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 technology acquisitions, alongside ongoing product development and strategic initiatives.

Summary

• ZenaTech, Inc. filed Amendment No. 3 to its Annual Report on Form 20-F for the year ended December 31, 2024, primarily to reconcile line items in the Operating and Financial Review and Prospects section with the financial statements.
• Revenue increased by 7% to $1,963,605 CAD in 2024 from $1,827,740 CAD in 2023, driven by the acquisitions of Ecker Capital, LLC and ZooOffice, Inc. in Q4 2024, which contributed over $532,553 CAD to revenue.
• Total general and administrative expenses surged by 212% to $6,424,599 CAD in 2024 from $2,061,808 CAD in 2023, largely due to increased professional fees for Nasdaq listing, stock-based compensation, and advertising costs for drone marketing.
• The company reported a net loss of $4,481,751 CAD in 2024, significantly wider than the $241,504 CAD net loss in 2023.
• Working capital improved by 127% to $3,387,365 CAD in 2024 from $1,493,931 CAD in 2023, primarily due to converting debt and stock to cash for future acquisitions and drone development.
• Total assets increased by 111% to $34,646,359 CAD in 2024 from $16,453,876 CAD in 2023, while total liabilities rose by 40% to $12,827,016 CAD.
• ZenaTech completed several acquisitions in Q4 2024 and Q1 2025, including ZooOffice, Inc., Ecker Capital, LLC, and land surveying companies (Weddle Surveying, KJM Land Surveying, Miller Land Surveying, Wallace Surveying), as well as patents from Epazz.
• 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 USD contract with the US Air Force and a contract with US Naval Research for drone demonstrations.
• ZenaTech is establishing a manufacturing facility in Phoenix, Arizona, and a sensors and component manufacturing facility in Taipei, Taiwan, to ensure NDAA compliance for US military sales.
• The company has 17 employees and utilizes 115 contractors through a management services agreement with Epazz, Inc., a related party, for a total workforce of 132.
• Significant related party transactions include the acquisition of ZooOffice and Ecker Capital from entities controlled by CEO Dr. Shaun Passley, and the purchase of design and utility patents from Epazz, also controlled by Dr. Passley, in exchange for common, preferred, and super voting shares.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a cautious sentiment. While strategic acquisitions and drone development show potential, the substantial increase in net loss and operating cash burn, coupled with heavy reliance on related-party financing and significant share dilution, raises concerns about financial sustainability and execution risk.

Positives

• Revenue increased by 7% in 2024, reaching $1.96 million CAD, driven by strategic acquisitions.
• Working capital significantly improved by 127% to $3.39 million CAD, indicating enhanced liquidity for future growth and acquisitions.
• Successful acquisitions of four revenue-generating software companies (Interactive Systems, interlinkONE, ZooOffice, DeskFlex) and land surveying companies (Weddle, KJM, Miller, Wallace) expand the business portfolio and customer base.
• Secured a $75,000 USD contract with the US Air Force and a contract with US Naval Research for drone demonstrations, validating drone technology.
• Active development and pilot testing of ZenaDrone 1000 and IQ Nano drones, with five pilot program agreements in place, indicating progress towards commercialization.
• Establishment of a manufacturing facility in Phoenix, Arizona, and a component manufacturing facility in Taiwan, aiming for US military compliance (NDAA, Green UAS, Blue UAS).
• The company has access to over $32.8 million CAD in available short-term lines of credit from various lenders, providing substantial funding for operations and growth.
• The company's software business provides positive cash flow, which is used to fund drone technology development and acquisitions.

Negatives

• Net loss widened significantly to $4,481,751 CAD in 2024 from $241,504 CAD in 2023, a 1,756% increase.
• Total general and administrative expenses increased by 212% to $6,424,599 CAD, largely due to professional fees for Nasdaq listing, stock-based compensation, and drone marketing costs.
• The company has a negative operating cash flow of $(9,865,255) CAD in 2024, indicating that operations are not self-sustaining.
• Significant increase in long-term advance to affiliate by $9,015,900 CAD, raising concerns about the recoverability of these funds from Epazz, Inc., a related party.
• The company has a limited operating history and has not made profits until recently, with no certainty of future profitability.
• Dependence on Epazz, Inc. for management services, intellectual property, and personnel, creating potential conflicts of interest due to common control by CEO Dr. Shaun Passley.
• The company has a contingent obligation to issue additional Common Shares in the future from convertible notes, potentially diluting existing shareholders.
• The company's stock price has been highly volatile since listing on Nasdaq, with significant intra-day fluctuations unrelated to operating results, posing substantial risk to investors.

