THE
GRAYSTONE COMPANY, INC.
CONSOLDATED BALANCE SHEET
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December 31,
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December 31,
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2012
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2011
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ASSETS
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Current assets
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Cash and cash equivalents
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Shareholders' subscription receivable
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Plant, property & equipment (net of depreciation)
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Acquired intangible assets (net of amortization)
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LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
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Accrued expenses – related party
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Convertible notes payable (net of discount)
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Notes payable (related party)
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Total current liabilities
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Long term debts (related parties)
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Stockholders' (deficit) equity
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Class A Common stock, $.0001 par value; 5,000,000,000 shares authorized, 345,777,234 and 476,394 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively.
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Class B Common stock, $.001 par value; 5,000,000 shares authorized, 5,000,000 and 1,400,000 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively.
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Additional paid-in capital
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Total stockholders' (deficit) equity
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Total liabilities and stockholders' (deficit) equity
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See accompanying notes to condensed consolidated financial statements
THE
GRAYSTONE COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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Year Ended December 31,
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2012
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2011
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Other general and administrative
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Depreciation and amortization
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Total other income (expense)
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Provision for income taxes
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Net loss per share of common stock:
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Basic and diluted – Class A
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Basic and diluted – Class B
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Weighted average number of shares outstanding – Class A
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Weighted average number of shares outstanding – Class B
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See accompanying notes to condensed consolidated financial statements
THE
GRAYSTONE COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT)
Cumulative from May 27, 2010 (inception) to December 31, 2011
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Class A Common Stock
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Class B Common Stock
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Stockholders'
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Common Stock Class A $0.0001
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Common Stock Class B $0.001
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Retained
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Equity
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Shares
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Amount
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Shares
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Amount
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APIC
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Earnings
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(Deficit)
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Balances – December 31, 2010
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115,000
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12
|
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-
|
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-
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15,088
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39,251
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54,351
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Issuance of common stock at $.0001 per share
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361,394
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36
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1,400,000
|
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1,400
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2,426,702
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-
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2,428,138
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Issuance of convertible notes in connection with warrants issued
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-
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-
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-
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-
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42,500
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-
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42,500
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Stock based compensation
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-
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-
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|
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-
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|
-
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|
|
11,491
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|
-
|
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|
11,491
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|
|
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Cash dividend issued
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-
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-
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-
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|
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|
-
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-
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(16,000
|
)
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|
(16,000
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)
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Stock dividends issued
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|
-
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|
-
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-
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|
-
|
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-
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(24,489
|
)
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|
(24,489
|
)
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Net loss, period ended December 31, 2011
|
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-
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|
-
|
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|
|
-
|
|
|
|
-
|
|
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|
-
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|
(2,163,658
|
)
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|
(2,163,658
|
)
|
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|
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|
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Balances – December 31, 2011
|
|
|
476,394
|
|
|
|
48
|
|
|
|
1,400,000
|
|
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|
1,400
|
