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 March 31, 2020
|
☐ |
|
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
(State or other jurisdiction of
incorporation or organization)
|
47-2594704
(I.R.S. Employer
Identification No.)
|
|
10300 W. Charleston
Las Vegas, NV
(Address of principal executive offices)
|
89135
(Zip Code)
|
Registrant’s telephone number, including area code (702)
201-6450
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
|
☐ |
Smaller reporting company
|
☒
|
| (Do not check if a 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 August 14, 2020, there were 264,059,759 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)
| |
|
MARCH
31, |
|
DECEMBER 31, |
| |
|
2020 |
|
2019 |
| ASSETS |
|
|
|
|
| |
|
|
|
|
| CURRENT ASSETS |
|
|
|
|
| Cash |
|
$ |
67,663 |
|
|
$ |
133,451 |
|
| Accounts
receivable |
|
|
305,575 |
|
|
|
26,473 |
|
| Inventory |
|
|
3,033,491 |
|
|
|
3,081,158 |
|
| Note receivable |
|
|
— |
|
|
|
— |
|
|
Accrued interest receivable |
|
|
— |
|
|
|
— |
|
|
Total current assets |
|
|
3,406,729 |
|
|
|
3,241,083 |
|
| |
|
|
|
|
|
|
|
|
| Fixed assets, net of
accumulated depreciation of $39,207 and $36,895, respectively |
|
|
12,872 |
|
|
|
15,183 |
|
| Website, net of
accumulated amortization of $2,800 and $2,800, respectively |
|
|
— |
|
|
|
— |
|
| Trademarks |
|
|
— |
|
|
|
— |
|
| Deposit |
|
|
— |
|
|
|
— |
|
| Goodwill |
|
|
193,260 |
|
|
|
193,260 |
|
|
Total other assets |
|
|
206,132 |
|
|
|
208,443 |
|
| |
|
|
|
|
|
|
|
|
| TOTAL
ASSETS |
|
$ |
3,612,860 |
|
|
$ |
3,449,526 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
25,888 |
|
|
$ |
21,125 |
|
| Accounts
payable - related party |
|
|
— |
|
|
|
— |
|
| Accrued
liabilities |
|
|
59,490 |
|
|
|
53,341 |
|
| Notes
payable |
|
|
79,667 |
|
|
|
79,667 |
|
| Notes
payable - related party |
|
|
1,051,166 |
|
|
|
1,050,866 |
|
| Convertible
debt, net of discount of $0.00 and $0.00, respectively |
|
|
166,750 |
|
|
|
166,750 |
|
| Convertible
debt - related party, net of discount of $0.00 and $0.00,
respectively |
|
|
1,441,876 |
|
|
|
1,341,876 |
|
| Accrued
interest payable |
|
|
55,183 |
|
|
|
49,902 |
|
| Accrued
interest payable - related party |
|
|
528,388 |
|
|
|
491,221 |
|
|
Derivative liabilities |
|
|
445,252 |
|
|
|
1,060,388 |
|
|
Total current and total liabilities |
|
|
3,853,659 |
|
|
|
4,315,136 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Preferred stock, $0.001
par value, 75,000,000 shares authorized,
none and none shares issued and outstanding,
respectively |
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par
value, 2,500,000,000 shares authorized,
121,610,085 and 121,610,085 shares issued and
outstanding,
respectively |
|
|
121,610 |
|
|
|
121,610 |
|
| Additional paid-in
capital |
|
|
9,392,903 |
|
|
|
9,392,903 |
|
|
Accumulated deficit |
|
|
(9,755,312 |
) |
|
|
(10,380,123 |
) |
|
Total stockholders' deficit |
|
|
(240,799 |
) |
|
|
(865,610 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
$ |
3,612,860 |
|
|
$ |
3,449,526 |
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE MONTH ENDING MARCH 31, 2020
(Unaudited)
| |
|
MARCH 31 |
| |
|
2020 |
|
2019 |
| |
|
|
|
|
|
REVENUE |
|
$ |
455,839 |
|
|
$ |
97,273 |
|
| |
|
|
|
|
|
|
|
|
| COST OF
REVENUE |
|
|
196,057 |
|
|
|
31,763 |
|
| |
|
|
|
|
|
|
|
|
| GROSS
PROFIT |
|
|
259,782 |
|
|
|
65,509 |
|
| |
|
|
|
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
207,632 |
|
|
|
262,516 |
|
| Total
operating expenses |
|
|
207,632 |
|
|
|
262,516 |
|
| |
|
|
|
|
|
|
|
|
| OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
| Interest
expense, net of interest income |
|
|
42,476 |
|
|
|
(12,864 |
) |
| Change in fair
value on derivative |
|
|
(615,136 |
) |
|
|
1,749,436 |
|
| Loss on
extinguishment of debt |
|
|
— |
|
|
|
53,038 |
|
|
Gain on sale of asset |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(572,660 |
) |
|
|
1,789,611 |
|
| |
|
|
|
|
|
|
|
|
| NET
GAIN/(LOSS) |
|
$ |
624,811 |
|
|
$ |
1,592,604 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Loss
per share - basic and diluted |
|
$ |
0.01 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
| Weighted
average number of shares outstanding - basic and diluted |
|
|
121,610,085 |
|
|
|
76,552,964 |
|
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 MONTH ENDING |
