GZIC 10-Q
GZ6G Technologies Corp. (GZIC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
For the transition period from __________ to __________
(Commission File Number)
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth 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 | ☐ |
| 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.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 13, 2022, there were shares of the registrant’s common stock outstanding.
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GZ6G TECHNOLOGIES CORP.
TABLE OF CONTENTS FOR UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2022 and 2021
1
GZ6G TECHNOLOGIES CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right to use assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Related party payables | ||||||||
| Deferred revenue | ||||||||
| Debt, current portion | ||||||||
| Debt, related party | ||||||||
| Convertible notes, net of debt discount | ||||||||
| Lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Debt, net of current portion | ||||||||
| Lease liability, net of current portion | - | |||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred stock, $ par, shares authorized, shares issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| Series B Preferred stock, $ par, share authorized, share issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par, shares authorized, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total GZ6G Technologies Corp stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
GZ6G TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For
the Three Months | ||||||||
| 2022 | 2021 | |||||||
| NET REVENUES | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | ||||||||
| Research and development | ||||||||
| Depreciation | ||||||||
| General and administrative | ||||||||
| General and administrative, related parties | ||||||||
| Professional fees | ||||||||
| Total operating expenses | ||||||||
| (Loss) from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| PPP loan forgiveness | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Less: net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares, basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
GZ6G TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 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 | $ | 1 | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Shares issued as financing costs | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 1 | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
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 | 1 | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | 1 | $ | - | 12,793,357 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
GZ6G TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For
the Three Months | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| PPP loan forgiveness | ( | ) | ||||||
| Amortization of debt discount and issuance cost | ||||||||
| Common stock issued as financing cost | ||||||||
| Depreciation | ||||||||
| Amortization of right of use assets | ||||||||
| Fixed assets reclassified to advertising expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses | ( | ) | ||||||
| (Increase) in other current assets | ( | ) | ||||||
| Increase in accounts payable and accrued expenses | ||||||||
| Increase in related party payables | ||||||||
| (Decrease) in customer deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Proceeds from credit of leaseholder improvement | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from subscription receivable | ||||||||
| Repayment of debt, related party | ( | ) | ||||||
| Refund of repayment to PPP loan | ||||||||
| Proceeds from convertible notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash-beginning of period | ||||||||
| Cash-end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Stock-settled debt liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 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
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 March 31, 2022, the Company had
a working capital deficit of $
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.
6
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 $
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 three months ended March 31, 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.
Consolidation
These
consolidated financial statements include the accounts of GZ6G Technology Corp. and its
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.
7
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 March 31, 2022, the Company
had $
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.
8
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 March 31, 2022,
and December 31, 2021, the Company had recorded within Convertible Notes, net of discount, the amount of $
9
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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.
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.
10
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 periods ended March 31, 2022 and 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 computations of net loss per share for each period presented is the same for both basic and fully diluted.
| March 31, 2022 | March 31, 2021 | |||||||
| Convertible Notes | ||||||||
| Stock purchase warrants | - | |||||||
| Series A Preferred shares (convertible to common at a ratio of 10 common for each 1 preferred) | ||||||||
| Total | ||||||||
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:
| March 31, 2022 | December 31, 2021 | |||||||
| Office equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Software | ||||||||
| Total | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense amounted to $
11
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 4: PREPAID EXPENSES
Prepaid expenses at March 31, 2022 and December 31, 2021 consist of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Reseller agreement | $ | $ | ||||||
| Other expenses | ||||||||
| Total | $ | $ | ||||||
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 $ of
which a total of $
NOTE 5: OTHER CURRENT ASSETS
Other current assets consist of the following at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Security deposits | $ | $ | ||||||
| Other deposits and receivables | ||||||||
| Total | $ | $ | ||||||
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 $