|
|
|
2,495,781
|
|
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|
(2,164,896
|
)
|
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|
332,333
|
|
|
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Reverse Stock Split 400:1
|
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-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
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-
|
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|
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|
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|
Issuance of warrants
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|
|
|
|
|
|
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|
|
|
|
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|
347,107
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|
347,107
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of Derivative Liability through conversion of related notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,160
|
|
|
|
|
|
|
|
339,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for exercise of warrants
|
|
|
59,750,000
|
|
|
|
5,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
424,375
|
|
|
|
-
|
|
|
|
430,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Shares issued for services
|
|
|
196,687,058
|
|
|
|
19,669
|
|
|
|
3,600,000
|
|
|
|
3,600
|
|
|
|
1,697,933
|
|
|
|
-
|
|
|
|
1,721,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of debt
|
|
|
88,863,782
|
|
|
|
8,886
|
|
|
|
-
|
|
|
|
-
|
|
|
|
167,314
|
|
|
|
-
|
|
|
|
176,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,792,117
|
)
|
|
|
(3,792,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances –December 31, 2012
|
|
|
345,777,234
|
|
|
|
34,578
|
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
5,471,670
|
|
|
|
(5,957,013
|
)
|
|
|
(445,765
|
)
|
See accompanying notes to condensed consolidated financial statements
THE
GRAYSTONE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from operation activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
Adjustments to reconcile net income to net cash used by operating activities
|
|
|
|
|
|
|
|
|
Depreciations on plant, property & equipment
|
|
|
|
|
|
|
|
|
Amortizations on intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivative liability
|
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|
|
|
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|
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|
|
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|
|
Impairment loss on goodwill
|
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|
|
|
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|
|
Loss on sale of securities
|
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|
|
|
|
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|
|
Write off of subscription receivable
|
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|
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|
|
Issuance of common stock for services contributed
|
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|
|
Issuance of notes for services contributed
|
|
|
|
|
|
|
|
|
Issuance from BCF note discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
)
|
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|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses – related party
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activates
|
|
|
|
|
|
|
|
|
Purchase of plant, property & equipment
|
|
|
|
|
|
|
|
|
Purchase of GMI Investment
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activates
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
|
|
Shares issued for Exercise of warrants
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
|
|
|
|
|
|
Proceeds from notes payable – related party
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
|
|
|
|
|
|
Repayment of notes payable – related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent at the beginning of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent at the end of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for conversion of debt and accrued interest
|
|
|
|
|
|
|
|
|
Debt issued for deferred financing costs
|
|
|
|
|
|
|
|
|
Settlement of derivative liability through conversion of related notes
|
|
|
|
|
|
|
|
|
Debt discount on notes payable from derivative liabilities
|
|
|
|
|
|
|
|
|
Issuance of common stock for services contributed
|
|
|
|
|
|
|
|
|
Issuance of notes for services contributed
|
|
|
|
|
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Issuance of stock dividend
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See accompanying notes to condensed consolidated financial statements.
THE
GRAYSTONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations and Going Concern
The Graystone Company, Inc. (“Graystone”, “we”, “us”, “our”, the "Company" or the "Registrant") was originally incorporated in the State of New York on May 27, 2010 under the name of Argentum Capital, Inc. Graystone was reincorporated in Delaware on January 10, 2011 and subsequently we changed our name to The Graystone Company, Inc on January 14, 2011. Graystone is domiciled in the state of Delaware, and its corporate headquarters are located in Las Vegas, Nevada.
The Graystone Company, Inc. is a holding company whose primary operating activities involve acquiring and developing mining properties amenable to low cost production. In January 2012, the Company launched a new division that sells gold, silver and other precious metals to retail buyers. The Company also operates other divisions that include a marketing division, real estate division, and consulting division.
The Graystone Company, Inc. has two dormant subsidiaries as indicated below,
Grupo Mineral Inca S.A., - a Peru Corporation with equity interest of 100%
Graystone Mining Company – a Nevada Corporation with equity interest of 100%
Principles of consolidation
These consolidated financial statements include the accounts of The Graystone Company, Inc. and its wholly owned subsidiaries Grupo Mineral Inca S.A. and Graystone Mining Company. Significant inter-company accounts and transactions have been eliminated.
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 2 – Significant Accounting Policies
Accounting Method
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments consist principally of cash and cash equivalents and accounts payable. The Company believes that the recorded values of all of its other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
Level 1:
Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
Level 2:
Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.
Level 3:
Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as December 31, 2012 and 2011.
Recurring Fair Value Measurements
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Level 1
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Level 2
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Level 3
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Total
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LIABILITIES:
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Derivative liability - 2012
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Derivative liability - 2011
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Income Taxes
In accordance with
Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”), the Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements, but have not been reflected in the Company's taxable income. A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value. Therefore, the Company provides a valuation allowance to the extent that the Company does not believe it is more likely than not that it will generate sufficient taxable income in future periods to realize the benefit of its deferred tax assets. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents may at times exceed Federally-insured limits. To minimize this risk, the Company places its cash and cash equivalents with high credit quality institutions.
Plant, Property and Equipment
Plant, property and equipment are carried at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. The balance of plant, property and equipment, net of depreciation was $70,841 and $69,713 as of December 31, 2012 and December 31, 2011, respectively.
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. As of December 31, 2012, depreciation expenses were $
11,984
.
