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 Mezey 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 Mezey 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.
During the 3 Months Ending March 31, 2013, $46,875 was recorded to related party payables from amounts paid on behalf of the Company by Renard Properties, for accrued salaries and consulting fees. $35,000 was repaid against these payables resulting in an ending balance of $77,753. Paul Howarth, our CEO, is the managing member of Renard Properties.
During the 3 Months Ending March 31, 2013, $46,875 was recorded to related party payables from amounts paid on behalf of the Company by JW Group, for accrued salaries and consulting fees. $20,000 was repaid against these payables resulting in an ending balance of $39,396. Joseph Mezey, our CFO, is the President of JW Group
During the 3 Months Ending March 31, 2013, the Company borrowed $28,000 in cash from Renard Properties and repaid $4,700 in cash leaving a balance of $99,975 owed to Renard Properties. Paul Howarth, our CEO, is the managing member of Renard Properties.
During the 3 Months Ending March 31, 2013, the Company borrowed $16,288 in cash from JW Group and repaid $9,463 in cash leaving a balance of $13,058 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.
Note 4 – Common Stock and Preferred Stock
During Three Months Ending March 31, 2013, the Company issued the following Class A shares:
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49,940,082 shares for conversion of notes payable and accrued interest of $86,400
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·
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127,000,000 shares for services with a fair value of $402,950
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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, $65,000 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 $65,000. The entire amount was amortized the interest expense during the three months ended March 31, 2013.
Fiscal 2013 Asher Convertible Note.
In the Three Months Ending March 31, 2013, the Company borrowed $78,500 from Asher Enterprises, Inc. in one note. 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 Three Months Ending March 31, 2013, the Company issued 49,940,082 Class A Common Shares to Asher in satisfaction of $82,500 loaned to the Company and $3,900 of 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 March 31, 2013, the Company owes Asher a remaining total of $143,500
The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2012:
Ending balance as of December 31, 2012
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$
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19,807
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|
|
|
|
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Additions due to new convertible debt issued
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|
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118,181
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|
|
|
|
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Reclassification of derivative liabilities to additional paid-in capital due to conversion of debt
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(49,947
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)
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|
|
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Change in fair value
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(88,041
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)
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Ending balance as of March 31, 2013
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$
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-
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|
During the period ended March 31, 2013, the gain on derivatives of $23,933 in the statement of operations consisted of a gain on the change in fair value of $88,041 noted above and a loss of $64,108, 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 fiscal 2012, the Company borrowed $132,000 from a third party in eight notes. The notes are all due December 31, 2013, bear interest at 9%, and are unsecured.
Note 6 – Subsequent Events
Subsequent to March 31, 2013, the Company issued 42,205,128 for the conversion of notes payable of $53,500.
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.
On May 13, 2013, the Company agreed to issue 15,000,000 shares to SC Capital as part of payment towards its October 22, 2012 note of $64,500. The company previously issued 15,000,000 on May 9, 2012 for $15,000 of the $64,500. The total amount remaining on the note is $34,500.