UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
One)
|
☒ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
| ☐ |
|
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) |
| |
|
|
|
Nevada |
|
47-2594704 |
| (State or other jurisdiction of |
|
(I.R.S. Employer |
| incorporation or organization) |
|
Identification No.) |
| |
|
|
|
10300 W. Charleston, Las Vegas, NV |
|
89135 |
| (Address of principal executive
offices) |
|
(Zip Code) |
| |
|
|
|
(702) 201-6450 |
|
(Registrant's telephone number,
including area code) |
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the previous 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
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,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
Non-accelerated filer
(Do
not check if a smaller reporting company)
|
☐ |
Smaller reporting company
Emerging growth company
|
☒
☒
|
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 Exchange Act). Yes ☐ No ☒
As of May 28, 2020, there were 250,859,759 shares of common stock,
$0.001 par value, issued and outstanding.
GREY CLOAK TECH INC.
TABLE OF CONTENTS
PART I – FINANCIAL
INFORMATION
This Quarterly 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 our
possible or assumed future results of operations set forth under
the heading: “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” 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. Our
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 |
Financial Statements |
GREY CLOAK TECH INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
|
SEPTEMBER 30, |
|
DECEMBER 31, |
|
|
|
2019 |
|
2018 |
|
ASSETS |
|
|
|
|
| |
|
|
|
|
| CURRENT ASSETS |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
105,769 |
|
|
$ |
485 |
|
| Accounts
receivable |
|
|
51,313 |
|
|
|
— |
|
| Inventory |
|
|
2,968,489 |
|
|
|
500 |
|
| Note receivable |
|
|
— |
|
|
|
79,295 |
|
|
Accrued interest receivable |
|
|
— |
|
|
|
4,762 |
|
|
Total current assets |
|
|
3,125,571 |
|
|
|
85,042 |
|
| |
|
|
|
|
|
|
|
|
| Fixed assets, net of
accumulated depreciation of $6,282 and $1,582, respectively |
|
|
17,495 |
|
|
|
726 |
|
| Website, net of
accumulated amortization of $2,800 and $2,800, respectively |
|
|
— |
|
|
|
— |
|
| Trademarks |
|
|
— |
|
|
|
— |
|
| Deposit |
|
|
— |
|
|
|
— |
|
| Goodwill |
|
|
193,260 |
|
|
|
— |
|
|
Total other assets |
|
|
210,755 |
|
|
|
726 |
|
| |
|
|
|
|
|
|
|
|
| TOTAL
ASSETS |
|
$ |
3,336,326 |
|
|
$ |
85,768 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
44,176 |
|
|
$ |
57,340 |
|
| Accounts
payable - related party |
|
|
— |
|
|
|
15,000 |
|
| Accrued
liabilities |
|
|
27,857 |
|
|
|
— |
|
| Notes
payable |
|
|
79,667 |
|
|
|
63,000 |
|
| Notes
payable - related party |
|
|
1,050,866 |
|
|
|
— |
|
| Convertible
debt, net of discount of $0.00 and $82,116, respectively |
|
|
166,750 |
|
|
|
654,453 |
|
| Convertible
debt - related party, net of discount of $0.00 and $63,247,
respectively |
|
|
641,876 |
|
|
|
61,223 |
|
| Accrued
interest payable |
|
|
44,563 |
|
|
|
83,899 |
|
| Accrued
interest payable - related party |
|
|
462,359 |
|
|
|
1,750 |
|
|
Derivative liabilities |
|
|
1,496,246 |
|
|
|
2,713,319 |
|
|
Total current and total liabilities |
|
|
4,014,360 |
|
|
|
3,649,984 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value,
75,000,000 shares authorized, none and 1,333,334 shares issued and
outstanding, respectively |
|
|
— |
|
|
|
1,333 |
|
| Common
stock, $0.001 par value, 2,500,000,000 shares authorized,
121,060,085 and 6,455,354 shares issued and outstanding,
respectively |
|
|
121,610 |
|
|
|
6,455 |
|
| Additional paid-in
capital |
|
|
9,542,603 |
|
|
|
7,440,895 |
|
|
Accumulated deficit |
|
|
(10,342,247 |
) |
|
|
(11,012,899 |
) |
|
Total stockholders' deficit |
|
|
(678,034 |
) |
|
|
(3,564,216 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
$ |
3,336,326 |
|
|
$ |
85,768 |
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| |
|
FOR
THE THREE MONTHS |
|
FOR
THE NINE MONTHS |
| |
|
ENDED |
|
ENDED |
| |
|
SEPTEMBER 30 |
|
SEPTEMBER 30 |
| |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
| |
|
|
|
|
|
|
|
|
|
REVENUE |
|
$ |
273,302 |
|
|
$ |
15,203 |
|
|
$ |
571,615 |
|
|
$ |
66,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| COST OF
REVENUE |
|
|
15,861 |
|
|
|
(839 |
) |
|
|
93,865 |
|
|
|
24,748 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GROSS
PROFIT |
|
|
257,442 |
|
|
|
16,042 |
|
|
|
477,750 |
|
|
|
41,371 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
265,755 |
|
|
|
112,053 |
|
|
|
828,380 |
|
|
|
504,931 |
|
| Total
operating expenses |
|
|
265,755 |
|
|
|
112,053 |
|
|
|
828,380 |
|
|
|
504,931 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expense, net of interest income |
|
|
(24,412 |
) |
|
|
(538,591 |
) |
|
|
(56,951 |
) |
|
|
(1,150,614 |
) |
| Change in fair
value on derivative |
|
|
(610,835 |
) |
|
|
(122,438 |
) |
|
|
1,025,195 |
|
|
|
912,559 |
|
| Loss on
extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
53,038 |
|
|
|
(526,481 |
) |
|
Gain on sale of asset |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,951 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(635,247 |