Impairment of long-lived assets
The Company reviews the carrying value of its definite lived intangible assets at least annually. Other long-lived assets, including
intangibles, are reviewed whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset.
Revenue Recognition
The Company has four different divisions. The revenue recognition methods for each division are indicated below.
Natural Resources Division - This division began operating in January 2011and operates the Company’s wholly owned subsidiary Graystone Mining, Inc., a Nevada Company. This Division is engaged in the business of acquiring gold, silver, precious metal and gems and other mineral properties with proven and/or probable reserves. The Company has currently begun mining operations in Peru. The Company's Natural Resources Division is a mine processing entity whereby we locate and extract mineral deposits for refining. Revenue is recognized when products are shipped or delivered if not shipped.
Marketing Division - This division operates under d/b/a paypercallexchange.com. This division began operating in July 2010. The division serves as an advertising and customer acquisition firm for 3rd party entities. The Company places generic interactive advertisements through our proprietary process and technologies, in numerous mediums, e.g. print, web, Skype and mobile. Revenue is recognized when the call is generated and transferred to one of the clients. The Company ceased operations in this division during the 3
rd
Quarter of 2012.
Consulting Division - This division operates under d/b/a Graystone Ventures. Graystone Ventures began operating in November 2010. This division is a strategic, financial and operational consulting entity, which allows clients to outsource aspects of their business. This division focuses primarily on early staged companies and public companies in the nano-cap and micro-cap but also assists growth and mature companies as well. This division provides services in the areas of marketing, sales and operations. Revenue is recognized when consulting services are provided to clients. The Company ceased operations in this division during the 3
rd
Quarter of 2012.
Real Estate Division - This division began operations in January 2011 and acquired its initial property on March 30, 2011. On March 30, 2011, the Company retained the services of a consultant to manage its properties and locate additional properties in the Fort Wayne, Indiana area. Revenue is recognized when management services are provided to clients. The Company ceased operations in this division during the 3
rd
Quarter of 2012.
Equity Warrants
The Company has issued warrants to purchase shares of its common stock in connection with convertible notes. In accordance with ASC 470-20,
Debt with conversions and other options
, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. The Company records the relative fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes. The Company amortizes this debt discount as interest expense over the life of the note. Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. Company also amortizes this debt discount as interest expense over the life of the notes. The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.
Stock-Based Compensation
The Company accounts for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, the Company issues warrants to the consultants and related parties. The Company is required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes model requires the input of certain assumptions. Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. The Company evaluates the assumptions used to value stock options on an annual basis. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.
The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees. Upon the adoption of the accounting guidance, the Company continued to use historical volatility in deriving its expected volatility assumption as allowed under GAAP because it believes that future volatility over the expected term of the stock options is not likely to differ materially from the past. The risk-free interest rate assumption is based on 5-year U.S Treasury zero-coupon rates appropriate for the expected term of the stock options. The expected dividend assumption is based on the history and expectation of dividend payouts. The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as the Company does not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability. The amount of stock based compensation expenses is net of an estimated forfeiture rate, which is also based on historical data. For the years ended December 31, 2012 and 2011, stock based compensation expense was approximately $1,721,202 and $
796,035
respectively, which consisted primarily of stock-based compensation expense related to stock recognized under GAAP issued to the employees.
Litigation and Settlement Costs
Legal costs are expensed as incurred. The Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) accrue the best estimate within a range of loss if there is a loss or, when
there is no amount within a range that forms a better estimate, the Company will accrue the minimum amount in the range. The Company is not presently involved in any legal proceedings, litigation or other legal actions.
Research and Development Costs
Costs associated with the development of the Company’s products are charged to expense as incurred. $0 and $208,009 were incurred in the years ended December 31, 2012 and 2011, respectively. The expenses incurred in 2011 were derived from the Company’s expenses in Peru including the Company’s exploration costs and the expenses related to the Company’s development of mining operations in Peru.
Net Profit / (Loss) Per Common Share
Basic loss per share, which excludes anti-dilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants, convertible notes.
There was no difference between basic and diluted earnings per share because the effects of all potentially dilutive securities were anti-dilutive.
