UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2018
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____________ to _____________.
Commission file number 000-55572
Grey Cloak Tech Inc.
(Exact name of registrant as specified in its charter)
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Nevada
(State or other jurisdiction of
incorporation or organization)
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47-2594704
(I.R.S. Employer
Identification No.)
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10300 W. Charleston
Las Vegas, NV
(Address of principal executive offices)
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89135
(Zip Code)
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Registrant’s telephone number, including area code (702)
201-6450
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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None |
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None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes
☐ No
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files).
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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Accelerated filer |
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| Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐
No ☒
The aggregate market value of the voting and non-voting common
equity held by non-affiliates as December 18, 2019 was $942,848,
based on the last sale price of $0.03 on June 30, 2019.
As of December 18, 2019, there were 121,610,085[1]
shares of common stock, par value $0.001, issued and
outstanding.
Documents Incorporated by Reference
None.
GREY CLOAK TECH INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
PART I
Cautionary Statement Regarding Forward Looking
Statements
This Annual Report includes forward-looking statements within the
meaning of the Securities Exchange Act of 1934 (the “Exchange
Act”). These statements are based on management’s beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set
forth under the heading “Management’s Discussion and Analysis of
Financial Condition or Plan of Operation.” Forward-looking
statements also include statements in which words such as “expect,”
“anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider”
or similar expressions are used.
Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties and assumptions. The
Company’s future results and shareholder values may differ
materially from those expressed in these forward-looking
statements. Readers are cautioned not to put undue reliance on any
forward-looking statements.
ITEM 1 – BUSINESS
Corporate History
We were incorporated on December 19, 2014 in the State of Nevada.
Historically, we provided cloud based software to detect
advertising fraud on the internet. We abandoned this business in
early 2018.
On October 17, 2017, we acquired Eqova Life Sciences, a Nevada
corporation (“Eqova”). Eqova is a wholly-owned subsidiary through
which we conduct our hemp oil product business.
On February 4, 2019, we acquired BergaMet NA, LLC, a Delaware
limited liability company (“BergaMet”). BergaMet is a wholly-owned
subsidiary through which we conduct our nutraceuticals
business.
Overview
Beginning with the acquisition of Eqova, we began to transition
away from our software services business and shifted our focus to
new lines of business. Eqova is focused on the production and sale
of hemp oil products through the medical practitioner market.
The addition of BergaMet, an established company that was already
generating revenues when we acquired it, has added unique products
that will fit nicely with our existing business. We now plan on
expanding our product line to other nutraceuticals.
Eqova Life Sciences
On October 17, 2017, we acquired Eqova through an exchange of
shares of our Series A Convertible Preferred Stock for all of the
outstanding equity interest of Eqova.
Eqova is a medically-focused CBD company that develops clinical
grade full spectrum hemp oil products, sold exclusively via
partnerships with licensed medical practitioners to use with their
patients.
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common
stock for all of the outstanding equity securities of BergaMet.
Through the exchange, we were able to secure funds in BergaMet to
pay off debt and provide capital for operations. We paid an
aggregate of $353,908 and will pay another $164,578 in
approximately one (1) year to retire convertible debt. Prior to the
exchange, we also entered into agreements with other holders of
convertible debt to convert their notes for an aggregate of 806,015
shares of common stock. We also entered into conversion agreements
with the holders of our Series A Convertible Preferred Stock
whereby all of the outstanding preferred stock was converted for an
aggregate of 15,592,986 shares of common stock. The conversion and
repayment of the preferred stock and convertible debt have greatly
improved our capitalization structure.
The acquisition of BergaMet has been extremely beneficial to us. In
addition to paying off our convertible debt, we are now able to
better position ourselves in the market. BergaMet is an established
company that was already generating revenues when we acquired it.
BergaMet also has unique products that will fit nicely with our
existing business. We now plan on expanding our product line to
other nutraceuticals.
Discontinued Software Enterprise Platform Services
Our prior business, until discontinued, was providing software
enterprise platform services. During the year ended December 31,
2017, we sold and marketed a cloud based software to detect
advertising fraud on the internet. We had revenues of approximately
$128,105 in the year ended December 31, 2017, 100% of which was for
these software services and came from a single customer, Take5. In
March 2018, we received the last payment from this customer, and
discontinued this business to shift our focus solely to sales of
our hemp oil and nutraceutical products.
The Market
Bergamot
BergaMet, LLC holds the rights to distribute BergaMet products in
the United States and Mexico.
Bergamot, or citrus bergamia, is a
rare citrus fruit native to the Calabrian region of Southern Italy.
Due to sensitivity to the weather and soil conditions, this region
accounts for 80 percent of the worldwide production of bergamot.
This superfruit has been used for decades in the Calabrian regions
for its beneficial effects in promoting overall health -
particularly, in support of cholesterol, cardiovascular, and
metabolic health[2].
Citrus bergamot contains five unique antioxidant polyphenols in
unusually concentrated amounts, which help protect your body’s
trillions of cells from free radical damage. The juice and
albedo of bergamot has a unique profile of flavanoid and
glycosides, such as neoeriocitrin, neohesperidin, naringin, rutin,
neodesmin, rhoifolin, and poncirin. Naringin has been shown to be
beneficial in animal models of atherosclerosis, while neoeriocitrin
and rutin have been found to exhibit a strong capacity to prevent
LDL from oxidation. Importantly, bergamot juice is rich in
brutieridine and melitidine with an ability to inhibit HMG-CoA
reductase, which inhibits the liver’s ability to produce LDL,
resulting in reduced cholesterol levels in liver cells.
[2] These statements have not been evaluated by
the Food and Drug Administration. These products are not intended
to diagnose, treat, cure, or prevent any disease.
BergaMet sells its bergamot products in capsule form on its website
and on distribution sites such as Amazon.
Hemp Oil and CBD Market
Eqova and our hemp oil products are tailored primarily to the
medical practitioner market. We believe this market is underserved
and that other companies are unable to provide products that match
the quality and consistent servings/dosage of our products.
Bergamot Products
Our bergamot products are sold in capsule form under the following
product labels:
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BergaMet Cholesterol Command |
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BergaMet Ultimate Femme |
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BergaMet Ultimate Sport |
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BergaMet Ultimate Memory |
Hemp Oil Products
Eqova develops clinical grade hemp oil products, sold primarily to
licensed medical practitioners for use with their patients.
We produce and offer the following products:
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CannaBio Salve – most often used to
provide relief to tight or sore muscles and minor skin irritations,
this product contains full spectrum hemp oil, menthol and essential
oils. |
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CannaBio x25 (gel cap and liquid) –
provides a daily serving of full spectrum hemp oil and often used
to target patients’ GI tract. |
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CannaBio MuscleCalm – a topical rub
with soothing amounts of menthol, most often used to provide relief
to tight or sore muscles. |
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CannaBio Optimized – a liquid
liposomal full spectrum hemp oil product designed to be fat soluble
for a high degree of bioavailability. |
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CannaBio Pets – designed and
marketed to provide relief to anxious, aging or inflamed
pets.[3] |
Eqova’s products are created using full spectrum hemp oil and other
ingredients to achieve standardized dosing. These formulations
combine the powerful benefits of cannabinoids in standardized
products, which are intended to be distributed to patients under
the care of licensed health practitioners. All Eqova products are
carefully researched. We require our manufacturers to make our
products in cGMP-compliant labs located in the United States.
[3] These statements have not been evaluated by
the Food and Drug Administration. These products are not intended
to diagnose, treat, cure, or prevent any disease.
Patents and Intellectual Property Rights
We have not filed for any intellectual property protection.
However, we rely on intellectual property law that may include a
combination of copyright, trade secret and confidentiality
agreements to protect our intellectual property. Our employees and
independent contractors will be required to sign agreements
acknowledging that all inventions, trade secrets, works of
authorship, developments and other processes generated by them on
our behalf are our property, and assigning to us any ownership that
they may claim in those works. Despite our precautions, it may be
possible for third parties to obtain and use without consent
intellectual property that we own. Unauthorized use of our
intellectual property by third parties, and the expenses incurred
in protecting our intellectual property rights, may adversely
affect our business.
From time to time, we may encounter disputes over rights and
obligations concerning intellectual property. While we believe that
our product and service offerings do not infringe the intellectual
property rights of any third party, we cannot assure you that we
will prevail in any intellectual property dispute. If we do not
prevail in such disputes, we may lose some or all of our
intellectual property protection, be enjoined from further sales of
the applications determined to infringe the rights of others,
and/or be forced to pay substantial royalties to a third party.
Governmental Controls, Approval and Licensing
Requirements
Federal laws related to the advertising, distribution and sale
of health supplements.
We expect that the formulation, manufacturing, packaging, labeling,
advertising, distribution and sale (hereafter, “sale” or “sold” may
be used to signify all of these activities) of our vitamin and
nutritional supplement products will be subject to regulation by
one or more federal agencies, primarily the Food and Drug
Administration (“FDA”) and the Federal Trade Commission (“FTC”),
and to a lesser extent the Consumer Product Safety Commission
(“CPSC”), the United States Department of Agriculture, and the
Environmental Protection Agency. Our activities are also regulated
by various governmental agencies for the states and localities in
which our products are sold, as well as by governmental agencies in
certain countries outside the United States in which our products
are sold. Among other matters, regulation by the FDA and the FTC is
concerned with product safety and claims made with respect to a
product’s ability to provide health-related benefits. Specifically,
the FDA, under the Federal Food, Drug, and Cosmetic Act (“FDCA”),
regulates the formulation, manufacturing, packaging, labeling,
distribution, and sale of food, including dietary supplements and
over-the-counter (“OTC”) drugs. The FTC regulates the advertising
of these products. The National Advertising Division (“NAD”) of the
Council of Better Business Bureaus oversees an industry-sponsored,
self-regulatory system that permits competitors to resolve disputes
over advertising claims. The NAD has no enforcement authority of
its own, but may refer matters that appear to violate the FTC Act
or the FDCA to the FTC or the FDA for further action, as
appropriate.
Most of the nutritional supplement products that we plan to sell
are classified as dietary supplements. The FDA’s revision of
nutrition labeling requirements also affects the nutrition labeling
of certain dietary supplements. Our affected manufacturers
may have to revise labels on some of their dietary supplements in
the next two years. Moreover, these manufacturers may need to
reformulate their products to maintain eligibility for certain
marketing claims.
The Dietary Supplement Health and Education Act (“DSHEA”) was
enacted in 1994, amending the FDCA. Among other things, DSHEA
prevents the FDA from regulating dietary ingredients in dietary
supplements as “food additives” and allows the use of statements of
nutritional support on product labels and in labeling. DSHEA
establishes a statutory class of “dietary supplements,” which
includes vitamins, minerals, herbs, amino acids and other dietary
ingredients for human use to supplement the diet. Dietary
ingredients marketed in the United States before October 15,
1994 may be marketed without the submission of a “new dietary
ingredient” (“NDI”) premarket notification to the FDA. Dietary
ingredients not marketed in the United States before
October 15, 1994 may require the submission, at least
75 days before marketing, of an NDI notification containing
information establishing that the ingredient is reasonably expected
to be safe for its intended use. The FDA has issued final
regulations under DSHEA.
As required by Section 113(b) of the Food Safety Modernization
Act, the FDA published in July 2011 a draft guidance document
clarifying when the FDA believes a dietary ingredient is an NDI,
when a manufacturer or distributor must submit an NDI premarket
notification to the FDA, the evidence necessary to document the
safety of an NDI and the methods for establishing the identity of
an NDI. Industry strongly objected to several aspects of the draft
guidance. In 2016, the FDA issued revised draft guidance on what
constitutes an NDI and NDI notification requirements. Regardless of
whether the FDA finalizes this draft guidance, the FDA has recently
acted more aggressively to remove ingredients from the market that
the FDA views as unlawful dietary ingredients. This trend, if it
continues, may limit the dietary supplement market. Several bills
to amend DSHEA in ways that would make this law less favorable to
consumers and industry have been proposed in Congress.
The FDA issued a Final Rule on GMPs for dietary supplements on
June 22, 2007. The GMPs cover manufacturers and holders of
finished dietary supplement products, including dietary supplement
products manufactured outside the United States that are imported
for sale into the United States. Among other things, the new GMPs:
(a) require identity testing on all incoming dietary
ingredients, (b) call for a “scientifically valid system” for
ensuring finished products meet all specifications,
(c) include requirements related to process controls,
including statistical sampling of finished batches for testing and
requirements for written procedures and (d) require extensive
recordkeeping. We have reviewed the GMPs and have taken steps to
ensure compliance. While we believe we are in compliance, there can
be no assurance that our operations or those of our suppliers will
be in compliance in all respects at all times. Additionally, there
is a potential risk of increased audits as the FDA and other
regulators seek to ensure compliance with the GMPs.
On December 22, 2006, Congress passed the Dietary Supplement and
Nonprescription Drug Consumer Protection Act, which went into
effect on December 22, 2007. The law requires, among other
things, that companies that manufacture or distribute
nonprescription drugs or dietary supplements report serious adverse
events allegedly associated with their products to the FDA and
institute recordkeeping requirements for all adverse events
(serious and non-serious). There is a risk that consumers, the
press and government regulators could misinterpret reported serious
adverse events as evidence of causation by the ingredient or
product complained of, which could lead to additional regulations,
banned ingredients or products, increased insurance costs and a
potential increase in product liability litigation, among other
things.
All states regulate foods and drugs under laws that generally
parallel federal statutes. We are also subject to state consumer
health and safety regulations, such as the California Safe Drinking
Water and Toxic Enforcement Act of 1986 (“Proposition 65”).
Violation of Proposition 65 may result in substantial monetary
penalties and compliance with Proposition 65 is a major focus.
Contemplated changes in the Proposition 65 labeling requirements
could potentially lead to substantial costs. Current legislation in
Massachusetts regarding restrictions on weight loss and sports
nutrition products could also impact the marketing of dietary
supplements generally. Further, state attorneys general have
pressured industry to adopt DNA testing for herbal-based products
to assure plant identity, and have taken other actions relating to
dietary ingredient status. It is uncertain whether these efforts
will have a material impact on the dietary supplement market.
Hemp Oil Products
A major obstacle to our growth is the public perception that hemp
and marijuana are the same thing. This perception drives much of
the regulation of hemp products. Although hemp and marijuana are
both part of the cannabis family, they differ in cultivation,
function, and application. Despite the use of marijuana becoming
more widely legalized, it is viewed by many regulators and many
others as an illegal product. Hemp, on the other hand, is used in a
variety of other ways that include clothing, skin products, pet
products, dietary supplements (the use of CBD oil), and thousands
of other applications. Hemp may be legally sold, however the
inability of many to understand the difference between hemp and
marijuana often causes burdensome regulation and confusion among
potential customers. Therefore, we are affected by laws related to
cannabis and marijuana, even though our products are not the direct
targets of these laws.
Cannabis is currently a Schedule I controlled substance under
the Controlled Substance Act (“CSA”) and is, therefore, illegal
under federal law. Even in those states in which the use
of cannabis has been legalized pursuant to state law, its
use, possession and/or cultivation remains a violation of federal
law. A Schedule I controlled substance is defined as one that has
no currently accepted medical use in the United States, a lack of
safety for use under medical supervision and a high potential for
abuse. The U.S. Department of Justice (the “DOJ”) describes
Schedule I controlled substances as “the most dangerous drugs of
all the drug schedules with potentially severe psychological or
physical dependence.” If the federal government decides to enforce
the CSA in Colorado with respect to
state-regulated cannabis activities in Colorado and other
states, persons that are charged with distributing, possessing with
intent to distribute or growing cannabis could be subject
to fines and/or terms of imprisonment, the maximum being life
imprisonment and a $50 million fine.
Notwithstanding the CSA, thirty-three (33) U.S. states, the
District of Columbia and the U.S. territories of Guam and Puerto
Rico allow their residents to use medical cannabis. Ten (10)
of these states and the District of Columbia have legalized
cannabis/marijuana for adult recreational use. Such state and
territorial laws are in conflict with the federal CSA, which
makes cannabis use and possession illegal at the federal
level.