) |
|
|
(661,029 |
) |
|
|
1,021,282 |
|
|
|
(757,585 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NET
LOSS |
|
$ |
(643,560 |
) |
|
$ |
(757,040 |
) |
|
$ |
670,652 |
|
|
$ |
(1,221,145 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per
share - basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.40 |
) |
|
$ |
0.01 |
|
|
$ |
(0.73 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
number of shares outstanding - basic and diluted |
|
|
106,325,702 |
|
|
|
1,876,051 |
|
|
|
110,612,376 |
|
|
|
1,669,088 |
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT
FOR THE MONTH ENDING SEPTEMBER 30, 2019 AND 2018
(Unaudited)
|
|
|
|
|
|
|
Additional |
|
|
|
|
| |
|
Preferred Stock |
|
Common Stock |
|
Paid-In |
|
Accumulated |
|
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Total |
| 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 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment to issuance of common stock
for debt conversion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
149,700 |
|
|
|
— |
|
|
|
149,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cashless exercise of warrants |
|
|
— |
|
|
|
— |
|
|
|
996,052 |
|
|
|
996 |
|
|
|
1,921 |
|
|
|
— |
|
|
|
2,917 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of sharess acquisition of
BergaMet |
|
|
— |
|
|
|
— |
|
|
|
97,409,678 |
|
|
|
97,410 |
|
|
|
1,850,784 |
|
|
|
|
|
|
|
1,948,194 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for preferred
stock conversion |
|
|
(1,333,334 |
) |
|
|
(1,333 |
) |
|
|
15,592,986 |
|
|
|
15,593 |
|
|
|
(14,260 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for debt
conversion |
|
|
— |
|
|
|
— |
|
|
|
806,015 |
|
|
|
806 |
|
|
|
106,912 |
|
|
|
— |
|
|
|
107,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common stock for
consulting fees |
|
|
— |
|
|
|
— |
|
|
|
350,000 |
|
|
|
350 |
|
|
|
6,650 |
|
|
|
— |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debt Forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss for
the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
670,652 |
|
|
|
670,652 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - September 30, 2019 |
|
|
0 |
|
|
|
0 |
|
|
|
121,610,085 |
|
|
|
121,610 |
|
|
|
9,542,603 |
|
|
$ |
(10,342,247 |
) |
|
$ |
(678,034 |
) |
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| |
|
FOR
THE NINE MONTHS |
| |
|
ENDED |
| |
|
SEPTEMBER 30 |
| |
|
2019 |
|
2018 |
| Cash Flows from
Operating Activities: |
|
|
|
|
|
|
|
|
| Net Loss |
|
$ |
670,652 |
|
|
$ |
(1,221,145 |
) |
| |
|
|
|
|
|
|
|
|
| Adjustments to reconcile net loss to
net cash |
|
|
|
|
|
|
|
|
| used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
6,215 |
|
|
|
8,101 |
|
| Warrants issued
for services |
|
|
7,000 |
|
|
|
— |
|
| Non-cash
interest |
|
|
— |
|
|
|
743,247 |
|
| Non-cash
compensation |
|
|
108,260 |
|
|
|
— |
|
| Change in fair
value on derivative liability |
|
|
(1,217,073 |
) |
|
|
(459,666 |
) |
| Loss on
extinguishment of debt |
|
|
53,038 |
|
|
|
526,481 |
|
| Gain on sale of
asset |
|
|
— |
|
|
|
(6,951 |
) |
| Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(51,313 |
) |
|
|
16,000 |
|
| Inventory |
|
|
(2,967,989 |
) |
|
|
14,261 |
|
| Prepaid
expenses |
|
|
— |
|
|
|
— |
|
| Accrued interest
receivable |
|
|
4,762 |
|
|
|
(2,373 |
) |
| Deposits |
|
|
— |
|
|
|
(1,500 |
) |
| Accounts
payable |
|
|
(13,164 |
) |
|
|
(22,328 |
) |
| Accounts payable -
related party |
|
|
(15,000 |
) |
|
|
29,420 |
|
| Accrued
liabilities |
|
|
27,857 |
|
|
|
— |
|
| Accrued interest
payable |
|
|
(39,336 |
) |
|
|
51,999 |
|
|
Accrued interest payable - related party |
|
|
460,609 |
|
|
|
213 |
|
| Net
Cash used in Operating Activities |
|
|
(2,965,481 |
) |
|
|
(324,241 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Investing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchase of fixed assets |
|
|
(22,985 |
) |
|
|
— |
|
| Cash received from sale of asset |
|
|
— |
|
|
|
50,000 |
|
| Purchase of BergaMet |
|
|
1,907,010 |
|
|
|
— |
|
| Payments of
note receivable |
|
|
79,295 |
|
|
|
— |
|
| Cash
flows provided by (used in) Investing Activities: |
|
|
1,963,321 |
|
|
|
50,000 |
|
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Financing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Proceeds from issuance of convertible
debt, |
|
|
404,241 |
|
|
|
194,583 |
|
| Payments for repayment of convertible
debt |
|
|
(349,330 |
) |
|
|
— |
|
| Proceeds from issuance of noted
payable |
|
|
16,667 |
|
|
|
3,000 |
|
| Proceeds from issuance of noted
payable - related party |
|
|
1,050,866 |
|
|
|
— |
|
| Payments for repayment of notes
payable - related party |
|
|
(15,000 |
) |
|
|
|
|
| Liabilities
assumed |
|
|
— |
|
|
|
— |
|
| Net
Cash provided by Financing Activities |
|
|
1,107,444 |
|
|
|
197,583 |
|
| |
|
|
|
|
|
|
|
|
| Increase (decrease)
in cash |
|
|
105,284 |
|
|
|
(76,658 |
) |
| Cash at
beginning of period |
|
|
485 |
|
|
|
81,653 |
|
|
Cash at end of period |
|
$ |
105,769 |
|
|
$ |
4,995 |
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