Recently issued accounting standards
The Company does not expect any recently issued accounting standards to have a material impact to its financial position or operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3 – Property and Equipment
The carrying values of fixed assets as of December 31, 2012 and 2011 were as follows:
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Balance On
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Balance On
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December 31, 2011
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Additions
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Removals
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December 31, 2012
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)
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)
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)
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The Company purchased approximately $250,000 in equipment for its mining operations in Peru. However, the concluded that its should be expensed as Cost of Goods Sold instead of being accounted for as an asset.
Note 4 – Income Taxes
The Company did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses for year 2012. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the years ended December 2012 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the consolidated balance sheet. All tax returns for the Company remain open.
The Company has net operating loss carryforwards of approximately $3,250,000 as of December 31, 2012.
Changes in the net deferred tax assets consist of the following:
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December 31, 2012
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December 31, 2011
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Net operating loss carry forward
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$
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1,140,000
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$
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740,000
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(1,140,000
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)
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(740,000
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)
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-
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-
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The net federal operating loss carry forward will expire in 2026. This carry forward may be limited upon the consummation of a business combination under IRC Section 381. Additionally, during fiscal 2012 due to multiple issuance of our Class A and Class B common stock, our operating loss carry forwards may be limited due to a change in control under IRC Section 382.
Note 5 – Related Party Transaction
On January 25, 2011, the Company issued 350,000 restricted shares of our Class B Common Stock to Paul Howarth in exchange of $7,000 in dividend payments.
On January 25, 2011, the Company issued 350,000 restricted shares of our Class B Common Stock to Joseph Mezey in exchange of $7,000 in dividend payments.
On March 23, 2011, the Company acquired real estate previously owned by Paul Howarth and Joseph Mezey for $15,000 in a note payable. The note payable is due in full in 12 months and carries an interest rate equal to 0.00%. As of December 31, 2011, all payable amounts have been paid by the Company.
On March 27, 2011, the Company entered into an agreement to purchase 5% of Grupo Mineral Inca in exchange for 3,000,000 shares of our Class A Common Stock from Paul Howarth and Joseph Mezey, which was approved by the shareholders at the annual shareholder's meeting, held on April 9, 2011.
On March 27, 2011, the Company issued 1,000,000 restricted shares of our Class A Common Stock to Paul Howarth for services rendered. The price per shares was $.006 for $6,000 in services rendered.
On March 27, 2011, the Company issued 1,000,000 restricted shares of our Class A Common Stock to Joseph Mezey for services rendered. The price per shares was $.006 for $6,000 in services rendered.
On May 14, 2012, The Company entered into an agreement with Renard Properties, LLC whereby the Company pays Renard Properties $15,625 per month beginning June 1, 2012 for consulting services. Paul Howarth, our CEO, is the managing member of Renard Properties. These amounts are included in general and administrative expenses during fiscal 2012.
On May 14, 2012, The Company entered into an agreement with JW Group, Inc. whereby the Company pays JW Group $15,625 per month beginning June 1, 2012 for consulting services. Joseph Mezey, our CFO, is the President of JW Group. These amounts are included in general and administrative expenses during fiscal 2012.
As of December 31, 2011, the Company owed Renard Properties $103,319. During the fiscal year 2012, the Company borrowed $34,449 in cash from Renard Properties and repaid $61,092 in cash leaving a balance of $76,676 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.
Also, during fiscal 2012, $348,178 was recorded to related party payables from amounts paid on behalf of the Company by Renard, for accrued salaries and consulting fees. $282,300 was repaid against these payables resulting in an ending balance of $65,878.
During the fiscal year 2012, the Company borrowed $58,209 in cash from JW Group and repaid $51,977 in cash leaving a balance of $6,232 owed to JW Group. Joseph Mezey, our CFO, is the President of JW Group. These loans bear no interest and are due in December 2013.
Also, during fiscal 2012, $342,871 was recorded to related party payables from amounts paid on behalf of the Company by JW Group, for accrued salaries and consulting fees. $330,350 was repaid against these payables resulting in an ending balance of $12,521.
Note 6 – Other Intangible Assets and Goodwill
Goodwill: The Company acquired Grupo Mineral Inca (GMI) as a subsidiary in fiscal 2011. GMI is the company the management used to establish all the relationships in Peru and to locate the mining properties. Goodwill was evaluated when the acquisition was complete. As of December 31, 2011, management does the impairment test by using discounted future cash flow method, and realized the impairments of $1,269,343 under the general and administrative expense of the Consolidated Statement of Operations for the Year ended December 31, 2011.