| |
|
MARCH
31, |
| |
|
2020 |
|
2019 |
| Cash Flows from Operating
Activities: |
|
|
|
|
| Net Gain/(Loss) |
|
$ |
624,811 |
|
|
$ |
1,592,604 |
|
| |
|
|
|
|
|
|
|
|
| Adjustments to reconcile net loss to
net cash |
|
|
|
|
|
|
|
|
| used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and
amortization |
|
|
2,312 |
|
|
|
1,614 |
|
| Warrants issued
for services |
|
|
— |
|
|
|
7,000 |
|
| Non-cash
compensation |
|
|
— |
|
|
|
108,260 |
|
| Change in fair
value on derivative liability |
|
|
(615,136 |
) |
|
|
(1,941,315 |
) |
| Loss on
extinguishmnent of debt |
|
|
— |
|
|
|
53,038 |
|
| Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(279,102 |
) |
|
|
(27,157 |
) |
| Inventory |
|
|
47,667 |
|
|
|
(2,343,328 |
) |
| Accrued interest
receivable |
|
|
— |
|
|
|
4,762 |
|
| Accounts
payable |
|
|
4,763 |
|
|
|
(11,240 |
) |
| Accounts payable -
related party |
|
|
— |
|
|
|
(15,000 |
) |
| Accrued
liabilities |
|
|
6,149 |
|
|
|
— |
|
| Accrued interest
payable |
|
|
5,281 |
|
|
|
393,558 |
|
| Accrued
interest payable - related party |
|
|
37,167 |
|
|
|
769 |
|
| Net Cash
used in Operating Activities |
|
|
(166,088 |
) |
|
|
(2,176,435 |
) |
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Investing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Purchase of fixed assets |
|
|
— |
|
|
|
(22,985 |
) |
| Purchase of note receivable |
|
|
— |
|
|
|
79,295 |
|
| Purchase of BergaMet |
|
|
— |
|
|
|
1,907,010 |
|
| Cash
flows provided by (used in) Investing Activities: |
|
|
— |
|
|
|
1,963,321 |
|
| |
|
|
|
|
|
|
|
|
| Cash Flows from
Financing Activities: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Proceeds from issuance of convertible
debt, |
|
|
100,000 |
|
|
|
(71,092 |
) |
| Payments for repayment of convertible
debt |
|
|
— |
|
|
|
(349,330 |
) |
| Proceeds from issuance of notes
payable |
|
|
— |
|
|
|
(63,000 |
) |
| Proceeds from issuance of notes
payable - related party |
|
|
300 |
|
|
|
1,050,700 |
|
| Payments for repayment of notes
payable - related party |
|
|
— |
|
|
|
(15,000 |
) |
| Liabilities
assumed |
|
|
— |
|
|
|
— |
|
| Net Cash
provided by Financing Activities |
|
|
100,300 |
|
|
|
552,278 |
|
| |
|
|
|
|
|
|
|
|
| Increase (decrease)
in cash |
|
|
(65,788 |
) |
|
|
339,165 |
|
| Cash at
beginning of period |
|
|
133,451 |
|
|
|
485 |
|
|
Cash at end of period |
|
$ |
67,663 |
|
|
$ |
339,650 |
|
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 YEAR ENDING DECEMBER 2020 AND 2019
(Unaudited)
|
|
|
|
|
|
|
Additional |
|
|
|
|
| |
|
Preferred Stock |
|
Common Stock |
|
Paid-In |
|
Accumulated |
|
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Total |
| Balance - December
31, 2018 |
|
|
1,333,334 |
|
|
|
1,333 |
|
|
|
6,455,354 |
|
|
|
6,455 |
|
|
|
7,440,895 |
|
|
$ |
(11,012,899 |
) |
|
$ |
(3,564,216 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cashless exercise of warrants |
|
|
— |
|
|
|
— |
|
|
|
996,052 |
|
|
|
996 |
|
|
|
1,921 |
|
|
|
— |
|
|
|
2,917 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of shares 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 (gain)
for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
632,776 |
|
|
|
632,776 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - December 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
121,610,085 |
|
|
$ |
121,610 |
|
|
|
9,392,903 |
|
|
$ |
(10,529,823 |
) |
|
$ |
(1,015,310 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss (gain)
for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
624,811 |
|
|
|
624,811 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - March 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
|
121,610,085 |
|
|
$ |
121,610 |
|
|
|
9,392,903 |
|
|
$ |
(9,905,012 |
) |
|
$ |
(390,499 |
) |
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
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 March 31, 2020 and the results of operations and cash
flows for the periods presented. The results of operations for the
months ended March 31, 2020 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,
2019 filed with the SEC on August 10, 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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Accounts Receivables
Accounts receivables are recorded at the invoice amount and do not
bear interest.