Risks

• Market price and trading volume of Common Shares may continue to be highly volatile, leading to potential loss of investment.
• Limited market for Common Shares, making it difficult for holders to sell shares at an acceptable price.
• Inability to maintain brand recognition and investor awareness, impacting share price and liquidity.
• Concentration of ownership by CEO Dr. Shaun Passley, preventing other stockholders from influencing significant decisions and potentially depriving them of a premium in a sale of the company.
• Failure to meet Nasdaq continued listing requirements could result in delisting, negatively affecting share price and future capital raising ability.
• Inability to continue as a going concern if sufficient revenues or additional financing are not secured.
• Additional regulatory burdens and costs from public listing on Nasdaq, diverting management attention and resources.
• Potential for stockholder litigation under Section 11 of the Securities Act, despite recent Supreme Court decisions, which could have a material adverse impact.
• Dilution of ownership and voting power from future sales or issuances of Common Shares or convertible securities.
• Limited rights of stockholders to take action against directors and officers due to British Columbia corporate law and company articles.
• Dependence on executive officers and dedicated personnel, with intense competition for highly skilled staff.
• Uncertainty regarding the attractiveness of Common Shares due to reduced disclosure requirements as an emerging growth company.
• 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 regulatory burdens.
• Contingent obligation to issue additional Common Shares from convertible notes, potentially causing dilution and stock price decline.
• Unlimited authorized Common Shares could dilute existing shareholders' ownership and voting power.
• Limited operating history and no consistent profitability to date.
• 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.
• Product liability claims due to defects or errors in software or drones, leading to costs, reputational harm, and potential liability.
• Material disruption or slowdown in off-shore software development services due to infrastructure failures or inability to attract/retain competent developers.
• Termination or non-renewal of technology licensing agreements with Epazz, materially affecting software and drone businesses.
• Inability to manage growth effectively, straining management systems and resources.
• Negative operating cash flow, increasing vulnerability to adverse economic conditions and limiting financing ability.
• Expenses may not align with revenues, causing significant variations in operating results.
• Failure of software or drone technology to gain market acceptance.
• Adverse effects from global financial developments, such as interest rate increases or credit contraction.
• Changes in or aggressive enforcement of laws and regulations, leading to additional costs, penalties, or operational restrictions.
• Security weaknesses in network core infrastructure software, potentially causing loss of tokens or data.
• Theft of intellectual property and hacking of software, leading to business shutdown.
• Infringement of intellectual property rights by or against the company.
• Scarcity or unavailability of critical components or raw materials for drones, causing manufacturing delays and increased costs.
• Rapid technological change in competitive markets, requiring continuous product development and enhancements.
• Substantial research and development costs that may not result in revenue or profitability.
• Unknown defects or errors in complex products, leading to claims, diminished brand, or diversion of resources.
• Risks associated with operating in emerging markets, including expropriation, political instability, and legal system uncertainties.
• Vulnerability to external economic shocks in emerging market countries.
• Violation of anti-corruption laws in countries with high corruption levels.
• Difficulties in enforcing legal redress in less developed legal systems.
• Adverse impact from high rates of inflation in operating jurisdictions.
• Inadequate protection of trade secrets and proprietary information through confidentiality agreements.
• Insufficient directors and officers insurance coverage.
• Risks associated with potential acquisitions, including integration challenges, unforeseen liabilities, and diversion of resources.
• Intense competition in software, hardware, and drone technology markets.
• Dependence on third-party relationships, including Epazz Inc., for business operations and expansion plans.
• Risk of default on advances made to Epazz, Inc., despite common control.
• Inability to manage growth successfully, impacting operating results and internal systems.
• Operational risks such as labor disputes, catastrophic accidents, and natural phenomena.
• Risk of litigation, leading to substantial costs and diversion of resources.
• Adverse effects if consumer protection and data privacy practices are deemed inadequate or security breaches occur.
• Costs of maintaining a public listing, impacting results of operations, financial position, and cash flows.
• Price volatility of publicly traded securities, affecting the value of Common Shares.
• Inherent limitations of internal control over financial reporting, potentially leading to misstatements or fraud.
• Failure to adhere to financial reporting obligations and other public company requirements.
• Changes in accounting standards and subjective assumptions by management affecting reported financial results.
• Limited experience of 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

ZenaTech anticipates continued growth in its drone business over the next five years, expecting it to increasingly generate income. The company plans to convert pilot program customers into paying customers for its drone platforms, with options for discounted purchases. Future initiatives include expanding drone applications, developing quantum computing-driven workplace scheduling solutions, and pursuing further acquisitions of land surveying and other field service companies to integrate with its Drone as a Service (DaaS) model. The company expects existing cash and lines of credit to finance operations for the next twelve months and fund drone development.