Local, state, federal, and international hemp and
cannabis/marijuana laws and regulations are broad in scope and
subject to evolving interpretations, which could require us to
incur substantial costs associated with compliance requirements. In
addition, violations of these laws, or allegations of such
violations, could disrupt our business and result in a material
adverse effect on our operations. In addition, it is possible that
cannabinoid-related regulations may be enacted in the future that
will be directly applicable to our business. It is also possible
that the federal government will begin strictly enforcing existing
laws, which may limit the legal uses of the hemp plant and its
derivatives and extracts, such as cannabinoids. However, our work
in hemp would continue since hemp research, development, and
commercialization activities are permitted under applicable federal
and state laws, rules, and regulations. Until Congress amends the
CSA or the executive branch deschedules or reschedules cannabis
under it, there is a risk that federal authorities may enforce
current federal law. Enforcement of the CSA by federal authorities
could impair our revenue and profit, and it could even force us to
cease manufacturing our products. The risk of strict federal
enforcement of the CSA in light of congressional activity, judicial
holdings, and stated federal policy, including enforcement
priorities, remains uncertain.
Until such time as the federal government reclassifies marijuana
from a Schedule 1 narcotic, we do not intend to pursue any
involvement in the marijuana business. At this time, we intend to
continue only in the federally legal hemp product business. When
Congress approved the 2018 Farm Bill, it defined hemp as an
agricultural product and differentiated it from marijuana. This
means hemp is not a controlled substance, and may be more broadly
cultivated. Hemp-derived products may now be transferred across
state lines for commercial purposes. The new law also allows for
the sale, transport, or possession of hemp-derived products, so
long as those items are produced in a manner consistent with the
law. There are several restrictions that apply to those who
cultivate hemp and produce hemp-derived products. Key among these
restrictions is that hemp cannot contain more than 0.3 percent
THC.
While the 2018 Farm Bill legalized the cultivation of hemp and
removed hemp-derived substances from Schedule 1 of the CSA, it does
not legalize CBD generally. The FDA and DOJ continue to exercise
control over CBD and there is still some lack of clarity as to
exactly how CBD will be regulated going forward.
CBD has been deemed relatively safe and, from now on, should not be
subject to international illicit drug scheduling according to a
World Health Organization (“WHO”) comprehensive review published in
July 2018. The WHO has formally submitted its conclusion to United
Nations Secretary-General António Guterres, a prelude to this
officially becoming the case.
On June 25, 2018, the U.S. Food and Drug Administration (“FDA”)
approved CBD-based Epidiolex to treat severe forms of epilepsy.
This marked the groundbreaking admission by the FDA that cannabis
has medical value. On October 1, 2018, the DOJ placed “FDA-approved
drugs that contain CBD derived from cannabis and no more than 0.1
percent THC” to Schedule 5 of the CSA. This action is narrowly
tailored to reschedule Epidiolex off of Schedule 1 because the
DOJ’s ability to remove all restrictions from cannabis extracts,
including CDB, is restricted by the Single Convention on Narcotic
Drugs, 1961.
Competition
Nutritional Supplements
We compete with other manufacturers, distributors and marketers of
vitamins, minerals, herbs, and other nutritional supplements both
within and outside the U.S. The nutritional supplement industry is
highly fragmented and competition for the sale of nutritional
supplements comes from many sources. These products are sold
primarily through retailers (drug store chains, supermarkets, and
mass market discount retailers), health and natural food stores,
and direct sales channels (network marketing and internet
sales).
The nutritional supplement industry is highly competitive and we
expect the level of competition to remain high over the near term.
We do not believe it is possible to accurately estimate the total
number or size of our competitors. The nutritional supplement
industry has undergone consolidation in the recent past and we
expect that trend may continue in the near term.
Hemp Oil Products
Currently, we face competition from a number of other companies
providing hemp-based products. We expect that many other companies
will recognize the market potential of hemp products and enter into
the marketplace as competitors. As states continue to legalize
marijuana and the public gains a better understanding of hemp
products, we expect many new companies will enter into the hemp
business in the near future.
There are many wholesalers and retailers of CBD oil. However, we
believe we can continue to distinguish ourselves by targeting the
medical practitioner market and providing high-quality products
with consistently reliable dosage.
Employees
As of the date hereof, we do not have any employees other than our
officers and directors. Our officers and directors will continue to
work for us for the foreseeable future. We anticipate hiring
appropriate personnel on an as-needed basis, and utilizing the
services of independent contractors as needed.
ITEM 1A. – RISK FACTORS.
As a smaller reporting company we are not required to provide a
statement of risk factors. Nonetheless, we are voluntarily
providing risk factors herein.
Any investment in our common stock involves a high degree of risk.
You should consider carefully the following information, together
with the other information contained in this Annual Report, before
you decide to buy our common stock. If one or more of the following
events actually occurs, our business will suffer, and as a result
our financial condition or results of operations will be adversely
affected. In this case, the market price, if any, of our common
stock could decline, and you could lose all or part of your
investment in our common stock.
We are providing services to an industry that is heavily regulated
and, in some respects, illegal under federal law and the laws of
most states. We face risks in developing our product candidates and
services and eventually bringing them to market. We also face risks
that our business model may become obsolete. The following risks
are material risks that we face. If any of these risks occur, our
business, our ability to achieve revenues, our operating results
and our financial condition could be seriously harmed.
Risk Factors Related to the Business of the Company
We have a limited operating history, we are not profitable,
and we do not expect to be profitable in the near future. There is
no assurance our future operations will result in revenues
sufficient to obtain or sustain profitability. If we cannot
generate sufficient revenues to operate profitably, we may suspend
or cease operations.
We were incorporated on December 19, 2014 and we have not fully
developed our proposed business operations and have not yet
experienced significant revenue. We have a limited operating
history upon which an evaluation of our future success or failure
can be made, and we recently shifted focus to a new line of
business with the acquisition of Eqova and again with the
acquisition of BergaMet. Our ability to continue as a going concern
is dependent upon our ability to obtain adequate financing and to
reach profitable levels of operations. In that regard we have no
proven history of performance, earnings or success.
Our net loss from inception to December 31, 2018, was $10,170,917,
of which most is due to interest expense, change in value of
derivative instruments and professional fees in connection with our
formation and initial stock offering. Based on our cash position of
$485 as of December 31, 2018, we will need to raise additional
capital from the sale of our stock or debt. Such funding may not be
available, or may be available only on terms which are not
beneficial and/or acceptable to us.
Our ability to maintain profitability and positive cash flow is
dependent upon our ability to attract new customers who will buy
our products and services, and our ability to generate sufficient
revenue through the sale of those products and services.
Based upon current plans, we expect to incur operating losses in
future periods because we will be incurring expenses that may
exceed revenues. We cannot guarantee that we will be successful in
generating sufficient revenues in the future. In the event we
cannot generate sufficient revenues and/or secure additional
financing, we may be forced to cease operations.
Negative press from being in the hemp/cannabis space
could have a material adverse effect on our business, financial
condition, and results of operations.
The hemp plant and the cannabis/marijuana plant are both part of
the same cannabis sativagenus/species of plant, except that
hemp, by definition, has less than 0.3% tetrahydrocannabinol
(“THC”) content and is legal under federal and state laws, but the
same plant with a higher THC content is cannabis/marijuana, which
is legal under certain state laws, but which is not legal under
federal law. The similarities between these plants can cause
confusion, and our activities with legal hemp may be
incorrectly perceived as us being involved in federally illegal
cannabis/marijuana. Also, despite growing support for the
cannabis/marijuana industry and legalization of cannabis/marijuana
in certain U.S. states, many individuals and businesses remain
opposed to the cannabis/marijuana industry. Any negative press
resulting from any incorrect perception that we have entered into
the cannabis/marijuana space could result in a loss of current or
future business. It could also adversely affect the public’s
perception of us and lead to reluctance by new parties to do
business with us or to own our common stock. We cannot assure you
that additional business partners, including but not limited to
financial institutions and customers, will not attempt to end or
curtail their relationships with us. Any such negative press or
cessation of business could have a material adverse effect on our
business, financial condition, and results of operations.
Any business-related cannabinoid production is dependent on
laws pertaining to the hemp/cannabis industry.
Currently, there are (i) 46 states in the United States and the
District of Columbia that have legalized hemp, (ii) 33 states
and the District of Columbia that allow their citizens to use
medical cannabis/marijuana and, (iii) 10 states and the District of
Columbia that have legalized cannabis/marijuana for adult
recreational use. Many other states are considering similar
legislation. Conversely, under the federal Controlled Substance Act
(the “CSA”), the policies and regulations of the federal government
and its agencies are that cannabis/marijuana has no medical benefit
and a range of activities are prohibited, including cultivation,
possession, personal use, and interstate distribution of
cannabis/marijuana. In the event the U.S. Department of Justice
(the “DOJ”) begins strict enforcement of the CSA in states that
have laws legalizing medical and/or adult recreational
cannabis/marijuana, there may be a direct and adverse impact to any
future business or prospects that we may have in the
cannabis/marijuana business. Even in those jurisdictions in which
the manufacture and use of medical cannabis/marijuana has been
legalized at the state level, the possession, use, and cultivation
of cannabis/marijuana all remain violations of federal law that are
punishable by imprisonment and substantial fines. Moreover,
individuals and entities may violate federal law if they
intentionally aid and abet another in violating these federal
controlled substance laws, or conspire with another to violate
them.
For example, the California Bureau of Cannabis Control sent 900
warning letters to marijuana shops suspected of operating without a
state license. The Bureau also issued a cease-and-desist letter to
the operator of an online directory of marijuana dispensaries,
products and delivery services. The letter threatened fines and
criminal penalties if the company did not remove the listings for
unlicensed marijuana businesses. Likewise, if we unknowingly do
business with unlicensed entities or list them on our website, we
may be subject to similar regulatory action that would halt our
operations and affect our financial performance.
Local, state, federal, and international hemp and
cannabis/marijuana laws and regulations are broad in scope and
subject to evolving interpretations, which could require us to
incur substantial costs associated with compliance requirements. In
addition, violations of these laws, or allegations of such
violations, could disrupt our business and result in a material
adverse effect on our operations. In addition, it is possible that
cannabinoid-related regulations may be enacted in the future that
will be directly applicable to our business. It is also possible
that the federal government will begin strictly enforcing existing
laws, which may limit the legal uses of the hemp plant
and its derivatives and extracts, such as cannabinoids. However,
our work in hemp would continue
since hemp research, development, and commercialization
activities are permitted under applicable federal and state laws,
rules, and regulations. We cannot predict the nature of any future
laws, regulations, interpretations, or applications, nor can we
determine what effect additional governmental regulations or
administrative policies and procedures, when and if promulgated,
could have on our activities in the
legal hemp industry.
Our competitors may develop products that are less
expensive, safer or otherwise more appealing, which may diminish or
eliminate the commercial success of any potential product that we
may commercialize.
If our competitors market products that are less expensive, safer
or otherwise more appealing than our potential products, or that
reach the market before our potential products, we may not achieve
commercial success. The market may choose to continue utilizing
existing products for any number of reasons, including familiarity
with or pricing of these existing products. The failure of any of
our products to compete with products marketed by our competitors
would impair our ability to generate revenue, which would have a
material adverse effect on our future business, financial
condition, results of operations, and cash flows. Our competitors
may:
|
· |
develop and market products that
are less expensive, safer, or otherwise more appealing than our
products; |
|
· |
commercialize competing products
before we or our partners can launch our products; and |
|
· |
initiate or withstand substantial
price competition more successfully than we can. |
In addition, several websites compete with our CBD.co website. Many
of these other websites have been around longer than CBD.co and
have much higher traffic than CBD.co. Developing a website is
relatively inexpensive compared to other business ventures and we
may face substantial competition from established websites and
other nascent online CBD market platforms. If we are unable to
develop CBD.co to rank higher in search results, to be more user
friendly and to provide better information and products than our
competitors, we may not be able to attract sufficient traffic to
achieve significant revenue through product sales or advertising on
CBD.co.
Our CBD products have high costs and could hurt our
profitability.
The production of CBD products is expensive. The uncertain
regulatory environment and lack of established producers and
manufacturers of CBD and CBD products can make it difficult to find
CBD at reasonable prices. This industry differs from our software
services that we have provided in the past, and the margins are not
comparable. If we are not able to manage the costs and find
affordable sources of CBD, our results of operations will be
adversely affected.
Because our officers and directors have other outside
business activities and will have limited time to spend on our
business, our operations may be sporadic, which may result in
periodic interruptions or suspensions of operations.
Because our officers and directors have other outside business
activities and will only be devoting between 20-75% of their time,
or 8-30 hours per week each, to our operations, our operations may
be sporadic and occur at times which are convenient for them. These
outside interests may deter from our development. In the event they
are unable to fulfill any aspect of their duties, we may experience
a shortfall or complete lack of sales resulting in little or no
profits and eventual closure of the business.
Our auditors have substantial doubt about our ability to
continue as a going concern.
Our financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Our
auditor’s report reflects that our ability to continue as a going
concern is dependent upon our ability to raise additional capital
from the sale of common stock and, ultimately, the achievement of
significant operating revenues. If we are unable to continue as a
going concern, our stockholders will lose their investment. We will
be required to seek additional capital to fund future growth and
expansion. No assurance can be given that such financing will be
available or, if available, that it will be on commercially
favorable terms. Moreover, favorable financing may be dilutive to
our stockholders.
Our controlling stockholders have significant influence over
the Company.
Our officers and directors own stock representing approximately 34%
of shareholder votes. As a result they will possess a significant
influence over our affairs and may have the effect of delaying or
preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or
discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the company, which in
turn could materially and adversely affect the market price of our
common stock. Our minority shareholders will be unable to affect
the outcome of stockholder voting as long as our officers and
directors retain a controlling interest.
Our current officers and directors may set salaries and
perquisites in the future which we are unable to support with our
current assets.
Although our officers and directors have written employment or
services agreements, our officers and directors may decide to award
themselves higher salaries and other benefits. We do not have
significant revenues, and there is no guarantee that we will have
significant revenue in the near future. If we do not increase our
revenues, we will be unable to support any higher salaries or other
benefits for management, which may cause us to cease
operations.
We may engage in strategic transactions that fail to enhance
stockholder value.
From time to time, we may consider possible strategic transactions,
including the potential acquisitions or licensing of products or
technologies or acquisition of companies, and other alternatives
with the goal of maximizing stockholder value. We may never
complete a strategic transaction, and in the event that we do
complete a strategic transaction, such as the acquisition of
ShareRails, implementation of such transactions may impair
stockholder value or otherwise adversely affect our business. Any
such transaction may require us to incur non-recurring or other
charges and may pose significant integration challenges and/or
management and business disruptions, any of which could harm our
results of operation and business prospects.
We may not be able to gain or sustain market acceptance for
our products and services.
Failure to establish a brand and presence in the marketplace on a
timely basis could adversely affect our financial condition and
results of operations. Moreover, there can be no assurance that we
will successfully complete our development and introduction of new
products and services or that any such products and services will
achieve acceptance in the marketplace. We may also fail to develop
and deploy new products and services on a timely basis.
The market for products and services in the hemp oil business
is highly competitive, and we may not be able to compete
successfully.
The market for our hemp oil products is competitive and evolving.
There is no material aspect of our business that is protected by
patents, copyrights, trademarks, or trade names, and we face strong
competition from larger companies that may offer similar products
and services to ours. Many of our current and potential competitors
have longer operating histories, significantly greater financial,
marketing and other resources and larger client bases than us, and
there can be no assurance that we will be able to successfully
compete against these or other competitors.
Some of our competitors are vertically integrated with their supply
chain and can grow, process and market their own products. This may
give them more control over pricing and their final products. Some
of them also have been mentioned in the national news, have doctor
endorsements and a brand presence that we cannot match at this
time.
