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, 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.)
6445 S. Tenaya Way, Suite B110 Las Vegas, NV (Address of principal executive offices)	89113 (Zip Code)

 

Registrant’s telephone number, including area code (720) 463-1004

 

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 October 26, 2020, there were 305,787,410 shares of common stock, $0.001 par value, issued and outstanding.

 

GREY CLOAK TECH INC.

 

TABLE OF CONTENTS 

 

			Page
PART I – FINANCIAL INFORMATION			1
	Item 1. Financial Statements		2
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 3. Quantitative and Qualitative Disclosure About Market Risks		24
	Item 4. Controls and Procedures		24
PART II – OTHER INFORMATION			25
	Item 1. Legal Proceedings		25
	Item 1A.Risk Factors		25
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25
	Item 3. Defaults Upon Senior Securities		26
	Item 4. Mine Safety Disclosures		26
	Item 5. Other Information		26
	Item 6. Exhibits		27
SIGNATURES			28

 

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,
		2020				2019
ASSETS
CURRENT ASSETS
Cash		$	379,488			$	133,451
Accounts receivable			311,556				26,473
Inventory			3,185,553				3,081,158
Note receivable			—				—
Accrued interest receivable			—				—
Total current assets			3,876,597				3,241,083
Fixed assets, net of accumulated depreciation of $42,993 and $36,895, respectively			8,348				15,183
Website, net of accumulated amortization of $2,800 and $2,800, respectively			—				—
Patents/Trademarks			374,377				—
Deposit			—				—
Goodwill			193,260				193,260
Total other assets			575,984				208,443
TOTAL ASSETS		$	4,452,582			$	3,449,526
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accounts payable		$	51,220			$	21,125
Accounts payable - related party			—				—
Accrued liabilities			52,900				53,341
Notes payable			—				79,667
Notes payable - related party			866				1,050,866
Convertible debt, net of discount of $0.00 and $0.00, respectively			6,750				166,750
Convertible debt - related party, net of discount of $0.00 and $0.00, respectively			—				1,341,876
Accrued interest payable			2,241				49,902
Accrued interest payable - related party			—				491,221
Derivative liabilities			10,279				1,060,388
Total current and total liabilities			124,256				4,315,136
STOCKHOLDERS' EQUITY (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,305,787,410 and 121,10,085 shares issued and outstanding, respectively			305,787				121,610
Additional paid-in capital			15,349,536				9,392,903
Accumulated deficit			(11,326,998	)			(10,380,123	)
Total stockholders' equity (deficit)			4,328,325				(865,610	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	4,452,582			$	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 THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2020 AND 2019

 (Unaudited)

 

		FOR THE THREE MONTHS ENDED								FOR THE NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2020				2019				2020				2019
REVENUE		$	533,099			$	273,302			$	1,140,657			$	571,615
COST OF REVENUE			226,532				15,861				443,178				93,865
GROSS PROFIT			306,567				257,442				697,479				477,750
OPERATING EXPENSES
General and administrative			437,240				265,755				1,089,190				828,380
Total operating expenses			437,240				265,755				1,089,190				828,380
OTHER INCOME (EXPENSE)
Interest expense, net of interest income			10,120				(24,412	)			72,226				(56,951	)
Change in fair value on derivative			(1,907,444	)			(610,835	)			(1,050,109	)			1,025,195
Loss on extinguishment of debt			(46,836	)			—				(46,836	)			53,038
Impairment of Assets			—				—				1,579,883				—
Gain on sale of asset			—				—				—				—
Total other income (expense)			(1,944,160	)			(635,247	)			555,165				1,021,282
NET GAIN/(LOSS)		$	1,813,487			$	(643,560	)		$	(946,876	)		$	670,652
Loss per share - basic and diluted		$	0.01			$	(0.01	)		$	(0.00	)		$	0.01
Weighted average number of shares outstanding - basic and diluted			214,029,532				106,325,702				214,029,532				110,612,376

