The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
NOTES TO FINANCIAL
STATEMENTS
SEPTEMBER
30, 2016
(unaudited)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Grey
Cloak Tech Inc. (the “Company”) was incorporated in the State of Nevada on December 19, 2014. The Company was
formed to engaged in the business of cloud based software to detect advertising fraud on the internet.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10
of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain
all information and footnotes required by accounting principles generally accepted in the United States of America for annual
financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements
contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the
Company as of March 31, 2016 and the results of operations and cash flows for the periods presented. The results of operations
for the three months and nine months ended September 30, 2016 are not necessarily indicative of the operating results for the
full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the
financial statements and related notes thereto included in the Company’s form 10-K for the year ended December 31, 2015
filed with the SEC on March 30, 2016.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Cash
Cash
includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception,
which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant
risk of loss in value.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL
STATEMENTS
September 30,
2016
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Revenue
Recognition
We
recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement;
(2) the product or service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed
or determinable; and (4) the collection of our fees is probable.
The
Company will record revenue when it is realizable and earned and the computer programming services or marketing services have
been rendered to the customers. Additionally, the Company will record revenue from the sale of its software when the software
is delivered to the customer or it will be recognized ratably throughout the term of the contract.
Concentration
One
customer accounted for 100% of total revenue earned during the three and nine months ended September 30, 2016 and 2015. 100% of
the accounts receivable is due from this customer at September 30, 2016 and December 31, 2015.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income
Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for
operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax
rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As of September 30, 2016, the
Company did not have any amounts recorded pertaining to uncertain tax positions.
Fair
Value Measurements
The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines
fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure
of fair value measurements.
The
estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments.
ASC
820 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. 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. 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 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with
the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair
value on a recurring basis.
The
change in Level 3 financial instrument is as follows:
Balance, January 1, 2016
|
|
$
|
—
|
|
Issued during the nine months ended September 30, 2016
|
|
|
611,073
|
|
Change in fair value recognized in operations
|
|
|
1,694
|
|
Converted during the nine months ended September 30, 2016
|
|
|
(367,244
|
)
|
Balance, September 30, 2016
|
|
$
|
245,523
|
|
GREY CLOAK TECH INC.
NOTES TO FINANCIAL
STATEMENTS
September 30,
2016
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “
Derivatives
and Hedging Activities
”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of
convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked
derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any
difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities. During the nine months ending
September 30, 2016, the Company recognized a gain on extinguishment of $5,123 from the conversion of convertible debt with a bifurcated
conversion option.
Common
Stock Purchase Warrants
The
Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash
settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts
are indexed to our own stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). The Company classifies as
assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract
if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement
in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants
and other free standing derivatives at each reporting date to determine whether a change in classification is required.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL
STATEMENTS
September 30,
2016
(unaudited)
NOTE
3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated minimal
revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing
its business plan and incurring start up costs and expenses. As a result, the Company incurred accumulated net losses from Inception
(December 19, 2014) through the period ended September 30, 2016 of $2,066,456. In addition, the Company’s development activities
since inception have been financially sustained through equity financing. Management plans to seek funding through debt and equity
financing.
NOTE
4–RELATED PARTY
For
the three and nine months ended September 30, 2016, the Company had expenses totaling$24,000 and $80,000, respectively, to an
officer and director for salaries, which is included in general and administrative expenses – related party on the accompanying
statement of operations. As of September 30, 2016, there was $0 in accounts payable – related party.
For
the three and nine months ended September 30, 2016, the Company had expenses totaling$20,000 and $55,650 to a company owned by
an officer and director for consulting fees, which is included in general and administrative expenses – related party on
the accompanying statement of operations. As of September 30, 2016, there was $799 in accounts payable – related party.
For
the three and nine months ended September 30, 2015, the Company paid $35,000 and $117,752, respectively, to a an officer and director
and a company owned by the officer and director for consulting fees, which is included in general and administrative expenses
– related party on the accompanying statement of operations.
NOTE
5 – NOTES PAYABLE
On
June 9, 2016, the Company executed a promissory note for $20,000. The loan bears interest at 18% per annum and is due on December
9, 2016. The Company issued 60,000 shares of common stock to the lender as part of this note. The fair value of the shares were
recorded as a debt discount and amortized over the life of the loan.
During
the nine months ended September 30, 2016, the Company recorded interest expense of $907 and amortization of debt discount of $12,579.