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. As of March 31, 2020 and 2019, the total
of inventory which was written off as an inventory allowance was
$748,972 and $324,014
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 indicators were present after working through
our analysis of goodwill during the months ending March 31,
2020.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company has determined that the method applied represents the
fair value of the asset group principally because the valuation of
the intangibles with the asset group is based on the anticipated
cash flows related to the revenue stream from its customers. The
asset group excludes goodwill, long term non-operational assets and
liabilities and cash. As such, the principal value from the asset
group relates to the cash inflows from its customers and the cash
outflows required to service these customers. The fair value for
the asset group consists of the following:
|
· |
Fair
value of net revenues: computed using the income approach. The key
input to these computations is the anticipated cash inflows from
customers. These valuations include 100% of the cash inflows
related to the customer base, and taking cash outflows into
consideration. |
|
· |
Fair
value of working capital (including accounts receivable, inventory,
accrued expenses, and accounts payables). Due to the short-term
nature of the working capital, book value has been determined to be
fair value. These accounts represent either avoided future outflows
(inventory, prepaids) or future cash flows (accrued expense, AP and
AR) related to customer sales. |
|
· |
Fair
value of five years of revenue (2019 to 2023): we discounted our
cash flows to the anticipated cash projected to be received. We
also projected the anticipated cash outflows required to service
these customers. If the asset group was to be valued as a whole, we
would expect an income approach based on the revenues being
generated from the customers and expenses required to service those
customers, appropriately adjusted for the working capital position.
The sum of these values reasonably approximates this
approach. |
The Company’s revenue streams align directly with the intangibles,
which were recorded as a result of the BergaMet acquisition in
fiscal 2019. For purposes of the Step 2 recoverability test under
ASC 360 subsection 2.3., the net revenues from BergaMet customers
base were used. The revenue stream fairly reflects anticipated
future cash flows; accordingly, the intangibles associated with
these revenue streams have been tested with the expected cash
flows.
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
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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company records revenue upon shipment of the products to the
customers.
Concentration
There is no concentration of
revenue for the months ended March 31, 2019 and the months ended
March 31, 2020 because the revenue was earned from multiple
customers.
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, 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.
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)
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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,
2020 |
|
$ |
1,060,388 |
|
| Issued during the months ended
March 31, 2020 |
|
|
0 |
|
| Change in fair value recognized in
operations |
|
|
(615,136 |
) |
| Converted
during the months ended March 31, 2020 |
|
|
0 |
|
| Balance,
March 31, 2020 |
|
$ |
445,252 |
|
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.
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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Convertible Instruments
The Company evaluates and account for conversion options embedded
in convertible instruments in accordance with ASC 815
“Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion options
from their host instruments and account for them as free-standing
derivative financial instruments according to certain criteria. The
criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are
not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies
both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair
value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has been
determined that the embedded conversion options should not be
bifurcated from their host instruments) as follows: The Company
records when necessary, discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related
debt to their stated date of redemption.
