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GREY CLOAK TECH INC
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GREY CLOAK TECH : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/12/2018 | 11:33pm CEST

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 and, therefore, have a relatively short operating history. We had revenues of approximately $128,105 in the year ended December 31, 2017, 94% of which was from a single customer. We had revenues of approximately $19,856 in the three month period ended March 31, 2018, but no revenue from the same customer. In December 2017, we ended our relationship with this customer and have shifted our focus from software services to medically-focused CBD hemp oil products.


Eqova Life Sciences


On October 17, 2017, we acquired Eqova Life Sciences, a Nevada corporation ("Eqova"), through an exchange of shares of our Series A Convertible Preferred Stock for all of the outstanding equity interest of Eqova. As part of the Exchange, we have brought on Eqova's President and Director, Patrick Stiles, to serve as our President and Chief Executive Officer and as a Director on our Board of Directors.

Eqova is a medically-focused CBD company that develops clinical grade full spectrum hemp oil products, sold exclusively via partnerships with licensed medical practitioners to use with their patients. To date, we know of no other hemp oil company exclusively focused on the practitioner market, leaving it largely underserved. According to The Hemp Business Journal, CBD products marketplace are projected to grow by 700% by 2020 with annual sales reaching $2.1 billion. With a head start in a growing marketplace, we believe that Eqova provides us with a prime growth opportunity with an established business. Initial revenues of our hemp oil products from the acquisition of Eqova through December 31, 2017 and for the three months ended March 31, 2018 were $7,605 and $19,856, respectively.


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   Table of Contents

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, 2017 and 2016 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 period ended March 31, 2018, we have incurred accumulated net losses of $7,747,768. In order to continue as a going concern we must effectively balance many factors and begin to generate 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, 2018 and 2017


Introduction


We had revenues of $19,856 for the three months ended March 31, 2018, compared to $42,000 for the three months ended March 31, 2017. Our cost of revenue was $14,699 for the three months ended March 31, 2018 compared to $3,000 for the three months ended March 31, 2017, an increase of $11,699, or approximately 390%. Our operating expenses were $232,064 for the three months ended March 31, 2018, compared to $388,270 for the three months ended March 31, 2017, a decrease of $156,206, or approximately 40%.

Our operating expenses consisted mostly of general and administrative expenses, including general and administrative expenses to a related party.

Revenues and Net Operating Loss

Our revenue, operating expenses, net operating loss, and net loss for the three months ended March 31, 2018 and 2017 were as follows:


                                           Three Months         Three Months
                                             March 31,            March 31,          Increase/
                                               2018                 2017             (Decrease)

Revenue                                   $      19,856$      42,000$  (22,144 )

Operating expenses:
Cost of revenue                                  14,699                3,000            11,699
General and administrative                      113,673              331,770          (218,097 )
General and administrative - related
party                                           118,391               56,500            61,891
Total operating expenses                        246,763              391,270          (144,507 )

Net operating loss                             (226,907 )           (349,270 )        (122,363 )
Other income (expense)                          162,521             (148,893 )         311,414

Net loss                                  $     (64,386 )$    (498,163 )$  433,777




Revenues


Revenues were $19,856 for the three months ended March 31, 2018, compared to $42,000 for the three months ended March 31, 2017, a decrease of $22,144, or approximately 53%. For the three months ended March 31, 2017, nearly all of the total revenue came from a single customer. However, we received no revenue from this customer during the three months ended March 31, 2018. The decrease reflects the loss of this customer and the transition to our new business selling CBD products.


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Cost of Revenue



Cost of revenue was $14,699 for the three months ended March 31, 2018, compared to $3,00 for the three months ended March 31, 2017, an increase of $11,699, an increase of approximately 390%. The increase was due to the change of our business from a service-based business to a product-based business. Gross profit will be much smaller going forward because of this shift in our business.


General and Administrative


General and administrative expenses were $113,673 for the three months ended March 31, 2018, compared to $331,770 for the three months ended March 31, 2017, a decrease of $218,097, or 66%. The decrease was due to decrease in financing and loan fees, marketing fees, commissions and consulting fees. In the three months ended March 31, 2018, general and administrative expense consisted mainly of legal and professional fees totaling $29,514, consulting $3,893, salaries, wages and payroll costs of $15,703, advertising and marketing of $9,024, computer and programming of $6,033, travel expenses of $3,800, selling expenses of $1,777, commissions of $2,965, transfer agent and filing fees of $1,529, and accounting fees of $2,970. In the three months ended March 31, 2017, general and administrative expense consisted mainly of consulting $76,700, selling expenses of $895, commissions of $13,500, transfer agent and filing fees of $4,245, and accounting fees of $0.