 

 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 ENDING
		SEPTEMBER 30,
		2020				2019
Cash Flows from Operating Activities:
Net Gain/(Loss)		$	(946,876	)		$	670,652
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization			6,836				6,215
Warrants issued for services			—				7,000
Non-cash compensation			—				108,260
Change in fair value on derivative liability			(1,050,109	)			(1,217,073	)
Loss on extinguishment of debt			(46,836	)			53,038
Changes in operating assets and liabilities:
Accounts receivable			(285,083	)			(51,313	)
Inventory			(104,395	)			(2,967,989	)
Accrued interest receivable			—				4,762
Accounts payable			30,096				(13,164	)
Accounts payable - related party			—				(15,000	)
Accrued liabilities			(441	)			27,857
Accrued interest payable			(826	)			(39,336	)
Accrued interest payable - related party			(491,221	)			460,609
Net Cash used in Operating Activities			(2,888,854	)			(2,965,481	)
Cash Flows from Investing Activities:
Purchase of fixed assets			—				(22,985	)
Purchase of BergaMet			—				1,907,010
Purchase of UBN			(369,089	)			—
Trademarks			(5,288	)
Payments of note receivable			—				79,295
Cash flows provided by (used in) Investing Activities:			(374,377	)			1,963,321
Cash Flows from Financing Activities:
Proceeds from issuance of common stock			6,140,811				—
Proceeds from issuance of convertible debt,			(1,501,876	)			404,241
Payments for repayment of convertible debt			—				(349,330	)
Proceeds from issuance of noted payable			(79,667	)			16,667
Proceeds from issuance of noted payable - related party			(1,050,000	)			1,050,866
Payments for repayment of notes payable - related party			—				(15,000	)
Net Cash provided by Financing Activities			3,509,268				1,107,444
Increase (decrease) in cash			246,037				105,284
Cash at beginning of period			133,451				485
Cash  at end of period		$	379,488			$	105,769

 

 The accompanying notes are an integral part of these unaudited consolidated financial statements.

 GREY CLOAK TECH INC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDING SEPTEMBER 30, 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			$	(10,380,123	)		$	(865,610	)
Issuance of shares acquisition of UBN			—				—				90,000,960				90,001				1,800,019				—				1,890,020
Issuance of common stock for debt conversion			—				—				39,248,714				39,249				1,465,159				—				1,504,408
Issuance of common stock for debt conversion			—				—				13,200,000				13,200				646,800				—				660,000
Issuance of common stock for debt conversion			—				—				35,827,651				35,828				1,755,555				—				1,791,383
Issuance of common stock for cash			—				—				5,900,000				5,900				289,100				—				295,000
Net (loss) gain for the period			—				—				—				—				—				(946,876	)			(946,876	)
Balance - September 30, 2020			—			$	—				305,787,410			$	305,787				15,349,536			$	(11,326,998	)		$	4,328,325

 

 The accompanying notes are an integral part of these unaudited consolidated financial statements.

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 September 30, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 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.

 

Accounts Receivables

 

Accounts receivables are recorded at the invoice amount and do not bear interest.

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

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. As of September 30, 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, for the goodwill listed on the books as of September 30, 2020, after working through our analysis of goodwill during the months ending September 30, 2020.

 

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.

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

·

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.

 

Due to the purchase of Ultimate Brian Nutrients, LLC being a related party transaction and the new division recording no revenue as of June 30, 2020, the Company found the goodwill to be impaired. Due to the impairment the Company expensed the goodwill related to the purchase as of June 30, 2020.

 

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.

 

The Company records revenue upon shipment of the products to the customers.

 

Concentration

 

There is no concentration of revenue for the months ended September 30, 2019 and the months ended September 30, 2020 because the revenue was earned from multiple customers.

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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. For the period ending December 31, 2019 and September 30, 2020, the Company did not have any amounts recorded pertaining to uncertain tax positions.

