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EXCEL - IDEA: XBRL DOCUMENT - CONSOLIDATED GEMS, INC.Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - CONSOLIDATED GEMS, INC.a50831089_ex31-1.htm
EX-21.1 - EXHIBIT 21.1 - CONSOLIDATED GEMS, INC.a50831089_ex21-1.htm
EX-32.2 - EXHIBIT 32.2 - CONSOLIDATED GEMS, INC.a50831089_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - CONSOLIDATED GEMS, INC.a50831089_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - CONSOLIDATED GEMS, INC.a50831089_ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

———————
FORM 10-K
———————

x
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
 ACT OF 1934
For the fiscal year ended: December 31, 2013
Or
o
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
 ACT OF 1934
For the transition period from: _____________ to _____________

Commission File Number    000-53735

CONSOLIDATED GEMS, INC.
(Exact name of Registrant as specified in its charter)

———————

Delaware
 
27-0267587
(State or Other Jurisdiction
 
(I.R.S. Employer
of Incorporation or Organization)
 
Identification No.)
 
Level 8, 580 St Kilda Road Melbourne, Victoria, 3004,  Australia
(Address of principal executive offices) (Zip Code)

001 (613) 8532 2800
(Registrant’s telephone number, including area code)
 
-
 (Former name or former address, if changed since last report)
———————

Securities registered pursuant to Section 12(b) of the Act: None
 

 
Securities registered pursuant to Section 12(g) of the Act: None

Title of each class
Common Stock, par value US$.0001 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  o
 Yes
x
 No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
  o
 Yes
x
 No
 
 
 
 

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
x
 Yes
o
 No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
x
 Yes
o
 No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
  o  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer
  o    
Accelerated filer
  o  
Non-accelerated filer
o    
Smaller reporting company
x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the  Act).
 
o
 Yes
x
 No
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 
(a)
The aggregate market value based on the average bid and asked price on the over-the-counter market of the registrant’s common stock (“Common Stock”) held by non-affiliates of the Company was US$1,440,000 as at June 30, 2013.

There were 175,315,350 outstanding shares of Common Stock as of March 27, 2014.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
  o
 Yes
o
 No
DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable
_____________________
 



 
 

 
 
INDEX

     
2
3
7
7
7
7
     
     
8
9
10
13
13
13
14
14
     
     
15
17
18
18
20
     
     
21
     
22


 
i

 
 
 
Information Regarding Forward Looking Statements

This report and other reports, as well as other written and oral statements made or released by us, may contain forward looking statements. Forward looking statements are statements that describe, or that are based on, our current expectations, estimates, projections and beliefs. Forward looking statements are based on assumptions made by us, and on information currently available to us. Forward-looking statements describe our expectations today of what we believe is most likely to occur or may be reasonably achievable in the future, but such statements do not predict or assure any future occurrence and may turn out to be wrong. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. The words "believe," "anticipate," "intend," "expect," "estimate," "project", "predict", "hope", "should", "may", and "will", other words and expressions that have similar meanings, and variations of such words and expressions, among others, usually are intended to help identify forward-looking statements.

Forward-looking statements are subject to both known and unknown risks and uncertainties and can be affected by inaccurate assumptions we might make. Risks, uncertainties and inaccurate assumptions could cause actual results to differ materially from historical results or those currently anticipated. Consequently, no forward-looking statement can be guaranteed.  The potential risks and uncertainties that could affect forward looking statements include, but are not limited to:

§
the risks of exploration stage projects,
§
political risks of exploration in foreign countries,
§
risks associated with environmental and other regulatory matters,
§
the volatility of commodity prices,
§
movements in foreign exchange rates,
§
increased competition, governmental regulation,
§
performance of information systems,
§
ability of the Company to hire, train and retain qualified employees, and
§
our ability to enter into key project and supply agreements and the performance of contract counterparties.

In addition, other risks, uncertainties, assumptions, and factors that could affect the Company's results and prospects are described in this report, including under the heading “Risk Factors” and elsewhere and may further be described in the Company's prior and future filings with the Securities and Exchange Commission and other written and oral statements made or released by the Company.

We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date of this document.  The information contained in this report is current only as of its date, and we assume no obligation to update any forward-looking statements.

Foreign Currency Translation

Prior to April 1, 2013, the Company’s functional currency was the US dollar. However, as a result of Australian based activities in the June 2013 quarter relating to potential gem projects, the Company’s revenue and expenses will be primarily denominated in Australian dollars (A$). ASC 830 Foreign Currency Translation, states that the functional currency of an entity is the currency of the primary economic environment in which the entity operates. Accordingly the Company determined that from April 1, 2013 the functional and reporting currency of the Company is the Australian dollar. Assets, liabilities and equity were translated at the rate of exchange at April 1, 2013. Revenue and expenses were translated at rates at date of transaction. Translation gains and losses were not material.
 