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 has additionally
acquired BergaMet NA, LLC which markets and sells heath
supplemental products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
statements and with the instructions to Form 10-Q and Article 8 of
Regulation S-X of the United States Securities and Exchange
Commission (“SEC”). Accordingly, they do not contain all
information and footnotes required by accounting principles
generally accepted in the United States of America for annual
financial statements. In the opinion of the Company’s management,
the accompanying unaudited consolidated financial statements
contain all the adjustments necessary (consisting only of normal
recurring accruals) to present the financial position of the
Company as of September 30, 2019 and the results of operations and
cash flows for the periods presented. The results of operations for
the nine months ended September 30, 2019 are not necessarily
indicative of the operating results for the full fiscal year or any
future period. These unaudited consolidated financial statements
should be read in conjunction with the financial statements and
related notes thereto included in the Company’s form 10-K for the
year ended December 31, 2018 filed with the SEC on April 1,
2020.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash
Cash includes cash in banks, money market funds, and certificates
of term deposits with maturities of less than three months from
inception, which are readily convertible to known amounts of cash
and which, in the opinion of management, are subject to an
insignificant risk of loss in value.
Accounts Receivables
Accounts receivables are recorded at the invoice amount and do not
bear interest.
Sharerails Note Receivable and Accrued Interest
On January 1, 2019, the Company decided to write off the money
loaned to Sharerails as being not collectible. The amount written
off was $84,057.06.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Inventory
Inventories consist of health supplements held for sale in the
ordinary course of business. The Company uses the weighted average
cost method to value its inventories at the lower of cost or
market. An allowance for inventory was established in 2018 and is
evaluated each quarter to determine if all items are still sellable
due to expiration dates.
Property and Equipment
The Company’s property and equipment are recorded at cost and
depreciated using the straight-line method over the useful lives of
the assets, generally from three to seven years. Upon sale or
disposal of property and equipment, the related asset cost and
accumulated depreciation or amortization are removed from the
respective accounts and any gain or loss is reflected in current
operations.
Goodwill
In accordance with Goodwill and Other Intangible Assets, goodwill
is defined as the excess of the purchase price over the fair value
assigned to individual assets acquired and liabilities assumed and
is tested for impairment at the reporting unit level on an annual
basis in the Company's fourth fiscal quarter or more frequently if
indicators of impairment exist. The performance of the test
involves a two-step process. The first step of the impairment test
involves comparing the fair value of the Company's reporting units
with each respective reporting unit's carrying amount, including
goodwill. The fair value of reporting units is generally determined
using the income approach. If the carrying amount of a reporting
unit exceeds the reporting unit's fair value, the second step of
the goodwill impairment test is performed to determine the amount
of any impairment loss. The second step of the goodwill impairment
test involves comparing the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. The
Company sees the goodwill to have a ten-year useful life. No
goodwill impairment was recognized during the quarter ending
September 30, 2019.
Revenue Recognition
Beginning January 1, 2019, the Company implemented ASC
606, Revenue from Contracts with Customers. Although the
new revenue standard is expected to have an immaterial impact, if
any, on our ongoing net income, we did implement changes to our
processes related to revenue recognition and the control activities
within them. These included the development of new policies
based on the five-step model provided in the new revenue standard,
ongoing contract review requirements, and gathering of information
provided for disclosures
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company recognizes revenue and cost of goods sold from product
sales or services rendered when control of the promised goods are
transferred to our clients in an amount that reflects the
consideration to which we expect to be entitled in exchange for
those goods and services. To achieve this core principle, we
apply the following five steps: identify the contract with
the client, identify the performance obligations in the contract,
determine the transaction price, allocate the transaction price to
performance obligations in the contract and recognize revenues when
or as the Company satisfies a performance obligation.