 

Fair Value Measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair value on a recurring basis.

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The change in Level 3 financial instrument is as follows:

 

Balance, January 1, 2020		$	1,060,388
Issued during the months ended September 30, 2020			1,668,799
Change in fair value recognized in operations			(591,800	)
Converted during the months ended September 30, 2020			(2,127,108	)
Balance, September 30, 2020		$	10,279

 

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.

 

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.

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 September 30, 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.

 

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 was agreed to be purchased by some third-party individuals. During the third quarter 2020, these third-party individuals decided to convert the outstanding notes into 2,400,000 shares of the Company’s common stock.

 

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. 

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

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, 2020 of $11,315,820. 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 two new companies as a wholly owned subsidiary.

 

NOTE 4 – RELATED PARTY

 

For the months ended September 30, 2020 and 2019, the Company had expenses totaling $58,000 and $24,000 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, 2020, there was a total of convertible debt of $0.00 and accrued interest payable of $0.00 due to an officer and director, employees, and shareholders.

 

NOTE 5 – CONVERTIBLE DEBT – RELATED PARTY

 

As of September 30, 2020, the Company converted the outstanding convertible debt which was due to a related party.

 

NOTE 6 – NOTES PAYABLE

 

As of September 30, 2020, the Company had the following:

 

Unsecured debt with shareholders of the Company, no due date, 0% interest,			866
TOTAL		$	866

 

As of September 30, 2020, the Company has no outstanding interest accrued for the above note.

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 7 – CONVERTIBLE DEBT

 

As of September 30, 2020, the Company had the following:

 

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			6,750
Less: Discount			—
TOTAL		$	6,750

 

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	321,092	$    10,279

 

As of September 30, 2020, the Company has an outstanding total of $2,241 in accrued interest for the above convertible notes.

 

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

September 30, 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 September 30, 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 September 30, 2020, the Company issued 41,727,651 shares of common stock. On several dates in September 2020, the Company raised $295,000 in direct security purchase agreement which equal to 5,900,000 shares of the Company’s common stock.

 

Warrant Issuances

 

As of September 30, 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

September 30, 2020 and 2019

 

NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)

 

Omnibus Stock Grant and Option Plan

 

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. This plan was approved by the Company by the end of the third quarter 2020. Purchase price under the plan is defined as: unless otherwise permitted by applicable law, the purchase price of Shares to be offered under the Plan shall not be less than eighty-five percent (85%) of the Fair Market Value of a Share on the date of grant (100% for 10% shareholders).

 

NOTE 9 – ACQUISITIONS

 

Acquisition of Ultimate Brain Nutrients, LLC

 

On April 3, 2020, the Company 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.

 

The assets acquired and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, April 3, 2020. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

 

Cash		$	(5,466	)
Current assets			315,604
Current liabilities			0
Net assets acquired		$	310,137

 

The purchase price method was used when calculating the fair market value of the UBN purchase. On April 3, 2020 the closing stock price for GRCK was $0.021. The total number of shares exchanged multiplied by the closing stock price equaled a purchase value of $1,890,020. The difference between the net assets acquired and the purchase value was recorded as $1,579,883 of goodwill for the purchase. Due to the goodwill impairment, the Company fully expensed the goodwill recorded in this transaction. The Company viewed UBN’s balance sheet as being fairly valued as of April 3, 2020 so no adjustment was needed under the purchase price method of valuation.

 

Acquisition of BergaMet and the Share Exchange Agreement

 

On February 4, 2019, the Company entered into a Share Exchange Agreement with BergaMet NA, LLC, a Delaware limited liability company (“BergaMet”), and the members of BergaMet, whereby the Company issued and exchanged 97,409,678 shares of its common stock for all of the outstanding equity securities of BergaMet (the “Exchange”). Through the Exchange, BergaMet became a wholly-owned subsidiary of the Company. The shares of common stock issued in the Exchange were equal to 80.1% of the Company’s outstanding common stock (post-exchange).

