We are registering an aggregate of 50,000,000 shares of common stock to be issued under the MHFLP Equity Purchase Agreement. The sale of such shares could depress the market price of our common stock.
We are registering an aggregate of MHFLP shares of common stock under the registration statement of which this prospectus forms pursuant to the MHFLP Equity Purchase Agreement. The sale of these shares into the public market by MHFLP could depress the market price of our common stock. As of February 2, 2022, there were 85,136,902 shares of our common stock issued and outstanding.
Unless we maintain an active trading market for our securities, investors may not be able to sell their shares.
We are a reporting company, and our common shares are quoted on the OTC Market (OTCQB) under the symbol “GZIC”. However, our trading market may not be maintained. Failure to maintain an active trading market will have a generally negative effect on the price of our common stock, and you may be unable to sell your common stock or any attempted sale of such common stock may have the effect of lowering the market price and therefore your investment could be a partial or complete loss.
Since our common stock is thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
Since our common stock is thinly traded its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including (but not necessarily limited to):
| ● | the trading volume of our shares; |
| ● | the number of securities analysts, market-makers and brokers following our common stock; |
| ● | new products or services introduced or announced by us or our competitors; |
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| ● | actual or anticipated variations in quarterly operating results; |
| ● | conditions or trends in our business industries; |
| ● | announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| ● | additions or departures of key personnel; |
| ● | sales of our common stock and |
| ● | general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies. |
Investors may have difficulty reselling shares of our common stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company’s securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, and as noted below, our shares are currently traded on the OTCQB (OTC.QB tier) and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers, short-sellers and option traders.
We are a start-up company with a limited operating history and may never be able to carry out our intended operations or achieve any significant revenues or profitability. We are subject to the risks encountered by early stage companies.
Because we have a limited operating history, you should consider and evaluate our operating prospectus in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
| ● | risks that we may not have sufficient capital to achieve our growth strategy; |
| ● | risks that we may not develop and market our proposed products in a manner that enables us to be profitable and meet our customers’ requirements; |
| ● | risks that our growth strategy may not be successful; and |
| ● | risks that fluctuations in our operating results will be significant relative to our revenues. |
These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this prospectus. If we do not successfully address these risks, our business would be significantly harmed, and investors may lose their entire investment.
We are a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior December 31, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior December 31. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
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We may not be able to further implement our business strategy unless sufficient funds are raised in this Offering. Our inability to raise additional funds could cause investors to lose their investment. Additionally, we may have to seek additional capital through the sale of additional shares or equity securities, which would result in additional dilution to our stockholders.
We may not realize sufficient proceeds from this Offering to further business development, or to provide adequate cash flow for planned business activities. As at September 30, 2022 we had $174,091 cash on hand and as of December 31, 2021, we had $759,751 cash on hand. We have generated limited revenue from our operations to date. At this rate, we expect that we will not be able to continue operations without obtaining additional funding or beginning to generate significant revenue. Accordingly, we anticipate that additional funding will be needed for general administrative expenses, business development, marketing costs and support materials.
If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Because William Coleman Smith, our sole officer and a director currently owns 100% of our outstanding Preferred Stock, investors may find that corporate decisions influenced by William Smith are inconsistent with the best interests of other stockholders.
William Coleman Smith, our Founder, Chief Executive Officer and Chairman, currently owns 100% of the outstanding shares of our Special 2018 Series A Preferred Stock, and 100% of the issued and outstanding Special 2018 Series B Preferred Stock which authorizes 51% of all voting rights of all classes of shares. Accordingly, William Coleman Smith will have a significant influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations and the sale of all, or substantially all, of our assets, and also the power to prevent or cause a change in control. While we have no current plans with regard to any merger, consolidation or sale of substantially all of our assets, the interests of Mr. Smith may still differ from the interests of the other stockholders.
Because William Coleman Smith owns all of the Issued and Outstanding shares of Preferred Stock, and he has 51% of all votes with respect to any and all matters presented for stockholder action, Mr. Smith could sell all of his Series A Preferred Stock and all. or a large portion, of his Common Stock and still make all material decisions regarding the operation and corporate governance of the Company.
Mr. Smith owns all of the issued and outstanding shares of Preferred Stock, consisting of Special 2018 Series A Preferred Stock and Special 2018 Series B Preferred Stock, as well as a number of shares of Common Stock. In the event that Mr. Smith sold his Special 2018 Series A Preferred Stock, and all, or a large portion, of his common stock, he would still have control of the Company and would have the ability to make all material decisions regarding the corporate governance of the Company.
Because the Special 2018 Series A Preferred Stock issued to William Coleman Smith, provides for certain rights, preferences, powers, privileges, restrictions, qualifications and limitations, investors may find that corporate decisions influenced by William Coleman Smith are inconsistent with the best interests of other stockholders.
The Special 2018 Series A Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Special 2018 Series A Convertible Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| ● | Voting Rights: The Special 2018 Series A Preferred Stock have one vote for each share owned. |
| ● | Adverse Effects: The Corporation shall not amend, alter or repeal the preferences, rights, powers or other terms of Special 2018 Series A Preferred Stock without the written consent of the holder(s) of the Special 2018 Series A Preferred Stock. |
| ● | Conversion: The shares of Special 2018 Series A Preferred Stock shall convert into common shares at the rate of 10 new shares for every one share of Special 2018 Series A Preferred Stock owned. The holder of the Special 2018 Series A Preferred Stock can convert the shares into common shares at any time. |
| ● | Dividends: The Special 2018 Series A Preferred Stock are not entitled to any dividends. |
| ● | No Impairment. The Corporation shall not intentionally take any action which would impair the rights and privileges of the Special 2018 Series A Preferred Stock. |
These rights, preferences, powers, privileges, restrictions, qualifications and limitations, investors may find that corporate decisions influenced by William Coleman Smith are inconsistent with the best interests of other stockholders.
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Because the Special 2018 Series B Preferred Stock issued to William Coleman Smith provides for certain rights, preferences, powers, privileges, restrictions, qualifications and limitations, investors may find that corporate decisions made by William Coleman Smith are inconsistent with the best interests of other stockholders.
The Special 2018 Series B Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Special 2018 Series B Convertible Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| · | Voting Rights: The Special 2018 Series B Preferred Stock stockholder is entitled to 51% of all votes (including, but not limited to common stock and preferred stock (including on an as converted basis) entitled to vote at each meeting of the stockholders of the Corporation (and written actions of the stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders for their action or consideration. |
| · | Adverse Effects: The Corporation cannot amend, alter, or repeal the preferences, rights, powers or other terms of the Special 2018 Series B Preferred Stock without the written consent or affirmative vote of the holder of the Special 2018 Series B Preferred Stock. |
| · | Dividends: The Special 2018 Series B Preferred Stock shall not be entitled to any dividends. |
| · | No Impairment: The Corporation shall not intentionally take any action which would impair the rights and privileges of the Special 2018 Series B Preferred Stock. |
These rights, preferences, powers, privileges, restrictions, qualifications and limitations, investors may find that corporate decisions influenced by William Coleman Smith are inconsistent with the best interests of other stockholders.
We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Articles of Incorporation authorizes the Board of Directors to issue up to 500,000,000 shares of common stock and up to 10,000,001 shares of preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock is generally not subject to stockholder approval. Accordingly, any additional issuance of our common stock or preferred stock that may be convertible into common stock, may have the effect of diluting your investment. Further, any issuance of preferred stock with voting rights, including weighted voting rights, may have the effect of limiting the voting power of holders of our common stock.
There is substantial doubt about our ability to continue as a going concern.
We have no certainty of achieving or growing revenues in the future and have a working capital deficit. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our ability to generate future revenues will depend on a number of factors, many of which are beyond our control. These factors include general economic conditions, market acceptance of our marketing platform, proposed products and competitive efforts. Due to these factors, we cannot anticipate with any degree of certainty what the revenues will be in future periods. As such, our independent registered public accounting firm have expressed substantial doubt about our ability to continue as a going concern. Their opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise. You should consider our independent registered public accountant’s comments when determining if an investment in us is suitable.
You may have limited access to information regarding our business.
As of effectiveness of our registration statement of which this prospectus is a part, we will be required to file periodic reports with the SEC, which will be immediately available to the public for inspection and copying (see “Where You Can Find More Information” elsewhere in their prospectus). Except during the year that our registration statement becomes effective, these reporting obligations may be automatically suspended under Section 15(d) if we have less than 300 shareholders at the beginning of our fiscal year. We currently have fewer than 300 shareholders and if we continue to have fewer than 300 shareholders, we will be exempt from the filing requirements as required pursuant to Section 13 of the Securities Exchange Act and will not be required to file any periodic reports, including Form 10Q and 10K filings, with the SEC subsequent to the Form 10K required for the fiscal year in which our registration statement is effective. Further, disclosures in our Form 10K that we will be required to file for the fiscal year in which our registration statement is effective, is less extensive than the disclosures required of fully reporting companies. Specifically, we are not subject to disclose in our Form 10K risk factors, unresolved staff comments, or selected financial data, pursuant to Items 1A, 1B, 6, respectively. If the reports are not filed or are less extensive than those required of fully reporting companies, the investors will have reduced visibility as to the Company and its financial condition.
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RISKS RELATED TO OUR BUSINESS
An information security incident, including a cybersecurity breach, could have a negative impact to the Company’s business or reputation.
The extensive information security and cybersecurity threats, which affect companies globally, pose a risk to the security and availability of these IT systems and networks, and the confidentiality, integrity, and availability of the Company’s sensitive data. The Company continually assesses these threats and makes investments to increase internal protection, detection, and response capabilities, as well as ensure the Company’s third party providers have required capabilities and controls, to address this risk. To date, the Company has not experienced any material impact to the business or operations resulting from information or cybersecurity attacks; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely impacted. This impact could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action. The Company maintains cybersecurity insurance in the event of an information security or cyber incident, however, the coverage may not be sufficient to cover all financial losses.
IP and Technology Risks
The extensive IP and technology risks, which affect companies globally, pose a risk to the security of our technology. We have conducted informational presentations with our employees regarding these risks and have security measures in place to detect unauthorized intrusion into our networks and technology.
If our electronic data is compromised our business could be significantly harmed.
If our electronic data is compromised, our business could be significantly harmed. We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyber-attacks or tampering that could compromise the integrity and privacy of this data. In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, and you could lose your entire investment.
Defects or disruptions in our services could diminish demand for our services and subject us to substantial liability.
Because our services are complex and incorporate a variety of hardware, proprietary software and third-party software, our services may have errors or defects that could result in unanticipated downtime for our subscribers and harm to our reputation and our business.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer.
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The COVID-19 pandemic and the efforts to mitigate its impact may have an adverse effect on our business, liquidity, results of operations, financial condition and price of our securities.
The pandemic involving the novel strain of coronavirus, or COVID-19, and the measures taken to combat it, may have certain and adverse effects on our business. Public health authorities and governments at local, national and international levels have announced various measures to respond to this pandemic. Some measures that directly or indirectly impact our business include:
| ● | voluntary or mandatory quarantines; |
| ● | restrictions on travel; and |
| ● | limiting gatherings of people in public places. |
We have encouraged our contractors and consultants to work remotely when possible and we also have enacted our business continuity plans, including implementing procedures requiring employees to work remotely where possible which may make maintaining our normal level of corporate operations, quality controls and internal controls difficult. Moreover, the COVID-19 pandemic has caused temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory. Further, the COVID-19 pandemic and mitigation efforts have also adversely affected our customers’ financial condition, resulting in delayed spending in the venues we serve.
Because of the pandemic, large gatherings, such as in sports venues, concert halls, and at university campuses, have been prohibited, and the need for our Company’s services have been delayed.
As events are rapidly changing, we do not know how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or the full extent of that disruption. Further, once we are able to restart normal business hours and operations doing so may take time and will involve costs and uncertainty. We also cannot predict how long the effects of COVID-19 and the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could take additional restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate.
Our Officers and Directors have limited experience running public companies past the start-up phase.
Although Mr. Smith has over 25 years of experience in running businesses, he lacks experience in running a public company; if you invest in our Company, we may not be able to stay compliant under the rules and regulations of the Securities and Exchange Commission, and you could lose your entire investment.
Our independent Directors have limited experience running public companies.
The Company appointed two independent Directors on August 6, 2021, and although they collectively have over 50 years of successful business management, neither have run a public company, and so lack the experience that independent directors in other companies may have; if you invest in our Company, these independent directors may have different ideas about running the Company and a conflict could arise between our Officer and Director Cole Smith, and you could lose your entire investment.
Key management personnel may leave us, which could adversely affect the ability of us to continue operations.
We are entirely dependent on the efforts of our sole officer and member of the board of directors William Coleman Smith, because of the time and effort that he devotes to our Company. We risk the loss of Mr. Smith, who provides day-to-day operational leadership as well as visionary leadership. He is in charge of overseeing all development strategies, supervising any/all future personnel, including the sales team, and any consultants or contractors that the Company engages to assist in developing its marketing plan. The loss of him, or other key personnel in the future, could have a material adverse effect on our business, financial condition and results of operations. We will seek “key person” life insurance on its key executives; however, we cannot be sure we will be able to obtain such insurance or that we will be able to afford the insurance. Even if we can obtain key person life insurance on acceptable terms, the proceeds of the insurance may not be sufficient to truly replace the loss of the “key person”. Our success will depend on the performance of Mr. Smith, and the ability to retain, as well as attract and motivate other personnel to drive growth.
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Our Directors and Executive Officers are Directors and Executive Officers of our subsidiary.
Our Directors and Executive Officers are Directors and Executive Officers of Green Zebra Media, our subsidiary. Mr. Smith is the sole director, and officer of Green Zebra Media, holding the positions of Chairman of the Board, Chief Executive Officer and Director; the interests of Green Zebra Media may require substantial dedication at times and may be detrimental to the business of the Company. Further, Mr. Smith is Chairman of the Board, Chief Executive Officer and Director of ELOC Holding Corp; the interests of ELOC Holding may require substantial dedication at times and may be detrimental to the business of the Company.
Our Executive Officers and Directors have additional business activities and as such are not devoting all of their time to us, which may result in periodic interruptions, or business failure.
Although we do not feel there is a conflict of interest, our Founder, William Coleman Smith, is the President of our subsidiary Green Zebra Media and must balance his time between running the public company, GZ6G Technologies Corp, and the subsidiary, Green Zebra Media. While there are no set minimum hours that he is obligated to work on each of the businesses mentioned above, he spends at least 25 hours on GZ6G Technologies Corp. a week, and at least 25 hours a week on Green Zebra Media. Our operations may be such that decisions need to occur at times when Mr. Smith is unavailable, which may lead to the periodic interruption in the implementation of our business plan. Such delays could have a significant negative effect on the success of the business.
Our Independent Directors have outside interests and full-time jobs and as such may not be able to devote the amount of time necessary to successfully perform their duties as independent directors, which may result in periodic interruptions, or business failure.
Although we do not feel there is a conflict of interest, our Independent Directors will continue to work outside of the Company. While there are no set minimum hours that they are obligated to work on the business of our Company, our operations may be such that decisions need to occur at times when they are unavailable, which may lead to the periodic interruption in the implementation of our business plan. Such delays could have a significant negative effect on the success of the business.
Our current cash flow and access to capital compared to the fees being earned by our CEO and CFO may adversely affect our future performance and operations.
Mr. Smith’s employment agreements provide for payments of $30,000 per month. A company controlled by Mr. Smith, ELOC Holdings Corp. also has a contract with the Company for management fees of $10,000 per month. Currently, amounts charged by ELOC Holdings Corp. are being accrued and deferred until such time that we are in a position, as determined in the sole discretion of the Company’s Board of Directors, to begin making any such payments. However, should we begin generating meaningful revenue or raising funds hereunder, our Board of Directors may determine that such payments should be used to pay currently accrued and deferred salary. Any such decision would negatively affect our cash flows and would adversely affect us.
We have established a global command center staffed by wireless and IT engineers and support technicians managing physical hardware and software in the cloud in order to support client needs.
The command center offers digital leaders scale and agility, to speed the launch of wireless, digital services and data analytics services, and seamlessly connect customers to world class experiences. Our wireless IT network managed services and data center initiative for clients and partners will monitor Wireless IT networks and dispatch technicians as necessary to ensure continuous functionality of our Wi-Fi networks. If we are unable to maintain this global command center, we will be unable to provide the full-service support to our client base and our business could fail.
We have a short operating history in Digital Media and we may not be able to attract and keep sponsors as quickly as larger digital media companies can.
The Company has a short operating history in the Digital Media space of working with national and regional sponsors for Wi-Fi networks, and it may take a longer time to attract, and retain, sponsors than it would for a larger digital media company.
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We are partly dependent on our partner network company, Lumen Technologies Corp (F/K/A CenturyLink), and its infrastructure.
GZ6G has an approved five-year written Master Service Agreement (MSA) vendor agreement with Lumen Technologies Corp (Lumen) (F/K/A CenturyLink) wherein GZ6G will provide enterprise level smart technology sales and marketing support to help Lumen enterprise sales teams nationally.
The Agreement is non-exclusive with GZ6G acting as a supplier of software, license to use the software, service of the software, packaging and shipping the software, and installation of the software, as well as hosting services for the software.
The Agreement was entered into on June 15, 2018, for a five-year term, automatically renewable in one-year terms, unless terminated by either party, with a one hundred eighty (180) day notice prior to the completion of the current term. Termination may be for convenience or for cause.
Due to existing relationships Lumen has with Venues, Stadiums, and Smart City target markets we are partly dependent on Lumen for introduction and exposure into those target markets. If Lumen decides it wants to sever its relationship with us, it could damage our business, as we may not be able to form the relationships and cultivate partnerships on our own, and it would be detrimental to revenue growth.
We may not be able to hire sufficient support personnel.
We will need to hire personnel on a continuous basis for IT support, installation and network management for the Wi-Fi networks. If it is difficult to hire enough appropriate personnel, the Company may need to hire contract workers or acquire an IT staff to install and manage Wi-Fi networks. The Company will also need to hire sales personnel to address sponsors. If we are unable to hire the appropriate support personnel, our business plan will be damaged, and our business could fail.
GZ6G Technologies will need to raise capital for product development.
We will need future funding to implement our business plan. If the Company is unsuccessful in raising sufficient funding, our business plan may not progress as planned, and our business could fail.
If we are unable to engage the number of experienced staff to run our global command center, our business may fail.
If we cannot engage the experienced staff to run our global command center and service our clients, our business may fail, and you could lose all of your investment.
We have a rapidly evolving business model and our proposed product and services could fail to attract or retain clients or generate revenue.
We have a rapidly evolving business model and are regularly exploring the development of our offerings to our proposed target venue. This is due to the increasing speeds of internet channels and broadbands that frequently update their product information requirements, policies, merchandising strategies and integration specifications causing retailers and manufacturers to have to stay constantly up to speed and revise their online business strategies, product listings and attributes, and business rules, which can be resource-intensive and time-consuming. GZ6G will need to maintain its position in keeping up, and surpassing, other Internet companies with regard to speed and technology. If the product and services we introduce fail to engage venues, we may fail to acquire or retain enough business or generate sufficient revenue or other value to justify our investment, and our business may be materially and adversely affected. Our ability to retain or increase our client base and revenue will depend heavily on our ability to innovate and to create successful technology and marketing tools so that the client is convinced of our necessity.
If we are unable to maintain favorable terms with our venues, our expected gross profit may be adversely affected.
The success of our business depends in part on our ability to retain and increase the number of venues who contract us to serve multiple facets of their wireless internet, digital marketing and IoT. This includes developing a custom digital marketing platform for their company, managing and optimizing their wireless networks. Digital marketing support includes banner and social media advertisements and advertorials, website and shopping portal purchase engagements. The success of our business model is based on the premise that a venue will find our product services so comprehensive, they will contract us to do all of these services with us, instead of finding separate service providers for each facet of their wireless and marketing plan.
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If our technical and support teams do not meet the needs and expectations of our venues, our business could suffer.
Our business will depend on the effectiveness of our personnel to carry out efficiently and accurately all aspects of a venue’s wireless network platform and marketing plan. Our success depends on our teams to possess the core capabilities and skill sets that help our venues execute on targeted audiences.
Our business is competitive. Competition presents an ongoing threat to the success of our business.
Our success depends on successfully servicing our venues; we will compete with companies who have access to greater amounts of capital, and who have established relationships with a larger base of venues. Because of their size and bargaining power, our competitors may be able to offer their services at lower prices than us in the initial stages of our development. As a result, our operations may be significantly and negatively impacted by our larger, more established competitors.
We cannot assure you that we will be able to manage the growth of our Company effectively.
We plan to experience average growth in demand for our product and services once we are able to launch our proposed platform. We expect our number of venues to increase once we launch our marketing plan, and we expect our growth to continue for the foreseeable future. The growth and expansion of our product offerings could place significant demands on our management and our operational and financial resources. We will need to manage multiple relations with our marketing team, technical support team, and our design engineers. To effectively manage our growth, we will need to continually implement operational plans and strategies, improve and expand our infrastructure of people and information systems, and train and manage our team.
Our business will depend on our ability to maintain and scale the network infrastructure necessary to operate our network application; and any significant disruption in service of our information data center or applications could result in a loss of venues.
Venues will access the platform we have created for them through our servers to manage their wireless networks within the venue. Our reputation and ability to acquire, retain and serve our venues will be dependent upon the reliable performance of our proprietary network IoT platform and our servers. Issues within our internal servers, or IoT platform, whether due to system failures, computer viruses or physical or electronic break-ins, could affect the security or availability of our IoT platform, and prevent our venues from accessing their product management.
We may not be able to adequately protect our intellectual property rights or may be accused of infringing intellectual property rights of third parties.
We will regard our client lists and any intellectual property we may acquire, i.e., patents, trademarks, service marks, copyrights, and similar intellectual property that would be critical to our success, and we will rely on trademark, copyright and confidentiality and/or license agreements to protect our proprietary rights. Effective intellectual property protection may not be available in every area in which our products are made available. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring and using domain names that are similar to, infringe upon or diminish the value of our patents and other proprietary rights. We may be unable to prevent third parties from using and registering our trademarks, or trademarks that are similar to, or diminish the value of our trademark.
We will be subject to payments-related risks.
We plan to accept payments using wire transfer, checks, PayPal, credit card and debit card. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we will pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We will rely on third parties to provide payment-processing services, including the processing of credit cards and debit cards and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We will also be subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments, and our business and operating results could be adversely affected.
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RISKS RELATING TO OUR COMMON STOCK
Our stock price may be volatile.
The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various potential factors, many of which will be beyond our control, including the following:
| ● | Our competitors; |
| ● | Additions or departures of key personnel; |
| ● | Our ability to execute our business plan: |
| ● | Operating results that fall below expectations; and |
| ● | Period-to-period fluctuations in our financial results. |
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock.
As a public company, we will incur substantial expenses.
Upon declared effectiveness of this Registration Statement by the SEC, we will become subject to the information and reporting requirements of the U.S. securities laws. The U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities, and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. If we do not have current information about our Company available to market makers, they will not be able to trade our stock. The public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited reports to stockholders, will cause our expenses to be higher than they would be if we were privately-held. In addition, we are incurring substantial expenses in connection with the preparation of this Registration Statement. These increased costs may be material and may include the hiring of additional employees and/or the retention of additional advisors and professionals. Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or our Officers and Director, which could have a detrimental effect on our business and finances, the value of our stock, and the ability of stockholders to resell their stock.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority (“FINRA”) has adopted rules that relate to the application of the SEC’s penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that investor prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional investors, broker/dealers must make reasonable efforts to obtain information about the investor’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some investors. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our Common Stock, which may have the effect of reducing the level of trading activity and liquidity of our Common Stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our Common Stock, reducing a shareholder’s ability to resell shares of our Common Stock.
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We may be exposed to potential risks resulting from new requirements under section 404 of the Sarbanes-Oxley Act of 2002.
In addition to the costs of compliance with having our shares listed on the OTCBB and/or OTC Markets, there are substantial penalties that could be imposed upon us if we fail to comply with all regulatory requirements. In particular, under Section 404 of the Sarbanes-Oxley Act of 2002, as a smaller reporting company, our management will be required to provide a report on the effectiveness of our internal controls over financial reporting, beginning with our second annual report, and we will not be required to provide an auditor’s attestation regarding such report. We have not assessed the effectiveness of our disclosure controls and procedures or our internal controls over financial reporting, and we expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification requirements. Additionally, investors should be aware of the risk that management may assess and render the Company’s internal controls ineffective, which could have a material adverse effect on the Company’s financial condition or result of operations.
Our Common Stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares.
Our Common Stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share. These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
The elimination of monetary liability against our existing and future directors, officers and employees under Nevada law and the existence of indemnification rights our existing and future directors, officers and employees may result in substantial expenditures us and may discourage lawsuits against our directors, officers and employees.
Our Certificate of Incorporation contains specific provisions that eliminate the liability of directors for monetary damages to us and our stockholders. Further, we are prepared to give such indemnification to our existing and future directors and officers to the extent provided by Nevada law. We may also have contractual indemnification obligations under any employment agreements we may have with our officers and directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against existing and future directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against us existing and future directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
We will receive proceeds from our sales of Common Stock to the Selling Stockholder under the Equity Line and upon presentation of “Put Notices” to MHFLP. We intend to use the proceeds for general corporate purposes and working capital requirements.
If we require additional funding, we will seek such funds from friends, family, and business acquaintances in order to continue our operations. As with any form of financing, there are uncertainties concerning the availability of such funds on terms acceptable to us, as we have not received any firm commitments or indications of interest from our friends, family members, or business acquaintances regarding potential investments in our Company.
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SELLING STOCKHOLDERS
The selling stockholders identified in this prospectus may offer and sell up to 50,000,000 shares of our common stock to be sold by MHFLP pursuant to the Equity Purchase Agreement. The 50,000,000 shares of common stock registered for resale by MHFLP represent approximately 59% of our current issued and outstanding shares of common stock, which totals 85,136,902 as of February 2, 2023, and will represent approximately 20% of the fully diluted outstanding common stock assuming all 50,000,000 shares are issued under this Offering.
None of the selling stockholders are broker-dealers or affiliates of broker-dealers. MHFLP will be deemed to be an underwriter within the meaning of the Securities Act. Certain other selling stockholders may also be deemed to be underwriters. Any profits realized by such selling stockholders may be deemed to be underwriting commissions.
Information concerning the selling stockholders may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholders upon termination of this offering because the selling stockholders may offer some or all of the common stock under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this prospectus.
The manner in which the selling stockholders acquired or will acquire shares of our common stock is discussed below under “The Offering.”
The following table sets forth the name of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days of February 2, 2023, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 85,136,902 shares of our common stock outstanding as of February 2, 2023.
Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.
| Number of Shares to be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares | ||||||||||||||||
| Name of Selling Stockholder | Shares Owned by the Selling Stockholders before the Offering (1) | Shares of Common Stock Being Offered or Sold | # of Shares (2) | % of Class (2) | ||||||||||||
| Mast Hill Fund L.P. (3) | 0 | 50,000,000 | 50,000,000 | N/A | ||||||||||||
| (1) | Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table. |
| (2) | Because the selling stockholders may offer and sell all or only some portion of the 50,000,000 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that any of the selling stockholders will hold upon termination of the offering. |
| (3) | Mast Hill Fund L.P. are prohibited, in their respective agreements, from owning more than 4.99% of the issued and outstanding shares of common stock at any one time. |
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THE OFFERING
On November 10, 2021, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Mast Hill Fund, L.P. (“MHFLP”) Although we are not mandated to sell shares under the Equity Purchase Agreement, the Equity Purchase Agreement gives us the option to present “Put Notices” to MHFLP, up to $10,000,000 worth of our common stock over the period ending twenty-four months following the Effect of this Registration Statement. The $10,000,000 was stated as the total amount of available funding in the Equity Purchase Agreement because this was the maximum amount that MHFLP agreed to offer us in funding. There is no assurance that the market price of our common stock will increase in the future.
The purchase price of the common stock will be equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date for the duration of the Offering (the “Offering”) for a period of two years from the effective date of this prospectus, unless extended by our Board of Directors for up to an additional ninety (90) days; there is an ownership limit for MHFLP of 4.99%.
On the Put Notice date, we are required to deliver Put shares to MHFLP in an amount (the “Estimated Put Shares”) determined by the amount of funds we request from MHFLP, and MHFLP is required to simultaneously deliver to us, the investment amount indicated on the Put Notice.
MHFLP is not permitted to engage in short sales involving our common stock during the commitment period ending twelve months following the Effect of this Registration Statement. In accordance with Regulation SHO however, sales of our common stock by MHFLP after delivery of a Put Notice of such number of shares reasonably expected to be purchased by MHFLP under a Put will not be deemed a short sale.
In addition, we must deliver the other required documents, instruments and writings required. MHFLP is not required to purchase the Put Shares unless:
| ● | Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective. |
| ● | We shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities. |
| ● | We shall have filed with the SEC in a timely manner all reports, notices and other documents required. |
As we draw down on the equity line of credit, shares of our common stock will be sold into the market by MHFLP. The sale of these shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in our stock price. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the equity line of credit. We have no obligation to utilize the full amount available under the equity line of credit.
Neither the Equity Purchase Agreement nor any rights of ours, or MHFLP’s, thereunder may be assigned to any other person.
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DETERMINATION OF OFFERING PRICE
The offering price and other terms and conditions relative to our shares have been arbitrarily determined by us and do not bear any relationship to assets, earnings, book value, or any other objective criteria of value. In addition, no investment banker, appraiser, or other independent third party has been consulted concerning the offering price for the shares, or the fairness of the offering price used for the shares.
The Company intends to sell 50,000,000 shares of common stock, to Mast Hill Fund LP, at a purchase price equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date for the duration of the Offering (the “Offering”) for a period of two years from the effective date of this prospectus, unless extended by our Board of Directors for up to an additional ninety (90) days. Once a “Put Notice” is presented to Mast Hill Fund LP, shares will be issued to Mast Hill Fund LP. The Company is registering these shares on behalf of the selling shareholder. The following table sets forth the number of shares of Common Stock being registered for sale, the total consideration paid and the price per share. The table assumes all 50,000,000 shares of Common Stock will be sold.
| Shares Issued | Total Consideration | |||||||||||||||||||
| Number of Shares | Percent | Amount | Percent | Price Per Share | ||||||||||||||||
| Purchasers of Shares | 50,000,000 | 100 | % | $ | 1,500,000 | 100 | % | $ | 0.03 | |||||||||||
| Total | 50,000,000 | 100 | % | $ | 1,500,000 | 100 | % | |||||||||||||
The following table sets forth the difference between the offering price of the shares of our Common Stock being sold by the Company to Mast Hill Fund LP, and registered to Mast Hill Fund LP, the net tangible book value per share, and the net tangible book value per share after giving effect to the Offering by us, assuming that 100%, 75%, 50%, 25% and 10% of the offered shares are sold. Net tangible book value per share represents the amount of total tangible assets less total liabilities at September 30, 2022, including any additional proceeds received subsequent to September 30, 2022, divided by the number of shares outstanding as of February 2, 2022. Totals may vary due to rounding. Note - the table below does not reflect offering costs estimated to be $20,000 which will be borne by the Company and not deducted from gross proceeds.
100% of offered shares are sold |
75% of offered shares are sold |
50% of offered shares are sold |
25% of offered shares are sold |
10% of offered shares are sold | |
| Offering Price | $0.03 per share |
$0.03 per share |
$0.03 per share |
$0.03 per share |
$0.03 per share |
| Net tangible book value at September 30, 2022 (1)(2)(3) | ($0.079) per share |
($0.079) per share |
($0.079) per share |
($0.079) per share |
($$0.079) per share |
| Net tangible book value after giving effect to the Offering proceeds | $(0.0379) per share |
$(0.046) per share |
$(0.054) per share |
$(0.065) per share |
$(0.073) per share |
| Increase in net tangible book value per share attributable to cash payments made by new investors | $0.040 per share | $0.032 per share |
$0.025 per share |
$0.014 per share | $0.006 per share |
| Per Share Dilution to New Investors | $0.069 per share |
$0.076 per share |
$0.084 per share |
$0.095 per share |
$0.103 per share |
| Percent Dilution to New Investors | 229% | 252% | 281% | 317% | 343% |
| (1) | Net tangible book value excludes non-controlling interest; |
| (2) | Based on 85,136,902 shares issued and outstanding as of February 2, 2023. |
| (3) | Includes net proceeds of $765,858 received and shares issued for puts and securities purchase agreements entered into after September 30, 2022. |
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PLAN OF DISTRIBUTION; TERMS OF THE OFFERING
As of the date of this prospectus, we have 85,136,902 shares of Common Stock issued and outstanding and 5,000,001 shares of Preferred Stock issued and outstanding. We are registering an additional 50,000,000 shares of the Company’s Common Stock for sale at the purchase price equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date for the duration of the Offering (the “Offering”) for a period of two years from the effective date of this prospectus, unless extended by our Board of Directors for up to an additional ninety (90) days. There is no arrangement to address the possible effect of the Offering on the price of the stock.
In connection with the selling efforts in the Offering, neither our officers and directors, nor MHFLP, will register as a broker-dealer pursuant to Section 15 of the Exchange Act, but rather will rely upon the “safe harbor” provisions of SEC Rule 3a4-1, promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Generally speaking, Rule 3a4-1 provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an Offering of the issuer’s securities. None of our officers and directors are subject to any statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act. None of our officers and directors will be compensated in connection with his participation in the Offering by the payment of commissions or other remuneration based either directly or indirectly on transactions in our securities. None of our officers and directors has been within the past 12 months, a broker or dealer, and each of them is not, nor has been within the past 12 months, an associated person of a broker or dealer. At the end of the Offering, our officers and directors each will continue to primarily perform substantial duties for us, or on our behalf, other than in connection with transactions in securities.
In order to comply with the applicable securities laws of certain states, the securities will be offered or sold in those states only if they have been registered or qualified for sale; an exemption from such registration, or if qualification requirement is available and with which we have complied. In addition, and without limiting the foregoing, we will be subject to applicable provisions, rules and regulations under the Exchange Act with regard to security transactions during the period of time when their Registration Statement is effective.
We are subject to Regulation M of the Securities Exchange Act of 1934. Regulation M governs activities of underwriters, issuers, selling security holders and others in connection with offerings of securities. Regulation M prohibits distribution participants and their affiliated purchasers from bidding for, purchasing or attempting to induce any person to bid for or purchase the securities being distributed. In connection with the offer and sale of the shares being offered, our officers and directors will comply with Regulation M.
Penny Stock Regulation
Our Common Shares are considered Penny Stocks. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, that:
| ● | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
| ● | contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties; |
| ● | contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price; |
| ● | contains a toll-free telephone number for inquiries on disciplinary actions; |
| ● | defines significant terms in the disclosure document or in the conduct of trading penny stocks; and, |
| ● | contains such other information and is in such form (including language, type, size, and format) as the SEC shall require by rule or regulation. |
The broker-dealer also must provide the customer with the following, prior to proceeding with any transaction in a penny stock:
| ● | bid and offer quotations for the penny stock; |
| ● | details of the compensation of the broker-dealer and its salesperson in the transaction; |
| ● | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and, |
| ● | monthly account statements showing the market value of each penny stock held in the customer’s account. |
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In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling those securities.
Offering Period and Expiration Date
This Offering will start on the date this Registration Statement is declared effective by the SEC and continue for a period of twenty-four months. We may extend the offering period for an additional 90 days, unless the Offering is completed or otherwise terminated by us.
Common Stock
Our authorized capital stock includes 500,000,000 shares of Common Stock, $0.001 par value per Share. Immediately prior to this offering there are 85,136,902 shares of our Common Stock outstanding.
There are no provisions in our charter or Bylaws that would delay, defer or prevent a change in our control. However, there exists such provision in our charter that may make changes of control more difficult. Such provisions include the ability of our Board of Directors to issue a series of preferred stock and the limited ability of stockholders to call a special meeting. Special meetings of the shareholders may be called at any time by the President or by resolution of the Board of Directors, or by the President upon the request in writing of one or more stockholders owning shares in the aggregate entitled to cast at least a majority of the votes at the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
The holders of our Common Stock have equal ratable rights to dividends from funds legally available if and when declared by our Board of Directors and are entitled to share ratably in all of our assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of our affairs. Our Common Stock does not provide the right to preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our Common Stockholders are entitled to one non-cumulative vote per share on all matters on which shareholders may vote. Holders of shares of our Common Stock do not have cumulative voting rights, which means that the holders voting for the election of directors, may cast such votes equal to the total number of shares owned by each shareholder for each of the duly nominated directors, if they so choose.
William Coleman Smith, our Founder, Chief Executive Officer and Chairman, currently owns 100% of the outstanding shares of our Special 2018 Series A Preferred Stock, and 100% of the issued and outstanding Special 2018 Series B Preferred Stock which authorizes 51% of all voting rights of all classes of shares. Mr. Smith could conceivably sell all, or a major portion of his common shares and still have the ability to make all material decisions regarding the operation and corporate governance of the Company. Please refer back to the risk factors starting on page 7.
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of 10,000,000 shares of Special Series A Preferred Stock, par value $0.004 per share, of which 5,000,000 shares are issued and outstanding. The Board of Directors is further authorized to issue 1 share of Special 2018 Series B Preferred Stock, par value $0.001, of which 1 share is issued and outstanding. Our Board of Directors is authorized to determine or alter any or all of the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of preferred stock and, within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares comprising any such series subsequent to the issue of shares of that series, to set the designation of any series, and to provide for rights and terms of redemption, conversion, dividends, voting rights, and liquidation preferences of the shares of any such series.
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The Series A Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| ● | Voting Rights: The Series A Preferred Stock have one vote for each share owned. |
| ● | Adverse Effects: The Corporation shall not amend, alter or repeal the preferences, rights, powers or other terms of Special 2018 Series A Preferred Stock without the written consent of the holder(s) of the Series A Preferred Stock. |
| ● | Conversion: The shares of Special 2018 Series A Preferred Stock shall convert into common shares at the rate of 10 new shares for every one share of Special 2018 Series A Preferred Stock owned. The holder of the Series A Preferred Stock can convert the shares into common shares at any time. |
| ● | Dividends: The Series A Preferred Stock are not entitled to any dividends. |
| ● | No Impairment. The Corporation shall not intentionally take any action which would impair the rights and privileges of the Series A Preferred Stock. |
The Special 2018 Series B Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| ● | Voting Rights: The Special 2018 Series B Preferred Stock stockholder is entitled to 51% of all votes (including, but not limited to, common stock, and preferred stock (including on an as converted basis) entitled to vote at each meeting of the stockholders of the Corporation (and written actions of the stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration. |
| ● | Adverse Effects: The Corporation cannot amend, alter, or repeal the preferences, rights, powers or other terms of the Special 2018 Series B Preferred Stock without the written consent or affirmative vote of the holder of the Special 2018 Series B Preferred Stock. |
| ● | Dividends: The Special 2018 Series B Preferred Stock shall not be entitled to any dividends. |
| ● | No Impairment: The Corporation shall not intentionally take any action which would impair the rights and privileges of the Special 2018 Series B Preferred Stock. |
Dividends
At this time, we do not intend to pay out any cash dividends, now, or in the foreseeable future.
Warrants
There are currently 18,931,271 warrants issued to purchase our securities, at exercise prices of $0.020025 to $0.10 per share.
Options
There are no outstanding options to purchase our securities.
Transfer Agent and Registrar
Our transfer agent is Continental Stock Transfer & Trust Company, is located at 1 State Street, 30th Floor, New York, New York 1004, and its phone number is (212) 509-4000. The transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares.
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Company Overview
GZ6G Technologies Corp. (“GZ6G”, “we” or the “Company”) is an emerging smart city technology growth company that provides wireless and monetization enterprise level smart solutions to cities and large venues that require multiple types of products, services and third-party solutions to fulfill client needs. We were incorporated in Nevada on December 23, 2003, and are headquartered at 1 Technology Drive, Bldg B, Irvine, CA 92618, Suite no. B123.
The city of West Des Moines, Iowa’s new Recplex sport venue project, was a new development when the five-year Agreement with Lumen was signed. The Company finalized the wireless hardware installation to recognize $130k in revenue in the fourth quarter of 2021. IT sponsorship managed service revenue will begin as the West Des Moines Recplex opens for the public.
In July 2022, the Company signed an exclusive, strategic partnership with MLB team, the Texas Rangers.
Green Zebra will be managing sponsorship opportunities within the venue across IPTV (internet protocol television) and fans’ mobile devices during live games and other events. When a stadium guest logs into the venue’s Wi-Fi network, Green Zebra’s interface launches to provide fans with quick and secure Internet access on their mobile devices including relevant messaging, such as food and merchandise discounts, and urgent updates such as stadium or security information across the venue’s IPTVs.
In addition, sponsorship opportunities are provided across Wi-Fi networks operated through Green Zebra’s managed service solutions. This allows for a smart connected ecosystem and monetization prospects for sponsors to promote their brand to a captive audience. Green Zebra will manage the networks within the live event facilities and their respective Wi-Fi networks and redirect web pages enabling sponsor ads to be seen across diverse platforms.
In September, the Company’s GZ Networks division entered into an engagement agreement with an Orange County, California-based real estate chain, RE/MAX, as its IT service provider. This Orange County engagement will provide an opportunity to service other RE/MAX locations as the environment is similar office to office. This new partnership is one of several opportunities GZ Networks has been cultivating for small to medium size businesses (SMBs).
The initial focus on the Southern California region gives the GZ Networks senior management team the opportunity to train and prepare team members for enterprise accounts. With a quickly expanding roster of potential clients for enterprise accounts, GZ6G and GZ Networks are working quickly to enhance in-house expertise as an IT service provider in order to prepare for larger enterprise accounts as the opportunities arise.