The Company accounts for the conversion of convertible debt when a
conversion option has been bifurcated using the general
extinguishment standards. The debt and equity linked derivatives
are removed at their carrying amounts and the shares issued are
measured at their then-current fair value, with any difference
recorded as a gain or loss on extinguishment of the two separate
accounting liabilities. During the months ended March 31, 2020, the
Company did not have any conversions 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
March 31, 2020 and 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 $520,658 plus
interest. The Company paid an aggregate of $353,908 on or before
February 15, 2019. The balance owed and outstanding of $160,000
plus interest has not been paid and the two remaining notes are
currently in default.
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 March
31, 2020 of $9,9755,312. 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.
NOTE 4 – RELATED PARTY
For the months ended March 31, 2020 and 2019, the Company had
expenses totaling $10,000 and $13,320 respectively, to an officer
and director for salaries, which is included in general and
administrative expenses on the accompanying statement of operations
As of March 31, 2020, there was a total of convertible debt of
$1,441,876 and accrued interest payable of $58,788 due to an
officer and director, employees, and shareholders.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 5 – CONVERTIBLE DEBT – RELATED PARTY
As of March 31, 2020, 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 |
|
Unsecured convertible debt, due 04/13/20, 8% interest, converts at
$0.05 for a total of 14,000,000 shares
|
|
|
800,000 |
|
|
TOTAL |
|
$ |
1,441,876 |
|
As of March 31, 2020, the Company has an outstanding total of
$58,788 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 |
10,425,054 |
$153,803 |
|
Unsecured
Convertible debt #2 |
20,461,389 |
$ 51,358 |
|
Unsecured
Convertible debt #3 |
16,422,888 |
$ 10,044 |
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 6 – NOTES PAYABLE
As of March 31, 2020, 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, |
|
|
1,166 |
|
|
|
|
|
|
|
| TOTAL |
|
$ |
1,130,833 |
|
As of March 31, 2020, the Company has an outstanding total of
$469,600 in accrued interest for the above note and past
obligations which are unpaid.
NOTE 7 – CONVERTIBLE DEBT
As of March 31, 2020, 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 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 7 – CONVERTIBLE DEBT (CONTINUED)
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 |
15,111,163 |
$166,439 |
|
Unsecured
Convertible debt #2 |
5,310,376 |
$ 53,292 |
|
Unsecured
Convertible debt #3 |
778,221 |
$ 7,659 |
As of March 31, 2020, the Company has an outstanding total of
$55,183 in accrued interest for the above convertible notes.
Two of the convertible promissory notes feel into default during
the first quarter of 2020, but we have been able to secure an
extension for repayment on one of the two notes which will be
August 1st, 2020. We are in talks with the other party
to extend the other note. With the note still being negotiated, 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.
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.
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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)
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 March 31, 2020, 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 months ended March 31, 2020, the Company did not issue
any shares of common stock.
Warrant Issuances
As of March 31, 2020, there were 16,800 warrants outstanding, of
which 8,800 warrants are fully vested.
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.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
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.
NOTE 10 – DISCONTINUED OPERATIONS
Healthy Extracts
On January 1, 2019, the Company decided to discontinue operating
the Healthy Extracts division and did not operate in 2019. At the
time of the closure, the Company incurred a loss for the year of
$714 which eliminated all carrying values of assets and liabilities
for the division.
Eqova Life Science
On June 1, 2019, the Company decided to discontinue operating the
Eqova Life Science division which ceased all activities in May
2019. Due to the closure, the Company incurred a loss for the year
of $92,609 which eliminated all carrying values of assets and
liabilities for the division.
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 11 – BUSINESS SEGMENT INFORMATION
As of March 31, 2020, the
Company operated in two reportable segments (Corporate and 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 months ended March 31, 2020.
| |
|
CONSOLIDATED |
|
HEALTH SUPPLEMENTS |
|
CORPORATE |
| Revenue |
|
|
455,839 |
|
|
|
455,839 |
|
|
|
— |
|
| Cost of Revenue |
|
|
196,057 |
|
|
|
196,057 |
|
|
|
— |
|
| Long-lived Assets |
|
|
193,260 |
|
|
|
— |
|
|
|
193,260 |
|
| Gain Before Income Tax |
|
|
624,810 |
|
|
|
44,256 |
|
|
|
580,554 |
|
| Identifiable Assets |
|
|
3,419,601 |
|
|
|
3,419,531 |
|
|
|
70 |
|
| Depreciation and Amortization |
|
|
2,311 |
|
|
|
2,212 |
|
|
|
99 |
|
The following table presents
selected financial information about the Company’s reportable
segments for the three months ended March 31, 2020.