Given the rapid changes affecting the global, national, and
regional economies generally and the medical marijuana and
recreational marijuana industries, in particular, we may not be
able to create and maintain a competitive advantage in the
marketplace. Our success will depend on our ability to keep pace
with any changes in our markets, particularly, legal and regulatory
changes. Our success will also depend on our ability to respond to,
among other things, changes in the economy, market conditions, and
competitive pressures. Any failure by us to anticipate or respond
adequately to such changes could have a material adverse effect on
our financial condition and results of operations.
We have incurred costs in completing the transactions with
Eqova Life Sciences and BergaMet, and failure to successfully
integrate those businesses into each other and with our own will
have an adverse impact on our financial position and prevent us
from obtaining the benefits that the transaction would have given
us.
We have recently completed our acquisitions of Eqova and BergaMet.
Our executives have spent considerable time and incurred legal and
accounting costs in the acquisitions. If we are unable to fully
integrate those businesses into our business or maintain their
existing customer base, we will not be able to acquire the
technologies, partnerships and potential customers that the
transaction was intended given us. The increase in acquisition and
integration costs without the corresponding benefit will have an
adverse impact on our financial statements and foreclose potential
revenue-producing opportunities in the near future.
Our success is highly dependent on our ability to penetrate
the market for hemp oil products as well as the growth and
expansion of that market.
The market for hemp oil products and related services like ours is
relatively new, rapidly evolving and unproven. It is difficult to
predict customer adoption and renewal rates, customer demand for
our products, the size, growth rate and expansion of these markets,
the entry of competitive products or the success of existing
competitive products. Our ability to penetrate the existing market
and any expansion of the emerging market depends on a number of
factors, including the cost, performance and perceived value
associated with our product, as well as customers’ willingness to
adopt new products. Furthermore, many potential customers have made
significant investments in other products and may be unwilling to
invest in our products. If we are unable to compete and sell our
products, our business, results of operations and financial
condition would be adversely affected.
Our success depends on our ability to sell our products and
establish relationships with medical practitioners.
We need to establish sales partners with medical practitioners and
resellers. To the extent we do identify such partners, we will need
to negotiate the terms of a commercial agreement with them under
which the partner would distribute our products. We cannot be
certain that we will be able to negotiate commercially-attractive
terms with any partner, if at all, or convince them of the benefits
our products provide. There can be no assurance that our sales
partners will comply with the terms of our commercial agreements
with them or will continue to work with us when our commercial
agreements with them expire or are up for renewal. If we are unable
to maintain our relationships with these partners, or these
partners fail to live up to their contractual obligations, our
business, results of operations and financial condition could be
harmed.
Economic uncertainties or downturns could materially
adversely affect our business.
Current or future economic uncertainties or downturns could
adversely affect our business and results of operations. Negative
conditions in the general economy including conditions resulting
from changes in gross domestic product growth, the continued
sovereign debt crisis, financial and credit market fluctuations,
political deadlock, natural catastrophes, warfare and terrorist
attacks on the United States, Europe, the Asia Pacific region or
elsewhere, could cause a decrease in business investments.
General worldwide economic conditions have experienced a
significant downturn and continue to remain unstable. These
conditions make it extremely difficult for us to forecast and plan
future business activities accurately, and they could cause our
potential customers to reevaluate their decisions to purchase our
product, which could delay and lengthen our sales cycles or result
in cancellations of planned purchases. Furthermore, during
challenging economic times our potential customers may tighten
their advertising budgets which may impact their spend on local
inventory based digital marketing products. To the extent purchases
of our products are perceived by potential customers to be
discretionary, sales of our products may never occur. Also,
customers may choose to seek other methods to achieve the benefits
our products provide.
We cannot predict the timing, strength or duration of any economic
slowdown, instability or recovery, generally or within any
particular industry. If the economic conditions of the general
economy or industries in which we operate do not improve, or worsen
from present levels, our business, results of operations, financial
condition and cash flows could be adversely affected.
We are dependent on the services of key personnel and failure
to attract qualified management could limit our growth and
negatively impact our results of operations.
We are highly dependent on the principal members of our management
team, including our President, Kevin “Duke” Pitts, and our Chief
Financial Officer, William Bossung. At this time, we do not know of
the availability of such experienced management personnel or how
much it may cost to attract and retain such personnel. The loss of
the services of any member of senior management or the inability to
hire experienced technical or programing personnel could have a
material adverse effect on our financial condition and results of
operations.
Other companies may claim that we have infringed upon their
intellectual property or proprietary rights.
We do not believe that our products and services violate
third-party intellectual property rights; however, we have not had
an independent party conduct a study of possible patent
infringements. Nevertheless, we cannot guarantee that claims
relating to violation of such rights will not be asserted by third
parties. If any of our products or services are found to violate
third-party intellectual property rights, we may be required to
expend significant funds to re-engineer or cause to be
re-engineered one or more of those products or services to avoid
infringement, or seek to obtain licenses from third parties to
continue offering our products and services without substantial
re-engineering, and such efforts may not be successful.
In addition, future patents may be issued to third parties upon
which our products and services may infringe. We may incur
substantial costs in defending against claims under any such
patents. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief, which effectively
could block our ability to further develop or commercialize some or
all of our products or services in the United States or abroad, and
could result in the award of substantial damages against us. In the
event of a claim of infringement, we may be required to obtain one
or more licenses from third parties. There can be no assurance that
we will be able to obtain such licenses at a reasonable cost, if at
all. Defense of any lawsuit or failure to obtain any such license
could be costly and have a material adverse effect on our
business.
Our success depends on our ability to protect our proprietary
technology.
Our success depends, to a significant degree, upon the protection
of our proprietary technology, and that of any licensors. Legal
fees and other expenses necessary to obtain and maintain
appropriate patent protection could be material. Currently, no
material aspect of our business is protected by registered patents,
copyrights or trademarks. Insufficient funding may inhibit our
ability to obtain and maintain such protection. Additionally, if we
must resort to legal proceedings to enforce our intellectual
property rights, the proceedings could be burdensome and expensive,
and could involve a high degree of risk to our proprietary rights
if we are unsuccessful in, or cannot afford to pursue, such
proceedings.
We may also rely on trademarks, trade secrets and contract law to
protect certain of our proprietary technology. There can be no
assurance that any trademarks will be approved, that such contract
will not be breached, or that if breached, we will have adequate
remedies. Furthermore, there can be no assurance that any of our
trade secrets will not become known or independently discovered by
third parties.
Our future growth may be inhibited by the failure to
implement new technologies.
Our future growth is partially tied to our ability to improve our
knowledge and implementation of mobile, AI, machine learning, and
other advanced technologies in a retail environment, which is a
rapidly changing market. The inability to successfully implement
commercially technologies in response to market conditions in a
manner that is responsive to our customers’ requirements could have
a material adverse effect on our business.
Our payment processing merchant is located abroad and this
may cause problems in receiving payments for our
products.
We currently use a payment processing merchant who is located
outside of the United States. This merchant often holds our money
for weeks before sending it to us. If we are delayed in receiving
our funds or the merchant refuses to forward our sales proceeds,
our financial condition could be adversely affected. Because the
merchant is located abroad, we may not have any way to enforce our
arrangement and force the merchant to provide give us our
money.
Due to recent events regarding COVID-19
The COVID-19 outbreak in early 2020 has adversely affected, and may
continue to adversely affect economic activity globally, nationally
and locally. These economic and market conditions and other effects
of the COVID-19 outbreak may adversely affect the Company. At this
point, the extent to which COVID-19 may impact the Company's
business is uncertain.
Risks Related To Our Common Stock
The market price of our common stock may be volatile and may
be affected by market conditions beyond our control.
The market price of our common stock is subject to significant
fluctuations in response to, among other factors:
| |
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variations in our operating results
and market conditions specific to technology companies; |
| |
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changes in financial estimates or
recommendations by securities analysts; |
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announcements of innovations or new
products or services by us or our competitors; |
| |
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the emergence of new
competitors; |
| |
· |
operating and market price
performance of other companies that investors deem comparable; |
| |
· |
changes in our board or
management; |
| |
· |
sales or purchases of our common
stock by insiders; |
| |
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commencement of, or involvement in,
litigation; |
| |
· |
changes in governmental
regulations; and |
| |
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general economic conditions and
slow or negative growth of related markets. |
In addition, if the market for stocks in our industry or the stock
market in general, experiences a loss of investor confidence, the
market price of our common stock could decline for reasons
unrelated to our business, financial condition or results of
operations. If any of the foregoing occurs, it could cause the
price of our common stock to fall and may expose us to lawsuits
that, even if unsuccessful, could be costly to defend and a
distraction to the board of directors and management.
If we are unable to pay the costs associated with being a
public, reporting company, we may be forced to discontinue
operations.
Our common stock is quoted on the OTC Pink tier of the marketplace
maintained by OTC Markets Group, Inc. We expect to have significant
costs associated with being a public, reporting company, which may
raise substantial doubt about our ability to sell our equity
securities and/or continue as a going concern. Our ability to
continue as a going concern will depend on positive cash flow, if
any, from future operations and on our ability to raise additional
funds through equity or debt financing. If we are unable to achieve
the necessary product sales or raise or obtain needed funding to
cover the costs of operating as a public, reporting company, we may
be forced to discontinue operations.
Our common stock is listed for quotation on the OTC Pink tier
of the marketplace maintained by OTC Markets Group, Inc., which may
make it more difficult for investors to resell their shares due to
suitability requirements.
Our common stock is currently quoted on the OTC Pink tier of the
marketplace maintained by OTC Markets Group, Inc. Broker-dealers
often decline to trade in over-the-counter stocks given the market
for such securities are often limited, the stocks are more
volatile, and the risk to investors is greater. These factors may
reduce the potential market for our common stock by reducing the
number of potential investors. This may make it more difficult for
investors in our common stock to sell shares to third parties or to
otherwise dispose of their shares. This could cause our stock price
to decline.
We recently moved down to the OTC Pink tier from the OTCQB tier. We
may be unable to restore eligibility for quotation of our common
stock on the OTCQB tier and this will have a negative impact on our
market price. The OTC Pink marketplace also does not provide as
much liquidity as the OTCQB. Many broker-dealers will not trade or
recommend OTC Pink stocks for their clients. Because the OTCQB
generally increases transparency by maintaining higher reporting
standards and requirements and imposing management certification
and compliance requirements, broker-dealers are more likely to
trade stocks on the OTCQB marketplace and national exchanges.
Our principal stockholders have the ability to exert
significant control in matters requiring stockholder approval and
could delay, deter, or prevent a change in control of our
company.
Jay Decker has beneficial ownership of our common stock with over
70% of the shareholder votes. As a result, he has the ability to
influence matters affecting our shareholders, including the
election of our directors, the acquisition or disposition of our
assets, and the future issuance of our shares. Because he controls
such shares, investors may find it difficult to replace our
management if they disagree with the way our business is being
operated. Because the influence by these shareholders could result
in management making decisions that are in the best interest of
those shareholders and not in the best interest of the investors,
you may lose some or all of the value of your investment in our
common stock. Investors who purchase our common stock should be
willing to entrust all aspects of operational control to our
current management team.
We do not intend to pay dividends in the foreseeable
future.
We do not intend to pay any dividends in the foreseeable future. We
do not plan on making any cash distributions in the manner of a
dividend or otherwise. Our Board presently intends to follow a
policy of retaining earnings, if any.
Future sales and issuances of our capital stock or rights to
purchase capital stock could result in additional dilution of the
percentage ownership of our stockholders and could cause our stock
price to decline.
Future sales and issuances of our capital stock or rights to
purchase our capital stock could result in substantial dilution to
our existing stockholders. We may sell common stock, convertible
securities and other equity securities in one or more transactions
at prices and in a manner as we may determine from time to time. If
we sell any such securities in subsequent transactions, investors
may be materially diluted. New investors in such subsequent
transactions could gain rights, preferences and privileges senior
to those of holders of our common stock.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may
result in increased general and administrative expenses and a
diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.
We also expect that being a public company and these new rules and
regulations will make it more expensive for us to obtain director
and officer liability insurance, and we may be required to accept
reduced coverage or incur substantially higher costs to obtain
coverage. These factors could also make it more difficult for us to
attract and retain qualified members of our board of directors,
particularly to serve on our audit committee and compensation
committee, and qualified executive officers.
As a result of disclosure of information in this annual report and
in filings required of a public company, our business and financial
condition will become more visible, which we believe may result in
threatened or actual litigation, including by competitors and other
third parties. If such claims are successful, our business and
results of operations could be adversely affected, and even if the
claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them,
could divert the resources of our management and adversely affect
our business and results of operations.
The market for penny stocks has suffered in recent years from
patterns of fraud and abuse
Stockholders should be aware that, according to SEC Release No.
34-29093, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. Such patterns include:
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control of the market for the
security by one or a few broker-dealers that are often related to
the promoter or issuer; |
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manipulation of prices through
prearranged matching of purchases and sales and false and
misleading press releases; |
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boiler room practices involving
high-pressure sales tactics and unrealistic price projections by
inexperienced salespersons; |
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· |
excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and, |
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the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices
and with consequential investor losses. |
Our management is aware of the abuses that have occurred
historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the
described patterns from being established with respect to our
securities. The occurrence of these patterns or practices could
increase the volatility of our share price.
Due to the lack of a developed trading market for our
securities, you may have difficulty selling your
shares.
Our stock currently trades on the OTC Pink tier maintained by OTC
Markets Group, Inc. There currently is a very limited public
trading market for our common stock. The lack of a developed public
trading market for our shares may have a negative effect on your
ability to sell your shares in the future and it also may have a
negative effect on the price, if any, for which you may be able to
sell your shares. As a result an investment in the shares may be
illiquid in nature and investors could lose some or all of their
investment.
Our status as an “emerging growth company” under the JOBS Act
OF 2012 may make it more difficult to raise capital when we need to
do it.
Because of the exemptions from various reporting requirements
provided to us as an “emerging growth company” and because we will
have an extended transition period for complying with new or
revised financial accounting standards, we may be less attractive
to investors and it may be difficult for us to raise additional
capital as and when we need it. Investors may be unable to compare
our business with other companies in our industry if they believe
that our financial accounting is not as transparent as other
companies in our industry. If we are unable to raise additional
capital as and when we need it, our financial condition and results
of operations may be materially and adversely affected.
Our internal controls may be inadequate, which could cause
our financial reporting to be unreliable and lead to misinformation
being disseminated to the public.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. As defined in
Exchange Act Rule 13a-15(f), internal control over financial
reporting is a process designed by, or under the supervision of,
the principal executive and principal financial officer and
effected by the board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that: (i)
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements. Our internal controls may be inadequate or ineffective,
which could cause our financial reporting to be unreliable and lead
to misinformation being disseminated to the public.
We will incur ongoing costs and expenses for SEC reporting
and compliance, without increased revenue we may not be able to
remain in compliance, making it difficult for investors to sell
their shares, if at all.
Going forward, we will have ongoing SEC compliance and reporting
obligations. Such ongoing obligations will require us to expend
additional amounts on compliance, legal and auditing costs. In
order for us to remain in compliance, we will require increased
revenues to cover the cost of these filings, which could comprise a
substantial portion of our available cash resources. If we are
unable to generate sufficient revenues to remain in compliance, it
may be difficult for you to resell any shares you may purchase, if
at all.
We have the right to issue additional common stock without
consent of stockholders. This would have the effect of diluting
investors’ ownership and could decrease the value of their
investment.
We are authorized to issue 2,500,000,000 shares of common stock. Of
these authorized shares, 121,610,085 shares are issued and
outstanding as of December 18, 2019. Therefore, we are authorized
to issue up to an additional 2.3 billion unissued shares of our
common stock that may be issued by us for any purpose without the
further consent or vote of our stockholders that would dilute
stockholders’ percentage ownership of our company.