NOTE
6 – NOTES PAYABLE – RELATED PARTY
On
July 28, 2016, the Company received a loan of $15,000 from an officer and director of the Company. The loan bears interest at
8% per annum and due the earlier of January 27, 2017 or when the Company receives financing of over $45,000.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL
STATEMENTS
September 30,
2016
(unaudited)
NOTE
7– CONVERTIBLE DEBT
On
January 23, 2016, the Company executed a convertible promissory note for $50,000. The loan had an original issue discount of
$6,000 and legal fees of $1,000. The loan bears interest at 8% per annum and is due on January 23, 2017. The lender has the
right to convert the principal amount and unpaid interest of the loan on or after 180 days to convert at a rate of 56% of the
lowest trading price during the prior 20 days of conversion. On July 21, 2016, the Company allowed the lender to transfer the
principal balance and accrued interest to three entities. The principal balance of the loan was increased to include the
accrued interest to date. Once the lender had the right to convert, the Company recorded a derivative liability. On August
22, 2016, one of the lenders agreed to convert their entire amount of principal and interest of $38,735 into 576,406 shares
of common stock.
On
March 7, 2016, the Company executed a convertible promissory note for $100,000. The loan bears interest at 10% per annum and
is due on December 7, 2016. The lender has the right to convert the principal amount and unpaid interest of the loan at $0.10
per share if the market price is greater than $0.25. If the market price is less than or equal to $0.25 but greater than
$0.10, then the conversion price is $0.05. If the market price is less than or equal to $0.10 then the conversion price is
$0.02. On May 5, 2016, the Company amended the terms of the note and issued 600,000 warrants as part of the loan agreement
which was effective as of March 7, 2016. The Company calculated the debt discount based on the allocated fair value of the
beneficial conversion feature and the fair value of the warrants. The Company recorded a debt discount of $100,000 which was
capped at the principal amount of the loan. On September 30, 2016, the Company received $50,000 from the lender and extension
of the maturity date of the loan and in exchange agreed to modify the conversion rate and the exercise price of the warrants.
The Company agreed to reduce the exercise price of the warrants from $0.80 to $0.10.
On
August 22, 2016, the Company executed a convertible promissory note for up to $300,000 and has received a total of $30,000 with
an original issue discount of $5,000 in the first tranche. The loan bears interest at 8% per annum. The first tranche is due on
August 22, 2017. In the event of default, the interest rate increases to 22% per annum. The lender has the right to convert the
principal amount and unpaid interest of the loan at a rate of 56% of the lowest trading price during the prior 20 days of conversion.
However, if the stock price is below $0.10 then the loan can convert at a rate of 46% of the lowest trading price during the prior
20 days of conversion. Additionally, the Company issued 60,000 warrants as part the convertible promissory note. The warrants
have an exercise price of $0.50 and can be exercised for 5 years. The fair value of the warrants were recorded as a debt discount
and amortized over one year.
On
August 26, 2016, the Company executed a convertible promissory note for $55,000. The loan bears interest at 12% per annum.
The loan is due on May 1, 2017. In the event of default, the interest rate increases to 22% per annum. The lender has the
right to convert the principal amount and unpaid interest of the loan on or after 180 days to convert at a rate of either the
lesser of $0.20 or 50% of the lowest trading price during the prior 20 days of conversion. On September 7, 2016, the Company
and the lender mutually agreed to remove the waiting period on the conversion and the Company recorded a derivative
liability. During the nine months ended September 30, 2016, the lender converted $15,000 plus accrued interest of $69 into
259,484 shares of common stock.
On
September 7, 2016, the Company executed a convertible promissory note for $50,000. The loan bears interest at 12% per annum and
interest payments are due monthly. The loan is due on September 6, 2017. In the event of default, the interest rate increases
to 20% per annum. The lender has the right to convert the principal amount and unpaid interest of the loan on or after 180 days
to convert at a rate of either the lesser of $0.40 or 50% of the lowest trading price during the prior 20 days of conversion.
On
September 22, 2016, the Company executed a convertible promissory note for $5,000. The loan bears interest at 12% per annum. The
loan is due on December 31, 2016. In the event of default, the interest rate increases to 22% per annum. The lender has the right
to convert the principal amount and unpaid interest of the loan on or after 180 days to convert at a rate of either the lesser
of $0.20 or 50% of the lowest trading price during the prior 20 days of conversion.