Along with IT services offered to clients, GZ Networks offers a package of robust security services intended to protect sensitive customer and staff data from cyber-attacks for key service providers such as law offices, bank buildings, hotels, bars, and restaurants. The GZ Networks team of business advisors examine current business structures in place and provide analysis and suggestions to secure and optimize networks. HIPAA compliance allows further security where needed for hospitals, doctor’s offices, and healthcare facilities to safeguard patient data.
Green Zebra Smart Networks opened its new technology managed service center in Irvine, California to support monthly recurring revenue for enterprise accounts. In addition, the office has hired staff to sell remote IT networking services to small to medium companies that require an outsourced IT networking solution. The office is currently working with minimal staff due to the effects of COVID 19 and is expected to be fully operational by the third quarter of 2022. Costs for staffing and equipping this office has been approximately $700,000. We will continue to hire staff as needed and as funds are available; however, the office currently is equipped with the necessary hardware and software, including state of the art security measures, in order to use this office as the Company’s showroom.
Green Zebra Smart Networks (GZSN) Division Overview
GZ6G Technologies Corp (GZ6G), offers enterprise level IT and wireless networking services to national accounts while GZSN division, located in Irvine, CA, offers local enterprise level IT and wireless network technology consulting service, business technology infrastructure strategy and planning services, as well as IT networking hardware & security cloud software products and services. In addition, GZSN will provide businesses with monthly remote managed and monitoring service to the Orange County, California markets.
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Green Zebra Smart Networks offers innovative solutions to help midsize business owners, post Covid, to upgrade, manage and provide remote work force IT technology infrastructure. GZSN services will provide opportunities to reduce IT infrastructure costs, reduce business labor costs by offering a local IT monitoring and managed service (MSP) solution that provides remote network engineering support.
Vision
Green Zebra Smart Networks plans to open the first of three IT Wireless MSP offices. We plan on revolutionizing the wireless managed service provider market (MSP) by focusing on the local business market that needs wireless IoT and remote network technology upgrades enabling businesses to grow with advanced security tools and network infrastructure technologies to operate their business much more efficiently with cloud technologies and resources.
Marketing
Starting
July 5, 2021, we began aggressively advertising Green Zebra Smart Network services to small to medium size businesses that need IT infrastructure
upgrades, remote networking services and cloud security solutions in Orange County, Ca. Advertising initially for lead generation through
social media, email marketing, and digital marketing campaigns to drive product and service awareness to create Green Zebra Smart Networks
as the IT authority in the local market.
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GZSN intends to provide educational videos and blogs on cyber security technology and the benefits of having Green Zebra Smart Networks as their trusted technology advisors, to encourage businesses to become our clients.
GZ6G Sales Methods: We intend to use the following methods to drive and increase sales:
| ● | Digital Marketing |
| ● | Social Media Marketing |
| ● | Inside Sales teams |
| ● | Channel Partners |
Revenue Model
We are unable to provide an estimated revenue for GZ6G at this time; however, our Green Zebra Smart Network Irvine, California local office has begun generating recurring revenue in the middle of 2022. We began onboarding clients in the fourth quarter of 2021.
Clients, when they are signed up, will incur recurring $5,000 monthly fees for IT security monitoring services and Local CCNA engineering with remote troubleshooting support capabilities and senior IT network engineers.
Additional non-recurring business revenue would be generated from IT infrastructure network Upgrades purchased from our smart solutions advisors.
GZ6G Technology & Expertise Is Helping Build Smarter Businesses. Wireless, Managed Services, Artificial Intelligence, data analytics. Smarter Business. Developer Tools. Enterprise Technology for the federal government, stadiums, airports, universities, and the entertainment industry.
GZ6G’s Subsidiaries and Divisions will focus on 4 core areas of expertise to support the GZ6G Enterprise smart solutions: 1. Wireless networking, security managed Services; 2. Data Center Services; 3. IOT software development; 4. Marketing, advertising, sponsorship services. We expect each subsidiary or division to operate on its on until GZ6G requires the expertise to fulfill all or part of GZ6G technologies enterprise smart solutions products and services as required by contracts.
GZ6G Technologies Corp. (“Green Tech”) and its operating subsidiary, Green Zebra Media Corp work together to offer a fully integrated wireless infrastructure solution for enterprise opportunities, while Green Zebra Media focuses on innovative digital marketing, advertising sponsorship and monetization services for their clients. Green Zebra Media will provide digital marketing, monetization and marketing support services that are missing Wireless communications Networks, IoT applications, and location-based engagement types of technology.
While there are many competitors that offer Wireless Networking technology platforms, there are few that provide a on premise wireless gateway communication ad servers and digital marketing monetization support solutions together. The emerging industry requires assistant to maximize the client’s return on investment.
Green Zebra Networks (GZN) division will provide both managed services support for wireless networks hardware, software for enterprise level clients. In addition, GZN wireless technology will provide proprietary and licensed technology solutions.
Green Zebra Labs (GZSL) a new division being created to support GZ6G’s Enterprise smart solutions software integration services for Smart City Venues, in addition to creating new IoT software venue applications that support the smart city initiatives and venue specific data analytics and artificial intelligence applications. The Green Zebra Smart Labs Software team provides the client with a trusted external IoT software development team to assist with future smart city solution integration opportunities.
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The mission of GZ6G’s management team is to build a family of smart solutions service companies that work together to minimizes the competition while lowering the risk to enter the 5G & Wi-Fi 6 marketplace. Venue owners need additional help using integrated technical support service, however, offering a digital marketing and monetization solution has created a competitive advantage that connects and engage communities with relevant information, offering and managing monetizing solutions will subsidize the expensive wireless technology infrastructure costs.
Offering an integrated approach digital marketing solution, sponsorship revenue, IT wireless networking and Software expertise together expedite the decision process for all stakeholders, our telecommunication, wireless and agency partners allow us to expand our reach, capabilities and resources.
GZ6G provides an enterprise state-of-the art Wi-Fi Media and communication Platform (hardware and software) to monetize and scale to any size venue and/or audience. Our Green Zebra Networks engineering team works with the Venue’s IT engineering team to install Wireless communications platforms. Green Zebra Networks will provide an engineering team to install the Wi-Fi platform into the venue Wi-Fi network, providing WiFi monetization hardware (Green Zebra Media hub) that connects to the customer’s Wi-Fi network system. Every Wi-Fi Media server is embedded with Communication and data analytics software to create monetization and communication. This capability transforms a single location into a powerful, media-rich communications network throughout the venue location.
This WIFI Media Server platform creates user engagement when users access Wi-Fi, enabling digital marketing teams to empower businesses, engage communities and enable mobile users with relevant local information, accessed as a cloud or on-premises solution.
In addition, Green Zebra Media teams signs long term contracts to secure digital marketing and sponsorship assets monetize venue opportunities, supporting the venue team with marketing strategies, planning, and implementation services, brand & user engagement services, digital marketing and design services, communication software and Wi-Fi ad servers.
Currently, GZ6G technologies is working on a number of enterprise projects that have been delayed in 2020 and pushed to Fall 2021 and throughout 2022, projects include several NCAA universities, National Football League, and
cities located in the United States. It cannot be known at this time whether the current situation related to COVID-19 will push these projects further forward.
Further, the Company has entered into a contract with US Federal Contractor Registration (USFCR), whereby the Company will be provided with assistance to qualify and help with federal contract procurement services and writing contracts for System for Award Management (SAM) projects.
GZ6G has future plans to roll up several complementary companies in the wireless, Wi-Fi security IoT and digital marketing sectors. GZ6G is able to provide wireless and digital promotion rights for certain events including WiFi media network advertising rights and the development of smart venue wireless networks and software engagement technology products for airports, stadiums, campuses and cities in the United States and International markets.
We were incorporated in Nevada and our headquarters are located at 1 Technology Drive, Bldg B, Irvine, CA 92618, Suite no. B123. We are a smart solutions technology provider focused on providing smart solutions advisory services, developing and acquiring early stage wireless 5G/6G and beyond technologies that meet certain core application requirements that deliver potential enterprise smart city solutions. Types of Products include IPTV technologies, digital displays technologies, VR, AI, data analytics software and wireless security tools for Stadiums, Airports, Universities and Smart City Projects. Our Mission: create shareholder value by creating a family of wireless technology companies specializing in vertical markets that support subsidiary business units with necessary skill sets to deliver value added smart Solutions to partners and customers.
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A wireless Internet of Things (IoT) technology company and its subsidiaries and divisions, GZ6G Technologies Corp (GZ6G) is focused on acquiring, developing and overseeing innovative wireless IoT technology companies for the emerging 5G and Wi-Fi6 marketplaces, including target markets such as stadiums, airports, universities, racetracks, casinos, and smart city projects.
Our controlled subsidiary, Green Zebra Media Corp (GZMC) is one such innovative provider of wireless hardware gateways, communications, marketing and sponsorship, data analytics platforms and CRM technology. Our products are used for stadiums, cities, airports, universities and hospitality markets.
The focus of our operations in fiscal 2021, were contracts which can most efficiently, and cost effectively, bring revenue generating operations through partnerships with venues and industries that must adapt to the new 5G and WiFi6 environment. Beyond that, GZ6G and controlled entities are establishing a global command center to offer our customer base scale and agility, speed the launch of wireless, digital services and data analytics services, and seamlessly connect customers to world class experiences. It is our intent that wireless IT network managed services and data center initiative for clients and partners will monitor cutting edge Wireless IT networks with the ability to dispatch technicians as necessary to ensure continuous functionality of our Wi-Fi networks.
The use of Wi-Fi networks in high-density areas is the most efficient manner to ensure consistent wireless connectivity. Two trends are converging today to propel upgrades and new deployments of Wi-Fi networks, including 5G and WiFi6. First, consumer demand for wireless connectivity continues to grow, overwhelming many wireless and Wi-Fi networks. Secondly, many large entities are seeking new digital media avenues to obtain exposure to target markets through online ‘impressions’, particularly when they have access to a captive audience. GZ6G is uniquely positioned to facilitate the convergence of these two trends. Additionally, GZ6G is developing future Wi-Fi networks that can integrate the Internet of Things (IoT) and significantly enhance network utility and user experiences.
The greater use of wireless devices (smartphones, tablets) and the emergence of IoT places has increased demand even further on wireless networks. Large network companies promote the 5G network deployment, but there are limitations to its effectiveness, particularly in high-density areas. Wi-Fi networks remain the best network deployment plan for airports, businesses, universities, transport hubs and city locations where there are high-density network demands.
Existing Wi-Fi technology can significantly improve wireless performance at airports, transport hubs, convention centers, resorts, and stadiums. The future of Wi-Fi is even more exciting. New developments by GZ6G will significantly enhance network throughput and allow for apps to reside on a venue’s network rather than the cloud. The result is much faster response and the ability to customize apps to serve local businesses, communities and users of the network.
The GZ6G total solution turns the Wi-Fi cost center into a revenue center by (a) deploying a state-of-the-art Wi-Fi broadcast network with customized software for enhanced user experience and (b) obtaining sponsors who desire exposure to consumers and businesses in high-density areas. This combination can easily justify Wi-Fi network deployment today.
Additionally, GZ6G plans to vertically integrate its operational model, providing both software and hardware as well as full support services to its customer base.
GZ6G is installing Wi-Fi networks in high-density use areas and is partnering with other technology companies and host entities (stadiums, universities, airports, resorts) for the GZ6G total solution. GZ6G has established strategic relationships with (a) network companies that are pitching the GZ6G solution; (b) established Wi-Fi networks that need upgrading; and (c) a range of potential sponsors in a variety of industries.
The Company has generated limited revenue and we have not yet finished executing contracts; however, we are in negotiations with two different large venues and one small Enterprise client that we hope to finalize in the first quarter of 2022; revenues will not be generated from these projects until the installation of our products are complete; mid 2022.
The Company currently has four divisions that will implement actions to correspond with the above services.
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Market Opportunity
GZ6G Technologies is in a unique position to grow rapidly as a smart solution provider for strategic partners in the 5G & Wi-Fi 6 industry with strategic public partners.
We have been preparing, developing and building relationships to scale 5G & Wi-Fi 6 emerging markets since winning the New York City connectivity challenge at Governors Island in the Spring of 2018. We established a s relationship with Lumen’s smart solutions consulting team (formerly CenturyLink). GZ6G is in a unique position to grow rapidly as a smart solution provider in the 5G & Wi-Fi 6 industry.
In addition, GZ6G is seeking strategic acquisition opportunities to scale revenue, leadership and customer base by expanding the customer base and product lines in four core business areas: wireless networking and managed services locations, Smart IoT Software Applications, Data Center facilities, Digital marketing Agencies opportunities. We expect to continue creating strategic partnerships that can help scalable a diverse sales force and product offering target markets local to global.
5G & Wi-Fi 6 plus is creating what’s called the (4th) next generation industrial revolution that is going to create faster and faster high-speed internet that will create more innovations opportunities that are directed at auto, delivery, entertainment, medical industry and sensors technologies.
GZ6G has been preparing, developing and building relationships to scale 5G & Wi-Fi 6 emerging markets since winning the New York City connectivity challenge at Governors Island in the Spring of 2018. We established a s relationship with Lumen’s smart solutions consulting team (formerly CenturyLink) and few other trusted strategic partnership opportunities. GZ6G is in a unique position to grow rapidly as a smart solution provider in the 5G & Wi-Fi 6 industry.
GZ6G plans to take advantage of early acquisition opportunities to scale the Gz6G business model. It is our belief that most of the existing industry is not preparing for the future change that’s being created by the new high-speed capabilities coming to market.
We will continue to focus on wireless infrastructure, IoT software and marketing to scale revenue opportunities, leadership and customer base by expanding the customer base and product lines in four core business areas: wireless networking and managed services locations, Smart IoT Software Applications, Data Center facilities, Digital marketing Agencies opportunities. We expect to continue creating strategic partnerships that can help scalable a diverse sales force and product offering target markets local to global.
Target Markets:
| ● | Cities, Airports, Stadiums, Universities, and Hospitality Markets Globally |
Target Acquisitions:
| ● | Advertising agencies, IT Network Related Companies, IoT software applications. |
Barriers to Market
With any emerging market there are any number of challenges that exist, as the market matures and flattens out. We don’t see this happening any time soon, quite the opposite over the last few years we have had a chance to figure out a few things during the development and testing periods.
Emerging Smart solutions technology Expertise –
Lack of qualified and experiences staff will number one challenge to bringing smart solutions to market.
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Competitive Landscape -Telecommunication companies are talking about the 5G and Wi-Fi 6 connective speeds and required infrastructure requirements with various other technologies. Connectivity is a commodity between all of them, they are and will be looking for alternative product and service providers to differentiate themselves.
| ● | Overall Smart Solutions product offering |
| ● | Diverse teams are required |
Go-To-Market Strategies
Smart Solutions Technology
GZ6G technologies going forward marketing strategy for 2022 will primarily be focused on global strategic partners relationships where our products and services complement each other’s’ product, services and support offerings to enterprise clients.
This partnership approach reduces barriers to market lowers the risk while establishing brand value and trust with clients and customers. Access to our target markets are more receptive when working with their trusted partners at this stage of our growth.
This partnership approach reduces barriers to market lowers the risk while establishing brand value and trust with clients and customers.
Scaling up our company divisions offices in local markets is very much part of our go to market strategy going forward. Local and regional support center in the near future will be potentially requirement for city, stadium, airports, universities accounts.
Technology Monetization Marketing Strategy
The Green Zebra Media sponsor advertising division primarily focuses on various types of brand advertisers and agencies that represent brand advertisers that are interested in reaching targeted venue or multiple venue customers.
Certain sponsors are willing to contribute more per venue to be the exclusive sponsor for particular events or for several events, or for a period of time at one venue. Sponsorship companies are in the following industries:
Types of Venue Sponsor Industry
| ● | Airline industry |
| ● | Technology Industry |
| ● | Healthcare Industry |
| ● | Sports Industry |
| ● | Entertainment Industry |
| ● | Hospitality industry |
| ● | Beverages |
Potential Sponsorship Commitments
Potential Sponsorship opportunities are in the following industries:
Airlines
Beverages
Casinos
Hotels
Restaurants
Consumer Retail
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Go-To-Market Strategies for Target Markets
GZ6G Technologies is looking at strategic acquisition opportunities that would allow for infrastructure, development and consumer target market opportunities; as well as teaming up with partnerships that can help create a diverse sales force that focuses on target markets.
University and Stadium Market
The university and stadium market is best addressed through existing commitments and partnerships; for instance, with our partner, Lumen (f/k/a CenturyLink). GZ6G Technologies total solution to Wi-Fi installations is very attractive to strategic partners. As a result, some of the strategic partners have integrated the GZ6G Technologies solutions into their product/service offerings.
Airport Market
The airport market is addressed with the direct sales force and ongoing relationships. GZ6G Technologies will leverage the relationships that key partners have with airports. The GZ6G Technologies total solution for installing, managing and monetizing Wi-Fi installations in airports is attractive to partners managing existing Wi-Fi networks.
City Market
GZ6G Technologies will address the city market with a direct sales force. GZ6G Technologies has installed a Wi-Fi network on Governors Island New York during the connectivity challenge (2018 with Fibreless). Moving forward GZ6G will continue to work alongside their partners to leverage the success of that installation to attract additional city Wi-Fi installations.
Industry Overview
Wi-Fi technology enables wireless users to use internet and telecom services in a high-density environment. Without Wi-Fi in areas where there is a high concentration of wireless users, response time degrades, phone calls get ‘dropped,’ internet connectivity may be intermittent and user experience suffers. For this reason, Wi-Fi deployment is critical for internet and telecom networks in many geographical footprints.
The market for Wi-Fi equipment worldwide is expected to grow to $15.6 billion by 2022, according to industry research by MarketsandMarkets, Inc. This describes a compound annual growth of 21.2% through 2022. Such growth is driven by the use of wireless devices including smart phones, tablets and development of the IoT market. Approximately 67% of the worldwide wireless equipment market is in the US. MarketWatch reports the Global Wireless Connectivity market, including chips and devices will reach $31.8 billion by 2022.
The primary drivers for the deployment of Wi-Fi networks are increasing bandwidth demand from businesses, universities, smart city projects, and consumers. With the integration of more images and videos for internet users, demand for greater network bandwidth increases. The weakest link in broadband networks is the wireless connection to the end user. The latest Wi-Fi network technologies address this weak link in a cost-effective manner.
The primary constraints to deploying Wi-Fi networks has been poor-user experiences in high-density areas, security and privacy concerns. Users with multiple applications on smart phones, or with multiple devices (smart phone and tablet or laptop) place high demands on wireless networks. Bandwidth intensive applications that include video and GPS create greater demands on wireless networks.
How does the host/network manager (airport, smart city, business, university) of Wi-Fi decide to improve network capabilities? Wi-Fi networks provide critical connectivity services to users, and bandwidth demand from users creates the need to upgrade the networks. Security on Wi-Fi networks is improving, but bandwidth is lacking. Wi-Fi network users are demanding more bandwidth while traveling, when at sporting events, when spending time ‘downtown’ or in commercial districts, and when at resorts, or on university campuses.
Current Operations
GZ6G provides a total solution for high-density use areas with:
(1) state of the art Wi-Fi hardware deployment to address the requirements of all wireless users, in a specific venue
(2) custom software that enables an enhanced user experience and secure, easy network access
(3) ability to integrate security system or expand Wi-Fi footprint
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(4) automatic portals for any device in the area
(5) the ability to monetize the Wi-Fi network deployment for the host entity.
GZ6G Technologies Target Markets
GZ6G is focusing on high-density use venues where (1) internet connectivity demand is high and likely to grow, (2) the host venue recognizes the benefit of providing Wi-Fi broadcasting service, and (3) venues where sponsors are interested in consumer exposure. The target venues include universities, professional sports stadiums and racetracks, airports, resorts and smart-city projects.
Hardware and Software Solutions Today
GZ6G Technologies installs state-of-the-art Wi-Fi equipment designed to meet the projected high-density use demands for the location. Equipment manufacturers may include Cisco, Cradle Point, D-Link, Juniper, Linksys. Software may include products that are customizable from Brick & Mobile, Cloud4Wi, Purple Wifi, Panasonic, Socifi, Tanaza.
Wi-Fi network installation is customized to ensure the correct internet connectivity and speed is available throughout the venue. GZ6G has developed the software tools that are customized for the host/network manager to easily manage the network through the use of dashboards, which may include integrating additional components such as a security system. The software tools (broadcasting system) allow for the host to create pop up notices to remind users of important items regarding safety, first aid, ancillary services and special offers. The network manager gathers data to understand characteristics of user demands on the network. The host/network venue manager may also design features which provide information to users to enhance their time while in the area, such as discounts to affiliated stores or restaurants, notices of services at the facility such as food outlets, retail items, special benefits to repeat customers, or notice of where emergency healthcare is available. The host venue can customize the user interface on the network and as new supplementary services become available, such as a new food venue or new emergency management procedures, the customer interface can be changed.
Company Offerings
GZ6G Technologies focus on leading wireless marketing & CRM technology smart solutions provider, offering closed loop security gateways, wireless marketing and sponsorship CRM platform solutions, and deep data analytic solutions for the hospitality, stadiums, airports, universities, and cities. This customized approach to marketing will allow clients to elevate the interaction between the venue and the consumers on their platform. The second division will work with sponsors for unique marketing opportunities within the venue and for the venue.
The future vision for the Company is the inclusion of four main divisions.
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The parent company, GZ6G Technologies, provides enterprise technology and expertise consulting together to build smarter cities and venues of the future which would oversee the operational excellence of its four existing and planned complimentary subsidiaries under the publicly listed entity.
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GZ6G’s Subsidiaries and Divisions will diversify its business model by establishing 4 core areas of business expertise to support the overall GZ6G Enterprise customer smart solutions:
| 1. | Green Zebra Network: Wireless networking, security managed Services; |
| 2. | Green Zebra Data Center Services: Tier 3 Enterprise center optimize for end users, managed services, cloud data |
| 3. | Green Zebra Smart Labs: Smart IOT software development services and applications |
| 4. | Green Zebra Media: Marketing, advertising, sponsorship services. |
Green Zebra Networks (GZN) operates as a stand-alone division that offers IT Wireless networking, hardware, implementation and managing services support and solutions in local to national business. GZ6G would subcontract the GZN division when Networking and managed services related products and services are required.
FiBox Pro Appliance Gateway Solution:
| ● | GZN provides a smart appliance Network gateway device called FiBoxPro gateway that creates a closed loop local communication and monetization service. GZN will provide the configuration and managed services. These IT technical teams will also provide technical support and communication with internal and external teams. |
Green Zebra Data Center (GZDC): offering Tier 3 Enterprise data center solutions to optimize end users, managed services, cloud data.
Green Zebra Media, Corp (GZMC) operates as an independent advertising company that offers traditional advertising, digital marketing, digital advertising and sponsorship GZ6G subcontracts GZMC services when advertising and sponsorship services are required to help monetize venues and the FiBox Pro Product.
Green Zebra Smart Labs (GZSL) Division
This division will offer software development services for various types of Smart Solution cloud products and services. GZSL will integration services for third party technologies. This division will be responsible for being the leading provider for in-venue wireless venue and user engagement, marketing, advertising platforms and data analytics.
The software division develops and support various API application support services for Smart solution broadcasting systems, data analytics and artificial intelligent application needs.
Data Analytics Software development and R& D support.
CRM, API software development, artificial intelligence (AI), research and development (R&D) platform integration solutions and more.
Current GZ6G development projects:
| ● | VenuTrax – an in-venue and Saas platform cloud data analytics and artificial intelligent engine used to help venue owners communicate and monetization relevant information regarding user insights. |
| ● | CastWifi – An in Venue or cloud WIFI interactive broadcasting technology that allows public venue wireless networks to broadcast live content to their user audience in a closed loop setting like a similar to IPTV technology but over Wi-Fi. |
Green Zebra Media, Corp (GZMC) operates as an independent advertising company that offers traditional advertising, digital marketing, digital advertising and sponsorship services in addition to supporting GZ6G smart solutions customers and partners with agency services that include advertising, marketing, sponsorship sales agency, and platform support team; this division will be broken into two main operations.
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GZ6G Technologies envisions the creation of wireless ‘fiber-speed’ networks to meet the demands of wireless consumers and businesses. High-speed wireless networks enable the establishment of Wi-Fi networks in any location to meet demands of wireless users, and expand the content capabilities of hosts and sponsors, regardless of the distance to fiber rings.
GZ6G is an IoT company made up of four different supportive channels:
| ● | Infrastructure |
| ● | Software Development |
| ● | Cyber Security |
| ● | Data Management |
We are in the process of developing a global command center that will allow us to monitor all of our venues in one central place. We will have technical engineers available in case any of the networks go down in any of the venues at any time. We will be able to remotely navigate any issues arising at the venues so that service will be virtually uninterrupted.
Practice areas can either function independently to address a client’s specific functional IoT needs, or be combined to provide brands with a holistic service offering that will handle all of their needs.
From banner and social media advertisements and advertorials, to website and shopping portal purchase engagements, and product procurement, we will support venues in all of their touch points and engagement opportunities with their end audience.
We will offer the following core services:
We define venue as our target client, it can be a point of interest within a city, or it could be the city itself. Venues are a specific geographical location, such as a city, airport, university, stadium, racetrack, casino, or hospitality location (trade center, hotel etc.). When a venue connects to the network it is called a closed loop communication solution.
Qualify – Our infrastructure team goes into a new venue to ensure that they have the right infrastructure or bandwidth in place. This also means the team will be looking at whether the venue has the appropriate Wi-Fi capabilities in place, so the equipment will sync. Qualify also means that an evaluation has been completed to ensure that the venue has the correct Wi-Fi speed so marketing materials such as videos, graphics and content will present itself correctly.
The new GZ6G Wi-Fi broadcast network facilitates the Internet of Things to function in a way that it was projected to do years ago. Several possibilities with Wi-Fi apps are as follows:
| ● | Instantly receive best location for emergency first aid with a selected route, walking or driving. Information on where closest drinking fountain, first aid station, among other things, is located. |
| ● | Police can receive optimal path to particular location and control any security cameras in different locations. |
| ● | Consumers receive information on where street parking is available in real time and which parking structures have spaces available. |
| ● | Travelers can be notified of flight changes, allowing more restaurant time. |
| ● | Real time information on shortest food lines at a stadium. |
| ● | 3-D images of museum, real-time information on lines at any venue. |
| ● | Cameras showing crowd at outdoor restaurant or parks. Control of access can change. |
| ● | Security system cameras only available to certain parties such as police or other security personnel. |
| ● | Short term restaurant or store specials when customer traffic is low. |
All of this and more is possible with apps that do not require downloads from the cloud. It’s all available instantly because it is on the venue network. Each venue network can control which apps are available to which group of users, such that security cameras can be available to a select group. The possible apps are endless, and each venue network can customize its network page as it sees fit.
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Our team will possess core capabilities and skill sets that help our clients execute on targeted growth plans that tap into the trillion-dollar tech market. We will serve clients across a wide range of industries and geographies.
Our growth will be through a multi-prong plan: (1) growing an in-house sales team; (2) leveraging strategic partners who are advisors to decision makers and owners of companies and will be conduits for introductions; and (3) client referrals.
We will build a core team of product developers, creative designers, sales professionals and account managers under each practice area to service existing and new clients. Our philosophy is to develop “repeatable” software platforms around common business needs that can be productized to allow for us to scale development of new projects and grow revenues without relying on building large development teams.
Our expertise is IoT; we will help companies become relevant, agile and competitive in a global consumer commerce environment. We will offer the ability for worldwide marketing and advertising through our developed software and available wifi at our venues. Consumers want to be able to shop, among other things, anytime and anywhere, and on any device; our expertise allows for us to put our brands right in front of this consumer activity.
The global information technology industry is experiencing global growth and US companies have to be prepared to be competitive on a global marketplace.
The next generation Wi-Fi broadcast networks will bring fiber-like bandwidth capabilities to a wireless network. Additional benefits of the GZ6G Wi-Fi broadcast network development is the ability to (a) wirelessly connect to fiber that may be at a distance from the facility, and (b) install high-speed bandwidth wireless to serve a community at a lower cost and much shorter deployment timeframe compared to fiber installations.
Employees and Consultants
In addition to our CEO, President and Directors we have thirty (10) full time employees and one (1) part time employee.
Key Relationships
GZ6G has several strong relationships that are mutually beneficial to both partners; partners that will leverage the GZ6G capabilities to maintain and/or grow revenue streams for both entities.
Current Partnerships
Lumen Technologies/CenturyLink |
Lumen Technologies: Lumen Technologies, previously CenturyLink, is one of the largest telecommunications organizations in the country focused on using their networks at cities, stadiums and universities. As a trusted third-party solutions partner, GZ6G Technologies offers the smart solution tools and expertise required for Lumen Technology to develop long term user engagement solutions.
Brand LTD – Brand LTD is our advertising and marketing partner/creative agency.
ViTech – ViTech is one of our IPTV Solutions providers for large venues and smart cities.
Aruba Wireless – Aruba is one of the partners for which we utilize their hardware for smart venues and smart cities.
Internetsoft – Internetsoft is our software development strategic partner that works with our internal development team to scale our software development projects for smart venues and smart cities.
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Marketing Strategy
We plan to market directly to sports arenas, concert venues, universities, racetracks, casinos, and to smart cities using our existing relationships as well as deploying a number of popular online marketing tactics. Additionally, we will be leveraging strategic partners who are advisors to decision makers, and owners of companies, and who will be conduits for introductions and client referrals.
GZ6G has relationships with national and regional Fortune 500 entities that are seeking targeted methods to reach existing and potential customers. These sponsors include commercial enterprises that desire to advertise or collect analytic data on users in high-density locations. National sponsors include the major network carriers, auto manufacturers, airlines, casinos, grocery stores, online retail, consumer discretionary goods and restaurant chains. Many of these seek exposure to consumers in specific areas.
With selective Wi-Fi markets, a sponsor can more effectively deploy advertising budgets. Local restaurants can advertise specials at football games. Casinos or restaurants can advertise to airport customers or smart-city users. Host entities can identify food specials at certain times when lines are low. Airports could provide flight updates in real time with notices to fliers that log in on their flight.
As the GZ6G network installation base grows, the Company will have the ability to offer sponsors a variety of venues for exposure.
Government Contracting Opportunities/Regulation
We have registered through US Federal Contractor Registration (USFCR) which will allow us to be included in the System for Award Management (SAM) which will allow us to be included in writing government contracts. In the event we are awarded jobs through SAM, we will have to adhere to any requirements set forth by the United States Federal government.
Employees and Consultants
Including our CEO, President and Director, Mr. William Coleman Smith, along with our two independent Directors, we have a total of 10 full time employees and one part time employee. Mr. Rohan Potange continues to act as our Interim Chief Technology Officer.
Rohan Potange, Interim Chief Technology Officer
Rohan Patange has more than 13 years of experience in technology consulting, project management, operations, finance, strategic marketing, business expansion, and innovative product development. As a software industry expert, his responsibilities at GZ6G Technologies Corp. encompass expanding and managing the teams responsible for the development of VenuTrax for GZ6G Technologies’ Green Zebra Smart Labs division. VenuTrax will be a state-of-the-art logic management solution cloud (SaaS) platform intended to provide venues the ability to directly communicate with customers using 5G & Wi-Fi 6, as well as offer business intelligence such as data analytics and artificial intelligence for monetization purposes.
Mr. Patange is also the Chief Executive Officer for GZ6G Technologies partner, Internet Soft, a digital transformation consultancy, and software development company that provides cutting-edge engineering solutions. Internet Soft assists Fortune 500 companies and enterprise clients solve complex issues that always emerge during their digital evolution journey. Internet Soft helps Green Zebra Smart Labs scale up workforce and technologies to meet the demand for the emerging 5G & Wi-Fi 6 industry.
Mr. Patange’s strong communication and mentoring skills allows him to lead teams in a way that promotes internal and external business relationships and strengthens customer confidence.
Mr. Patange received his Master’s in Computer Science from Savitribai Phule Pune University located in Pune, India.
The Company works with legal counsel, an accounting firm and an auditing firm on an as needed basis. The Company is looking to hire technical, marketing and software development engineers/staff as soon as finances allow. We intend to add additional staff as we grow. Any such additions will be made at the discretion of management and to meet the Company’s then current needs, all subject to having available resources to attract and retain such staff.
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The Company’s mailing address at 25422 Trabucco Road, Suite 105-275, Lake Forest, CA 92630 is a shared office complex with mail and other services available on a month-to-month basis at minimal cost.
On August 10, 2019, we entered into a lease agreement with IAC Apartment Development JV LLC to lease approximately 1,500 square feet of space at 861 Tularosa, Irvine, California for a one-year term at a rental rate of $3,455 per month, plus utilities, for the Company’s subsidiary, Green Zebra Media Corp. Green Zebra uses the space for its operations. On April 1, 2020, the landlord and the Company agreed to a rental deferment agreement to defer the rental costs by 50% as a result of COVID-19. The monthly rent commencing April 1, 2020 was $1,727.50 plus utilities. The rental deferment ended on June 1, 2020. The original lease expired on August 9, 2020 and was renewed on expiry for another one-year term at a reduced rate of $3,250 per month.
During fiscal 2020 the Company formed a partnership with one of its branding partners for shared office space in a 5,000 square foot office complex located at 8925 West Post Road, Suite 102, Las Vegas, NV 89148. The shared use of the space by Green Zebra staff is currently provided free of charge as part of the shared contract work between Green Zebra, the Company and the branding partner.
On May 19, 2021, the Company signed an 18-month lease for office premises in California located at 1 Technology Drive, Bldg. B, Irvine, CA 92618, Suite no. B123 occupying approximately 6,498 square feet of usable space. The terms of the lease provide for basic monthly rent in the first year of approximately $9,097 per month, and $9,487 for each of the remaining six months. In addition, the tenant is responsible for their share of operating expenses, utilities and services. On February 4, 2022, the Company signed a first amendment to the lease agreement to extend the lease term to November 30, 2027. The terms of the lease provide for basic monthly rent starting in December 2022 of approximately $10,592, with annually increasing around 4%. In addition, the tenant is responsible for their share of operating expenses, utilities and services.
Additional space is expected to be required as we expand our operations. We do not foresee any significant difficulties in obtaining any required additional space. We currently do not own any real property.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We currently trade on the OTCQB under the symbol GZIC.
We currently have 85,136,902 shares of common stock issued and outstanding, 5,000,000 shares of Series A Preferred Stock issued and outstanding, and 1 share of Special Series B Preferred Stock issued and outstanding. We have issued 10,000,000 shares to our CEO and founder, William Coleman Smith during April 2021 in consideration for an additional 9% of controlled subsidiary, Green Zebra.
Our founder, sole officer and member of the board of directors, continues to run our Company. Legal, accounting, and auditing professionals have been paid through funding received from third parties.
We currently have one outstanding Loan Treaty, with eSilkroad Network Limited, in the amount of $1,450,000 that is convertible into common shares at the rate of $0.195 per share, for a total conversion into 7,435,897 common shares. A total of 3,589,744 shares of Common Stock underlying $700,000 in proceeds received were registered pursuant to an S-1 Registration Statement that received Effect on September 27, 2021. An additional $450,000 has been received to date under this Loan Treaty; however no additional shares have been registered.
Pursuant to the S-1 Registration Statement that received Effect on September 27, 2021, the Company presented two “Put Notices” for $50,000 each. Pursuant to those puts, a total of 333,333 registered shares have been issued.
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We entered into a Promissory Note with Mast Hill Fund, L.P. on November 3, 2021, for the Principal Amount of $560,000, and an Actual Amount of Purchase Price of $504,000. The total disbursement to GZ6G was $466,800, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Talos Victory Fund, LLC on December 16, 2021, for the Principal Amount of $560,000, and an Actual Amount of Purchase Price of $504,000. The total disbursement to GZ6G was $463,680, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Mast Hill Fund, L.P. on April 4, 2022, for the Principal Amount of $365,000, and an Actual Amount of Purchase Price of $328,500. The total disbursement to GZ6G was $301,800.00 with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Mast Hill Fund, L.P. on May 23, 2022, for the Principal Amount of $440,000, and an Actual Amount of Purchase Price of $396,000. The total disbursement to GZ6G was $363,740, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Mast Hill Fund, L.P. on September 20, 2022, for the Principal Amount of $176,000, and an Actual Amount of Purchase Price of $158,400. The total disbursement to GZ6G was $150,650, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with 1800 Diagonal Lending, LLC on July 11, 2022, for the Principal Amount of $160,000. The total disbursement to GZ6G was $156,250, with a term of twelve months and an interest rate of 10%.
We entered into a Promissory Note with 1800 Diagonal Lending, LLC on for the Principal Amount of $63,750. The total disbursement to GZ6G was $60,000, with a term of twelve months and an interest rate of 10%.
We entered into a Promissory Note with 1800 Diagonal Lending, LLC on August 23, 2022, for the Principal Amount of $53,750. The total disbursement to GZ6G was $50,000, with a term of twelve months and an interest rate of 10%.
The Company has a Form S-1 Registration Statement with Mast Hill Fund, LP, which received Effect on May 15, 2022, and of which the registered shares have been depleted. Between June 14, 2022, and September 15, 2022, the Company presented six Put Notices to Mast Hill for the cumulative amount of $125,022.24, and the issuance of 2,893,770 shares of the Company’s common stock. On September 29, 2022, the Company presented a Put Notice to Mast Hill, LLP, in the amount of $33,887.34, and the issuance of 1,853,892 shares of the Company’s common stock.
We entered into a Promissory Note with 1800 Diagonal Lending LLC on October 11, 2022 for the Principal Amount of $43,750. The total disbursement to GZ6G was $40,000, with a term of twelve months and an interest rate of 10%
We entered into a Promissory Note with Fourth Man, LLC on November 3, 2022, for the Principal Amount of $160,000. The total disbursement to GZ6G was $138,230, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Janbella Group, LLC on November 8, 2022, for the Principal Amount of $54,000. The total disbursement to GZ6G was $50,000, with a term of twelve months and an interest rate of 10%.
We entered into a Promissory Note with Mast Hill Fund, L.P. on November 23, 2022, for the Principal Amount of $293,000, and an Actual Amount of Purchase Price of $263,700. The total disbursement to GZ6G was $250,789, with a term of twelve months and an interest rate of 12%.
We entered into a Promissory Note with Mast Hill Fund, L.P. on December 20, 2022, for the Principal Amount of $293,000, and an Actual Amount of Purchase Price of $263,700. The total disbursement to GZ6G was $250,789, with a term of twelve months and an interest rate of 12%.
We have outstanding 18,931,271 warrants exercisable for terms of between three (3) and (5) five years from grant date at exercises prices between $0.020025 and $0.10 per share, and no stock options. Of an additional 1,485,000 warrants granted prior, 560,000 warrants were exercised prior to the date of this Offering for proceeds of $53,751.60, and a further 925,000 warrants were exercised on a cashless basis for a total of 907,247 issued shares.
The Company has never paid out cash dividends related to its common stock and we do not believe that we will pay dividends in the foreseeable future.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020, AND THE NOTES TO THOSE AUDITED FINANCIAL STATEMENTS.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOVLE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE DISCUSSED IN “RISK FACTORS” AND ELSWHERE IN THIS FORM 10K AND IN OUR REGISTRATION STATEMENT ON FORM S-1/A FILED ON FEBRUARY17, 2022.
THE MANAGEMENT’S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE BASED UPON OUR AUDITED FINANCIAL STATEMENTS, WHICH HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (“GAAP”).
Plan of Operations
We are an emerging smart city technology growth company that provides wireless and monetization enterprise level smart solutions to cities and large venues that require multiple types of products, services and third-party solutions to fulfil client needs. To date we have generated modest revenues from operations, and while we have various contracts in place for future development, there is no assurance of future revenues.
Results of Operations
Three Months Ended September 30, 2022 and September 30, 2021
Revenue
We generated a total of $74,890 in revenue for the three months ended September 30, 2022, and $132,000 in revenue in the comparable period ended September 30, 2021.
Net Income (Loss)
Three Months ended September 30, 2022, and 2021
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2022 | 2021 | |||||||
| NET REVENUES | $ | 74,890 | $ | 132,000 | ||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | 3,770 | 32,722 | ||||||
| Research and development expenses | - | 2,600 | ||||||
| Depreciation | 26,403 | 17,752 | ||||||
| General and administrative | 554,248 | 293,318 | ||||||
| General and administrative, related parties | 120,000 | 90,000 | ||||||
| Professional fees | 30,000 | 18,759 | ||||||
| Total operating expenses | 734,421 | 455,151 | ||||||
| (Loss) from operations | (659,531 | ) | (323,151 | ) | ||||
| Other income (expense) | ||||||||
| Gain on extinguishment of debt | 3,568,359 | - | ||||||
| Interest expense | (1,189,022 | ) | (2,522,952 | ) | ||||
| Total other income (expense) | 2,379,337 | (2,522,952 | ) | |||||
| Net income (loss) | $ | 1,719,806 | $ | (2,846,103 | ) | |||
| Less: net income (loss) attributable to Non-controlling interest | (20,757 | ) | 13,841 | |||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | 1,740,563 | $ | (2,859,944 | ) | |||
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Total operating expenses for the three months ended September 30, 2022, were $734,421 as compared to $455,151 for the three months ended September 30, 2021. During the three months ended September 30, 2022 and 2021, we reported costs of revenue of $3,770 and $32,722 respectively. The Company incurred $554,248 and $293,318 in general and administrative expenses in the three months ended September 30, 2022, and 2021, respectively and general and administrative costs from fees charged by related parties of $120,000 and $90,000, respectively. General and administrative expenses include staff payroll, rent, travel, office and sundry expense, transfer agent costs, consulting, marketing, advertising and promotional expenses. The substantial increase period over period primarily relates to new employees hired in 2022 with $322,573 in payroll expenses for the three months ended September 30, 2022 as compared to $163,971 for the period ended September 30, 2021, share based compensation to officers and directors in the current period of $65,070 as compared to $0 in the prior comparative three months, transfer agent fees of $22,392 compared to $6,708 in fiscal 2021 due to the costs associated with shares issuances under our equity offerings, software expenses of $14,417 for the three months ended September 30, 2022 with as compared to $3,528 for the three month ended September 30, 2021, insurance expenses of $10,651 as compared to $2,766 in September 30, 2021, and increases to rent expenses to $59,186 for the three months ended September 30, 2022 from $48,404 for the three months ended September 30, 2021. General and administrative expenses incurred from related parties include management fees charged by our CEO, William Coleman Smith, and a company controlled by him. The increase in related party administrative costs is due to an increase in management fees payable to Mr. Smith of $10,000 per month in the period ended September 30, 2022. Professional fees in the three months ended September 30, 2022, totaled $30,000 as compared to $18,759 in the three months ended September 30, 2021, mainly due to an increase in accounting and audit fees from $8,875 for the three months ended September 30, 2021 to $22,500 for the three months ended September 30, 2022 as the Company incurred additional fees in September 2022 due to expenses associated with the filing of certain registration statements and increased financings. Depreciation increased from $17,752 during the three months ended September 30, 2021, to $26,403 during the three months ended September 30, 2022, as a result of the acquisition of a new office space and associated furnishings and equipment.