Our officers and directors can sell some of their stock,
which may have a negative effect on our stock price and ability to
raise additional capital, and may make it difficult for investors
to sell their stock at any price.
Our officers and directors, as a group, are the beneficial owners
of 4,835,966 shares of our common stock, representing approximately
4% of our total issued shares. Each individual officer and director
may be able to sell up to 1% of our outstanding stock (currently
approximately 1.2 million shares) every 90 days in the open market
pursuant to Rule 144, which may have a negative effect on our stock
price and may prevent us from obtaining additional capital. In
addition, if our officers and directors are selling their stock
into the open market, it may make it difficult or impossible for
investors to sell their stock at any price.
Our common stock is governed under The Securities Enforcement
and Penny Stock Reform Act of 1990.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a penny
stock. The Commission has adopted regulations that generally define
a penny stock to be any equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on NASDAQ and any
equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets
of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years. Unless an exception
is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated
therewith.
The forward looking statements contained in this annual
report may prove incorrect.
This Annual Report contains certain forward-looking statements,
including among others: (i) anticipated trends in our financial
condition and results of operations; (ii) our business strategy for
expanding distribution; and (iii) our ability to distinguish
ourselves from our current and future competitors. These
forward-looking statements are based largely on our current
expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these
forward-looking statements. In addition to the other risks
described elsewhere in this “Risk Factors” discussion, important
factors to consider in evaluating such forward-looking statements
include: (i) changes to external competitive market factors or in
our internal budgeting process which might impact trends in our
results of operations; (ii) anticipated working capital or other
cash requirements; (iii) changes in our business strategy or an
inability to execute our strategy due to unanticipated changes in
the biotechnology industry; and (iv) various competitive factors
that may prevent us from competing successfully in the marketplace.
In light of these risks and uncertainties, many of which are
described in greater detail elsewhere in this “Risk Factors”
discussion, there can be no assurance that the events predicted in
forward-looking statements contained in this annual report will, in
fact, transpire.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report,
including the sections entitled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and
“Business,” that are based on our management’s beliefs and
assumptions and on information currently available to our
management. Forward-looking statements include the information
concerning our possible or assumed future results of operations,
business strategies, financing plans, competitive position,
industry environment, potential growth opportunities, the effects
of future regulation, and the effects of competition.
Forward-looking statements include all statements that are not
historical facts and can be identified by the use of
forward-looking terminology such as the words “believe,” “expect,”
“anticipate,” “intend,” “plan,” “estimate” or similar expressions.
These statements are only predictions and involve known and unknown
risks and uncertainties, including the risks outlined under “Risk
Factors” and elsewhere in this annual report.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee
future results, events, levels of activity, performance or
achievement. We are not under any duty to update any of the
forward-looking statements after the date of this annual report to
conform these statements to actual results, unless required by
law.
ITEM 1B – UNRESOLVED STAFF
COMMENTS
This Item is not applicable to us as we are not an accelerated
filer, a large accelerated filer, or a well-seasoned issuer;
however, we are voluntarily disclosing that we have not received
any written comments from the Commission staff more than 180 days
before the end of our fiscal year to which this Annual Report
relates regarding our periodic or current reports under the
Securities Exchange Act of 1934 and that remain unresolved.
ITEM 2 – PROPERTIES
We do not currently maintain office space.
ITEM 3 – LEGAL PROCEEDINGS
We are not a party to or otherwise involved in any legal
proceedings.
In the ordinary course of business, we are from time to time
involved in various pending or threatened legal actions. The
litigation process is inherently uncertain and it is possible that
the resolution of such matters might have a material adverse effect
upon our financial condition and/or results of operations. However,
in the opinion of our management, other than as set forth herein,
matters currently pending or threatened against us are not expected
to have a material adverse effect on our financial position or
results of operations.
ITEM 4 – MINE SAFETY
DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is quoted on the OTC Pink tier of the marketplace
maintained by OTC Markets Group, Inc. under the symbol “GRCK.” Our
common stock trades on a limited or sporadic basis and should not
be deemed to constitute an established public trading market. There
is no assurance that there will be liquidity in the common
stock.
The following table sets forth the high and low closing price for
each quarter within the fiscal years ended December 31, 2018 and
2017, as provided by Nasdaq. The information reflects prices
between dealers, and does not include retail markup, markdown, or
commission, and may not represent actual transactions.
|
Fiscal Year
Ended
December 31,
|
|
|
|
|
|
|
|
|
Transaction Prices |
|
|
Period |
|
High |
|
Low |
|
2018 |
|
Fourth Quarter |
|
$0.035 |
|
$0.0051 |
|
|
|
Third
Quarter |
|
$0.275 |
|
$0.022 |
|
|
|
Second
Quarter |
|
$0.48 |
|
$0.10 |
| |
|
First
Quarter |
|
$2.13 |
|
$0.15 |
|
|
|
|
|
|
|
|
|
2017 |
|
Fourth
Quarter |
|
$5.60 |
|
$0.70 |
|
|
|
Third
Quarter |
|
$14.73 |
|
$2.50 |
|
|
|
Second
Quarter |
|
$37.45 |
|
$10.25 |
|
|
|
First
Quarter |
|
$32.50 |
|
$18.45 |
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny
stocks in connection with trades in any stock defined as a penny
stock. The Commission has adopted regulations that generally define
a penny stock to be any equity security that has a market price of
less than $5.00 per share, subject to a few exceptions which we do
not meet. Unless an exception is available, the regulations require
the delivery, prior to any transaction involving a penny stock, of
a disclosure schedule explaining the penny stock market and the
risks associated therewith.
Holders
As of December 18, 2019, there were 121,610,085 shares of our
common stock issued and outstanding and held by 58 holders of
record, not including shares held in “street name” in brokerage
accounts which is unknown.
Dividend Policy
We have not paid any dividends on our common stock and do not
expect to do so in the foreseeable future. We intend to apply our
earnings, if any, in expanding our operations and related
activities. The payment of cash dividends in the future will be at
the discretion of the Board of Directors and will depend upon such
factors as earnings levels, capital requirements, our financial
condition and other factors deemed relevant by the Board of
Directors.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not currently have a stock option or grant plan.
Recent Issuance of Unregistered Securities
The following issuances of unregistered securities occurred after
September 30, 2018:
Acquisition of BergaMet and the Share Exchange Agreement
On February 4, 2019, we entered into a Share Exchange Agreement by
and among us, BergaMet NA, LLC, a Delaware limited liability
company, and the members of BergaMet, whereby we issued and
exchanged 97,409,678 shares of our common stock for all of the
outstanding equity securities of BergaMet. Through this exchange of
securities pursuant to the Share Exchange Agreement, BergaMet is
now our wholly-owned subsidiary. The shares of common stock issued
in the exchange are equal to 80.1% of our outstanding common stock
immediately following the exchange.
Share Conversion Agreements
All of the holders of our Series A Convertible Preferred Stock
entered into a Preferred Stock Conversion Agreement. Pursuant to
the Conversion Agreements, the Preferred Holders converted their
shares of preferred stock into common stock, effective as of the
exchange as described above. As a result, no shares of our Series A
Convertible Preferred Stock are outstanding. An aggregate of
10,860,012 shares were issued to the Preferred Holders. The
Preferred Holders agreed to convert each share of Series A
Convertible Preferred Stock into eighteen (18) shares of our common
stock.
The shares of common stock issued pursuant to the Share Exchange
Agreement, the Share Conversion Agreements and in the transactions
listed above were offered and sold in reliance on an exemption from
registration pursuant to Section 4(a)(2) of the Securities Act of
1933, as amended. The investors have acquired the securities for
investment purposes only and not with a view to, or for sale in
connection with, any distribution thereof. The securities were not
issued through any general solicitation or advertisement.
ITEM 6 – SELECTED FINANCIAL
DATA
As a smaller reporting company we are not required to provide the
information required by this Item.
ITEM 7 – MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Our Management’s Discussion and Analysis contains not only
statements that are historical facts, but also statements that are
forward-looking (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). Forward-looking statements are, by their very nature,
uncertain and risky. These risks and uncertainties include
international, national and local general economic and market
conditions; demographic changes; our ability to sustain, manage, or
forecast growth; our ability to successfully make and integrate
acquisitions; existing government regulations and changes in, or
the failure to comply with, government regulations; adverse
publicity; competition; fluctuations and difficulty in forecasting
operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain
qualified personnel; the ability to protect technology; and other
risks that might be detailed from time to time in our filings with
the Securities and Exchange Commission.
Although the forward-looking statements in this Annual Report
reflect the good faith judgment of our management, such statements
can only be based on facts and factors currently known by them.
Consequently, and because forward-looking statements are inherently
subject to risks and uncertainties, the actual results and outcomes
may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review
and consider the various disclosures made by us in this report and
in our other reports as we attempt to advise interested parties of
the risks and factors that may affect our business, financial
condition, and results of operations and prospects.
Summary Overview
We were formed in December 2014 and, therefore, have a relatively
short operating history. We had revenues of $67,131 in the year
ended December 31, 2018 from a variety of customers. We had
revenues of $7,605 in the year ended December 31, 2017, 100% of
which was from a single customer. In March 2018, we ended our
relationship with this customer. In March 2018, we discontinued
this business to shift our focus solely to sales of our hemp oil
and nutraceutical products.
Eqova Life Sciences
On October 17, 2017, we acquired Eqova Life Sciences, a Nevada
corporation, through an exchange of shares of our Series A
Convertible Preferred Stock for all of the outstanding equity
interest of Eqova. As part of the Exchange, we have brought on
Eqova’s President and Director, Patrick Stiles, to serve as our
President and Chief Executive Officer and as a Director on our
Board of Directors. Mr. Stiles resigned in September 2018.
Eqova is a medically-focused CBD company that develops clinical
grade full spectrum hemp oil products, sold exclusively via
partnerships with licensed medical practitioners to use with their
patients. To date, we know of no other hemp oil company exclusively
focuses on the practitioner market, leaving it largely underserved.
According to The Hemp Business Journal, CBD products marketplace
are projected to grow by 700% by 2020 with annual sales reaching
$2.1 billion. With a head start in a growing marketplace, we
believe that Eqova provides us with a prime growth opportunity with
an established business. Revenues of our hemp oil products from the
acquisition of Eqova through December 31, 2017 were $7,605 and for
the year ended December 31, 2018 were $64,384.
BergaMet NA, LLC
On February 4, 2019, we issued and exchanged shares of our common
stock for all of the outstanding equity securities of BergaMet.
Through the exchange, we were able to secure funds in BergaMet to
pay off some debt and provide capital for operations. We paid an
aggregate of $353,908 and are obligated to pay another $164,578
approximately one (1) year later to retire convertible debt.
Currently, we are default on these obligations. Prior to the
exchange, we also entered into agreements with other holders of
convertible debt to convert their notes for an aggregate of 806,015
shares of common stock. We also entered into conversion agreements
with the holders of our Series A Convertible Preferred Stock
whereby all of the outstanding preferred stock was converted for an
aggregate of 15,592,986 shares of common stock. The conversion and
repayment of the preferred stock and convertible debt have greatly
improved our capitalization structure.
The acquisition of BergaMet has been extremely beneficial to us. In
addition to paying off our convertible debt, we are now able to
better position ourselves in the market. BergaMet is an established
company that was already generating revenues when we acquired it.
BergaMet also has unique products that will fit nicely with our
existing business. We now plan on expanding our product line to
other nutraceuticals.
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
December 31, 2018 of $11,012,899. As of December 31, 2018, the
Company had negative working capital of $3,644,237. In addition,
the Company’s development activities since inception have been
financially sustained through equity financing. These factors,
among others, raise substantial doubt of the Company to continue as
a going concern. Management plans to seek additional funding
through debt and/or equity financing as needed to grow and fund
operations and has recently acquired a new company as a wholly
owned subsidiary.
Results of Operations for the Years Ended December 31, 2018 and
2017
Introduction
We had revenues of $67,131 for the year ended December 31, 2018.
Our operating expenses were $546,025 for the year ended December
31, 2018, and consisted primarily of salaries and consulting fees
paid to related parties and consulting, financing and loan fees,
legal and professional fees.
Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the
years ended December 31, 2018 and 2017 were as follows:
| |
|
Year Ended
December 31, 2018 |
|
Year Ended
December 31, 2017 |
|
Increase/
(Decrease) |
| |
|
|
|
|
|
|
|
Revenue |
|
$ |
67,131 |
|
|
$ |
7,605 |
|
|
$ |
59,526 |
|
| Cost of
Revenue |
|
|
28,590 |
|
|
|
4,761 |
|
|
|
23,829 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| General
and administrative |
|
|
306,944 |
|
|
|
538,700 |
|
|
|
(231,756 |
) |
General and administrative –
related party |
|
|
239,081 |
|
|
|
413,224 |
|
|
|
(174,143 |
) |
| Total
operating expenses |
|
|
546,025 |
|
|
|
951,924 |
|
|
|
(405,899 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net operating
loss |
|
|
(507,484 |
) |
|
|
(949,080 |
) |
|
|
(441,596 |
) |
|
Other income/(expense) |
|
|
(2,815,775 |
) |
|
|
(2,694,608 |
) |
|
|
(121,167 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from
continuing operations |
|
|
(3,323,259 |
) |
|
|
(3,643,688 |
) |
|
|
(320,429 |
) |
| Income (loss)
from discontinued operations – (net of tax benefit) |
|
|
(6,258 |
) |
|
|
81,613 |
|
|
|
(87,871 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(3,329,517 |
) |
|
$ |
(3,562,075 |
) |
|
$ |
(232,558 |
) |
Revenues
We had revenues of $67,131 and $7,605 for the years ended December
31, 2018 and 2017, respectively. A single customer accounted for
100% of the revenue during the year ended December 31, 2017.
Cost of Revenue
Cost of revenue were $28,590 and $4,761 for the years ended
December 31, 2018 and 2017, respectively, and consisted of
wholesale product costs and packaging for 2018 and computer
programmer and hosting costs for 2017.
General and Administrative
General and administrative expense was $306,944 and $538,700 for
the years ended December 31, 2018 and 2017, a decrease of $231,756.
The decrease was due primarily to normal fluctuations in
operations. In the year ended December 31, 2018, general and
administrative expense consisted mainly of consulting $3,893,
selling expenses of $5,595, salary and wages of $38,335, transfer
agent and filing fees of $3,033, and accounting fees of $42,000. In
the year ended December 31, 2017, general and administrative
expense consisted mainly of consulting $100,496, selling expenses
of $6,121, commissions of $6,000, transfer agent and filing fees of
$9,907, and accounting fees of $29,000.
General and administrative – related party expense was $239,081 and
$413,224 for the years ended December 31, 2018 and 2017, a decrease
of $174,143. In the year ended December 31, 2018, general and
administrative – related party expense consisted of salaries and
wages of $105,000, and consulting fees of $129,496. For the year
ended December 31, 2018, general and administrative – related party
expense consisted of salaries and wages of $99,073 and consulting
fees of $304,151. The decrease was due primarily to decline in
operations with Eqova and the departure of Patrick Stiles as one of
our officers.
Net Operating Loss
As a result of the items discussed above, our net operating loss
was $507,484 and $949,080 for the years ended December 31, 2018 and
2017, respectively, a decrease of $441,596.
Other Income and Expense
Other expense was $(2,815,775) and $(2,694,608) for the year ended
December 31, 2018 and 2017, respectively, an increase of $121,167,
and consisted primarily of interest expense, loss on extinguishment
of debt in both years, and impairment loss on goodwill and
trademark, offset by a change in fair value of derivatives in 2017.
The interest is high mainly from the derivatives on the convertible
debt and the convertible preferred stock.
Discontinued Operations
During the year ended December 31, 2018, we have a loss from
discontinued operations of $6,258 compared with $81,613 of income
from discontinued operations as the same period ended December 31,
2017.