 
1

 
 
Restatement of comparative numbers was made for the change in functional and reporting currency.
 
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION PRESENTED IS IN AUSTRALIAN DOLLARS.


Description Of Business

Introduction

Consolidated Gems, Inc. ("Consolidated Gems” or the “Company", “we,” “our” or “us”), formerly Electrum International, Inc. is a Delaware corporation that was originally incorporated in Florida as We Sell for U Corp. (“We Sell for U”) on November 12, 2007. The principal stockholder of Consolidated Gems is Power Developments Pty Ltd., an Australian corporation (“Power”), an entity majority owned by the Company’s president, which owned 94.46% of Consolidated Gems as of December 31, 2013.

In December 2008, Power acquired a 96% interest in Consolidated Gems from Edward T. Farmer and certain other stockholders. Mr. Farmer resigned as Sole Director and Officer of Electrum, Joseph Gutnick was appointed President, Chief Executive Officer and a Director and Peter Lee was appointed Chief Financial Officer and Secretary. Commencing in fiscal 2009, the Company decided to focus its business on energy opportunities.

On January 29, 2009 the Company’s Board of Directors declared a 6-for-1 stock split in the form of a stock dividend that was payable in February 2009 to stockholders of record as of February 14, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated. An aggregate of 72,000,000 shares of common stock were issued in connection with this dividend.

On March 31, 2009, the Company’s Board of Directors declared a 2-for-1 stock split in the form of a stock dividend that was payable in August 2009 to stockholders of record as of August 12, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated. An aggregate of 86,400,000 shares of common stock were issued in connection with this dividend.

Effective on August 12, 2009, the Company completed the reincorporation from a Florida corporation to a Delaware corporation through a merger with and into its wholly-owned subsidiary, Consolidated Gems. Each issued and outstanding share of common stock, par value US$0.0001 per share, of We Sell For U Corp., a Florida-incorporated company, was automatically converted into one issued and outstanding share of common stock, par value US$0.0001 per share, of Consolidated Gems, a Delaware-incorporated company. The number of authorized shares of capital stock was increased to five hundred twenty million (520,000,000) shares, of which five hundred million (500,000,000) shares shall be Common Stock and twenty million (20,000,000) shares shall be Preferred Stock, each with a par value of US$.0001 per share. For purposes of the Company’s reporting status with the Securities and Exchange Commission, Consolidated Gems is deemed a successor to We Sell for U.

On June 30, 2011, the Company issued 2,515,350 shares of common stock at an issue price of US$0.60, being the closing price on the date of issue, to AXIS Consultants Pty Ltd (“AXIS”) in satisfaction of a loan balance of US$1,509,210.
 
 
2

 
 
Description of Current Business Plans and Activities

The following is a description of the Company’s current business plans and activities.

In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry and has identified silver and base metal exploration in Central America and gem opportunities in Australia for its potential business opportunities.

Employees

We use temporary employees in our activities. The services of our Executive Chairman, Chief Executive Officer and Director, Joseph Gutnick, and Chief Financial Officer and Secretary, Peter Lee, as well as clerical employees are provided to us on a part-time as needed basis pursuant to a Service Agreement (the “Service Agreement”) between us and AXIS Consultants Pty Limited (“AXIS”) effective from January 1, 2009. AXIS also provides us with office facilities, equipment, administration and clerical services in Melbourne Australia pursuant to the Service Agreement. The Service Agreement may be terminated by written notice by either party.

Other than this, we rely primarily upon consultants to accomplish our activities. We are not subject to a union labour contract or collective bargaining agreement.

SEC Reports

We file annual, quarterly, current and other reports and information with the SEC. These filings can be viewed and downloaded from the Internet at the SEC’s website at www.sec.gov.  In addition, these SEC filings are available at no cost as soon as reasonably practicable after the filing thereof on our website at electrumint.com these reports are also available to be read and copied at the SEC’s public reference room located at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operations of the public reference room by calling the SEC at 1-800-SEC-0330.


You should carefully consider each of the following risk factors and all of the other information provided in this Annual Report before purchasing our common stock.  An investment in our common stock involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment. The risks and uncertainties described below are not the only ones we face. There may be additional risks and uncertainties that are not known to us or that we do not consider to be material at this time. If the events described in these risks occur, our business, financial condition and results of operations would likely suffer. Additionally, this Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. This section discusses the risk factors that might cause those differences.