 

GREY CLOAK TECH INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

NOTE 9 – ACQUISITIONS (CONTINUED)

 

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 – DISCOUNTINUED 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

September 30, 2020 and 2019

 

NOTE 11 – BUSINESS SEGMENT INFORMATION

 

As of September 30, 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 September 30, 2020.

 

		CONSOLIDATED				HEALTH SUPPLEMENTS								CORPORATE
						BergaMet				UBN
Revenue			1,140,657				1,140,657				—				—
Cost of Revenue			443,178				443,178				—				—
Long-lived Assets			567,637				5,288				369,089				193,260
Gain (Loss) Before Income Tax			(935,698	)			(206,871	)			(111,937	)			(616,890
Identifiable Assets			3,185,553				3,185,553				—				—
Depreciation and Amortization			6,836				6,638				—				198

 

The following table presents selected financial information about the Company’s reportable segments for the three months ended September 30, 2020.

 

		CONSOLIDATED				HEALTH SUPPLEMENTS								CORPORATE
						BergaMet				UBN
Revenue			533,099				533,099				—				—
Cost of Revenue			226,532				226,532				—				—
Long-lived Assets			567,637				5,288				369,089				193,260
Gain (Loss) Before Income Tax			1,824,665				(30,921	)			(34,595	)			1,890,182
Identifiable Assets			3,185,553				3,185,553				—				—
Depreciation and Amortization			2,312				2,213				—				—

 

NOTE 12 – SUBSEQUENT EVENTS

 

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, $533,099 in the three months ended September 30, 2020, and $1,140,657 in the nine months ended September 30, 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. The shares of common stock issued in the Exchange were equal to approximately 80.1% of our outstanding common stock immediately following the exchange.

 

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 were obligated to pay another $164,578 approximately one (1) year later to retire convertible debt. In the third quarter of 2020, we facilitated the sale of the then-outstanding debt to a third-party who converted it into an aggregate of 3,400,000 shares of our common stock. 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, as we now have no outstanding variable-price convertible debt.

 

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 included in this Management’s Discussion and Analysis.

 

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 September 30, 2020, we have incurred accumulated net losses of $11,326,998. 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 just over 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, 2020 and 2019

 

Introduction

 

We had revenues of $533,099 and $1,140,657 for the three and nine months ended September 30, 2020, compared to $273,302 and $571,615 for the three and nine months ended September 30, 2019. Revenues for the six months ended June 30, 2020 were $607,558. Our revenues for the three months ended September 30, 2020 make up over 46% of our revenues for the year, and are over 250% higher than our revenues for the three months ended June 30, 2020.

 

Our operating expenses were $437,240 and $1,089,190 for the three and nine months ended September 30, 2020, compared to $265,755 and $828,380 for the three and nine months ended September 30, 2019. Operating expenses for the six months ended June 30, 2020 were $651,950. Our operating expenses were 2% lower than the immediately preceding quarter, even though our revenues were significantly higher.

 

Our operating expenses consisted entirely of general and administrative expenses.

 

Revenues and Net Operating Loss

 

Our revenue, operating expenses, net operating loss, and net gain (loss) for the three and nine months ended September 30, 2020 and 2019 were as follows:

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenue		$	533,099			$	273,302			$	1,140,657			$	571,615
Cost of Revenue			226,532				15,861				443,178				93,865
Gross Profit			306,567				257,442				697,479				477,750
Operating expenses:
General and administrative			437,240				265,755				1,089,190				828,380
Total operating expenses			437,240				265,755				1,089,190				828,380
Other income (expense)
Interest expenses, net of interest income			10,120				(24,412	)			72,226				(56,951	)
Change in fair value on derivative			(1,907,444	)			(610,835	)			(1,050,109	)			1,025,195
Loss on extinguishment of debt			(46,836	)			—				(46,836	)			53,038
Impairment of Assets			—				—				1,579,883				—
Gain on sale of asset			—				—				—				—
Total other income (expense)			(1,944,160	)			(635,247	)			555,165				1,021,282
Net income (loss)		$	1,813,487			$	(643,560	)		$	(946,876	)		$	670,652