| |
|
CONSOLIDATED |
|
HEALTH SUPPLEMENTS |
|
CORPORATE |
| Revenue |
|
|
455,839 |
|
|
|
455,839 |
|
|
|
— |
|
| Cost of Revenue |
|
|
196,057 |
|
|
|
196,057 |
|
|
|
— |
|
| Long-lived Assets |
|
|
193,260 |
|
|
|
— |
|
|
|
193,260 |
|
| Gain Before Income Tax |
|
|
624,810 |
|
|
|
44,256 |
|
|
|
580,554 |
|
| Identifiable Assets |
|
|
3,419,601 |
|
|
|
3,419,531 |
|
|
|
70 |
|
| Depreciation and Amortization |
|
|
2,311 |
|
|
|
2,212 |
|
|
|
99 |
|
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 |
|
GREY CLOAK TECH INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
NOTE 12 – SUBSEQUENT EVENTS (CONTINUED)
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.
On May 30, 2020, the Company proposed a stock options agreement in
the amount of 10,550,000 shares with a strike price of $0.05 to
sixteen individuals.
During June 2020, the Company received a total of $660,000 in
exchange for 13,200,000 of common stock restricted shares through
subscription agreements at $0.05 cents per share.
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 $748,377 in the
year ended December 31, 2019, and $455,839 in the three months
ended March 31, 2020.
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 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. We believed that Eqova provided 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, but were $0 in 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.
Ultimate Brain Nutrients, LLC
On April 3, 2020, we entered into a Share Exchange Agreement with
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 were equal to
approximately 42.5% of our outstanding common stock immediately
following the exchange.
UBN is a science-based company that develops unique, plant-based
superior health technology neuro-products that provide natural
brain solutions. UBN has numerous proprietary products, with four
unique patent-pending formulations and one patent issued.
Financial results for UBN are not included in this Management’s
Discussion and Analysis because it was acquired after the three
months ended March 31, 2020.
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, 2019 and 2018
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 March 31, 2020, we have
incurred accumulated net losses of $ $9,755,312.. 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 Months Ended March 31, 2020
and 2019
Introduction
We had revenues of $455,839 for the three months ended March 31,
2020, compared to $97,273 for the three months ended March 31,
2019, an increase of $358,567, or 369%. Our operating expenses were
$207,632 for the three months ended March 31, 2020, compared to
$262,516 for the three months ended March 31, 2019, a decrease of
$54,884, or 21%.
Our operating expenses consisted entirely of general and
administrative expenses.
Revenues and Net Operating Loss
Our revenue, cost of revenue, gross profit, operating expenses, net
gain (loss) for the three months ended March 31, 2020 and 2019 were
as follows:
| |
|
Three Months March
31, |
|
Increase/ |
| |
|
2020 |
|
2019 |
|
(Decrease) |
| |
|
|
|
|
|
|
|
Revenue |
|
$ |
455,839 |
|
|
$ |
97,273 |
|
|
$ |
358,567 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Revenue |
|
|
196,057 |
|
|
|
31,763 |
|
|
|
164,294 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
|
259,782 |
|
|
|
65,509 |
|
|
|
194,273 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
207,632 |
|
|
|
262,516 |
|
|
|
(54,884 |
) |
| Total operating
expenses |
|
|
207,632 |
|
|
|
262,516 |
|
|
|
(54,884 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expenses, net of interest income |
|
|
42,476 |
|
|
|
(12,864 |
) |
|
|
55,339 |
|
| Change in fair
value on derivative |
|
|
(615,136 |
) |
|
|
1,749,436 |
|
|
|
(2,364,572 |
) |
| Loss
on extinguishment of debt |
|
|
— |
|
|
|
53,038 |
|
|
|
(53,038 |
) |
| Total other
income (expense) |
|
|
(572,660 |
) |
|
|
1,789,611 |
|
|
|
(2,362,271 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income
(loss) |
|
$ |
624,811 |
|
|
$ |
1,592,604 |
|
|
$ |
(967,793 |
) |
Revenues
Revenues were $455,839 for the three months ended March 31, 2020,
compared to $97,273 for the three months ended March 31, 2019, an
increase of $358,567, or 369%. The increase supports the transition
to our new business selling nutriceutical products.
Cost of Revenue
Cost of revenue was $196,057 for the three months ended March 31,
2020, compared to $31,763 for the three months ended March 31,
2019, an increase of $164,294, or 517%. Gross profit was $259,782
for the three months ended March 31, 2020, compared to $65,509 for
the three months ended March 31, 2019, an increase of $194,273, or
297%.