Other income (expense)
Other income and expense reported for three months ended September 30, 2022, reflected a gain of $2,379,332 for 2022 as including interest expenses and amortization of debt discounts of $1,189,022, offset by a gain on extinguishment of debt of $3,568,359. During the three months ended September 30, 2021, the Company reported other income expenses of $2,522,952 all of which related to interest expense and amortization of debt discounts.
We had a net income of $1,719,806 offset by a loss attributable to the non-controlling interest of $20,757 bringing our total net income attributable to the Company to $1,740,563 in the three months ended September 30, 2022, compared to a net loss of $2,846,103 plus a gain of $13,841 attributable to the non-controlling interest bringing our total Net Loss attributable to the Company to $2,859,944 in the three months ended September 30, 2021.
Nine Months Ended September 30, 2022 and September 30, 2021
Revenue
We generated a total of $81,890 in gross revenue for the nine months ended September 30, 2022, with $132,000 revenue in the comparable period ended September 30, 2021.
Net Income (Loss)
Nine Months ended September 30, 2022, and 2021
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| NET REVENUES | $ | 81,890 | $ | 132,000 | ||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | 5,251 | 32,722 | ||||||
| Research and development expenses | - | 7,800 | ||||||
| Depreciation | 97,854 | 19,941 | ||||||
| General and administrative | 2,430,359 | 545,330 | ||||||
| General and administrative, related parties | 360,000 | 240,000 | ||||||
| Professional fees | 80,200 | 74,015 | ||||||
| Total operating expenses | 2,973,664 | 919,808 | ||||||
| (Loss) from operations | (2,891,774 | ) | (787,808 | ) | ||||
| Other income (expense) | ||||||||
| Gain on extinguishment of debt | 3,568,359 | - | ||||||
| Interest expenses | (5,443,450 | ) | (4,453,057 | ) | ||||
| PPP loan forgiveness | 46,091 | - | ||||||
| Total other income (expense) | (1,829,000 | ) | (4,453,057 | ) | ||||
| Net income (loss) | $ | (4,720,774 | ) | $ | (5,240,865 | ) | ||
| Less: net income (loss) attributable to Non-controlling interest | (37,511 | ) | (66,233 | ) | ||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | (4,683,263 | ) | $ | (5,174,632 | ) | ||
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Total operating expenses for the nine months ended September 30, 2022, were $2,973,664 as compared to $919,808 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022 and 2021, we reported costs of revenue of $5,251 and $32,722 respectively. The Company incurred $2,430,359 and $545,330 in general and administrative expenses in the nine months ended September 30, 2022 and 2021 respectively and general and administrative costs from related parties of $360,000 and $240,000, respectively. General and administrative expenses include staff payroll, rent, travel, office and sundry expense, transfer agent costs, consulting, marketing, advertising and promotional expenses. The substantial increase primarily relates to new employees hired in 2022 with a total of $1,173,368 in payroll expenses for the nine months ended September 30, 2022 as compared to $260,441 for the period ended September 30, 2021, share based compensation to officers and directors in the current period of $65,070 as compared to $0 in the prior comparative three months, investor relations expenses were $754,060 for the nine months ended September 30, 2022 as compared to $4,225 for the period ended September 30, 2021, advertising and promotion expenses increased substantially from $44,754 for September 30, 2021 to $66,013 for the nine months ended September 30, 2022, transfer agent and filing fees increased period over period as a result of equity financings in the period and associated share issuance costs from $22,037 for the nine months ended September 30, 2021 to $38,977 for the nine months ended September 30, 2022, software expenses were $43,001 for the nine months ended September 30, 2022 as compared to only $4,375 for the nine month ended September 30, 2021 as we worked to improve our product offerings, insurance expenses, including general, health and auto insurance were $28,801 as compared to $5,456 in September 30, 2021, and rent expense increased from $81,078 for the period ended September 30, 2021 to $165,530 for the nine months ended September 30, 2022. General and administrative expenses incurred from related parties include management fees charged by our CEO, William Coleman Smith, and a company controlled by him. The increase in related party administrative costs is due to an increase in management fees to Mr. Smith of $10,000 per month in the period ended September 30, 2022. Professional fees in the nine months ended September 30, 2022, remained fairly constant totaling $80,200 in the current nine months, as compared to $74,015 in the nine months ended September 30, 2021. Depreciation increased from $19,941 during the nine months ended September 30, 2021, to $97,854 during the nine months ended September 30, 2022, as a result of the acquisition of a new office space and associated furnishings and equipment.
Other expense
During the nine months ended September 30, 2022, the Company reported other expenses of $1,829,000 including interest expenses and amortization of debt discounts of $5,443,450, offset by a gain on extinguishment of debt of $3,568,359 and a gain of $46,091 related to the forgiveness of a PPP loan. During the nine months ended September 30, 2021, the Company reported other expenses of $4,453,057 all of which related to interest expense and amortization of debt discounts
We had a net loss of $4,720,774 offset by a loss attributable to the non-controlling interest of $37,511 bringing our total Net Loss attributable to the Company to $4,683,263 in the nine months ended September 30, 2022, compared to a net loss of $5,240,865 less a loss of $66,233 attributable to the non-controlling interest bringing our total Net Loss attributable to the Company to $5,174,632 in the nine months ended September 30, 2021.
Statement of Cash Flows
September 30, 2022 and 2021
The following table summarizes our cash flows for the period presented:
| September 30, 2022 | September 30, 2021 | |||||||
| Net cash used in operating activities | $ | (1,917,911 | ) | $ | (787,709 | ) | ||
| Net cash used in investing activities | (72,609 | ) | (176,690 | ) | ||||
| Net cash provided by financing activities | 1,404,820 | 898,146 | ||||||
| Decrease in cash | (585,700 | ) | (62,253 | ) | ||||
| Cash end of period | $ | 174,091 | $ | 118,291 | ||||
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Cash Used in Operating Activities
Net Cash used in operating activities for the nine months ended September 30, 2022, was $1,917,911 as compared to $787,709 of cash used by operating activities for the nine months ended September 30, 2021.
Cash used in operating activities for the nine months ended September 30, 2022, was primarily the result of our net loss of $4,720,774 offset by non-cash items including amortization of debt discount and issuance costs of $5,125,104, financing costs of $22,400, PPP loan forgiveness of $46,091, depreciation of $97,854, amortization of right of use assets of $16,113, common stock issued as financing costs of $22,400, common stock issued for services of $65,070, common stock issued under consulting agreements of $729,000 and repricing of warrant exercise pricing of $17,965. Changes in operating activities for the period ended September 30, 2022, included an increase in accounts receivable of $947, an increase in prepaid expenses of $11,460, an increase in accounts payable and accrued expenses of $226,995, an increase in related party payables of $163,219, a decrease in customer deposits of $34,000. Cash used in operating activities for the period ended September 30, 2021, relates to a net loss of $5,240,865, offset by amortization of debt discount of $4,373,277, depreciation of $19,941, fixed assets reclassified to advertising expenses of $4,990 and amortization of rights of use assets of $520. Changes in operating activities in the nine months ended September 30, 2021, included a decrease in prepaid expenses of $4,507, an increase in other current assets of $10,436, an increase to accounts payable and accrued expenses of $46,990, an increase in related party payables of $149,367 and a decrease of customer deposits of $132,000.
Cash Used In Investing Activities
Cash used by investing activities for the nine months ended September 30, 2022, was $72,609 and was related to equipment purchases of $102,609 offset by proceeds from a credit related to leasehold improvements of $30,000.
Cash used by investing activities for the nine months ended September 30, 2021 was $176,690 and related to equipment purchases of $176,690.
Cash Provided by Financing Activities
During the nine months ended September 30, 2022, financing activities provided net cash of $1,404,820, which was comprised of proceeds from the sale of common stock of $117,216, proceeds from the exercise of warrants of $53,752, proceeds from related parties of $310,000, proceeds of convertible notes of $1,199,150, a refund of related to a PPP loan which was forgiven during the period of $5,702 offset by a repayment of convertible notes of $281,000.
During the nine months ended September 30, 2021, consisted of proceeds from a share subscriptions receivable of $150,000 and proceeds from convertible notes of $900,000, offset by repayments of related party debt of $151,854.
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Results of Operations
Revenue
Fiscal Year ended December 31, 2021 and 2020:
We reported revenues of $78,000 and $8,887 in the fiscal years ended December 31, 2021 and 2020, respectively.
Operating Expenses
Years ended December 31, 2021 and 2020
For the years ended December 31, 2021 and 2020 we had the following operating expenses:
Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | $ | 43,121 | $ | 10,400 | ||||
| Depreciation | 20,429 | 1,948 | ||||||
| General and administrative | 963,068 | 232,052 | ||||||
| General and administrative, related parties | 330,000 | 240,000 | ||||||
| Professional fees | 99,099 | 59,108 | ||||||
| Total operating expenses | 1,455,717 | 543,508 | ||||||
| (Loss) from operations | (1,377,717 | ) | (534,621 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (8,051,277 | ) | (3,996,466 | ) | ||||
| Loss upon notes conversion | (714,973 | ) | (364,909 | ) | ||||
| Change in fair value of derivative liability | - | (28,844 | ) | |||||
| Total other income (expense) | (8,766,250 | ) | (4,390,219 | ) | ||||
| Net income (loss) | $ | (10,143,967 | ) | $ | (4,924,840 | ) | ||
| Less: net income (loss) attributable to Non-controlling interest | $ | (112,359 | ) | $ | (174,896 | ) | ||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | (10,031,608 | ) | $ | (4,749,944 | ) | ||
Total operating expenses for the year ended December 31, 2021 were $1,455,717 as compared to $543,508 for the year ended December 31, 2020. During the years ended December 31, 2021 and 2020 we reported costs of revenue of $43,121 and $10,400, respectively. The Company incurred $963,068 and $232,052 in general and administrative expenses in the fiscal years ended December 31, 2021 and 2020, respectively, and general and administrative costs from related parties of $330,000 and $240,000, respectively. Year over year increases to general and administrative costs were directly related to an increase in operations and increased staffing and associated costs as we relocated to a larger facility and continued to expand our staff and operation in 2021 in order to position ourselves for the reopening of venues and services with the decline of the impact of COVID 19 towards the end of fiscal 2021. General and administrative expenses include rent, travel, office and sundry expense, transfer agent costs, consulting, marketing, advertising and promotional expenses. General and administrative expenses incurred from related parties include management fees charged by our CEO William Coleman Smith, and a company controlled by him. Professional fees in the fiscal year ended December 31, 2021 totaled $99,099 as compared to $59,108 in the fiscal year ended December 31, 2020.
Other expense
Other expense reported for the fiscal years ended December 31, 2021, and 2020 totaled $8,766,250 and $4,390,219, respectively. During the year ended December 31, 2021 the Company reported interest expenses of $8,051,277 (December 31, 2020 -$3,996,466) including amortization of debt discount and issuance costs of $7,823,512 (December 31, 2020 -$3,953,295) and interest expenses of $227,765 (December 31, 2020 - $43,171), a loss on conversion of certain notes of $714,973 (December 31, 2020 - $364,909) and a loss on the change in fair value of derivative liabilities of $28,844 for December 31, 2020 with no comparable loss as at December 31, 2021.
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During the year ended December 31, 2020 the Company reported interest expenses of $3,996,466 including amortization of debt discount and issuance costs of $3,953,295 and interest expenses of $43,171, a loss on conversion of certain notes of $364,909 and a loss on the change in fair value of derivative liabilities of $28,844.
We had a net loss of $10,143,967 in the year ended December 31, 2021 compared to a net loss of $4,924,840 in the year ended December 31, 2020.
Statement of Cash Flows
Years Ended December 31, 2021 and 2020
The following table summarizes our cash flows for the years presented:
| December 31, 2021 | December 31, 2020 | |||||||
| Net cash provided by (used in) operating activities | $ | (1,369,844 | ) | $ | 24,332 | |||
| Net cash used in investing activities | (251,993 | ) | (4,990 | ) | ||||
| Net cash provided by financing activities | 2,201,084 | 130,843 | ||||||
| Increase in cash | 579,247 | 150,185 | ||||||
| Cash end of year | $ | 759,791 | $ | 180,544 | ||||
Cash Used in Operating Activities
Cash used in operating activities for the year ended December 31, 2021 was $1,369,844 as compared to $24,332 of cash provided by operating activities in the year ended December 31, 2020.
Cash used in operating activities for the year ended December 31, 2021 was primarily the result of our net loss of $10,143,967 (December 31, 2020 – $4,924,840) offset by non-cash items including amortization of debt discount and offering costs of $7,823,512 (December 31, 2020- $3,953,295), a loss on conversion of certain notes of $714,973 (December 31, 2020-$364,909) and depreciation of $20,429 (December 31, 2020- $1,948). In the fiscal year ended December 31, 2021 we also had the amount of $910 for Amortization of right of use assets and $4,990 due to a reclassification of fixed assets to advertising expense with no comparable amounts for these items in the fiscal year ended December 31, 2020. In the fiscal year ended December 31, 2020 we had a fair value adjustment of $28,844 to derivative liabilities with no comparable adjust at December 31, 2021.
Changes in operating activities in the year ended December 31, 2021 included an increase in prepaid expenses of $7,319 comparted to a decrease in prepaid expenses of $10,400 during the year ended December 31, 2020, an increase in other current assets in fiscal 2021 of $10,436 compared to a decrease in other current assets of $7,398 in fiscal 2020, an increase to accounts payable of $100,264 at December 31, 2021 (December 31, 2020- $84,663), and increase in related party payables of $179,659 at December 31, 2021 (December 31, 2020 -$300,715) and an decrease in customer deposits of $78,000 for December 31, 2021 compared to an increase in customer deposits of $197,000 for the fiscal year ended December 31, 2020. Fiscal year December 31, 2021 had total cash used in operating activities of $1,369,844 as compared total cash provided by operating activities of $24,332 for the fiscal year ended December 31, 2020.
Cash Used In Investing Activities
Cash used by investing activities for the years ended December 31, 2021 and 2020 related to equipment purchases and totaled $251,993 and $4,990 respectively.
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Cash Provided by Financing Activities
During the year ended December 31, 2021, financing activities provided cash of $2,201,084 (December 31, 2020- $130,843), which was comprised of proceeds from private placements of $100,000 (December 31, 2020), subscriptions receivable of $150,000 (December 31, 2020 – nil), proceeds from convertible notes of $2,108,000 (December 31, 2020 – nil) offset by repayment of debt of $151,854 (December 31, 2020 – nil) and repayments of loans payable of $5,062 (December 31, 2020 – nil). During December 31, 2020 there were advances of $50,000 loans payable proceeds of $89,450, and repayments of convertible debts of $8,607 with no comparable amounts during the fiscal year ended December 31, 2021.
Plan of Operation:
We are an emerging smart city technology growth company that provides wireless and monetization enterprise level smart solutions to cities and large venues that require multiple types of products, services and third-party solutions to fulfill client needs. To date we have generated modest revenues from operations, and while we have various contracts in place for future development, there is no assurance of future revenues.
Liquidity and Capital Resources
The Company has been in the start-up phase and has generated modest revenues from its operations, and while we have various contracts in place for future development, there is no assurance of future revenues. As at September 30, 2022, the Company had cash on hand of $174,091 (December 31, 2021- $759,791) and an accumulated deficit of $20,775,794 (December 31, 2021 - $16,092,531).
During the years ended December 31, 2021 and 2020 the Company entered into various loan treaties, convertible notes and other financing arrangements through which we received net cash proceeds of $2,108,000 during fiscal 2021. The Company anticipates a need for a further $5,000,000 in fiscal 2022 to meet its upgraded infrastructure requirements and has filed two registration statements on Form S-1 to facilitate this requirement which allow for total funding of up to $15,000,000, both of which have been deemed effective. To date the Company has received funding under these equity lines of $117,216. There is no guarantee the Company will continue to receive financing as required.
During the nine months ended September 30, 2022, the Company received $53,752 in proceeds from the exercise of warrants, $50,000 in proceeds from a loan treaty agreement, and a further $1,149,150 in net proceeds from convertible notes as well as $310,000 from its CEO in the form of promissory notes for ongoing operations.
Covid-19 Pandemic
The recent COVID-19 pandemic could have a continuing adverse impact on our existing sponsorship and revenue agreements. To date, the implementation of services under certain of these agreements have experienced delays as a result of the pandemic. COVID-19 has caused significant disruptions to the global financial markets, which may also impact our ability to raise additional capital. During March 2020, we gave notice of furlough to our administrative support employees in an effort to conserve resources as we evaluated our business development efforts during that period. In April 2020, the Company received a grant of $6,000 and in May 2020 we received a PPP loan and an SBA loan in the approximate cumulative amount of $90,000 for operations. With the recently negotiated financing the Company is currently reopening offices and has commenced the hiring of additional staff as well as the upgrading of infrastructure requirements to meet anticipated customer needs. While recent progress in the battle against COVID leads us to believe that the worst of the effects of the pandemic are past, we cannot say with certainty that the situation will not change. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and still subject to change. While significant uncertainty remains, despite the fact that the Company has been able to source financing, it remains that the COVID-19 outbreak may have a negative impact on continuing funding and its ability to work through its collaborative development efforts with industry partners, and in acquiring venues due to the continuing impact of COVID 19. To mitigate impact the Company is currently focusing its efforts on contracts in the wireless and cellular telecommunications segment, as well as the infrastructure components of its existing contracts to allow for continuity and forward momentum.
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Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2022, the Company had a working capital deficit of $8,418,286 with approximately $174,091 of cash on hand and an accumulated deficit of $20,775,794. During the year ended December 31, 2021 the Company entered into various loan treaties, convertible notes and other financing arrangements through which we received net cash proceeds of $2,108,000. The Company anticipates a need for a further $5,000,000 in fiscal 2023 to meet its upgraded infrastructure requirements and has filed two registration statements on Form S-1 to facilitate this requirement which allow for total funding of up to $15,000,000, both of which have been deemed effective. To date the Company has received funding under these equity lines of $117,516. During the nine months period ended September 30, 2022, the Company raised an additional net $1,199,150 by way of a series of convertible promissory notes totaling $1,149,150 and including $50,000 funded under the loan treaty agreement. There is no guarantee the Company will continue to receive financing as required. The continuation of the Company as a going concern is dependent upon the ability to raise additional equity and/or debt financing and the attainment of profitable operations from the Company’s future business. If the Company is unable to obtain adequate capital as needed, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.
Research and Development Costs
We charge research and development costs to operations as incurred in accordance with ASC 730-Research and Development, except in those cases in which such costs are reimbursable under customer funded contracts. These amounts are not reflected in the reported research and development expenses in each of the respective periods but are included in net sales with the related costs included in cost of sales in each of the respective periods. During each of the nine months ended September 30, 2022, and 2021 we expended $NIL and $7,800 on research and development costs, respectively.
Stock-Based Compensation
We account for stock-based transactions in which the Company receives services from employees, non-employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date in accordance with ASC 718 – Compensation-Stock Compensation. Stock-based compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair value as calculated by the Black-Scholes option pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award.
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Stock Settled Debt
In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. As of September 30, 2022 and December 31, 2021, the Company had recorded within Convertible Notes, net of discount, the amount of $6,223,130 and $5,075,840 for the value of the stock settled debt with respect to certain convertible notes.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers, excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023, including interim periods therein.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Since inception, we have had no changes in or disagreements with our accountants. Our audited financial statements have been included in this prospectus in reliance upon Pinnacle Accountancy Group of Utah (a dba of Heaton & Company, PLLC), as experts in accounting and auditing.
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
We are dependent on the efforts and abilities of senior management. The interruption of services of senior management could have a material adverse effect on our operations, profits and future development if suitable replacements are not promptly obtained. No assurance can be given that each executive will remain with us. All of our officers and directors will hold office until their resignation or removal.
The following table sets forth the names and ages of our current directors and executive officers as well as the principal offices and positions held by each person. Our Board of Directors appoints our executive officers. Our directors serve until the earlier occurrence of the election of his or her successor at the next meeting of shareholders, death, resignation or removal by the Board of Directors. Other than Mr. Smith, we have no promoters as Rule 405 of Regulation S-K defines that term.
| NAME | AGE | POSITION | ||
| William Coleman Smith | 60 | Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director | ||
| Brian Scott Hale | 55 | Director | ||
| William Ray Procanik | 50 | Director |
EXECUTIVE SUMMARIES
July 9, 2018, to Present: William Coleman Smith, Founder, Sole Officer and Director, Member of Audit Committee
Coleman Smith has more than 25 years in the telecommunication industry and as a tech entrepreneur. He established two of the largest global cloud based application networks for the media and education industry, and developed sales channel partnerships to launch a global e-learning network that sold software (SaaS) products through partner resellers worldwide, which he eventually sold in 2005. Because of his global network, in 2006 he started a digital marketing agency which was the first web-based cloud, ad network that grew to over 6,500 publishing partners, which transformed online display advertising before selling in 2010.
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April 29, 2018, to Present: Mr. Smith serves as the Chairman of the Board, Chief Executive Officer and President of Green Zebra Media Corp, the Company’s wholly owned subsidiary.
December 28, 2003, to Present: Smith also serves as Chairman of the Board, CEO, and President of ELOC Holdings Corporation since its inception. ELOC Holdings Corporation is a digital media technology holdings company. Subsidiaries own and operate proprietary Web TV channels, social media network channels, 100’s of hours of documentaries, training and education programs, e-learning technology, digital content distribution technology, file sharing & collaboration technology, digital video production, and software development.
An experienced industry executive, Mr. Smith held numerous roles in Fortune 500 companies, including Major and National Account Representative for MCI Communications, Senior Clinical Representative for General Electric, and Senior Business Analyst for Dun and Bradstreet.
A recipient of numerous business awards such as the Ernst & Young Executive of the Year in 1999 and the Ernst & Young Entrepreneur of the Year in 1996, Smith also holds several ExecRank Certifications from “Understanding SEC Compliance” to “Translating Cybersecurity.” He’s also authored 13 Keep It Simple series books for Entrepreneurs.
In addition to his storied business career, Smith served as a military medic in the United States Navy from 1985 to 1990 and was honorably discharged.
Smith is a graduate of East Tennessee State University with a Bachelor of Science degree in Finance and also has his Master’s Degree in Business Administration from the University of Southern California.
Brian Scott Hale: August 6, 2021 – Independent Director of GZ6G Technologies Corp., Member of Audit Committee
Mr. Hale has been the owner, and operator of Anchor Commercial Development, a commercial real estate development company, since August 2003, and continues to run Anchor Commercial Development on a daily basis, responsible for the day-to-day business operations. Mr. Hale has more than 20 years of commercial real estate development experience and has successfully founded, operated, and managed over a dozen multi-million-dollar companies with a focus on shopping center construction, renovation, maintenance, and management. Mr. Hale successfully opened, and was heavily involved, in every step of construction with his first shopping center, Dayco Crossing in 2003, a 44,000 sq. feet shopping center in Dayton, Tennessee. Today, he continues to build successful centers throughout the country with his company Anchor Commercial Development. Mr. Hale is poised to assist the facilitation of development for the company through technical analysis and creative solutions.
William Ray Procanik – August 6, 2021 - Independent Director – GZ6G Technologies Corp., Member of Audit Committee
Mr. Procanik has been the owner and operation of RIS Sales, an independent manufacturing company that consults and provides sales representation, for new retail products looking to supply a Big Box Retailer, since July 2014. He continues to run RIS Sales on a daily basis, overseeing the day-to-day operations of the company. Mr. Procanik has been in sales management and business development for the past twenty-five years and has worked with Fortune 500 Companies, as well as start-up companies and family businesses. In addition to sales management and business development, Mr. Procanik has experience in strategic planning, executive recruiting, contract negotiations, public relations and public speaking, and multi-store retail management. Mr. Procanik attended college at Springfield College, in Springfield, Massachusetts from 1990-1994, and studied business and liberal arts. He participated in College Varsity Football, Big Brothers/Big Sisters of Springfield MA and was involved in student government, and Young Entrepreneurs Organization. Mr. Procanik currently resides in Connecticut.
During the past ten years, except as noted above, the officers and directors of the Company have not been the subject of the following events:
| 1. | A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; |
| 2. | Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| 3. | The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities; |
| i) | Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
| ii) | Engaging in any type of business practice; or | |
| iii) | Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; |
| 4. | The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity; |
| 5. | Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; |
| 6. | Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; |
| 7. | Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| i) | Any Federal or State securities or commodities law or regulation; or | |
| ii) | Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or | |
| iii) | Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| 8. | Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. | |
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Summary Compensation Table.
The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our CEO (William Coleman Smith) during the years ended December 31, 2021 and December 31, 2020. Mr. Smith is the sole officer and director that received compensation from us for the years ended December 31, 2021 and 2020 in excess of $100,000. William Smith’s various employment agreements each provide for salary payments of $10,000.00 per month, respectively. Our Board of Directors may adopt an Equity Incentive Plan for us that may result in the granting stock based compensation for our CEO.
| Name and Title |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan ($) |
Non-qualified Deferred ($) |
All
other Compensation ($) |
Total ($) |
William
C. Smith Treasurer, Secretary |
2021 | $330,000(1) |
-0- | -0- | -0- | -0- | -0- | -0- | $330,000(1) |
William
C. Smith Treasurer, Secretary |
2020 | $240,000 | -0- | -0- | -0- | -0- | -0- | -0- | $240,000(1) |
(1) Of this amount $120,000 is unpaid and accrued monthly to Mr. Smith’s controlled entity, ELOC Holdings, Corp.
Notes to Summary Compensation Table:
On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company. Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp. whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. ELOC Holdings, Corp is a company controlled by Mr. Smith.
On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC was required to pay an annual salary of $120,000 to Mr. Smith.
Effective April 1, 2021, the Company revised Mr. Smith’s compensation so that he receives $10,000 per month directly as an employee in addition to accrued monthly fees for management services provided through controlled entity ELOC of $10,000, and $10,000 in paid monthly salary from GZMC.
Director Compensation
Currently, there is no compensation in any form including payments of cash or in equity paid for services rendered as Directors. Additionally, no award of salary or equity has been accrued as payable for any director for any current or prior service. At this time no other plan for compensation has been developed for either salary or equity compensation. It is contemplated that the registrant would develop and approve a plan as soon as it has adequate resources to do so. Any future plans would be commensurate with the service provided and not exceed any industry standard for the size and performance of comparable companies in the same industry.
Directors may be compensated for out-of-pocket expenses associated with attending Board of Directors’ meetings.
Compensation disclosed on the Director Compensation Table below is as of the nine months ended September 30, 2022. There was no compensation for Director services during the fiscal years ended December 31, 2021 and 2020. Any compensation received in fiscal 2021 and 2020 is shown in the Executive Compensation Summary Table above for those Officers who happen also to be Directors of ours.
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Director Compensation Table
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) |
| Change in | |||||||
| Pension Value and | |||||||
| Fees Earned or | Non-Equity Incentive | Nonqualified Deferred | |||||
| Paid in Cash |
Stock Awards |
Option Awards |
Plan Compensation |
Compensation Earnings |
All Other Compensation |
Total | |
| Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) |
| William C. Smith (1) | 0 | 60,250 | 0 | 0 | 0 | 0 | 60,250 |
| William Ray Procanik (2) | 0 | 2,410 | 0 | 0 | 0 | 0 | 2,410 |
| Brian Scott Hale (3) | 0 | 2,410 | 0 | 0 | 0 | 0 | 2,410 |
| (1) | On September 1, 2022, Mr. Smith was issued 2,500,000 unregistered, restricted shares of common stock at $0.0241 per share in consideration of services provided as a director; |
| (2) | On September 1, 2022, Mr. Procanik was issued 100,000 unregistered, restricted shares of common stock at $0.0241 per share in consideration of services provided as a director; |
| (3) | On September 1, 2022, Mr. Hale was issued 100,000 unregistered, restricted shares of common stock at $0.0241 per share in consideration of services provided as a director; |
Code of Ethics
We have not adopted a Code of Ethics and plan to do so in the future.
Conflicts of Interest
Coleman Smith and ELOC Holdings Corp.
On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company. Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp. whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. ELOC Holdings, Corp is a company controlled by Mr. Smith.
On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC was required to pay an annual salary of $120,000 to Mr. Smith.
During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp made short term loans with interest at 1.5% per month to the Company to pay various expenses.
During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp also advanced funds to the Company to pay various expenses.
As of December 31, 2020, Mr. Smith, ELOC Holdings Corp. and the Company agreed to retroactively allocate interest in the amount of 5% per annum to loans, advances, wages, and management fees payable by each of GZMC and the Company from January 1, 2020, forward. The parties entered into a single consolidated promissory note for all amounts payable to each of ELOC and Smith, with a principal amount of $1,217,579 payable to ELOC.
Effective April 1, 2021, the Company revised Mr. Smith’s compensation so that he receives $10,000 per month directly as an employee in addition to accrued monthly fees for management services provided through controlled entity ELOC of $10,000, and $10,000 in paid monthly salary from GZMC.
During the fiscal year ended December 31, 2021, the Company paid a total of $151,854, of which $11,854 was repaid during the six months ended June 30, 2021, to ELOC to reduce the principal balance on the loan.
During the nine months ended September 30, 2022, the Company’s CEO, William Coleman Smith entered into Promissory Notes with the Company for a total of $310,000 due and payable within 5 (days) of the Company receiving proceeds and bearing interest at 1%.
During the nine months ended September 30, 2022, the Company issued 2,500,000 shares of restricted common stock in partial payment of his promissory notes in the amount of $75,000, at $0.03 per share.
During the three- and nine-month periods ended September 30, 2022, the Company accrued $30,000 and $90,000 in management fees to ELOC, respectively and accrued $90,000 and $270,000 in management fees to Coleman Smith, respectively. The Company paid cash to accrued management fees to Coleman Smith of $60,000 and $240,000, respectively. During the three- and nine-months periods ended September 30, 2021, the Company accrued $30,000 and $90,000 in management fees to ELOC respectively, and paid management fees to Coleman Smith of $60,000 and $150,000, respectively.
On September 1, 2022, the Company issued 2,500,000 shares of restricted common stock, with a fair value $60,250, to William Coleman Smith for director services rendered during the first two quarters of 2022.
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Securities Purchase Agreement – William Coleman Smith
On April 8, 2021, the Company and William Coleman Smith, officer and director entered into a securities purchase agreement whereunder Mr. Smith sold an additional 9% interest in GZMC to the Company for consideration of 10 million unregistered, restricted shares of common stock. On the conclusion of the transaction, the Company controlled 60% of GZMC.
On August 6, 2021, Mr. Brian Scott Hale and Mr. William Ray Procanik were appointed to the Board of Directors; both agreed to serve on the Board for a minimum of six months, without compensation.
On September 1, 2022, the Board of Directors and the Majority Shareholder resolved to issue 5,200,000 restricted, unregistered shares of the Company’s common stock as follows: 2,500,000 common shares to William Coleman Smith; 100,000 common shares to Brian Scott Hale; and 100,000 common shares to William Procanik for services rendered during the first two quarters of 2022.
Concurrently, the Board of Directors and the Majority Shareholder also resolved to issue 2,500,000 restricted, unregistered shares of the Company’s common stock to William Coleman Smith at $0.03 per share for total value of $75,000 in partial conversion of amounts due and payable under a Consolidated Promissory Note originally issued to Mr. Smith on December 31, 2020.
Family Relationships
There are no family relationships between any director or executive officer.
Director Independence
Our board of directors is currently composed of three members, two of whom qualify as independent directors in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of her family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to each director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to our management and us.
Security Holders Recommendations to Board of Directors
We welcome comments and questions from our shareholders. Shareholders can direct communications to our Investor Relations team. However, while we appreciate all comments from shareholders, we may not be able to individually respond to all communications. We attempt to address shareholder questions and concerns in our press releases and documents filed with the SEC so that all shareholders have access to information about us at the same time. All communications addressed to our Director and Executive Officers will be reviewed by the appropriate Officer unless the communication is clearly frivolous.
Board Committees
We have recently formed an audit committee, consisting of our three board members, two of whom are independent. We do not have any other board committees including a nominating, compensation, or executive committee. We currently have limited operating revenues. Presently, we have two independent directors. If we are able to grow our business and increase our operations in the future, then we will likely seek out and retain additional independent directors with additional financial expertise and expect to form, compensation, and other applicable committees. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. Our directors perform all functions that would otherwise be performed by committees.
Our board is actively involved in our risk oversight function and collectively undertakes risk oversight as part of our monthly management meetings. This review of our risk tolerances includes, but is not limited to, financial, legal and operational risks and other risks concerning our reputation and ethical standards.
Given our size, we do not have a nominating committee or a diversity policy. Our entire board monitors and assesses the need for and qualifications of additional directors. We may adopt a diversity policy in the future in connection with our anticipated growth.
Long-Term Incentive Plans
We do not have a Long-Term Incentive Plan that involves ongoing Restricted Stock and Stock Option grants of which are performance based. We have not issued any Stock Option grants.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND EXECUTIVE MANAGEMENT
The following table sets forth certain information at February 2, 2023, with respect to the beneficial ownership of shares of Common Stock and Series A Preferred Stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of Common Stock (based upon reports which have been filed and other information known to us), (ii) each of our Directors, (iii) each of our Executive Officers and (iv) all of our Executive Officers and Directors as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. As of February 2, 2023, we had 85,136,902 shares of Common Stock; 5,000,000 shares of Series A Preferred Stock issued and outstanding; and 1 share of Special 2018 Series B Preferred Stock issued and outstanding to our Directors and Executive Officers as a group.
Name and address of beneficial owner |
Common Stock |
Series A Preferred Stock (2) |
Series B Preferred Stock |
Beneficial Ownership as Converted | Percentage of Class of Stock (1) | |||||
William Coleman Smith 3333 Michelson Dr., 3rd Floor Irvine, California 92612 |
67,500,000(2)(3) |
5,000,000 |
1 |
50,000,000 shares of common stock as to Series A(2) Series B - No Rights of Conversion |
49.95% Common 100% Series Preferred A 100% Series B Preferred | |||||
William Ray Procniak(4) 58 Woodley Court, Unit 16, Meriden CT, 06450 |
100,540 | - | - | - | 0.0012% Common | |||||
Brian Scott Hale (5) 3035 Rhea Hwy, Suite 150 Dayton TN 37321 |
700,000 | - | - | - | 0.008% Common | |||||
Total |
63,100,540 |
5,000,000 |
1 |
|
49.96% Common 100% Series Preferred A 100% Series B Preferred |
| (1) | Based on 135,136,902 shares outstanding including 85,136,902 common shares currently issued and outstanding, and 50,000,000 shares of common stock available for conversion from 5,000,000 shares of Series A Preferred held by Mr. Smith. |
| (2) | Includes 5,000,000 shares of Series A Preferred Stock as converted. Each shares of Series A Preferred Stock is convertible into 10 shares of Common Stock |
| (3) | Includes the following shares issued effective September 1, 2022: 2,500,000 common shares to William Coleman Smith for services rendered as a board member during the first two quarters of 2022, and 2,500,000 restricted, unregistered shares of the Company’s common stock at $0.03 per share for total value of $75,000 in partial conversion of amounts due and payable under a Consolidated Promissory Note originally issued to Mr. Smith on December 31, 2020. |
| (4) | On September 1, 2022, the Board of Directors issued 100,000 common shares to William Procanik for services rendered during the first two quarters of 2022. |
| (5) | On September 1, 2022, the Board of Directors issued 100,000 common shares to Brian Scott Hale for services rendered during the first two quarters of 2022. |
Under Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.
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In a private transaction, Mr. William Coleman Smith acquired 2,500,000 shares of the Company’s common stock from the former controlling shareholder, Mr. Terrence Flowers, for total consideration of $15,000 and became the Company’s controlling shareholder.
On November 19, 2018, the Company issued a total of 5,000,000 shares of Series A Preferred Stock and 1 share of Series B Preferred Stock to William Coleman Smith, our sole director and officer, as partial consideration in exchange for 51% of the outstanding shares of GZMC.
On April 29, 2021, Mr. Smith was issued 10,000,000 shares of common stock in exchange for an additional 9% ownership of Green Zebra Media Corp.
On September 1, 2022, the Board of Directors and the Majority Shareholder resolved to issue 5,200,000 restricted, unregistered shares of the Company’s common stock as follows: 2,500,000 common shares to William Coleman Smith; 100,000 common shares to Brian Scott Hale; and 100,000 common shares to William Procanik for services rendered during the first two quarters of 2022.
Concurrently, the Board of Directors and the Majority Shareholder also resolved to issue 2,500,000 restricted, unregistered shares of the Company’s common stock to William Coleman Smith at $0.03 per share for total value of $75,000 in partial conversion of amounts due and payable under a Consolidated Promissory Note originally issued to Mr. Smith on December 31, 2020.
The Series A Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| ● | Voting Rights: The Series A Preferred Stock have one vote for each share owned. |
| ● | Adverse Effects: The Corporation shall not amend, alter or repeal the preferences, rights, powers or other terms of A Preferred Stock without the written consent of the holder(s) of the Series A Preferred Stock. |
| ● | Conversion: The shares of Series A Preferred Stock shall convert into common shares at the rate of 10 new shares for every one share of Special 2018 Series A Preferred Stock owned. The holder of the Special 2018 Series A Preferred Stock can convert the shares into common shares at any time. |
| ● | Dividends: The Series A Preferred Stock are not entitled to any dividends. |
| ● | No Impairment. The Corporation shall not intentionally take any action which would impair the rights and privileges of the Special 2018 Series A Preferred Stock. |
The Special Series B Preferred Stock has a number of rights, privileges and preferences in accordance with the Certificate of Designations, Preferences and Rights of Special Series B Preferred Stock filed by us with the Nevada Secretary of State, including the following:
| ● | Voting Rights: The Special 2018 Series B Preferred Stock stockholder is entitled to 51% of all votes (including, but not limited to, common stock, and preferred stock (including on an as converted basis) entitled to vote at each meeting of the stockholders of the Corporation (and written actions of the stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration. |
| ● | Adverse Effects: The Corporation cannot amend, alter, or repeal the preferences, rights, powers or other terms of the Special 2018 Series B Preferred Stock without the written consent or affirmative vote of the holder of the Special 2018 Series B Preferred Stock. |
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| ● | Dividends: The Special 2018 Series B Preferred Stock shall not be entitled to any dividends. |
| ● | No Impairment: The Corporation shall not intentionally take any action which would impair the rights and privileges of the Special 2018 Series B Preferred Stock. |
We are not aware of any arrangements that could result in a change of control. Mr. William Coleman Smith is currently the controlling shareholder of the Company and upon conversion of his Series A Preferred Shares would remain the controlling shareholder of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company. Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp., a company controlled by Mr. Smith, whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. On April 1, 2021, the Company revised Mr. Smith’s compensation so that he also receives $10,000 per month directly as an employee in addition to accrued monthly fees for management services provided through controlled entity ELOC. On February 7, 2022, the board of directors of the Company approved and authorized a further increase of $10,000 per month in salary for Mr. Smith directly, effective January 1, 2022.
On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC is required to pay an annual salary of $120,000 to Mr. Smith.
During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp made short term loans with interest at 1.5% per month to the Company to pay various expenses. As of December 31, 2020, Mr. Smith, ELOC Holdings Corp. and the Company agreed to retroactively allocate interest in the amount of 5% per annum to loans, advances, wages and management fees payable by each of GZMC and the Company from January 1, 2020 forward. The parties entered into a single consolidated promissory note for all amounts payable to each of ELOC and Smith, with a principal amount of $1,217,579 payable to ELOC.
During the fiscal year ended December 31, 2021, the Company paid a total of $151,854, of which $11,854 was repaid during the six months ended June 30, 2021, to ELOC to reduce the principal balance on the loan.
During the nine months ended September 30, 2022, the Company issued 2,500,000 shares of restricted common stock in partial payment of his promissory notes in the amount of $75,000, at $0.03 per share.
During the nine months ended September 30, 2022, the Company’s CEO, William Coleman Smith entered into Promissory Notes with the Company for a total of $310,000 due and payable within 5 (days) of the Company receiving proceeds and bearing interest at 1%.
