THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH OUR AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND
2021, 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, BUT NOT LIMITED TO, THOSE IDENTIFIED AND DISCUSSED IN OUR PROSPECTUS
ON FORM S-1/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC") ON
FEBRUARY 7, 2023 STARTING ON PAGE 7, "RISK FACTORS", AND THE RISKS DISCUSSED IN
OUR OTHER SEC FILINGS.
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
Revenue
Fiscal Year ended December 31, 2022 and 2021:
We reported revenues of $221,946 and $78,000 in the fiscal years ended December
31, 2022 and 2021, respectively. The increase in revenues in the year ended
December 31, 2022 is directly related to two long term contracts entered into
during the year under which the Company provides hardware installation services,
professional design services and future monthly services with revenue sharing on
certain sponsorship components.
Operating Expenses
Years ended December 31, 2022 and 2021
Year Ended
December 31,
2022 2021
NET REVENUES $ 221,946 $ 78,000
OPERATING EXPENSES
Cost of revenue 18,276 43,121
Depreciation 125,424 20,429
General and administrative 2,957,041 963,068
General and administrative, related parties 480,000 330,000
Professional fees 95,509 99,099
Total operating expenses 3,676,250 1,455,717
(Loss) from operations (3,454,304 ) (1,377,717 )
Other income (expense)
Interest expense (7,094,839 ) (8,051,277 )
Gain (loss) 3,575,831 (714,973 )
PPP loan forgiveness 46,091 -
Total other income (expense) (3,472,917 ) (8,766,250 )
Net income (loss) $ (6,927,221 ) $ (10,143,967 )Less: net income (loss) attributable to Non-controlling interest (56,201 ) (112,359 )
Net income (loss) attributable to GZ6G Technologies Corp. $ (6,871,020 ) $ (10,031,608 )
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Total operating expenses for the year ended December 31, 2022, were $3,676,250
as compared to $1,455,717 for the year ended December 31, 2021. During the years
ended December 31, 2022 and 2021, we reported costs of revenue of $18,276 and
$43,121 respectively. The Company incurred $2,957,041 and $963,068 in general
and administrative expenses in the years ended December 31, 2022 and 2021,
respectively and general and administrative costs from related parties of
$480,000 and $330,000, 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
$1,453,055 in payroll expenses for the year ended December 31, 2022 as compared
to $527,778 for the year ended December 31, 2021, share based compensation to
officers and directors in the current year of $65,070 as compared to $0 in the
prior comparative year, investor relations expenses were $754,060 for the year
ended December 31, 2022 as compared to $14,225 for the year ended December 31,
2021, advertising and promotional expenses increased substantially from $55,263
in the year ended December 31, 2021 to $118,772 for the year ended December 31,
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 $41,204
for the year ended December 31, 2021 to $83,355 for the year ended December 31,
2022, software expenses were $59,863 for the year ended December 31, 2022 as
compared to only $21,785 for the year December 31, 2021 as we worked to improve
our product offerings, insurance expenses, including general, health and auto
insurance were $42,799 as compared to $12,252 in December 31, 2021, and rent
expense increased from $129,670 for the year ended December 31, 2021 to $220,676
for the year ended December 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 increases in management fees to Mr. Smith
in the year ended December 31, 2022. Professional fees in the year December 31,
2022, remained fairly constant totaling $95,509 in the current year as compared
to $99,099 in the year ended December 31, 2021. Depreciation increased from
$20,429, during the year December 31, 2021, to $125,424 during the year ended
December 31, 2022, as a result of the acquisition of a new office space and
associated furnishings and equipment.
Other expense
Other expense reported for the fiscal years ended December 31, 2022, and 2021
totaled $3,472,917 and $8,766,250, respectively. During the year ended December
31, 2021 the Company reported interest expenses of $8,051,277 including
amortization of debt discount and issuance costs of $7,823,512 and interest
expenses of $227,765 and a loss on conversion of certain notes to common stock
of $714,973. During the year ended December 31, 2022 the Company reported
interest expenses of $7,094,839 including amortization of debt discount and
issuance costs of $5,864,374, financing costs of $920,227, including fees paid
in cash as well as the issuance of warrants and common stock to financing
agents, and interest expenses of $310,238, a gain on conversion of certain notes
to common stock of $3,575,831 and a gain of $46,091 upon forgiveness of PPP
loans.
We had a net loss of $6,927,221 in the year ended December 31, 2022 compared to
a net loss of $10,143,967 in the year ended December 31, 2021.
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Statement of Cash Flows
Years Ended December 31, 2022 and 2021
The following table summarizes our cash flows for the years presented:
December 31, December 31,
2022 2021
Net cash used in operating activities $ (2,514,937 ) $ (1,369,844 )
Net cash used in investing activities
(77,909 ) (251,993 )
Net cash provided by financing activities 2,340,207 2,201,084
Increase (decrease) in cash (252,639 ) 579,247
Cash end of year $ 507,152 $ 759,791Cash Used in Operating Activities
Cash used in operating activities for the year ended December 31, 2021 was
$1,369,844 as compared to $2,514,937 of cash used in operating activities in the
year ended December 31, 2022.