Risks of Our Business

We Lack an Operating History And Have Losses Which We Expect To Continue Into the Future.

To date we have no source of revenue and have not identified any mineral exploration properties. We have no operating history as an exploration and mining company upon which an evaluation of our future success or failure can be made. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:

-
our ability to identify suitable exploration and mining opportunities.
-
our ability to raise sufficient capital to turn such opportunities into economically viable business units
 
 
 
3

 
 
There can be no assurance that we will be able to identify profitable business opportunities in the exploration and mining industry or, if we do, that we will be able to obtain sufficient financing to develop such opportunities.
 
Our Proposed Areas of Operations are located in Central America and Australia and are subject to changes in political conditions and regulations in those regions.   
 
Our proposed areas of operations are located in Central America and Australia. In the past some countries in Asia and Central America have been subject to political and social instability, changes and uncertainties which may cause changes to existing government regulations affecting resource exploration and mining activities. Civil or political unrest could disrupt our operations at any time. Our planned resource exploration and activities in Central America may be adversely affected in varying degrees by changing governmental regulations relating to the mining industry or shifts in political conditions that increase the costs related to our activities or maintaining our future properties. Finally, Central America’s status as developing region may make it more difficult for us to obtain required financing for our planned exploration activities.

We may engage in acquisitions, strategic investments, strategic partnerships or alliances or other ventures that may or may not be successful.
 
 
We may acquire or make strategic investments in businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in order to enhance our business. It is possible that we may not be able to identify suitable acquisitions targets and candidates for strategic investments or partnerships, or if we do identify such targets or candidates, we may not be able to complete those transactions on terms commercially acceptable to us, or at all. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness and our growth prospects.

We may make strategic investments in early-stage exploration and mining start-up companies in order to gain experience in or exploit niche technologies. However, our investments may not be successful. The lack of profitability of any of our investments could have a material adverse effect on our operating results.

World Economic Conditions Could Adversely Affect Our Results of Operations and Financial Condition

The effects of the global financial crisis are difficult to accurately predict.  As a result of this crisis, conditions in the credit markets have become uncertain and risk averse.  These adverse conditions may make it harder for the Company to raise additional funds to finance the development of its business. Continued adverse economic conditions could adversely affect our liquidity, results of operations and financial condition.

The Report Of Our Independent Registered Public Accounting Firm Contains An Explanatory Paragraph Questioning Our Ability To Continue As A Going Concern.

The report of our independent registered public accounting firm on our financial statements as of December 31, 2013 and 2012, and for the years ended December 31, 2013 and 2012, includes an explanatory paragraph questioning our ability to continue as a going concern. This paragraph indicates that we have not yet commenced revenue producing operations, have incurred net losses from inception, and have an accumulated (deficit) of A$2,595,900, which conditions raise substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.
 
 
4

 
 
We Are A Small Operation And Do Not Have Significant Capital.

Because we will have limited working capital, we must limit our activities. If we are unable to raise the capital required to undertake adequate activities, including identifying suitable exploration and mining opportunities, we may miss opportunities to establish or acquire suitable economically viable business units.  If we do not find suitable economically viable business units, we may be forced to cease operations and you may lose your entire investment.

Approximately 94% Of Our Common Stock Is Controlled By Our Chairman And President Who Has The Ability To Appoint Our Board Of Directors And Determine Other Matters Submitted To Stockholders

Mr. Joseph Gutnick, our Executive Chairman and President, beneficially owned 165.6 million shares of our common stock, which represented approximately 94% of our shares outstanding as of March 27, 2014. As a result, Mr. Gutnick has and is expected to continue to have the ability to appoint our Board of Directors and to determine the outcome of all other issues submitted to our stockholders. The interests of Mr. Gutnick may not always coincide with our interests or the interests of other stockholders, and subject to his fiduciary duties as a director, he may act in a manner that advances his best interests and not necessarily those of other stockholders. One consequence to this substantial influence or control is that it may not be possible for investors to remove management of the Company. It could also deter unsolicited takeover, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

We are substantially dependent upon AXIS To Carry Out Our Activities

We are substantially dependent upon AXIS for our senior management, financial and accounting, corporate legal and other corporate headquarters functions. For example, each of our officers is employed by AXIS and, as such, is required by AXIS to devote substantial amounts of time to the business and affairs of the other shareholders of AXIS.