The following amounts are included in debt to related party on our Balance Sheets:
| Balance at December 31, 2020, Debt, related party | $ | 1,217,579 | ||
| Payments on loan | (151,854 | ) | ||
| Balance at December 31, 2021, Debt, related party. | 1,065,725 | |||
| Shares issued to settle debt | (75,000 | ) | ||
| Promissory Notes for funding provided | 310,000 | |||
| Balance at September 30, 2022, Debt, related party. | $ | 1,300,725 |
The interest expenses related to above loans are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on notes | $ | 13,777 | $ | 13,908 | $ | 40,477 | $ | 42,282 | ||||||||
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During the three- and nine-month periods ended September 30, 2022, the Company accrued $30,000 and $90,000 in management fees to ELOC, respectively and accrued $90,000 and $270,000 in management fees to Coleman Smith, respectively. The Company paid cash to accrued management fees to Coleman Smith of $60,000 and $240,000, respectively. During the three- and nine-months periods ended September 30, 2021, the Company accrued $30,000 and $90,000 in management fees to ELOC respectively, and paid management fees to Coleman Smith of $60,000 and $150,000, respectively.
The following amounts are included in related party payables on our Balance Sheets:
| September 30, 2022 | December 31, 2021 | |||||||
| Coleman Smith, President | $ | 36,688 | $ | 3,946 | ||||
| Interest payable | 96,190 | 55,713 | ||||||
| ELOC Holdings Corp. | 210,000 | 120,000 | ||||||
| Terrence Flowers | 110 | 110 | ||||||
| $ | 342,988 | $ | 179,769 | |||||
On September 1, 2022, the Company issued 2,500,000 shares of restricted common stock, with a fair value $60,250, to William Coleman Smith for director services rendered during the first two quarters of 2022.
Securities Purchase Agreement – William Coleman Smith
On April 8, 2021, the Company and William Coleman Smith, officer and director entered into a securities purchase agreement whereunder Mr. Smith sold an additional 9% interest in GZMC to the Company for consideration of 10 million unregistered, restricted shares of common stock. On the conclusion of the transaction, the Company controlled 60% of GZMC.
On September 1, 2022, the Board of Directors and the Majority Shareholder resolved to issue 5,200,000 restricted, unregistered shares of the Company’s common stock as follows: 2,500,000 common shares to William Coleman Smith; 100,000 common shares to Brian Scott Hale; and 100,000 common shares to William Procanik for services rendered during the first two quarters of 2022.
Concurrently, the Board of Directors and the Majority Shareholder also resolved to issue 2,500,000 restricted, unregistered shares of the Company’s common stock to William Coleman Smith at $0.03 per share for total value of $75,000 in partial conversion of amounts due and payable under a Consolidated Promissory Note originally issued to Mr. Smith on December 31, 2020.
Other than the foregoing, none of the following persons has any direct or indirect material interest in any transaction to which we were or are a party since the beginning of our last fiscal year, or in any proposed transaction to which we propose to be a party:
(A) any of our director(s) or executive officer(s);
(B) any nominee for election as one of our directors;
(C) any person who is known by us to beneficially own, directly or indirectly, shares carrying more than 5% of the voting rights attached to our Common Stock; or
(D) any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons named in paragraph (A), (B) or (C) above.
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RECENT SALES/ISSUANCE OF UNREGISTERED SECURITIES.
Between January 1, 2019, and through December 2, 2022, we have issued the following securities.
On August 26, 2019, Diamondrock, LLC. was issued 100,000 shares of common stock pursuant to a commitment Fee on a Financing Agreement.
Subsequent to a partial assignment of a Convertible Note, to various purchasers on September 28, 2020, the Company received notices of election to convert the entire principal balance of $147,000 on October 1, 2020. The Company issued a total of 3,500,001 shares of common stock to six individuals in full and final settlement of the New Note on October 26, 2020.
Subsequent to a partial assignment of Convertible Note, to various purchasers on December 30, 2020, the Company received notices of election to convert the entire principal balance of $150,000, plus accrued interest of $13,558.31, on December 31, 2020. The Company issued a total of 3,894,245 shares of common stock to six individuals in full and final settlement of the New Note on December 31, 2020.
On December 30, 2020, 600,000 common shares were purchased by a third party for the total amount of $150,000.00, at $0.25 per share. These shares were issued on January 26, 2021, and are restricted. The proceeds from the Note was used to further the operations of the Company and to executed on its business plan.
On April 29, 2021, 10,000,000 common shares were issued to William Coleman Smith in exchange for an additional 9% ownership of Green Zebra Media Corp.
On April 7, 2022, the Company entered into Professional Relations and Consulting Agreement (Agreement) with Acorn Management Partners, LLC (Acorn), a Georgia Limited Liability Company, wherein the Company will pay Acorn $11,500 per month, and issue, or cause to be issued, $120,000 worth of the Company’s restricted common stock in three tranches, total shares equivalent to $60,000 for the first six month period and total shares equivalent to $30,000 for each of the remaining two three-month periods. The Company issued a total of 51,282 unregistered restricted shares on April 15, 2022, in respect of the first installment of $60,000 worth of common stock under the terms of the Agreement which shares are valued at fair market value on the date of issue.
On May 23, 2022 pursuant to an Engagement Agreement with Beyond Media SEZC, the Company issued a total of 1,818,181 shares of common stock as compensation.
On July 19, 2022, 383,000 unregistered shares of the Company’s common stock were issued to Acorn Management Partners, LLC in lieu of cash payments owed to Acorn pursuant to a Professional Relations and Consulting Agreement (Consulting Agreement) entered into on April 7, 2022, and an Addendum to that Consulting Agreement entered into on July 6, 2022.
On August 3, 2022, the Company received a conversion notice from eSilkroad for the issuance of 1,538,462 shares to settle $300,000 in note proceeds at $0.195 per share.
On August 12, 2022, the Company issued 560,000 shares of common stock valued at $0.0770 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On August 25, 2022, the Company issued 300,000 shares of common stock valued at $0.0208 per share pursuant to a Notice of Conversion from Mast Hill in respect to accrued and unpaid interest on the November 3, 2021, Convertible Note.
On August 29, 2022, the Company issued 1,000,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On September 1, 2022, the Board of Directors and the Majority Shareholder resolved to issue 5,200,000 restricted, unregistered shares of the Company’s common stock as follows: 2,500,000 common shares to William Coleman Smith; 100,000 common shares to Brian Scott Hale; and 100,000 common shares to William Procanik for services rendered during the first two quarters of 2022.
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Concurrently, the Board of Directors and the Majority Shareholder also resolved to issue 2,500,000 restricted, unregistered shares of the Company’s common stock to William Coleman Smith at $0.03 per share for total value of $75,000 in partial conversion of amounts due and payable under a Consolidated Promissory Note originally issued to Mr. Smith on December 31, 2020.
On September 7, 2022, the Company issued 700,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On September 7, 2022, the Company issued 1,590,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Mast Hill in respect to the principal on the November 3, 2021, Convertible Note.
On September 8, 2022, the Company issued 850,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On September 9, 2022, the Company issued 725,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On September 13, 2022, the Company issued 1,000,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On September 21, 2022, the Company issued 1,850,000 shares of common stock valued at $0.02808 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On October 1, 2022, the Company issued 1,800,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On October 7, 2022, the Company issued 1,600,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Mast Hill in respect to the principal on the November 3, 2021, Convertible Note.
On October 10, 2022, the Company issued 2,500,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to $41,822.60 of the principal and $6,489.90 of unpaid and accrued interest on the December 16, 2021, Convertible Note.
On October 11, 2022 we entered into a Promissory Note with 1800 Diagonal Lending, LLC, a Virginia limited liability company, for the Principal Amount of $43,750. The total disbursement to GZ6G was $40,000, with a term of twelve months and an interest rate of 10%. The conversion rate of the note is 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%). “Market Price” means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. .Proceeds will be used, for operating costs and further execution of GZ6G’s business plans.
On November 3, 2022, the Company entered into a Promissory Note with Fourth Man LLC, a Nevada limited liability company in which Fourth Man has agreed to lend the Company the principal amount of $160,000; the purchase price of $144,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is $0.020025, subject to adjustment. The Promissory Note and accompanying documents were executed on November 9, 2022. Proceeds will be used, for operating costs and further execution of GZ6G’s business plans.
On November 8, 2022 we entered into a Promissory Note with Janbella Group, LLC, a North Carolina limited liability company, for the Principal Amount of $54,000. The total disbursement to GZ6G was $50,000, with a term of twelve months and an interest rate of 10%. The conversion rate of the note is 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%). “Market Price” means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. .Proceeds will be used, for operating costs and further execution of GZ6G’s business plans.
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On November 3, 2022, Mast Hill Fund LLP provided the Company with a Notice of conversion whereunder they agreed to convert principal of $27,506.27 and interest of $4,533.73 due and payable into 1,600,000 shares of the Company’s common stock at $0.020025 per share to reduce a total of $32,040.00 from the principal balance of certain convertible promissory note.
On November 4, 2022, the Company filed a follow-on Registration Statement on Form S-1 in regard to an Equity Purchase Agreement entered into in November 2021, whereby Mast Hill Fund, L.P. (the “Investor”) agreed, upon the terms and subject to the conditions of the Purchase Agreement, to purchase up to Ten Million Dollars ($10,000,000.00) of Put Shares. The Company is registering another 50,000,000 shares for purchase at an estimated $0.03 per share in respect to this agreement. The proceeds from the Put Shares will be used to further the operations of the Company and to executed on its business plan.
On November 8, 2022, the Company entered into a Promissory Note with Janbella Group LLC, a North Carolina limited liability company in which Janbella agreed to lend the Company the principal amount of $54,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is 35% discount to the lowest trading price for the Common Stock during the ten-trading day period ending on the latest complete trading day prior to the conversion date. The Promissory Note and accompanying documents were executed on November 10, 2022, and proceeds will be used for operating costs and further execution of GZ6G’s execution on its business plans.
On November 15, 2022, Mast Hill Fund LLP provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $23,258.98 and the interest amount of $26,160.00 due and payable into 2,555,255 shares of the Company’s common stock at $0.020025 per share to reduce a total of $23,258.98 from the principal balance of a certain convertible promissory note.
On November 23, 2022 we entered into a Promissory Note with Mast Hill Fund, L.P. for the Principal Amount of $293,000, and an Actual Amount of Purchase Price of $263,700. The Conversion rate on the note is $0.03 per share, subject to adjustments. The total disbursement to GZ6G was $250,789, with a term of twelve months and an interest rate of 12%. Proceeds will be used, for operating costs and further execution of GZ6G’s business plans.
On December 5, 2022, Mast Hill Fund LLP exercised certain warrants on a cashless basis and received a total of 550,883 shares of the Company’s common stock.
On December 5, 2022 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $20,000 due and payable into 1,183,432 shares of the Company’s common stock at $0.0169 per share and reduce a total of $20,000 from the principal balance of a certain convertible promissory note.
On December 6, 2022, Mast Hill Fund LLP provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $23,258.98 and the interest amount of $26,160.00 due and payable into 2,555,255 shares of the Company’s common stock at $0.020025 per share to reduce a total of $23,258.98 from the principal balance of a certain convertible promissory note.
On December 12, 2022 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $20,000 due and payable into 1,709,402 shares of the Company’s common stock at $0.0117 per share and reduce a total of $20,000 from the principal balance of a certain convertible promissory note.
On December 15, 2022 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $30,000 due and payable into 2,702,703 shares of the Company’s common stock at $0.0111 per share and reduce a total of $30,000 from the principal balance of a certain convertible promissory note.
On December 15, 2022, Mast Hill Fund LLP provided the Company with a Notice of Conversion whereunder they agreed to convert a total of $62,077.50, including interest in the amount of $28,497.53 due and payable into 3,100,000 shares of the Company’s common stock at $0.020025 per share to reduce a total of $31,829.97 from the principal balance of a certain convertible promissory note.
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On December 19, 2022 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $30,000 due and payable into 2,857,143 shares of the Company’s common stock at $0.0105 per share and reduce a total of $30,000 from the principal balance of a certain convertible promissory note.
On December 20, 2022 we entered into a Promissory Note with Mast Hill Fund, L.P. for the Principal Amount of $293,000, and an Actual Amount of Purchase Price of $263,700. The Conversion rate on the note is $0.015 per share, subject to adjustments. The total disbursement to GZ6G was $250,789, with a term of twelve months and an interest rate of 12%. Proceeds will be used, for operating costs and further execution of GZ6G’s business plans.
On January 5, 2023, Mast Hill Fund LLP provided the Company with a Notice of Conversion whereunder they agreed to convert a total of $34,650, including interest in the amount of $2,818.05 due and payable into 3,300,000 shares of the Company’s common stock at $0.0105 per share to reduce a total of $30,081.95 from the principal balance of a certain convertible promissory note.
On January 6, 2023 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $20,000 due and payable into 3,225,806 shares of the Company’s common stock at $0.0062 per share and reduce a total of $20,000 from the principal balance of a certain convertible promissory note.
On January 18, 2023 1800 Diagonal Lending LLC provided the Company with a Notice of Conversion whereunder they agreed to convert the principal amount of $20,000 due and payable into 3,773,585 shares of the Company’s common stock at $0.0053 per share and reduce a total of $20,000 from the principal balance of a certain convertible promissory note.
On January 31, 2023, Mast Hill Fund LLP provided the Company with a Notice of Conversion whereunder they agreed to convert a total of $21,200, including interest in the amount of $3,231.88 due and payable into 4,000,000 shares of the Company’s common stock at $0.0053 per share to reduce a total of $16,218.12 from the principal balance of a certain convertible promissory note.
All of the shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, as it was a transaction by an issuer not involving a public offering; all of the shares contain a restrictive legend on the share certificate stating that the securities have not been registered under the Act and setting forth, or referring to the restrictions on transferability and sale of the securities.
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TABLE OF CONTENTS FOR UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 2022, and 2021
F-1
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 174,091 | $ | 759,791 | ||||
| Accounts receivable, net | 2,947 | 2,000 | ||||||
| Prepaid expenses | 30,046 | 18,586 | ||||||
| Other current assets | 15,949 | 15,949 | ||||||
| Total current assets | 223,033 | 796,326 | ||||||
| Property and equipment, net | 209,931 | 235,176 | ||||||
| Right of use assets | 576,524 | 98,093 | ||||||
| TOTAL ASSETS | $ | 1,009,488 | $ | 1,129,595 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 508,272 | $ | 335,037 | ||||
| Related party payables | 342,988 | 179,769 | ||||||
| Deferred revenue | 175,000 | 209,000 | ||||||
| Debt, current portion | 3,767 | 44,156 | ||||||
| Debt, related parties | 1,300,725 | 1,065,725 | ||||||
| Convertible notes, net of debt discount | 6,223,130 | 5,075,840 | ||||||
| Lease liability, current portion | 87,437 | 99,003 | ||||||
| Total current liabilities | 8,641,319 | 7,008,530 | ||||||
| Debt, net of current portion | 44,000 | 44,000 | ||||||
| Lease liability, net of current portion | 506,111 | - | ||||||
| Total liabilities | 9,191,430 | 7,052,530 | ||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred stock, $0.004 par, 10,000,000 shares authorized, 5,000,000 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 20,000 | 20,000 | ||||||
| Series B Preferred stock, $0.001 par, 1 share authorized, 1 share issued and outstanding at September 30, 2022 and December 31, 2021 | - | - | ||||||
| Common stock, $0.001 par, 500,000,000 shares authorized, 46,824,801 and 25,177,973 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 46,825 | 25,178 | ||||||
| Additional paid in capital | 13,224,428 | 10,784,308 | ||||||
| Accumulated deficit | (20,775,794 | ) | (16,092,531 | ) | ||||
| Total GZ6G Technologies Corp stockholders’ deficit | (7,484,541 | ) | (5,263,045 | ) | ||||
| Non-controlling interest | (697,401 | ) | (659,890 | ) | ||||
| Total stockholders’ deficit | (8,181,942 | ) | (5,922,935 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,009,488 | $ | 1,129,595 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| NET REVENUES | $ | 74,890 | $ | 132,000 | $ | 81,890 | $ | 132,000 | ||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Cost of revenue | 3,770 | 32,722 | 5,251 | 32,722 | ||||||||||||
| Research and development expenses | - | 2,600 | - | 7,800 | ||||||||||||
| Depreciation | 26,403 | 17,752 | 97,854 | 19,941 | ||||||||||||
| General and administrative | 554,248 | 293,318 | 2,430,359 | 545,330 | ||||||||||||
| General and administrative, related parties | 120,000 | 90,000 | 360,000 | 240,000 | ||||||||||||
| Professional fees | 30,000 | 18,759 | 80,200 | 74,015 | ||||||||||||
| Total operating expenses | 734,421 | 455,151 | 2,973,664 | 919,808 | ||||||||||||
| (Loss) from operations | (659,531 | ) | (323,151 | ) | (2,891,774 | ) | (787,808 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on extinguishment of debt | 3,568,359 | - | 3,568,359 | - | ||||||||||||
| Interest expenses | (1,189,022 | ) | (2,522,952 | ) | (5,443,450 | ) | (4,453,057 | ) | ||||||||
| PPP loan forgiveness | - | - | 46,091 | - | ||||||||||||
| Total other income (expense) | 2,379,337 | (2,522,952 | ) | (1,829,000 | ) | (4,453,057 | ) | |||||||||
| Net income (loss) | $ | 1,719,806 | $ | (2,846,103 | ) | $ | (4,720,774 | ) | $ | (5,240,865 | ) | |||||
| Less: net income (loss) attributable to Non-controlling interest | (20,757 | ) | 13,841 | (37,511 | ) | (66,233 | ) | |||||||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | 1,740,563 | $ | (2,859,944 | ) | $ | (4,683,263 | ) | $ | (5,174,632 | ) | |||||
| Basic net loss per common share | $ | 0.05 | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.27 | ) | |||||
| Diluted net loss per common share | $ | 0.01 | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.27 | ) | |||||
| Weighted average shares, basic | 34,325,373 | 22,793,357 | 28,588,256 | 19,203,614 | ||||||||||||
| Weighted average shares, diluted | 185,097,486 | 22,793,357 | 28,588,256 | 28,588,256 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-3
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non- controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 5,000,000 | $ | 20,000 | 1 | $ | - | 25,177,973 | $ | 25,178 | $ | 10,784,308 | $ | (16,092,531 | ) | $ | (659,890 | ) | $ | (5,922,935 | ) | ||||||||||||||||||||
| Shares issued as financing costs | - | - | - | - | 10,769 | 11 | 22,389 | - | - | 22,400 | ||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (2,937,633 | ) | (599 | ) | (2,938,232 | ) | |||||||||||||||||||||||||||
| Balance, March 31, 2022 | 5,000,000 | $ | 20,000 | 1 | $ | - | 25,188,742 | $ | 25,189 | $ | 10,806,697 | $ | (19,030,164 | ) | $ | (660,489 | ) | $ | (8,838,767 | ) | ||||||||||||||||||||
| Cashless warrants exercise | 356,364 | 356 | (356 | ) | - | |||||||||||||||||||||||||||||||||||
| Shares issued under consulting agreement | 1,869,463 | 1,869 | 658,131 | 660,000 | ||||||||||||||||||||||||||||||||||||
| Shares issued under Equity Purchase Agreement | 387,481 | 388 | 35,641 | 36,029 | ||||||||||||||||||||||||||||||||||||
| Fair value of beneficial conversion feature of convertible notes issue | 363,533 | 363,533 | ||||||||||||||||||||||||||||||||||||||
| Fair value of convertible debt warrants issued | 360,967 | 360,967 | ||||||||||||||||||||||||||||||||||||||
| Repricing of warrants | 9,013 | 9,013 | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (3,486,193 | ) | (16,155 | ) | (3,502,348 | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2022 | 5,000,000 | 20,000 | 1 | - | 27,802,050 | 27,802 | 12,233,626 | (22,516,357 | ) | (676,644 | ) | (10,911,573 | ) | |||||||||||||||||||||||||||
| Fair value of beneficial conversion feature of convertible notes issue | - | 84,382 | 84,382 | |||||||||||||||||||||||||||||||||||||
| Fair value of convertible debt warrants issued | - | 52,702 | 52,702 | |||||||||||||||||||||||||||||||||||||
| Shares issued under consulting agreement | - | 383,000 | 383 | 68,617 | 69,000 | |||||||||||||||||||||||||||||||||||
| Shares issued for services | - | 2,700,000 | 2,700 | 62,370 | 65,070 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | - | 10,373,462 | 10,374 | 509,406 | 519,780 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for settlement of debt, related party | - | 2,500,000 | 2,500 | 72,500 | 75,000 | |||||||||||||||||||||||||||||||||||
| Exercise warrants | 560,000 | 560 | 53,192 | 53,752 | ||||||||||||||||||||||||||||||||||||
| Shares issued under Equity Purchase Agreement | - | 2,506,289 | 2,506 | 78,681 | 81,187 | |||||||||||||||||||||||||||||||||||
| Repricing of warrants | - | 8,952 | 8,952 | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | 1,740,563 | (20,757 | ) | 1,719,806 | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 5,000,000 | $ | 20,000 | 1 | $ | - | 46,824,801 | $ | 46,825 | $ | 13,224,428 | $ | (20,775,794 | ) | $ | (697,401 | ) | $ | (8,181,942 | ) | ||||||||||||||||||||
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non- controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance December 31, 2020 | 5,000,000 | 20,000 | 1 | - | 12,793,357 | 12,793 | 5,180,816 | (6,060,923 | ) | (680,180 | ) | (1,527,494 | ) | |||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (436,026 | ) | (42,019 | ) | (478,045 | ) | |||||||||||||||||||||||||||
| Balance, March 31, 2021 | 5,000,000 | 20,000 | 1 | - | 12,793,357 | 12,793 | 5,180,816 | (6,496,949 | ) | (722,199 | ) | (2,005,539 | ) | |||||||||||||||||||||||||||
| Shares issued to acquire additional interest in subsidiary | 10,000,000 | 10,000 | (142,649 | ) | 132,649 | - | ||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (1,878,662 | ) | (38,055 | ) | (1,916,717 | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 | 5,000,000 | 20,000 | 1 | - | 22,793,357 | 22,793 | 5,038,167 | (8,375,611 | ) | (627,605 | ) | (3,922,256 | ) | |||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (2,859,944 | ) | 13,841 | (2,846,103 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 5,000,000 | $ | 20,000 | 1 | $ | - | 22,793,357 | $ | 22,793 | $ | 5,038,167 | $ | (11,235,555 | ) | $ | (613,764 | ) | $ | (6,768,359 | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (4,720,774 | ) | $ | (5,240,865 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| PPP loan forgiveness | (46,091 | ) | - | |||||
| Gain upon notes conversion | (3,568,359 | ) | - | |||||
| Amortization of debt discount and issuance costs | 5,125,104 | 4,373,277 | ||||||
| Common stock issued as financing costs | 22,400 | - | ||||||
| Common stock issued for services | 65,070 | - | ||||||
| Common stock issued under consulting agreement | 729,000 | - | ||||||
| Depreciation | 97,854 | 19,941 | ||||||
| Amortization of right of use assets | 16,113 | 520 | ||||||
| Repricing of warrant exercise price | 17,965 | - | ||||||
| Fixed assets reclassified to advertising expenses | - | 4,990 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | (947 | ) | - | |||||
| (Increase) decrease in prepaid expenses | (11,460 | ) | 4,507 | |||||
| Increase in other current assets | - | (10,436 | ) | |||||
| Increase in accounts payable and accrued expenses | 226,995 | 46,990 | ||||||
| Increase in related party payables | 163,219 | 149,367 | ||||||
| Decrease in customer deposits | (34,000 | ) | (132,000 | ) | ||||
| Net cash used in operating activities | (1,917,911 | ) | (787,709 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Proceeds from credit for leasehold improvements | 30,000 | - | ||||||
| Purchase of equipment | (102,609 | ) | (176,690 | ) | ||||
| Net cash used in investing activities | (72,609 | ) | (176,690 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock, net | 117,216 | - | ||||||
| Proceeds from exercise of warrants | 53,752 | |||||||
| Proceeds from subscription receivable | - | 150,000 | ||||||
| Repayment of debt, related parties | - | (151,854 | ) | |||||
| Refund of repayment to PPP loan | 5,702 | |||||||
| Proceeds from related parties | 310,000 | |||||||
| Repayment to convertible notes | (281,000 | ) | ||||||
| Proceeds from convertible notes, net | 1,199,150 | 900,000 | ||||||
| Net cash provided by financing activities | 1,404,820 | 898,146 | ||||||
| Net decrease in cash | (585,700 | ) | (62,253 | ) | ||||
| Cash-beginning of period | 759,791 | 180,544 | ||||||
| Cash-end of period | $ | 174,091 | $ | 118,291 | ||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Stock-settled debt liability | $ | 509,682 | $ | 9,710,674 | ||||
| Cashless warrant | $ | 356 | $ | - | ||||
| Beneficial conversion feature | $ | 808,882 | $ | - | ||||
| Shares issued to acquire interest in subsidiary | $ | - | $ | 132,649 | ||||
| Shares issued to settle debt, related party | $ | 75,000 | $ | - | ||||
| Shares issued under notice of conversion, principal | $ | 525,400 | $ | - | ||||
| Shares issued under notice of conversion, accrued interest payable | $ | 53,760 | $ | - | ||||
| Shares issued under notice of conversion, transfer agent | $ | 22,621 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-5
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
GZ6G Technologies Corp. (formerly Green Zebra International Corp.) (the “Company” or “GZ6G”) is a complete enterprise smart solutions provider for large venues and cities. Focused on acquiring smart city solutions, developing innovative products, and overseeing smart cities and smart venues, GZ6G also assists in modernizing clients with innovative wireless IoT technology for the emerging 5G and Wi-Fi 6 marketplaces. Target markets include stadiums, airports, universities, and smart city projects. The Company is organized under the laws of the State of Nevada and has offices in California and Nevada.
In November 2018, the Company changed its name from NanoSensors, Inc. to Green Zebra International Corp. following a merger with Green Zebra Media Corp., a Delaware corporation, under common control.
The Board of Directors approved a name change and a reverse stock split of the Company’s issued and outstanding common shares at a ratio of 200 to 1 on December 18, 2019. The accompanying financial statements, and all share and per share information contained herein has been retroactively restated to reflect the reverse stock split. On December 20, 2019, the Company changed its name from Green Zebra International Corp. to GZ6G Technologies Corp.
On August 6, 2021, Mr. William Ray Procanik and Mr. Brian Scott Hale were appointed to the Company’s board of directors and concurrently the Company formed an audit committee, which each of Mr. Hale and Mr. Procanik joined, serving as independent board members. Concurrently the Company completed an application for an uplist to the OTCQB and submitted the required disclosure through OTCMarkets. The Company was approved for trading on the OTCQB Venture Market on October 25, 2021.
Going Concern
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. During the year ended December 31, 2021, the Company entered into various loan treaties, convertible notes and other financing arrangements through which we received net cash proceeds of $2,108,000. During the nine-month period ended September 30, 2022, the Company received net cash proceeds of $1,145,900 by way of a series of convertible promissory notes and $310,000 in the form of related party loans. As of September 30, 2022, the Company had a working capital deficit of $8,418,286 with approximately $174,000 of cash on hand and an accumulated deficit of $20,775,794. The Company anticipates a need for a further $5,000,000 in fiscal 2023 to meet its upgraded infrastructure requirements. In addition to the remaining funding which may be provided to the Company under various loan treaty agreements, the Company filed two registration statements on Form S-1 to facilitate this requirement which allow for total funding of up to $15,000,000, both of which have been deemed effective. Up to September 30, 2022 the Company has received funding under these equity lines of $117,216. There is no guarantee the Company will continue to receive financing as required. The continuation of the Company as a going concern is dependent upon the ability to raise additional equity and/or debt financing and the attainment of profitable operations from the Company’s future business. If the Company is unable to obtain adequate capital as needed, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
F-6
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
Covid-19 Pandemic: The COVID-19 pandemic could have a continuing adverse impact on our existing sponsorship and revenue agreements. During 2021 the implementation of services under certain of our installation agreements experienced delays as a result of the pandemic. COVID-19 has caused significant disruptions to the global financial markets, which may also continue to impact our ability to raise additional capital. During March 2020, we gave notice of furlough to our administrative support employees in an effort to conserve resources as we evaluate our business development efforts in the coming months. In April 2020, the Company received a grant of $6,000 and in May 2020 we received a PPP loan and an SBA loan in the approximate cumulative amount of $90,000 for operations. During early 2022 the Company reopened its offices and continued with the hiring of additional staff as well as the upgrading of infrastructure requirements to meet anticipated customer requirements for 2022. While recent progress in the battle against COVID leads us to believe that the worst of the effects of the pandemic are past, we cannot say with certainty that the situation will not change. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and still subject to change. While significant uncertainty remains, despite the fact that the Company has been able to source financing, it remains that the COVID-19 outbreak may have a negative impact on its ability to work through its collaborative development efforts with industry partners, and in acquiring venues due to the continuing impact of COVID 19, in particular as a result of the impact to the global supply chain.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in the consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2021 Form 10-K as filed with the Securities and Exchange Commission on March 28, 2022.
Consolidation
These consolidated financial statements include the accounts of GZ6G Technology Corp. and its 60% controlled subsidiary, Green Zebra Media Corp. (“GZMC’), as of September 30, 2022 and December 31, 2021. All significant intercompany accounting transactions have been eliminated as a result of consolidation.
Use of Estimates
The preparation of these consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-7
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments with a maturity of three (3) months or less at the time of purchase.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At September 30, 2022, the Company had $0 in excess of the FDIC insured limit.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.
Research and Development Costs
We charge research and development costs to operations as incurred in accordance with ASC 730-Research and Development, except in those cases in which such costs are reimbursable under customer funded contracts. These amounts are not reflected in the reported research and development expenses in each of the respective periods but are included in net sales with the related costs included in cost of sales in each of the respective periods.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. The core principle of this standard is that a company should record revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Further under ASC 606, the Company recognizes revenue from licensing agreements and service-based contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
We earn revenue from both digital marketing and the sale of WiFi and communication solutions to customers around the world. Revenue is earned from sales of our WiFi media platform and our WiFi monetization hardware (GZ Media hub) embedded with GZ software to create monetization and communication solutions for our customers. Our sales can consist of any one or a combination of items required by our customer including hardware, technology platforms and related support. We also enter into licensing contracts which provide for revenue based on licensing fees and revenue sharing with our licensees.
As we expand, we expect a large portion of our revenue from our digital communication solutions to be derived from service-based contracts where we expect to recognize a significant portion of our contracts over time, as there is a continuous delivery of services to the customer over the contractual period of performance. These contracts may or may not include fixed payments for services over time and/or commission-based fees.
F-8
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Direct costs are expected to include materials, labor and overhead to be charged to work-in-progress (including our contracts-in-progress) inventory or cost of sales. Indirect costs relating to long-term contracts, are expected to include expenses such as general and administrative charges, and other costs will be charged to expense as incurred and will not be included in our work-in-process (including our contracts-in-progress) inventory or cost of sales. Total estimates are expected to be reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Estimated losses on long-term contracts are recorded in the period in which the losses become evident. If we do not accurately estimate the total sales, related costs and progress towards completion on our long-term contracts, the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.
In addition, certain of our contracts will include termination for convenience or non-performance clauses that provide the customer with the right to terminate the contract. Such terminations could impact the assumptions regarding total contract revenues and expenses utilized in recognizing profit under those contracts where we apply the percentage-of-completion method of accounting. Changes to these assumptions could materially impact our results of operations and financial condition. As we fully implement our business model, our inability to perform on our long-term contracts could materially impact our results of operations and financial condition.
Stock-Based Compensation
We account for stock-based transactions in which the Company receives services from employees, non-employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date in accordance with ASC 718 – Compensation-Stock Compensation. Stock-based compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair value as calculated by the Black-Scholes option pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award.
Debt Issue Costs
The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations as interest expense.
Original Issue Discount
If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock Settled Debt
In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. As of September 30, 2022 and December 31, 2021, the Company had recorded within Convertible Notes, net of discount, the amount of $6,223,130 and $5,075,840 for the value of the stock settled debt with respect to certain convertible notes (see Note 6).
F-9
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 – Topic 842 Leases. ASU 2016-02 requires that most leases be recognized on the financial statements, specifically the recognition of right-to-use assets and related lease liabilities, and enhanced disclosures about leasing arrangements. The Company elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
Income Taxes
The Company follows ASC 740 – Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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.
Basic and Diluted Net Income (Loss) Per Share
In accordance with ASC 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential common stock consists of the incremental common stock issuable upon convertible notes, classes of shares with conversion features.
F-10
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Net Income (Loss) Per Share
The computation of basic loss per share for the three- and nine-month periods ended September 30, 2021 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, and preferred shares, because their inclusion would be antidilutive. As a result, the computation of basic income/loss per share includes potentially dilutive securities of underlying share purchase warrants, convertible notes, and preferred shares, for those periods where there has been reported net income. The computations of net income per share for the three months ended September 30, 2022 reflects both basic and diluted income per share, and the computation of net loss per share for the three months ended September 30, 2021 and nine months ended September 30, 2022 and 2021 is the same for both basic and fully diluted.
The table below reflects the potentially dilutive securities at each reporting period which have been included in the computation of diluted net loss per share for such periods where the Company has reported net income:
| September 30, 2022 | September 30, 2021 | |||||||
| Convertible Notes | 95,409,959 | 4,871,812 | ||||||
| Stock purchase warrants | 5,362,154 | - | ||||||
| Series A Preferred shares (convertible to common at a ratio of 10 common for each 1 preferred) | 50,000,000 | 50,000,000 | ||||||
| Total | 150,772,113 | 54,871,812 | ||||||
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers, excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023, including interim periods therein. The Company has not yet adopted this ASU and does not expect the adoption of ASU 2020-06 to have a material impact on the Company’s financial statements or disclosures.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Office equipment | $ | 205,347 | $ | 166,372 | ||||
| Leasehold improvements | 12,813 | 31,919 | ||||||
| Software | 125,070 | 72,330 | ||||||
| Total | 343,230 | 270,621 | ||||||
| Less: accumulated depreciation and amortization | (133,299 | ) | (35,445 | ) | ||||
| Total property and equipment, net | $ | 209,931 | $ | 235,176 | ||||
Depreciation expense amounted to $26,403 and $17,752 for the three months periods ended September 30, 2022, and 2021, respectively.
Depreciation expense amounted to $97,854 and $19,941 for the nine months periods ended September 30, 2022, and 2021, respectively.
F-11
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 4: PREPAID EXPENSES
Prepaid expenses at September 30, 2022 and December 31, 2021 consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Reseller agreement (1) | $ | - | $ | 3,467 | ||||
| Other expenses (2) | 30,046 | 15,119 | ||||||
| Total | $ | 30,046 | $ | 18,586 | ||||
| (1) | On January 31, 2017, GZMC entered into a white label reseller agreement with Purple Wifi Limited, a company based in the UK that provides a hosted software solution as a Wifi hotspot platform for use on a company’s Wifi hardware and also provides customer analytics services and marketing opportunities along with ancillary support services. The reseller agreement had an initial term of three years and was subsequently amended to reflect a five (5) year term. Under the terms of the agreement GZMC was required to pay a fee of $52,000 of which a total of $6,450 was unpaid and is included in accounts payable as of September 30, 2022 and December 31, 2021. The total amount expended under the reseller agreement was initially recorded as prepaid expenses on the Company’s Balance Sheets and has been fully amortized over the term of the agreement on a five-year straight-line basis as part of general and administrative expense. |
| (2) | Other prepaid expenses include annual subscription fees for software, insurance, prepaid term marketing expenses and office security services. |
NOTE 5: OTHER CURRENT ASSETS
Other current assets consist of the following at September 30, 2022 and December 31, 2021:
| September 30, 2022 | December 31, 2021 | |||||||
| Security deposits | $ | 14,691 | $ | 14,691 | ||||
| Other deposits and receivables | 1,258 | 1,258 | ||||||
| Total | $ | 15,949 | $ | 15,949 | ||||
NOTE 6: DEBT
Loan Treaty Agreement
On December 21, 2020, the Company entered into a Loan Treaty Agreement with a third party (“Treaty Agreement”) whereby the lender agreed to provide a loan in the amount of up to $450,000 to the Company in $25,000 tranches, deposited weekly, memorialized by promissory notes in increments of $100,000. Each amount deposited has a term of 12 months for repayment and shall bear an interest rate of 8% per annum. In addition, at the option of the Lender, each $25,000 loaned to the Company may be converted into common shares at a 25% discount to the market price at the close of business on November 23, 2020 ($0.26 x 75% = $0.195); or $0.195 per share. Each $25,000 may be converted at the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission. On April 1, 2021, the Company entered into an amendment to the Loan Treaty Agreement originally executed on December 21, 2020. Under the terms of the amendment the lender agreed to fund an additional $1 million dollars over 90 business days in equal weekly tranches of $55,556. Each tranche may be converted under the same terms as the original loan treaty, or $0.195 per share, commencing the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission.
F-12
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 6: DEBT (continued)
Loan Treaty Agreement (continued)
During the fiscal year ended December 31, 2021, the Company received weekly tranche deposits for an aggregate of $1,100,000. The Company recorded $11,656,833 as the liability on stock settled debt associated with the tranches which amount is amortized over the terms of the notes.
During the nine months ended September 30, 2022, the Company received a further $50,000 under this loan treaty. The Company recorded $360,258, as the liability on stock settled debt associated with the tranche which amount is amortized over the terms of the notes. A total of $250,000 remains to be funded under the terms of this Treaty Agreement.
On October 27, 2021, the Company issued 2,051,282 shares of common stock to the lender in consideration for $400,000 in loans provided under the terms of the Treaty Agreement at $0.195 per share.
On August 3, 2022, the Company issued 1,538,462 shares of common stock to the lender in consideration for $300,000 in loans provided under the terms of the Treaty Agreement at $0.195 per share.
The carrying value of funding tranches is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Principal | $ | 500,000 | $ | 750,000 | ||||
| Stock-settled liability | 5,171,803 | 8,320,525 | ||||||
| Total | 5,671,803 | 9,070,525 | ||||||
| Unamortized debt discount | (310,597 | ) | (4,067,059 | ) | ||||
| Debt carrying value | $ | 5,361,206 | $ | 5,003,466 | ||||
The interest expenses for the funding tranches are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on notes | $ | 12,317 | $ | 19,157 | $ | 43,824 | $ | 35,551 | ||||||||
| Amortization of debt discount | 581,344 | 2,488,984 | 4,116,720 | 4,373,277 | ||||||||||||
| Total: | $ | 593,661 | $ | 1,612,435 | $ | 4,160,544 | $ | 1,900,687 | ||||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | 50,981 | ||
| Interest expense on the convertible notes | 43,824 | |||
| Balance, September 30, 2022 | $ | 94,805 |
Gain related to extinguishment during the nine months ended September 30, 2022:
| Debt principal | $ | 300,000 | ||
| Stock-settled liability | 3,508,980 | |||
| 1,538,462 shares of common stock | (142,308 | ) | ||
| Gain on extinguishment of debt upon conversion | $ | 3,508,980 |
F-13
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 6: DEBT (continued)
Convertible Debt with Warrant Agreement
On November 11, 2021, the Company entered into a Promissory Note with an investor in which the investor agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.
On December 16, 2021, the Company entered into a Promissory Note with an investor in which the investor agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.
In accordance with ASC 470 – Debt, the proceeds in fiscal year 2021 of $1,008,000 was allocated based on the relative fair values of the convertible notes and the warrants of $504,027 and $503,973, respectively. The Warrant was valued at $503,973 and was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a beneficial conversion feature (BCF) in the amount of $616,027 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,120,000.
On April 4, 2022, the Company entered into a Promissory Note with an investor in which the investor agreed to lend the Company the principal amount of $365,000 for the purchase price of $328,500. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 365,000 common shares at $1.00 per share for a term of five (5) years.
On May 23, 2022, the Company entered into a Promissory Note with an investor in which the investor agreed to lend the Company the principal amount of $440,000 for the purchase price of $396,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $0.30 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 1,466,667 common shares at $0.30 per share for a term of three (3) years.
On September 20, 2022, the Company entered into a Promissory Note with an investor in which the investor agreed to lend the Company the principal amount of $176,000 for the purchase price of $158,400. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $0.025 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 3,520,000 common shares at $0.10 per share for a term of five (5) years.
In accordance with ASC 470 – Debt, the proceeds in nine months ended September 30, 2022, of $882,900 was allocated based on the relative fair values of the convertible notes and the warrants of $469,231 and $413,669, respectively. The Warrant was valued at $413,669 and was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a beneficial conversion feature (BCF) in the amount of $447,915 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $959,684.
During the nine months ended September 30, 2022, the Company paid $281,000 in cash to settle a portion of the outstanding principal and $26,711 in cash to settle interest payable related to the December 16, 2021, convertible note.
F-14
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 6: DEBT (continued)
Convertible Debt with Warrant Agreement (continued)
During the nine months ended September, the Company issued an accumulated 8,835,000 shares of common stock pursuant to Notice of Conversion from lenders to settle certain portion of principal together with accrued interest payable and fees.
The carrying value of the tranches is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Principal | $ | 2,101,000 | $ | 1,120,000 | ||||
| Shares issued under conversion | (225,400 | ) | - | |||||
| Repaid to principal | (281,000 | ) | - | |||||
| Unamortized debt discount | (1,035,773 | ) | (1,047,626 | ) | ||||
| Debt carrying value | $ | 558,827 | $ | 72,374 | ||||
The interest expenses related to the tranches are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on notes | $ | 47,133 | $ | - | $ | 126,294 | $ | - | ||||||||
| Amortization of debt discount | 480,474 | - | 971,537 | - | ||||||||||||
| Total: | $ | 527,607 | $ | - | $ | 1,097,831 | $ | - | ||||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | 13,440 | ||
| Interest expense on the convertible notes | 126,294 | |||
| Shares issued under conversion | (53,760 | ) | ||
| Repaid in cash | (26,711 | ) | ||
| Balance, September 30, 2022 | $ | 59,263 |
Loss related to extinguishment during the nine months ended September 30, 2022:
| Debt principal | $ | 225,400 | ||
| Accrued interest payable | 53,760 | |||
| 8,835,000 shares of common stock | (377,472 | ) | ||
| (Loss) on extinguishment of debt upon conversion | $ | (98,312 | ) |
During the nine months ended September 30, 2022, the Company issued shares in respect to a Put notice (Note 10(5)) with a strike price of $0.020025 per share which triggered a dilutive issuance clause in the aforementioned Convertible Note agreements downward adjusting the conversion price per share to match the strike price.