Net Loss
Our net loss for the year ended December 31, 2018 was $3,329,517,
or $(1.21) per share, and for December 31, 2017 was $3,562,075, or
$(15.82) per share, a decrease of $232,558.
Liquidity and Capital Resources
Introduction
During the years ended December 31, 2018 and 2017, because we
generated only nominal revenues, we had negative operating cash
flows. Our cash on hand as of December 31, 2018 was $485. Our
monthly cash flow burn rate in 2018 was approximately $27,400.
Although we have moderate short term cash needs, as our operating
expenses increase we will face strong medium to long term cash
needs. We anticipate that these needs will be satisfied through the
issuance of debt or the sale of our securities until such time as
our cash flows from operations will satisfy our cash flow needs.
With the acquisitions of Eqova and BergaMet, we expect to see an
increase in revenues over the next few years that will help us
maintain the cash we need to operate our business. However, we have
incurred additional expenses in these acquisitions and the
additional costs to be incurred through this expansion of our
operations will increase our need for additional cash flow.
Our cash, current assets, total assets, current liabilities, and
total liabilities as of December 31, 2018 and December 31, 2017 are
as follows:
| |
|
December 31,
2018 |
|
December 31,
2017 |
|
Change |
| |
|
|
|
|
|
|
|
Cash |
|
$ |
485 |
|
|
$ |
81,653 |
|
|
$ |
(81,168 |
) |
| Total Current
Assets |
|
|
5,747 |
|
|
|
147,709 |
|
|
|
(141,962 |
) |
| Total
Assets |
|
|
85,768 |
|
|
|
1,122,743 |
|
|
|
(1,036,975 |
) |
| Total Current
Liabilities |
|
|
3,649,984 |
|
|
|
2,301,870 |
|
|
|
1,348,114 |
|
| Total
Liabilities |
|
$ |
3,649,984 |
|
|
$ |
2,301,870 |
|
|
$ |
1,348,114 |
|
Our cash decreased by $81,168 as of December 31, 2018 as compared
to December 31, 2017. Our total current assets decreased by
$141,962, from $147,709 to $5,747, as a result of decreased sales.
Our total assets decreased by $1,036,975, from $1,122,743 to
$85,768, for a result of decreased sales and impair goodwill
related to Eqova.
Our current and total liabilities increased from $2,301,870 as of
December 31, 2017 to $3,649,984 as of December 31, 2018. Our total
liabilities as of the year ended December 31, 2018 consisted
primarily of derivative liabilities of $2,713,319 and convertible
debt of $654,453, compared to derivative liabilities of $1,822,568
and convertible debt of $316,781 as of December 31, 2017. The
change in derivative liabilities results from the adjustable
conversion rate on our convertible debt and warrants.
In order to repay our obligations in full or in part when due, we
will be required to raise significant capital from other sources.
There is no assurance, however, that we will be successful in these
efforts.
Cash Requirements
Our cash on hand as of December 31, 2018 was $485. Our monthly cash
flow burn rate in 2018 was approximately $27,400. Although we have
moderate short term cash needs, as our operating expenses increase
we will face strong medium to long term cash needs. We anticipate
that these needs will be satisfied through the sale of our
securities until such time as our cash flows from operations will
satisfy our cash flow needs.
Sources and Uses of Cash
Operations
Our net cash used in operating activities for the years ended
December 31, 2018 and 2017 was $328,751 and $672,227, respectively,
a decrease of $343,476. Our net cash used in operating activities
for December 31, 2018 consisted primary of a net loss of
$3,329,517, offset by non-cash interest of $1,296,056, a change in
fair value on derivative liability of $184,643, loss on
extinguishment of debt of $526,481, and impairment loss on goodwill
and trademark of $843,632. Our net cash used in operating
activities for December 31, 2017 consisted primarily of a net loss
of $3,562,075, offset by non-cash interest of $2,727,888, loss on
extinguishment of debt of $169,588, and gain in fair value on
derivative liability of $111,307.
Investments
Our cash flow provided by (used in) investing activities for the
years ended December 31, 2018 and 2017 was $50,000 and $(41,972),
respectively. The increase in 2018 was from the sale of an asset
for $50,000.
Financing
Our net cash provided by financing activities for the years ended
December 31, 2018 and 2017 was $197,583 and $771,750, respectively,
a decrease of $574,167. The decrease in 2018 was primarily due to
the decrease in proceeds received from the issuance of convertible
debt.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts in our consolidated financial
statements and related notes. Our significant accounting policies
are described in Note 2 to our consolidated financial statements
included in our Annual Report on Form 10-K for the year ended
December 31, 2018. Management bases its estimates on historical
experience and on various other assumptions 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. Actual results may differ from these estimates and
such differences may be material.
Management considers the following policies critical because they
are both important to the portrayal of our financial condition and
operating results, and they require management to make judgments
and estimates about inherently uncertain matters.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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. The estimates and judgments will also affect
the reported amounts for certain revenues and expenses during the
reporting period. Actual results could differ from these good faith
estimates and judgments.
Recent Accounting Pronouncements
Our management has considered all recent accounting pronouncements
issued since the last audit of our financial statements. Our
management believes that these recent pronouncements will not have
a material effect on our financial statements.
ITEM 7A – QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the
information required by this Item.
ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Grey
Cloak Tech, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Grey
Cloak Tech, Inc. (the Company) as of December 31, 2018 and the
related consolidated statements of operation, stockholders’
deficit, and cash flows for the year then ended, and the related
notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2018, and the results of its
operations and its cash flows for each of the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As described in
Note 3 to the consolidated financial statements, 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
December 31, 2018 of $11,012,899. As of December 31, 2018, the
Company had a negative working capital of $3,644,237 These factors,
among others, raise substantial doubt regarding the Company’s
ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 3 to the
accompanying financial statements. The accompanying financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
|
/s/
Prager Metis CPA's LLC |
|
|
|
|
We
have served as the Company’s auditor since 2018. |
| |
|
|
|
| Hackensack,
New Jersey |
|
| March
29, 2020 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Grey
Cloak Tech, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Grey
Cloak Tech, Inc. (the Company) as of December 31, 2017 and the
related consolidated statements of operation, stockholders’
deficit, and cash flows for the year then ended, and the related
notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2017, and the results of its
operations and its cash flows for each of the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As described in
Note 3 to the consolidated financial statements, 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
December 31, 2017. These factors, among others, raise substantial
doubt regarding the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 3 to the accompanying financial statements. The
accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audit
provide a reasonable basis for our opinion.
|
/s/
Paritz & Company, P.A. |
|
|
|
|
We
have served as the Company’s auditor since 2015. |
| |
|
|
|
| Hackensack,
New Jersey |
|
| June
7, 2018 |
|
GREY CLOAK TECH INC
CONSOLIDATED BALANCE
SHEETS
| |
|
DECEMBER 31, |
|
DECEMBER 31, |
| |
|
2018 |
|
2017 |
| ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| CURRENT ASSETS |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
485 |
|
|
$ |
81,653 |
|
| Accounts
receivable |
|
|
— |
|
|
|
16,000 |
|
| Inventory |
|
|
500 |
|
|
|
48,466 |
|
|
Accrued interest receivable |
|
|
4,762 |
|
|
|
1,590 |
|
|
Total current assets |
|
|
5,747 |
|
|
|
147,709 |
|
| |
|
|
|
|
|
|
|
|
| Fixed assets, net of
accumulated depreciation of $2,045 and $1,121, respectively |
|
|
726 |
|
|
|
1,650 |
|
| Website, net of
accumulated amortization of $2,800 and $4,002, respectively |
|
|
— |
|
|
|
50,457 |
|
| Note Receivable |
|
|
79,295 |
|
|
|
79,295 |
|
| Trademarks |
|
|
— |
|
|
|
1,650 |
|
| Goodwill |
|
|
— |
|
|
|
841,982 |
|
|
Total other assets |
|
|
80,021 |
|
|
|
975,034 |
|
| |
|
|
|
|
|
|
|
|
| TOTAL
ASSETS |
|
$ |
85,768 |
|
|
$ |
1,122,743 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
57,340 |
|
|
$ |
67,364 |
|
| Accounts
payable - related party |
|
|
15,000 |
|
|
|
4,000 |
|
| Notes
payable |
|
|
63,000 |
|
|
|
— |
|
| Notes payable
- related party |
|
|
— |
|
|
|
59,810 |
|
|
Convertible debt, net of discount of $15,960 and $305,396,
respectively |
|
|
654,453 |
|
|
|
316,781 |
|
|
Convertible debt - related party, net of discount of $30,853
and $23,871, respectively |
|
|
61,223 |
|
|
|
6,129 |
|
| Accrued
interest payable |
|
|
83,899 |
|
|
|
24,059 |
|
| Accrued
interest payable - related party |
|
|
1,750 |
|
|
|
1,159 |
|
|
Derivative liabilities |
|
|
2,713,319 |
|
|
|
1,822,568 |
|
|
Total current and total liabilities |
|
|
3,649,984 |
|
|
|
2,301,870 |
|
| |
|
|
|
|
|
|
|
|
| STOCKHOLDERS'
DEFICIT |
|
|
|
|
|
|
|
|
| Preferred stock, $0.001 par value, 75,000,000
shares authorized, |
|
|
|
|
|
|
|
|
|
1,333,334 and 1,333,334 shares issued
and outstanding, respectively |
|
|
1,333 |
|
|
|
1,333 |
|
| Common stock, $0.001 par value, 2,500,000,000
shares authorized, |
|
|
|
|
|
|
|
|
|
6,455,354 and 898,422 shares issued
and outstanding, respectively |
|
|
6,455 |
|
|
|
898 |
|
| Additional paid-in
capital |
|
|
7,440,895 |
|
|
|
6,502,024 |
|
|
Accumulated deficit |
|
|
(11,012,899 |
) |
|
|
(7,683,382 |
) |
|
Total stockholders' deficit |
|
|
(3,564,216 |
) |
|
|
(1,179,127 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
$ |
85,768 |
|
|
$ |
1,122,743 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
| |
|
2018 |
|
2017 |
| |
|
|
|
|
|
REVENUE |
|
$ |
67,131 |
|
|
$ |
7,605 |
|
| |
|
|
|
|
|
|
|
|
| COST OF
REVENUE |
|
|
28,590 |
|
|
|
4,761 |
|
| |
|
|
|
|
|
|
|
|
| GROSS
PROFIT |
|
|
38,541 |
|
|
|
2,844 |
|
| |
|
|
|
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
| General and
administrative |
|
|
306,944 |
|
|
|
538,700 |
|
|
General and administrative - related
party |
|
|
239,081 |
|
|
|
413,224 |
|
| |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
546,025 |
|
|
|
951,924 |
|
| |
|
|
|
|
|
|
|
|
| OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
| Interest
expense, net of interest income |
|
|
(1,266,470 |
) |
|
|
(2,635,181 |
) |
| Interest
expense - related party |
|
|
(1,500 |
) |
|
|
(1,146 |
) |
| Change in fair
value on derivative |
|
|
(184,643 |
) |
|
|
111,307 |
|
| Loss on
extinguishment of debt |
|
|
(526,481 |
) |
|
|
(169,588 |
) |
| Gain on sale
of asset |
|
|
6,951 |
|
|
|
— |
|
| Impairment
of goodwill |
|
|
(843,632 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(2,815,775 |
) |
|
|
(2,694,608 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss before
income tax provision |
|
|
(3,323,259 |
) |
|
|
(3,643,688 |
) |
| |
|
|
|
|
|
|
|
|
| Income
tax provision |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Loss from
continuing operations |
|
|
(3,323,259 |
) |
|
|
(3,643,688 |
) |
| Income
(loss) from discontinued operations - (net of tax benefit) |
|
|
(6,258 |
) |
|
|
81,613 |
|
| |
|
|
|
|
|
|
|
|
| NET
LOSS |
|
$ |
(3,329,517 |
) |
|
$ |
(3,562,075 |
) |
| |
|
|
|
|
|
|
|
|
| Loss per share -
basic and diluted: |
|
|
|
|
|
|
|
|
| Continuing operations |
|
|
(1.21 |
) |
|
|
(16.18 |
) |
|
Discontinued operations |
|
|
(0.00 |
) |
|
|
0.36 |
|
|
Loss per shares - basic and
diluted |
|
$ |
(1.21 |
) |
|
$ |
(15.82 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted
average number of shares outstanding - basic and diluted |
|
|
2,747,890 |
|
|
|
225,210 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
| |
|
|
|
|
|
Additional |
|
|
|
|
| |
|
Preferred Stock |
|
Common Stock |
|
Paid-In |
|
Accumulated |
|
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - December
31, 2016 |
|
|
— |
|
|
$ |
— |
|
|
|
68,625 |
|
|
$ |
69 |
|
|
$ |
1,761,819 |
|
|
$ |
(4,121,307 |
) |
|
$ |
(2,359,419 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cashless exercise of warrants |
|
|
— |
|
|
|
— |
|
|
|
89,737 |
|
|
|
90 |
|
|
|
29,712 |
|
|
|
— |
|
|
|
29,802 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for debt
conversion |
|
|
— |
|
|
|
— |
|
|
|
740,060 |
|
|
|
741 |
|
|
|
2,852,586 |
|
|
|
— |
|
|
|
2,853,327 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of warrants and
modifications |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,379 |
|
|
|
— |
|
|
|
15,379 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of shares for executive
bonuses |
|
|
187,733 |
|
|
|
187 |
|
|
|
— |
|
|
|
— |
|
|
|
137,525 |
|
|
|
— |
|
|
|
137,712 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Settlement of convertible debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
850,573 |
|
|
|
— |
|
|
|
850,573 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of sharess acquisition of
Eqova |
|
|
1,100,000 |
|
|
|
1,100 |
|
|
|
— |
|
|
|
— |
|
|
|
805,815 |
|
|
|
— |
|
|
|
806,915 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of shares acquisition of website |
|
|
45,601 |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
48,613 |
|
|
|
— |
|
|
|
48,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss for the
period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,562,075 |
) |
|
|
(3,562,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - December 31, 2017 |
|
|
1,333,334 |
|
|
$ |
1,333 |
|
|
|
898,422 |
|
|
$ |
900 |
|
|
$ |
6,502,022 |
|
|
$ |
(7,683,382 |
) |
|
$ |
(1,179,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for debt
conversion |
|
|
— |
|
|
|
— |
|
|
|
5,556,932 |
|
|
|
5,555 |
|
|
|
920,453 |
|
|
|
— |
|
|
|
926,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debt Forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,420 |
|
|
|
— |
|
|
|
18,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss for the
period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,329,517 |
) |
|
|
(3,329,517 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - December 31, 2018 |
|
|
1,333,334 |
|
|
|
1,333 |
|
|
|
6,455,354 |
|
|
|
6,455 |
|
|
|
7,440,895 |
|
|
$ |
(11,012,899 |
) |
|
$ |
(3,564,216 |
) |
The accompanying notes are an integral part of these consolidated
financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENT OF CASH
FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
2018 |
|
2017 |
| Cash Flows from
Operating Activities: |
|
|
|
|
|
|
|
|
| Net Loss |
|
$ |
(3,329,517 |
) |
|
$ |
(3,562,075 |
) |
| Adjustments to reconcile net loss to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
8,332 |
|
|
|
3,094 |
|
| Warrants issued for
services |
|
|
— |
|
|
|
15,379 |
|
| Non-cash
interest |
|
|
1,296,056 |
|
|
|
2,727,888 |
|
| Change in fair
value on derivative liability |
|
|
184,643 |
|
|
|
(111,307 |
) |
| Loss on
extinguishment of debt |
|
|
526,481 |
|
|
|
169,588 |
|
| Gain on sale of
asset |
|
|
(6,951 |
) |
|
|
— |
|
| Impairment |
|
|
843,632 |
|
|
|
— |
|
| Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
16,000 |
|
|
|
50,000 |
|
| Inventory |
|
|
47,966 |
|
|
|
862 |
|
| Prepaid
expenses |
|
|
— |
|
|
|
7,433 |
|
| Accrued interest
receivable |
|
|
(3,172 |
) |
|
|
(1,590 |
) |
| Deposits |
|
|
— |
|
|
|
— |
|
| Accounts
payable |
|
|
(10,024 |
) |
|
|
42,822 |
|
| Accounts payable -
related party |
|
|
29,420 |
|
|
|
(15,799 |
) |
| Accrued payroll and
taxes |
|
|
— |
|
|
|
(6,111 |
) |
| Accrued interest
payable |
|
|
67,792 |
|
|
|
6,943 |
|
| Accrued
interest payable - related party |
|
|
591 |
|
|
|
646 |
|
| Net Cash
used in Operating Activities |
|
|
(328,751 |
) |
|
|
(672,227 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Investing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchase of fixed assets |
|
|
— |
|
|
|
(1,189 |
) |
| Purchase of website |
|
|
— |
|
|
|
(3,000 |
) |
| Purchase of note receivable |
|
|
— |
|
|
|
(33,000 |
) |
| Cash acquired |
|
|
— |
|
|
|
5,217 |
|
| Cash received from sale of asset |
|
|
50,000 |
|
|
|
— |
|
| Liabilities
assumed |
|
|
— |
|
|
|
(10,000 |
) |
| Cash
flows provided by (used in) Investing Activities: |
|
|
50,000 |
|
|
|
(41,972 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Financing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Proceeds from issuance of convertible
debt, |
|
|
|
|
|
|
|
|
| net of
discount of $32,917 and $133,000, respectively |
|
|
194,583 |
|
|
|
973,000 |
|
| Payments for repayment of convertible
debt |
|
|
— |
|
|
|
(186,250 |
) |
| Proceeds from issuance of noted
payable |
|
|
3,000 |
|
|
|
— |
|
| Payments for
repayment of notes payable - related party |
|
|
— |
|
|
|
(15,000 |
) |
| Net Cash
provided by Financing Activities |
|
|
197,583 |
|
|
|
771,750 |
|
| |
|
|
|
|
|
|
|
|
| Increase (decrease)
in cash |
|
|
(81,168 |
) |
|
|
57,551 |
|
| Cash at
beginning of period |
|
|
81,653 |
|
|
|
24,102 |
|
|
Cash at end of period |
|
$ |
485 |
|
|
$ |
81,653 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
disclosure of cash flow information of non-cash financing
activities: |
|
|
|
|
|
|
|
|
|
Beneficial conversion feature and warrants recognized as a
discount |
|
$ |
— |
|
|
$ |
1,014,500 |
|
|
Conversion of debt for shares of common stock |
|
$ |
18,420 |
|
|
$ |
757,323 |
|
| Common
stock issued in connection with debt conversion |
|
$ |
926,008 |
|
|
$ |
2,853,327 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2018 and 2017
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 provide
cloud based software to detect advertising fraud on the internet.
