GZIC GZ6GTechnologies Corp (CE)

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS

GZ6G Technologies Corp. (formerly Green Zebra International Corp.)  (the “Company” or “GZ6G”) is a complete enterprise smart solutions provider for large venues and cities. Focused on acquiring smart city solutions, developing innovative products, and overseeing smart cities and smart venues, GZ6G also assists in modernizing clients with innovative wireless IoT technology for the emerging 5G and Wi-Fi 6 marketplaces. Target markets include stadiums, airports, universities, and smart city projects. The Company is organized under the laws of the State of Nevada and has offices in California and Nevada.

In November 2018, the Company changed its name from NanoSensors, Inc. to Green Zebra International Corp. following a merger with Green Zebra Media Corp., a Delaware corporation, under common control.

The Board of Directors approved a name change and a reverse stock split of the Company’s issued and outstanding common shares at a ratio of 200 to 1 on December 18, 2019. The accompanying financial statements, and all share and per share information contained herein has been retroactively restated to reflect the reverse stock split. On December 20, 2019, the Company changed its name from Green Zebra International Corp. to GZ6G Technologies Corp.

On August 6, 2021, Mr. William Ray Procniak and Mr. Brian Scott Hale were appointed to the Company’s board of directors and concurrently the Company formed an audit committee, which each of Mr. Hale and Mr. Procniak joined, serving as independent board members.  Concurrently the Company completed an application for an uplist to the OTCQB and submitted the required disclosure through OTCMarkets. The Company was approved for trading on the OTCQB Venture Market on October 25, 2021.

Going Concern

These audited consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of December 31, 2021, the Company had a working capital deficit of $6,212,204 with approximately $760,000 of cash on hand and an accumulated deficit of $16,092,531. In December 2020, the Company signed a convertible promissory note with a third party to provide an aggregate amount of $450,000 in $25,000 increments weekly, which was sufficient to meet operational needs and has been funded in full. During the year ended December 31, 2021, this note was amended to include an additional $1,000,000 in funding, payable over 90 business days commencing April 16, 2021, of which an amount of $600,000 has been received against the $1,000,000 funding as of December 31, 2021. Further prior to December 31, 2021, the Company has received an additional $1,108,000 in funding with respect to net proceeds of $1,008,000 from certain convertible notes and $100,000 in proceeds with respect to the sale of certain registered shares issued in consideration for put notices under an equity line entered into in fiscal 2021. The Company anticipates a need for a further $5,000,000 in fiscal 2022 to meet its upgraded infrastructure requirements and has filed two registration statements on Form S-1 to facilitate this requirement, one of which was deemed effective on September 24, 2021, and the other still pending notice of effect. The continuation of the Company as a going concern is dependent upon the ability to raise additional equity and/or debt financing and the attainment of profitable operations from the Company’s future business. If the Company is unable to obtain adequate capital as needed, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)

Covid-19 Pandemic: The COVID-19 pandemic could have a continuing adverse impact on our existing sponsorship and revenue agreements.  During 2021 the implementation of services under certain of our installation agreements experienced delays as a result of the pandemic. COVID-19 has caused significant disruptions to the global financial markets, which may also continue to impact our ability to raise additional capital. During March 2020, we gave notice of furlough to our administrative support employees in an effort to conserve resources as we evaluate our business development efforts in the coming months.  In April 2020, the Company received a grant of $6,000 and in May 2020 we received a PPP loan and an SBA loan in the approximate cumulative amount of $90,000 for operations. During early 2022 the Company reopened its offices and continued with the hiring of additional staff as well as the upgrading of infrastructure requirements to meet anticipated customer requirements for 2022.    While recent progress in the battle against COVID leads us to believe that the worst of the effects of the pandemic are past, we cannot say with certainty that the situation will not change.  The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, is highly uncertain and still subject to change. While significant uncertainty remains, despite the fact that  the Company has been able to source financing, it remains that the COVID-19 outbreak may have a negative impact on its ability to work through its collaborative development efforts with industry partners, and in acquiring venues due to the continuing impact of COVID 19, in particular as a result of the impact to the global supply chain.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Consolidation

These consolidated financial statements include the accounts of GZ6G Technology Corp.  and its 60% controlled subsidiary, Green Zebra Media Corp. (“GZMC’). as of December 31, 2021. All significant intercompany accounting transactions have been eliminated as a result of consolidation.