 

Revenues

 

Revenues were $533,099 and $1,140,657 for the three and nine months ended September 30, 2020, compared to $273,302 and $571,615 for the three and nine months ended September 30, 2019, an increase of 95% for the three month periods and an increase of 100% for the nine month periods. The increases support the transition to our new business selling health nutrition products.

 

Cost of Revenue

 

Cost of revenue was $226,532 and $443,178 for the three and nine months ended September 30, 2020, compared to $15,861 and $93,865 for the three and nine months ended September 30, 2019, a, increase of 1,328% for the three month periods and an increase of 372% for the nine month periods. Gross profit was $306,567 and $697,479 for the three and nine months ended September 30, 2020, compared to $257,442 and $477,750 for the three and nine months ended September 30, 2019, an increase of 19% for the three month periods and an increase of 46% for the nine month periods.

 

Cost of revenue as a percentage of revenues was 42% for the three months ended September 30, 2020, compared to 39% for the nine months ended September 30, 2020.

 

General and Administrative

 

General and administrative expenses were $437,240 and $1,089,190 for the three and nine months ended September 30, 2020, compared to $265,755 and $828,380 for the three and nine months ended September 30, 2019. In the three months ended September 30, 2020, general and administrative expenses consisted mainly of professional fees of $77,724, consulting fees of $165,500, salary and wages of $38,392, postage of $10,618, advertising of $80,037, and transfer agent and filing fees of $1,745. 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.

 

Other Income (Expense)

 

Other income (expense) was $(1,944,160) and $555,165 for the three and nine months ended September 30, 2020, compared to $(635,247) and $1,021,282 for the three and nine months ended September 30, 2019, an increase of over 200% for the three month periods and a decrease of 46% for the nine month periods. In the three months ended September 30, 2020, other income (expense) consisted of interest expense, net of interest income of $10,120, change in fair value on derivative of $(1,907,444), and loss on extinguishment of debt of $(46,836). Change in fair value of derivative was related to the conversion of convertible debts into common stock shares. 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).

 

Net Income (Loss)

 

Net income (loss) was $1,813,487 and $(946,876), or $0.01 and $0.00 per share, for the three and nine months ended September 30, 2020, compared to $(643,560) and $670,652, or $(0.01) and $0.01 per share, for the three and nine months ended September 30, 2019.

 

Our net income (loss) various from period to period primarily because of the change in fair value on derivative and impairment of the UBN assets.

 

Liquidity and Capital Resources

 

Introduction

 

During the three months ended September 30, 2020, despite our increased revenues, 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 September 30, 2020 was $379,488. The increase in cash on hand was primarily from our net cash used in operating activities of $(2,888,854), offset by net cash provided by financing activities of $3,509,268. Our monthly cash flow burn rate for 2019 (not including inventory purchases) was approximately $46,000, and for the nine months ended September 30, 2020 it was approximately $321,000. 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, 2020 and December 31, 2019, respectively, are as follows:

 

	September 30,			December 31,			Increase/
	2020			2019			(Decrease)
Cash	$	379,488		$	133,451		$	246,037
Total Current Assets	3,876,597				3,241,083		635,515
Total Assets	4,452,582				3,449,526		1,003,056
Total Current and Total Liabilities	124,256				4,315,136		(4,190,879)

 

Our total current assets and total assets increased primarily as a result of our increase in cash of $246,037 and accounts receivable of $285,083, and our increase in patents and trademarks of $374,377 from the UBN acquisition. Our total current and total liabilities decreased by $4,190,879 during the nine months ended September 30, 2020 primarily because of a reduction in convertible debt – related party of $1,341,876, notes payable – related party of $1,050,000, and derivative liabilities of $1,050,109. Our accumulated deficit increased during the nine months ended September 30, 2020 by $946,876 to $11,326,998.