The Company records revenue upon shipment of the products to the
customers.
Concentration
There is no concentration of
revenue for the year ended December 31, 2018 and the nine months
ended September 30, 2019 because the revenue was earned from
multiple customers. One customer accounted for 100% of total
revenue earned during the year ended December 31, 2017.
Income Taxes
The Company accounts for income taxes using the asset and liability
method in accordance with ASC 740, “Accounting for Income Taxes”.
The asset and liability method provides that deferred tax assets
and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities and for operating
loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. The Company records a valuation allowance to reduce
deferred tax assets to the amount that is believed more likely than
not to be realized. As of September 30, 2019, the Company did not
have any amounts recorded pertaining to uncertain tax
positions.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value
Measurements and Disclosures”, which defines fair value as
used in numerous accounting pronouncements, establishes a framework
for measuring fair value and expands disclosure of fair value
measurements.
The estimated fair value of certain financial instruments,
including cash and cash equivalents are carried at historical cost
basis, which approximates their fair values because of the
short-term nature of these instruments.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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, July 1,
2019 |
|
$ |
885,411 |
|
| Issued during the three months
ended September 30, 2019 |
|
|
— |
|
| Change in fair value recognized in
operations |
|
|
610,835 |
|
| Converted
during the three months ended September 30, 2019 |
|
|
— |
|
| Balance,
September 30, 2019 |
|
$ |
1,496,246 |
|
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606). ASU 2014-09 amends the guidance for revenue
recognition to replace numerous, industry specific requirements and
converges areas under this topic with those of the International
Financial Reporting Standards. The ASU implements of five–step
process for customer contract revenue recognition that focuses on
transfer of control, as opposed to transfer of risk and rewards.
The amendment also requires enhanced disclosures regarding the
nature, amount, timing and uncertainty of revenues and cash flows
from contracts with customers. Other major provisions include the
capitalization and amortization of certain contract cost, ensuring
the time value of money is considered in the transaction price, and
allowing estimates of variable consideration to be recognized
before contingencies are resolved in certain circumstances. The
amendments in this ASU are effective for reporting period beginning
after December 15, 2016, and early adoption is prohibited. Entities
can transition to the standard either retrospectively or as a
cumulative-effect adjustment as of the date of adoption.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company’s revenues are recognized when control of the promised
goods or services is transferred to our clients (upon shipment of
goods) in an amount that reflects the consideration to which we
expect to be entitled in exchange for those goods and services. To
achieve this core principle, we apply the following five steps: (1)
Identify the contract with a client; (2) Identify the performance
obligations in the contract; (3) Determine the transaction price;
(4) Allocate the transaction price to performance obligations in
the contract; and (5) Recognize revenues when or as the Company
satisfies a performance obligation.
We adopted ASC 2014-09 on January 1, 2019. Although the new revenue
standard is expected to have an immaterial impact, if any, on our
ongoing net income, we did implement changes to our processes
related to revenue recognition and the control activities with
them.
Convertible Instruments
The Company evaluates and account for conversion options embedded
in convertible instruments in accordance with ASC 815
“Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options
from their host instruments and account for them as free-standing
derivative financial instruments according to certain criteria. The
criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are
not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies
both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair
value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been
determined that the embedded conversion options should not be
bifurcated from their host instruments) as follows: The Company
records when necessary, discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related
debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a
conversion option has been bifurcated using the general
extinguishment standards. The debt and equity linked derivatives
are removed at their carrying amounts and the shares issued are
measured at their then-current fair value, with any difference
recorded as a gain or loss on extinguishment of the two separate
accounting liabilities. During the six months ending September 30,
2019, the Company recognized a gain on extinguishment of $394,208
from the conversion of convertible debt with a bifurcated
conversion option.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Gain on Extinguishment of debt
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.
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 startup costs and
expenses. As a result, the Company incurred accumulated net losses
from Inception (December 19, 2014) through the period ended
September 30, 2019 of $10,339,871. In addition, the Company’s
development activities since inception have been financially
sustained through equity financing. Management plans to seek
funding through debt and equity financing and has recently acquired
a new company as a wholly owned subsidiary.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 4 – RELATED PARTY
For the three months ended September 30, 2019 and 2018, the Company
had expenses totaling $13,215 and $50,000, respectively, to an
officer and director for salaries, which is included in general and
administrative expenses on the accompanying statement of operations
As of September 30, 2019, there was convertible debt of $641,876
and accrued interest payable of $14,109 due to an officer and
director, employees, and shareholders.