Management Comments

• Management believes that the expectations reflected in the forward-looking statements are reasonable, but cautions that actual results may vary due to known and unknown risks.
• Management believes that using the management service agreement with Epazz is the most cost-efficient way to maintain and keep client products updated and to establish offshore facilities and hire foreign personnel.
• Management believes the process of in-house drone development has kept costs below what other companies may have incurred.
• Management believes the ZenaDrone 1000 is a high-quality drone relative to others available for multi-functional outdoor use, and the IQ Nano drone for indoor use.

Industry Context

StockSavvy.ai notes that ZenaTech operates in highly competitive and rapidly evolving industries, including enterprise software, drone technology, and land surveying. The company's strategy of acquiring established revenue-generating software companies and integrating drone technology into traditional services like land surveying aligns with broader industry trends of digital transformation and automation. The focus on NDAA compliance and Green/Blue UAS certification for its drones positions ZenaTech to tap into the growing defense and government drone markets, a critical differentiator in a landscape dominated by non-compliant foreign manufacturers. The expansion into quantum computing applications for traffic management and weather forecasting indicates an ambition to leverage cutting-edge technologies, though this area is nascent and highly speculative. The significant increase in G&A expenses, particularly for Nasdaq listing and drone marketing, reflects the substantial investment required to compete and gain market share in these capital-intensive sectors.

Comparison to Industry Standards

• ZenaTech's ZenaDrone 1000 is positioned as a high-quality, larger drone with longer flight times and self-charging capabilities compared to many commercial drones, which often have limited flight duration and functional limitations.
• The company's strategy to achieve Green UAS and Blue UAS certification for its IQ Square and IQ Nano drones directly addresses the growing demand from US government agencies, law enforcement, first responders, and the Department of Defense for NDAA-compliant, non-Chinese sourced drone technology, differentiating it from major competitors like DJI.
• The acquisition of land surveying companies and the integration of drone technology for data gathering aims to improve speed and precision compared to traditional methods using Total Stations and tripod-mounted photogrammetry machines, aligning with efficiency trends in the surveying industry.
• The company's software offerings, such as medical records software (PacePlus), SCADA & HMI software (SystemView), and field service management software (TillerStack, WorkAware), compete with established players like AdvanceMD, DrChrono EHR, NextGen, Kareo (medical software), Alcumus, gocanvas, EHSInsight, SimPRO, and ServiceTitan (safety/field management), requiring continuous upgrades and differentiation.

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) holds 5,136,459 Common Shares, 10,000 Super Voting Shares, and 3,500,000 Preferred Shares.
• Epazz, Inc. (controlled by Shaun Passley, PhD) holds 6,367,301 Common Shares, 45,000 Super Voting Shares, and 11,700,000 Preferred Shares.
• Ameritek Ventures, Inc. (controlled by Shaun Passley, PhD) holds 1,583,333 Common Shares, 5,000 Super Voting Shares, and 750,000 Preferred Shares.
• GG Mars Capital, Inc. (owned by Shaun Passley's family member) holds 1,706,802 Common Shares, 555,396 Warrants, and 200,000 Preferred Shares, and has a revolving line of credit balance of $992,797 CAD and debentures of $235,874 CAD.
• Star Financial Corporation (owned by Shaun Passley's family member) holds 1,400,495 Common Shares, 549,088 Warrants, and 200,000 Preferred Shares, and has a revolving line of credit balance of $1,394,839 CAD.
• James A. Sherman (CFO, Director) holds 389,915 Common Shares.
• Craig Passley (Director, Shaun Passley's family member) holds 121,581 Common Shares.
• Marie Pindling (Shaun Passley's family member) holds 6,927 Common Shares.
• Olga Passley (Shaun Passley's family member) holds 6,927 Common Shares.
• Yvonne V. Rattray (Board member, Shaun Passley's family member) holds 21,392 Common Shares.
• The company entered into a management services agreement with Epazz on November 18, 2018, for labor, office space, hosting, travel, banking, and business development, with Epazz paid 20% above cost. This agreement was amended on May 16, 2024, to include a default clause.
• Advances to Epazz for future services totaled $15,899,823 CAD as of December 31, 2024, with $1,918,918 CAD current and $13,639,055 CAD long-term.
• The company sold ZenaPay, Inc. wallet software assets to Epazz Limited, Ireland (a related party) for $250,000 USD on October 2, 2023, in the form of a convertible promissory note.
• Acquisition of ZooOffice, Inc. from Epazz, Inc. on October 1, 2024, in exchange for 3,000 Super Voting Shares, 500,000 Common Shares, and 550,000 Preferred Shares.
• Acquisition of Ecker Capital, LLC from Ameritek Ventures, Inc. on October 1, 2024, in exchange for 5,000 Super Voting Shares, 1,000,000 Common Shares, and 750,000 Preferred Shares.
• Acquisition of Design Patent USD1005883S1 from Epazz on October 8, 2024, in exchange for 6,000 Super Voting Shares (5,000 to Epazz, 1,000 to Dr. Passley) and 1,650,000 Preferred Shares (1,150,000 to Epazz, 500,000 to Dr. Passley).
• Acquisition of Utility Patent US11597515B2 (Drone Assembly) and US11970293B2 (Charging Pad) from Epazz on October 13, 2024, in exchange for 46,000 Super Voting Shares (37,000 to Epazz, 9,000 to Dr. Passley) and 13,000,000 Preferred Shares (9,000,000 to Epazz, 400,000 to Dr. Passley).
• Capital advance of AED 217,310 (approx. $97,818 CAD) for a residential property in Sharjah, UAE, with legal title temporarily held by Dr. Shaun Passley, who has undertaken to transfer it to the company.