12
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 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 $
During
the three months ended March 31, 2022, the Company received a further $
On
October 27, 2021, the Company issued shares of common stock to the lender in consideration for $
The carrying value of funding tranches is as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Principal | $ | $ | ||||||
| Stock-settled liability | ||||||||
| Total | ||||||||
| Unamortized debt discount | ( | ) | ( | ) | ||||
| Debt carrying value | $ | $ | ||||||
The interest expenses for the funding tranches are as follows:
| For Three Months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense on notes | $ | $ | ||||||
| Amortization of debt discount | ||||||||
| Total: | $ | $ | ||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | |||
| Interest expense on the convertible notes | ||||
| Balance, March 31, 2022 | $ | |||
13
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 6: DEBT (continued)
Convertible Debt
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 $
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 $
In accordance with ASC 470 – Debt, the proceeds
of $
The carrying value of the tranches is as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Principal | $ | $ | ||||||
| Unamortized debt discount | ( | ) | ( | ) | ||||
| Debt carrying value | $ | $ | ||||||
The interest expenses related to the tranches are as follows:
| For Three Months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense on notes | $ | $ | ||||||
| Amortization of debt discount | ||||||||
| Total: | $ | $ | ||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | |||
| Interest expense on the convertible notes | ||||
| Balance, March 31, 2022 | $ |
SBA
On
May 19, 2020, the Company received a long-term loan from U.S. Small Business Administration (SBA) in the amount of $
14
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 6: DEBT (continued)
SBA (continued)
Payment:
Installment payments, including principal and interest, of $
Interest:
Interest accrues at the rate of
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.
The interest expenses related to the SBA loan are as follows:
| For Three Months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Interest expense on notes | $ | $ | ||||||
The accrued interest payable is as follows:
| Balance, December 31, 2021 | $ | |||
| Interest expense on the convertible notes | ||||
| Balance, March 31, 2022 | $ |
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 $
As
of December 31, 2021, the Company paid $
15
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 6: DEBT (continued)
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
$
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 March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Customer receivables (1) | $ | $ | ||||||
| Contract liabilities (Customer deposits) (1), (2) (a), (b), (c) | $ | $ | ||||||
| (1) | The
Company has received deposits of $ |
| (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 months ended
March 31, 2022, we have recognized $ |
16
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 7: CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES
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.
(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 $
(c)
On October 6, 2020, the Company received a purchase order in the amount of $
NOTE 8: RELATED PARTY TRANSACTIONS
Terrence Flowers
As
at December 31, 2019, a total of $
17
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 8: RELATED PARTY TRANSACTIONS (continued)
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 $
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 $
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 $
During the fiscal year ended December 31, 2021,
the Company paid a total of $
The following amounts are included in debt to related party on our Balance Sheets:
| Balance at December 31, 2020, Debt, related party | $ | |||
| Payments on loan | ( | ) | ||
| Balance at December 31, 2021, Debt, related party. | ||||
| Balance at March 31, 2022, Debt, related party. | $ | |||
The
Company recorded associated interest expenses of $
During
the three month period ended March 31, 2022, the Company accrued $
The following amounts are included in related party payables on our Balance Sheets:
| March 31, 2022 | December 31, 2021 | |||||||
| Coleman Smith, President | $ | $ | ||||||
| Interest payable | ||||||||
| ELOC Holdings Corp. | ||||||||
| Terrence Flowers | ||||||||
| $ | $ | |||||||
18
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 8: RELATED PARTY TRANSACTIONS (continued)
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 $ |
| Damages | $ | |||
| Prejudgment interest at the annual rate of 10% | ||||
| Attorney fees | ||||
| Other costs | ||||
| Total judgement value | $ |
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 $
| (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 |
| (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 $ |
19
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 9: COMMITMENTS (continued)
| (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 shares
of the Company’s common stock for a maximum commitment amount of $
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 $ |
| (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 $2.00 per share, 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. The Registration was deemed effective on May 11, 2022. |
NOTE 10: 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 $
Future minimum lease payments in respect of the above leases as of March 31, 2022 as presented in accordance with ASC 842 were as follows:
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Remaining periods | ||||
| Total future minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | ||||
| Current portion of operating lease | ||||
| Long term portion of operating lease | $ |
20
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK
The Company has authorized common shares with a par value of $, shares of Series A Preferred Stock, par value $ and share of Series B Preferred Stock, par value $. 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 compensation shares. The
Company recorded $
As of March 31, 2022 and December 31, 2021, there were and 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 shares with a par value of $.