General and administrative expenses - related party were $118,391 for the three months ended March 31, 2018, compared to $56,500 for the three months ended March 31, 2017, an increase of $61,891, or approximately 110%. The increase was mainly due to increase in compensation to Patrick Stiles.


Net Operating Loss


Net operating loss was $226,907 for the three months ended March 31, 2018, compared to $349,270 for the three months ended March 31, 2017, a decrease of $122,363, or approximately 35%. Net operating loss decreased, as set forth above, primarily due to a decrease in general and administrative expenses, offset by a decrease in revenues.


Other Income (Expense)


Other income was $162,521 for the three months ended March 31, 2018, compared to other expense of $148,893 for the three months ended March 31, 2017, an increase of $311,414. The increase of other income (expense) was due to a decrease in interest expense, net of interest income, from $1,272,493 during the three months ended March 31, 2017 to $408,097 for the three months ended March 31, 2018. This change in interest expense was due to amortization of the debt discount and the derivatives on the convertible debt.

Other income for the three months ended March 31, 2018 consisted primarily of a change in the fair value of derivatives, offset by interest expense and loss on extinguishment of debt. Other expense for the three months ended March 31, 2017 consisted primarily of interest expense and loss on extinguishment of debt, offset by a change in fair value of derivatives.


Net Loss


Net loss was $64,386 for the three months ended March 31, 2018, or $0.00 per share, compared to $498,163 for the three months ended March 31, 2017, or $0.03 per share, a decrease of $433,777. Net loss decreased, as set forth above, primarily due to a decrease in interest expense from new debt issuances, and a decrease in general and administrative expenses, offset by an increase in loss on extinguishment of debt.


                                      -15-

   Table of Contents

Liquidity and Capital Resources


Introduction


During the three months ended March 31, 2018, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand as of March 31, 2018 was $88,052, which was derived from the sale of convertible promissory notes to investors. Our monthly cash flow burn rate for 2017 was approximately $63,000. Although we have moderate short term cash needs, as our operating expenses increase we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.



Our cash, current assets, total assets, current liabilities, and total
liabilities as of March 31, 2018 and December 31, 2017, respectively, are as
follows:



                                        March 31       December 31,     Increase/
                                          2018             2017         (Decrease)

Cash                                  $    88,052$     81,653$    6,399
Total Current Assets                      212,169          227,004        (14,835 )
Total Assets                            1,104,639        1,122,743        (18,104 )

Total Current and total Liabilities 1,472,181 2,301,870 (829,689 )

Our cash increased slightly because we were able to raise capital from the sale of warrants, notes and convertible notes. Our total current assets decreased primarily because of lower inventory and accounts receivable as of March 31, 2018. Our total current liabilities decreased during the three months ended March 31, 2018 primarily because of changes to the value of our derivative liabilities as of March 31, 2018. Our accumulated deficit increased during the three months ended March 31, 2018 by $64,386 to ($7,747,768) while our total stockholders' deficit decreased by $811,585 to $367,542, primarily due to issuances of stock upon conversion of our convertible notes.

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, 2018 was $88,052. Based on our current level of revenues and monthly burn rate of approximately $63,000 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 $188,184 for the three months ended March 31, 2018, compared to $225,234 for the three months ended March 31, 2017. We use our cash for normal business operations.


Investing Activities


We had zero net cash from/used in investing activities for the three months ended March 31, 2018, and $20,000 net cash used in investing activities for the three months ended March 31, 2017. The primary reason for the difference between these periods are payments made for notes receivable during the three months ended March 31, 2017 while we made no such payments during the three months ended March 31, 2018.



Financing Activities



Our net cash provided by financing activities for the three months ended March 31, 2018 was $194,583, all of which was proceeds from convertible notes payable, compared to $252,750 for the three months ended March 31, 2017, all of which was proceeds from notes payable, convertible notes payable, warrants and the exercise of warrants.


                                      -16-

   Table of Contents

© Edgar Online, source Glimpses

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Managers
NameTitle
Patrick Stiles President, Chief Executive Officer & Director
William C. Bossung Chief Financial Officer, Secretary & Director
Fred Covely Director & Chief Technology Officer
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