The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Grey Cloak
Tech Inc. (the “Company”) was incorporated in the State of Nevada on December 19, 2014. The Company
was formed
to provide cloud based software to detect advertising fraud on the internet
.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities
and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting
principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s
management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only
of normal recurring accruals) to present the financial position of the Company as of March 31, 2017 and the results of operations
and cash flows for the periods presented. The results of operations for the three months ended March 31, 2017 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, 2016 filed with the SEC on April 17, 2017.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash includes cash in banks, money market
funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible
to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Revenue Recognition
We recognize revenue when all of the following
conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided
to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of
our fees is probable.
The Company will record revenue when
it is realizable and earned and the computer programming services or marketing services have been rendered to the customers. Additionally,
the Company will record revenue from the sale of its software when the software is delivered to the customer or it will be recognized
ratably throughout the term of the contract.
Concentration
One customer accounted for 100% of total
revenue earned during the three months ended March 31, 2017 and 2016. 100% of the accounts receivable is due from this customer
at March 31, 2017 and December 31, 2016.
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 March 31, 2017, the Company did not have any amounts recorded pertaining to uncertain
tax positions.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Fair Value Measurements
The Company adopted the provisions of
ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain
financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair
values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted
prices in active markets for identical assets or liabilities
Level 2 — quoted
prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs
that are unobservable (for example cash flow modeling inputs based on assumptions)
The derivative liability in connection with
the conversion feature of the convertible debt, classified as a Level 3 liability, is the only financial liability measure at fair
value on a recurring basis.
The change in Level 3 financial instrument
is as follows:
Balance, January 1, 2017
|
|
$ 2,038,952
|
Issued during the three months ended March 31, 2017
|
|
1,597,811
|
Change in fair value recognized in operations
|
|
(1,176,871)
|
Converted during the three months ended March 31, 2017
|
|
(1,117,603)
|
Balance, March 31, 2017
|
|
$ 1,342,288
|
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Convertible Instruments
The Company evaluates and account for
conversion options embedded in convertible instruments in accordance with ASC 815 “
Derivatives and Hedging Activities
”.
Applicable GAAP requires companies to bifurcate
conversion options from their host instruments and account for them as free standing derivative financial instruments according
to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments
(when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows:
The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt
instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over
the term of the related debt to their stated date of redemption.
The Company accounts for the conversion of
convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked
derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any
difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities. During the three months ending
March 31, 2017, the Company recognized a loss on extinguishment of $52,977 from the conversion of convertible debt with a bifurcated
conversion option.
Common Stock Purchase Warrants
The Company classifies as equity any
contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in
the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own
stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). The Company classifies as assets or liabilities
any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and
if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free standing
derivatives at each reporting date to determine whether a change in classification is required.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 3 – GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company has generated minimal revenues from operations. Since
its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring
start up costs and expenses. As a result, the Company incurred accumulated net losses from Inception (December 19, 2014) through
the period ended March 31, 2017 of $4,619,470. In addition, the Company’s development activities since inception have been
financially sustained through equity financing. Management plans to seek funding through debt and equity financing.
NOTE 4 – RELATED PARTY
For the three months ended March 31,
2017, the Company had expenses totaling $28,000 to an officer and director for salaries, which is included in general and administrative
expenses – related party on the accompanying statement of operations. As of March 31, 2017, there was $0 in accounts payable
– related party.
For the three months ended March 31,
2017, the Company had expenses totaling $28,500 to a company owned by an officer and director for consulting fees, which is included
in general and administrative expenses – related party on the accompanying statement of operations. As of March 31, 2017,
there was $24,299 in accounts payable – related party.
NOTE 5 – NOTES PAYABLE –
RELATED PARTY
On July 28, 2016, the Company received
a loan of $15,000 from an officer and director of the Company. The loan bears interest at 8% per annum and due the earlier of January
27, 2017 or when the Company receives financing of over $45,000.
During the three months ended March
31, 2017, the Company recorded interest expense of $296. As of the date of this filing, the loan is in default.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 6 – CONVERTIBLE DEBT
On September 22, 2016, the Company executed
a convertible promissory note for $5,000. The loan bears interest at 12% per annum. The loan is due on December 31, 2016. In the
event of default, the interest rate increases to 22% per annum. During default the lender has the right to convert the principal
amount and unpaid interest of the loan at a rate of either the lesser of $0.20 or 60% of the lowest trading price during the prior
20 days of conversion.
On September 22, 2016, the Company executed
a convertible promissory note for $5,000. The loan bears interest at 12% per annum. The loan is due on December 31, 2016. In the
event of default, the interest rate increases to 22% per annum. During default the lender has the right to convert the principal
amount and unpaid interest of the loan at a rate of either the lesser of $0.20 or 60% of the lowest trading price during the prior
20 days of conversion.
On October 5, 2016, the Company executed
a convertible promissory note for $55,000 with an original issue discount of $10,000. The loan bears interest at 12% per annum.