As of March 31, 2022 and December 31, 2021, there are a total of shares of Series A Preferred Stock issued and outstanding.
21
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK (continued)
Series B Preferred Stock
The total number of Series B Preferred Stock that may be issued by the Company is share with a par value of $.
As of March 31, 2022 and December 31, 2021, there is 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 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 $
In
November and December 2021, the Company issued cumulative 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 $
| Measurement date | ||||
| Dividend yield | % | |||
| Expected volatility | ~% | |||
| Risk-free interest rate | ~% | |||
| Expected life (years) | 3.00~5.00 | |||
| Stock Price | $~$ | |||
| Exercise Price | ||||
| Exercise | Number | Expiration | ||||||||
| Price | Outstanding | Date | ||||||||
| November 2024 | ||||||||||
| December 2024 | ||||||||||
| November 2026 | ||||||||||
22
GZ6G TECHNOLOGIES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
NOTE 11: CAPITAL STOCK (continued)
Share Purchase Warrants (continued)
| Weighted- Average Exercise | Weighted- Contractual | Aggregate Intrinsic | ||||||||||||||
| Shares | Price | Term | Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | 1.00 | 2.93 | $ | - | |||||||||||
| Grants | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired | - | - | ||||||||||||||
| Outstanding at March 31, 2022 | $ | 2.68 | $ | - | ||||||||||||
| Exercisable at March 31, 2021 | $ | 2.68 | $ | - | ||||||||||||
NOTE 12: SUBSEQUENT EVENTS
Mast Hill Fund, L.P.
On
April 4, 2022, the Company entered into certain agreements with Mast Hill Fund, L.P. including a Promissory Note in the amount of $
Acorn Management Partners, LLC
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
Acorn will provide market awareness for the Company through its proprietary multi-layered system and will build long-term relationships between the Company and Acorn’s database of licensed financial professionals.
Promissory Note with Mr. William Coleman Smith
On
May 3, 2022 the Company’s CEO, William Coleman Smith entered into a Promissory Note with the Company for a total of $
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.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains predictions, estimates and other forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors including the risks set forth in the section entitled “Risk Factors” in our Post-Effective Amendment to our Registration Statement on Form S-1/A Amendment No. 4, as filed with the Securities and Exchange Commission (the “SEC”) on April 28, 2022, that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements
Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report with the understanding that our actual future results may be materially different from what we expect.
All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements for the three months ended March 31, 2022 and the notes thereto appearing elsewhere in this Report and the Company’s audited financial statements for the fiscal year ended December 31, 2021, as filed with the SEC on Form 10-K on March 11, 2022.
William Coleman Smith as the holder of the Company’s issued and outstanding shares of the Company’s Special 2018 Series B Preferred Stock, controls 51% of the voting rights of the Company and is able to influence the outcome of all corporate actions requiring approval of our stockholders. Mr. Smith also holds a total of 12,500,000 shares of common stock and 5,000,000 shares of Series A Preferred Stock convertible into 50,000,000 shares of common stock (which is 100% of the Series A stock issued and outstanding) giving Mr. Smith voting control over the Company.
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 March 31, 2022 and March 31, 2021
Revenue
We generated a total of $3,000 in gross revenue for the three months ended March 31, 2022, with no revenue in the comparable period ended March 31, 2021.