General and Administrative
General and administrative expenses were $207,632 for the three
months ended March 31, 2020, compared to $262,516 for the three
months ended March 31, 2019, a decrease of $54,884, or 21%. In the
three months ended March 31, 2020, general and administrative
expenses consisted mainly of professional fees $15,122, consulting
fees $73,754, salary and wages $39,727, postage $7,501, advertising
$19,551, and transfer agent and filing fees $1,470. In the three
months ended March 31, 2019, general and administrative expense
consisted mainly of professional fees $95,598, consulting of
$66,754, salary and wages $31,118, postage $12,882, advertising
$11,629, and transfer agent and filing fees of $4,687.
Other Income (Expense)
Other expense was $572,660 for the three months ended March 31,
2020, compared to other income of $1,789,611 for the three months
ended March 31, 2019, a decrease of $2,362,271, or 132%. Other
income (expense) consisted of interest expense, net of interest
income of $42,476 and change in fair value on derivative of
$(615,136). Other income (expense) for the three months ended March
31, 2019 consisted of interest expense, net of interest income of
$(12,864), change in the fair value on derivatives of $1,749,436,
and loss on extinguishment of debt of $53,038.
Net Income (Loss)
Net income (loss) was $624,811, or $0.01 per share, for the three
months ended March 31, 2020, compared to $1,592,604, or $0.02 per
share, for the three months ended March 31, 2019, a decrease of
$967,793. Net income increased primarily because of a change in
fair value on derivative.
Liquidity and Capital Resources
Introduction
During the three months ended March 31, 2020, we were unable to
generate sufficient revenues and had negative operating cash flows.
Our cash on hand as of December 31, 2019 was $133,451, and as of
March 31, 2020 was $67,663. The decrease in cash on hand was
primarily from our net cash used in operating activities of
$166,088, offset in part by net cash provided by financing
activities of $100,300. Our monthly cash flow burn rate for 2019
(not including inventory purchases) was approximately $46,000, and
for the three months ended March 31, 2020 it was approximately
$55,362. 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 March 31, 2020 and December 31, 2019,
respectively, are as follows:
|
|
March 31 |
|
December 31, |
|
Increase/ |
|
|
2019 |
|
2019 |
|
(Decrease) |
|
|
|
|
|
|
|
|
Cash |
$ |
67,663 |
|
$ |
133,451 |
|
$ |
(65,788) |
|
Total Current Assets |
3,406,729 |
|
|
3,241,083 |
|
165,646 |
|
Total Assets |
3,612,860 |
|
|
3,449,526 |
|
163,335 |
|
Total Current and Total Liabilities |
3,853,659 |
|
|
4,315,136 |
|
(461,476) |
Our total current assets and total assets increased, even though we
had a reduction in cash of $65,788 and a reduction in inventory of
$47,667, because of an increase in accounts receivable of $279,102.
Our total current and total liabilities decreased by $461,476
during the three months ended March 31, 2020 primarily because of a
reduction in derivative liabilities of $615,136, offset in part by
an increase in convertible debt – related party of $100,000. Our
accumulated deficit decreased during the three months ended March
31, 2020 by $624,811 to $9,755,312.
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 March 31, 2020 was $67,663. Based on our
current level of revenues and monthly burn rate of approximately
$46,000 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 $166,088 for the
three months ended March 31, 2020, compared to $2,176,435 for the
three months ended March 31, 2019. We use our cash for normal
business operations. Our net cash used in operating activities
consisted of our net gain of $624,811, offset in part by a change
in fair value on derivative liability of 615,136 and a decrease in
accounts receivable of $279,102.
Investing Activities
We had $zero cash flows provided by investing activities for the
three months ended March 31, 2020, compared to $1,963,321 for the
three months ended March 31, 2019.
Financing Activities
Our net cash provided by financing activities for the three months
ended March 31, 2020 was $100,300, compared to $552,278 for the
three months ended March 31, 2019. Our net cash provided by
financing activities consisted of proceeds from the issuance of
convertible debt of $100,000 and proceeds from the issuance of note
payable – related party of $300.
|
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 March 31, 2020, 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 March 31,
2020, 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
three month period ended March 31, 2020, 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 have been no events which are required to be reported
under this Item.
|
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: August
14, 2020 |
/s/ Kevin
Pitts |
|
|
By: Kevin
“Duke” Pitts |
|
|
Its: President |