The Company has acquired Eqova Life Sciences and is transitioning
its business towards marketing and selling CBD oil products. (See
Note 9)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America (GAAP) and are presented in US
dollars.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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. The estimates and judgments will also affect
the reported amounts for certain revenues and expenses during the
reporting period. Actual results could differ from these good faith
estimates and judgments.
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.
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.
The Company records revenue upon shipment of the products to the
customers related to the sale of CBD products.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Concentration
There is no concentration of
revenue for the year ended December 31, 2018. One customer
accounted for 94% of total revenue earned during the year ended
December 31, 2017. As of December 31, 2017, there was accounts
receivable due from one customer.
Accounts Receivable
Accounts receivable are stated at the amount the Company expects to
collect from outstanding balances and do not bear interest. The
Company provides for probable uncollectible amounts through an
allowance for doubtful accounts, if an allowance is deemed
necessary. The allowance for doubtful accounts is the Company’s
best estimate of the amount of probable credit losses in the
Company’s existing accounts receivable; however, changes in
circumstances relating to accounts receivable may result in a
requirement for additional allowances in the future. On a periodic
basis, management evaluates its accounts receivable and determines
the requirement for an allowance for doubtful accounts based on its
assessment of the current and collectible status of individual
accounts with past due balances over 90 days. Account balances are
charged against the allowance after all collection efforts have
been exhausted and the potential for recovery is considered
remote
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 December 31, 2018, 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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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,
2017 |
|
$ |
2,038,952 |
|
| Issued during the year ended
December 31, 2018 |
|
|
2,518,163 |
|
| Change in fair value recognized in
operations |
|
|
(111,307 |
) |
| Converted
during the year ended December 31, 2017 |
|
|
(2,623,240 |
) |
| Balance,
December 31, 2017 |
|
$ |
1,822,568 |
|
| |
|
|
|
|
| Balance, January 1, 2018 |
|
$ |
1,822,568 |
|
| Issued during the year ended
December 31, 2018 |
|
|
868,591 |
|
| Change in fair value recognized in
operations |
|
|
184,643 |
|
| Converted
during the year ended December 31, 2018 |
|
|
(162,483 |
) |
| Balance,
December 31, 2018 |
|
$ |
2,713,319 |
|
Convertible Instruments
The Company evaluates and account for conversion options embedded
in convertible instruments in accordance with ASC 815
“Derivatives and Hedging Activities”.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 year ended December 31, 2018,
the Company recognized a loss on extinguishment of $526,481 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 CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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
December 31, 2018 of $11,012,899. As of December 31, 2018, the
Company had negative working capital of $3,644,237. In addition,
the Company’s development activities since inception have been
financially sustained through equity financing. These factors,
among others, raise substantial doubt of the Company to continue as
a going concern. Management plans to seek additional funding
through debt and/or equity financing as needed to grow and fund
operations and has recently acquired a new company as a wholly
owned subsidiary.
NOTE 4 – RELATED PARTY
For the years ended December 31, 2018 and 2017, the Company had
expenses totaling $109,585 and $99,073, respectively, to an officer
and director for salaries, which is included in general and
administrative expenses – related party on the accompanying
statement of operations. For the year ended December 31, 2017, the
Company issued 146,330 shares of preferred stock valued at $107,342
for a bonus to the officer and director. As of December 31, 2018,
there was no accounts payable – related party.
For the years ended As of December 31, 2018 and 2017, the Company
had expenses totaling $42,000 and $114,000 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 December 31, 2018,
there was $15,000 in accounts payable – related party due to an
entity owned and controlled by a former officer and director. For
the year ended December ,31, 2017, the company issued 41,403 shares
of preferred stock valued at $30,371 for a bonus to the officer and
director.
As of December 31, 2018, there was convertible debt of $61,233 due
to an officer and director and accrued interest payable of $1,750
due to an entity owned and controlled by a former officer and
director.
For the year ended December 31, 2017, the company had expenses
totaling $58,473 to an officer and director for consulting fees,
which is included in general and administrative expenses – related
party on the accompanying statement of operations.
On October 17, 2017, the Company granted 1,200,000 warrants as part
of convertible debt to an officer and director. The warrants allow
the holder to purchase 1,200,000 shares of common stock at an
exercise price of $0.25 per share and are exercisable for 3
years
NOTE 5 – NOTE RECEIVABLE
As of December 31, 2018, the Company had the following:
Unsecured note receivable, due 04/30/2020, 4%
interest,
|
|
$ |
79,295 |
|
| |
|
|
|
|
| TOTAL |
|
$ |
79,295 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 6 – CONVERTIBLE DEBT – RELATED PARTY
As of December 31, 2018, the Company had the following:
Unsecured convertible debt, due 10/17/18, 5% interest, converts at
a 50% discount to market price based on the last 3 days trading
price
|
|
$ |
30,000 |
|
Unsecured
convertible debt, due 03/31/19, 10% interest, converts at a 30%
discount to market price based on the last 20 days trading
price
|
|
|
62,076 |
|
| |
|
|
|
|
| Less:
Discount |
|
|
(30,853 |
) |
| TOTAL |
|
$ |
61,223 |
|
NOTE 7 – NOTES PAYABLE – RELATED PARTY
As of December 31, 2018, the Company had the following:
| Unsecured debt with
shareholders of the Company, due 08/20/18, 15% interest, interest
due quarterly, convertible into shares of Eqova |
|
$ |
60,000 |
|
| Unsecured debt with a shareholder of
the Company, due 03/25/19, 10% interest, interest due at
maturity |
|
|
3,000 |
|
| Less:
Discount |
|
|
— |
|
| TOTAL |
|
$ |
63,000 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 8 – CONVERTIBLE DEBT
As of December 31, 2018, the Company had the following:
| Unsecured convertible
debt, due 08/24/18, 12% interest, converts at a 50% discount to
market price based on the last 25 days trading price |
|
$ |
110,000 |
|
| Unsecured convertible debt, due
11/01/18, 12% interest, converts at a 50% discount to market price
based on the last 25 days trading price |
|
|
110,000 |
|
| Unsecured convertible debt, due
10/04/18, 8% interest, converts at a 55% discount to market price
based on the last 20 days trading price |
|
|
50,000 |
|
| Unsecured convertible debt, due
02/02/19, 8% interest, converts at a 55% discount to market price
based on the last 20 days trading price |
|
|
50,000 |
|
| Unsecured convertible debt, may borrow
up to $300,000, due 10/04/18, 8% interest, converts at a 44%
discount to market price based on the last 20 days trading
price |
|
|
24,883 |
|
| Unsecured convertible debt, may borrow
up to $300,000, due 11/09/18, 8% interest, converts at a 44%
discount to market price based on the last 20 days trading
price |
|
|
45,000 |
|
| Unsecured convertible debt, may borrow
up to $300,000, due 01/08/19, 8% interest, converts at a 30%
discount to market price based on the last 20 days trading
price |
|
|
40,000 |
|
| Unsecured convertible debt, due
08/17/17, 12% interest, converts at a 45% discount to market price
based on the last 20 days trading price |
|
|
9,500 |
|
| Unsecured convertible debt, due
01/23/18, 8% interest, converts at the lower of $0.04 or a 40%
discount to market price based on the last 20 days trading
price |
|
|
17,000 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 8 – CONVERTIBLE DEBT (CONTINUED)
| Unsecured convertible
debt, due 10/26/18, 8% interest, converts at a 45% discount to
market price based on the last 20 days trading price |
|
|
10,000 |
|
| Unsecured convertible debt, due
06/26/18, 9% interest, converts at a 42% discount to market price
based on the last 15 days trading price |
|
|
22,095 |
|
| Unsecured convertible debt, due
03/31/19, 10% interest, converts at a 30% discount to market price
based on the last 20 days trading price |
|
|
22,250 |
|
| Unsecured convertible debt, due
12/01/17, 12% interest, converts at a 50% discount to market price
based on the last 20 days trading price |
|
|
66,000 |
|
| Unsecured convertible debt, due
06/30/18, 12% interest, converts at a 39% discount to market price
based on the average of the lowest 2 trading prices in the last 15
days trading price |
|
|
8,935 |
|
| Unsecured convertible debt, due
07/30/18, 12% interest, converts at a 39% discount to market price
based on the average of the lowest 2 trading prices in the last 15
days trading price |
|
|
43,000 |
|
| Unsecured convertible debt, due
10/10/18, 12% interest, converts at a 39% discount to market price
based on the average of the lowest 2 trading prices in the last 15
days trading price |
|
|
35,000 |
|
| Unsecured
convertible debt, due 01/19/17, 8% interest, default interest at
18%, converts at a 54% discount to market price based on the lowest
trading prices in the last 20 days trading price |
|
|
6,750 |
|
| |
|
|
|
|
| SUBTOTAL |
|
|
670,413 |
|
| Less:
Discount |
|
|
(15,960 |
) |
| TOTAL |
|
$ |
654,453 |
|
Some of the convertible promissory notes are in default but will be
in compliance upon filing of the 10-K.
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 CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 9 – 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. During February 2017,
the Company increased the authorized number of shares to
500,000,000. Also, the Company increased the authorized preferred
stock to 75,000,000 shares and designated 25,000,000 shares of
preferred stock to Series A Convertible Preferred Stock. During
January 2018, the Company increased its authorized number of common
shares to 1,000,000,000. During April 2018, the Company increased
its authorized number of common shares to 2,500,000,000. The Board
of Directors, in the future, has the authority to increase the
authorized capital up to 4,000,000,000 shares based on shareholder
approval.
The shareholders of the Company approved a reverse stock split at a
ratio of between 1-for-100 and 1-for 250. The Company received
approval from FINRA for a reverse stock split of 1-for-250, which
was effective as of July 23, 2018. All shares and per share
information has been retrospectively adjusted to reflect the
reverse split for all periods presented in the financial
statements.
On October 16, 2017, the Company filed an Amended and Restated
Certificate of Designation of the Rights, Preferences, Privileges
and Restrictions of the Series A Convertible Preferred Stock (the
“Amended Certificate”) with the Secretary of State of the State of
Nevada. The Amended Certificate reduces the number of preferred
shares designated as Series A Preferred Stock from 25,000,000
shares to 1,333,334 shares. The Amended Certificate also changes
the conversion and voting rights of the Series A Preferred Stock.
The Series A Preferred Stock is now convertible into the number of
shares of our common stock equal to 0.00006% of our outstanding
common stock upon conversion. The voting rights of the Series A
Preferred Stock are now equal to the number of shares of common
stock into which the Series A Preferred Stock may convert.
Preferred Share Issuances
As of December 31, 2018, the preferred stock is convertible into
2,422,425 shares of common stock.
During the year ended December 31, 2017, the Company issued 187,733
shares of preferred stock for bonuses for its officers and
directors with a fair value of $137,712.
During the year ended December 31, 2017, the Company issued
1,100,000 shares of preferred stock for the acquisition of Eqova
Life Sciences.
During the year ended December 31, 2017, the Company issued 45,601
shares of preferred stock for the acquisition of a website.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common Share Issuances
During the twelve months ended December 31, 2018, the Company
issued a total of 5,556,932 shares of common stock for the
conversion of debt with a fair value of $926,008 including interest
of $9,118 and fees of $18,915, which result in loss on
extinguishment of debt of $526,481.
During the year ended December 31, 2017, the Company issued a total
of 89,737 shares for the cashless exercise of warrants.
During the year ended December 31, 2017, the Company issued a total
of 740,060 shares for the conversion of debt with a fair value of
$2,853,327.
During the year ended December 31, 2017, the Company issued
warrants and modified the terms of the warrants with a fair value
of $15,379.
During the year ended December 31, 2017, the Company settled
convertible debt with cash payments of $850,573.
Warrants
As of December 31, 2018, there were 43,585 warrants outstanding, of
which 11,585 warrants are fully vested.
On October 17, 2017, the Company granted 1,200,000 warrants as part
of convertible debt to an officer and director of the Company. The
warrants allow the holder to purchase 1,200,000 shares of common
stock at an exercise price of $0.25 per share and are exercisable
for 3 years.
NOTE 10 – ACQUISITIONS
On October 17, 2017, the Company entered into a Share Exchange
Agreement with Eqova Life Sciences (“Eqova”) and issued 1,100,000
shares of Series A Convertible Preferred Stock in exchange for 100%
of Eqova. The shares are convertible into approximately 66% of the
total outstanding common stock as of the date of the closing. Of
the total shares issued to Eqova only 550,000 shares are vested and
the remaining 550,000 shares will vest upon sales of $100,000 for
three consecutive months or $300,000 gross sales in any calendar
quarter. Any unvested shares as of October 17, 2019, will be
repurchased by the Company at a price of $0.01 per share. The
Company wanted to position itself to take advantage of the growing
hemp based marketplace as it is one of the fastest growing segments
in the United States.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 10 – ACQUISITIONS (CONTINUED)
In accordance with the acquisition method of accounting, the
Company allocated the consideration to the net tangible and
identifiable intangible assets based on their estimated fair
values.
Goodwill represents the excess of the purchase price over the fair
value of the underlying net tangible and identifiable intangible
assets.