NOTE 5 – CONVERTIBLE DEBT – RELATED PARTY
As of September 30, 2019, the Company had the following:
Unsecured convertible
debt, due 04/13/20, 4% interest, converts at a 30% discount to
market price based on the last 20 days trading price
|
|
|
61,876 |
|
Unsecured
convertible debt, due 04/13/20, ranging between 4% and 8% interest,
converts at $0.03 for a total of 19,333,333 shares
|
|
|
580,000 |
|
| TOTAL |
|
$ |
641,876 |
|
As of September 30, 2019, the Company has an outstanding total of
$14,109 in accrued interest for the above convertible notes.
Below represent the Black-Scholes Option Pricing Model calculations
for the above convertible note payables:
| Payee |
|
Number of options valued |
|
Value of Convertible Option |
| Unsecured Convertible debt
#1 |
|
|
13,125,194 |
|
|
$ |
370,171 |
|
| Unsecured Convertible debt #2 |
|
|
19,700,518 |
|
|
$ |
491,180 |
|
NOTE 6 – NOTES PAYABLE
As of September 30, 2019, the Company had the following:
| Unsecured debt with
shareholders of the Company, due 01/17/2024, 4% interest. |
|
$ |
1,050,000 |
|
| Unsecured debt with shareholders of
the Company, due 02/04/2020, 4% interest, interest due
quarterly. |
|
|
79,667 |
|
| Unsecured debt with shareholders
of the Company, no due date, 0% interest, |
|
|
866 |
|
| Less:
Discount |
|
|
— |
|
| TOTAL |
|
$ |
1,130,533 |
|
As of September 30, 2019, the Company has an outstanding total of
$450,339 in accrued interest for the above note and past
obligations which are unpaid.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 7 – CONVERTIBLE DEBT
As of September 30, 2019, the Company had the following:
| 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
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, 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 |
|
|
166,750 |
|
| Less:
Discount |
|
|
— |
|
| TOTAL |
|
$ |
166,750 |
|
Below represent the Black-Scholes Option Pricing Model calculations
for the above convertible note payables:
| Payee |
|
Number of options valued |
|
Value of Convertible Option |
| Unsecured Convertible debt
#1 |
|
|
17,503,228 |
|
|
$ |
455,725 |
|
| Unsecured Convertible debt #2 |
|
|
6,212,763 |
|
|
$ |
160,200 |
|
| Unsecured Convertible debt #3 |
|
|
913,592 |
|
|
$ |
18,969 |
|
As of September 30, 2019, the Company has an outstanding total of
$42,474 in accrued interest for the above convertible notes.
One of the convertible promissory notes is in default but
management has not been able to make contact with this party, due
to them living out of the country. We have calculated the
derivative liability as if it is in default (but the note’s default
interest rate stays the same at 8%) and will still accrue
appropriate interest until the note is fully satisfied or converted
into the Company’s common stock.
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
September 30, 2019 and 2018
NOTE 8 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized 75,000,000 common shares with a par
value of $0.001 per share. Each common share entitles the
holder to one vote on any matter on which action of the
stockholders of the corporation is sought. 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.
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.
As of September 30, 2019, there are no outstanding shares of
preferred stock. All the preferred stock was converted in common
stock on February 4, 2019. See recent developments for details.
Common Share Issuances
During the nine months ended September 30, 2019, the Company issued
a total of 1,802,067 shares of common stock for the conversion of
debt totaling $270,300 including interest of $31,774.
Warrant Issuances
As of September 30, 2019, there were 16,800 warrants outstanding,
of which 8,800 warrants are fully vested.
Adjustment to Additional Paid in Capital (APIC)
On January 1, 2019, the Company made an adjustment to APIC of
$149,699.40 due to preferred stock conversions back in 2017 and
2018.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
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.
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.
NOTE 9 – ACQUISITIONS
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).
The assets acquired and liabilities assumed as part of our
acquisition were recognized at their fair values as of the
effective acquisition date, February 4, 2019. The following table
summarizes the fair values assigned to the assets acquired and
liabilities assumed.
| Cash |
|
$ |
437,826 |
|
| Current assets |
|
|
2,801,317 |
|
| Current
liabilities |
|
|
(1,484,210 |
) |
| Net assets
acquired |
|
$ |
1,754,934 |
|
The purchase price method was used when calculating the fair market
value of the BergaMet purchase. On February 4, 2019 the closing
stock price for GRCK was $0.02. The total number of shares
exchanged multiplied by the closing stock price equaled a purchase
value of $1,948,194. The difference between the net assets acquired
and the purchase value was recorded as $193,260 of goodwill for the
purchase. The Company viewed BergaMet’s balance sheet as being
fairly valued as of February 4, 2019 so no adjustment was needed
under the purchase price method of valuation.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 10 – DISCONTINUED OPERATIONS
Healthy Extracts
On January 1, 2019, the Company decided to discontinue operating
the Healthy Extracts division. This division did not have any
operations in 2019. Due to the closure, the Company wrote off the
two inter-company loans totaling $714, the common stock and APIC
held from the purchase totaling $52,071, and retained earnings of
$52,071 in the 1st quarter of 2019.