During the year ended December 31, 2011, the Company evaluated the value of the assets of GMI, and realized GMI had no real asset values. The Company considered this change a triggering event and performed an interim impairment test of goodwill in accordance with ASC 350 as of December 31, 2011.
Goodwill is measured and tested for impairment on an annual basis in the fourth quarter in accordance with the Accounting Standards Codification No. 350 (“ASC 350”), Intangibles–Goodwill and Other, or more frequently if we believe indicators of impairment exist. Triggering events for impairment reviews may include adverse industry or economic trends, restructuring actions, lower projections of profitability, or a sustained decline in market capitalization. The performance of the test involves a two-step process. The first step requires comparing the fair value of each of our reporting units to its net book value, including goodwill. We have one reporting unit. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets other than goodwill to the fair value of the reporting unit and if the difference is less than the net book value of goodwill, impairment exists and is recorded.
Based on the results of the first step of the goodwill analysis, it was determined that the Company’s net book value exceeded its estimated fair value as there is only highly limited potential for future revenue generated from the Company’s revenue stream. As a result, the Company performed the second step of the impairment test to determine the implied fair value of goodwill. Under step two, the difference between the estimated fair value of the Company and the sum of the fair value of the identified net assets results in the residual value of goodwill. The results of step two of the goodwill analysis indicated that there the entire goodwill needs to be impaired and the Company recognized a goodwill impairment charge of $1,269,343 under “Impairment loss on goodwill” under general and administrative expenses in the Consolidated Statements of Operations for the year ended December 31, 2011.
Note 7 – Common Stock and Preferred Stock
Class A Common Stock
The Certificate of Incorporation, as amended, authorizes the Company to issue up to 5,000,000,000 shares of Class A Common Stock ($0.0001 par value). As December 31, 2012, there are 345,777,234 shares of our Class A Common Stock issued and outstanding, which are held by approximately 79 registered shareholders of record (this does not include any shares held in street name by shareholders since they are not registered with our transfer agent). All outstanding shares of Class A Common Stock are of the same class and have equal rights and attributes. Holders of our Class A Common Stock are entitled to one vote per share on matters to be voted on by shareholders and also are entitled to receive such dividends, if any, as may be declared from time to time by our Board of Directors in its discretion out of funds legally available therefore. Unless otherwise required by the Delaware General Corporation Law, the Class A Common Stock and the Class B Common Stock shall vote as a single class with respect to all matters submitted to a vote of shareholders of the Corporation. Upon our liquidation or dissolution, the holders of our Class A and Class B Common Stock are entitled to receive pro rata all assets remaining available for distribution to shareholders after payment of all liabilities and provision for the liquidation of any shares of preferred stock at the time outstanding. Our Class A Common Stock has no cumulative or preemptive rights or other subscription rights. The payment of dividends on our Class A Common Stock is subject to the prior payment of dividends on any outstanding preferred stock, if any.
During fiscal 2011, the Company issued the following Class A shares:
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12,110,000 shares for cash of $169,105
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14,907,500 for services with a fair value of $796,035
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17,000,000 for GMI acquisition with a fair value of $1,269,343
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·
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2,655,000 for subscription receivable of $350,000
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·
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97,885,000 for a stock dividend
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During fiscal 2012, the Company issued the following Class A shares:
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59,750,000 shares for exercise of warrants for proceeds of $430,350
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·
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196,687,058 shares for services with a fair value of $1,721,202
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·
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88,863,782 shares for conversion of notes payable and accrued interest of $176,200
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During fiscal 2012, the Company impaired its subscription receivable from fiscal 2011 of $350,000. The funds were never collected.