Pursuant to a services agreement, AXIS provides us with office facilities, and some administrative personnel and services, management staff and services. No fixed fee is set in the agreement and we are required to reimburse AXIS for any direct costs incurred by AXIS for us.  In addition, we pay a proportion of AXIS indirect costs based on a measure of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and indirect costs.  AXIS has not charged a service fee for this fiscal year. This service agreement may be terminated by us or AXIS on 60 days’ notice. See Item 13 “Certain Relationships and Related Party Transactions.”  AXIS billed Consolidated Gems, Inc, as per the services agreement, for 2013 a total of A$697,303 (2012: A$77,487).

We are one of nine affiliated companies. Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff.  A number of arrangements and transactions have been entered into from time to time between such companies. Currently, there are no material arrangements or planned transactions between the Company and any of the other affiliated companies other than AXIS.  However, it is possible we may enter into such transactions in the future which could present conflicts of interest. In addition, there may be conflicts among the Company and the other companies that AXIS provides services to with respect to access to executive and administrative personnel and other resources.

Historically, AXIS has allocated corporate opportunities to each of the companies engaged in the exploration and mining industry after considering the location of each of the companies’ operations and the type of commodity for which each company explores within its geographic region. At present, there are no conflicts among the Company and the other companies with respect to the principal geographic areas in which they operate and/or the principal commodities that they are searching for.
 
 
5

 
 
The Company has received advances from AXIS in connection with the ongoing business relationship between the two parties, which have been disclosed in the Company’s SEC reports, but which are not specifically provided for in the AXIS Services Agreement. Historically, the shortfall in our cash receipts has been covered by cash advances from AXIS. The purpose of such advances is to assist us in meeting our ongoing cash flow requirements. The parties are in discussions in relation to the Company providing security to AXIS for the amount outstanding and such discussions are anticipated to be concluded by the end of the second fiscal quarter of 2014, however no agreement has been reached to-date. Our director (Mr. Gutnick) is also a director of AXIS and Mr. Peter Lee is Chief Financial Officer & Company Secretary of AXIS and owe fiduciary obligations to both parties. It is the intention of the Boards of Directors of AXIS and the Company that this issue be resolved in a manner that is fair to all parties and equitable to the shareholders of each, but there are no agreements or understandings addressing the priority or dispensation of fiduciary duties with respect to the discussions to resolve the amount outstanding owed to AXIS or any other conflict of interest with AXIS or other affiliates. See Item 13 “Certain Relationships and Related Transactions, and Director Independence.”

Future Sales of Common Stock Could Depress The Price Of Our Common Stock

Future sales of substantial amounts of common stock pursuant to Rule 144 under the Securities Act of 1933 or otherwise by certain stockholders could have a material adverse impact on the market price for the common stock at the time. As at March 27, 2014 there were 168,115,350 outstanding shares of common stock which are deemed “restricted securities” as defined by Rule 144 under the Securities Act or control securities. Under certain circumstances, these shares may be sold without registration pursuant to the provisions of Rule 144 following the expiration of one year after the Company ceases to be a shell company. In general, under rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period and who is not an affiliate of the Company may sell restricted securities without limitation as long as the Company is current in its SEC reports. A person who is an affiliate of the Company may sell within any three-month period a number of restricted securities and/or control securities which does not exceed the greater of one (1%) percent of the shares outstanding or the average weekly trading volume during the four calendar  weeks preceding the notice of sale required by Rule 144. In addition, Rule 144 permits, under certain circumstances, the sale of restricted securities by a non-affiliate without any limitations after a one-year holding period. Any sales of shares by stockholders pursuant to Rule 144 may have a depressive effect on the price of our Common stock.

Our Common Stock Is Traded Over the Counter, Which May Deprive Stockholders Of The Full Value Of Their Shares

Our common stock is quoted via the Over The Counter Bulletin Board (OTCBB).  As such, our common stock may have fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market. These factors may result in higher price volatility and less market liquidity for the common stock.

A Low Market Price May Severely Limit The Potential Market For Our Common Stock

Our common stock is currently trading at a price substantially below US$5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers. These rules generally apply to any equity security that has a market price of less than US$5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale.  The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer.  Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.  The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.
 
 
6

 

 

Not applicable.


The Company occupies certain executive and office facilities in Melbourne, Victoria, Australia which are provided to it pursuant to the Service Agreement with AXIS. See “Item 1- Business- Employees” and “Item 13 - Certain Relationships and Related Transactions”.  The Company believes that its administrative space is adequate for its current needs.


There are no pending legal proceedings to which the Company is a party, or to which any of its property is the subject, which the Company considers material.


Not applicable.
 