The following table presents the consideration of net assets
purchased:
| 1,100,000 shares of
preferred stock issued |
|
$ |
806,915 |
|
| Total Purchase
Price |
|
$ |
806,915 |
|
The assets acquired and liabilities assumed as part of our
acquisition were recognized at their fair values as of the
effective acquisition date, October 17, 2017. The following table
summarizes the fair values assigned to the assets acquired and
liabilities assumed.
| Cash |
|
$ |
5,217 |
|
| Current assets |
|
|
49,328 |
|
| Intangible
assets |
|
|
1,650 |
|
| Goodwill |
|
|
841,982 |
|
|
Current liabilities |
|
|
(91,262 |
) |
| Net
assets acquired |
|
$ |
806,915 |
|
The following table provides unaudited pro forma results of
operations for the fiscal years ended December 31, 2017 and 2016 as
if the acquisitions had been consummated as of the beginning of
each period presented. The pro forma results include the effect of
certain purchase accounting adjustments, such as the estimated
changes in depreciation and amortization expense on the acquired
intangible assets. However, pro forma results do not include any
anticipated cost savings or other effects of the planned
integration of the companies. Accordingly, such amounts are not
necessarily indicative of the results if the acquisition has
occurred on the dates indicated, or which may occur in the
future.
| |
|
(Unaudited)
Pro Forma Results
Year ended December 31, 2017 |
| |
|
|
|
Revenues |
|
$ |
128,105 |
|
|
Loss before income taxes |
|
$ |
3,564,115 |
|
| |
|
|
|
|
|
Fully diluted loss per share |
|
$ |
0.07 |
|
During the year ended December 31, 2018, the performed an analysis
of their goodwill related to the acquisition of Eqova and recorded
impairment of goodwill of $841,982.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 11 – DISCONTINUED OPERATIONS
During the year ended December 31, 2018, the management determined
to discontinue operations related to its advertising business
segment. There were no significant assets or liabilities associated
with the discontinued operations. The loss from discontinued
operations is comprised of revenue and expenses related to the
advertising business.
Components of discontinued operations are as follows:
| |
|
2018 |
|
2017 |
|
Revenue - (net of tax) |
|
$ |
— |
|
|
$ |
120,500 |
|
|
Cost of Revenue - (net of tax) |
|
|
(6,258 |
) |
|
|
(38,887 |
) |
| Income
(loss) from discontinued operations - (net of tax benefit) |
|
$ |
(6,258 |
) |
|
$ |
81,613 |
|
NOTE 12 – SALE OF ASSET
On June 8, 2018, the Company sold its website, CBD.co, to a third
party for $50,000. The Company recorded a gain on the sale of
$6,951.
NOTE 13 – INCOME TAXES
The reconciliation of income tax computed at the Federal statutory
rate to the provision for income taxes from continuing operations
is as follows:
| |
|
Year Ended
December 31, 2018 |
|
Year Ended
December 31, 2017 |
|
Federal Taxes (credits) at statutory rates |
|
$ |
(2,203,000 |
) |
|
$ |
(1,246,000 |
) |
|
State and local taxes, net of Federal benefit |
|
|
— |
|
|
|
— |
|
|
Change in valuation allowance |
|
|
2,203,000 |
|
|
|
1,246,000 |
|
| |
|
$ |
— |
|
|
$ |
— |
|
|
Components of deferred tax assets are as follows: |
|
December 31, |
|
December 31, |
| |
|
2018 |
|
2017 |
|
Deferred Tax Assets; |
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards |
|
$ |
666,000 |
|
|
$ |
513,000 |
|
|
Accrued Related Party Expenses |
|
|
— |
|
|
|
— |
|
|
Total Deferred Tax Assets |
|
|
666,000 |
|
|
|
513,000 |
|
|
Valuation Allowance |
|
|
(666,000 |
) |
|
|
(513,000 |
) |
| |
|
|
|
|
|
|
|
|
|
Total Deferred Tax Assets net of Valuation Allowance |
|
$ |
— |
|
|
$ |
— |
|
|
Deferred Tax Liabilities; |
|
|
— |
|
|
|
— |
|
|
Depreciation and Amortization |
|
|
— |
|
|
|
— |
|
|
Prepaid Expense |
|
|
— |
|
|
|
— |
|
|
Total Deferred Tax Liabilities |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets |
|
$ |
— |
|
|
$ |
— |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 13 – INCOME TAXES (CONTINUED)
The Company has approximately $11,013,000 net operating loss
carryforwards that are available to reduce future taxable income.
Those NOLs begin to expire in 2034. In assessing the realization of
deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will
be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based on the assessment,
management has established a full valuation allowance against all
of the deferred tax assets for every period because it is more
likely than not that all of the deferred tax assets will not be
realized.
The Company’s deferred tax liability associated with timing
differences related to depreciation and amortization includes $0 of
liability resulting from tax depreciation deducted in excess of
GAAP depreciation prior to the Company becoming taxed as a
C-Corporation.
The Company files income tax returns in the U.S. federal
jurisdiction, and the state of Nevada.
The Company adopted the provisions of FASB ASC 740, Accounting
for Uncertainty in Income Taxes. Management evaluated the
Company’s tax positions and concluded that the Company had taken no
uncertain tax positions that require adjustment to the financial
statements to comply with the provisions of this guidance. The
Company has no significant adjustments as a result of the
implementation of FASB ASC 740.
NOTE 14 – SUBSEQUENT EVENTS
Stock Issued for Conversion of Convertible Debt
During the period from January 1, 2019 through February 14, 2019,
the Company issued a total of 996,052 shares of common stock for
the conversion of debt totaling $2,817.
Stock Issued for Services
On January 28, 2019, the Company entered into a marketing and sales
consulting agreement with an individual for a period of six months.
The Company issued 350,000 shares of common stock as the
compensation for this agreement.
Acquisition of BergaMet and the Share Exchange
Agreement
On February 4, 2019, the Company entered into a Share Exchange
Agreement with BergaMet NA, LLC, a Delaware limited
liability company (“BergaMet”), and the members
of BergaMet, whereby the Company issued and exchanged
97,409,678 shares of its common stock for all of the outstanding
equity securities of BergaMet (the “Exchange”).
Through the Exchange, BergaMet became a wholly-owned
subsidiary of the Company. The shares of common stock issued in the
Exchange were equal to 80.1% of the Company’s outstanding common
stock (post-exchange).
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 14 – SUBSEQUENT EVENTS (CONTINUED)
In connection with the Exchange, Kevin Pitts resigned as the
Company’s President and Chief Executive Officer, and the Company
appointed Mr. Pitts as its Chief Operating Officer. The Company
appointed Sanjeev Javia to serve as its President and Chief
Executive Officer and as a Director on its Board of Directors.
Note Satisfaction Agreements
Prior to the Exchange, the Company entered into a Note Satisfaction
Agreement with each of Auctus Fund, Crown Bridge Partners, LLC,
Power Up Lending Group Ltd., GS Capital Partners LLC, Oakmore
Opportunity Fund I LP, and Adar Bays, LLC. All of these entities
were holders of the Company’s convertible debt, and these Note
Satisfaction Agreements terminate their convertible notes unless
the Company fails to perform its payment obligations. The Company
agreed to pay these note holders an aggregate of $518,486 plus
interest. The Company paid an aggregate of $353,908 on or before
February 15, 2019, and it will pay another $164,578 plus interest
in approximately one (1) year.
Various other holders of Convertible Promissory Notes agreed to
convert their notes for an aggregate of 806,015 shares of common
stock prior to the Exchange. As a result of these transactions, no
convertible promissory notes remain outstanding, except for those
convertible notes subject to revival if the Company fails to make
payments pursuant to the Note Satisfaction Agreements.
Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred
Stock (the “Preferred Holders”) entered into a Preferred
Stock Conversion Agreement. Pursuant to the Conversion Agreements,
the Preferred Holders converted their shares of preferred stock
into common stock, effective as of the Exchange. As a result, no
shares of the Company’s Series A Convertible Preferred Stock are
outstanding. An aggregate of 15,592,986 shares of common stock were
issued to the Preferred Holders. The Preferred Holders agreed to
convert each share of Series A Convertible Preferred Stock into
eighteen (18) shares of common stock and agreed to retire a total
of 467,057 shares of Series A Convertible Preferred Stock. The
Company cancelled the retired shares.
COVID-19
The COVID-19 outbreak in early 2020 has adversely affected, and may
continue to adversely affect economic activity globally, nationally
and locally. These economic and market conditions and other effects
of the COVID-19 outbreak may adversely affect the Company. At this
point, the extent to which COVID-19 may impact the Company's
business is uncertain.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 14 – SUBSEQUENT EVENTS (CONTINUED)
Promissory Notes
On July 31, 2019, the Company received the last of four (4) signed
convertible notes issued to various related parties with an
effective date of April 19, 2019. The table below shows the
effective date of each note, the amount of the note, the interest
rate, the maturity date and the purchaser of the note:
|
Date |
Amount |
Interest
Rate |
Maturity
Date |
Purchaser |
|
4/19/2019 |
$150,000 |
8% |
4/19/2020 |
Jay W.
Decker |
|
4/19/2019 |
$15,000 |
8% |
4/19/2020 |
First
Capital Properties LLC |
|
4/19/2019 |
$7,500 |
8% |
4/19/2020 |
Logan
Bryce Decker |
|
4/19/2019 |
$7,500 |
8% |
4/19/2020 |
Shelton
Sterling Decker |
|
|
|
|
|
|
|
Total |
$180,000 |
|
|
|
Each note bears interest at the rate indicated and is due on the
maturity date given above. The notes are convertible into shares of
our common stock from the date which is 12 months after the date of
the note through the later of (i) the maturity date and (ii) the
date of payment of the default amount due upon certain change of
control transactions or a default of the note. Conversion of the
notes is not allowed to the extent the conversion would result in
beneficial ownership by the holder and its affiliates of more than
9.99% of our outstanding shares of common stock. The conversion
price of the notes is $0.03 per share.
On October 3, 2019, the Company received the last of the three (3)
signed convertible notes issued to Jay W. Decker, a related party,
each with a different effective date. The table below shows the
effective date of each note, the amount of the note, the maturity
date and the purchaser of the note:
|
Date |
Amount |
Interest
Rate |
Maturity
Date |
Purchaser |
|
6/27/2019 |
$105,000 |
8% |
6/27/2020 |
Jay W.
Decker |
|
8/27/2019 |
$225,000 |
8% |
8/27/2020 |
Jay W.
Decker |
|
9/20/2019 |
$45,000 |
8% |
9/20/2020 |
Jay W.
Decker |
|
|
|
|
|
|
|
Total |
$375,000 |
|
|
|
Each note bears interest at the rate indicated and is due on the
maturity date given above. Conversion of the notes is not allowed
to the extent the conversion would result in beneficial ownership
by the holder and its affiliates of more than 9.99% of our
outstanding shares of common stock. The conversion price of the
notes is $0.03 per share.
ITEM 9 - CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There are no events required to be disclosed under this Item.
ITEM 9A - CONTROLS AND
PROCEDURES
(a) Disclosure Controls
and Procedures
We conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act,
as of December 31, 2018, to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities Exchange
Commission’s rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal
financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that as of December 31,
2018, our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses
identified and described in Item 9A(b).
Our principal executive officers do not expect that our disclosure
controls or internal controls will prevent all error and all fraud.
Although our disclosure controls and procedures were designed to
provide reasonable assurance of achieving their objectives and our
principal executive officers have determined that our disclosure
controls and procedures are effective at doing so, a control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute assurance that the objectives of the
system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented if there exists in an
individual a desire to do so. There can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions.
(b) Management Report
on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in Rules 13a-15(f)
and 15d-15(f) promulgated under the Exchange Act, as amended, as a
process designed by, or under the supervision of, our principal
executive and principal financial officer and effected by our board
of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the
United States and includes those policies and procedures that:
| |
· |
Pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect our
transactions and any disposition of our assets; |
| |
· |
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management
and directors; and |
| |
· |
Provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. Our management assessed the
effectiveness of our internal control over financial reporting as
of December 31, 2017 . In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, Management
identified the following two material weaknesses that have caused
management to conclude that, as of December 31, 2018, our
disclosure controls and procedures, and our internal control over
financial reporting, were not effective at the reasonable assurance
level:
1. We do not have written
documentation of our internal control policies and procedures.
Written documentation of key internal controls over financial
reporting is a requirement of Section 404 of the Sarbanes-Oxley
Act. Management evaluated the impact of our failure to have written
documentation of our internal controls and procedures on our
assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a
material weakness.
2. We do not have
sufficient segregation of duties within accounting functions, which
is a basic internal control. Due to our size and nature,
segregation of all conflicting duties may not always be possible
and may not be economically feasible. However, to the extent
possible, the initiation of transactions, the custody of assets and
the recording of transactions should be performed by separate
individuals. Management evaluated the impact of our failure to have
segregation of duties on our assessment of our disclosure controls
and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
To address these material weaknesses, management performed
additional analyses and other procedures to ensure that the
financial statements included herein fairly present, in all
material respects, our financial position, results of operations
and cash flows for the periods presented. Accordingly, we believe
that the financial statements included in this report fairly
present, in all material respects, our financial condition, results
of operations and cash flows for the periods presented.
This Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by our registered public accounting firm
pursuant to the rules of the Securities and Exchange Commission
that permit us to provide only our management’s report in this
Annual Report.
(c) Remediation of
Material Weaknesses
To remediate the material weakness in our documentation, evaluation
and testing of internal controls we plan to engage a third-party
firm to assist us in remedying this material weakness once
resources become available.
We also intend to remedy our material weakness with regard to
insufficient segregation of duties by hiring additional employees
in order to segregate duties in a manner that establishes effective
internal controls once resources become available.
(d) Changes in Internal
Control over Financial Reporting
No change in our system of internal control over financial
reporting occurred during the period covered by this report, fourth
quarter of the fiscal year ended December 31, 2017 , that has
materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
None.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names, ages, and biographical
information of each of our current directors and executive
officers, and the positions with the Company held by each person,
and the date such person became a director or executive officer of
the Company. Our executive officers are elected annually by the
Board of Directors. The directors serve one-year terms until their
successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of
Directors. Family relationships among any of the directors and
officers are described below.
| Name |
|
Age |
|
Position(s) |
| |
|
|
|
|
| Kevin “Duke” Pitts |
|
|
60 |
|
|
President, Director
(2018) |
| |
|
|
|
|
|
|
| William Bossung |
|
|
61 |
|
|
Secretary, Chief Financial Officer,
Director (2014) |
| |
|
|
|
|
|
|
| Bill Croyle |
|
|
68 |
|
|
Director (2019) |
Kevin “Duke” Pitts, age 60, was appointed to our Board of
Directors on September 28, 2018, and as our President on September
24, 2019. Mr. Pitts is a proven leader who has 30 years of senior
management experience within a technology-driven industry. Mr.
Pitts has been the President and Owner of Envision Enterprises, a
consumer electronic integration business, where he has worked since
2007. Earlier in his career, Mr. Pitts served as the Director of
Direct Marketing at Dish Network, the well-known satellite
television provider. His deep experience in senior management and
marketing will be of great value to us.
William Bossung, age 61, has served as our Secretary, Chief
Financial Officer, and a member of our Board of Directors since our
inception. Mr. Bossung has a diverse background in Corporate
Finance, Insurance and Accounting. From September 2003 to August
2006, Mr. Bossung was a founder of BCF Technology with Mr. Covely,
an insurance software company that was ultimately sold to Vertafore
in August 2006. From August 2006 through December 2014, Mr. Bossung
was the managing partner of Bishop Equity Partners LLC, a small
boutique private equity firm that invests in both private and
public companies and purchases and restructures debt from
companies. During January 2012, Mr. Bossung founded Splash Beverage
Group, a beverage distribution company that distributes both
alcohol and non-alcohol products, and is currently one of their
Directors. From June 2012 through August 2013, Mr. Bossung was the
Director of Business Development at Splash Beverage. Mr. Bossung
currently holds an Insurance License in various states. He holds a
bachelor’s degree in accounting and finance from Bloomsburg State
University.