24
Net Income (Loss)
Three Months ended March 31, 2022 and 2021
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2022 | 2021 | |||||||
| NET REVENUES | 3,000 | - | ||||||
| OPERATING EXPENSES | ||||||||
| Cost of revenue | 1,088 | - | ||||||
| Research and development expenses | - | 2,600 | ||||||
| Depreciation | 46,478 | 586 | ||||||
| General and administrative | 532,187 | 68,624 | ||||||
| General and administrative, related parties | 120,000 | 60,000 | ||||||
| Professional fees | 22,800 | 42,156 | ||||||
| Total operating expenses | 722,553 | 173,966 | ||||||
| (Loss) from operations | (719,553 | ) | (173,966 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (2,264,770 | ) | (304,079 | ) | ||||
| PPP Loan Forgiveness | 46,091 | - | ||||||
| Total other income (expense) | (2,218,679 | ) | (304,079 | ) | ||||
| Net income (loss) | $ | (2,938,232 | ) | $ | (478,045 | ) | ||
| Less: net income (loss) attributable to Non-controlling interest | (599 | ) | (42,019 | ) | ||||
| Net income (loss) attributable to GZ6G Technologies Corp. | $ | (2,937,633 | ) | $ | (436,026 | ) | ||
Total operating expenses for the three months ended March 31, 2022, were $722,553 as compared to $173,966 for the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, we reported costs of revenue of $1,088 and $Nil respectively. As a result of the impact of COVID 19, certain activities which had commenced in the first quarter of fiscal 2020 were suspended and re-engaged in the second quarter of fiscal 2021, resulting in a increase in associated expenses during the comparative three month periods. The Company incurred $532,187 and $68,624 in general and administrative expenses in the three months ended March 31, 2022 and 2021, respectively and general and administrative costs from related parties of $120,000 and $60,000, 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 $388,478 in payroll expenses for the three months ended March 31, 2022 and no comparable expense for the period ended March 31, 2021, recruiting expenses were $4,756 for the three months ended March 31, 2022 with no comparable expense for March 2021, investor relations expenditures of $10,000 with no comparable expense in March 31, 2021, transfer agent and filing fees increased from $2,742 for the three months ended March 31, 2021 to $10,411 for the three months ended March 31, 2022 as the company undertook financing activities, software expenses were $11,846 for the three months ended March 31, 2022 with no comparable expense for the three month ended March 31, 2021, insurance expenses were $7,948 with no comparable expense in March 31, 2021, rent expense increased from $Nil for the period ended March 31, 2021 to $42,103 for the three months ended March 31, 2022 and utility expenses increased from $Nil in the period ended March 31, 2021 to $4,063 for the three months ended March 31, 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 March 31, 2022. Professional fees in the three months ended March 31, 2022, totaled $22,800 as compared to $42,156 in the three months ended March 31, 2021, mainly due to a decrease in legal fees from $25,000 for the three months ended March 31, 2021 to $7,500 for the three months ended March 31, 2022 as the Company incurred additional fees in March 2021 due to expenses associated with the filing of a registration statement. Depreciation increased from $586 during the three months ended March 31, 2021 to $46,478 during the three months ended March 31, 2022 as a result of the acquisition of a new office space and associated furnishings and equipment.
Other expense
Other expense reported for three months ended March 31, 2022, and 2021 totaled $2,218,679 and $304,079, respectively. During the three months ended March 31, 2022, the Company reported other expenses of $2,264,770 attributable to interest expenses as a result of the debt discount applied to certain convertible promissory notes offset by the amount of $46,091 related to the forgiveness of a PPP loan. During the three months ended March 31, 2021, the Company reported other income expenses of $304,079 all of which related to interest expense.
We had a net loss of $2,938,232 offset by a loss attributable to the non-controlling interest of $599 bringing our total Net Loss attributable to the Company to $2,937,633 in the three months ended March 31, 2022, compared to a net loss of $478,045 less a loss of $42,019 attributable to the non-controlling interest bringing our total Net Loss attributable to the Company to $436,026 in the three months ended March 31, 2021.
25
Statement of Cash Flows
March 31, 2022 and 2021
The following table summarizes our cash flows for the period presented:
| March 31, 2022 | March 31, 2021 | |||||||
| Net cash used in operating activities | $ | (658,256 | ) | $ | (176,175 | ) | ||
| Net cash used in investing activities | (24,114 | ) | (3,600 | ) | ||||
| Net cash provided by financing activities | 55,702 | 413,146 | ||||||
| Increase (decrease) in cash | (626,668 | ) | 223,371 | |||||
| Cash end of period | $ | 133,123 | $ | 413,915 | ||||
Cash Used in Operating Activities
Net Cash used in operating activities for the three months ended March 31, 2022, was $658,256 as compared to $176,175 of cash used by operating activities for the three months ended March 31, 2021.
