CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited financial statements of The Graystone Company, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2012 as reported in Form 10-K, have been omitted.
Note 2 – Going Concern
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse affect upon it and its shareholders.
Note 3 – Related Party Transaction
On March 8, 2013, the Company issued 31,500,000 of our Class A Common Stock to Renard Properties for services rendered. The price per shares $.003 for $94,500 in bonus payment for achieving pre-determined mining goals. Paul Howarth, our CEO, is the managing member of Renard Properties.
On March 8, 2013, the Company issued 31,500,000 of our Class A Common Stock to Joseph Wade for services rendered. The price per shares $.003 for $94,500 in bonus payment for achieving pre-determined mining goals.
On March 18, 2013, the Company issued 5,000,000 of our Class A Common Stock to Joseph Wade for services rendered. The price per shares $.0028 for $14,000 in bonus payment for achieving pre-determined mining goals.
On March 18, 2013, the Company issued 5,000,000 of our Class A Common Stock to Paul Howarth for services rendered. The price per shares $.0028 for $14,000 in bonus payment for achieving pre-determined mining goals.
On June 19, 2013, the Company issued 187,500,000of our Class A Common Stock to Paul Howarth for $45,000 in debt. The price per share was $.0008. The shares are restricted for 24 months from the issuance. A loss of $105,000 was recorded on the issuance.
On June 19, 2013, the Company issued 187,500,000of our Class A Common Stock to Joseph Wade for $45,000 in debt. The price per share was $.0008. The shares are restricted for 24 months from the issuance. A loss of $105,000 was recorded on the issuance.
During the Six Months ended June 30, 2013, $93,750 was recorded to related party payables from amounts paid on behalf of the Company by Renard Properties, for accrued salaries and consulting fees. $79,568 was repaid against these payables resulting in an ending balance of $79,628. Paul Howarth, our CEO, is the managing member of Renard Properties.
During the Six Months ended June 30, 2013, $93,750 was recorded to related party payables from amounts paid on behalf of the Company by JW Group, for accrued salaries and consulting fees. $55,000 was repaid against these payables resulting in an ending balance of $41,271. Joseph Wade, our CFO, is the President of JW Group
During the Six Months ended June 30, 2013, the Company borrowed $67,880 in cash from Renard Properties and repaid $31,606 in cash leaving a balance of $112,950 owed to Renard Properties. Paul Howarth, our CEO, is the managing member of Renard Properties. These loans bear no interest and are due in December 2013.
During the Six Months ended June 30, 2013, the Company borrowed $45,319 in cash from JW Group and repaid $47,963 in cash leaving a balance of $3,589 owed to JW Group. Joseph Wade, our CFO, is the President of JW Group. These loans bear no interest and are due in December 2013.
Note 4 – Common Stock and Preferred Stock
During Six Months Ending June 30, 2013, the Company issued the following Class A shares:
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316,707,073 shares for conversion of notes payable and accrued interest of $288,000
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127,000,000 shares for services with a fair value of $402,950
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375,000,000 shares for settlement of related party payables of $90,000
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Note 5 – Notes Payable and Derivative Liabilities
Convertible Notes
Fiscal 2012 Asher Convertible Note.
Throughout fiscal 2012, the Company borrowed $275,000 from Asher Enterprises, Inc. in eight notes. The notes bear simple interest of 8% per annum from the issuance date. The notes become convertible into Class A common stock at 57% of market price 180 days after issuance and mature 270 days after issuance. On the date the notes become convertible, the embedded conversion options are classified as liabilities under ASC 815 at their fair value. During 2013, $130,000 of these notes became convertible. The fair value of the conversion options exceeded the principal balance resulting in a full discount to the notes payable of $130,000. The entire amount was amortized the interest expense during the six months ended June 30, 2013.
Fiscal 2013 Asher Convertible Note.
In the Six Months ended June 30, 2013, the Company borrowed $143,500 from Asher Enterprises, Inc. in three notes. The notes bear simple interest of 8% per annum from the issuance date. The notes become convertible into Class A common stock at 57% of market price 180 days after issuance and mature 270 days after issuance. On the date the notes become convertible, the embedded conversion options will be classified as liabilities under ASC 815.