On
September 22, 2016, the Company executed a convertible promissory note for $5,000. The loan bears interest at 12% per annum. The
loan is due on December 31, 2016. In the event of default, the interest rate increases to 22% per annum. The lender has the right
to convert the principal amount and unpaid interest of the loan on or after 180 days to convert at a rate of either the lesser
of $0.20 or 50% of the lowest trading price during the prior 20 days of conversion.
During
the nine months ended September 30, 2016, the Company recorded interest expense of $4,412 and amortization of debt discount of
$84,645.
The Company has determined that the
conversion feature embedded in the notes referred to above that contain a potential variable conversion amount constitutes a derivative
which has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated
debt.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL
STATEMENTS
September 30,
2016
(unaudited)
NOTE
8– STOCKHOLDERS’ EQUITY
Authorized
Stock
The
Company has authorized 75,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder
to one vote on any matter on which action of the stockholders of the corporation is sought.
Common
Share Issuances
On
January 5, 2016, the Company issued 10,000 shares of common stock to an investor that exercised their warrants for cash totaling
$5,000.
On
February 2, 2016, the Company issued 484,183 shares of common stock for the cashless exercise of 650,000 warrants.
On
April 20, 2016, the Company issued 65,000 shares of common stock to investors that exercised their warrants for cash totaling
$32,500.
On
June 9, 2016, the Company agreed to issue 60,000 shares of common stock to the lender as part of the note payable.
On
August 22, 2016, the Company issued 576,406 shares of common stock for the conversion of debt totaling $38,735 and gain on settlement
of debt of $3,016.
On
September 9, 2016, the Company issued 259,484 shares of common stock for the conversion of debt totaling $15,069.
On
September 30, 2016, the Company issued 469,537 shares of common stock for the cashless exercise of 600,000 warrants with an exercise
price of $0.10.
Warrant
Issuances
On
September 28, 2015, the Company granted 650,000 warrants to an individual for consulting services. The warrants can purchase 650,000
shares of common stock with an exercise price of $0.25 and expire on September 28, 2018. Of the total, 350,000 warrants vest immediately
and the remaining 300,000 warrants will vest 33.33% upon the acquisition of 17 million IP addresses, 33.33% upon the acquisition
of additional 17 million IP addresses and 33.33% upon the acquisition of additional 16 million IP addresses. On February 2, 2016,
the Company agreed to waive the vesting provision and the individual executed a cashless exercise of 650,000 warrants and received
484,183 shares of common stock.
On
March 4, 2016, the Company entered into a consulting services agreement to provide business development services and issued 600,000
warrants. The warrants allow the holder to purchase 600,000 shares of common stock at an exercise price of $0.80 per share and
are exercisable for 2 years. On May 5, 2016, the Company and the consultant agreed to rescind the agreement.
On
August 1, 2016, the Company entered into a consulting services agreement with a third party entity for an indefinite period of
time. The services will continue until either party provides thirty days written notice of termination. The compensation for the
agreement is 6,500,000 cashless exercise warrants. The warrants are exercisable at $0.12 per share and have a life of three years.
The first 500,000 warrants vest immediately and the remaining 6,000,000 warrants vest upon consummation of a transaction as defined
in the agreement, during the term of the consulting agreement or the six month period after the termination.
On
August 22, 2016, the Company granted 60,000 warrants as part of convertible debt. The warrants allow the holder to purchase 60,000
shares of common stock at an exercise price of $0.51 per share and are exercisable for 5 years.
As
of September 30, 2016, there were 12,996,250 warrants outstanding, of which 4,996,250 are fully vested.
NOTE
9– SUBSEQUENT EVENTS
On November 11, 2016, the Company
and its lender agreed to amend the conversion rate and agreed to allow the entire amount of principal and interest into 3,000,000
shares of common stock for the entire amount of principal of $100,000 and accrued interest through the pay off date. The lender
agreed to extend the due date of the loan to March 31, 2017.
On October 5, 2016, the Company executed
a convertible promissory note in the principal amount of $25,000. The loan bears interest at 12% per annum. The loan is due on
December 31, 2016. In the event of default, the interest rate increases to 22% per annum. The lender has the right to convert the
principal amount and unpaid interest of the loan on or after 180 days at a conversion price of the lesser of $0.20 or 50% of the
lowest trading price during the 20 trading days prior to conversion.
On October 26, 2016, the Company received
its second tranche of funds of $30,000 with an original issue discount of $5,000 less legal fees of $2,750. The funds were part
of the convertible promissory note for up to $300,000 dated on August 22, 2016.