Use of Estimates

The preparation of these consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and Cash Equivalents

For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments with a maturity of three (3) months or less at the time of purchase.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2021, the Company had $509,791 in excess of the FDIC insured limit, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.

Research and Development Costs

We charge research and development costs to operations as incurred in accordance with ASC 730-Research and Development, except in those cases in which such costs are reimbursable under customer funded contracts. These amounts are not reflected in the reported research and development expenses in each of the respective periods but are included in net sales with the related costs included in cost of sales in each of the respective periods.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. The core principle of this standard is that a company should record revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Further under ASC 606, the Company recognizes revenue from licensing agreements and service-based contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

We earn revenue from both digital marketing and the sale of WiFi and communication solutions to customers around the world.  Revenue is earned from sales of our WiFi media platform and our WiFi monetization hardware (GZ Media hub) embedded with GZ software to create monetization and communication solutions for our customers. Our sales can consist of any one or a combination of items required by our customer including hardware, technology platforms and related support. We also enter into licensing contracts which provide for revenue based on licensing fees and revenue sharing with our licensees.

As we expand, we expect a large portion of our revenue from our digital communication solutions to be derived from service-based contracts where we expect to recognize a significant portion of our contracts over time, as there is a continuous delivery of services to the customer over the contractual period of performance.  These contracts may or may not include fixed payments for services over time and/or commission-based fees.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

Direct costs are expected to include materials, labor and overhead to be charged to work-in-progress (including our contracts-in-progress) inventory or cost of sales. Indirect costs relating to long-term contracts, are expected to include expenses such as general and administrative charges, and other costs will be charged to expense as incurred and will not be included in our work-in-process (including our contracts-in-progress) inventory or cost of sales. Total estimates are expected to be reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Estimated losses on long-term contracts are recorded in the period in which the losses become evident.  If we do not accurately estimate the total sales, related costs and progress towards completion on our long-term contracts, the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.

In addition, certain of our contracts will include termination for convenience or non-performance clauses that provide the customer with the right to terminate the contract. Such terminations could impact the assumptions regarding total contract revenues and expenses utilized in recognizing profit under those contracts where we apply the percentage-of-completion method of accounting. Changes to these assumptions could materially impact our results of operations and financial condition. As we fully implement our business model, our inability to perform on our long-term contracts could materially impact our results of operations and financial condition.

Stock-Based Compensation

We account for stock-based transactions in which the Company receives services from employees, directors or others in exchange for equity instruments based on the fair value of the award at the grant date in accordance with ASC 718 – Compensation-Stock Compensation. Stock-based compensation cost for stock options or warrants is estimated at the grant date based on each instrument’s fair value as calculated by the Black-Scholes option pricing model. We recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award.

Debt Issue Costs

The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations as interest expense.

Original Issue Discount

If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Stock Settled Debt

In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market.  In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature.  As of December 31, 2021, and 2020, the Company had recorded within Convertible Notes, net of discount, the amount of $8,320,525 and $164,104 for the value of the stock settled debt for certain convertible notes (see Note 6).

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 – Topic 842 Leases. ASU 2016-02 requires that most leases be recognized on the financial statements, specifically the recognition of right-to-use assets and related lease liabilities, and enhanced disclosures about leasing arrangements.  The Company elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis. 

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.

Income Taxes

The Company has adopted ASC Topic 740 – Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basic and Diluted Net Income (Loss) Per Share

In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential common stock consists of the incremental common stock issuable upon convertible notes, classes of shares with conversion features. The computation of basic loss per share for the years ended December 31, 2021 and December 31, 2020 excludes potentially dilutive securities of underlying share purchase warrants, convertible notes, and preferred shares, because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted.

The table below reflects the potentially dilutive securities at each reporting period which have been excluded from the computation of diluted net loss per share:

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.

Depreciation expense amounted to $20,429 and $1,948 for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, the Company reclassified certain assets in the amount of $4,990 into advertising expense.

On January 31, 2017, GZMC entered into a white label reseller agreement with Purple Wifi Limited, a company based in the UK that provides a hosted software solution as a Wifi hotspot platform for use on a company’s Wifi hardware and also provides customer analytics services and marketing opportunities along with ancillary support services. The reseller agreement had an initial term of three years and was subsequently amended to reflect a five (5) year term. Under the terms of the agreement GZMC was required to pay a fee of $52,000 of which a total of $6,450 was unpaid and is included in accounts payable as of December 31, 2021 and December 31, 2020. The total amount expended under the reseller agreement has been recorded as prepaid expenses on the Company’s Balance Sheets and is amortized over the term of the agreement on a five-year straight-line basis as part of general and administrative expense.