Eqova Life Science
On June 1, 2019, the Company decided to discontinue operating the
Eqova Life Science division. The divisions last business activities
occurred in May 2019. Due to the closure, the Company wrote off the
common stock and APIC held from the purchase totaling $21,510 and
retained earnings of $21,510 in the 2nd quarter of
2019.
NOTE 11 – BUSINESS SEGMENT INFORMATION
As of September 30, 2019, the
Company operated in three reportable segments (Corporate, CBD,
Health Supplements) supported by a corporate group which conducts
activities that are non-segment specific. The following table
presents selected financial information about the Company’s
reportable segments for the six months ended September 30,
2019.
| |
|
CONSOLIDATED |
|
HEALTH SUPPLEMENTS |
|
CBD |
|
CORPORATE |
| Revenue |
|
|
571,615 |
|
|
|
571,615 |
|
|
|
— |
|
|
|
— |
|
| Cost of Revenue |
|
|
93,865 |
|
|
|
93,365 |
|
|
|
500 |
|
|
|
— |
|
| Long-lived Assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Gain Before Income Tax |
|
|
673,027 |
|
|
|
(241,544 |
) |
|
|
92,609 |
|
|
|
821,962 |
|
| Identifiable Assets |
|
|
3,336,326 |
|
|
|
3,142,090 |
|
|
|
— |
|
|
|
194,236 |
|
| Depreciation and Amortization |
|
|
6,215 |
|
|
|
5,786 |
|
|
|
— |
|
|
|
429 |
|
The following table presents selected financial information about
the Company’s reportable segments for the three months ended
September 30, 2019.
| |
|
CONSOLIDATED |
|
HEALTH SUPPLEMENTS |
|
CBD |
|
CORPORATE |
| Revenue |
|
|
273,302 |
|
|
|
273,302 |
|
|
|
— |
|
|
|
— |
|
| Cost of Revenue |
|
|
15,861 |
|
|
|
15,861 |
|
|
|
— |
|
|
|
— |
|
| Long-lived Assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Loss Before Income Tax |
|
|
(643,560 |
) |
|
|
2,614 |
|
|
|
— |
|
|
|
(646,174 |
) |
| Identifiable Assets |
|
|
3,336,326 |
|
|
|
3,142,090 |
|
|
|
— |
|
|
|
194,236 |
|
| Depreciation and Amortization |
|
|
2,312 |
|
|
|
2,213 |
|
|
|
— |
|
|
|
99 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019 and 2018
NOTE 12 – SUBSEQUENT EVENTS
Note Conversion Agreements and Advance Conversion
Agreements
Effective April 13, 2020, we entered into a total of eighteen (18)
agreements (16 Note Conversion Agreements and 2 Advance Conversion
Agreements) whereby an aggregate of $1,508,407.84 in outstanding
principal and accrued interest was converted into an aggregate of
39,248,714 shares of our common stock. The conversion price was
either $0.03 per share or $0.05 per share, depending on the
individual agreement. The conversions included notes and advances
held by our officers and directors and our largest shareholder, as
follows:
|
Name |
|
Aggregate Principal and Interest |
|
Aggregate Shares |
| Jay W. Decker |
|
$ |
1,282,231.11 |
|
|
|
33,418,004 |
|
| William Bossung |
|
$ |
65,677.84 |
|
|
|
2,189,262 |
|
| First Capital Properties LLC |
|
$ |
16,180.00 |
|
|
|
539,334 |
|
| Shelton S. Decker |
|
$ |
33,717.78 |
|
|
|
782,223 |
|
| Logan B. Decker |
|
$ |
33,717.78 |
|
|
|
782,223 |
|
| Kevin Pitts |
|
$ |
51,255.56 |
|
|
|
1,025,112 |
|
| Innovation Group Holdings, LLC |
|
$ |
25,627.78 |
|
|
|
512,556 |
|
Acquisition of Ultimate Brain Nutrients, LLC
On April 3, 2020, we entered into a Share Exchange Agreement by and
among Grey Cloak Tech Inc., Ultimate Brain Nutrients, LLC, a
Delaware limited liability company (“UBN”), and the members
of UBN, whereby we issued and exchanged 90,000,960 shares of our
common stock for all of the outstanding equity securities of UBN.
UBN is now our wholly-owned subsidiary. The shares of common stock
issued in the Exchange are equal to approximately 42.5% of our
outstanding common stock immediately following the exchange.
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.
|
ITEM 2 |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
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; raw material costs and availability; new product
development and introduction; existing government regulations and
changes in, or the failure to comply with, government regulations;
adverse publicity; competition; the loss of significant customers
or suppliers; 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 Quarterly Statement
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.
The following discussion and analysis of financial condition and
results of operations of the Company is based upon, and should be
read in conjunction with, its unaudited financial statements and
related notes elsewhere in this Form 10-Q, which have been prepared
in accordance with accounting principles generally accepted in the
United States.