The loan is due on December 31, 2016. In the event of default, the interest rate increases to 22% per annum. During default the
lender has the right to convert the principal amount and unpaid interest of the loan at a rate of either the lesser of $0.20 or
60% of the lowest trading price during the prior 20 days of conversion.
On January 23, 2017, the Company executed
three convertible promissory notes totaling $100,000. The loans bear interest at 8% per annum and are due on January 23, 2018.
The lender has the right to convert the principal amount and unpaid interest of the loan at a rate of the lower of $0.04 per share
or 60% of the lowest trading price during the prior 20 days of conversion.
On March 3, 2017, the Company executed
a convertible promissory note for $90,000. The loan bears interest at 12% per annum and is due on December 1, 2017. The lender
has the right to convert the principal amount and unpaid interest of the loan at a rate of 55% of the lowest trading price during
the prior 20 days of conversion.
On March 7, 2017, the Company executed
three convertible promissory notes totaling $90,000. The loans bear interest at 10% per annum and is due on March 9, 2018. The
lender has the right to convert the principal amount and unpaid interest of the loan at a rate of the lower of $0.03 per share
or 55% of the lowest trading price during the prior 20 days of conversion.
On March 8, 2017, the Company executed
two convertible promissory notes totaling $60,000. The loans bear interest at 10% per annum and are due on March 9, 2018. The lender
has the right to convert the principal amount and unpaid interest of the loan at a rate of the lower of $0.03 per share or 55%
of the lowest trading price during the prior 20 days of conversion.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 6 – CONVERTIBLE DEBT (CONTINUED)
On March 9, 2017, the Company executed
a convertible promissory note for $66,000. The loan bears interest at 12% per annum and is due on December 1, 2017. The lender
has the right to convert the principal amount and unpaid interest of the loan at a rate of 50% of the lowest trading price during
the prior 20 days of conversion.
On March 14, 2017, the Company executed
a convertible promissory note for $15,000. The loan bears interest at 10% per annum and is due on March 9, 2018. The lender has
the right to convert the principal amount and unpaid interest of the loan at a rate of the lower of $0.03 per share or 55% of the
lowest trading price during the prior 20 days of conversion.
During the three months ended March
31, 2017, the Company recorded interest expense of $13,106 and amortization of debt discount of $100,576.
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 7 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company has authorized 75,000,000 common
shares with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action
of the stockholders of the corporation is sought.
Common Share Issuances
On February 3, 2017, the Company issued 1,555,119
shares of common stock for the conversion of debt totaling $139,961 and gain on settlement of debt of $10,886.
On February 22, 2017, the Company issued 289,000
shares of common stock for the conversion of debt totaling $8,011 and gain on settlement of debt of $20,889.
On March 1, 2017, the Company issued 300,000
shares of common stock for the conversion of debt totaling $8,100 and gain on settlement of debt of $17,700.
On March 6, 2017, the Company issued 616,895
shares of common stock for the conversion of debt totaling $142,771 and loss on settlement of debt of $80,465.
GREY CLOAK TECH INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)
NOTE 7 – STOCKHOLDERS’ EQUITY
(CONTINUED)
On March 13, 2017, the Company issued 1,578,926
shares of common stock for the conversion of debt totaling $206,721 and loss on settlement of debt of $21,987.
On March 28, 2017, the Company issued 711,111
shares of common stock for the cashless exercise of 60,000 warrants.
Warrant Issuances
As of March 31, 2017, there were 9,696,250
warrants outstanding, of which 2,696,250 are fully vested.
NOTE 8 – SUBSEQUENT EVENTS
On April 10, 2017, the Company executed a convertible
promissory note for $30,000. The loan bears interest at 10% per annum and is due on April 10, 2018. The lender has the right to
convert the principal amount and unpaid interest of the loan at a rate of the lower of $0.03 per share or 55% of the lowest trading
price during the prior 20 days of conversion.
On April 20, 2017, the Company took
a third tranche of $45,000 with an OID of $10,750 from the convertible promissory note up to $300,000. The third tranche is due
on April 20, 2018. In the event of default, the interest rate increases to 22% per annum. The lender has the right to convert the
principal amount and unpaid interest of the loan at a rate of 56% of the lowest trading price during the prior 20 days of conversion.
However, if the stock price is below $0.10 then the loan can convert at a rate of 46% of the lowest trading price during the prior
20 days of conversion.
On April 28, 2017, the Company issued
1,156,889 shares of common stock for debt converted of $27,500 of principal and $3,736 of accrued interest.
On May 10, 2017, the Company issued
360,000 shares of common stock for debt converted of $7,561 of principal and $500 in fees.
On May 12, 2017, the Company executed a convertible
promissory note for $60,000. The loan bears interest at 12% per annum and is due on February 20, 2018. In the event of default,
the interest rate increases to 22% per annum. The lender has the right to convert the principal amount and unpaid interest of the
loan at a rate of 61% of the average of the lowest two trading price during the prior 15 days of conversion.