NOTE 6: DEBT

Secured Revolving Convertible Promissory Note and Securities Purchase Agreement

On July 19, 2019, the Company entered into a Securities Purchase Agreement with Diamondrock LLC (“Diamond”) whereby Diamond has agreed to advance up to $750,000 to the Company by way of a Secured Revolving Convertible Promissory Note with an initial cumulative funding of $169,450 (less an original issue discount (“OID”) of 10% totaling $16,945) to be drawn down in tranches at the election of the Company.   As of December 31, 2019, the Company had drawn down a total of $169,450 of which $16,945 represents the OID and $2,500 represents agreed debt issue costs, for total net proceeds to the Company of $150,005.  The Company is required under the terms of the agreement to repay the draw downs in four equal installments, plus accrued interest of 5% per annum, with the initial installment commencing 90 days after the first draw down under the agreement.

Further, the Company was required to pay a commitment fee in the amount of $112,500 on signing of the agreement by way of the initial issuance of a total of 100,000 shares.   Diamond may sell the commitment fee shares subject to applicable securities regulations and may request additional shares from the Company at a future date should the aggregate value of the shares when sold generate less than the agreed $112,500 commitment fee.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 6: DEBT (continued)

Secured Revolving Convertible Promissory Note and Securities Purchase Agreement (continued)

Under the terms of the convertible note, on or after maturity the note may converted to shares of common stock in whole or in part equal to 60% of the lowest of the Volume Weighted Average Price for each of the fifteen (15) days immediately preceding the date of the Notice of Conversion.  The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,005 Notes was calculated using the Black-Scholes pricing model at $173,585, with the following assumptions: risk-free interest rate of 1.53% ~ 1.60%, expected life of 0.6 year, volatility of 175% ~ 292%, and expected dividend yield of zero.  Because the fair value of the note exceeded the net proceeds from the $150,005, a charge was recorded to “Financing cost” for the excess of the fair value of the note. 

The Company issued 100,000 shares on August 26, 2019 to satisfy the commitment fee. The Company valued issuance at the closing price of the Company’s Common Stock as traded on the OTCMarkets on the date of issuance, and consequently recorded stock-based compensation of $110,000.

On August 26, 2020, a Revolving Secured Convertible Promissory Note Assignment and Purchase Agreement (the “Purchase Agreement”) was entered into between Diamond and Ilya Aharon (the “Buyer”). Under this Agreement, the Buyer acquired the Secured Revolving Convertible Promissory Note (“Diamond Note”) from Diamond for cash consideration of $147,000.  The Purchase Agreement assigned all obligations of the Company and the guarantor under the terms of the original Diamond Note to Buyer.

On September 5, 2020, the Board of Directors approved the issuance of a new Convertible Promissory Note (the “New Note”) to Buyer in the amount of $147,000 thereby terminating all obligations of the Company and guarantor under the Diamond Note. The note was unsecured and non-interest bearing.

Under the New Note the Company had the right to prepay all or any portion of the New Note at any time upon 30 days written notice to the debtholder, without penalty at the debtholder’s discretion. The debtholder has the right at any time with 3 days written notice to convert any part of the New Note into shares of the Company’s common stock at a conversion rate of a 40% discount to the lowest market price at the close of market during the 60 days immediately prior to the notice of conversion. The Company recorded $748,192 as liability on stock settled debt associated with this New Note and expensed $748,192 as amortization of debt discount in the year ended December 31, 2020.

On October 1, 2020, the Company received a Notice of Conversion in respect to the New Note and converted the full value of the debt ($147,000) into 3,500,001 shares.

Due to the variable conversion price associated with the Revolving Secured Convertible Promissory Note disclosed above, the Company has determined that the debt discount is a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to be derivative liabilities. The initial embedded derivative liability of $173,585 was recorded as a derivative liability on the consolidated balance sheet and is remeasured to fair value at each balance sheet date with a resulting non-cash gain or loss related to the change in the fair value being charged to earnings (loss). 