Summary Overview
We were formed in December 2014. We had revenues of $66,119 in the
year ended December 31, 2018 from a variety of sources. We had
revenues of $571,615 for the nine months ended September 30, 2019,
which included $273,302 (or nearly 48% of the nine month total) for
the three months ended September 30, 2019. In March 2018, we
discontinued our previous 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 (“Eqova”), 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.
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
focused 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 for the year ended December 31, 2018 were
$64,384, compared to $0 for
the nine months ended September 30, 2019. We closed this business
in the second quarter of 2019.
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
As a result of our financial condition, we have received a report
from our independent registered public accounting firm for our
financial statements for the years ended December 31, 2018 and 2017
that includes an explanatory paragraph describing the uncertainty
as to our ability to continue as a going concern. From inception
(December 19, 2014) through the end of December 31, 2018, we have
incurred accumulated net losses of $11,012,899. In order to
continue as a going concern we must effectively balance many
factors and generate more revenue so that we can fund our
operations from our sales and revenues. If we are not able to do
this we may not be able to continue as an operating company. At our
current revenue and burn rate, our cash on hand will last less than
one month, and thus we must raise capital by issuing debt or
through the sale of our stock. However, there is no assurance that
our existing cash flow will be adequate to satisfy our existing
operating expenses and capital requirements.
Results of Operations for the Three and Nine Months Ended
September 30, 2019 and 2018
Introduction
We had revenues of $273,302 and $571,615 for the three and nine
months ended September 30, 2019, compared to $15,203 and $66,119
for the three and nine months ended September 30, 2018. Our
revenues for the three months ended June 30, 2019 were $201,040,
thus our revenues for the three months ended September 30, 2019
were nearly 36% higher than the immediately preceding quarter.
Our operating expenses were $265,755 and $828,380 for the three and
nine months ended September 30, 2019, compared to $112,053 and
$504,931 for the three and nine months ended September 30, 2018.
Operating expenses for three months ended June 30, 2019 were
$300,109. Our operating expenses were 11% lower for the three
months ended September 30, 2019 than the immediately preceding
quarter.
Our operating expenses for all periods consisted entirely of
general and administrative expenses.
Revenues and Net Operating Loss
Our revenue, operating expenses, net operating loss, and net loss
for the three and nine months ended September 30, 2019 and 2018
were as follows:
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
| |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
| |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
273,302 |
|
|
$ |
15,203 |
|
|
$ |
571,615 |
|
|
|
66,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Revenue |
|
|
15,861 |
|
|
|
(839 |
) |
|
|
93,865 |
|
|
|
24,748 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
265,755 |
|
|
|
112,053 |
|
|
|
828,380 |
|
|
|
504,931 |
|
| Total operating
expenses |
|
|
265,755 |
|
|
|
112,053 |
|
|
|
828,380 |
|
|
|
504,931 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expenses, net of interest income |
|
|
(24,412 |
) |
|
|
(538,591 |
) |
|
|
(56,951 |
) |
|
|
(1,150,614 |
) |
| Change in fair
value on derivative |
|
|
(610,835 |
) |
|
|
(122,438 |
) |
|
|
1,025,195 |
|
|
|
912,559 |
|
| Loss on
extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
53,038 |
|
|
|
(526,481 |
) |
| Gain
on sale of asset |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,951 |
|
| Total other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income
(loss) |
|
$ |
(643,560 |
) |
|
$ |
(757,040 |
) |
|
$ |
670,652 |
|
|
|
(1,221,145 |
) |
Revenues
Revenues were $273,302 and $571,615 for the three and nine months
ended September 30, 2019, compared to $15,203 and $66,119 for the
three and nine months ended September 30, 2018, an increase of
1,698% and 765%, respectively. The increase supports the transition
to our new business selling health nutrition products.
Cost of Revenue
Cost of revenue was $15,861 and $93,865 for the three and nine
months ended September 30, 2019, compared to $(839) and $24,748 for
the three and nine months ended September 30, 2018, an increase of
1,990% and 279%, respectively. Gross profit was $257,442 and
$477,750 for the three and nine months ended September 30, 2019,
compared to $16,042 and $41,371 for the three and nine months ended
September 30, 2018, an increase of 1,604% and 1,155%,
respectively.
Cost of revenue as a percentage of revenues was 6% for the three
months ended September 30, 2019, compared to 16% for the nine
months ended September 30, 2019.
General and Administrative
General and administrative expenses were $265,755 and $828,380 for
the three and nine months ended September 30, 2019, compared to
$112,053 and $504,931 for the three and nine months ended September
30, 2018. In the three months ended September 30, 2019, general and
administrative expenses consisted mainly of professional fees of
$7,500, consulting fees of $122,557, salary and wages of $40,930,
postage of $7,746, advertising of $42,710, and transfer agent and
filing fees of $136. In the three months ended September 30, 2018,
general and administrative expense consisted mainly of professional
fees of $1,639, consulting fees of $3,197, salary and wages of
$68,835, postage of $38, advertising of $186, and transfer agent
and filing fees of $0.