Cash used in operating activities for the year ended December 31, 2022 was
primarily the result of our net loss of $6,927,221 (December 31, 2021 -
$10,143,967) offset by non-cash items including amortization of debt discount
and offering costs of $5,864,374 (December 31, 2021- $7,823,512), a gain on
conversion of certain notes to common stock of $3,575,831 (as compared to a loss
on conversion of notes for the year ended December 31, 2021 of $714,973),
depreciation of $125,424 (December 31, 2021- $20,429), and amortization of
rights of use assets of $20,033 (December 31, 2021 - $910), as well as PPP loan
forgiveness of $46,091, common stock issued as financing costs of $22,399, and
common stock issued in satisfaction of consulting agreements of $794,070 all
with no comparable transaction in fiscal 2021. In the fiscal year ended December
31, 2021 we also reported $4,990 due to a reclassification of fixed assets to
advertising expense with no comparable amounts for this item in the fiscal year
ended December 31, 2022.
Changes in operating activities in the year ended December 31, 2022 included an
increase in prepaid expenses of $30,588 (2021 - $7,319), an increase to accounts
payable of $387,972 (2021 - $100,264), an increase in related party payables of
$237,382 (2021 - $179,659) and a decrease in customer deposits of $37,000 (2021
- $78,000). We also reported an increase in accounts receivable in the year
ended December 31, 2022 of $57,845 (2021 - $0) and an increase in other current
assets of $0 (2021 - $10,436).
Cash Used In Investing Activities
Cash used by investing activities for the years ended December 31, 2022 and 2021
related to equipment purchases and totaled $107,909 and $251,993, respectively
offset by a credit for leasehold improvements in the year ended December 31,
2022 of $30,000 (2021 - $0)
Cash Provided by Financing Activities
During the year ended December 31, 2022, financing activities provided cash of
$2,340,207 which was comprised of proceeds from private placements of $151,104,
proceeds from the exercise of warrants of $53,751, proceeds from a related party
of $450,100, PPP loan interest refund of $5,702, and proceeds from convertible
notes of $1,960,550, offset by repayments of convertible notes of $281,000.
During the year ended December 31, 2021, financing activities provided cash of
$2,201,084 which was comprised of proceeds from private placements of $100,000,
subscriptions receivable of $150,000, and proceeds from convertible notes of
$2,108,000, offset by repayment of debt of $151,854 and repayments of loans
payable of $5,062.
Liquidity and Capital Resources
The Company has been in the start-up phase and has generated limited revenues
from its operations, and while we have various contracts in place for future
development, there is no assurance of future revenues. As of December 31, 2022,
the Company had a working capital deficit of $8,906,205 with approximately
$507,000 of cash on hand and an accumulated deficit of $23,078,343. While the
Company received proceeds of approximately $1,960,000 from certain convertible
notes, proceeds of approximately $53,000 from warrant exercises, proceeds from
the sale of registered stock of approximately $151,000 and loans from its
officer and director of $450,100, the Company is still not able to meet its
operational overhead. The Company anticipates a need for a further $5,000,000 in
fiscal 2023 to meet its upgraded infrastructure requirements and has filed a
registration statement on Form S-1 to facilitate this requirement. The issuance
of additional securities may continue to result in significant dilution in the
equity interests of our current stockholders. Obtaining loans, assuming these
loans would be available, will increase our liabilities and future cash
commitments. There is no assurance that we will be able to obtain further funds
required for our continued operations or that additional financing will be
available for use when needed or, if available, that it can be obtained on
commercially reasonable terms.
21
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.
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. The
Company anticipates a need for a further $5 million 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 agreements, the Company is in
the process of filing a follow-on registration statement on Form S-1 to
facilitate additional funding up to a maximum of $10,000,000. 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.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the U.S. ("GAAP"). The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, costs and expenses and
related disclosures. We base our estimates on historical experience, as
appropriate, and on various other assumptions that we believe are reasonable
under the circumstances. Changes in the accounting estimates are reasonably
likely to occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. We evaluate our
estimates and assumptions on an ongoing basis. To the extent that there are
material differences between these estimates and actual results, our future
financial statement presentation, financial condition, results of operations and
cash flows will be affected. See Note 2 - Summary of Significant Accounting
Policies.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the
global economy and financial markets. The estimates used for, but not limited
to, the collectability of accounts receivable and fair value of financial
instruments could be impacted. We have assessed the impact and are not aware of
any specific events or circumstances that required an update to our estimates
and assumptions or materially affected the carrying value of our assets or
liabilities as of the date of issuance of this Annual Report on Form 10-K. These
estimates may change as new events occur and additional information is obtained.
Actual results could differ materially from these estimates under different
assumptions or conditions.
22
Policies
Revenue Recognition
We recognize revenue from installation, digital marketing, sponsorship and
advertising fees and the sale of WiFi and communication solutions to customers.
Our policy is to record revenue from installation services upon reaching
identified milestones, "percentage of completion" as set out in our customer
agreements. Revenue from marketing, sponsorship and advertising is recognized
when the performance obligation is complete. Recurring revenue from WiFi and
communication solutions is recognized monthly in accordance with the terms of
the contract with the customer.
Research and Development Costs
Our policy is to 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, in which case
these amounts are included in net sales with the related costs included in cost
of sales in each of the respective periods.
Estimates
Stock-Based Compensation
We use the fair value method to account for Stock-based compensation cost for
stock options or warrants, 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.
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. Early
adoption is permitted. For all other entities, this update is effective for
fiscal years beginning after December 15, 2023, including interim periods
therein. The Company adopted this ASU effective January 1, 2021.
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.
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.
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