Class B Common Stock
Our Certificate of Incorporation, as amended, authorizes the Company to issue up to 5,000,000 shares of Class B Common Stock ($0.001 par value). All outstanding shares of Class B Common Stock are of the same class and have equal rights and attributes. The Class B shares do not have the right to convert into Series A. Holders of our Class B Common Stock are entitled to one thousand (1,000) votes per share on matters to be voted on by shareholders and also are entitled to receive such dividends, if any, as may be declared from time to time by our Board of Directors at the same rate as those declared for Class A shareholder. Unless otherwise required by the Delaware General Corporation Law, the Class A Common Stock and the Class B Common Stock shall vote as a single class with respect to all matters submitted to a vote of shareholders of the Corporation. Upon our liquidation or dissolution, the holders of our Class A and Class B Common Stock are entitled to receive pro rata all assets remaining available for distribution to shareholders after payment of all liabilities and provision for the liquidation of any shares of preferred stock at the time outstanding. Our Class A Common Stock has no cumulative or preemptive rights or other subscription rights. The payment of dividends on our Class A Common Stock is subject to the prior payment of dividends on any outstanding preferred stock, if any.
During fiscal 2012 the Company issued 3,600,000 shares of Class B common stock for services with a fair value of $0.
Preferred Stock
Our Certificate of Incorporation, as amended, authorizes the Company to issue up to 500,000,000 shares of Preferred Stock ($0.001 par value). The Company has authorized 100,000,000 shares of a Series A Preferred Stock. As of the date hereof, there are 0 shares of our Series A Preferred issued and outstanding.
Series A Preferred Stock
The Company has authorized the issuance of 100,000,000 shares of a Series A Preferred Stock. As of the date hereof, there are 0 shares of our Series A Preferred issued and outstanding.
The rights of the Series A Preferred Stock are as follows:
Rank. All shares of the Class A Common Stock shall rank pari passu with the Corporation’s Common Stock and any class or series of capital stock of the Corporation hereafter created.
Liquidation Preferences. The Series A Preferred shall have no liquidation preference over any other class of stock.
Voting Rights. Except as otherwise required by law, holders of Class A Common Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock or any other class or series of preferred stock) for the taking of any corporate action.
Dividend Rights. The holders of the Series A Preferred shall receive the following dividend:
The greater of the following: (a) $.0001 per share or (b) 15% of the Gross Revenue from the joint venture projects in Suriname. Gross Revenue shall be defined as any revenue generated by the joint ventures operations, before deductions for expenses for the period of the dividend.
The Board of Directors shall have the following powers in relation to the dividend:
a.
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determine the declaration date;
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b.
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determine the dates covered by the dividend;
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c.
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determine the date of record for the dividend;
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d.
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determine the payment date for the dividend;
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e.
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may pay the dividend either as a monthly, quarterly or annual dividend (which the Board may change by a simple majority vote of the Board of Directors of the Company); and
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f.
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may issue a special dividend in addition to the dividend rights provided herein.
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g .
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Additionally, the Board may defer the dividend payment for a period of up to 12 months from the payment date.
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Note 8 – Dividends
The Company declared and paid cash and stock dividends to its shareholders during fiscal year ending December 31, 2011. As of December 31, 2011, total cash and stock dividends were declared and paid were $16,000 and $24,489, respectively. All cash and stock dividends were approved by the board of directors during year 2011.
Note 9 – Significant Transactions
Business Combination
On March 31, 2011, the Company has entered into an agreement with Grupo Mineral Inca (“GMI”) to provide the gold extraction services and the overall management for the Companies properties. GMI will be responsible for the day to day operations of the mining sites while Graystone will be responsible for the acquisition of the mining properties, the equipment necessary to extract the ore and building of a camp for the workers. GMI will also provide exploration services and locate additional mining properties for Graystone. Pursuant to the Agreement, Graystone will retain 45% of the gross revenue from the gold extracted from its properties. Additionally, GMI has agreed that it will not claim any mining proprieties in its own name. Paul Howarth owns 37.5% of GMI and Joseph Mezey own 37.5% of GMI as well, which was approved by the shareholders at the annual shareholder's meeting held on April 9, 2011. The purchase price was allocated to tangible assets, common stock, additional paid-in-capital, and liability assumed, based on their estimated fair values as follows:
Tangible assets
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$
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350
|
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Common stock
|
|
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1,700
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Additional paid-in-capital
|
|
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1,098,300
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Liabilities assumed
|
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168,993
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$
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1,269,343
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The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and GMI as though the companies were combined as of the beginning of year 2011. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the acquisition, including amortization charges from acquired intangible assets, adjustments to interest expenses for certain borrowings and exclusion of acquisition-related expenses and the related tax effects as though the companies were combined as of the beginning of the year 2011. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the year 2011.