Other Income (Expense)
Other income (expense) was $(635,247) and 1,021,282 for the three
and nine months ended September 30, 2019, compared to $(661,029)
and $(757,585) for the three and nine months ended September 30,
2018. In the three months ended September 30, 2019, other income
(expense) consisted of interest expense, net of interest income of
$(24,412), and change in fair value on derivative of $(610,835).
Other income (expense) for the three months ended September 30,
2018 consisted of interest expense, net of interest income of
$(538,591), and change in fair value on derivative of
$(122,438).
Net Income (Loss)
Net income (loss) was $(643,560) and $670,652, or $(0.01) and $0.01
per share, for the three and nine months ended September 30, 2019,
compared to $(757,040) and $(1,221,145), or $(0.40) and ($0.73) per
share, for the three and nine months ended September 30, 2018.
Net income increased in 2019 primarily because of a change in fair
value on derivative.
Liquidity and Capital Resources
Introduction
During the nine months ended September 30, 2019, we were unable to
generate sufficient revenues and had negative operating cash flows.
Our cash on hand as of December 31, 2018 was $485, as of March 31,
2019 was $339,650, as of June 30, 2019 was $194,679, and as of
September 30, 2019 was 105,769. The increase in cash on hand over
December 31, 2018 was primarily from the purchase of BergaMet and
proceeds from the issuance of notes payable. Our monthly cash flow
burn rate for 2018 was approximately $27,400, for the three months
ended March 31, 2019 it was approximately $721,000, for the six
months ended June 30, 2019 it was approximately $432,000, and for
the nine months ended September 30, 2019 it was approximately
$328,000. We have strong short and medium term cash needs. We
anticipate that these needs will be satisfied through increased
revenues and 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.
Our cash, current assets, total assets, current liabilities, and
total liabilities as of September 30, 2019 and December 31, 2018,
respectively, are as follows:
| |
|
June 30, |
|
December 31, |
|
Increase/ |
| |
|
2019 |
|
2018 |
|
(Decrease) |
| |
|
|
|
|
|
|
|
Cash |
|
$ |
105,769 |
|
|
$ |
485 |
|
|
$ |
105,284 |
|
|
Total Current Assets |
|
|
3,125,571 |
|
|
|
85,042 |
|
|
|
3,040,529 |
|
|
Total Assets |
|
|
3,336,326 |
|
|
|
85,768 |
|
|
|
3,250,558 |
|
|
Total Current and Total Liabilities |
|
|
4,014,360 |
|
|
|
3,649,984 |
|
|
$ |
364,376 |
|
Our cash increased because, upon the acquisition of BergaMet, we
were able to access their cash, and we issued notes payable to
raise cash. Our total current assets and total assets increased for
the same reason, including inventory in the amount of $2,968,489 as
of September 30, 2019 that was owned by BergaMet. Our total current
and total liabilities increased during the nine months ended
September 30, 2019 primarily because we were able to shed over
$1,217,000 in derivative liabilities. Our accumulated deficit
decreased during the nine months ended September 30, 2019 by
$670,652 to $10,342,247 while our total stockholders’ deficit
decreased by $2,886,182.
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 September 30, 2019 was $105,769. Based on
our current level of revenues and monthly burn rate of
approximately $328,000 per month, we will need to continue to fund
operations by raising capital from the sale of our stock and debt
financings.
Sources and Uses of Cash
Operating Activities
We had net cash used in operating activities of $2,956,481 for the
nine months ended September 30, 2019, compared to $324,241 for the
nine months ended September 30, 2018. We use our cash for normal
business operations.
Investing Activities
We had $1,963,321 cash flows provided by investing activities for
the nine months ended September 30, 2019, compared to $50,000 for
the nine months ended September 30, 2018. The increase was
primarily because of cash from the acquisition of BergaMet.
Financing Activities
Our net cash provided by financing activities for the nine months
ended September 30, 2019 was $1,107,444, compared to $197,583 for
the nine months ended September 30, 2018. The increase of $909,861
was primarily because of the proceeds of notes payable, offset in
part by repayments of notes payable.
|
ITEM 3 |
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 4 |
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 September 30, 2019, 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 September 30,
2019, our disclosure controls and procedures were not effective at
the reasonable assurance level due to the material weaknesses
identified and described in our Annual Report on Internal Control
Over Financial Reporting filed in our Annual Report on Form
10-K.
Our principal executive officers do not expect that our disclosure
controls or internal controls will prevent all errors 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) 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, the
nine month period ended September 30, 2019, that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II – OTHER
INFORMATION
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.
As a smaller reporting company, we are not required to provide the
information required by this Item.
|
ITEM 2 |
Unregistered Sales of Equity Securities and Use of
Proceeds |
There were no unregistered sales of equity securities during the
three months ended September 30, 2019.
|
ITEM 3 |
Defaults Upon Senior Securities |
There have been no events which are required to be reported under
this Item.
|
ITEM 4 |
Mine Safety Disclosures |
Not applicable.
None.
(a) Exhibits
SIGNATURES
Pursuant to the requirements 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: June
1, 2020 |
/s/ Kevin
Pitts |
|
|
By: Kevin
“Duke” Pitts |
|
|
Its: President |
