20-F/A: ZenaTech Amends 20-F, Details Acquisitions & Drone Progress

ZenaTech, Inc. filed an amended annual report clarifying financial line items and providing updates on recent software and drone business acquisitions, alongside ongoing product development and regulatory efforts.

Summary

• ZenaTech, Inc. filed an Amendment No. 2 to its Annual Report on Form 20-F for the year ended December 31, 2024, to better reconcile line items in the Operating and Financial Review and Prospects to the financial statements.
• Revenue increased by 7% to $1,963,605 CAD in 2024 from $1,827,740 CAD in 2023, primarily due to the acquisitions of Ecker Capital, LLC and ZooOffice, Inc. in Q4 2024, which contributed over $532,553 CAD (37%) to total 2024 revenue.
• The company incurred a net loss of $4,481,751 CAD in 2024, a significant increase from a net loss of $241,504 CAD in 2023.
• Total general and administrative expenses surged by 212% to $6,424,599 CAD in 2024 from $2,061,808 CAD in 2023, driven by increased professional fees for Nasdaq listing, stock-based compensation, and stock issued for services.
• Total assets grew by 111% to $34,646,359 CAD in 2024 from $16,453,876 CAD in 2023, with current assets increasing by 144% to $6,278,477 CAD.
• Working capital improved by 127% to $3,387,365 CAD in 2024 from $1,493,931 CAD in 2023.
• Long-term liabilities increased by 23% to $9,935,904 CAD in 2024, with loans payable rising by $1.9 million CAD as the company continues to use debt to fund operations.
• Shareholders' equity increased by 198% to $21,819,343 CAD in 2024, largely due to the issuance of common, preferred, and super voting stock for acquisitions, financial services, and director compensation.
• ZenaTech completed several acquisitions in Q4 2024 and Q1 2025, including ZooOffice, Inc., Ecker Capital, LLC, and related patents from Epazz, Inc. and Ameritek Ventures, Inc., as well as land surveying companies Weddle Surveying, Inc., KJM Land Surveying, Inc., Miller Land Surveying Corporation, Wallace Surveying Corporation, and software company Othership Limited.
• The company is actively developing its drone business, with the ZenaDrone 1000 and IQ Nano drones in pilot testing phases, and has secured a $75,000 contract with the US Air Force and a contract with US Naval Research for drone demonstrations.
• ZenaTech is establishing a sensors and component manufacturing facility in Taipei, Taiwan (Spider Vision Sensors, Ltd.) to ensure NDAA compliance for US Military sales and is pursuing Green UAS certification for its IQ Square drone.
• The company has 17 employees and utilizes 115 contractors through a management services agreement with Epazz, Inc., totaling 132 personnel.
• A 1-for-6 reverse stock split of common shares was effected on July 1, 2024.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with cautious optimism. While strategic acquisitions and drone development show strong growth potential and market positioning, the significant increase in net loss and operating cash burn, coupled with high G&A expenses, raises concerns about short-term profitability and efficient capital deployment.

Positives

• Revenue increased by 7% to $1,963,605 CAD in 2024, driven by strategic acquisitions.
• Total assets grew significantly by 111% to $34,646,359 CAD in 2024, indicating expansion.
• Working capital improved by 127% to $3,387,365 CAD, enhancing short-term liquidity.
• Secured a $75,000 contract with the US Air Force and a contract with US Naval Research for drone demonstrations, validating drone technology.
• Acquired four revenue-generating software companies (Interactive Systems, interlinkONE, ZooOffice, DeskFlex) and several land surveying companies, diversifying revenue streams and expanding market reach.
• Established Spider Vision Sensors, Ltd. in Taiwan to ensure NDAA compliance for drone components, positioning for US Military contracts.
• The company's software business provides positive cash flow, which supports drone technology development and acquisitions.
• Management believes existing cash and lines of credit (over $32,800,000 CAD available) are sufficient to finance operations for the next twelve months and fund drone development.

Negatives

• Net loss significantly increased by 1,756% to $4,481,751 CAD in 2024 from $241,504 CAD in 2023.
• Total general and administrative expenses surged by 212% to $6,424,599 CAD in 2024, largely due to professional fees for Nasdaq listing, stock-based compensation, and stock issued for services.
• Operating cash flow was negative, with cash used in operating activities increasing to $9,865,255 CAD in 2024 from $1,980,275 CAD in 2023.
• Long-term advance to affiliates increased by $9,015,900 CAD, indicating significant funds tied up with a related party (Epazz, Inc.) for future services.
• The company has a limited operating history and has not been consistently profitable.
• Significant dilution to existing shareholders occurred due to the issuance of common, preferred, and super voting shares for acquisitions and debt conversions.
• The company is considered a 'controlled company' under Nasdaq rules, with CEO Dr. Shaun Passley controlling over 50% of voting stock, which may limit protections for other stockholders.