F-15
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 6: DEBT (continued)
Convertible Promissory Note
During the nine months ended September 30, 2022, the Company entered into several Convertible Promissory Notes with an investor in which the investor agreed to lend the Company the accumulated principal amount of $277,500 for the purchase price of $266,250. The Term of these Notes is twelve months with an interest rate of 10%. The conversion rate of the Note is as follows: 35% discount to the lowest bid price during the ten-day trading period prior to a notice of conversion. The funds were used for operating costs and further execution of GZ6G’s business plan.
The carrying value of this convertible promissory note is as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Principal | $ | 277,500 | $ | - | ||||
| Stock-settled liability | 149,424 | - | ||||||
| Total | 426,924 | - | ||||||
| Unamortized debt discount | (123,827 | ) | - | |||||
| Debt carrying value | $ | 303,097 | $ | - | ||||
The interest expenses for the convertible promissory note are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on note | $ | 6,007 | $ | - | $ | 7,804 | $ | - | ||||||||
| Amortization of debt discount | 28,738 | - | 36,847 | - | ||||||||||||
| Total: | $ | 34,745 | $ | - | $ | 44,651 | $ | - | ||||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | - | ||
| Interest expense on the convertible note | 7,804 | |||
| Balance, September 30, 2022 | $ | 7,804 |
SBA
On May 19, 2020, the Company received a long-term loan from U.S. Small Business Administration (SBA) in the amount of $44,000, upon the following conditions:
Payment: Installment payments, including principal and interest, of $215 monthly, will begin twenty-four (24) months from the date of the promissory note, or May 19, 2022. The balance of principal and interest will be payable Thirty (30) years from the date of the promissory note.
Interest: Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date(s) of each advance.
Payment terms: Each payment will be applied first to interest accrued to the date of receipt of each payment, and the balance, if any, will be applied to principal; each payment will be made when due even if at that time the full amount of the loan has not yet been advanced or the authorized amount of the Loan has been reduced.
F-16
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 6: DEBT (continued)
SBA (continued)
The interest expenses related to the SBA loan are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on notes | $ | 416 | $ | 416 | $ | 1,234 | $ | 1,234 | ||||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | 2,672 | ||
| Addition: Interest expense | 1,234 | |||
| Balance, September 30, 2022 | $ | 3,906 |
PPP funds
The Paycheck Protection Program (“PPP”) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. The loan may be forgiven in full if the funds are used for payroll costs, interest on mortgages, rent, and utilities (with at least 60% of the forgiven amount having been required to be used for payroll). Additional terms include:
| ● | An interest rate of 1% per annum; |
| ● | Loans issued prior to June 5, 2020, have a maturity of 2 years, with loans issued thereafter having a maturity of 5 years; |
| ● | Loan payments are deferred for six months; |
| ● | No collateral or personal guarantees are required; and |
| ● | Neither the government nor lenders will charge small businesses any fees. |
On May 14, 2020, the Company received PPP proceeds of $45,450. As of December 31, 2021, the Company paid $5,702 including $5,061 in principal and $641 in interest payable in respect of this loan. The Company requested full loan forgiveness by submitting a request to the lender. The total loan principal amount of $45,450 with the interest amount of $641 was forgiven in full in the three months ended March 31, 2022. As a result, the Company recorded the full amount of $46,091 that had been received as other income.
Other Short-term loans
On January 5, 2018, GZMC entered into a loan agreement with National Funding Inc. whereby the Company acquired funding in the amount of $20,625. The terms of the loan called for the Company to pay an origination fee of $412 and to repay $26,400 by way of 176 daily payments of $150. As of September 30, 2022, and December 31, 2021, there was an outstanding amount of $3,768 due and payable on the loan, and the loan was in default.
F-17
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES
The Company generates revenue from contracts which, among other services, provide wireless and digital promotion rights for certain events including WiFi media network advertising rights, and the development of smart venue wireless networks and software engagement technology products for airports, stadiums, campuses, cities and other venues in the United States and International markets. In general, our contracts require several months of implementation which is charged at a fixed rate, followed by monthly maintenance and management services, ad hoc fixed rate services, and a share in advertising revenue, when applicable. As a result, the Company will accept deposits from customers, which deposits are applied as each stage of our implementation is complete or under the terms of the service contract. Invoices issued to customers for the implementation phase of our contracts are due and payable when issued, however, as the associated scope of services have not yet been concluded, these invoices do not yet meet the revenue recognition criteria required to report these amounts as earned revenue (ref: Note 2 – Revenue Recognition). As a result, deposits when received from customers are included as liabilities on our balance sheets.
The following table provides balances of customer receivables and contract liabilities as of September 30, 2022, and December 31, 2021:
| September, 2022 | December 31, 2021 | |||||||
| Customer receivables (1) | $ | - | $ | - | ||||
| Contract liabilities (Customer deposits) (1), (2) (a), (b), (c) | $ | 175,000 | $ | 209,000 | ||||
| (1) | The Company has deposits of $175,000 and $209,000, respectively as at September 30, 2022 and December 31, 2021, with respect to certain future services to be provided, which amounts are not yet earned under revenue recognition criteria provided by ASC 606 and therefore, they are not reflected as accounts receivable on the Company’s balance sheets. During the three months and nine months ended September 30, 2022, the Company recorded $3,000 and $9,000, respectively as income relative to the above contracts and returned $25,000 in previously paid deposits to one of its customers. |
| (2) | Contract liabilities are consideration we have received from our customers billed in advance of providing goods or services promised in the future or for work in progress. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include installation and maintenance charges that are deferred and recognized when the installation is complete or with respect to deposits for maintenance, over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities may be included as customer deposits or deferred revenue in our consolidated balance sheets, based on the specifics of the contract. During the three and nine months ended September 30, 2022, we have recognized $3,000 and $9,000 in revenue from customer deposits on hand (September 2021 - Nil). The Company and certain customers are currently in negotiations to determine the best way to proceed with the delayed implementation of certain prior period contracts for which we have received deposits but have not completed the scope of work. |
Performance Obligations
While we had originally expected to recognize revenue during fiscal 2020 with respect to contracts for which we have received customer deposits, the impact of COVID-19 had a significant impact on implementation. The Company is currently in negotiations to determine the best way to proceed with the delayed implementation of these contracts, or their termination.
F-18
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES (continued)
Performance Obligations (continued)
(a) We executed a license agreement for the country of Spain in fiscal 2016 and the Company received an initial deposit of $25,000 against the total licensing fee payable. This amount has been recorded on the Company’s balance sheets as deferred income. While the Company and the customer attempted to negotiate an amendment to the terms of the agreement in late fiscal 2019, the onset of COVID-19 resulted in further delays which are ongoing. As a result, the Company is currently in negotiation for a formal termination of the agreement with this customer.
(b) On July 11, 2019, GZMC entered into an Airport WiFi Sponsorship Marketing Agreement with a third party whereunder GZMC will secure long-term, exclusive and non-exclusive smart venues for WiFi marketing, digital marketing and data analytics for various brand sponsors at various airports across the United States. There were several venues anticipated under the terms of the agreement with installations commencing on various schedules. GZMC generated invoices for $100,000 for each of 13 venues, whereby $65,000 per venue is due on receipt of the invoice and the remaining $35,000 is due sixty days thereafter. As at September 30, 2022 and December 31, 2021, the Company has received partial payments of $130,000 against the initial deposit required, of which a total of $25,000 was returned during the period leaving $105,000 on deposit. Previously the Company expected revenue recognition under these contracts to commence in fiscal 2020, however, as a result of the impact of the COVID-19 pandemic, the project has been delayed indefinitely. Funds originally provided for the implementation of this project are anticipated to be applied as a deposit on a project yet to be identified or otherwise, fully repaid.
(c) On October 6, 2020, the Company received a purchase order in the amount of $132,000 in regard to a Media Agreement described in Note 9(3) below. During the year ended December 31, 2021, the Company completed the installation terms included in the purchase order and as a result $78,000 has been reflected as revenue as at December 31, 2021. A further $9,000 was recorded as income during the nine months ended September 30, 2022, with the remaining $45,000 included in deferred income in relation to future service obligations under the contract which will be earned over the term of the service contract.
NOTE 8: RELATED PARTY TRANSACTIONS
Terrence Flowers
As at December 31, 2019, a total of $11,110 was payable to Mr. Terrence Flowers, who ceased to be a shareholder, officer and director on July 9, 2018. During the year ended December 31, 2020, the Company repaid $11,000 to Mr. Flowers, leaving a balance due of $110 at September 30, 2022 and December 31, 2021. The amount is reflected on the balance sheet in related party payables.
Coleman Smith and ELOC Holdings Corp.
On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company. Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp., a company controlled by Mr. Smith, whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. On April 1, 2021, the Company revised Mr. Smith’s compensation so that he also receives $10,000 per month directly as an employee in addition to accrued monthly fees for management services provided through controlled entity ELOC. On February 7, 2022, the board of directors of the Company approved and authorized a further increase of $10,000 per month in salary for Mr. Smith directly, effective January 1, 2022.
F-19
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 8: RELATED PARTY TRANSACTIONS (continued)
Coleman Smith and ELOC Holdings Corp. (continued)
On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC is required to pay an annual salary of $120,000 to Mr. Smith.
During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp made short term loans with interest at 1.5% per month to the Company to pay various expenses. As of December 31, 2020, Mr. Smith, ELOC Holdings Corp. and the Company agreed to retroactively allocate interest in the amount of 5% per annum to loans, advances, wages and management fees payable by each of GZMC and the Company from January 1, 2020 forward. The parties entered into a single consolidated promissory note for all amounts payable to each of ELOC and Smith, with a principal amount of $1,217,579 payable to ELOC.
During the fiscal year ended December 31, 2021, the Company paid a total of $151,854, of which $11,854 was repaid during the nine months ended September 30, 2021, to ELOC to reduce the principal balance on the loan.
During the nine months ended September 30, 2022, the Company issued 2,500,000 shares of restricted common stock in partial payment of his promissory notes in the amount of $75,000, at $0.03 per share.
During the nine months ended September 30, 2022, the Company’s CEO, William Coleman Smith entered into Promissory Notes with the Company for a total of $310,000 due and payable within 5 (days) of the Company receiving proceeds and bearing interest at 1%.
The following amounts are included in debt to related party on our Balance Sheets:
| Balance at December 31, 2020, Debt, related party | $ | 1,217,579 | ||
| Payments on loan | (151,854 | ) | ||
| Balance at December 31, 2021, Debt, related party. | 1,065,725 | |||
| Shares issued to settle debt | (75,000 | ) | ||
| Promissory Notes for funding provided | 310,000 | |||
| Balance at September 30, 2022, Debt, related party. | $ | 1,300,725 |
The interest expenses related to above loans are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Interest expense on notes | $ | 13,777 | $ | 13,908 | $ | 40,477 | $ | 42,282 | ||||||||
During the three- and nine-month periods ended September 30, 2022, the Company accrued $30,000 and $90,000 in management fees to ELOC, respectively and accrued $90,000 and $270,000 in management fees to Coleman Smith, respectively. The Company paid cash to accrued management fees to Coleman Smith of $60,000 and $240,000, respectively. During the three- and nine-months periods ended September 30, 2021, the Company accrued $30,000 and $90,000 in management fees to ELOC respectively, and paid management fees to Coleman Smith of $60,000 and $150,000, respectively.
F-20
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 8: RELATED PARTY TRANSACTIONS (continued)
Coleman Smith and ELOC Holdings Corp.
The following amounts are included in related party payables on our Balance Sheets:
| September 30, 2022 | December 31, 2021 | |||||||
| Coleman Smith, President | $ | 36,688 | $ | 3,946 | ||||
| Interest payable | 96,190 | 55,713 | ||||||
| ELOC Holdings Corp. | 210,000 | 120,000 | ||||||
| Terrence Flowers | 110 | 110 | ||||||
| $ | 342,988 | $ | 179,769 | |||||
On September 1, 2022, the Company issued 2,500,000 shares of restricted common stock, with a fair value $60,250, to William Coleman Smith for director services rendered during the first two quarters of 2022.
On April 8, 2021, the Company and William Coleman Smith, officer and director entered into a securities purchase agreement whereunder Mr. Smith sold an additional 9% interest in GZMC to the Company for consideration of 10 million unregistered, restricted shares of common stock. On the conclusion of the transaction, the Company controlled 60% of GZMC.
NOTE 9: OPERATING LEASE
On May 19, 2021, the Company signed an 18-month lease for office premises in California located at 1 Technology Drive, Bldg. B, Irvine, CA 92618, Suite no. B123 occupying approximately 6,498 square feet of usable space. The terms of the lease provide for basic monthly rent in the first year of approximately $9,097 per month, and $9,487 for each of the remaining six months. In addition, the tenant is responsible for their share of operating expenses, utilities and services. On February 4, 2022, the Company signed a first amendment to the lease agreement to extend the lease term to November 30, 2027. The terms of the lease provide for basic monthly rent starting in December 2022 of approximately $10,592, with annually increasing around 4%. In addition, the tenant is responsible for their share of operating expenses, utilities and services. As a result of the adoption ASU No. 2016-02 – Topic 842 Leases, the Company recognized a lease liability and right-to-use asset of approximately $645,440, which represented the present value of the remaining minimum lease payments using an estimated incremental borrowing rate of 6.75% on January 1, 2022.
Future minimum lease payments in respect of the above leases as of September 30, 2022, as presented in accordance with ASC 842 were as follows:
| 2022 | $ | 29,566 | ||
| 2023 | 127,556 | |||
| 2024 | 133,014 | |||
| 2025 | 138,472 | |||
| 2026 | 143,931 | |||
| Remaining periods | 136,527 | |||
| Total future minimum lease payments | 709,062 | |||
| Less: imputed interest | (115,514 | ) | ||
| Total | 593,548 | |||
| Current portion of operating lease | 87,437 | |||
| Long term portion of operating lease | $ | 506,111 |
F-21
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 10: COMMITMENTS
| (1) | On April 2, 2019, a vendor of the Company, the “Plaintiff” filed a complaint against the Company’s 60% controlled subsidiary, Green Zebra, in the Superior Court of California, Orange County for unpaid invoices related to services and products sold in fiscal 2017, including reasonable value in the amount of $61,899.62. The Court approved a default judgement on January 23, 2020, with respect to the aforementioned claim, including the following: |
| Damages | $ | 61,890 | ||
| Prejudgment interest at the annual rate of 10% | 9,835 | |||
| Attorney fees | 1,200 | |||
| Other costs | 505 | |||
| Total judgement value | $ | 73,430 |
In April 2021, the Plaintiff perfected the judgement and obtained a hold against a bank account controlled by Green Zebra in the approximate amount of $16,282, which amount was subsequently released to the Plaintiff and has been recorded as a reduction to the balance owing to the Plaintiff. The Company has remitted a further $2,420 towards the outstanding balance. At September 30, 2022 and December 31, 2021, a total of $54,738 remained outstanding. The Company and the Plaintiff are currently in discussions regarding the claimed amount.
| (2) | On August 10, 2019, the Company’s CEO, Mr. William Coleman Smith, entered into a lease agreement with IAC Apartment Development JV LLC to lease space at 861 Tularosa, Irvine, California for a one-year term at a rental rate of $3,455 per month, plus utilities, for the Company’s subsidiary, Green Zebra Media Corp. Green Zebra will use the space for its operations. On April 1, 2020, the landlord and the Company agreed to a rental deferment agreement to defer the rental costs by 50% as a result of COVID-19. The monthly rent commencing April 1, 2020 was $1,727 plus utilities. The rental deferment ended on June 1, 2020. The original lease expired on August 9, 2020, and was renewed on expiry for another one-year term at a reduced rate of $3,350 per month. On August 16, 2021, the Company renewed a lease for a further one-year term at a rental rate of $3,620 per month, plus utilities, for the Company’s subsidiary, Green Zebra Media Corp. The lease was renewed for a further one year term in August 2022. The Company has elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis |
| (3) | On September 14, 2020, GZMC entered into a WiFi Media Solution Agreement (the “Media Agreement”) with a city in Iowa in regard to a city owned location (“venue location”) whereby GZMC was granted rights to provide sponsorship advertising, performance marketing and professional services. Under the terms of the Media Agreement, GZMC must pay fees to the city at an annual rate of $94,000 per annum for a period of 5 years following the initial operation of the venue location, the opening of which was delayed past December 31, 2021, as a result of COVID-19 restrictions. GZMC is anticipating the start date for this project to occur during fiscal 2022 based on acquiring the various bonds and licenses as may be required and the official commencement of venue services. |
| (4) | On April 25, 2021, the Company entered into an Equity Purchase Agreement with World Amber Corp., whereby the Company agreed to sell to World Amber Corp up to 16,666,667 shares of the Company’s common stock for a maximum commitment amount of $5,000,000 at $0.30 per share. The Company has submitted a registration statement on Form S-1 to the Securities and Exchange Commission in order facilitate this funding agreement which was deemed effective on September 24, 2021.
On each of November 2, 2021, and November 3, 2021, the Company presented a Put to World Amber Corp., pursuant to the Effective S-1 Registration Statement for $50,000 each Put, as a result the cumulative $100,000 in funds resulted in the issuance of 333,334 shares of registered common stock at $0.30 per share. The Registration statement expired on September 24, 2022. No further shares will be sold under this financing agreement. |
F-22
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 10: COMMITMENTS (continued)
| (5) | On November 10, 2021, the Company entered into a Registration Right Agreement with Mast Hill Fund, L.P. (the “Investor”), whereby the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to sell to the Investor up to Ten Million Dollars ($10,000,000.00) of Put Shares at an originally estimated put price of $2.00 per share, subject to adjustment in accordance with the terms of the agreement which calls for valuation of the Put price equal to 90% of the volume weighted average price of the Company’s Common Stock on the Principal Market on the Trading Day immediately preceding the respective Put Date, and subject to a valuation period of seven (7) Trading Days immediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued in order to establish the applicable Purchase Price. To induce the Investor to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws. The Registration was deemed effective on May 11, 2022. |
| (6) | On April 7, 2022, the Company entered into Professional Relations and Consulting Agreement (Agreement) with Acorn Management Partners, LLC (Acorn), a Georgia Limited Liability Company, wherein the Company will pay Acorn $11,500 per month, and issue, or cause to be issued, $120,000 worth of the Company’s restricted common stock in three tranches, total shares equivalent to $60,000 for the first six month period and total shares equivalent to $30,000 for each of the remaining two three-month periods. The term of the Agreement is for one year, broken down into three periods; the first began on April 8, 2022, and is for six months. The next two periods are for three months each. The Agreement may be terminated at any time, in writing, by either party. If the Agreement is terminated by the Company before the end of any period, Acorn will be entitled for full payment of the period, and the full issuance of the shares for that period. The Company issued a total of 51,282 unregistered restricted shares on April 15, 2022, in respect of the first installment of $60,000 worth of common stock under the terms of the Agreement which shares are valued at fair market value on the date of issue. On July 19, 2022, 383,000 unregistered shares of the Company’s common stock were issued to Acorn Management Partners, LLC in lieu of cash payments of $60,000 owed to Acorn pursuant to an Addendum to that Consulting Agreement entered into on July 6, 2022. |
| (7) | On July 7, 2022, effective June 14, 2022, the Company entered into a Sponsorship & Services Agreement (Agreement) with the Texas Rangers MLB Stadium called Globe Life Field (Rangers) wherein the Rangers granted sponsorship benefits to the Company. The Agreement calls for advanced sponsorship revenue share payments of $375,000 by the Company to the Rangers during the fiscal years 2023 and 2024, pursuant to a split fee arrangement for WiFi managed services and Sponsorship opportunity. The Agreement offers the rights of the Company to place stadium ads in a shared revenue model. The Company will also manage the WiFi Network captive portal remotely, as an exclusive arrangement. |
NOTE 11: CAPITAL STOCK
The Company has authorized 500,000,000 common shares with a par value of $0.001, 10,000,000 shares of Series A Preferred Stock, par value $0.004 and 1 share of Series B Preferred Stock, par value $0.001. The shares of Series A Preferred Stock are convertible into shares of Common Stock on the basis of 10 shares of Common Stock for every 1 share of Series A Preferred Stock and have voting rights of one vote for each share of Series A Preferred Stock held. The Series B Preferred Stock is not convertible but has voting rights granting the holder 51% of all votes (including common and preferred stock) entitled to vote at any meeting of the stockholders of the Company. Neither the Series A nor Series B Preferred Stockholders have any rights to dividends or proceeds of the assets of the Company upon any liquidation or winding up of the Company.
Common Stock
On February 8, 2022, pursuant to an Engagement Agreement with Carter, Terry & Company, an authorized, registered broker dealer, the Company issued a total of 10,769 shares of common stock as compensation. The Company recorded $22,400 as financing cost.
On April 7, 2022, pursuant to an Engagement Agreement with Acorn Management Partners, LLC, the Company issued a total of 51,282 shares of common stock as compensation. The Company recorded $60,000 as investor relations services. Further, on July 19, 2022, 383,000 unregistered shares of the Company’s common stock were issued to Acorn Management Partners, LLC with a fair value of $69,000 as compensation owed to Acorn pursuant to a Professional Relations and Consulting Agreement (Consulting Agreement) entered into on April 7, 2022, and an Addendum to that Consulting Agreement entered into on July 6, 2022.
F-23
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK (continued)
Common Stock (continued)
On May 23, 2022 pursuant to an Engagement Agreement with Beyond Media SEZC, the Company issued a total of 1,818,181 shares of common stock as compensation. The Company recorded $600,000 as investor relationship expenses.
On May 27, 2022 the Company issued 356,364 shares of common stock as a result of the exercise of a cashless warrants.
On July 7, 2022 the Company issued 560,000 shares of common stock to Talos for total proceeds of $53,752 at $0.095985 per share pursuant to the exercise of a share purchase warrant.
On August 3, 2022, the Company issued 1,538,462 shares of common stock to lender eSilkroad Network Ltd. in consideration for $300,000 in loans previously provided under the terms of a convertible note agreement convertible at $0.195 per share.
On September 1, 2022, the Company issued 2,500,000 shares of restricted common stock to William Coleman Stock in partial payment of his promissory notes in the amount of $75,000, at $0.03 per share.
On September 1, 2022, the Company issued a cumulative 2,700,000 shares of restricted common stock for directors’ services provided by Mr. Smith, Mr. Procniak and Mr. Hale during the first two quarters of 2022, with a fair value of $65,070.
The Company issued an accumulated 8,835,000 shares of common stock pursuant to Notice of Conversion from lenders in the principal amount of $225,400, and in the accrued interest payable of $53,760 with a fair value of 129,452 and fees with a fair value of $22,621.
The Company issued an accumulated 2,893,770 shares of common stock under an Equity Purchase Agreement with Mast Hill Fund, L.P. with net proceeds of $117,216 (Note 10(5)).
As of September 30, 2022, and December 31, 2021, there were 46,824,801 and 25,177,973 shares of common stock issued and outstanding, respectively.
Series A Preferred Stock
The total number of Series A Preferred stock that may be issued by the Company is 10,000,000 shares with a par value of $0.004.
As of September 30, 2022 and December 31, 2021, there are a total of 5,000,000 shares of Series A Preferred Stock issued and outstanding.
Series B Preferred Stock
The total number of Series B Preferred Stock that may be issued by the Company is 1 share with a par value of $0.001.
As of September 30, 2022 and December 31, 2021, there is 1 share of Series B Preferred stock issued and outstanding.
F-24
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK (continued)
Share Purchase Warrants
On November 11, 2021, the Company entered into a Warrant Agreement with J.H. Darbie and Company, an authorized, registered broker dealer, wherein J.H. Darbie and Company may purchase 10,487 shares of common stock for $1.00 per share, as a Finder’s Fee for introducing the Company to MHFLP. The fair value of the warrants granted was estimated at $25,141 using the Black-Scholes pricing model
In November and December 2021, the Company issued cumulative 1,120,000 warrants to convertible note holders and subscribers for common shares, in accordance with the terms of subscription unit agreements into with the convertible note holder and subscribers. The fair value of the warrants granted was estimated at $503,973 using the Black-Scholes pricing model.
In April and May 2022, the Company issued a total of 1,831,667 warrants to convertible note holders and subscribers for common shares, in accordance with the terms of subscription unit agreements entered into with the convertible note holders and subscribers. The fair value of the warrants granted was estimated at $360,003 using the Black-Scholes pricing model.
In September 2022, the Company issued a total of 3,520,000 warrants to convertible note holders and subscribers for common shares, in accordance with the terms of subscription unit agreements entered into with the convertible note holders and subscribers. The fair value of the warrants granted was estimated at $52,702 using the Black-Scholes pricing model.
During the nine months ended September 30, 2022, 356,364 shares of common stock were issued from the exercise of 560,000 cashless warrants. 560,000 shares of common stock issued at $0.095985 per share pursuant to the exercise of a share purchase warrant.
Certain warrants above include dilution protection for the warrant holders, which could cause the exercise price to be reduced as a result of a financing event at a valuation below the exercise price in effect at the time. During the nine months ended September 30, 2022, as a result of additional share issuances below the original exercise price of certain warrants, the warrant exercise price was downward adjusted to $0.020025 per share. The downward adjustment on each of the modification dates was treated as additional paid in capital and fully expensed as financing costs on the modification date, and the Company recorded a cumulative $17,965 to additional paid in capital and interest expenses.
In accordance with authoritative accounting guidance, the fair value of the outstanding common stock purchase warrants was calculated using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
| Measurement date | ||||
| Dividend yield | 0 | % | ||
| Expected volatility | 279~297% | |||
| Risk-free interest rate | 0.83~1.22% | |||
| Expected life (years) | 3.00~5.00 | |||
| Stock Price | $0.027~$2.80 | |||
| Exercise Price | $0.10 ~ $1.00 | |||
F-25
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK (continued)
The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at September 30, 2022 and December 31, 2021:
| Exercise Price | December 31, 2021 | Issued | Repricing | Exercised | September 30, 2022 | Expiration Date | ||||||||||||||||||||
| $ | 1.00 | 560,000 | (560,000 | ) | - | |||||||||||||||||||||
| $ | 1.00 | 560,000 | 0.095985 | (560,000 | ) | - | ||||||||||||||||||||
| $ | 1.00 | 10,487 | 0.020025 | 10,487 | November 2026 | |||||||||||||||||||||
| $ | 1.00 | 365,000 | 0.020025 | 365,000 | April 2027 | |||||||||||||||||||||
| $ | 0.30 | 1,466,667 | 0.020025 | 1,466,667 | May 2025 | |||||||||||||||||||||
| $ | 0.10 | 3,520,000 | 0.020025 | 3,520,000 | September 2027 | |||||||||||||||||||||
| 1,130,487 | 5,351,667 | (1,120,000 | ) | 5,362,154 | ||||||||||||||||||||||
A summary of the warrant activity for the period ended September 30, 2022 and December 31, 2021 is as follows:
| Weighted- Average Exercise | Weighted- Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Price | Term | Value | |||||||||||||
| Outstanding at December 31, 2021 | 1,130,487 | $ | 1.00 | 2.93 | $ | - | ||||||||||
| Grants | 5,351,667 | 0.216 | 4.63 | - | ||||||||||||
| Exercised | (1,120,000 | ) | - | - | - | |||||||||||
| Expired | - | - | - | - | ||||||||||||
| Outstanding at September 30, 2022 | 5,362,154 | $ | 0.020025 | 4.55 | $ | - | ||||||||||
| Exercisable at September 30, 2022 | 5,362,154 | $ | 0.020025 | 4.55 | $ | - | ||||||||||
NOTE 12: SUBSEQUENT EVENTS
On October 1, 2022, the Company issued 1,800,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to the principal on the December 16, 2021, Convertible Note.
On October 7, 2022, the Company issued 1,600,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Mast Hill in respect to the principal on the November 3, 2021, Convertible Note.
On October 10, 2022, the Company issued 2,500,000 shares of common stock valued at $0.020025 per share pursuant to a Notice of Conversion from Talos Victory Fund in respect to $41,822.60 of the principal and $6,489.90 of unpaid and accrued interest on the December 16, 2021, Convertible Note.
On November 3, 2022, the Company entered into a Promissory Note with Fourth Man LLC, a Nevada limited liability company in which Fourth Man has agreed to lend the Company the principal amount of $160,000; the purchase price of $144,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is $0.020025, subject to adjustment. Further the Company issued the noteholder a five year common stock purchase warrant to acquire up to 2,400,000 shares at $0.10 per share. Proceeds will be used, for operating costs and further execution of GZ6G’s execution on its business plans.
F-26
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2022, and 2021
(Unaudited)
NOTE 12: SUBSEQUENT EVENTS (continued)
On November 3, 2022 Mast Hill Fund LLP provided the Company with a Notice of conversion whereunder they agreed to convert principal of $27,506.27 and interest of $4,533.73 due and payable into 1,600,000 shares of the Company’s common stock at $0.020025 per share to reduce a total of $32,040.00 from the principal balance of certain convertible promissory note.
On November 4, 2022 the Company filed a follow on Registration Statement on Form S-1 in regard to an Equity Purchase Agreement entered into in November 2021, whereby Mast Hill Fund, L.P. (the “Investor”) agreed, upon the terms and subject to the conditions of the Purchase Agreement, to purchase up to Ten Million Dollars ($10,000,000.00) of Put Shares. The Company is registering another 50,000,000 shares for purchase at an estimated $0.03 per share in respect to this agreement.
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events requiring disclosure.
F-27
FINANCIAL STATEMENTS TABLE OF CONTENTS
GZ6G TECHNOLOGIES CORP.
TABLE OF CONTENTS FOR AUDITED FINANCIAL STATEMENTS
December 31, 2021 and 2020
F-28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
GZ6G Technologies Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GZ6G Technologies Corp. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has a working capital deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-29
Going Concern – Disclosure
The financial statements of the Company are prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. As noted in “Consideration of the Company’s Ability to Continue as a Going Concern” above, the Company has a history of recurring net losses, a significant accumulated deficit and currently has net working capital deficit. The Company has contractual obligations such as commitments for repayments of accounts and notes payable and accrued interest (collectively “obligations”). Currently management’s forecasts and related assumptions illustrate their ability to meet the obligations through management of expenditures, obtaining additional financing through loans from related and unrelated parties, and private placements of capital stock for additional funding to meet its operating needs. Should there be constraints on the ability to access financing through stock issuances, the Company will continue to manage cash outflows and meet the obligations through related and unrelated party loans.
We identified management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter. Management made judgments to conclude that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining it is probable that the Company’s plans will be effectively implemented include its ability to manage expenditures, its access funding from the capital market, and obtain loans from related and unrelated parties. Auditing the judgments made by management required a high degree of auditor judgment and an increased extent of audit effort.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included the following, among others: (i) evaluating the probability that the Company will be able to access funding from the capital market; (ii) evaluating the probability that the Company will be able to manage expenditures, and (iii) evaluating the probability that the Company will be able to obtain loans from related and unrelated parties.
/s/ Pinnacle Accountancy Group of Utah
We have served as the Company’s auditor since 2019.
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, Utah
March 25, 2022
F-30
CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 759,791 | $ | 180,544 | ||||
| Accounts receivable, net | 2,000 | 2,000 | ||||||
| Prepaid expenses | 18,586 | 11,267 | ||||||
| Subscription receivable | - | 150,000 | ||||||
| Other current assets | 15,949 | 5,513 | ||||||
| Total current assets | 796,326 | 349,324 | ||||||
| Property and equipment, net | 235,176 | 8,602 | ||||||
| Right to use assets | 98,093 | - | ||||||
| TOTAL ASSETS | $ | 1,129,595 | $ | 357,926 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 335,037 | $ | 234,773 | ||||
| Related party payables | 179,769 | 110 | ||||||
| Deferred revenue | 209,000 | 287,000 | ||||||
| Debt, current portion | 44,156 | 3,768 | ||||||
| Debt, related party | 1,065,725 | 1,217,579 | ||||||
| Convertible notes, net of debt discount | 5,075,840 | 52,740 | ||||||
| Lease liability | 99,003 | - | ||||||
| Total current liabilities | 7,008,530 | 1,795,970 | ||||||
| Debt, net of current portion | 44,000 | 89,450 | ||||||
| Total liabilities | 7,052,530 | 1,885,420 | ||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred stock, $0.004 par, 10,000,000 shares authorized, 5,000,000 shares issued and outstanding | 20,000 | 20,000 | ||||||
| Series B Preferred stock, $0.001 par, 1 share authorized, 1 issued and outstanding | - | - | ||||||
| Common stock, $0.001 par, 500,000,000 shares authorized, 25,177,973 and 12,793,357 shares issued and outstanding as at December 31, 2021 and December 31, 2020, respectively | 25,178 | 12,793 | ||||||
| Additional paid in capital | 10,784,308 | 5,180,816 | ||||||
| Accumulated deficit | (16,092,531 | ) | (6,060,923 | ) | ||||
| Total GZ6G Technologies Corp stockholders’ deficit | (5,263,045 | ) | (847,314 | ) | ||||
| Non-controlling interest | (659,890 | ) | (680,180 | ) | ||||
| Total stockholders’ deficit | (5,922,935 | ) | (1,527,494 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,129,595 | $ | 357,926 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-31
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| NET REVENUES | $ | 78,000 | $ | 8,887 | ||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | 43,121 | 10,400 | ||||||
| Depreciation | 20,429 | 1,948 | ||||||
| General and administrative | 963,068 | 232,052 | ||||||
| General and administrative, related parties | 330,000 | 240,000 | ||||||
| Professional fees | 99,099 | 59,108 | ||||||
| Total operating expenses | 1,455,717 | 543,508 | ||||||
| (Loss) from operations | (1,377,717 | ) | (534,621 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (8,051,277 | ) | (3,996,466 | ) | ||||
| Loss on note conversion | (714,973 | ) | (364,909 | ) | ||||
| Change in fair value of derivative liability | - | (28,844 | ) | |||||
| Total other income (expense) | (8,766,250 | ) | (4,390,219 | ) | ||||
| Net income (loss) | $ | (10,143,967 | ) | $ | (4,924,840 | ) | ||
| Less: net income (loss) attributable to Non-controlling interest | (112,359 | ) | (174,896 | ) | ||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | (10,031,608 | ) | $ | (4,749,944 | ) | ||
| Basic and diluted net loss per common share | $ | (0.49 | ) | $ | (0.84 | ) | ||
| Weighted average shares, basic and diluted | 20,473,723 | 5,670,970 | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-32
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non- controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 5,000,000 | $ | 20,000 | 1 | $ | - | 4,799,111 | $ | 4,799 | $ | 273,656 | $ | (1,310,979 | ) | $ | (505,284 | ) | $ | (1,517,808 | ) | ||||||||||||||||||||
| Derivative liability reclassed upon debt paid | - | - | - | - | - | - | 10,584 | - | - | 10,584 | ||||||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | - | - | - | - | 7,394,246 | 7,394 | 4,747,176 | - | - | 4,754,570 | ||||||||||||||||||||||||||||||
| Issuance of common stock for private placement | - | - | - | - | 600,000 | 600 | 149,400 | - | - | 150,000 | ||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (4,749,944 | ) | (174,896 | ) | (4,924,840 | ) | |||||||||||||||||||||||||||
| Balance, December 31, 2020 | 5,000,000 | $ | 20,000 | 1 | $ | - | 12,793,357 | $ | 12,793 | $ | 5,180,816 | $ | (6,060,923 | ) | $ | (680,180 | ) | $ | (1,527,494 | ) | ||||||||||||||||||||
| Shares issued to acquire additional interest in subsidiary | - | - | - | 10,000,000 | 10,000 | (142,649 | ) | - | 132,649 | - | ||||||||||||||||||||||||||||||
| Fair value of beneficial conversion feature of convertible notes issued | - | - | - | - | - | - | 504,027 | - | - | 504,027 | ||||||||||||||||||||||||||||||
| Fair value of convertible debt warrants issued | - | - | - | - | - | - | 503,973 | - | - | 503,973 | ||||||||||||||||||||||||||||||
| Warrants issued as financing cost | - | - | - | - | - | - | 25,141 | - | - | 25,141 | ||||||||||||||||||||||||||||||
| Issuance of common stock for debt conversion | - | - | - | - | 2,051,282 | 2,052 | 4,613,333 | - | - | 4,615,385 | ||||||||||||||||||||||||||||||
| Issuance of common stock for private placement | - | - | - | - | 333,334 | 333 | 99,667 | - | - | 100,000 | ||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | (10,031,608 | ) | (112,359 | ) | (10,143,967 | ) | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | 5,000,000 | $ | 20,000 | 1 | $ | - | 25,177,973 | $ | 25,178 | $ | 10,784,308 | $ | (16,092,531 | ) | $ | (659,890 | ) | $ | (5,922,935 | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-33
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | (10,143,967 | ) | (4,924,840 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount and issuance cost | 7,823,512 | 3,953,295 | ||||||
| Financing cost | 25,141 | - | ||||||
| Fair value adjustments to derivative liability | - | 28,844 | ||||||
| Loss upon notes conversion | 714,973 | 364,909 | ||||||
| Depreciation | 20,429 | 1,948 | ||||||
| Amortization of right of use assets | 910 | - | ||||||
| Fixed assets reclassify to advertising expense | 4,990 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease prepaid expenses | (7,319 | ) | 10,400 | |||||
| (Increase) decrease in other current assets | (10,436 | ) | 7,398 | |||||
| Increase (decrease) in accounts payable and accrued expenses | 100,264 | 84,663 | ||||||
| Increase in related party payables | 179,659 | 300,715 | ||||||
| Increase (decrease) in customer deposits | (78,000 | ) | 197,000 | |||||
| Net cash provided by (used in) operating activities | (1,369,844 | ) | 24,332 | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of equipment | (251,993 | ) | (4,990 | ) | ||||
| Net cash used in investing activities | (251,993 | ) | (4,990 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances | - | 50,000 | ||||||
| Proceeds from private placement | 100,000 | - | ||||||
| Proceeds from subscription receivable | 150,000 | - | ||||||
| (Repayment) of debt, related party | (151,854 | ) | - | |||||
| Proceeds from loan payable | - | 89,450 | ||||||
| (Repayment) of loan payable | (5,062 | ) | - | |||||
| Proceeds from convertible notes | 2,108,000 | - | ||||||
| Repayments to convertible notes | - | (8,607 | ) | |||||
| Net cash provided by financing activities | 2,201,084 | 130,843 | ||||||
| Net increase in cash | 579,247 | 150,185 | ||||||
| Cash-beginning of period | 180,544 | 30,359 | ||||||
| Cash-end of period | $ | 759,791 | $ | 180,544 | ||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Interest paid | $ | 1,393 | $ | 1,393 | ||||
| Income taxes paid | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Balance of payable to related parties converted to debt, related parties | $ | - | $ | 1,217,579 | ||||
| Stock-settled debt liability | $ | 11,129,908 | $ | 1,204,000 | ||||
| Conversion of debt into common stock | $ | 400,000 | $ | 310,558 | ||||
| Stock issued under subscription receivable | $ | - | $ | 150,000 | ||||
| Initial measurement of right to use assets and lease liability | $ | 157,462 | $ | - | ||||
| Beneficial conversion feature discount recorded | $ | 1,008,000 | $ | - | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
F-34
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
GZ6G Technologies Corp. (formerly Green Zebra International Corp.) (the “Company” or “GZ6G”) is a complete enterprise smart solutions provider for large venues and cities. Focused on acquiring smart city solutions, developing innovative products, and overseeing smart cities and smart venues, GZ6G also assists in modernizing clients with innovative wireless IoT technology for the emerging 5G and Wi-Fi 6 marketplaces. Target markets include stadiums, airports, universities, and smart city projects. The Company is organized under the laws of the State of Nevada and has offices in California and Nevada.
In November 2018, the Company changed its name from NanoSensors, Inc. to Green Zebra International Corp. following a merger with Green Zebra Media Corp., a Delaware corporation, under common control.
The Board of Directors approved a name change and a reverse stock split of the Company’s issued and outstanding common shares at a ratio of 200 to 1 on December 18, 2019. The accompanying financial statements, and all share and per share information contained herein has been retroactively restated to reflect the reverse stock split. On December 20, 2019, the Company changed its name from Green Zebra International Corp. to GZ6G Technologies Corp.
On August 6, 2021, Mr. William Ray Procniak and Mr. Brian Scott Hale were appointed to the Company’s board of directors and concurrently the Company formed an audit committee, which each of Mr. Hale and Mr. Procniak joined, serving as independent board members. Concurrently the Company completed an application for an uplist to the OTCQB and submitted the required disclosure through OTCMarkets. The Company was approved for trading on the OTCQB Venture Market on October 25, 2021.