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(Unaudited)
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Year Ended
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|
|
December 31
|
|
|
2011
|
|
2010
|
|
Total revenue
|
|
$
|
4,990
|
|
|
$
|
-
|
|
Net Income (loss)
|
|
|
(203,019
|
)
|
|
|
-
|
|
Basic and diluted loss per share
|
|
$
|
0.00
|
|
|
$
|
-
|
|
Note 10 – Notes Payable
Fiscal 2011
Asher Convertible Note.
On November 29, 2011 the Company received a note in the amount of $42,500 from Asher Enterprises, Inc. The note bears a simple interest of 8% per annum from the date hereof (the “Issue Date”) until it becomes due and payable, whether at maturity date on September 5, 2012. The note is convertible into Class A common stock at 57% of market price. The Company recorded a discount for beneficial conversion feature of $42,500 during fiscal 2011 related to this note. During fiscal 2011, $3,842of the discount was amortized to interest expense.
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. See Note 12 The fair value of the embedded conversion options resulted in a total debt discount of $138,536 to these notes during fiscal 2012. $166,067 of the prior year discount and current year discounts were amortized to interest expense during fiscal 2012.
During the fiscal year 2012, the Company issued 88,863,782 Class A Common Shares to Asher in satisfaction of $170,000 loaned to the Company and $6,200 of accrued interest. As of December 31, 2012, the Company owes Asher a remaining total of $147,500 with an unamortized debt discount of $11,127.
Notes Payable
During fiscal 2012, the Company borrowed $244,950 from a third party in eight notes. The notes are all due December 31, 2013, bear interest at 9%, and are unsecured.
Note 11 – Stock options and warrants
Stock options
In September 2011 and October 2011, the Company’s Board of Directors approved to grant 13,200,000 and 224,000 stock options, respectively to the employees. No options were exercised, granted or expired during fiscal 2011 or 2012.
In 2012, the Company’s Board of Directors approved to grant 60,000,000 warrant to consultants. The warrants were exercisable at a price equal to the average of the Company’s market price for the 10 previous days or 10% below market price, whichever is less. The warrants all have a term of one month. The following tables summarize warrant activity during fiscal 2012:
|
|
Number of Warrants
|
|
Outstanding at December 31, 2011
|
|
|
-
|
|
Granted
|
|
|
60,000,000
|
|
Exercised
|
|
|
(59,750,000
|
)
|
Expired, canceled or forfeited
|
|
|
(250,000
|
)
|
Outstanding at December 31, 2012
|
|
|
-
|
|
Exercisable at December 31, 2012
|
|
|
-
|
|
Valuation Assumptions
The Company valued its stock-based payment awards granted using the Black-Scholes model, during the years ended December 31, 2012 and 2011. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of certain assumptions. The Company’s stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates. The warrants issued in 2012 expired at the end of the month they were granted.
For the years ended December 31, 2012 and 2011, respectively, the fair value of options granted were estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:
|
|
Equity Incentive Plans for Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Expected terms (in years)
|
|
|
|
|
0.08
|
|
|
|
1
|
-
|
2
|
|
|
|
|
400
|
-
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
|
|
0.10
|
%
|
|
|
|
|
6.25
|
%
|
Expected dividend rate
|
|
|
|
|
0.00
|
%
|
|
|
|
|
0.00
|
%
|
Weighted average fair value
|
|
$
|
|
|
0.00
|
|
|
$
|
|
|
0.05
|
|
The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by optionees. The Company uses historical volatility in deriving its expected volatility assumption because it believes that future volatility over the expected term of the stock options is not likely to differ from the past. The risk-free interest rate assumption is based on the 5-year U.S Treasury zero-coupon rate with a remaining term equal to the expected term used as the assumption in the model.
The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The fair value of the shares of common stock underlying the stock options has historically been determined by the board of directors. On or before December 31, 2011 there has been no public market for the Company’s common stock. Consequently, the board of directors has historically determined the fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. The fair value of the underlying common stock has been determined by the board of directors until such time as the Company’s common stock commenced trading on the OTCQB.
FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company only records stock-based compensation expense for awards that are expected to vest. While the Company generally considers historical forfeitures in its estimates, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. The Company’s estimates for forfeitures may differ from actual forfeitures. If actual results differ significantly from these estimates, stock-based compensation expense and its results of operations could be materially impacted when the Company records a true-up for the difference in the period that the awards vest. The Company adjusts stock-based compensation expense based on its actual forfeitures on an annual basis, if necessary.
For the years ended December 31, 2012 and 2011, stock based compensation expense related to grants of stock options and warrants was approximately $347,107 and $11,491, respectively.
Note 12
–
Derivative Liabilities
As discussed in Note 10, the Company issued convertible notes that are convertible into Class A common shares at 57% of market price. The Company analyzed the conversion options embedded in the convertible notes for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the instruments embedded in the above referenced convertible promissory notes should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options. Because the number of shares to be issued upon settlement of the above referenced convertible promissory notes cannot be determined under this instrument, Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other future share instruments. On the date the notes became convertible, the conversion options were classified as derivative liabilities at their fair value.
During 2012, certain notes payable were converted resulting in settlement of the related derivative liabilities. The Company re-measured the embedded conversion options at fair value on the date of settlement and recorded these amounts to additional paid-in capital.
The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2012:
|
|
|
|
Balance as of December 31, 2011
|
|
$
|
-
|
|
|
|
|
|
|
Additions from new convertible notes issued
|
|
|
344,209
|
|
|
|
|
|
|
Reclassification of derivative liabilities to additional paid-in capital due to conversion of related notes payable
|
|
|
(339,160
|
)
|
|
|
|
|
|
Change in fair value
|
|
|
14,758
|
|
|
|
|
|
|
Ending balance as of December 31, 2012
|
|
$
|
19,807
|
|
During the year ended December 31, 2012, the loss on derivatives of $220,431 in the statement of operations consisted of a loss on the change in fair value of $14,758 noted above and a loss of $205,673, which was the amount by which the derivative liabilities exceeded the principal of the related notes payable on the date the notes became convertible.
The Company uses the Black Scholes Option Pricing Model to value its option based derivatives based upon the following assumptions: dividend yield of -0-%, volatility of 250%, risk free rates from 0.16%-1.29% and an expected term equal to the remaining terms of the notes.
Note 13 – Subsequent Events
Subsequent to December 31, 2012, the Company issued the following Class A common shares:
·
|
127,000,000 shares for services
|
·
|
64,940,078 shares for conversion of notes payable of $103,500 and $3,900 respectively.
|
On February 5, 2013, the Company filed its preliminary environmental impact study on Gorila and Graystone 2 with the Ministry of Mines in Peru.
Subsequent to December 31, 2012, the Company borrowed $78,500 from Asher Enterprises, Inc. The notes are convertible at 55% of market price after 180 days, bear interest at 8% and mature after 270 days.
On April 10, 2013 the Company received a note in the amount of $32,500 from Asher Enterprises, Inc. The note bears a simple interest of 8% per annum from the date hereof (the “Issue Date”) until it becomes due and payable, whether at maturity date on November 13, 2013. The note is convertible into shares of Class A Common Stock, $0.0001 par value per share. Pursuant to the note, Asher may convert the any outstanding balance and accrued interest into our Class A Common. Asher shall receive a discount of 45% from the average of the three lowest closing bids prices during the ten trading days immediately prior to the conversion date. Asher typically converts its notes 6 months after funding the note which allows them to receive free trading shares under Rule 144. This note has not been funded.
On April 11, 2013, the Company agreed to convert $21,000 of the note payable to SC Capital in exchange for 15,000,000 shares of its Class A Common Stock.
Subsequent to December 31, 2012, the Company borrowed $25,000 from Renard Properties, LLC, a company owned by our CEO. The loan bears no interest and is due on December 31, 2013.
As of March 25, 2013, the Company has invested a total of $100,000 into the joint venture in Suriname which included the $50,000 in 2012 and $50,000 invested in the 1
st
Quarter of 2013.