Risks

• Market price and trading volume of common shares may continue to be highly volatile, leading to potential losses for stockholders.
• Limited market for common shares, potentially impacting liquidity and ability to sell shares at an acceptable price.
• Difficulty in maintaining brand recognition and investor awareness, which could constrain demand for shares.
• Concentration of ownership by CEO Dr. Shaun Passley, preventing other stockholders from influencing significant decisions and potentially affecting share value.
• Failure to meet Nasdaq continued listing requirements could result in delisting, negatively impacting share price and future capital raising ability.
• Inability to continue as a going concern if sufficient revenues are not generated or additional financing is not secured on acceptable terms.
• Additional regulatory burdens and costs associated with being a public company listed on Nasdaq.
• Potential difficulty for stockholders to bring actions under Section 11 of the Securities Act following the Slack Technologies, Inc. v. Pirani decision.
• Future sales or issuances of additional common shares or convertible securities could dilute existing shareholders' voting power and economic interest.
• Limited rights for stockholders to take action against directors and officers due to indemnification provisions.
• Dependence on executive officers and key personnel, with the departure of any key personnel potentially adversely affecting the company.
• Uncertainty regarding the reduced disclosure requirements applicable to emerging growth companies making common shares less attractive to investors.
• Reliance on exemptions as a controlled company and foreign private issuer, potentially offering fewer protections to stockholders.
• Risk of losing foreign private issuer status, leading to increased compliance costs and more extensive reporting requirements.
• Contingent obligation to issue additional common shares in the future from convertible notes, potentially causing dilution.
• Authority to issue an unlimited number of common shares, which could dilute ownership and voting power.
• Limited operating history and no certainty of future profitability, particularly in the drone business.
• Management's substantial discretion concerning the use of available funds, which may not align with investor preferences.
• Need for substantial additional financing for software and drone business development, with no assurance of availability on acceptable terms.
• Inability to successfully implement business strategy, including organic growth and acquisitions.
• Failure to develop or acquire new products to compete effectively in rapidly evolving software and drone industries.
• Potential product liability claims due to defects in software or drones, leading to costs, losses, and reputational harm.
• Material adverse effects on business if certain technology licensing agreements with Epazz are terminated or not renewed.
• Inability to manage growth effectively, straining management systems and resources.
• Negative operating cash flow in the past and foreseeable future, increasing vulnerability to adverse economic conditions and limiting financing ability.
• Expenses may not align with revenues, causing significant variations in operating results.
• Lack of market acceptance for software or drone technology, negatively affecting operating results.
• Adverse effects from global financial developments, such as interest rate increases or credit contraction.
• Regulatory risks, including changes in laws, aggressive enforcement, or delays in obtaining necessary approvals.
• Risks of security weaknesses, bugs, or hacking in the company's network core infrastructure software.
• Theft or infringement of intellectual property rights, or infringement of others' intellectual property rights.
• Scarcity or unavailability of critical components or raw materials for drone manufacturing, causing delays and increased costs.
• Rapid technological change in competitive markets requiring continuous product development and enhancements.
• Release of defective products or services, leading to business harm and operating losses.
• Substantial research and development costs that may not result in revenue or profitability.
• Risks associated with investing in emerging markets, including expropriation, political instability, and corruption.
• Confidentiality agreements may not adequately prevent disclosure of trade secrets.
• Insurance coverage may not be sufficient to cover all losses or may not be available on acceptable terms.
• Risks associated with potential acquisitions, including integration challenges, unforeseen liabilities, and diversion of resources.
• Intense competition in software, hardware, and drone technology markets from larger, more established companies.
• Dependence on the relationship with Epazz Inc. and other third-party relationships, with potential adverse effects if agreements are terminated or key personnel become incapacitated.
• Risk of default on advances made to affiliates if services provided are less than the advanced amount.
• Inability to attract and retain qualified personnel, particularly marketing, sales, and operational staff.
• Pressure on internal systems and controls due to growth, potentially impacting operational and financial systems.
• Operational risks such as labor disputes, catastrophic accidents, or natural phenomena.
• Risk of litigation, leading to substantial costs and diversion of resources.
• Adverse effects if consumer protection and data privacy practices are not adequate or security breaches occur.
• Price volatility of publicly traded securities, affecting the value of common shares.
• Internal control over financial reporting may not prevent or detect misstatements, leading to regulatory scrutiny and loss of public confidence.
• Limited experience of the management team in managing a public company, potentially diverting attention from day-to-day business.
• Conflicts of interest among directors and officers due to involvement in other business ventures.
• Difficulty for investors to enforce judgments obtained against the company in the United States within Canada.