Stakeholder Impact

• **Shareholders:** Experience significant dilution from numerous stock issuances for acquisitions, services, and debt conversions. The widening net loss and negative operating cash flow could negatively impact shareholder value. Concentration of voting power with Dr. Shaun Passley limits influence for other shareholders. Volatility in stock price poses substantial risk.
• **Employees & Contractors:** The company has 17 employees and 115 contractors, indicating a reliance on external workforce. The management services agreement with Epazz provides a software development team and other services, impacting employment structure.
• **Customers:** Benefit from ongoing software upgrades, new product development (drones, quantum computing applications), and expanded service offerings through acquisitions (e.g., land surveying, warehouse management). However, potential product defects or service disruptions could lead to dissatisfaction.
• **Creditors:** The company has significant long-term debt and revolving lines of credit, with some lenders being related parties. The increase in total liabilities and reliance on debt financing indicates higher financial risk for creditors, though available lines of credit provide some comfort.
• **Suppliers:** The company relies on various suppliers for drone components and raw materials, with no long-term agreements, posing risks of supply shortages, price increases, and delivery delays.

Next Steps

• Complete the paid trial with the multinational auto parts manufacturer for the IQ Nano drone and secure purchase orders for multiple sites.
• Continue to sell and secure trials/purchase orders with additional customers for the IQ Nano drone.
• Commence manufacturing operations for commercial US customers at the Phoenix, Arizona 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 to develop additional components and pursue Eastern Asian government customers.
• Develop the technology platform for drone data collection and land survey plotting for the Drone as a Service (DaaS) business.
• Complete negotiations and closings for outstanding Letters of Intent (LOIs) for land survey companies and integrate these businesses.
• Actively research and recruit more land survey companies for the rollup strategy and DaaS business.
• Commence the Quantum Computing Sky Traffic project for traffic management, followed by weather forecasting and wildfire applications.
• Develop workplace management and scheduling applications utilizing Quantum computing within the enterprise SaaS business.
• Conduct demonstrations to potential customers for drone applications.
• Commence testing of agricultural drone spraying once Part 137 approval is obtained from the FAA.
• Apply for Green UAS certification for the IQ Square drone at the beginning of Q3, 2025.
• Apply for Blue UAS certification upon receipt of Green certification for the IQ Square drone.
• Continue collaborating with Suntek Global to build manufacturing expertise for producing and certifying components.
• Prepare internal cybersecurity controls and documentation for Green and Blue UAS applications for all US Military destined drone products.
• Start aerial testing of drones at the Turkey testing site in Q2, with five employees in Turkey.

Key Dates

Recommendation

ZenaTech's financial performance in 2024 shows a significant deterioration, with a substantially widened net loss and increased cash burn from operations. While the company is pursuing strategic acquisitions and drone development, the high reliance on related-party financing, substantial share dilution, and the inherent risks of operating in rapidly evolving and competitive markets, coupled with a limited operating history and lack of consistent profitability, present a highly speculative investment. The extreme stock price volatility and the CEO's concentrated control further amplify risks. A seasoned investor would likely view the current financial trajectory and governance structure as unfavorable, suggesting a 'sell' or 'avoid' stance until there is clear evidence of sustainable profitability and reduced financial risk.

Keywords

Enterprise Software, Drone Technology, SEC Filing, 20-F/A, Financial Results, Acquisitions, Related Party Transactions, Nasdaq Listing, Working Capital, Net Loss, Product Development, Corporate Governance, Risk Factors, ZenaDrone, Cloud Computing, AI, Quantum Computing, Land Surveying, Compliance Software, Warehouse Management, Intellectual Property, Share Dilution, Emerging Markets, Cybersecurity