The interest expenses of these convertible notes are as follows:

The accrued interest payable is as follows:

As a result of the application of ASC No. 815 in period ended December 31, 2020 and at the commitment date, the fair value of the debt discount associated with the convertible notes is summarized as follows:

The loss on conversion in the year ended December 31, 2020 as follow:

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 6: DEBT (continued)

Advances Payable allocated to Convertible Note

During the year ended December 31, 2019, the Company received $150,000 from an unrelated third party.  Proceeds were for shortfalls in operational expenses.  The advance was non-interest bearing, and there were no specific terms of repayment at that time. On December 21, 2020, the Lender and the Company agreed to allocate interest in the amount of 6% per annum and to accrue interest from the date the advance was first entered into.  At this time the Company executed a convertible promissory note with principal amount of $150,000. The note was due and payable on the one-year anniversary of the date of each advance and was convertible at a price of 15% of the market closing price 5 days prior to presentation of a notice of conversion. The Company recorded $35,185 as liability on stock settled debt associated with this convertible note. The Company recorded interest expenses of $13,558 during the year ended December 31, 2020.

On December 30, 2020, a Convertible Promissory Note Assignment and Purchase Agreement (the “Purchase Agreement”) was entered into between the note holder and a buyer (the “Buyer”). Under this Agreement, the Buyer acquired the Convertible Promissory Note for cash consideration of $163,558 from the holder.  The Purchase Agreement assigned all obligations of the Company and the guarantor under the terms of the original convertible note to the Buyer.

On December 20, 2020, the Board of Directors approved the issuance of a new Convertible Promissory Note to the Buyer in the amount of $163,558 thereby terminating all obligations of the Company and guarantor under the original convertible promissory note above. The note is unsecured and non-interest bearing.

Under the new Convertible Promissory Note the Company had the right to prepay all or any portion of the new convertible promissory note at any time upon 30 days written notice to the debtholder, without penalty at the debtholder’s discretion. The debtholder has the right at any time with 3 days written notice to convert any part of the New Note into shares of the Company’s common stock at a conversion rate of a 40% discount to the lowest market price at the close of market during the 120 days immediately prior to the notice of conversion. The Company recorded $3,111,366 as the liability on stock settled debt associated with this New Note.

On December 31, 2020, the Company received a Notice of Conversion in respect to the New Note and converted the full value of the debt $163,558 into 3,894,245 shares.

The carrying value of the Advance payable and the New Note is as follows:

The interest expenses of this convertible note above are as follows:

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 6: DEBT (continued)

Advances Payable allocated to Convertible Note

The loss on conversion during the year ended December 31, 2020 as follow:

Loan Treaty Agreement

On December 21, 2020, the Company entered into a Loan Treaty Agreement with a third party (“Treaty Agreement”) whereby the lender agreed to provide a loan in the amount of up to $450,000 to the Company in $25,000 tranches, deposited weekly, memorialized by promissory notes in increments of $100,000. Each amount deposited has a term of 12 months for repayment and shall bear an interest rate of 8% per annum. In addition, at the option of the Lender, each $25,000 loaned to the Company may be converted into common shares at a 25% discount to the market price at the close of business on November 23, 2020 ($0.26 x 75% = $0.195); or $0.195 per share. Each $25,000 may be converted at the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission. On April 1, 2021, the Company entered into an amendment to a Loan Treaty Agreement originally executed on December 21, 2020.  On April 1, 2021, the Company entered into an amendment to the Treaty Agreement. Under the terms of the amendment the lender has agreed to fund an additional $1 million dollars over 90 business days in equal weekly tranches of $55,556. Each tranche may be converted under the same terms as the original loan treaty, or $0.195 per share, commencing the one-year anniversary of the date of the weekly deposit, unless the Company becomes a fully reporting company, at which time the holder may convert such debt to common shares in six months, or if the underlying shares are registered, conversion may occur upon Notice of Effect from the Securities and Exchange Commission.

During the fiscal year ended December 31, 2021 and 2020, the Company received weekly tranche deposits for an aggregate of $1,100,000 and $50,000, respectively. The Company recorded $11,656,833 and $164,104, respectively, as the liability on stock settled debt associated with the tranches which amount is amortized over the terms of the notes.

On October 27, 2021, the Company issued 2,051,282 shares of common stock to lender eSilkroad Network Ltd. in consideration for $400,000 in loans previously provided under the terms of a convertible note agreement convertible at $0.195 per share.