Future Outlook

The company anticipates that its drone business will increasingly generate income over the next five years as it develops. It plans to convert pilot program customers into paying customers within 90 days of program completion. ZenaTech expects to continue developing a suite of drones and expanding its Drone as a Service (DaaS) model through acquisitions of legacy businesses in land surveying, power washing, security inspections, and powerline inspections. The company also plans to pursue business enterprises in agriculture, infrastructure, and mining sectors with its drone solutions. Quantum computing-driven workplace scheduling solutions are intended to increase business productivity, and the company plans to apply for Green UAS certification for its IQ Square drone in Q3 2025, followed by Blue UAS certification.

Management Comments

• Management believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct.
• Management believes this process has kept the drone development costs below what other companies may have incurred.
• Management believes the risk of default on advances to Epazz is not significant as our CEO and Director Dr. Passley is also the CEO and a Director and shareholder of Epazz.

Industry Context

StockSavvy.ai notes ZenaTech's strategy to integrate its established enterprise software business with emerging drone technology and services positions it uniquely. The acquisition of land surveying companies and the development of a 'Drone as a Service' (DaaS) model align with broader industry trends towards automation, data-driven solutions, and subscription-based services in sectors like agriculture, infrastructure, and logistics. The focus on NDAA and UAS certifications indicates a strategic move to penetrate the lucrative US defense market, a segment where Chinese drone manufacturers face increasing restrictions. The company's R&D into quantum computing for traffic management and weather forecasting suggests an ambition to leverage advanced technologies, potentially differentiating it from competitors like DJI, DraganFly, and AgEagle, which primarily focus on hardware or specific applications. However, the significant increase in G&A expenses and net loss highlights the substantial investment required to compete in these capital-intensive and rapidly evolving markets.

Comparison to Industry Standards

• ZenaTech's ZenaDrone 1000, described as 'five times larger than many commercial drones' and made of carbon fiber with longer flight times and self-charging capabilities, aims to differentiate itself from standard commercial drones like those offered by DJI, which are widely used but may have limitations in specialized industrial applications.
• The company's pursuit of Green UAS and Blue UAS certifications for its IQ Square drone is a direct response to US government and defense market requirements, similar to efforts by companies like AeroVironment and Kratos, which are established players in defense-grade UAS.
• The DaaS model for land surveying, combining traditional methods with drone technology, competes with specialized geospatial companies and traditional surveying firms, aiming for improved speed and precision. This is comparable to how companies like PrecisionHawk or DroneDeploy offer data collection and analysis services.
• The quantum computing Sky Traffic project for traffic management and weather forecasting is an ambitious R&D initiative, placing ZenaTech at the forefront of exploring advanced AI and computing applications for drones, potentially competing with large tech firms or specialized defense contractors in the long term, though specific comparable projects are not yet widely commercialized.

Corporate Governance

Legal Proceedings

• The company is not currently involved in any material litigation or legal proceedings, and no material legal proceedings are contemplated.

