White Diamond Research has issued a cautious report on ZenaTech Inc. (Nasdaq: ZENA), highlighting potential corporate governance, related-party transaction and shareholder dilution risks.
The research firm’s concerns focus primarily on ZenaTech’s dealings with Epazz Inc. (OTC: EPAZ), a company also controlled by the company’s CEO Dr. Shaun Passley. White Diamond Research points to the difference between the reported carrying value of technology acquired from Epazz and the value of the the company’s shares issued as consideration.
The report also questions the valuation process behind the transaction and warns that ZenaTech’s convertible preferred shares could substantially increase its fully diluted share count.
The claims and calculations presented below are attributed to White Diamond Research and the cited company filings. They should not be interpreted as independent findings of fraud or misconduct.
What Is ZenaTech?
ZenaTech describes itself as a technology company specializing in artificial intelligence-powered drones, enterprise software and related services.
The company has also pursued a series of acquisitions, making it a “roll-up” business that seeks growth by purchasing and combining multiple companies. According to White Diamond Research, ZenaTech does not conduct quarterly earnings calls and reported losses exceeding C$20 million in each of the two most recent quarters covered by the report.
White Diamond argues that the company’s acquisition strategy, operating losses and related-party arrangements warrant closer attention from investors.
ZenaTech’s Relationship With Epazz
The central issue raised in the report concerns the company’s relationship with Epazz, a small over-the-counter-traded company led by Passley.
According to the companies’ disclosures, Epazz provides research and development services to ZenaTech under a 20-year management services agreement. The company’s advances funds to Epazz for development work and may subsequently acquire the technology or products developed through that arrangement.
White Diamond characterizes this structure as potentially requiring ZenaTech shareholders to fund the same development process at two stages:
- ZenaTech advances cash to Epazz to finance research and development.
- The company later issues securities or cancels amounts receivable to acquire the resulting technology.
Although White Diamond describes this as shareholders effectively “paying twice,” the accounting and economic treatment of the transactions depends on the contractual rights, services received, assets transferred and valuation assigned to those assets.
ZenaTech Advanced Approximately C$28.2 Million to Epazz
According to the company’s filing for the quarter ended March 31, 2026, total advances to Epazz for future services amounted to C$28.23 million.
The balance reportedly consisted of:
- C$12.19 million classified as short-term advances
- C$16.04 million classified as long-term advances
ZenaTech stated that the current portion was expected to be provided through Epazz services within 12 months, based on the company’s projected requirements. The long-term portion was expected to be repaid through either services or cash.
White Diamond also cites ZenaTech shareholder materials stating that the advanced funds were restricted for the company’s use and benefit and were being used by Epazz to pay product development costs.
The research firm argues that these disclosures raise an important question for investors: If ZenaTech funded the development work, how should the resulting technology have been valued when it was later transferred back to the company?
Epazz Technology Had a Reported Carrying Value of US$2.36 Million
Epazz’s filing for the quarter ended March 31, 2026, disclosed the transfer of certain capitalized product-development assets to ZenaTech.
Immediately before the transfer, the technology had an unamortized carrying value of approximately US$2.36 million. Epazz reported receiving ZenaTech equity securities with an aggregate fair value of approximately US$46.5 million as consideration.
Based on those figures, the stated value of the shares issued was about 19.7 times the assets’ reported carrying value.
White Diamond identifies this difference as one of its primary concerns. However, carrying value and fair market value are not necessarily equivalent. Internally developed intellectual property may be recorded at a historical accounting cost that does not reflect its potential commercial value.
The more significant issue raised by the report is how the US$46.5 million valuation was determined.
White Diamond Questions the Absence of an Independent Valuation
According to the shareholder circular cited by White Diamond, the transferred assets were priced using an internal determination of value.
White Diamond says it found no independent valuation, third-party fairness opinion or external market-based assessment supporting the transaction price. It also highlights a disclosure stating that the board did not review the agreement with its legal counsel.
Because ZenaTech and Epazz are under common control, White Diamond argues that an independent review would have provided investors with greater assurance that the transaction was conducted on fair terms.
The report further notes that Passley signed on behalf of both parties. Although ZenaTech’s independent directors were identified in the circular and reportedly approved the transaction unanimously, White Diamond maintains that the shared control and internal valuation process create a notable governance risk.
ZenaTech Preferred Shares Could Cause Significant Dilution
White Diamond also warns that ZenaTech’s outstanding preferred shares may produce considerably more dilution than standard market-data share counts indicate.
The company reported approximately C$86.31 million in preferred shares as of March 31, 2026, compared with C$51.81 million at the end of the previous year.
Using the C$3 stated value cited in the company filings, White Diamond calculates that this balance represents approximately 28.77 million preferred shares.
The shareholder circular states that each preferred share may be converted, at the holder’s option, into three ZenaTech common shares with five business days’ notice.
On that basis, the preferred shares could represent approximately 86.31 million additional common-equivalent shares.
Potential Fully Diluted ZenaTech Share Count
ZenaTech reportedly had 88.88 million common shares outstanding in July 2026. Adding the potential common shares associated with the preferred securities would produce an estimated total of approximately 175.19 million common-equivalent shares.
This calculation does not necessarily represent the company’s official fully diluted share count. It also does not establish that all preferred shares will be converted. It does, however, illustrate the potential effect of the conversion rights on per-share valuation.
White Diamond argues that investors relying only on ZenaTech’s currently outstanding common shares could materially overstate the company’s value per share or understate its effective market capitalization on a fully diluted basis.
What the Report Does Not Allege
White Diamond explicitly states that it is not alleging fraud.
The report acknowledges that:
- ZenaTech’s surveying-company acquisitions involve operating businesses acquired from unrelated sellers.
- Those acquisitions were generally completed using cash and seller financing.
- Epazz provides services and maintains employees.
- Company’s independent directors were disclosed and unanimously approved the related-party transaction.
- White Diamond found no adjudicated securities-enforcement action involving the individuals named in the report.
These qualifications are important because governance concerns, aggressive valuations and potential dilution do not, by themselves, establish unlawful conduct.
Key Risks for ZenaTech Investors
The report identifies several issues investors may wish to examine:
- The related-party nature of the ZenaTech–Epazz relationship
- ZenaTech’s funding of development work performed by Epazz
- The difference between the technology’s US$2.36 million carrying value and the US$46.5 million in equity consideration
- The use of an internally determined valuation
- The reported absence of an independent valuation or fairness opinion
- The role of the same controlling individual in both companies
- The potential conversion of preferred shares into approximately 86.31 million common shares
- The effect of that conversion on ZenaTech’s fully diluted valuation
- The company’s recent operating losses and acquisition-led growth strategy
Conclusion: ZenaTech’s Disclosures Merit Close Review
White Diamond Research’s report does not accuse ZenaTech, Epazz or their executives of fraud. Its central argument is that the combination of related-party transactions, internal asset valuation and substantial potential share dilution creates a heightened risk profile.
The difference between an asset’s book value and transaction value is not automatically evidence of overvaluation. Intellectual property can be worth significantly more than its accounting cost. Nevertheless, the lack of an independent valuation or fairness opinion may make it more difficult for outside investors to assess whether the US$46.5 million consideration was reasonable.
The preferred-share structure presents a separate issue. If all eligible preferred shares were converted under the terms described in the circular, ZenaTech’s common-equivalent share count could be nearly twice the reported common share count used by some market-data services.
Investors considering ZENA shares should therefore review the underlying SEC filings, shareholder circular, preferred-share conversion terms and related-party disclosures. They should also consider any response or additional documentation provided by ZenaTech and Epazz before reaching an investment decision.