Going Concern
These audited consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2021, the Company had a working capital deficit of $6,212,204 with approximately $760,000 of cash on hand and an accumulated deficit of $16,092,531. In December 2020, the Company signed a convertible promissory note with a third party to provide an aggregate amount of $450,000 in $25,000 increments weekly, which was sufficient to meet operational needs and has been funded in full. During the year ended December 31, 2021, this note was amended to include an additional $1,000,000 in funding, payable over 90 business days commencing April 16, 2021, of which an amount of $600,000 has been received against the $1,000,000 funding as of December 31, 2021. Further prior to December 31, 2021, the Company has received an additional $1,108,000 in funding with respect to net proceeds of $1,008,000 from certain convertible notes and $100,000 in proceeds with respect to the sale of certain registered shares issued in consideration for put notices under an equity line entered into in fiscal 2021. The Company anticipates a need for a further $5,000,000 in fiscal 2022 to meet its upgraded infrastructure requirements and has filed two registration statements on Form S-1 to facilitate this requirement, one of which was deemed effective on September 24, 2021, and the other still pending notice of effect. The continuation of the Company as a going concern is dependent upon the ability to raise additional equity and/or debt financing and the attainment of profitable operations from the Company’s future business. If the Company is unable to obtain adequate capital as needed, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
F-35
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
Covid-19 Pandemic: The COVID-19 pandemic could have a continuing adverse impact on our existing sponsorship and revenue agreements. During 2021 the implementation of services under certain of our installation agreements experienced delays as a result of the pandemic. COVID-19 has caused significant disruptions to the global financial markets, which may also continue to impact our ability to raise additional capital. During March 2020, we gave notice of furlough to our administrative support employees in an effort to conserve resources as we evaluate our business development efforts in the coming months. In April 2020, the Company received a grant of $6,000 and in May 2020 we received a PPP loan and an SBA loan in the approximate cumulative amount of $90,000 for operations. During early 2022 the Company reopened its offices and continued with the hiring of additional staff as well as the upgrading of infrastructure requirements to meet anticipated customer requirements for 2022. While recent progress in the battle against COVID leads us to believe that the worst of the effects of the pandemic are past, we cannot say with certainty that the situation will not change. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and still subject to change. While significant uncertainty remains, despite the fact that the Company has been able to source financing, it remains that the COVID-19 outbreak may have a negative impact on its ability to work through its collaborative development efforts with industry partners, and in acquiring venues due to the continuing impact of COVID 19, in particular as a result of the impact to the global supply chain.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Consolidation
These consolidated financial statements include the accounts of GZ6G Technology Corp. and its 60% controlled subsidiary, Green Zebra Media Corp. (“GZMC’). as of December 31, 2021. All significant intercompany accounting transactions have been eliminated as a result of consolidation.
Use of Estimates
The preparation of these consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-36
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments with a maturity of three (3) months or less at the time of purchase.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2021, the Company had $509,791 in excess of the FDIC insured limit, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.
Research and Development Costs
We charge research and development costs to operations as incurred in accordance with ASC 730-Research and Development, except in those cases in which such costs are reimbursable under customer funded contracts. These amounts are not reflected in the reported research and development expenses in each of the respective periods but are included in net sales with the related costs included in cost of sales in each of the respective periods.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. The core principle of this standard is that a company should record revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Further under ASC 606, the Company recognizes revenue from licensing agreements and service-based contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
We earn revenue from both digital marketing and the sale of WiFi and communication solutions to customers around the world. Revenue is earned from sales of our WiFi media platform and our WiFi monetization hardware (GZ Media hub) embedded with GZ software to create monetization and communication solutions for our customers. Our sales can consist of any one or a combination of items required by our customer including hardware, technology platforms and related support. We also enter into licensing contracts which provide for revenue based on licensing fees and revenue sharing with our licensees.
As we expand, we expect a large portion of our revenue from our digital communication solutions to be derived from service-based contracts where we expect to recognize a significant portion of our contracts over time, as there is a continuous delivery of services to the customer over the contractual period of performance. These contracts may or may not include fixed payments for services over time and/or commission-based fees.
F-37
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Direct costs are expected to include materials, labor and overhead to be charged to work-in-progress (including our contracts-in-progress) inventory or cost of sales. Indirect costs relating to long-term contracts, are expected to include expenses such as general and administrative charges, and other costs will be charged to expense as incurred and will not be included in our work-in-process (including our contracts-in-progress) inventory or cost of sales. Total estimates are expected to be reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Estimated losses on long-term contracts are recorded in the period in which the losses become evident. If we do not accurately estimate the total sales, related costs and progress towards completion on our long-term contracts, the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.
In addition, certain of our contracts will include termination for convenience or non-performance clauses that provide the customer with the right to terminate the contract. Such terminations could impact the assumptions regarding total contract revenues and expenses utilized in recognizing profit under those contracts where we apply the percentage-of-completion method of accounting. Changes to these assumptions could materially impact our results of operations and financial condition. As we fully implement our business model, our inability to perform on our long-term contracts could materially impact our results of operations and financial condition.
Stock-Based Compensation
We account for stock-based transactions in which the Company receives services from employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date in accordance with ASC 718 – Compensation-Stock Compensation. Stock-based compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair value as calculated by the Black-Scholes option pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award.
Debt Issue Costs
The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations as interest expense.
Original Issue Discount
If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock Settled Debt
In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. As of December 31, 2021, and 2020, the Company had recorded within Convertible Notes, net of discount, the amount of $8,320,525 and $164,104 for the value of the stock settled debt for certain convertible notes (see Note 6).
F-38
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 – Topic 842 Leases. ASU 2016-02 requires that most leases be recognized on the financial statements, specifically the recognition of right-to-use assets and related lease liabilities, and enhanced disclosures about leasing arrangements. The Company elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
Income Taxes
The Company has adopted ASC Topic 740 – Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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.
F-39
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic and Diluted Net Income (Loss) Per Share
In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential common stock consists of the incremental common stock issuable upon convertible notes, classes of shares with conversion features. The computation of basic loss per share for the years ended December 31, 2021 and December 31, 2020 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, and preferred shares, because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted.
The table below reflects the potentially dilutive securities at each reporting period which have been excluded from the computation of diluted net loss per share:
| December 31, 2021 | December 31, 2020 | |||||||
| Convertible Notes | 4,966,154 | 256,410 | ||||||
| Stock purchase warrants | 1,130,487 | - | ||||||
| Series A Preferred shares (convertible to common at a ratio of 10 common for each 1 preferred) | 50,000,000 | 50,000,000 | ||||||
| Total | 56,096,641 | 50,256,410 | ||||||
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers, excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023, including interim periods therein.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Office equipment | $ | 166,372 | $ | 23,618 | ||||
| Leasehold improvements | 31,919 | - | ||||||
| Software | 72,330 | - | ||||||
| Total | 270,621 | 23,618 | ||||||
| Less: accumulated depreciation and amortization | (35,445 | ) | (15,016 | ) | ||||
| Total property and equipment, net | $ | 235,176 | $ | 8,602 | ||||
Depreciation expense amounted to $20,429 and $1,948 for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, the Company reclassified certain assets in the amount of $4,990 into advertising expense.
F-40
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 4: PREPAID EXPENSES
Prepaid expenses at December 31, 2021 and December 31, 2020 consist of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Reseller agreement | $ | 3,467 | $ | 11,267 | ||||
| Other expenses | 15,119 | - | ||||||
| Total | $ | 18,586 | $ | 11,267 | ||||
On January 31, 2017, GZMC entered into a white label reseller agreement with Purple Wifi Limited, a company based in the UK that provides a hosted software solution as a Wifi hotspot platform for use on a company’s Wifi hardware and also provides customer analytics services and marketing opportunities along with ancillary support services. The reseller agreement had an initial term of three years and was subsequently amended to reflect a five (5) year term. Under the terms of the agreement GZMC was required to pay a fee of $52,000 of which a total of $6,450 was unpaid and is included in accounts payable as of December 31, 2021 and December 31, 2020. The total amount expended under the reseller agreement has been recorded as prepaid expenses on the Company’s Balance Sheets and is amortized over the term of the agreement on a five-year straight-line basis as part of general and administrative expense.
NOTE 5: OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Security deposits | $ | 14,691 | $ | 4,255 | ||||
| Other deposits and receivables | 1,258 | 1,258 | ||||||
| Total | $ | 15,949 | $ | 5,513 | ||||
NOTE 6: DEBT
Secured Revolving Convertible Promissory Note and Securities Purchase Agreement
On July 19, 2019, the Company entered into a Securities Purchase Agreement with Diamondrock LLC (“Diamond”) whereby Diamond has agreed to advance up to $750,000 to the Company by way of a Secured Revolving Convertible Promissory Note with an initial cumulative funding of $169,450 (less an original issue discount (“OID”) of 10% totaling $16,945) to be drawn down in tranches at the election of the Company. As of December 31, 2019, the Company had drawn down a total of $169,450 of which $16,945 represents the OID and $2,500 represents agreed debt issue costs, for total net proceeds to the Company of $150,005. The Company is required under the terms of the agreement to repay the draw downs in four equal installments, plus accrued interest of 5% per annum, with the initial installment commencing 90 days after the first draw down under the agreement.
Further, the Company was required to pay a commitment fee in the amount of $112,500 on signing of the agreement by way of the initial issuance of a total of 100,000 shares. Diamond may sell the commitment fee shares subject to applicable securities regulations and may request additional shares from the Company at a future date should the aggregate value of the shares when sold generate less than the agreed $112,500 commitment fee.
F-41
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Secured Revolving Convertible Promissory Note and Securities Purchase Agreement (continued)
Under the terms of the convertible note, on or after maturity the note may converted to shares of common stock in whole or in part equal to 60% of the lowest of the Volume Weighted Average Price for each of the fifteen (15) days immediately preceding the date of the Notice of Conversion. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,005 Notes was calculated using the Black-Scholes pricing model at $173,585, with the following assumptions: risk-free interest rate of 1.53% ~ 1.60%, expected life of 0.6 year, volatility of 175% ~ 292%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $150,005, a charge was recorded to “Financing cost” for the excess of the fair value of the note.
The Company issued 100,000 shares on August 26, 2019 to satisfy the commitment fee. The Company valued issuance at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of issuance, and consequently recorded stock-based compensation of $110,000.
On August 26, 2020, a Revolving Secured Convertible Promissory Note Assignment and Purchase Agreement (the “Purchase Agreement”) was entered into between Diamond and Ilya Aharon (the “Buyer”). Under this Agreement, the Buyer acquired the Secured Revolving Convertible Promissory Note (“Diamond Note”) from Diamond for cash consideration of $147,000. The Purchase Agreement assigned all obligations of the Company and the guarantor under the terms of the original Diamond Note to Buyer.
On September 5, 2020, the Board of Directors approved the issuance of a new Convertible Promissory Note (the “New Note”) to Buyer in the amount of $147,000 thereby terminating all obligations of the Company and guarantor under the Diamond Note. The note was unsecured and non-interest bearing.
Under the New Note the Company had the right to prepay all or any portion of the New Note at any time upon 30 days written notice to the debtholder, without penalty at the debtholder’s discretion. The debtholder has the right at any time with 3 days written notice to convert any part of the New Note into shares of the Company’s common stock at a conversion rate of a 40% discount to the lowest market price at the close of market during the 60 days immediately prior to the notice of conversion. The Company recorded $748,192 as liability on stock settled debt associated with this New Note and expensed $748,192 as amortization of debt discount in the year ended December 31, 2020.
On October 1, 2020, the Company received a Notice of Conversion in respect to the New Note and converted the full value of the debt ($147,000) into 3,500,001 shares.
Due to the variable conversion price associated with the Revolving Secured Convertible Promissory Note disclosed above, the Company has determined that the debt discount is a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to be derivative liabilities. The initial embedded derivative liability of $173,585 was recorded as a derivative liability on the consolidated balance sheet and is remeasured to fair value at each balance sheet date with a resulting non-cash gain or loss related to the change in the fair value being charged to earnings (loss).
F-42
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Secured Revolving Convertible Promissory Note and Securities Purchase Agreement (continued)
The carrying value of the Diamond Note and the New Note is as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Principal issued | $ | - | $ | 162,589 | ||||
| Repayment | - | (8,607 | ) | |||||
| Accrued interest payable | - | 4,270 | ||||||
| Gain on extinguishment of note | - | (11,252 | ) | |||||
| Settled with shares | - | (147,000 | ) | |||||
| Amortization of debt discount | - | - | ||||||
| Total: | $ | - | $ | - | ||||
The interest expenses of these convertible notes are as follows:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest expense on the convertible notes | $ | - | $ | 5,462 | ||||
| Financing cost | - | - | ||||||
| Amortization of debt discount | - | 804,005 | ||||||
| Total: | $ | - | $ | 809,467 | ||||
The accrued interest payable is as follows:
| Balance, December 31, 2019 | $ | 201 | ||
| Interest expense on the convertible notes | 5,462 | |||
| Payment to interest | (1,393 | ) | ||
| Debt Assignment and Purchase Agreement | (4,270 | ) | ||
| Balance, December 31, 2020 | $ | - |
As a result of the application of ASC No. 815 in period ended December 31, 2020 and at the commitment date, the fair value of the debt discount associated with the convertible notes is summarized as follows:
| Balance at December 31, 2019 | 154,847 | |||
| Derivative liability reclassified to additional paid in capital upon debt paid | (10,584 | ) | ||
| Loss on change in fair value during the period | 28,844 | |||
| Gain on extinguishment | (173,107 | ) | ||
| Balance at December 31, 2020 | $ | - |
The loss on conversion in the year ended December 31, 2020 as follow:
| Principal | $ | 147,000 | ||
| Stock-settled liability | 748,192 | |||
| Total | 895,192 | |||
| 3,50,001 shares issued per notice of conversion | 1,351,000 | |||
| Loss on conversion in December 31, 2020 | $ | 455,808 |
F-43
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Advances Payable allocated to Convertible Note
During the year ended December 31, 2019, the Company received $150,000 from an unrelated third party. Proceeds were for shortfalls in operational expenses. The advance was non-interest bearing, and there were no specific terms of repayment at that time. On December 21, 2020, the Lender and the Company agreed to allocate interest in the amount of 6% per annum and to accrue interest from the date the advance was first entered into. At this time the Company executed a convertible promissory note with principal amount of $150,000. The note was due and payable on the one-year anniversary of the date of each advance and was convertible at a price of 15% of the market closing price 5 days prior to presentation of a notice of conversion. The Company recorded $35,185 as liability on stock settled debt associated with this convertible note. The Company recorded interest expenses of $13,558 during the year ended December 31, 2020.
On December 30, 2020, a Convertible Promissory Note Assignment and Purchase Agreement (the “Purchase Agreement”) was entered into between the note holder and a buyer (the “Buyer”). Under this Agreement, the Buyer acquired the Convertible Promissory Note for cash consideration of $163,558 from the holder. The Purchase Agreement assigned all obligations of the Company and the guarantor under the terms of the original convertible note to the Buyer.
On December 20, 2020, the Board of Directors approved the issuance of a new Convertible Promissory Note to the Buyer in the amount of $163,558 thereby terminating all obligations of the Company and guarantor under the original convertible promissory note above. The note is unsecured and non-interest bearing.
Under the new Convertible Promissory Note the Company had the right to prepay all or any portion of the new convertible promissory note at any time upon 30 days written notice to the debtholder, without penalty at the debtholder’s discretion. The debtholder has the right at any time with 3 days written notice to convert any part of the New Note into shares of the Company’s common stock at a conversion rate of a 40% discount to the lowest market price at the close of market during the 120 days immediately prior to the notice of conversion. The Company recorded $3,111,366 as the liability on stock settled debt associated with this New Note.
On December 31, 2020, the Company received a Notice of Conversion in respect to the New Note and converted the full value of the debt $163,558 into 3,894,245 shares.
The carrying value of the Advance payable and the New Note is as follows:
| Convertible Note | Advances payable | |||||||
| Balance, December 31, 2019 | $ | - | $ | 150,000 | ||||
| Debt Assignment and Purchase Agreement | 150,000 | (150,000 | ) | |||||
| Accrued interest expenses | 13,558 | - | ||||||
| Settled with common shares | (163,558 | ) | - | |||||
| Balance, December 31, 2020 | $ | - | $ | - | ||||
The interest expenses of this convertible note above are as follows:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest expense on the convertible notes | $ | - | $ | 13,558 | ||||
| Amortization of debt discount | - | 3,146,551 | ||||||
| Total | $ | - | $ | 3,160,609 | ||||
F-44
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Advances Payable allocated to Convertible Note
The loss on conversion during the year ended December 31, 2020 as follow:
| Principal | $ | 163,558 | ||
| Stock-settled liability | 3,146,551 | |||
| Total | 3,310,109 | |||
| 3,894,245 shares issued per notice of conversion | 3,403,570 | |||
| Loss on conversion in December 31, 2020 | $ | 93,461 |
Loan Treaty Agreement
On December 21, 2020, the Company entered into a Loan Treaty Agreement with a third party (“Treaty Agreement”) whereby the lender agreed to provide a loan in the amount of up to $450,000 to the Company in $25,000 tranches, deposited weekly, memorialized by promissory notes in increments of $100,000. Each amount deposited has a term of 12 months for repayment and shall bear an interest rate of 8% per annum. In addition, at the option of the Lender, each $25,000 loaned to the Company may be converted into common shares at a 25% discount to the market price at the close of business on November 23, 2020 ($0.26 x 75% = $0.195); or $0.195 per share. Each $25,000 may be converted at the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission. On April 1, 2021, the Company entered into an amendment to a Loan Treaty Agreement originally executed on December 21, 2020. On April 1, 2021, the Company entered into an amendment to the Treaty Agreement. Under the terms of the amendment the lender has agreed to fund an additional $1 million dollars over 90 business days in equal weekly tranches of $55,556. Each tranche may be converted under the same terms as the original loan treaty, or $0.195 per share, commencing the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission.
During the fiscal year ended December 31, 2021 and 2020, the Company received weekly tranche deposits for an aggregate of $1,100,000 and $50,000, respectively. The Company recorded $11,656,833 and $164,104, respectively, as the liability on stock settled debt associated with the tranches which amount is amortized over the terms of the notes.
On October 27, 2021, the Company issued 2,051,282 shares of common stock to lender eSilkroad Network Ltd. in consideration for $400,000 in loans previously provided under the terms of a convertible note agreement convertible at $0.195 per share.
The carrying value of tranches is as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Principal | $ | 750,000 | $ | 50,000 | ||||
| Stock-settled liability | 8,320,525 | 164,104 | ||||||
| Total | 9,070,525 | 214,104 | ||||||
| Unamortized debt discount | (4,067,059 | ) | (161,364 | ) | ||||
| Debt carrying value | $ | 5,003,466 | $ | 52,740 | ||||
F-45
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Loan Treaty Agreement
The interest expenses of traches are as follows:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest expense on notes | $ | 50,915 | $ | 66 | ||||
| Amortization of debt discount | 7,751,138 | 2,740 | ||||||
| Total: | $ | 7,802,052 | $ | 2,806 | ||||
The accrued interest payable is as follows:
Schedule of accrued interest payable loan treaty agreement
| Balance, December 31, 2020 | $ | 66 | ||
| Interest expense on the convertible notes | 50,915 | |||
| Balance, December 31, 2021 | $ | 50,981 |
The loss on conversion during the year ended December 31, 2021 is as follows:
Schedule of loss on conversion Loan Treaty Agreement
| Principal | $ | 400,000 | ||
| Stock-settled liability | 3,500,412 | |||
| Total | 3,900,412 | |||
| 2,051,282 shares issued per notice of conversion | 4,615,385 | |||
| Loss on conversion in December 31, 2021 | $ | 714,973 |
Convertible Debt
On November 11, 2021, the Company entered into a Promissory Note with an investor in which the investor has agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.
On December 16, 2021, the Company entered into a Promissory Note with an investor in which the investor has agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.
In accordance to ASC 470 – Debt, the proceeds of $1,008,000 was allocated based on the relative fair values of the convertible note and the warrant of $504,027 and $503,973, respectively. The Warrant was valued at $503,973 was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a BCF in the amount of $616,027 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,120,000.
F-46
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
Convertible Debt (continued)
The carrying value of tranches is as follows:
Schedule of convertible debt carrying value
| December 31, 2021 | December 31, 2020 | |||||||
| Principal | $ | 1,120,000 | $ | - | ||||
| Unamortized debt discount | (1,047,626 | ) | - | |||||
| Debt carrying value | $ | 72,374 | $ | - | ||||
The interest expenses of traches are as follows:
Schedule of Convertible debt interest expense
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest expense on notes | $ | 13,440 | $ | - | ||||
| Amortization of debt discount | 72,374 | - | ||||||
| Total: | $ | 85,814 | $ | - | ||||
The accrued interest payable is as follows:
Schedule of convertible debt accrued interest
| Balance, December 31, 2020 | $ | - | ||
| Interest expense on the convertible notes | 13,440 | |||
| Balance, December 31, 2021 | $ | 13,440 |
SBA
On May 19, 2020, the Company received a long-term loan from U.S. Small Business Administration (SBA) in the amount of $44,000, upon the following conditions:
Payment: Installment payments, including principal and interest, of $215 monthly, will begin twenty-four (24) months from the date of the promissory note. The balance of principal and interest will be payable Thirty (30) years from the date of the promissory note.
Interest: Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date(s) of each advance.
Payment terms: Each payment will be applied first to interest accrued to the date of receipt of each payment, and the balance, if any, will be applied to principal; each payment will be made when due even if at that time the full amount of the loan has not yet been advanced or the authorized amount of the Loan has been reduced.
As at December 31, 2021, the Company had accrued interest payable of $2,672 in respect of this loan. (December 31, 2020 - $1,022).
PPP funds
The Paycheck Protection Program (“PPP”) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.
F-47
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 6: DEBT (continued)
PPP funds (continued)
The loan may be forgiven in full if the funds are used for payroll costs, interest on mortgages, rent, and utilities (with at least 60% of the forgiven amount having been required to be used for payroll). Additional terms include:
| ● | An interest rate of 1% per annum; |
| ● | Loans issued prior to June 5, 2020 have a maturity of 2 years, with loans issued thereafter having a maturity of 5 years; |
| ● | Loan payments are deferred for six months; |
| ● | No collateral or personal guarantees are required; and, |
| ● | Neither the government nor lenders will charge small businesses any fees. |
On May 14, 2020, the Company received PPP proceeds of $45,450.
As of December 31, 2021, the Company paid $5,702 including $5,061 in principal and $641 in interest payable in respect of this loan. The Company is currently in the process of applying for forgiveness of the loan in full.
A schedule of the total long-term debt is below:
| December 31, 2021 | December 31, 2020 | |||||||
| SBA Loan | $ | 44,000 | $ | 44,000 | ||||
| PPP Loan | 40,389 | 45,450 | ||||||
| Total | 84,389 | 89,450 | ||||||
| Current portion | (40,389 | ) | - | |||||
| Debt, long term | $ | 44,000 | $ | 89,450 | ||||
| Interest accrued, reflected as accounts payable | $ | 2,672 | $ | 1,310 | ||||
Other Short-term loans
On January 5, 2018, GZMC entered into a loan agreement with National Funding Inc. whereby the Company acquired funding in the amount of $20,625. The terms of the loan called for the Company to pay an origination fee of $412 and to repay $26,400 by way of 176 daily payments of $150. As of December 31, 2021 and December 31, 2020, there was an outstanding amount of $3,768 due and payable on the loan, and the loan was in default at the year ended December 31, 2020 and remains in default.
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES
The Company generates revenue from contracts which, among other services, provide wireless and digital promotion rights for certain events including WiFi media network advertising rights, and the development of smart venue wireless networks and software engagement technology products for airports, stadiums, campuses, cities and other venues in the United States and International markets. In general, our contracts require several months of implementation which is charged at a fixed rate, followed by monthly maintenance and management services, ad hoc fixed rate services, and a share in advertising revenue, when applicable. As a result, the Company will accept deposits from customers, which deposits are applied as each stage of our implementation is complete or under the terms of the service contract. Invoices issued to customers for the implementation phase of our contracts are due and payable when issued, however, as the associated scope of services have not yet been concluded, these invoices do not yet meet the revenue recognition criteria required to report these amounts as earned revenue (ref: Note 2 – Revenue Recognition). As a result, deposits when received from customers are included as liabilities on our balance sheets.
F-48
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES (continued)
The following table provides balances of customer receivables and contract liabilities as of December 31, 2021 and December 31, 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Customer receivables (1) | $ | - | $ | - | ||||
| Contract liabilities (Customer deposits) (2), (a), (b), (c) | $ | 209,000 | $ | 287,000 | ||||
| (1) | While the Company has outstanding customer invoices for a total of $1,395,000 and $1,460,000 (net of customer deposits received of $209,000 and $287,000, respectively as at December 31, 2021 and December 31, 2020), these amounts are not yet earned under revenue recognition criteria provided by ASC 606 and therefore, they are not reflected as accounts receivable on the Company’s balance sheets. |
| (2) | Contract liabilities are consideration we have received from our customers billed in advance of providing goods or services promised in the future or for work in progress. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include installation and maintenance charges that are deferred and recognized when the installation is complete or with respect to deposits for maintenance, over the actual or expected contract term, which typically ranges from one to five years depending on the service. Contract liabilities may be included as customer deposits or deferred revenue in our consolidated balance sheets, based on the specifics of the contract. As of December 31, 2021 and December 31, 2020, we have recognized $78,000 and $0, respectively, in revenue from customer deposits on hand. The Company and certain customers are currently in negotiations to determine the best way to proceed with the delayed implementation of certain prior period contracts for which we have received deposits but have not completed the scope of work. |
Performance Obligations
As of December 31, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with certain customer contracts that have been invoiced but remain unsatisfied (or partially satisfied) is approximately $1,550,000. While we had originally expected to recognize approximately 30% of this revenue through 2020, with the balance recognized thereafter, the impact of COVID-19 has had a significant impact on these contracts. The Company is currently in negotiations to determine the best way to proceed with the delayed implementation of these contracts, or their termination.
(a) We executed a license agreement for the country of Spain in fiscal 2016 and the Company received an initial deposit of $25,000 against the total licensing fee payable. This amount has been recorded on the Company’s balance sheets as deferred income. While the Company and the customer attempted to negotiate an amendment to the terms of the agreement in late fiscal 2019, the onset of COVID-19 resulted in further delays which are ongoing. As a result, the Company is currently in negotiation for a formal termination of the agreement with this customer.
(b) On July 11, 2019, GZMC entered into an Airport WiFi Sponsorship Marketing Agreement with a third party whereunder GZMC will secure long-term, exclusive and non-exclusive smart venues for WiFi marketing, digital marketing and data analytics for various brand sponsors at various airports across the United States. There were several venues anticipated under the terms of the agreement with installations commencing on various schedules. GZMC generated invoices for $100,000 for each of 13 venues, whereby $65,000 per venue is due on receipt of the invoice and the remaining $35,000 is due sixty days thereafter. As at December 31, 2021 and December 31, 2020, the Company had received partial payments of $130,000 against the initial deposit required. Previously the Company expected revenue recognition under these contracts to commence in fiscal 2020, however, as a result of the impact of the COVID-19 pandemic, the project has been delayed indefinitely. Funds originally provided for the implementation of this project are anticipated to be applied as a deposit on a project yet to be identified or otherwise, repaid.
F-49
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES (continued)
(c) On October 6, 2020, the Company received a purchase order in the amount of $132,000 in regard to a Media Agreement described in Note 9(3) below. As the installation had not yet been fully performed under the purchase order as of December 31, 2020, $132,000 is reflected as Deferred Revenue on the balance sheet. During the fiscal year ended December 31, 2021, the Company completed the installation terms included in the purchase order and as a result $78,000 has been reflected as revenue as at December 31, 2021. The remaining $64,000 included in deferred income relates to future service obligations under the contract which will be earned over the term of the service contract.
NOTE 8: RELATED PARTY TRANSACTIONS
Terrence Flowers
As at December 31, 2019, a total of $11,110 was payable to Mr. Terrence Flowers, who ceased to be a shareholder, officer and director on July 9, 2018. During the year ended December 31, 2020, the Company repaid $11,000 to Mr. Flowers, leaving a balance due of $110 at December 31, 2021 and 2020. The amount is reflected on the balance sheet in related party payables.
Coleman Smith and ELOC Holdings Corp.
On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company. Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp. whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. ELOC Holdings, Corp is a company controlled by Mr. Smith.
On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC was required to pay an annual salary of $120,000 to Mr. Smith.
During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp made short term loans with interest at 1.5% per month to the Company to pay various expenses.
As of December 31, 2020, Mr. Smith, ELOC Holdings Corp. and the Company agreed to retroactively allocate interest in the amount of 5% per annum to loans, advances, wages and management fees payable by each of GZMC and the Company from January 1, 2020 forward. The parties entered into a single consolidated promissory note for all amounts payable to each of ELOC and Smith, with a principal amount of $1,217,579 payable to ELOC.
During the fiscal year ended December 31, 2021, the Company paid a total of $151,854 to ELOC to pay down the principal balance on the loan.
The following amounts were included in debt to related party on our Balance Sheets:
| Balance at December 31, 2020, Debt, related party | $ | 1,217,579 | ||
| Payments on loan | (151,854 | ) | ||
| Balance at December 31, 2021, Debt, related party. | $ | 1,065,725 |
The Company recorded associated interest expenses of $55,713 and $22,629 for the fiscal years ended December 31, 2021 and 2020, respectively.
During the fiscal year ended December 31, 2021, the Company accrued $120,000 in management fees to ELOC and paid management fees to Coleman Smith of $210,000. Further, Mr. Smith received payments for expenses and invoiced the Company for expenses paid on behalf of the Company leaving a net amount due for expenses of $17,085.
F-50
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 8: RELATED PARTY TRANSACTIONS (continued)
Coleman Smith and ELOC Holdings Corp. (continued)
The following amounts were included in related party payables on our Balance Sheets:
| December 31, 2021 | December 31, 2020 | |||||||
| Coleman Smith, President | $ | 3,946 | $ | - | ||||
| Interest payable | 55,713 | |||||||
| ELOC Holdings Corp. | 120,000 | - | ||||||
| Terrence Flowers | 110 | 110 | ||||||
| $ | 179,769 | $ | 110 | |||||
Securities Purchase Agreement – William Coleman Smith
On April 8, 2021, the Company and William Coleman Smith, officer and director entered into a securities purchase agreement whereunder Mr. Smith sold an additional 9% interest in GZMC to the Company for consideration of 10 million unregistered, restricted shares of common stock. On the conclusion of the transaction, the Company controlled 60% of GZMC.
NOTE 9: COMMITMENTS
| (1) | On April 2, 2019, a vendor of the Company, the “Plaintiff” filed a complaint against the Company’s 60% controlled subsidiary, Green Zebra, in the Superior Court of California, Orange County for unpaid invoices related to services and products sold in fiscal 2017, including reasonable value in the amount of $61,899.62. The Court approved a default judgement on January 23, 2020 with respect to the aforementioned claim, including the following: |
Schedule of Default Judgement
| Damages | $ | 61,890 | ||
| Prejudgment interest at the annual rate of 10% | 9,835 | |||
| Attorney fees | 1,200 | |||
| Other costs | 505 | |||
| Total judgement value | $ | 73,430 |
As of December 31, 2020 and March 31, 2021, the Company was unaware of the judgement. In April 2021, the Plaintiff perfected the judgement and obtained a hold against a bank account controlled by Green Zebra in the approximate amount of $16,282, which amount was subsequently released to the Plaintiff and has been recorded as a reduction to the balance owing to the Plaintiff. The Company remitted a further $2,420 towards the outstanding balance. At December 31, 2021 a total of $54,738 remained outstanding. The Company and the Plaintiff are currently in discussions regarding the claimed amount.
| (2) | On August 10, 2019, the Company’s CEO, Mr. William Coleman Smith, entered into a lease agreement with IAC Apartment Development JV LLC to lease space at 861 Tularosa, Irvine, California for a one-year term at a rental rate of $3,455 per month, plus utilities, for the Company’s subsidiary, Green Zebra Media Corp. Green Zebra will use the space for its operations. On April 1, 2020, the landlord and the Company agreed to a rental deferment agreement to defer the rental costs by 50% as a result of COVID-19. The monthly rent commencing April 1, 2020 was $1,727 plus utilities. The rental deferment ended on June 1, 2020. The original lease expired on August 9, 2020 and was renewed on expiry for another one-year term at a reduced rate of $3,350 per month. On August 16, 2021 the Company renewed a lease for a further one-year term at a rental rate of $3,620 per month, plus utilities, for the Company’s subsidiary, Green Zebra Media Corp. The Company has elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis |
F-51
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 9: COMMITMENTS (continued)
| (3) | On September 14, 2020, GZMC entered into a WiFi Media Solution Agreement (the “Media Agreement”) with a city in Iowa in regard to a city owned location (“venue location”) whereby GZMC was granted rights to provide sponsorship advertising, performance marketing and professional services. Under the terms of the Media Agreement, GZMC must pay fees to the city at an annual rate of $94,000 per annum for a period of 5 years following the initial operation of the venue location, the opening of which was delayed past December 31, 2021 as a result of COVID-19 restrictions. GZMC is anticipating the start date for this project to occur during fiscal 2022 based on acquiring the various bonds and licenses as may be required and the official commencement of venue services. |
| (4) | On May 19, 2021, the Company signed an 18-month lease for office premises in California located at 1 Technology Drive, Bldg B, Irvine, CA 92618, Suite no. B123 occupying approximately 6,498 square feet of usable space. The terms of the lease provide for basic monthly rent in the first year of approximately $9,097 per month, and $9,487 for each of the remaining six months. In addition, the tenant is responsible for their share of operating expenses, utilities and services. As a result of the adoption ASU No. 2016-02 – Topic 842 Leases, the Company recognized a lease liability and right-to-use asset of approximately $157,462, which represented the present value of the remaining minimum lease payments using an estimated incremental borrowing rate of 6.75% on June 1, 2021. Total future payments are $102,408 and imputed interest is $3,405, leaving lease liabilities of $99,003 as at December 31, 2021. |
| (5) | On April 25, 2021, the Company entered into an Equity Purchase Agreement with World Amber Corp., whereby the Company agreed to sell to World Amber Corp up to 16,666,667 shares of the Company’s common stock for a maximum commitment amount of $5,000,000 at $0.30 per share. The Company has submitted a registration statement on Form S-1 to the Securities and Exchange Commission in order facilitate this funding agreement which was deemed effective on September 24, 2021.
On each of November 2, 2021, and November 3, 2021, the Company presented a Put to World Amber Corporation, pursuant to the Effective S-1 Registration Statement for $50,000 each Put, the cumulative $100,000 in funds requiring the issuance of 333,334 shares of registered common stock at $0.30 per share. |
| (5) | On November 10, 2021, the Company entered into a Registration Right Agreement with Mast Hill Fund, L.P., whereby the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to sell to the Investor up to Ten Million Dollars ($10,000,000.00) of Put Shares (as defined in the Purchase Agreement) and to induce the Investor to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws. |
NOTE 10: CAPITAL STOCK
The Company has authorized 500,000,000 common shares with a par value of $0.001, 10,000,000 shares of Series A Preferred Stock, par value $0.004 and 1 share of Series B Preferred Stock, par value $0.001. The shares of Series A Preferred Stock are convertible into shares of Common Stock on the basis of 10 shares of Common Stock for every 1 share of Series A Preferred Stock and have voting rights of one vote for each share of Series A Preferred Stock held. The Series B Preferred Stock is not convertible but has voting rights granting the holder 51% of all votes (including common and preferred stock) entitled to vote at any meeting of the stockholders of the Company. Neither the Series A nor Series B Preferred Stockholders have any rights to dividends or proceeds of the assets of the Company upon any liquidation or winding up of the Company.
F-52
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 10: CAPITAL STOCK (continued)
Common Stock
On April 8, 2021, the Company and William Coleman Smith, officer and director entered into a securities purchase agreement whereunder Mr. Smith sold an additional 9% interest in GZMC to the Company for consideration of 10 million unregistered, restricted shares of common stock. On the conclusion of the transaction, the Company controls 60% of GZMC. The transaction occurred between parties under common control and the value of the shares was recorded at par value or $0.001 per share, in addition as a result of the change in ownership percentage to account for the additional 9% interest the Company recorded a reduction to additional paid in capital of $142,649 as of the acquisition date.
On October 27, 2021, the Company issued 2,051,282 shares of common stock to lender eSilkroad Network Ltd. in consideration for $400,000 in loans previously provided under the terms of a convertible note agreement convertible at $0.195 per share.
On each of November 2, 2021, and November 3, 2021, the Company presented a Put to World Amber Corporation, pursuant to the Effective S-1 Registration Statement for $50,000 each Put, for a cumulative $100,000 in funds requiring the issuance of 333,334 shares of registered common stock at $0.30 per share.
During the year ended December 31, 2020, the Company issued a total of 600,000 shares in respect to a private placement at $0.25 per share for total proceeds of $150,000. The $150,000 is reflected on the balance sheets of the Company as a Subscription Receivable and was received in January 2021.
As of December 31, 2021 and December 31, 2020, there were 25,177,973 and 12,793,357 shares of common stock issued and outstanding, respectively.
Series A Preferred Stock
The total number of Series A Preferred stock that may be issued by the Company is 10,000,000 shares with a par value of $0.004.
On December 31, 2021 and December 31, 2020, there are a total of 5,000,000 shares of Series A Preferred Stock issued and outstanding.
Series B Preferred Stock
The total number of Series B Preferred Stock that may be issued by the Company is 1 share with a par value of $0.001.
On December 31, 2021 and December 31, 2020, there is 1 share of Series B Preferred stock issued and outstanding.
Share Purchase Warrants
On November 11, 2021, the Company entered into a Warrant Agreement with J.H. Darbie and Company, an authorized, registered broker dealer, wherein J.H. Darbie and Company may purchase 10,487 shares of common stock for $1.00 per share, as a Finder’s Fee for introducing the Company to MHFLP. The fair value of the warrants granted was estimated at $25,141 using the Black-Scholes pricing model
In November and December 2021, the Company issued accumulated 1,120,000 warrants to convertible note holders and subscribers for common shares, in accordance with the terms of subscription unit agreements into with the convertible note holder and subscribers. The fair value of the warrants granted was estimated at $503,973 using the Black-Scholes pricing model.
F-53
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 10: CAPITAL STOCK (continued)
Share Purchase Warrants (continued)
In accordance with authoritative accounting guidance, the fair value of the outstanding common stock purchase warrants was calculated using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
| Measurement date | ||||
| Dividend yield | 0% | |||
| Expected volatility | 279~293% | |||
| Risk-free interest rate | 0.83~1.22% | |||
| Expected life (years) | 3.00~5.00 | |||
| Stock Price | $1.99~ $2.40 | |||
| Exercise Price | $1.00 | |||
The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at December 31, 2021:
| Exercise | Number | Expiration | ||
| Price | Outstanding | Date | ||
| $1.00 | 560,000 | November 2024 | ||
| $1.00 | 560,000 | December 2024 | ||
| $1.00 | 10,487 | November 2026 |
A summary of the warrant activity for the year ended December 31, 2021 is as follows:
| Weighted- Average Exercise | Weighted- Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Price | Term | Value | |||||||||||||
| Outstanding at December 31, 2020 | - | $ | - | - | $ | - | ||||||||||
| Grants | 1,130,487 | 1.00 | 3.02 | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | - | - | ||||||||||||
| Outstanding at December 31, 2021 | 1,130,487 | $ | 1.00 | 2.93 | $ | - | ||||||||||
| Exercisable at December 31, 2021 | 1,130,487 | $ | 1.00 | 2.93 | $ | - | ||||||||||
NOTE 11: INCOME TAX
The income tax expense (benefit) at a federal rate of 21% and a state tax rate of 0% consisted of the following for the years ended December 31, 2021 and December 31, 2020:
| December 31, 2021 |
December 31, 2020 |
|||||||
| Total current | $ | - | $ | - | ||||
| Total deferred | - | - | ||||||
| $ | - | $ | - | |||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The following is a reconciliation of the expected statutory federal income tax and state income tax provisions to the actual income tax benefit for the years ended December 31, 2021 and 2020:
| December 31, 2021 |
December 31, 2020 |
|||||||
| Expected benefit at federal statutory rate | $ | 2,106,600 | 997,500 | |||||
| Change in valuation allowance | (2,106,600 | ) | (997,500 | ) | ||||
| $ | - | $ | - | |||||
F-54
GZ6G TECHNOLOGIES CORP.
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
NOTE 11: INCOME TAX (continued)
The Company had deferred income tax assets as of December 31, 2021 and 2020 as follows:
| December 31, 2021 |
December 31, 2020 |
|||||||
| Loss carryforwards | $ | 3,372,800 | $ | 1,266,200 | ||||
| Less - valuation allowance | (3,372,800 | ) | (1,266,200 | ) | ||||
| Total net deferred tax assets | $ | - | $ | - | ||||
The Company has several unfiled tax years since a change in control in fiscal 2018, and certain prior filed returns are also open for examination by the taxing authorities. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented above. The Company had no accruals for interest and penalties at either December 31, 2020 and 2019. The Company’s utilization of any net operating loss carry-forward may be unlikely as a result of the change in control which occurred in fiscal 2018 and its change in business activities.
NOTE 12: SUBSEQUENT EVENTS
On February 7, 2022, the board of directors of the Company approved and authorized an increase of $10,000 per month in salary for the sole officer of the Company, William Coleman Smith, effective January 1, 2022.
Subsequent to the year ended December 31, 2021, pursuant to an Engagement Agreement with Carter, Terry & Company, an authorized, registered broker dealer, the Company issued a total of 10,769 compensation shares.
The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events requiring disclosure.
F-55
On April 2, 2019, a vendor of the Company, the “Plaintiff” filed a complaint against the Company’s 60% controlled subsidiary, Green Zebra, in the Superior Court of California, Orange County for unpaid invoices related to services and products sold in fiscal 2017, including reasonable value in the amount of $61,899.62. The Court approved a default judgement on January 23, 2020 with respect to the aforementioned claim, including the following:
| Damages | $ | 61,890 | ||
| Prejudgment interest at the annual rate of 10% | 9,835 | |||
| Attorney fees | 1,200 | |||
| Other costs | 505 | |||
| $ | 73,430 |
As of December 31, 2020 and March 31, 2021, the Company was unaware of the judgement. In April 2021, the Plaintiff perfected the judgement and obtained a hold against a bank account controlled by Green Zebra in the approximate amount of $16,282, which amount was subsequently released to the Plaintiff and has been recorded as a reduction to the balance owing to the Plaintiff. The Company remitted a further $2,420 towards the outstanding balance. At September 30, 2022 and December 31, 2021 a total of $54,738 remained outstanding. The Company and the Plaintiff are currently in discussions regarding the claimed amount.