Related Party Transactions

• Shaun Passley, PhD (CEO, Chairman, controlling shareholder) and Epazz, Inc. (controlling shareholder with Dr. Passley) have common control over the company's shares.
• The company has a management services agreement with Epazz, Inc., where Epazz provides software development, office space, project management, and hosting services, and is paid 20% above cost.
• The company had a long-term advance to affiliates of $13,639,055 CAD as of December 31, 2024, primarily to Epazz, Inc. for future services, which increased by $9,015,900 CAD during the year.
• The company sold ZenaPay, Inc. wallet software assets to Epazz Limited, Ireland (a related party) for $250,000 USD in October 2023, in the form of a convertible promissory note.
• Acquisitions of ZooOffice, Inc. from Epazz, Inc. and Ecker Capital, LLC from Ameritek Ventures, Inc. (both controlled by Dr. Shaun Passley) were considered related party transactions and approved by minority shareholders.
• Acquisitions of Design Patent USD1005883S1 and Utility Patents US11597515B2 and US11970293B2 from Epazz, Inc. and Dr. Shaun Passley were related party transactions, with consideration paid in Super Voting Shares and Preferred Shares.
• The company has secured loans and lines of credit from GG Mars Capital, Inc., Star Financial Corporation, Jennings Family Investments, Inc., Marie Pindling, Olga Passley, and Yvonne Rattray, all of whom are related parties (family members of Shaun Passley, PhD, or entities controlled by them).
• Loan origination fees for new revolving lines of credit with related parties included issuances of preferred shares and warrants.
• Certain related party debts are convertible into the company's common stock at a 20% discount to market price.
• A capital advance of AED 217,310 (approximately $97,818 CAD) for a residential property in Sharjah, UAE, is temporarily held in the name of Dr. Shaun Passley, who has undertaken to transfer legal title to the company.

Stakeholder Impact

• Shareholders: Experience significant dilution from recent stock issuances for acquisitions and debt conversions. The increased net loss and G&A expenses could negatively impact shareholder value, despite asset growth. The controlled company status and foreign private issuer exemptions may limit certain shareholder protections.
• Employees/Contractors: The company has 17 employees and 115 contractors, indicating a reliance on external workforce, particularly through the Epazz management services agreement. The growth in product development and manufacturing activities suggests potential for job creation or increased contractor engagement.
• Customers: Acquisitions of software companies and development of drone services aim to expand product offerings and improve service delivery, potentially benefiting existing and new corporate clients in various industries (medical, law enforcement, field services, agriculture, logistics).
• Creditors: The company has increased its long-term debt and relies on lines of credit, including from related parties. While available credit is substantial, the negative operating cash flow and increased net loss could raise concerns about repayment capacity, though management believes liquidity is sufficient.
• Suppliers: The establishment of Spider Vision Sensors in Taiwan and collaboration with Suntek Global indicate a strategic shift in supply chain for drone components, potentially impacting existing suppliers or creating new opportunities for NDAA-compliant vendors.

Next Steps

• Finish auto parts company trial for IQ Nano drone and obtain purchase orders for multiple sites.
• Continue to sell and secure trials/purchase orders with additional customers for IQ Nano.
• Commence manufacturing operations for commercial US customers at the Phoenix facility in Q2.
• Expand the Phoenix facility for military customers once contracts are secured.
• Hire a larger team, including more engineers and business development staff, for Spider Vision Sensors in Taiwan.
• Develop additional components (PCBs, sensors) for drone products at the Taiwan office.
• Pursue selling drones to Eastern Asian government customers via the Taiwan office staff.
• Acquire more land survey companies as part of the DaaS rollup strategy.
• Finish negotiations, closings, and integrations of outstanding Letters of Intent for land survey companies.
• Commence the quantum computing project for traffic management, followed by weather forecasting and wildfire applications.
• Develop workplace management and scheduling applications utilizing quantum computing in the enterprise SaaS business.
• Commence testing of agricultural drone spraying once Part 137 FAA approval is obtained.
• Apply for the IQ Square drone Green UAS certification at the beginning of Q3, 2025.
• Apply for Blue UAS certification upon receipt of Green certification.
• Continue collaboration with Suntek Global to build manufacturing expertise for Blue UAS certified components.
• Start aerial testing of drones at the Turkey facility in Q2 and hire five employees there.
• Convert drone pilot customers into paying customers by signing purchase orders within 90 days after pilot programs.

Key Dates

Recommendation

ZenaTech is in a transitional phase, aggressively expanding its drone and software businesses through acquisitions and significant R&D. While the substantial increase in assets and working capital, along with strategic moves into the defense drone market, present long-term growth potential, the immediate financial performance shows a sharp increase in net loss and operating cash burn. The high related-party transactions and reliance on debt financing, coupled with the inherent volatility of small-cap and emerging technology companies, introduce considerable risk. A 'hold' recommendation is appropriate as investors should monitor the company's ability to convert its pilot programs and acquisitions into sustainable, profitable revenue streams and manage its escalating expenses before considering further investment.

Keywords

Enterprise Software, Drone Technology, Cloud Applications, AI, SCADA, EHR Software, Field Service Management, Compliance Software, Land Surveying, NDAA Compliant Drones, UAS Certification, Quantum Computing, Acquisitions, SEC Filing, Nasdaq