Bill Croyle, age 68, was appointed to our Board of Directors
on September 24, 2019. Mr. Croyle is a private investor and an
accomplished Senior Executive with more than 40 years of success
across the IT, energy, manufacturing, telecommunications, venture
capital, and finance industries. His broad areas of expertise
include M&A, negotiations, service
contracts and delivery, executive development and
mentoring, and managing complexities. Since 2009 Bill is has been a
founder, owner or executive of EnTX Group, Impact Legacy Partners,
FB Oilfield Special Tools and Western Energy Advisors. He is
Chairman of the Colorado Chapter of the Marine Corps Scholarship
Foundation, and he has served on the boards of Hill City Silica
LLC, the University of Colorado Advocates program, the Association
for Corporate Growth/Denver, and the Denver Consulting Alliance.
Bill served in the Marine Corps 1972-1974. Mr. Croyle holds
Certificates in Energy Finance and Management from the University
of Denver and International Trade from World Trade Center Denver.
He graduated from the University of California, Santa Barbara, with
a BA in History and minor in French.
Family Relationships
There are no family relationships between any of our officers or
directors.
Other Directorships; Director Independence
Other than as set forth above, none of our officers and directors
is a director of any company with a class of securities registered
pursuant to section 12 of the Exchange Act or subject to the
requirements of section 15(d) of such Act or any company registered
as an investment company under the Investment Company Act of
1940.
For purposes of determining director independence, we have applied
the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on
which shares of common stock are quoted does not have any director
independence requirements. The NASDAQ definition of “Independent
Officer” means a person other than an Executive Officer or employee
of the company or any other individual having a relationship which,
in the opinion of the company’s Board of Directors, would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director. According to the NASDAQ definition,
none of our directors are independent.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own more than ten
percent of a registered class of our equity securities to file with
the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.
Except as set forth below, to our knowledge, none of our officers,
directors, or beneficial owners of more than ten percent of our
common stock failed to file on a timely basis reports required by
section 16(a) of the Exchange Act during the most recent fiscal
year or prior fiscal years.
Board Committees
Our Board of Directors does not maintain a separate audit,
nominating or compensation committee. Functions customarily
performed by such committees are performed by its Board of
Directors as a whole. We are not required to maintain such
committees under the applicable rules of the OTCQB. We do not
currently have an “audit committee financial expert” since we
currently do not have an audit committee in place. We intend to
create board committees, including an independent audit committee,
in the near future.
We do not currently have a process for security holders to send
communications to the Board.
During the fiscal years ended December 31, 2017 and 2016, the Board
of Directors met as necessary.
Involvement in Certain Legal Proceedings
None of our officers or directors has, in the past ten years, filed
bankruptcy, been convicted in a criminal proceeding or named in a
pending criminal proceeding, been the subject of any order,
judgment, or decree of any court permanently or temporarily
enjoining him or her from any securities activities, or any other
disclosable event required by Item 401(f) of Regulation S-K.
Code of Ethics
We have not adopted a written code of ethics, primarily because we
believe and understand that our officers and directors adhere to
and follow ethical standards without the necessity of a written
policy.
ITEM 11 - EXECUTIVE
COMPENSATION
Narrative Disclosure of Executive Compensation
For the year ended December 31, 2018, we had expenses totaling
$65,496 to Patrick Stiles, our then-Chief Executive Officer,
President and Director, for consulting fees, which is included in
general and administrative expenses – related party on the
accompanying statement of operations. As of December 31, 2018,
there was no accounts payable to the related party.
For the year ended December 31, 2017, we had expenses totaling
$58,437 to Patrick Stiles, our then-Chief Executive Officer,
President and Director, for consulting fees, which is included in
general and administrative expenses – related party on the
accompanying statement of operations. As of December 31, 2017,
there was no accounts payable to the related party.
For the year ended December 31, 2018, we had expenses totaling
$109,585 to Mr. Bossung for salaries, which is included in general
and administrative expenses – related party on the accompanying
statement of operations. As of December 31, 2018, there was $0 in
accounts payable – related party.
For the year ended December 31, 2017, we had expenses totaling
$99,073 to Mr. Bossung for salaries, which is included in general
and administrative expenses – related party on the accompanying
statement of operations. As of December 31, 2017, there was $0 in
accounts payable – related party. For the year ended December 31,
2017, we issued 146,330 shares of preferred stock valued at
$107,342 for a bonus to Mr. Bossung.
For the year ended December 31, 2018, we had expenses totaling
$42,000 to a company owned by Fred Covely, our then-Chief
Technology Officer and Director, for consulting fees, which is
included in general and administrative expenses – related party on
the accompanying statement of operations. As of December 31, 2018,
there was $15,000 in accounts payable – related party.
For the year ended December 31, 2017, we had expenses totaling
$114,000 to a company owned by Fred Covely, our then-Chief
Technology Officer and Director, for consulting fees, which is
included in general and administrative expenses – related party on
the accompanying statement of operations. As of December 31, 2017,
there was $0 in accounts payable – related party. For the year
ended December 31, 2017, we issued 41,403 shares of preferred stock
valued at $30,371 for a bonus to Mr. Covely.
For the year ended December 31, 2018, we had expenses totaling
$22,000 to the wife of 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 December
31, 2017, there was $0 in accounts payable – related party.
For the year ended December 31, 2017, we had expenses totaling
$4,000 to the wife of 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 December
31, 2017, there was $4,000 in accounts payable – related party.
Stiles Employment Agreement
On October 17, 2017, we entered into an Employment Agreement with
Patrick Stiles, our Chief Executive Officer. Pursuant to Mr.
Stiles’ Employment Agreement, we agreed to pay Mr. Stiles an annual
base salary of $140,000, and he may receive employee stock options
as determined by the Board of Directors. Mr. Stiles’ employment is
“at will” and either party may terminate the agreement at any time.
The agreement was terminated on September 28, 2018, when Mr. Stiles
resigned his positions.
Bossung Employment Agreement
On October 17, 2017, we entered into an Employment Agreement with
William Bossung, our Chief Financial Officer. Pursuant to Mr.
Bossung’s Employment Agreement, we have agreed to pay Mr. Bossung
an annual base salary of $140,000, and he may receive employee
stock options as determined by the Board of Directors. Mr.
Bossung’s employment is “at will” and either party may terminate
the agreement at any time.
If terminated without Cause or as a result of Constructive
Termination, Mr. Bossung will receive severance equal to three
months’ pay at his most recent Base Salary. If Mr. Bossung is
terminated for Cause, Disability or death, or voluntarily resigns,
he will not receive any severance, only unpaid salary as of the
date of termination and vested benefits. The Employment Agreement
includes non-compete and non-solicitation provisions that apply
during the term of the Employment Agreement and for a period of one
year after Mr. Bossung’s termination. Capitalized terms in this
section not defined herein have the meaning given to such term in
the Employment Agreement.
Mr. Bossung’s Employment Agreement also requires that certain
proprietary information of ours be kept confidential. We will be
the owner of certain intellectual property conceived or made by Mr.
Bossung prior to termination of the Employment Agreement. Mr.
Bossung’s Employment Agreement also contains other certain terms
and conditions which are common in such agreements, and reference
is made herein to the text of the Employment Agreement which is
filed herewith as Exhibit 10.32.
Summary Compensation Table
The following table sets forth information with respect to
compensation earned by our Chief Executive Officer, President,
Chief Financial Officer and Chief Technology Officer for the years
ended December 31, 2018 and 2017.
|
Name and
Principal Position
|
Year |
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan
Compensation ($) |
Nonqualified Deferred Compensation
($) |
All Other
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Stiles |
2018 |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
|
President and CEO |
2017 |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
58,437 |
58,437 |
|
|
|
|
|
|
|
|
|
|
|
|
William Bossung |
2018 |
109,585 |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
109,585 |
|
Secretary and CFO |
2017 |
99,073 |
107,342 |
-0- |
-0- |
-0- |
-0- |
-0- |
206,415 |
|
|
|
|
|
|
|
|
|
|
|
|
Fred Covely |
2018 |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
|
CTO |
2017 |
|
30,371 |
-0- |
-0- |
-0- |
-0- |
114,000 |
144,371 |
|
|
|
|
|
|
|
|
|
|
|
|
Kevin “Duke” Pitts |
2018 |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
-0- |
Director Compensation
For the years ended December 31, 2018 and 2017, none of the members
of our Board of Directors received compensation for his or her
service as a director.
Outstanding Equity Awards at Fiscal Year-End
We do not currently have a stock option or grant plan.
ITEM 12 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth, as of December 18, 2019, certain
information with respect to our equity securities owned of record
or beneficially by (i) each of our Officers and Directors; (ii)
each person who owns beneficially more than 5% of each class of our
outstanding equity securities; and (iii) all Directors and
Executive Officers as a group.
|
Name and Address (1)
|
|
Common Stock Beneficial Ownership
|
|
Percentage of Common Stock Beneficial Ownership (2) |
| |
|
|
|
|
|
Kevin “Duke” Pitts (3) |
|
|
1,620,000 |
|
|
|
1.33 |
% |
| |
|
|
|
|
|
|
|
|
| William
Bossung (3) |
|
|
2,551,296 |
|
|
|
2.10 |
% |
| |
|
|
|
|
|
|
|
|
| Bill Croyle
(3)(4) |
|
|
663,670 |
|
|
|
<1% |
|
| |
|
|
|
|
|
|
|
|
| Jay
Decker |
|
|
85,345,862 |
|
|
|
70.18 |
% |
| |
|
|
|
|
|
|
|
|
| All Officers and
Directors as a Group (3 Persons) |
|
|
4,835,966 |
|
|
|
3.98 |
% |
| |
(1) |
Unless otherwise indicated, the
address of the shareholder is c/o Grey Cloak Tech Inc. |
| |
(2) |
Unless otherwise indicated, based
on 121,610,085 shares of common stock issued and outstanding.
Shares of common stock subject to convertible preferred stock and
options or warrants currently exercisable, or exercisable or
convertible within 60 days, are deemed outstanding for purposes of
computing the percentage of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person. |
| |
(3) |
Indicates one of our officers or
directors. |
| |
|
|
| |
(4) |
Includes 663,670 shares of common
stock held by BMJ Estate Matters, LLC, of which Mr. Croyle is the
controlling party. |
The issuer is not aware of any person who owns of record, or is
known to own beneficially, five percent or more of the outstanding
securities of any class of the issuer, other than as set forth
above. There are no classes of stock other than common stock issued
or outstanding.
There are no current arrangements which will result in a change in
control.
We do not currently have a stock option or grant plan.
ITEM 13 - CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
For the year ended December 31, 2018, we had expenses totaling $0
to a company owned by William Bossung, our Chief Financial Officer
and Director, for consulting fees, which is included in general and
administrative expenses – related party on the accompanying
statement of operations. As of December 31, 2018, there was no
accounts payable to the related party.
For the year ended December 31, 2017, we had expenses totaling
$58,437 to a company owned by William Bossung, our Chief Financial
Officer and Director, for consulting fees, which is included in
general and administrative expenses – related party on the
accompanying statement of operations. As of December 31, 2017,
there was no accounts payable to the related party.
For the year ended December 31, 2018, we had expenses totaling
$109,585 to Mr. Bossung for salaries, which is included in general
and administrative expenses – related party on the accompanying
statement of operations. As of December 31, 2018, there was $0 in
accounts payable – related party.
For the year ended December 31, 2017, we had expenses totaling
$99,073 to Mr. Bossung for salaries, which is included in general
and administrative expenses – related party on the accompanying
statement of operations. As of December 31, 2017, there was $0 in
accounts payable – related party. For the year ended December 31,
2017, we issued 146,330 shares of preferred stock valued at
$107,342 for a bonus to Mr. Bossung.
For the year ended December 31, 2018, we had expenses totaling
$42,000 to a company owned by Fred Covely, our then-Chief
Technology Officer and Director, for consulting fees, which is
included in general and administrative expenses – related party on
the accompanying statement of operations. As of December 31, 2018,
there was $15,000 in accounts payable – related party.
For the year ended December 31, 2017, we had expenses totaling
$114,000 to a company owned by Fred Covely, our then-Chief
Technology Officer and Director, for consulting fees, which is
included in general and administrative expenses – related party on
the accompanying statement of operations. As of December 31, 2017,
there was $0 in accounts payable – related party. For the year
ended December 31, 2017, we issued 41,403 shares of preferred stock
valued at $30,371 for a bonus to Mr. Covely.
On October 17, 2017, we granted 1,200,000 warrants as part of
convertible debt to Mr. Covely. The warrants allow the holder to
purchase 1,200,000 shares of common stock at an exercise price of
$0.25 per share and are exercisable for 3 years.
Director Independence
For purposes of determining director independence, we have applied
the definitions set out in NASDAQ Rule 5605(a)(2). The OTCQB on
which shares of common stock are quoted does not have any director
independence requirements. The NASDAQ definition of “Independent
Officer” means a person other than an Executive Officer or employee
of the Company or any other individual having a relationship which,
in the opinion of the Company’s Board of Directors, would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director. According to the NASDAQ definition,
none of our directors are independent.
ITEM 14 – PRINCIPAL ACCOUNTING
FEES AND SERVICES
Prager Metis CPAs, LLC was our independent registered public
accounting firm for the year ended December 31, 2018. Paritz &
Company, PA was our independent registered public accounting firm
for the year ended December 31, 2017 and had served as our
independent registered public accounting firm since our
inception.
Audit and Non-Audit Fees
The following table presents fees for professional services
rendered by our independent registered public accounting firm for
the audit of our annual financial statements for the years ended
December 31, 2018 and 2017.
| |
|
Years Ended December
31, |
| |
|
2018 (2) |
|
2017 (3) |
| Audit
Fees (1) |
|
$ |
31,000 |
|
|
$ |
29,000 |
|
| Audit Related
Fees |
|
|
— |
|
|
|
— |
|
| Tax Fees |
|
|
— |
|
|
|
— |
|
| All Other
Fees |
|
|
— |
|
|
|
— |
|
| Total |
|
$ |
31,000 |
|
|
$ |
29,000 |
|
(1) Audit fees were principally for audit and
review services.
(2) Fees for services rendered by Prager Metis
CPAs, LLC.
(3) Fees for services rendered by Paritz &
Company, PA.
Of the fees described above for the years ended December 31, 2018
and 2017, all were approved by the entire Board of Directors.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
(a)(1) Financial
Statements
The following financial statements are filed as part of this
report:
| Report of Independent
Registered Public Accounting Firm |
F-1 |
| |
|
| Consolidated Balance Sheets as of
December 31, 2018 and 2017 |
F-2 |
| |
|
| Consolidated Statement of
Operations for the year ended December 31, 2018 and 2017 |
F-3 |
| |
|
| Consolidated Statement of
Stockholders’ Deficit for the year ended December 31, 2018 and
2017 |
F-4 |
| |
|
| Consolidated Statement of Cash
Flows for the year ended December 31, 2018 and 2017 |
F-5 |
| |
|
| Notes to Consolidated Financial
Statements |
F-6
to F-20 |
(a)(2) Financial
Statement Schedules
We do not have any financial statement schedules required to be
supplied under this Item.
(a)(3) Exhibits
Refer to (b) below.
(b) Exhibits
| |
(1) |
Incorporated by reference from our
Registration Statement on Form S-1 dated and filed with the
Commission on March 6, 2015. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
Grey Cloak Tech Inc. |
|
|
|
|
| |
|
|
|
Dated: April 1, 2020 |
|
/s/ Kevin Pitts |
| |
By: |
Kevin “Duke” Pitts |
| |
Its: |
President |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Dated: April 1, 2020 |
|
/s/ William Bossung |
| |
By: |
William Bossung |
| |
Its: |
Secretary and
Chief Financial Officer |