Other than as set out above, we know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Pinnacle Accountancy Group of Utah (a dba of Heaton & Company, PLLC) located at 1438 N Highway 89, Suite 120, Farmington, Utah 84025, phone (801) 447-9572, our independent registered public accountant, has audited our financial statements as of and for the years ended December 31, 2021 and 2020 included in this prospectus and Registration Statement to the extent and for the periods set forth in their audit report and has presented its report with respect to our audited financial statements.
Sharon D. Mitchell of the law offices of SD Mitchell & Associates, PLC located at 829 Harcourt Rd., Grosse Pointe Park, Michigan 48230; telephone (248) 515-6035 passed on the legality of the shares being offered in this prospectus.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by Nevada law and that none of our directors will be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
| ● | for any breach of the director’s duty of loyalty to the Company or its stockholders; |
| ● | for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; |
| ● | under Nevada Revised Statutes for the unlawful payment of dividends; or |
| ● | for any transaction from which the director derives an improper personal benefit. |
These provisions require us to indemnify our directors and officers unless restricted by Nevada law and eliminate our rights and those of our stockholders to recover monetary damages from a director for breach of her fiduciary duty of care as a director except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our stockholders to seek non-monetary remedies, such as an injunction or rescission, against a director for breach of her or her fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act, and the rules and regulations promulgated hereunder, with respect to the Common Stock offered hereby. Their prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto. While we have summarized the material terms of all agreements and exhibits included in the scope of their Registration Statement, for further information regarding the terms and conditions of any exhibit, reference is made to such exhibits. Upon effectiveness of their prospectus, we will be subject to the reporting and other requirements of Section 15(d) of the Securities Exchange Act of 1934 and will file periodic reports with the Securities and Exchange Commission. We will make available to our shareholders annual reports containing financial statements audited by our independent auditors and our quarterly reports containing unaudited financial statements for each of the first three quarters of each year; however, we will not send the annual report to our shareholders unless requested by an individual shareholder.
For further information with respect to us and the Common Stock, reference is hereby made to the Registration Statement and the exhibits thereto, which may be inspected and copied at the principal office of the SEC, 100 F Street NE, Washington, D.C. 20549, and copies of all or any part thereof may be obtained at prescribed rates from the Commission’s Public Reference Section at such addresses. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the forecasted expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission*.
| Securities and Exchange Commission Registration Fee (fee rounded to next whole dollar) | $ | 165.30 | ||
| Audit Fees and Expenses | $ | 1,000 | ||
| Legal Fees and Expenses | $ | 3,500 | ||
| Transfer Agent and Registrar Fees and Expenses | $ | 10,000 | ||
| Edgar Filing Fees | $ | 2,500 | ||
| Miscellaneous Expenses | $ | 2,834.70 | ||
| Total | $ | 20,000 |
*Estimates only
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The officers and directors of the Company are indemnified as provided by the Nevada Revised Statutes and the Bylaws of the Company. Unless specifically limited by a corporation’s Certificate of Incorporation, Nevada law automatically provides directors with immunity from monetary liabilities. The Company’s Certificate of Incorporation does not contain any such limiting language. Excepted from that immunity are:
| a. | willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director has a material conflict of interest; |
| b. | a violation of criminal law unless the director had reasonable cause to believe that her or her conduct was lawful or no reasonable cause to believe that her or her conduct was unlawful; |
| c. | a transaction from which the director derived an improper personal profit; and |
| d. | willful misconduct. |
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The Certificate of Incorporation provide that the Company will indemnify its officer, director, legal representative, and persons serving at the request of the Company as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise to the fullest extent legally permissible under the laws of the State of Nevada against all expenses, liability and loss (including attorney’s fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by that person as a result of that connection to the Company. Their right of indemnification under the Certificate is a contract right, which may be enforced in any manner by such person and extends for such persons benefit to all actions undertaken on behalf of the Company.
The Bylaws of the Company provide that the Company will indemnify its director and officer to the fullest extent not prohibited by Nevada law; provided, however, that the Company may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the Company shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Company, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under Nevada law or (iv) such indemnification is required to be made pursuant to the Bylaws.
The Certificate of Incorporation of the Company provide that the Company will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or he is or was a director or officer, of the Company, or is or was serving at the request of the Company as a director or executive officer of another Company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under the Bylaws of the Company or otherwise.
The Certificate of Incorporation of the Company provides that no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Company.
The following is a list of exhibits filed as part of their Registration Statement. Where so indicated by footnote, exhibits that were previously filed are incorporated herein by reference. Any statement contained in an Incorporated Document shall be deemed to be modified or superseded for purposes of their Registration Statement to the extent that a statement contained herein or in any other subsequently filed Incorporated Document modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of their Registration Statement. The following is a list of exhibits filed as part of their Registration Statement. Where so indicated by footnote, exhibits that were previously filed are incorporated herein by reference. Any statement contained in an Incorporated Document shall be deemed to be modified or superseded for purposes of their Registration Statement to the extent that a statement contained herein or in any other subsequently filed Incorporated Document modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of their Registration Statement.
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65
66
+Filed herewith
*Previously filed
67
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective amendment to their Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(b) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
(c) Include any additional or changed material information on the plan of distribution.
2. To, for the purpose of determining any liability under the Securities Act, treat each post-effective amendment as a new Registration Statement relating to the securities offered herein, and to treat the offering of such securities at that time to be the initial bona fide offering thereof.
3. To remove from registration, by means of a post-effective amendment, any of the securities being registered hereby that remain unsold at the termination of the offering.
4. For determining liability of the undersigned Registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering of securities of the undersigned Registrant pursuant to their Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(a) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
(b) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
(c) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and,
(d) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
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Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our director, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our director, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our director, officers, or controlling person sin connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
For the purposes of determining liability under the Securities Act for any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a Registration Statement relating to an offering, other than Registration Statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a Registration Statement or prospectus that is part of the Registration Statement or made in a document incorporated or deemed incorporated by reference into the Registration Statement or prospectus that is part of the Registration Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the Registration Statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first use.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused their Amendment No. 1 to the Registration Statement on Form S-1/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Irvine, California on this 7th day of February 2023.
| GZ6G Technologies Corp. | ||
| By: | /s/ William Coleman Smith | |
| Name: | William Coleman Smith | |
| Title: | Chief Executive Officer | |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement on Form S-1/A has been signed below by the following persons in the capacities and on the dates indicated.
| Name | Position | Date | ||
| /s/ William Coleman Smith | Chief Executive Officer | February 7, 2023 | ||
| William Coleman Smith | ||||
| /s/ William Coleman Smith | Chief Financial Officer (Principal Financial and | February 7, 2023 | ||
| William Coleman Smith | Accounting Officer) | |||
| /s/ William Coleman Smith | Director | February 7, 2023 | ||
| William Coleman Smith | ||||
| /s/ Brian Scott Hale | Director | February 7, 2023 | ||
| Brian Scott Hale | ||||
| /s/ William Ray Procniak | Director | February 7, 2023 | ||
| William Ray Procniak |
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Exhibit 5.1
Sharon D. Mitchell, Attorney at Law
SD Mitchell & Associates, PLC
57492 Onaga Trail ∙ Yucca Valley, California 92284
829 Harcourt Rd. ∙ Grosse Pointe Park, Michigan 48230
(248) 515-6035 (Phone) (248) 751-6030 (Facsimile) sharondmac2013@gmail.com
*Admitted in Michigan
7 February 2023
Mr. William Coleman Smith
President/Chief Executive Officer
GZ6G Technologies Corp.
Suite #105-275, 25422 Trabuco Rd.
Lake Forest, CA 92630
Re: Form S-1 Registration Statement
Dear Mr. Smith:
You have requested that I furnish you my legal opinion with respect to the legality of the following described securities of GZ6G Technologies Corp. (the “Company”) covered by a Form S-1 Registration Statement (“Registration Statement”), filed with the Securities and Exchange Commission for the purpose of registering such securities under the Securities Act of 1933:
| 1. | 50,000,000 shares of GZ6G Technologies Corp. Common Stock, $0.001 par value (“Shares”) offered for sale to Mast Hill Fund, L.P. by the Company; |
In connection with this opinion, I have examined the corporate records of the Company, including the Company’s Certificate of Incorporation, Bylaws, and the Registration Statement and Prospectus, as well as such other documents and records as I deemed relevant in order to render this opinion. In my examination, I have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified, conformed, photostatic or facsimile copies and the authenticity of the originals of such copies.
Based on the forgoing, and in reliance thereon, and subject to the qualification and limitations set forth below, I am of the opinion that the Company is duly organized in the State of Nevada, validly existing and in good standing as a corporation under the laws of the State of Nevada.
It is my opinion that all of the 50,000,000 shares of the Common Stock offered for sale by the Company, and described in the S-1 Registration Statement, will be, when sold, duly authorized, validly issued, fully paid and non-assessable under the laws of the State of Nevada.
Nothing herein shall be deemed to relate to or to constitute an opinion concerning any matters not specifically set forth above. The foregoing opinions relate only to the matters of the internal law of the State of Nevada without reference to conflict of laws and to matters of federal law, and I do not purport to express any opinion on the laws of any other jurisdiction.
Mr. William Coleman Smith
President/Chief Executive Officer
GZ6G Technologies Corp.
7 February 2023
Page 2 of 2
I do hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and further consent to statements made therein regarding the use of my name under the heading “Interests of Named Experts and Counsel” in the Prospectus constituting a part of the Registration Statement.
With best regards,
/s/ Sharon D. Mitchell
Sharon D. Mitchell
Exhibit 10.51
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $293,000.00 | Issue Date: November 23, 2022 |
| Actual Amount of Purchase Price: $263,700.00 |
PROMISSORY NOTE
FOR VALUE RECEIVED, GZ6G TECHNOLOGIES CORP., a Nevada corporation (hereinafter called the “Borrower” or the “Company”) (Trading Symbol: GZIC), hereby promises to pay to the order of MAST HILL FUND, L.P., a Delaware limited partnership, or registered assigns (the “Holder”), in the form of lawful money of the United States of America, the principal sum of $293,000.00, which amount is the $263,700.00 actual amount of the purchase price (the “Consideration”) hereof plus an original issue discount in the amount of $29,300.00 (the “OID”) (subject to adjustment herein) (the “Principal Amount”) and to pay interest on the unpaid Principal Amount hereof at the rate of twelve percent (12%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, as further provided herein. The maturity date shall be twelve (12) months from the Issue Date (the “Maturity Date”), and is the date upon which the Principal Amount (which includes the OID) and any accrued and unpaid interest and other fees, shall be due and payable.
This Note may not be prepaid or repaid in whole or in part except as otherwise explicitly set forth herein.
Any Principal Amount or interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) sixteen percent (16%) per annum and (ii) the maximum amount permitted by law from the due date thereof until the same is paid (“Default Interest”). Interest and Default Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.
All payments due hereunder (to the extent not converted into shares of common stock, $0.001 par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day.
Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated as of the Issue Date, pursuant to which this Note was originally issued (the “Purchase Agreement”). As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the Principal Market (as defined in the Purchase Agreement), provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
1
The following terms shall also apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right, on any calendar day, at any time on or following the Issue Date, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any Default Interest) into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified, at the Conversion Price (as defined below) determined as provided herein (a “Conversion”); provided, however, that notwithstanding anything to the contrary contained herein, the a Holder shall not have the right to convert any portion of this Note, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons (as defined below) acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1.1, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1.1, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof. The limitations contained in this paragraph shall apply to a successor holder of this Note. The number of Conversion Shares to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower or Borrower’s transfer agent by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the Principal Amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such Principal Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2).
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1.2 Conversion Price.
(a) Calculation of Conversion Price. The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall equal $0.03, subject to adjustment as provided in this Note. If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price. Holder shall be entitled to deduct $1,750.00 from the conversion amount in each Notice of Conversion to cover Holder’s fees associated with each Notice of Conversion. All such Conversion Price determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to the immediately preceding sentence shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. “Common Stock Equivalents” means any securities of the Company or the Company’s subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
1.3 Authorized and Reserved Shares. The Borrower covenants that at all times until the Note is satisfied in full, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of a number of Conversion Shares equal to the greater of: (a) 29,300,000 shares of Common Stock or (b) the sum of (i) the number of Conversion Shares issuable upon the full conversion of this Note (assuming no payment of Principal Amount or interest) at the time of such calculation (taking into consideration any adjustments to the Conversion Price as provided in this Note) multiplied by (ii) three (3) (the “Reserved Amount”). The Borrower represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid and non-assessable. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Conversion Shares or instructions to have the Conversion Shares issued as contemplated by Section 1.4(f) hereof, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates or cause the Company to electronically issue shares of Common Stock to execute and issue the necessary certificates for the Conversion Shares or cause the Conversion Shares to be issued as contemplated by Section 1.4(f) hereof in accordance with the terms and conditions of this Note.
If, at any time, the Borrower does not maintain the Reserved Amount, it will be considered an Event of Default (as defined in the Note) under this Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. This Note may be converted by the Holder in whole or in part, on any calendar day, at any time on or following the Issue Date, by submitting to the Borrower or Borrower’s transfer agent a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time). Any Notice of Conversion submitted after 11:59 p.m., New York, New York time, shall be deemed to have been delivered and received on the next Trading Day.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid Principal Amount is so converted. The Holder and the Borrower shall maintain records showing the Principal Amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Holder shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Principal Amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted Principal Amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower or Borrower’s transfer agent from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) within three (3) Trading Days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid Principal Amount and interest (including any Default Interest) under this Note, surrender of this Note). If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Deadline a certificate for the number of Conversion Shares or to which the Holder is entitled hereunder and register such Conversion Shares on the Company’s share register or to credit the Holder’s balance account with DTC (as defined below) for such number of Conversion Shares to which the Holder is entitled upon the Holder’s conversion of this Note (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (i) the Company shall pay in cash to the Holder on each day after the Deadline and during such Conversion Failure an amount equal to 2.0% of the product of (A) the sum of the number of Conversion Shares not issued to the Holder on or prior to the Deadline and to which the Holder is entitled and (B) the closing sale price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such Conversion Shares to the Holder without violating this Section 1.4(d); and (ii) the Holder, upon written notice to the Company, may void all or any portion of such Notice of Conversion; provided that the voiding of all or any portion of a Notice of Conversion shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice. In addition to the foregoing, if on or prior to the Deadline the Company shall fail to issue and deliver a certificate to the Holder and register such Conversion Shares on the Company’s share register or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company, then the Company shall, within two (2) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other reasonable and customary out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Conversion Shares) or credit such Holder’s balance account with DTC for such Conversion Shares shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Conversion Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing sales price of the Common Stock on the date of exercise. Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing the Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of this Note as required pursuant to the terms hereof.
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(e) Obligation of Borrower to Deliver Common Stock. At the time that the Holder submits the Notice of Conversion to the Borrower or Borrower’s transfer agent, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon such conversion, the outstanding Principal Amount and the amount of accrued and unpaid interest (including any Default Interest) under this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is sent to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time, on such date.
(f) Delivery of Conversion Shares by Electronic Transfer. In lieu of delivering physical certificates representing the Conversion Shares issuable upon conversion hereof, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Conversion Shares issuable upon conversion hereof to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
1.5 Concerning the Shares. The Conversion Shares issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the 1933 Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the Legal Counsel Opinion (as defined in the Purchase Agreement)) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption, or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the Conversion Shares have been registered under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for the Conversion Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
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The legend set forth above shall be removed and the Company shall issue to the Holder a certificate for the applicable Conversion Shares without such legend upon which it is stamped or (as requested by the Holder) issue the applicable Conversion Shares by electronic delivery by crediting the account of such holder’s broker with DTC, if, unless otherwise required by applicable state securities laws: (a) such Conversion Shares are registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Holder provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) of the Purchase Agreement) to the effect that a public sale or transfer of such Conversion Shares may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Holder agrees to sell all Conversion Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Holder with respect to the transfer of Conversion Shares pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption, at the Deadline, notwithstanding that the conditions of Rule 144, Rule 144A, Regulation S, or other applicable exemption, as applicable, have been met, it will be considered an Event of Default under this Note.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effectuate any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, at least thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
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(d) Purchase Rights. If, at any time when all or any portion of this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) Dilutive Issuance. If the Borrower, at any time while this Note or any amounts due hereunder are outstanding, issues, sells or grants (or has issued, sold or granted as of the Issue Date, as the case may be) any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Stock or other securities convertible into, exercisable for, or otherwise entitle any person or entity the right to acquire, shares of Common Stock (including, without limitation, upon conversion of this Note, and any convertible notes or warrants outstanding as of or following the Issue Date), in each or any case at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced, at the option of the Holder, to a price equal to the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or other securities are issued. By way of example, and for the avoidance of doubt, if the Company issues a convertible promissory note (including but not limited to a Variable Rate Transaction (as defined in the Purchase Agreement)), and the holder of such convertible promissory note has the right to convert it into Common Stock at an effective price per share that is lower than the then Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock), then the Holder has the right to reduce the Conversion Price to such Base Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock) in perpetuity regardless of whether the holder of such convertible promissory note ever effectuated a conversion at the Base Conversion Price. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 1.6(e) shall be calculated as if all such securities were issued at the initial closing.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note, the Borrower shall, at its expense and within one (1) calendar day after the occurrence of each respective adjustment or readjustment of the Conversion Price, compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. In addition, the Borrower shall, within one (1) calendar day after each written request from the Holder, furnish to such Holder a like certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. For the avoidance of doubt, each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note shall occur without any action by the Holder and regardless of whether the Borrower complied with the notification provisions in Section 1.6 of this Note.
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1.7 [Intentionally Omitted].
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the Conversion Shares covered thereby (other than the Conversion Shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.
1.9 Prepayment. At any time prior to the date that an Event of Default occurs under this Note, the Borrower shall have the right, exercisable on three (3) Trading Days prior written notice to the Holder of the Note, to prepay the outstanding Principal Amount and interest then due under this Note in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be three (3) Trading Days from the date of the Optional Prepayment Notice (the “Optional Prepayment Date”). The Holder shall have the right, during the period beginning on the date of Holder’s receipt of the Optional Prepayment Notice and until the Holder’s actual receipt of the full prepayment amount on the Optional Prepayment Date (the “Prepayment Conversion Period”), to instead convert all or any portion of the Note pursuant to the terms of this Note, including the amount of this Note to be prepaid by the Borrower in accordance with this Section 1.9. On the Optional Prepayment Date, the Borrower shall make payment of the amounts designated below to or upon the order of the Holder as specified by the Holder in writing to the Borrower. If the Borrower exercises its right to prepay the Note in accordance with this Section 1.9, the Borrower shall make payment to the Holder of an amount in cash equal to the sum of: (w) 100% multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus (y) $750.00 to reimburse Holder for administrative fees.
If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note as provided in this Section 1.9, then the Borrower shall forever forfeit its right to prepay any part of the Note pursuant to this Section 1.9.
1.10 Repayment from Proceeds. If, at any time after the full repayment or full conversion of all amounts owed under that certain promissory note in the principal amount of $560,000.00 issued by the Company on December 16, 2021, and prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an Equity Line of Credit (as defined in this Note) of the Borrower, or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Equity Line of Credit” shall mean any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its Common Stock to the investor or underwriter over an agreed period of time and at an agreed price or price formula (such Common Stock must be registered pursuant to a registration statement of the Company for the investor’s or underwriter’s resale).
ARTICLE II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. This Note shall have priority over all unsecured indebtedness of the Borrower.
2.2 Other Indebtedness. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any Subsidiary or affiliate) incur or suffer to exist or guarantee any unsecured indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder, except with respect to indebtedness held by eSilkroad Network Limited.
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2.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.4 Restriction on Stock Repurchases and Debt Repayments. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares, or repay any pari passu or subordinated indebtedness of Borrower.
2.5 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent by the Holder to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.6 Advances and Loans; Affiliate Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit, make advances to or enter into any transaction with any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the Issue Date and which the Borrower has informed Holder in writing prior to the Issue Date, (b) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (c) in regard to transactions with unaffiliated third parties, not in excess of $100,000. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, repay any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party.
2.7 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of a cash payment or added to the balance of this Note (under Holder’s and Borrower’s expectation that this amount will tack back to the Issue Date).
2.8 Preservation of Business and Existence, etc. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) change the nature of its business; (b) sell, divest, change the structure of any material assets other than in the ordinary course of business; (c) enter into a Variable Rate Transaction; or (d) enter into any merchant cash advance transactions. In addition, so long as the Borrower shall have any obligation under this Note, the Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
2.9 Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
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2.10 Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note.
ARTICLE III. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article III (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the Principal Amount hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, or fails to fully comply with Section 1.10 of this Note.
3.2 Conversion and the Shares. The Borrower (i) fails to issue Conversion Shares to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) fails to reserve the Reserved Amount at all times, (iv) the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) Trading Days after the Holder shall have delivered a Notice of Conversion, and/or (v) fails to remain current in its obligations to its transfer agent (including but not limited to payment obligations to its transfer agent). It shall be an Event of Default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be added to the principal balance of the Note.
3.3 Breach of Agreements and Covenants. The Borrower breaches any covenant, agreement, or other term or condition contained in the Purchase Agreement, Warrant (as defined in the Purchase Agreement) (the “Warrant”), this Note, Irrevocable Transfer Agent Instructions, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made in the Purchase Agreement, Warrant, this Note, Irrevocable Transfer Agent Instructions, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
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3.8 Failure to Comply with the 1934 Act. At any time after the Issue Date, the Borrower shall fail to comply with the reporting requirements of the 1934 Act and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act.
3.9 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.10 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.11 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.12 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding.
3.13 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.14 Cross-Default. The declaration of an event of default by any lender or other extender of credit to the Company under any notes, loans, agreements or other instruments of the Company evidencing any indebtedness of the Company (including those filed as exhibits to or described in the Company’s filings with the SEC), after the passage of all applicable notice and cure or grace periods.
3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date.
3.16 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.17 Unavailability of Rule 144. If, at any time on or after the date that is six (6) calendar months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder’s brokerage account.
3.18 Delisting, Suspension, or Quotation of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower’s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on a Principal Market.
3.19 Rights and Remedies Upon an Event of Default. Upon the occurrence of any Event of Default specified in this Article III, this Note shall become immediately due and payable, and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 125% (collectively the “Default Amount”), as well as all costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower. Holder may, in its sole discretion, determine to accept payment part in Common Stock and part in cash. For purposes of payments in Common Stock, the conversion formula set forth in Section 1.2 shall apply as well as all other provisions of this Note. The Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
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Upon the occurrence of any Event of Default, and in addition to any other right or remedy of the Holder hereunder, under the related transaction documents, or otherwise at law or in equity, the Borrower hereby irrevocably authorizes and empowers Holder or its legal counsel, each as the Borrower’s attorney-in-fact, to appear ex parte and with notice to the Borrower to confess judgment against the Borrower for the unpaid amount of this Note. The judgment shall set forth the amount then due hereunder, plus attorney’s fees and cost of suit, and to release all errors, and waive all rights of appeal. The Borrower waives the right to contest Holder’s rights under this section, including without limitation the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing right and power to confess judgment will be deemed to exhaust such power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, and such power shall continue undiminished and may be exercised from time to time as the Holder may elect until all amounts owing on this Note have been paid in full.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Holder existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
GZ6G TECHNOLOGIES CORP.
8925 West Post Road, Suite 102
Las Vegas, NV 89148
Attention: William Smith
e-mail: cole@greenzebra.net
If to the Holder:
MAST HILL FUND, L.P.
48 Parker Road
Wellesley, MA 02482
e-mail: admin@masthillfund.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
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4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. The Borrower shall not assign this Note or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s Fees. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or federal courts located in the State of Nevada. The Borrower hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The prevailing party in any action or dispute brought in connection with this the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby shall be entitled to recover from the other party its reasonable attorney’s fees and costs.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. The Company and the Holder shall be bound by the applicable terms of the Purchase Agreement and the documents entered into in connection herewith and therewith.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any change in control or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
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4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.11 Construction; Headings. This Note shall be deemed to be jointly drafted by the Company and all the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
4.12 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the applicable law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by applicable law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder’s election.
4.13 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law (including any judicial ruling), then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note (even if the holder of such other security does not receive the benefit of such more favorable term until a default occurs under such other security), then (i) the Borrower shall notify the Holder of such additional or more favorable term within one (1) business day of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 4.14). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing prepayment rate, interest rates, and original issue discounts.
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4.15 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Issue, Closing or Maturity Date, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within one (1) Trading Day after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Borrower are unable to agree upon such determination or calculation within one (1) Trading Day of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within one (1) Trading Day, submit (a) the disputed determination of the Conversion Price, the closing bid price, the or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower. The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and notify the Borrower and the Holder of the results no later than one (1) Trading Day from the time it receives such disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.
4.16 Right of First Refusal. If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3rd party, that the Borrower intends to act upon, then the Borrower must first offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3rd party’s terms. Should the Holder be unwilling or unable to provide such capital or financing to the Borrower within five (5) Trading Days from Holder’s receipt of written notice of the offer (the “Offer Notice”) from the Borrower, then the Borrower may obtain such capital or financing from that respective 3rd party upon the exact same terms and conditions offered by the Borrower to the Holder, which transaction must be completed within 30 days after the date of the Offer Notice. If the Borrower does not receive the capital or financing from the respective 3rd party within 30 days after the date of the respective Offer Notice, then the Borrower must again offer the capital or financing opportunity to the Holder as described above, and the process detailed above shall be repeated. The Offer Notice must be sent via electronic mail to admin@masthillfund.com.
[signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer on November 23, 2022.
GZ6G TECHNOLOGIES CORP.
| By: | ||
| Name: William Smith | ||
Title: Chief Executive Officer |
||
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EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of GZ6G TECHNOLOGIES CORP., a Nevada corporation (the “Borrower”), according to the conditions of the promissory note of the Borrower dated as of November 23, 2022 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
| Name of DTC Prime Broker: | |
| Account Number: |
| ☐ |
The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
| Date of Conversion: | |
| Applicable Conversion Price: | $ |
|
Number of Shares of Common Stock to be |
|
| Amount of Principal Balance Due remaining Under the Note after this conversion: |
|
| By: | ||
| Name: | ||
| Title: | ||
| Date: |
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Exhibit 10.52
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November 23, 2022, by and between GZ6G TECHNOLOGIES CORP., a Nevada corporation, with headquarters located at 8925 West Post Road, Suite 102, Las Vegas, NV 89148 (the “Company”), and MAST HILL FUND, L.P., a Delaware limited partnership, with its address at 48 Parker Road, Wellesley, MA 02482 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, a promissory note of the Company, in the aggregate principal amount of $293,000.00 (as the principal amount thereof may be increased pursuant to the terms thereof, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note; and
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Note as is set forth immediately below its name on the signature pages hereto; and
D. The Company wishes to issue a common stock purchase warrant to purchase 5,860,000 shares of Common Stock (the “Warrant”) to the Buyer as additional consideration for the purchase of the Note, which shall be earned in full as of the Closing Date, as further provided herein.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer, and the Buyer agrees to purchase from the Company, the Note, as further provided herein. As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
b. Form of Payment. On the Closing Date: (i) the Buyer shall pay the purchase price of $263,700.00 (the “Purchase Price”) for the Note, to be issued and sold to it at the Closing (as defined below), by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note, and (ii) the Company shall deliver such duly executed Note and Warrant on behalf of the Company, to the Buyer, against delivery of such Purchase Price. On the Closing, the Buyer shall withhold a non-accountable sum of $5,000.00 from the Purchase Price to cover the Buyer’s legal fees in connection with the transactions contemplated by this Agreement.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on the date that the Purchase Price for the Note is paid by Buyer pursuant to terms of this Agreement.
d. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
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e. Warrant. On or before the Closing Date, the Company shall issue the Warrant to the Buyer pursuant to the terms of contained therein.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note and Warrant (the Note, Warrant, shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (the “Conversion Shares”), and shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrant (the “Exercise Shares”) shall collectively be referred to herein as the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144 or other applicable exemption, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged in connection with a bona fide margin account or other lending arrangement secured by the Securities, and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Buyer in effecting such pledge of Securities shall be not required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or otherwise.
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g. Legends. The Buyer understands that until such time as the Note, Warrant, Conversion Shares, and/or Exercise Shares, have been registered under the 1933 Act or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S, OR OTHER APPLICABLE EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate or book entry statement for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) hereof) to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption at the Deadline (as defined in the Note), it will be considered an Event of Default pursuant to Section 3.2 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
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3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as of the Closing Date that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a), if attached hereto, sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Warrant, the Note, Conversion Shares, and the Exercise Shares by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note, Warrant, as well as the issuance and reservation for issuance of the Conversion Shares and Exercise Shares issuable upon conversion of the Note and/or exercise of the Warrant) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required, (iii) this Agreement and the Note (together with any other instruments executed in connection herewith or therewith) have been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement, the Note and the other instruments documents executed in connection herewith or therewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
c. Capitalization; Governing Documents. As of November 23, 2022, the authorized capital stock of the Company consists of: 500,000,000 authorized shares of Common Stock, of which 58,733,948 shares were issued and outstanding, and 10,000,001 authorized shares of preferred stock (consisting of 10,000,000 shares of Series A preferred stock and 1 share of Series B preferred stock), of which 5,000,001 shares were issued and outstanding (consisting of 5,000,000 shares of Series A preferred stock and 1 share of Series B preferred stock). All of such outstanding shares of capital stock of the Company, the Conversion Shares, and the Exercise Shares are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as publicly announced prior to such date and reflected in the SEC Documents of the Company (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.
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d. Issuance of Conversion Shares and Exercise Shares. The Conversion Shares and Exercise Shares are duly authorized and reserved for issuance and, upon conversion of the Note and/or exercise of the Warrant in accordance with its terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
e. Issuance of Warrant. The issuance of the Warrant is duly authorized and will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
f. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares and Exercise Shares to the Common Stock upon the conversion of the Note and/or exercise of the Warrant. The Company further acknowledges that its obligation to issue, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and/or Exercise Shares, are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
g. No Conflicts. The execution, delivery and performance of this Agreement and the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares and Exercise Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, evidence of indebtedness, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities is subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect), or (iv) trigger any anti-dilution and/or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement and the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and, upon conversion of the Note and/or exercise of the Warrant, issue Conversion Shares and/or Exercise Shares as applicable. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Principal Market (as defined herein) and does not reasonably anticipate that the Common Stock will be delisted by the Principal Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The “Principal Market” shall mean the principal securities exchange or trading market where such Common Stock is listed or traded, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
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h. SEC Documents; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 2022, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. The Company has not been a “shell company” as described in Rule 144(i)(1)(i) since October 1, 2020.
i. Absence of Certain Changes. Since September 30, 2022, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. The SEC Documents contain a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
k. Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
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l. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
m. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
n. Transactions with Affiliates. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
q. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
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r. No Brokers; No Solicitation. Except with respect to J. H. Darbie & Co., a registered broker-dealer (CRD#: 43520), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby. The Company acknowledges and agrees that neither the Buyer nor its employee(s), member(s), beneficial owner(s), or partner(s) solicited the Company to enter into this Agreement and consummate the transactions described in this Agreement.
s. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since September 30, 2022, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
u. Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(u), if attached hereto, or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
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v. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
w. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
y. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company’s financial statements for its most recent fiscal year end and interim financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
z. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
aa. No Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
bb. No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
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cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
ee. Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
ff. Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3 and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.
4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for business development, and not for any other purpose, including but not limited to (i) the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates, (ii) the repayment of any debt issued in corporate finance transactions, (iii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iv) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (v) in violation or contravention of any applicable law, rule or regulation.
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d. Right of Participation and First Refusal.
(i) Other than arrangements that are in place or disclosed in SEC Documents prior to the date of this Agreement, from the date of this Agreement until the Note is extinguished in its entirety, the Company will not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ debt, equity, or equity equivalent securities, including without limitation any debt, preferred shares or other instrument or security that is, at any time during its life and/or under any circumstances, convertible into, exchangeable, or exercisable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”) or (ii) enter into any definitive agreement with regard to the foregoing, in each case unless the Company shall have first complied with this Section 4(d).
(ii) The Company shall deliver to the Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended Subsequent Placement, which shall (w) identify and describe the Subsequent Placement, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the securities in the Subsequent Placement to be issued, sold, or exchanged and (y) offer to issue and sell to or exchange with the Buyer at least one hundred percent (100%) of the securities in the Subsequent Placement (in each case, an “Offer”).
(iii) To accept an Offer, in whole or in part, the Buyer must deliver a written notice (the “Notice of Acceptance”) to the Company prior to the end of the fifth (5th) Trading Day (as defined in the Note) after the Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the amount that the Buyer elects to purchase (the “Subscription Amount”). The Company shall complete the Subsequent Placement and issue and sell the Subscription Amount to the Buyer upon terms and conditions (including, without limitation, unit prices and interest rates) set forth in the Offer Notice, unless a change to such terms and conditions is agreed to in writing between the Company and Buyer.
(iv) Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms or conditions of a Subsequent Placement at any time after the Offer Notice is given to Buyer (provided, however, that such modification or amendment to the terms or conditions cannot occur during any Offer Period), the Company shall deliver to the Buyer a new Offer Notice and the Offer Period of such new Offer shall expire at the end of the fifth (5th) Trading Day after the Buyer’s receipt of such new Offer Notice.
(v) Notwithstanding the foregoing, this Section 4(d) of this Agreement shall not apply to issuances of Common Stock that have been registered by the Company in its registration statement filed on May 17, 2021; effective September 27, 2021 as well as issuances to eSilkroad Network Limited pursuant to that certain loan treaty agreement dated on or around December 21, 2020.
e. Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
f. Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; or (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
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g. Listing. The Company will, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the Principal Market or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the Principal Market and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
h. Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading or quotation on the Principal Market, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
i. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
j. Compliance with 1934 Act; Public Information Failures. For so long as the Buyer beneficially owns the Note or Conversion Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.
k. Acknowledgement Regarding Buyer’s Trading Activity. Until the Note is fully repaid or fully converted, the Buyer shall not effect any “short sale” (as such term is defined in Rule 200 of Regulation SHO of the 1934 Act) of the Common Stock which establishes a net short position with respect to the Common Stock.
l. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares and/or Exercise Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Conversion Shares and/or Exercise Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement) or other applicable exemption (provided the requirements of such other applicable exemption are satisfied). In addition, the Buyer may (at the Company’s cost) at any time secure its own legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
m. Piggy-back Registration Rights. The Company hereby grants to the Buyer the piggy-back registration rights set forth on Exhibit B hereto.
n. Most Favored Nation. While the Note or any principal amount, interest or fees or expenses due thereunder remain outstanding and unpaid, the Company shall not enter into any public or private offering of its securities (including securities convertible into shares of Common Stock) with any individual or entity (an “Other Investor”) that has the effect of establishing rights or otherwise benefiting such Other Investor in a manner more favorable in any material respect to such Other Investor (even if the Other Investor does not receive the benefit of such more favorable term until a default occurs under such other security) than the rights and benefits established in favor of the Buyer by this Agreement or the Note unless, in any such case, the Buyer has been provided with such rights and benefits pursuant to a definitive written agreement or agreements between the Company and the Buyer.
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o. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
p. Non-Public Information. The Company covenants and agrees that neither it, nor any other person acting on its behalf will provide the Buyer or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto the Buyer shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to the Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or affiliates, not to trade on the basis of, such material, non- public information, provided that the Buyer shall remain subject to applicable law. To the extent that any notice provided, information provided, or any other communications made by the Company, to the Buyer, constitutes or contains material non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice or other material information with the SEC pursuant to a Current Report on Form 8-K. In addition to any other remedies provided by this Agreement or the related transaction documents, if the Company provides any material non-public information to the Buyer without their prior written consent, and it fails to immediately (no later than that business day) file a Form 8-K disclosing this material non-public information, it shall pay the Buyer as partial liquidated damages and not as a penalty a sum equal to $3,000 per day beginning with the day the information is disclosed to the Buyer and ending and including the day the Form 8-K disclosing this information is filed.
q. D&O Insurance. Within 60 calendar days of the Closing, the Company shall purchase director and officer insurance on behalf of the Company’s (including its subsidiary) officers and directors for a period of 18 months after the Closing with respect to any losses, claims, damages, liabilities, costs and expense in connection with any actual or threatened claim or proceeding that is based on, or arises out of their status as a director or officer of the Company. The insurance policy shall provide for two years of tail coverage.
r. Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.3 of the Note.
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5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates and/or issue shares electronically at the Buyer’s option, registered in the name of the Buyer or its nominee, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and Exercise Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares and/or Exercise Shares under the 1933 Act or the date on which the Conversion Shares and/or Exercise Shares may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates or book entry shares shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note, Warrant, and/or this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note and/or exercise of the Warrant. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to 144, Rule 144A, Regulation S, or other applicable exemption, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
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7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
c. The Company shall have delivered to the Buyer the Warrant.
d. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
e. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
f. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
g. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
h. Trading in the Common Stock on the Principal Market shall not have been suspended by the SEC, FINRA or the Principal Market.
i. The Company shall have delivered to the Buyer (i) a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date and (ii) resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
8. Governing Law; Miscellaneous.
a. Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or in the federal courts located in the State of Nevada. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
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c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement, the Note, or any other agreement or instrument delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments. This Agreement, the Note, and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
GZ6G TECHNOLOGIES CORP.
8925 West Post Road, Suite 102
Las Vegas, NV 89148
Attention: William Smith
e-mail: cole@greenzebra.net
If to the Buyer:
MAST HILL FUND, L.P.
48 Parker Road
Wellesley, MA 02482
e-mail: admin@masthillfund.com
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer. The Buyer may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
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i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Principal Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, Principal Market (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
m. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
n. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, and to enforce specifically the terms and provisions hereof and thereof, without the necessity of showing economic loss and without any bond or other security being required.
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o. Payment Set Aside. To the extent that the (i) Company makes a payment or payments to the Buyer hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, or (ii) the Buyer enforces or exercises its rights hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof (including but not limited to the sale of the Securities) are for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then (i) to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (ii) the Company shall immediately pay to the Buyer a dollar amount equal to the amount that was for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action).
p. Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
GZ6G TECHNOLOGIES CORP.
| By: | ||
| Name: WILLIAM SMITH | ||
| Title: CHIEF EXECUTIVE OFFICER |
MAST HILL FUND, L.P.
| By: | ||
| Name: PATRICK HASSANI | ||
| Title: CHIEF INVESTMENT OFFICER |
SUBSCRIPTION AMOUNT:
| Principal Amount of Note: $293,000.00 |
| Actual Amount of Purchase Price of Note: $263,700.00 |
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EXHIBIT A
FORM OF NOTE
[attached hereto]
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EXHIBIT B
PIGGYBACK REGISTRATION RIGHTS
All of the Conversion Shares and Exercise Shares shall be deemed “Registrable Securities” subject to the provisions of this Exhibit B. All capitalized terms used but not defined in this Exhibit B shall have the meanings ascribed to such terms in the Securities Purchase Agreement to which this Exhibit is attached.
1. Piggy-Back Registration.
1.1 Piggy-Back Rights. If at any time on or after the date of the Closing the Company proposes to file any Registration Statement under the 1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof (with the understanding that the Company shall file the initial prospectus covering the Buyer’s sale of the Registrable Securities at prevailing market prices on the same date that the Registration Statement is declared effective by the SEC).
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time when a prospectus relating to such holder’s Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such holder, the Company shall also prepare, file and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The holders of Registrable Securities shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
1.4 The Company may request a holder of Registrable Securities to furnish the Company such information with respect to such holder and such holder’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and such holders shall furnish the Company with such information.
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1.5 All fees and expenses incident to the performance of or compliance with this Exhibit B by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) 1933 Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Exhibit B and (vii) reasonable fees and disbursements of a single special counsel for the holders of Registrable Securities (selected by holders of the majority of the Registrable Securities requesting such registration). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any holder of Registrable Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless the Buyer, each holder of Registrable Securities, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls the Buyer or any such holder of Registrable Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Exhibit B, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding the Buyer or such holder of Registrable Securities furnished to the Company by such party for use therein. The Company shall notify the Buyer and each holder of Registrable Securities promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Exhibit B of which the Company is aware.
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1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 1.6 was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 1.7 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 1.7, neither the Buyer nor any holder of Registrable Securities shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
[End of Exhibit B]
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Exhibit 10.53
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
GZ6G TECHNOLOGIES CORP.
Warrant Shares: 5,860,000
Date of Issuance: November 23, 2022 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received (in connection with the execution of the Purchase Agreement (as defined below)), Mast Hill Fund, L.P.., a Delaware limited partnership (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof, to purchase from GZ6G Technologies Corp., a Nevada corporation (the “Company”), 5,860,000 shares of Common Stock (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain securities purchase agreement dated November 23, 2022, by and among the Company and the Holder (the “Purchase Agreement”).
Capitalized terms used in this Warrant shall have the meanings set forth in the Purchase Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean $0.10, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the five-year anniversary thereof.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the second Trading Day (the “Warrant Share Delivery Date”) following the date on which the Holder sent the Exercise Notice to the Company or the Company’s transfer agent, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and deliver by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise (or deliver such shares of Common Stock in electronic format if requested by the Holder). Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three business days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to issue to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion in addition to all other rights and remedies at law, under this Warrant, or otherwise, and such failure shall also be deemed a material breach under this Warrant, the Purchase Agreement, and Note (as defined in the Purchase Agreement) (the “Note”).