The carrying value of tranches is as follows:

The accrued interest payable is as follows:

 Schedule of accrued interest payable loan treaty agreement

The loss on conversion during the year ended December 31, 2021 is as follows:

 Schedule of loss on conversion Loan Treaty Agreement

Convertible Debt

On November 11, 2021, the Company entered into a Promissory Note with an investor in which the investor has agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.

On December 16, 2021, the Company entered into a Promissory Note with an investor in which the investor has agreed to lend the Company the principal amount of $560,000 for the purchase price of $504,000. The Term of the Note is twelve months with an interest rate of 12%. The conversion rate of the Note is fixed at $1.00 per share. The Company concurrently entered into a Warrant Agreement for the purchase of an additional 560,000 common shares at $1.00 per share for a term of three (3) years.

In accordance to ASC 470 – Debt, the proceeds of $1,008,000 was allocated based on the relative fair values of the convertible note and the warrant of $504,027 and $503,973, respectively. The Warrant was valued at $503,973 was recorded as a debt discount which is being amortized over the life of the Note. In addition, the Note had a BCF in the amount of $616,027 which was recorded as a debt discount which is being amortized over the life of the Note. The debt discount totaled $1,120,000.

The interest expenses of traches are as follows:

 Schedule of Convertible debt interest expense

The accrued interest payable is as follows:

 Schedule of convertible debt accrued interest

SBA

On May 19, 2020, the Company received a long-term loan from U.S. Small Business Administration (SBA) in the amount of $44,000, upon the following conditions:

Payment: Installment payments, including principal and interest, of $215 monthly, will begin twenty-four (24) months from the date of the promissory note. The balance of principal and interest will be payable Thirty (30) years from the date of the promissory note.

Interest: Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date(s) of each advance.

Payment terms: Each payment will be applied first to interest accrued to the date of receipt of each payment, and the balance, if any, will be applied to principal; each payment will be made when due even if at that time the full amount of the loan has not yet been advanced or the authorized amount of the Loan has been reduced.

As at December 31, 2021, the Company had accrued interest payable of $2,672 in respect of this loan. (December 31, 2020 - $1,022).

PPP funds

The Paycheck Protection Program (“PPP”) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.

 GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 6: DEBT (continued)

PPP funds (continued)

The loan may be forgiven in full if the funds are used for payroll costs, interest on mortgages, rent, and utilities (with at least 60% of the forgiven amount having been required to be used for payroll). Additional terms include:

On May 14, 2020, the Company received PPP proceeds of $45,450.

As of December 31, 2021, the Company paid $5,702 including $5,061 in principal and $641 in interest payable in respect of this loan.  The Company is currently in the process of applying for forgiveness of the loan in full.

A schedule of the total long-term debt is below:

Other Short-term loans

On January 5, 2018, GZMC entered into a loan agreement with National Funding Inc. whereby the Company acquired funding in the amount of $20,625.   The terms of the loan called for the Company to pay an origination fee of $412 and to repay $26,400 by way of 176 daily payments of $150.   As of December 31, 2021 and December 31, 2020, there was an outstanding amount of $3,768 due and payable on the loan, and the loan was in default at the year ended December 31, 2020 and remains in default.

NOTE 7:  CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES

The Company generates revenue from contracts which, among other services, provide wireless and digital promotion rights for certain events including WiFi media network advertising rights, and the development of smart venue wireless networks and software engagement technology products for airports, stadiums, campuses, cities and other venues in the United States and International markets. In general, our contracts require several months of implementation which is charged at a fixed rate, followed by monthly maintenance and management services, ad hoc fixed rate services, and a share in advertising revenue, when applicable.  As a result, the Company will accept deposits from customers, which deposits are applied as each stage of our implementation is complete or under the terms of the service contract.  Invoices issued to customers for the implementation phase of our contracts are due and payable when issued, however, as the associated scope of services have not yet been concluded, these invoices do not yet meet the revenue recognition criteria required to report these amounts as earned revenue (ref: Note 2 – Revenue Recognition).  As a result, deposits when received from customers are included as liabilities on our balance sheets. 

Performance Obligations

As of December 31, 2021, our estimated revenue expected to be recognized in the future related to performance obligations associated with certain customer contracts that have been invoiced but remain unsatisfied (or partially satisfied) is approximately $1,550,000. While we had originally expected to recognize approximately 30% of this revenue through 2020, with the balance recognized thereafter, the impact of COVID-19 has had a significant impact on these contracts.  The Company is currently in negotiations to determine the best way to proceed with the delayed implementation of these contracts, or their termination.