During the Six Months ended June 30, 2013, the Company issued 137,207,073 Class A Common Shares to Asher in satisfaction of $147,500 loaned to the Company and $6,499of accrued interest. As a result of the conversion of the related notes, the Company re-valued its derivative liabilities on the settlement dates and reclassified these amounts to additional paid-in capital. As of June 30, 2013, the Company owes Asher a remaining total of $143,500
The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2012:
Ending balance as of December 31, 2012
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Additions due to new convertible debt issued
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Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt
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Ending balance as of June 30, 2013
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During the period ended June 30, 2013, the gain on derivatives of $23,933 in the statement of operations consisted of a gain on the change in fair value of $86,321 noted above and a loss of $62,388, which was the amount by which the derivative liabilities exceeded the principal of the related notes payable on the date the notes were issued.
Notes Payable
During the Six Months ended June 30, 2013, the Company borrowed $247,000 from a third party in sixteen notes. The notes are all due December 31, 2013, bear interest at 0%, and are unsecured.
Ending balance as of December 31, 2012
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$
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244,950
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Additions due to new debt issued
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247,000
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Amount of debt converted into shares
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(134,000
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Ending balance as of June 30, 2013
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$
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357,950
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During the six months ended June 30, 2013, the Company converted $134,000 in promissory notes into 179,500,000 common shares. The Company recorded a loss of $101,400 on the conversion.
On June 28, 2013, the Company entered into a line of credit agreement for $500,000 with a maturity date of December 31, 2015 and an effective interest rate of 9%. All previous amounts due to SC Capital of $362,450 are transferred to this line of credit. All accrued interest on the previous notes is waived through June 3, 2013.
Note 6 – Loan to Joint Venture
In December 2012, the Company entered into a joint venture regarding a mining project in Suriname. The Company agreed to invest $75,000 into the joint venture and any additional investments made above this initial $75,000 would be considered a loan to the joint venture by the Company. As of June 30, 2013, the Company lent an additional $89,624. This amount shall be repaid to the Company prior to any disbursements made to the partners in the joint venture. The terms of the joint venture provide that the Company has a 50% undivided interest in the profits of the joint venture and Aurora Mining owns the other 50%.
Note 7 – Subsequent Events
On July 11, 2013, the Company issued 50,000,000 shares of its Class A Common stock at an applicable conversion price of $0.00025. SC Capital converted $12,500 of its note convertible in the amount of $25,000 from its note dated November 7, 2012. There is $12,500 remaining on the note.
On July 22, 2013, the Company issued 60,000,000 shares of its Class A Common stock at an applicable conversion price of $0.00021. SC Capital converted $12,500 of its note convertible in the amount of $25,000 from its note dated November 7, 2012. There is $0 remaining on the note.
On August 2, 2013, the Company issued 63,000,000 shares of its Class A Common stock at an applicable conversion price of $0.00016. SC Capital converted $10,000 of its note convertible in the amount of $50,800 from its note dated November 20, 2012. There is $40,800 remaining on the note.
On August 7, 2013, the Company issued 150,000,000 shares of its Class A Common stock at an applicable conversion price of $0.0001 to Renard Properties, LLC in exchange for the extinguishment of $15,000 in debt owed.
On August 7, 2013, the Company issued 150,000,000 shares of its Class A Common stock at an applicable conversion price of $0.0001 to JW Group, Inc. in exchange for the extinguishment of $15,000 in debt owed.
On August 9, 2013, the Company issued 170,000,000 shares of its Class A Common stock at an applicable conversion price of $0.0001. SC Capital converted $17,000 of its note convertible in the amount of $50,800 from its note dated November 20, 2012. There is $23,800 remaining on the note.
On August 9, 2013, the Company’s board of directors and a majority of its shareholders approved a1000-1 reverse split. The record date shall be set by the Board of Directors but shall not be later than January 31, 2014.