 

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, 2020 was $379,488. Based on our current level of revenues and monthly burn rate of approximately $321,000 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 $2,109,898 for the nine months ended September 30, 2020, compared to $2,965,481 for the nine months ended September 30, 2019. Net cash used in operating activities was $1,844,956 for the six months ended June 30, 2020, meaning that our net cash used in operating activities was $264,942 for the three month ended September 30, 2020. We use our cash for normal business operations. Our net cash used in operating activities for the nine months ended September 30, 2020 consisted of our net loss of $946,876, plus a change in fair value on derivative liability of $1,050,109 and accrued interest payable – related party of $491,221, offset in part by an increase in accounts receivable of $285,083 and an increase in inventory of $104,395.

 

Investing Activities

 

We had $374,377 in cash flows provided by investing activities for the nine months ended September 30, 2020, compared to $1,963,321 for the nine months ended September 30, 2019.

 

Financing Activities

 

Our net cash provided by financing activities for the nine months ended September 30, 2020 was $3,509,268, compared to $1,107,444 for the nine months ended September 30, 2019. Our net cash provided by financing activities consisted of proceeds from the issuance of common stock of $6,140,811, offset by proceeds from the issuance of convertible debt of $(1,501,876) and proceeds from the issuance of notes payable – related parts of $(1,050,000).

 

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, 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 September 30, 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 September 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1

Legal Proceedings

 

We are not a party to or otherwise involved in any legal proceedings.

 

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 1A

Risk Factors

 

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

 

Securities Purchase Agreements

 

On October 15, 2020, we entered into four (4) Securities Purchase Agreements to document transactions prior to September 30, 2020 whereby we sold and issued 5,900,000 shares of our common stock at $0.05 per share for aggregate consideration of $295,000. The purchasers included our officers and directors and our largest shareholder, as follows:

 

Name	Aggregate Principal and Interest	Aggregate Shares
Jay W. Decker	$100,000	2,000,000
Shelton S. Decker	$50,000	1,000,000
Logan B. Decker	$50,000	1,000,000
Dr. Gerald Haase	$95,000	1,900,000
Total	$295,000	5,900,000

 

The shares of common stock issued pursuant to the Securities Purchase Agreements were offered and sold in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The investors have acquired the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. The securities were not issued through any general solicitation or advertisement.

 

Note Conversion Agreements

 

Effective September 2, 2020, we entered into five (5) Note Conversion Agreements whereby an aggregate of $1,791,382.56 in outstanding principal and accrued interest was converted into an aggregate of 35,827,651 shares of our common stock. The conversion price was $0.05 per share. The conversions included a note held by our largest shareholder, as follows:

 

Name:	No. of Shares
Jay W. Decker	30,735,000
Genuine Partners	1,692,651
Dan Bishop	2,200,000
James Knox	1,000,000
Matthew Dee Grabau	200,000
Total	35,827,651

 

The shares of common stock issued pursuant to the Note Conversion Agreements were offered and sold in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The investors have acquired the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. The securities were not issued through any general solicitation or advertisement.

 

ITEM 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.

 

ITEM 5

Other Information

 

None.

 

ITEM 6

Exhibits

 

(a)       Exhibits

 

Exhibit Number		Name and/or Identification of Exhibit
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
100.INS		XBRL Instance Document
100.SCH		XBRL Schema Document
100.CAL		XBRL Calculation Linkbase Document
100.DEF		XBRL Definition Linkbase Document
100.LAB		XBRL Labels Linkbase Document
100.PRE		XBRL Presentation Linkbase Document

 

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:  October 29, 2020	/s/ Kevin Pitts
	By: Kevin “Duke” Pitts
	Its: President