(a) We executed a license agreement for the country of Spain in fiscal 2016 and the Company received an initial deposit of $25,000 against the total licensing fee payable.   This amount has been recorded on the Company’s balance sheets as deferred income.   While the Company and the customer attempted to negotiate an amendment to the terms of the agreement in late fiscal 2019, the onset of COVID-19 resulted in further delays which are ongoing.  As a result, the Company is currently in negotiation for a formal termination of the agreement with this customer.

(b) On July 11, 2019, GZMC entered into an Airport WiFi Sponsorship Marketing Agreement with a third party whereunder GZMC will secure long-term, exclusive and non-exclusive smart venues for WiFi marketing, digital marketing and data analytics for various brand sponsors at various airports across the United States. There were several venues anticipated under the terms of the agreement with installations commencing on various schedules. GZMC generated invoices for $100,000 for each of 13 venues, whereby $65,000 per venue is due on receipt of the invoice and the remaining $35,000 is due sixty days thereafter. As at December 31, 2021 and December 31, 2020, the Company had received partial payments of $130,000 against the initial deposit required. Previously the Company expected revenue recognition under these contracts to commence in fiscal 2020, however, as a result of the impact of the COVID-19 pandemic, the project has been delayed indefinitely. Funds originally provided for the implementation of this project are anticipated to be applied as a deposit on a project yet to be identified or otherwise, repaid.

GZ6G TECHNOLOGIES CORP.

NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

NOTE 7:  CUSTOMER DEPOSITS, CONTRACT RECEIVABLES AND CONTRACT LIABILITIES (continued)

(c) On October 6, 2020, the Company received a purchase order in the amount of $132,000 in regard to a Media Agreement described in Note 9(3) below. As the installation had not yet been fully performed under the purchase order as of December 31, 2020, $132,000 is reflected as Deferred Revenue on the balance sheet. During the fiscal year ended December 31, 2021, the Company completed the installation terms included in the purchase order and as a result $78,000 has been reflected as revenue as at December 31, 2021. The remaining $64,000 included in deferred income relates to future service obligations under the contract which will be earned over the term of the service contract.

NOTE 8: RELATED PARTY TRANSACTIONS

Terrence Flowers

As at December 31, 2019, a total of $11,110 was payable to Mr. Terrence Flowers, who ceased to be a shareholder, officer and director on July 9, 2018.  During the year ended December 31, 2020, the Company repaid $11,000 to Mr. Flowers, leaving a balance due of $110 at December 31, 2021 and 2020. The amount is reflected on the balance sheet in related party payables.

Coleman Smith and ELOC Holdings Corp.

On July 9, 2018, Mr. William Coleman Smith was appointed to the Board of Directors of the Company and as President, Secretary and Treasurer of the Company.  Subsequently, on July 10, 2018, the Company executed a consulting agreement with ELOC Holdings Corp. whereby ELOC will provide the services of Mr. Smith for a fee of $10,000 per month. ELOC Holdings, Corp is a company controlled by Mr. Smith.

On April 29, 2014, our 60% controlled subsidiary, GZMC, entered into a management and consulting agreement with Mr. Smith, the sole officer and director of GZMC whereunder GZMC was required to pay an annual salary of $120,000 to Mr. Smith.

During the year ended December 31, 2020, Mr. Smith and ELOC Holdings Corp made short term loans with interest at 1.5% per month to the Company to pay various expenses.

As of December 31, 2020, Mr. Smith, ELOC Holdings Corp. and the Company agreed to retroactively allocate interest in the amount of 5% per annum to loans, advances, wages and management fees payable by each of GZMC and the Company from January 1, 2020 forward. The parties entered into a single consolidated promissory note for all amounts payable to each of ELOC and Smith, with a principal amount of $1,217,579 payable to ELOC.

During the fiscal year ended December 31, 2021, the Company paid a total of $151,854 to ELOC to pay down the principal balance on the loan.

The following amounts were included in debt to related party on our Balance Sheets:

The Company recorded associated interest expenses of $55,713 and $22,629 for the fiscal years ended December 31, 2021 and 2020, respectively.

During the fiscal year ended December 31, 2021, the Company accrued $120,000 in management fees to ELOC and paid management fees to Coleman Smith of $210,000.  Further, Mr. Smith received payments for expenses and invoiced the Company for expenses paid on behalf of the Company leaving a net amount due for expenses of $17,085.