If the Market Price of one share of Common Stock is greater than the Exercise Price, then the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and an Exercise Notice, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = Y (A-B)
A
| Where | X = | the number of Shares to be issued to Holder. |
| Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A = | the Market Price (at the date of such calculation). |
| B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
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(c) Holder’s Exercise Limitations. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
(d) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Company’s transfer agent to transmit to the Holder the Warrant Shares in accordance with the provisions of this Warrant (including but not limited to Section 1(a) above) pursuant to an exercise on or before the respective Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder, within one (1) business day of Holder’s request, the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder within one (1) business day of Holder’s request the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases, or effectuates a cashless exercise hereunder for, Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
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2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
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(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities (including but not limited to Common Stock Equivalents) entitling any person or entity (for purposes of clarification, including but not limited to the Holder pursuant to (i) any other security of the Company currently held by Holder, (ii) any other security of the Company issued to Holder on or after the Issuance Date (including but not limited to the Note), or (iii) any other agreement entered into between the Company and Holder) to acquire shares of Common Stock (upon conversion, exercise or otherwise), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, elimination of an applicable floor price for any reason in the future (including but not limited to the passage of time or satisfaction of certain condition(s)), reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled or potentially entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price at any time while such Common Stock or Common Stock Equivalents are in existence, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance (regardless of whether the Common Stock or Common Stock Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment (for the avoidance of doubt, the aggregate Exercise Price prior to such adjustment is calculated as follows: the total number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment (without regard to the Beneficial Ownership Limitation) multiplied by the Exercise Price in effect immediately prior to such adjustment). By way of example, if E is the total number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment (without regard to the Beneficial Ownership Limitation), F is the Exercise Price in effect immediately prior to such adjustment, and G is the Base Share Price, the adjustment to the number of Warrant Shares can be expressed in the following formula: Total number of Warrant Shares after such Dilutive Issuance = the number obtained from dividing [E x F] by G. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued, regardless of whether the Common Stock or Common Stock Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price by the holder thereof (for the avoidance of doubt, the Holder may utilize the Base Share Price even if the Company did not actually issue shares of its common stock at the Base Share Price under the respective Common stock Equivalents). The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, regardless of whether (i) the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b) upon the occurrence of any Dilutive Issuance or (ii) the Holder accurately refers to the number of Warrant Shares or Base Share Price in the Exercise Notice, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price as well as the Base Share Price at all times on and after the date of such Dilutive Issuance.
(c) Subdivision or Combination of Common Stock. If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective. Each such adjustment of the Exercise Price shall be calculated to the nearest one-hundredth of a cent. Such adjustment shall be made successively whenever any event covered by this Section 2(c) shall occur.
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3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, three (3) times the number of shares of Common Stock into which the Warrants are then exercisable into to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
6. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
7. TRANSFER. This Warrant shall be binding upon the Company and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Company does not obtain the prior signed written consent of the Holder). This Warrant or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company’s consent thereto.
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8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Purchase Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
10. GOVERNING LAW AND VENUE. This Warrant shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts located in the State of Nevada or federal courts located in the State of Nevada. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Warrant or any other transaction document entered into in connection with this Warrant by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) [Intentionally Omitted].
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(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Quotestream or other similar quotation service provider designated by the Holder, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Quotestream or other similar quotation service provider designated by the Holder, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Quotestream or other similar quotation service provider designated by the Holder, or (iii) if no last trade price is reported for such security by Quotestream or other similar quotation service provider designated by the Holder, the average of the bid and ask prices of any market makers for such security as reported by Quotestream or other similar quotation service provider designated by the Holder. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(c) “Common Stock” means the Company’s common stock, par value $0.0001, and any other class of securities into which such securities may hereafter be reclassified or changed.
(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(e) “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof.
(f) “Principal Market” means the principal securities exchange or trading market where such Common Stock is listed or quoted, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
(g) “Market Price” means the highest traded price of the Common Stock during the one hundred and fifty Trading Days prior to the date of the respective Exercise Notice.
(h) “Trading Day” means any day on which the Common Stock is listed or quoted on its Principal Market, provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day.
* * * * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| GZ6G TECHNOLOGIES CORP. | ||
| Name: | William Smith | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the right to purchase of the shares of Common Stock (“Warrant Shares”) of GZ6G TECHNOLOGIES CORP., a Nevada corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ☐ | a cash exercise with respect to Warrant Shares; or |
| ☐ | by cashless exercise pursuant to the Warrant. |
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant. |
Date:
| (Print Name of Registered Holder) | ||
| By: | ||
| Name: | ||
| Title: |
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EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of common stock of GZ6G TECHNOLOGIES CORP., to which the within Common Stock Purchase Warrant relates and appoints , as attorney-in-fact, to transfer said right on the books of GZ6G TECHNOLOGIES CORP. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
Dated:
| (Signature) * | ||
| (Name) | ||
| (Address) | ||
| (Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
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Exhibit 10.54
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $293,000.00 | Issue Date: December 20, 2022 |
| Actual Amount of Purchase Price: $263,700.00 |
PROMISSORY NOTE
FOR VALUE RECEIVED, GZ6G TECHNOLOGIES CORP., a Nevada corporation (hereinafter called the “Borrower” or the “Company”) (Trading Symbol: GZIC), hereby promises to pay to the order of MAST HILL FUND, L.P., a Delaware limited partnership, or registered assigns (the “Holder”), in the form of lawful money of the United States of America, the principal sum of $293,000.00, which amount is the $263,700.00 actual amount of the purchase price (the “Consideration”) hereof plus an original issue discount in the amount of $29,300.00 (the “OID”) (subject to adjustment herein) (the “Principal Amount”) and to pay interest on the unpaid Principal Amount hereof at the rate of twelve percent (12%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, as further provided herein. The maturity date shall be twelve (12) months from the Issue Date (the “Maturity Date”), and is the date upon which the Principal Amount (which includes the OID) and any accrued and unpaid interest and other fees, shall be due and payable.
This Note may not be prepaid or repaid in whole or in part except as otherwise explicitly set forth herein.
Any Principal Amount or interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) sixteen percent (16%) per annum and (ii) the maximum amount permitted by law from the due date thereof until the same is paid (“Default Interest”). Interest and Default Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.
All payments due hereunder (to the extent not converted into shares of common stock, $0.001 par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day.
Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated as of the Issue Date, pursuant to which this Note was originally issued (the “Purchase Agreement”). As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the Principal Market (as defined in the Purchase Agreement), provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall also apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right, on any calendar day, at any time on or following the Issue Date, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any Default Interest) into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified, at the Conversion Price (as defined below) determined as provided herein (a “Conversion”); provided, however, that notwithstanding anything to the contrary contained herein, the a Holder shall not have the right to convert any portion of this Note, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons (as defined below) acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1.1, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1.1, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof. The limitations contained in this paragraph shall apply to a successor holder of this Note. The number of Conversion Shares to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower or Borrower’s transfer agent by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the Principal Amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such Principal Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2).
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| 1.2 | Conversion Price. |
(a) Calculation of Conversion Price. The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall equal $0.015, subject to adjustment as provided in this Note. If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price. Holder shall be entitled to deduct $1,750.00 from the conversion amount in each Notice of Conversion to cover Holder’s fees associated with each Notice of Conversion. All such Conversion Price determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to the immediately preceding sentence shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. “Common Stock Equivalents” means any securities of the Company or the Company’s subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
1.3 Authorized and Reserved Shares. The Borrower covenants that at all times until the Note is satisfied in full, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of a number of Conversion Shares equal to the greater of: (a) 58,600,000 shares of Common Stock or (b) the sum of (i) the number of Conversion Shares issuable upon the full conversion of this Note (assuming no payment of Principal Amount or interest) at the time of such calculation (taking into consideration any adjustments to the Conversion Price as provided in this Note) multiplied by (ii) three (3) (the “Reserved Amount”). The Borrower represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid and non-assessable. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Conversion Shares or instructions to have the Conversion Shares issued as contemplated by Section 1.4(f) hereof, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates or cause the Company to electronically issue shares of Common Stock to execute and issue the necessary certificates for the Conversion Shares or cause the Conversion Shares to be issued as contemplated by Section 1.4(f) hereof in accordance with the terms and conditions of this Note.
If, at any time, the Borrower does not maintain the Reserved Amount, it will be considered an Event of Default (as defined in the Note) under this Note.
| 1.4 | Method of Conversion. |
(a) Mechanics of Conversion. This Note may be converted by the Holder in whole or in part, on any calendar day, at any time on or following the Issue Date, by submitting to the Borrower or Borrower’s transfer agent a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time). Any Notice of Conversion submitted after 11:59 p.m., New York, New York time, shall be deemed to have been delivered and received on the next Trading Day.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid Principal Amount is so converted. The Holder and the Borrower shall maintain records showing the Principal Amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Holder shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Principal Amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted Principal Amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower or Borrower’s transfer agent from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) within three (3) Trading Days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid Principal Amount and interest (including any Default Interest) under this Note, surrender of this Note). If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Deadline a certificate for the number of Conversion Shares or to which the Holder is entitled hereunder and register such Conversion Shares on the Company’s share register or to credit the Holder’s balance account with DTC (as defined below) for such number of Conversion Shares to which the Holder is entitled upon the Holder’s conversion of this Note (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (i) the Company shall pay in cash to the Holder on each day after the Deadline and during such Conversion Failure an amount equal to 2.0% of the product of (A) the sum of the number of Conversion Shares not issued to the Holder on or prior to the Deadline and to which the Holder is entitled and (B) the closing sale price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such Conversion Shares to the Holder without violating this Section 1.4(d); and (ii) the Holder, upon written notice to the Company, may void all or any portion of such Notice of Conversion; provided that the voiding of all or any portion of a Notice of Conversion shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice. In addition to the foregoing, if on or prior to the Deadline the Company shall fail to issue and deliver a certificate to the Holder and register such Conversion Shares on the Company’s share register or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company, then the Company shall, within two (2) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other reasonable and customary out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Conversion Shares) or credit such Holder’s balance account with DTC for such Conversion Shares shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Conversion Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing sales price of the Common Stock on the date of exercise. Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing the Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of this Note as required pursuant to the terms hereof.
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(e) Obligation of Borrower to Deliver Common Stock. At the time that the Holder submits the Notice of Conversion to the Borrower or Borrower’s transfer agent, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon such conversion, the outstanding Principal Amount and the amount of accrued and unpaid interest (including any Default Interest) under this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is sent to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time, on such date.
(f) Delivery of Conversion Shares by Electronic Transfer. In lieu of delivering physical certificates representing the Conversion Shares issuable upon conversion hereof, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Conversion Shares issuable upon conversion hereof to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
1.5 Concerning the Shares. The Conversion Shares issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the 1933 Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the Legal Counsel Opinion (as defined in the Purchase Agreement)) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption, or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the Conversion Shares have been registered under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for the Conversion Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
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The legend set forth above shall be removed and the Company shall issue to the Holder a certificate for the applicable Conversion Shares without such legend upon which it is stamped or (as requested by the Holder) issue the applicable Conversion Shares by electronic delivery by crediting the account of such holder’s broker with DTC, if, unless otherwise required by applicable state securities laws: (a) such Conversion Shares are registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Holder provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) of the Purchase Agreement) to the effect that a public sale or transfer of such Conversion Shares may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Holder agrees to sell all Conversion Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Holder with respect to the transfer of Conversion Shares pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption, at the Deadline, notwithstanding that the conditions of Rule 144, Rule 144A, Regulation S, or other applicable exemption, as applicable, have been met, it will be considered an Event of Default under this Note.
| 1.6 | Effect of Certain Events. |
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effectuate any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, at least thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
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(d) Purchase Rights. If, at any time when all or any portion of this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) Dilutive Issuance. If the Borrower, at any time while this Note or any amounts due hereunder are outstanding, issues, sells or grants (or has issued, sold or granted as of the Issue Date, as the case may be) any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Stock or other securities convertible into, exercisable for, or otherwise entitle any person or entity the right to acquire, shares of Common Stock (including, without limitation, upon conversion of this Note, and any convertible notes or warrants outstanding as of or following the Issue Date), in each or any case at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced, at the option of the Holder, to a price equal to the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or other securities are issued. By way of example, and for the avoidance of doubt, if the Company issues a convertible promissory note (including but not limited to a Variable Rate Transaction (as defined in the Purchase Agreement)), and the holder of such convertible promissory note has the right to convert it into Common Stock at an effective price per share that is lower than the then Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock), then the Holder has the right to reduce the Conversion Price to such Base Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock) in perpetuity regardless of whether the holder of such convertible promissory note ever effectuated a conversion at the Base Conversion Price. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 1.6(e) shall be calculated as if all such securities were issued at the initial closing.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note, the Borrower shall, at its expense and within one (1) calendar day after the occurrence of each respective adjustment or readjustment of the Conversion Price, compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. In addition, the Borrower shall, within one (1) calendar day after each written request from the Holder, furnish to such Holder a like certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. For the avoidance of doubt, each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note shall occur without any action by the Holder and regardless of whether the Borrower complied with the notification provisions in Section 1.6 of this Note.
1.7 [Intentionally Omitted].
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1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the Conversion Shares covered thereby (other than the Conversion Shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.
1.9 Prepayment. At any time prior to the date that an Event of Default occurs under this Note, the Borrower shall have the right, exercisable on three (3) Trading Days prior written notice to the Holder of the Note, to prepay the outstanding Principal Amount and interest then due under this Note in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be three (3) Trading Days from the date of the Optional Prepayment Notice (the “Optional Prepayment Date”). The Holder shall have the right, during the period beginning on the date of Holder’s receipt of the Optional Prepayment Notice and until the Holder’s actual receipt of the full prepayment amount on the Optional Prepayment Date (the “Prepayment Conversion Period”), to instead convert all or any portion of the Note pursuant to the terms of this Note, including the amount of this Note to be prepaid by the Borrower in accordance with this Section 1.9. On the Optional Prepayment Date, the Borrower shall make payment of the amounts designated below to or upon the order of the Holder as specified by the Holder in writing to the Borrower. If the Borrower exercises its right to prepay the Note in accordance with this Section 1.9, the Borrower shall make payment to the Holder of an amount in cash equal to the sum of: (w) 100% multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus (y) $750.00 to reimburse Holder for administrative fees.
If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note as provided in this Section 1.9, then the Borrower shall forever forfeit its right to prepay any part of the Note pursuant to this Section 1.9.
1.10 Repayment from Proceeds. If, at any time after the full repayment or full conversion of all amounts owed under that certain promissory note in the principal amount of $560,000.00 issued by the Company on December 16, 2021, and prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an Equity Line of Credit (as defined in this Note) of the Borrower, or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Equity Line of Credit” shall mean any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its Common Stock to the investor or underwriter over an agreed period of time and at an agreed price or price formula (such Common Stock must be registered pursuant to a registration statement of the Company for the investor’s or underwriter’s resale).
ARTICLE II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. This Note shall have priority over all unsecured indebtedness of the Borrower.
2.2 Other Indebtedness. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any Subsidiary or affiliate) incur or suffer to exist or guarantee any unsecured indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder, except with respect to indebtedness held by eSilkroad Network Limited.
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2.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.4 Restriction on Stock Repurchases and Debt Repayments. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares, or repay any pari passu or subordinated indebtedness of Borrower.
2.5 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent by the Holder to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.6 Advances and Loans; Affiliate Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit, make advances to or enter into any transaction with any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the Issue Date and which the Borrower has informed Holder in writing prior to the Issue Date, (b) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (c) in regard to transactions with unaffiliated third parties, not in excess of $100,000. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, repay any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party.
2.7 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of a cash payment or added to the balance of this Note (under Holder’s and Borrower’s expectation that this amount will tack back to the Issue Date).
2.8 Preservation of Business and Existence, etc. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) change the nature of its business;
(b) sell, divest, change the structure of any material assets other than in the ordinary course of business; (c) enter into a Variable Rate Transaction; or (d) enter into any merchant cash advance transactions. In addition, so long as the Borrower shall have any obligation under this Note, the Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
2.9 Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
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2.10 Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note.
ARTICLE III. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article III (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the Principal Amount hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, or fails to fully comply with Section 1.10 of this Note.
3.2 Conversion and the Shares. The Borrower (i) fails to issue Conversion Shares to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) fails to reserve the Reserved Amount at all times, (iv) the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) Trading Days after the Holder shall have delivered a Notice of Conversion, and/or (v) fails to remain current in its obligations to its transfer agent (including but not limited to payment obligations to its transfer agent). It shall be an Event of Default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be added to the principal balance of the Note.
3.3 Breach of Agreements and Covenants. The Borrower breaches any covenant, agreement, or other term or condition contained in the Purchase Agreement, Warrant (as defined in the Purchase Agreement) (the “Warrant”), this Note, Irrevocable Transfer Agent Instructions, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made in the Purchase Agreement, Warrant, this Note, Irrevocable Transfer Agent Instructions, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
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3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Failure to Comply with the 1934 Act. At any time after the Issue Date, the Borrower shall fail to comply with the reporting requirements of the 1934 Act and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act.
3.9 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.10 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.11 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.12 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding.
3.13 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.14 Cross-Default. The declaration of an event of default by any lender or other extender of credit to the Company under any notes, loans, agreements or other instruments of the Company evidencing any indebtedness of the Company (including those filed as exhibits to or described in the Company’s filings with the SEC), after the passage of all applicable notice and cure or grace periods.
3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date.
3.16 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.17 Unavailability of Rule 144. If, at any time on or after the date that is six (6) calendar months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder’s brokerage account.
3.18 Delisting, Suspension, or Quotation of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower’s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on a Principal Market.
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3.19 Rights and Remedies Upon an Event of Default. Upon the occurrence of any Event of Default specified in this Article III, this Note shall become immediately due and payable, and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 125% (collectively the “Default Amount”), as well as all costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower. Holder may, in its sole discretion, determine to accept payment part in Common Stock and part in cash. For purposes of payments in Common Stock, the conversion formula set forth in Section 1.2 shall apply as well as all other provisions of this Note. The Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
Upon the occurrence of any Event of Default, and in addition to any other right or remedy of the Holder hereunder, under the related transaction documents, or otherwise at law or in equity, the Borrower hereby irrevocably authorizes and empowers Holder or its legal counsel, each as the Borrower’s attorney-in-fact, to appear ex parte and with notice to the Borrower to confess judgment against the Borrower for the unpaid amount of this Note. The judgment shall set forth the amount then due hereunder, plus attorney’s fees and cost of suit, and to release all errors, and waive all rights of appeal. The Borrower waives the right to contest Holder’s rights under this section, including without limitation the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing right and power to confess judgment will be deemed to exhaust such power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, and such power shall continue undiminished and may be exercised from time to time as the Holder may elect until all amounts owing on this Note have been paid in full.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Holder existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
GZ6G TECHNOLOGIES CORP.
8925 West Post Road, Suite 102
Las Vegas, NV 89148
Attention: William Smith
e-mail: cole@greenzebra.net
If to the Holder:
MAST HILL FUND, L.P.
48 Parker Road
Wellesley, MA 02482
e-mail: admin@masthillfund.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
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4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. The Borrower shall not assign this Note or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s Fees. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or federal courts located in the State of Nevada. The Borrower hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The prevailing party in any action or dispute brought in connection with this the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby shall be entitled to recover from the other party its reasonable attorney’s fees and costs.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. The Company and the Holder shall be bound by the applicable terms of the Purchase Agreement and the documents entered into in connection herewith and therewith.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any change in control or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
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4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.11 Construction; Headings. This Note shall be deemed to be jointly drafted by the Company and all the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
4.12 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the applicable law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by applicable law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder’s election.
4.13 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law (including any judicial ruling), then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note (even if the holder of such other security does not receive the benefit of such more favorable term until a default occurs under such other security), then (i) the Borrower shall notify the Holder of such additional or more favorable term within one (1) business day of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 4.14). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing prepayment rate, interest rates, and original issue discounts.
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4.15 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Issue, Closing or Maturity Date, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within one (1) Trading Day after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Borrower are unable to agree upon such determination or calculation within one (1) Trading Day of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within one (1) Trading Day, submit (a) the disputed determination of the Conversion Price, the closing bid price, the or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower. The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and notify the Borrower and the Holder of the results no later than one (1) Trading Day from the time it receives such disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.
4.16 Right of First Refusal. If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3rd party, that the Borrower intends to act upon, then the Borrower must first offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3rd party’s terms. Should the Holder be unwilling or unable to provide such capital or financing to the Borrower within five (5) Trading Days from Holder’s receipt of written notice of the offer (the “Offer Notice”) from the Borrower, then the Borrower may obtain such capital or financing from that respective 3rd party upon the exact same terms and conditions offered by the Borrower to the Holder, which transaction must be completed within 30 days after the date of the Offer Notice. If the Borrower does not receive the capital or financing from the respective 3rd party within 30 days after the date of the respective Offer Notice, then the Borrower must again offer the capital or financing opportunity to the Holder as described above, and the process detailed above shall be repeated. The Offer Notice must be sent via electronic mail to admin@masthillfund.com.
[signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer on December 20, 2022.
GZ6G TECHNOLOGIES CORP.
| By: | ||
| Name: | William Smith | |
| Title: | Chief Executive Officer |
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EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of GZ6G TECHNOLOGIES CORP., a Nevada corporation (the “Borrower”), according to the conditions of the promissory note of the Borrower dated as of December 20, 2022 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
| Name of DTC Prime Broker: | |
| Account Number: |
| ☐ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
| Date of Conversion: | |
| Applicable Conversion Price: | $ |
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Note: |
|
| Amount of Principal Balance Due remaining Under the Note after this conversion: |
|
| By: | |
| Name: | |
| Title: | |
| Date: |
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Exhibit 10.55
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of December 20, 2022, by and between GZ6G TECHNOLOGIES CORP., a Nevada corporation, with headquarters located at 8925 West Post Road, Suite 102, Las Vegas, NV 89148 (the “Company”), and MAST HILL FUND, L.P., a Delaware limited partnership, with its address at 48 Parker Road, Wellesley, MA 02482 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, a promissory note of the Company, in the aggregate principal amount of $293,000.00 (as the principal amount thereof may be increased pursuant to the terms thereof, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note; and
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Note as is set forth immediately below its name on the signature pages hereto; and
D. The Company wishes to issue a common stock purchase warrant to purchase 5,860,000 shares of Common Stock (the “Warrant”) to the Buyer as additional consideration for the purchase of the Note, which shall be earned in full as of the Closing Date, as further provided herein.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer, and the Buyer agrees to purchase from the Company, the Note, as further provided herein. As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
b. Form of Payment. On the Closing Date: (i) the Buyer shall pay the purchase price of $263,700.00 (the “Purchase Price”) for the Note, to be issued and sold to it at the Closing (as defined below), by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note, and (ii) the Company shall deliver such duly executed Note and Warrant on behalf of the Company, to the Buyer, against delivery of such Purchase Price. On the Closing, the Buyer shall withhold a non-accountable sum of $5,000.00 from the Purchase Price to cover the Buyer’s legal fees in connection with the transactions contemplated by this Agreement.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on the date that the Purchase Price for the Note is paid by Buyer pursuant to terms of this Agreement.
d. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
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e. Warrant. On or before the Closing Date, the Company shall issue the Warrant to the Buyer pursuant to the terms of contained therein.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note and Warrant (the Note, Warrant, shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (the “Conversion Shares”), and shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrant (the “Exercise Shares”) shall collectively be referred to herein as the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144 or other applicable exemption, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged in connection with a bona fide margin account or other lending arrangement secured by the Securities, and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Buyer in effecting such pledge of Securities shall be not required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or otherwise.
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g. Legends. The Buyer understands that until such time as the Note, Warrant, Conversion Shares, and/or Exercise Shares, have been registered under the 1933 Act or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S, OR OTHER APPLICABLE EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate or book entry statement for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) hereof) to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption at the Deadline (as defined in the Note), it will be considered an Event of Default pursuant to Section 3.2 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
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3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as of the Closing Date that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a), if attached hereto, sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Warrant, the Note, Conversion Shares, and the Exercise Shares by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note, Warrant, as well as the issuance and reservation for issuance of the Conversion Shares and Exercise Shares issuable upon conversion of the Note and/or exercise of the Warrant) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required, (iii) this Agreement and the Note (together with any other instruments executed in connection herewith or therewith) have been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement, the Note and the other instruments documents executed in connection herewith or therewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
c. Capitalization; Governing Documents. As of December 20, 2022, the authorized capital stock of the Company consists of: 500,000,000 authorized shares of Common Stock, of which 62,177,665 shares were issued and outstanding, and 10,000,001 authorized shares of preferred stock (consisting of 10,000,000 shares of Series A preferred stock and 1 share of Series B preferred stock), of which 5,000,001 shares were issued and outstanding (consisting of 5,000,000 shares of Series A preferred stock and 1 share of Series B preferred stock). All of such outstanding shares of capital stock of the Company, the Conversion Shares, and the Exercise Shares are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as publicly announced prior to such date and reflected in the SEC Documents of the Company (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.
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d. Issuance of Conversion Shares and Exercise Shares. The Conversion Shares and Exercise Shares are duly authorized and reserved for issuance and, upon conversion of the Note and/or exercise of the Warrant in accordance with its terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
e. Issuance of Warrant. The issuance of the Warrant is duly authorized and will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
f. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares and Exercise Shares to the Common Stock upon the conversion of the Note and/or exercise of the Warrant. The Company further acknowledges that its obligation to issue, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and/or Exercise Shares, are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
g. No Conflicts. The execution, delivery and performance of this Agreement and the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares and Exercise Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, evidence of indebtedness, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities is subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect), or (iv) trigger any anti-dilution and/or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement and the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and, upon conversion of the Note and/or exercise of the Warrant, issue Conversion Shares and/or Exercise Shares as applicable. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Principal Market (as defined herein) and does not reasonably anticipate that the Common Stock will be delisted by the Principal Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The “Principal Market” shall mean the principal securities exchange or trading market where such Common Stock is listed or traded, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
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h. SEC Documents; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 2022, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. The Company has not been a “shell company” as described in Rule 144(i)(1)(i) since October 1, 2020.
i. Absence of Certain Changes. Since September 30, 2022, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. The SEC Documents contain a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
k. Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
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l. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
m. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
n. Transactions with Affiliates. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
q. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
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r. No Brokers; No Solicitation. Except with respect to J. H. Darbie & Co., a registered broker-dealer (CRD#: 43520), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby. The Company acknowledges and agrees that neither the Buyer nor its employee(s), member(s), beneficial owner(s), or partner(s) solicited the Company to enter into this Agreement and consummate the transactions described in this Agreement.
s. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since September 30, 2022, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
u. Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(u), if attached hereto, or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
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v. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
w. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
y. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company’s financial statements for its most recent fiscal year end and interim financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
z. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
aa. No Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
bb. No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
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cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
ee. Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
ff. Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3 and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.
4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for business development, and not for any other purpose, including but not limited to (i) the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates, (ii) the repayment of any debt issued in corporate finance transactions, (iii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iv) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (v) in violation or contravention of any applicable law, rule or regulation.
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d. Right of Participation and First Refusal.
(i) Other than arrangements that are in place or disclosed in SEC Documents prior to the date of this Agreement, from the date of this Agreement until the Note is extinguished in its entirety, the Company will not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ debt, equity, or equity equivalent securities, including without limitation any debt, preferred shares or other instrument or security that is, at any time during its life and/or under any circumstances, convertible into, exchangeable, or exercisable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”) or (ii) enter into any definitive agreement with regard to the foregoing, in each case unless the Company shall have first complied with this Section 4(d).
(ii) The Company shall deliver to the Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended Subsequent Placement, which shall (w) identify and describe the Subsequent Placement, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the securities in the Subsequent Placement to be issued, sold, or exchanged and (y) offer to issue and sell to or exchange with the Buyer at least one hundred percent (100%) of the securities in the Subsequent Placement (in each case, an “Offer”).
(iii) To accept an Offer, in whole or in part, the Buyer must deliver a written notice (the “Notice of Acceptance”) to the Company prior to the end of the fifth (5th) Trading Day (as defined in the Note) after the Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the amount that the Buyer elects to purchase (the “Subscription Amount”). The Company shall complete the Subsequent Placement and issue and sell the Subscription Amount to the Buyer upon terms and conditions (including, without limitation, unit prices and interest rates) set forth in the Offer Notice, unless a change to such terms and conditions is agreed to in writing between the Company and Buyer.
(iv) Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms or conditions of a Subsequent Placement at any time after the Offer Notice is given to Buyer (provided, however, that such modification or amendment to the terms or conditions cannot occur during any Offer Period), the Company shall deliver to the Buyer a new Offer Notice and the Offer Period of such new Offer shall expire at the end of the fifth (5th) Trading Day after the Buyer’s receipt of such new Offer Notice.
(v) Notwithstanding the foregoing, this Section 4(d) of this Agreement shall not apply to issuances of Common Stock that have been registered by the Company in its registration statement filed on May 17, 2021; effective September 27, 2021 as well as issuances to eSilkroad Network Limited pursuant to that certain loan treaty agreement dated on or around December 21, 2020.
e. Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
f. Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; or (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
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g. Listing. The Company will, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the Principal Market or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the Principal Market and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
h. Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading or quotation on the Principal Market, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
i. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
j. Compliance with 1934 Act; Public Information Failures. For so long as the Buyer beneficially owns the Note or Conversion Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.
k. Acknowledgement Regarding Buyer’s Trading Activity. Until the Note is fully repaid or fully converted, the Buyer shall not effect any “short sale” (as such term is defined in Rule 200 of Regulation SHO of the 1934 Act) of the Common Stock which establishes a net short position with respect to the Common Stock.
l. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares and/or Exercise Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Conversion Shares and/or Exercise Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement) or other applicable exemption (provided the requirements of such other applicable exemption are satisfied). In addition, the Buyer may (at the Company’s cost) at any time secure its own legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
m. Piggy-back Registration Rights. The Company hereby grants to the Buyer the piggy-back registration rights set forth on Exhibit B hereto.
n. Most Favored Nation. While the Note or any principal amount, interest or fees or expenses due thereunder remain outstanding and unpaid, the Company shall not enter into any public or private offering of its securities (including securities convertible into shares of Common Stock) with any individual or entity (an “Other Investor”) that has the effect of establishing rights or otherwise benefiting such Other Investor in a manner more favorable in any material respect to such Other Investor (even if the Other Investor does not receive the benefit of such more favorable term until a default occurs under such other security) than the rights and benefits established in favor of the Buyer by this Agreement or the Note unless, in any such case, the Buyer has been provided with such rights and benefits pursuant to a definitive written agreement or agreements between the Company and the Buyer.
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o. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
p. Non-Public Information. The Company covenants and agrees that neither it, nor any other person acting on its behalf will provide the Buyer or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto the Buyer shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to the Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or affiliates, not to trade on the basis of, such material, non- public information, provided that the Buyer shall remain subject to applicable law. To the extent that any notice provided, information provided, or any other communications made by the Company, to the Buyer, constitutes or contains material non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice or other material information with the SEC pursuant to a Current Report on Form 8-K. In addition to any other remedies provided by this Agreement or the related transaction documents, if the Company provides any material non-public information to the Buyer without their prior written consent, and it fails to immediately (no later than that business day) file a Form 8-K disclosing this material non-public information, it shall pay the Buyer as partial liquidated damages and not as a penalty a sum equal to $3,000 per day beginning with the day the information is disclosed to the Buyer and ending and including the day the Form 8-K disclosing this information is filed.
q. D&O Insurance. Within 60 calendar days of the Closing, the Company shall purchase director and officer insurance on behalf of the Company’s (including its subsidiary) officers and directors for a period of 18 months after the Closing with respect to any losses, claims, damages, liabilities, costs and expense in connection with any actual or threatened claim or proceeding that is based on, or arises out of their status as a director or officer of the Company. The insurance policy shall provide for two years of tail coverage.
r. Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.3 of the Note.
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5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates and/or issue shares electronically at the Buyer’s option, registered in the name of the Buyer or its nominee, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and Exercise Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares and/or Exercise Shares under the 1933 Act or the date on which the Conversion Shares and/or Exercise Shares may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates or book entry shares shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note, Warrant, and/or this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note and/or exercise of the Warrant. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to 144, Rule 144A, Regulation S, or other applicable exemption, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
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7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
c. The Company shall have delivered to the Buyer the Warrant.
d. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
e. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
f. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
g. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
h. Trading in the Common Stock on the Principal Market shall not have been suspended by the SEC, FINRA or the Principal Market.
i. The Company shall have delivered to the Buyer (i) a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date and (ii) resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
8. Governing Law; Miscellaneous.
a. Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or in the federal courts located in the State of Nevada. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
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c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement, the Note, or any other agreement or instrument delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments. This Agreement, the Note, and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
GZ6G TECHNOLOGIES CORP.
8925 West Post Road, Suite 102
Las Vegas, NV 89148
Attention: William Smith
e-mail: cole@greenzebra.net
If to the Buyer:
MAST HILL FUND, L.P.
48 Parker Road
Wellesley, MA 02482
e-mail: admin@masthillfund.com
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer. The Buyer may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
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i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Principal Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, Principal Market (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
m. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
n. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, and to enforce specifically the terms and provisions hereof and thereof, without the necessity of showing economic loss and without any bond or other security being required.
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o. Payment Set Aside. To the extent that the (i) Company makes a payment or payments to the Buyer hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, or (ii) the Buyer enforces or exercises its rights hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof (including but not limited to the sale of the Securities) are for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then (i) to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (ii) the Company shall immediately pay to the Buyer a dollar amount equal to the amount that was for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action).
p. Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
GZ6G TECHNOLOGIES CORP.
| By: | ||
| Name: WILLIAM SMITH | ||
| Title: CHIEF EXECUTIVE OFFICER |
MAST HILL FUND, L.P.
| By: | ||
| Name: PATRICK HASSANI | ||
| Title: CHIEF INVESTMENT OFFICER |
SUBSCRIPTION AMOUNT:
| Principal Amount of Note: $293,000.00 |
| Actual Amount of Purchase Price of Note: $263,700.00 |
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EXHIBIT A
FORM OF NOTE
[attached hereto]
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EXHIBIT B
PIGGYBACK REGISTRATION RIGHTS
All of the Conversion Shares and Exercise Shares shall be deemed “Registrable Securities” subject to the provisions of this Exhibit B. All capitalized terms used but not defined in this Exhibit B shall have the meanings ascribed to such terms in the Securities Purchase Agreement to which this Exhibit is attached.
1. Piggy-Back Registration.
1.1 Piggy-Back Rights. If at any time on or after the date of the Closing the Company proposes to file any Registration Statement under the 1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof (with the understanding that the Company shall file the initial prospectus covering the Buyer’s sale of the Registrable Securities at prevailing market prices on the same date that the Registration Statement is declared effective by the SEC).
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time when a prospectus relating to such holder’s Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such holder, the Company shall also prepare, file and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The holders of Registrable Securities shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
1.4 The Company may request a holder of Registrable Securities to furnish the Company such information with respect to such holder and such holder’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and such holders shall furnish the Company with such information.
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1.5 All fees and expenses incident to the performance of or compliance with this Exhibit B by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) 1933 Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Exhibit B and (vii) reasonable fees and disbursements of a single special counsel for the holders of Registrable Securities (selected by holders of the majority of the Registrable Securities requesting such registration). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any holder of Registrable Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless the Buyer, each holder of Registrable Securities, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls the Buyer or any such holder of Registrable Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Exhibit B, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding the Buyer or such holder of Registrable Securities furnished to the Company by such party for use therein. The Company shall notify the Buyer and each holder of Registrable Securities promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Exhibit B of which the Company is aware.
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1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 1.6 was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 1.7 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 1.7, neither the Buyer nor any holder of Registrable Securities shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
[End of Exhibit B]
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Exhibit 10.56
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
GZ6G TECHNOLOGIES CORP.
Warrant Shares: 5,860,000
Date of Issuance: December 20, 2022 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received (in connection with the execution of the Purchase Agreement (as defined below)), Mast Hill Fund, L.P.., a Delaware limited partnership (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof, to purchase from GZ6G Technologies Corp., a Nevada corporation (the “Company”), 5,860,000 shares of Common Stock (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain securities purchase agreement dated December 20, 2022, by and among the Company and the Holder (the “Purchase Agreement”).
Capitalized terms used in this Warrant shall have the meanings set forth in the Purchase Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean $0.10, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the five-year anniversary thereof.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the second Trading Day (the “Warrant Share Delivery Date”) following the date on which the Holder sent the Exercise Notice to the Company or the Company’s transfer agent, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and deliver by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise (or deliver such shares of Common Stock in electronic format if requested by the Holder). Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three business days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to issue to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion in addition to all other rights and remedies at law, under this Warrant, or otherwise, and such failure shall also be deemed a material breach under this Warrant, the Purchase Agreement, and Note (as defined in the Purchase Agreement) (the “Note”).
If the Market Price of one share of Common Stock is greater than the Exercise Price, then the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and an Exercise Notice, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = Y (A-B)
A
| Where | X = | the number of Shares to be issued to Holder. |
| Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A = | the Market Price (at the date of such calculation). |
| B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
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(c) Holder’s Exercise Limitations. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
(d) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Company’s transfer agent to transmit to the Holder the Warrant Shares in accordance with the provisions of this Warrant (including but not limited to Section 1(a) above) pursuant to an exercise on or before the respective Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder, within one (1) business day of Holder’s request, the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder within one (1) business day of Holder’s request the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases, or effectuates a cashless exercise hereunder for, Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
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2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
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(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities (including but not limited to Common Stock Equivalents) entitling any person or entity (for purposes of clarification, including but not limited to the Holder pursuant to (i) any other security of the Company currently held by Holder, (ii) any other security of the Company issued to Holder on or after the Issuance Date (including but not limited to the Note), or (iii) any other agreement entered into between the Company and Holder) to acquire shares of Common Stock (upon conversion, exercise or otherwise), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, elimination of an applicable floor price for any reason in the future (including but not limited to the passage of time or satisfaction of certain condition(s)), reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled or potentially entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price at any time while such Common Stock or Common Stock Equivalents are in existence, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance (regardless of whether the Common Stock or Common Stock Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment (for the avoidance of doubt, the aggregate Exercise Price prior to such adjustment is calculated as follows: the total number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment (without regard to the Beneficial Ownership Limitation) multiplied by the Exercise Price in effect immediately prior to such adjustment). By way of example, if E is the total number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment (without regard to the Beneficial Ownership Limitation), F is the Exercise Price in effect immediately prior to such adjustment, and G is the Base Share Price, the adjustment to the number of Warrant Shares can be expressed in the following formula: Total number of Warrant Shares after such Dilutive Issuance = the number obtained from dividing [E x F] by G. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued, regardless of whether the Common Stock or Common Stock Equivalents are (i) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (ii) actually converted or exercised at such Base Share Price by the holder thereof (for the avoidance of doubt, the Holder may utilize the Base Share Price even if the Company did not actually issue shares of its common stock at the Base Share Price under the respective Common stock Equivalents). The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, regardless of whether (i) the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b) upon the occurrence of any Dilutive Issuance or (ii) the Holder accurately refers to the number of Warrant Shares or Base Share Price in the Exercise Notice, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price as well as the Base Share Price at all times on and after the date of such Dilutive Issuance.
(c) Subdivision or Combination of Common Stock. If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective. Each such adjustment of the Exercise Price shall be calculated to the nearest one-hundredth of a cent. Such adjustment shall be made successively whenever any event covered by this Section 2(c) shall occur.
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3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, three (3) times the number of shares of Common Stock into which the Warrants are then exercisable into to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
6. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
7. TRANSFER. This Warrant shall be binding upon the Company and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Company does not obtain the prior signed written consent of the Holder). This Warrant or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company’s consent thereto.
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8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Purchase Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
10. GOVERNING LAW AND VENUE. This Warrant shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts located in the State of Nevada or federal courts located in the State of Nevada. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Warrant or any other transaction document entered into in connection with this Warrant by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) [Intentionally Omitted].
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(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Quotestream or other similar quotation service provider designated by the Holder, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Quotestream or other similar quotation service provider designated by the Holder, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Quotestream or other similar quotation service provider designated by the Holder, or (iii) if no last trade price is reported for such security by Quotestream or other similar quotation service provider designated by the Holder, the average of the bid and ask prices of any market makers for such security as reported by Quotestream or other similar quotation service provider designated by the Holder. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(c) “Common Stock” means the Company’s common stock, par value $0.0001, and any other class of securities into which such securities may hereafter be reclassified or changed.
(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(e) “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof.
(f) “Principal Market” means the principal securities exchange or trading market where such Common Stock is listed or quoted, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
(g) “Market Price” means the highest traded price of the Common Stock during the one hundred and fifty Trading Days prior to the date of the respective Exercise Notice.
(h) “Trading Day” means any day on which the Common Stock is listed or quoted on its Principal Market, provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day.
* * * * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| GZ6G TECHNOLOGIES CORP. | ||
| Name: | William Smith | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the right to purchase of the shares of Common Stock (“Warrant Shares”) of GZ6G TECHNOLOGIES CORP., a Nevada corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ☐ | a cash exercise with respect to Warrant Shares; or |
| ☐ | by cashless exercise pursuant to the Warrant. |
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant. |
Date:
| (Print Name of Registered Holder) | ||
| By: | ||
| Name: | ||
| Title: |
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EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of common stock of GZ6G TECHNOLOGIES CORP., to which the within Common Stock Purchase Warrant relates and appoints , as attorney-in-fact, to transfer said right on the books of GZ6G TECHNOLOGIES CORP. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
Dated:
| (Signature) * | ||
| (Name) | ||
| (Address) | ||
| (Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
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Exhibit 23.1
To Whom It May Concern:
We hereby consent to the use in the registration statement of GZ6G Technologies Corp. on Form S-1, of our Report of Independent Registered Public Accounting Firm, dated March 25, 2022, on the consolidated balance sheet of GZ6G Technologies Corp. as of December 31, 2021 and 2020, and the related consolidated statements of operations and changes in consolidated stockholders equity and consolidated cash flows for the years then ended and the related notes, which appear in the Form S-1.
/s/ Pinnacle Accountancy Group of Utah
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, UT
February 7, 2023