Cash used in operating activities for the three months ended March 31, 2022, was primarily the result of our net loss of $2,938,232 offset by non-cash items including amortization of debt discount and issuance costs of $2,178,671, financing costs of $22,400, PPP loan forgiveness of $46,091, depreciation of $46,478, amortization of right of use assets of $5,284. Changes in operating activities for the period ended March 31, 2022, included an increase in prepaid expenses of $10,093, an increase in accounts payable of $69,893, an increase in related party payables of $41,434 and a decrease in customer deposits of $28,000. Cash used in operating activities for the period ended March 31, 2021, relates to a net loss of $478,045, offset by amortization of debt discount of $284,817, depreciation of $586 and fixed assets reclassified to advertising expenses of $4,990. Changes in operating activities in the three months ended March 31, 2021 included a decrease in prepaid expenses of $2,600, an increase in other current assets of $38,252, an increase to accounts payable of $84,663, an increase in related party payables of $47,129.
Cash Used In Investing Activities
Cash used by investing activities for the three months ended March 31, 2022 was $24,114 and was related to equipment purchases of $54,114 offset by proceeds from a credit related to leasehold improvements of $30,000.
Cash used by investing activities for the three months ended March 31, 2021 was $3,600 and related to equipment purchases of $3,600.
Cash Provided by Financing Activities
During the three months ended March 31, 2022, financing activities provided net cash of $55,702, which was comprised of proceeds from convertible notes of $50,000 and a refund of related to a PPP loan which was forgiven during the period of $5,702
During the three months ended March 31, 2021, consisted of proceeds from a share subscriptions receivable of $150,000 and proceeds from convertible notes of $275,000, offset by repayments of related party debt of $11,854.
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 March 31, 2022, the Company had cash on hand of $133,123 (December 31, 2021- $759,791) and an accumulated deficit of $19,030,164 (December 31, 2021 - $16,092,531).
26
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 $100,000. There is no guarantee the Company will continue to receive financing as required.
During the three months ended March 31, 2022, the Company received $50,000 in proceeds from a loan treaty agreement, and subsequent thereto the Company has received a further $321,500 in net proceeds from a convertible note as well as $50,000 from its CEO in the form of a promissory note 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.
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 March 31, 2022, the Company had a working capital deficit of $9,078,655 with approximately $133,123 of cash on hand and an accumulated deficit of $19,030,164. 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 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 $100,000. 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.
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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 three months ended March 31, 2022 and 2021 we expended $NIL and $2,600 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.
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 March 31, 2022, and December 31, 2021, the Company had recorded within Convertible Notes, net of discount, the amount of $7,304,511 and $5,075,840 for the value of the stock settled debt for 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company and are not required to provide this information.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of March 31, 2022, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, based on the material weaknesses discussed below, our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission’s rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our internal controls and procedures are not effective for the following reasons: (i) there is an inadequate segregation of duties consistent with control objectives as management is comprised of only one person, who is the Company’s principal executive officer and principal financial officer and, (ii) while the Company has a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.
In order to mitigate the foregoing material weakness, we have engaged an outside accounting consultant with significant experience in the preparation of financial statements in conformity with GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity with GAAP. We will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate.
We would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will continue to reassess this matter to determine whether improvement in segregation of duty is feasible. In addition, we would need to expand our board to include independent members.
Going forward, we intend to evaluate our processes and procedures and, where practicable and resources permit, implement changes in order to have more effective controls over financial reporting.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 |
During the year ended December 31, 2021 the Company became aware of the judgement and, 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 funds were subsequently released to Plaintiff. A further $2,420 has been paid to the Plaintiff during the fiscal year ended December 31, 2021. The Company and the Plaintiff are currently in discussions regarding the balance of the claimed amount. At the date of this report there is a total of $54,728 due and payable.
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.
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company and is not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
| Exhibit Number | Exhibit | |
| 31 | Certification of the Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification of the Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |
| 101.INS | XBRL INSTANCE DOCUMENT | |
| 101.SCH | XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| 101.DEF | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| 101.LAB | XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
| 101.PRE | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GZ6G Technologies Corp. | ||
| Date: May 16, 2022 | By: | /s/ William Coleman Smith |
| William Coleman Smith | ||
| Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
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