 
 
7

 
 



Market Information

Our common stock is traded in the over-the-counter market and quoted on the OTC-Bulletin Board under the symbol “CGEM”, which became effective on October 1, 2012.

The following table sets out the high and low bid information for the common stock as reported by the OTC Bulletin Board for each period/quarter indicated in US$:

Calendar Period
   
High Bid(1)
     
Low Bid(1)
 
             
2012
           
First Quarter
    0.60       0.60  
Second Quarter
    1.00       0.60  
Third Quarter
    0.99       0.99  
Fourth Quarter
    0.99       0.01  
                 
2013
               
First Quarter
    0.51       0.25  
Second Quarter
    0.45       0.15  
Third Quarter
    0.30       0.10  
Fourth Quarter
    0.10       0.03  
                 

(1)
The quotations set out herein reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

As of December 31, 2013 and as at March 27, 2014, there were 175,315,350 shares of common stock issued and outstanding.

Dividends

To date we have not paid any cash dividends on our common stock and we do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. Payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by the Board of Directors.

On January 29, 2009 the Company’s Board of Directors declared a 6-for-1 stock split in the form of a stock dividend that was payable in February, 2009 to stockholders of record as of February 14, 2009. An aggregate of 72,000,000 shares of common stock were issued in connection with this dividend.

On March 31, 2009, the Company’s Board of Directors declared a 2-for-1 stock split in the form of a stock dividend that was payable in August, 2009 to stockholders of record as of August 12, 2009. An aggregate of 86,400,000 shares of common stock were issued in connection with this dividend.

Shareholders

As of December 31, 2013, the Company had 12 shareholders of record. Within the holders of record of the Company's Common Stock are depositories such as Cede & Co., a nominee for The Depository Trust Company (or DTC), that hold shares of stock for brokerage firms which, in turn, hold shares of stock for one or more beneficial owners. Accordingly, the Company believes there are many more beneficial owners of its Common Stock whose shares are held in "street name", not in the name of the individual shareholder
 
 
8

 
 
Transfer Agent

Our United States Transfer Agent and Registrar is Continental Stock Transfer & Trust Company.


Our selected financial data presented below for the years ended December 31, 2013 and December 31, 2012 and the balance sheet data at December 31, 2013 and 2012 have been derived from financial statements, which have been audited by PKF O’Connor Davies, A Division of O’Connor Davies, LLP (PKF O’Connor Davies). The selected financial data should be read in conjunction with our financial statements for the years ended December 31, 2013 and 2012, and Notes thereto, which are included elsewhere in this Annual Report.

Statement of Operations Data

   
2013
   
2012
 
      A$       A$  
Revenues
    -       -  
                 
                 
Costs and expenses
    699,034       169,554  
                 
(Loss) from operations
    (699,034 )     (169,554 )
                 
Foreign currency exchange (loss)
    (5,630 )     (2,502 )
                 
Other income – interest
    1       -  
                 
(Loss) before income tax
    (704,663 )     (172,056 )
                 
Provision for income tax
    -       -  
                 
Net (loss)
    (704,663 )     (172,056 )
                 
      A$       A$  
Net (loss) per share per common equivalent share
    (0.00 )     (0.00 )
                 
Weighted average number of common equivalent shares outstanding (000’s)
    175,315       175,315  
                 
Balance Sheet Data
               
      A$       A$  
Total assets
    22,744       9,164  
Total liabilities
    (1,027,496 )     (309,253 )
                 
Stockholders’ (deficit)
    (1,004,752 )     (300,089 )
 
 
 
9

 
 

General

The following discussion and analysis of our financial condition and plan of operation should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report.  This report contains numerous forward-looking statements relating to our business. Such forward-looking statements are identified by the use of words such as believes, intends, expects, hopes, may, should, plan, projected, contemplates, anticipates or similar words. Actual operating schedules, results of operations, ore grades and mineral deposit estimates and other projections and estimates could differ materially from those projected in the forward-looking statements.  The functional and reporting currency of the Company is the Australian Dollar.

Overview

Consolidated Gems, Inc. (“Consolidated Gems” or the “Company”), is a Delaware corporation originally incorporated in Florida as We Sell For U Corp. (“We Sell For U”). Consolidated Gems was originally established with the intention to develop and provide service offerings to facilitate auctions on eBay for individuals and companies who lack the eBay expertise and/or time to list/sell and ship items they wish to sell. In December 2008, Power Developments Pty Ltd, an Australian corporation (“Power”) acquired a 96% interest in Consolidated Gems from Edward T. Farmer and certain other stockholders. Mr. Farmer resigned as Sole Director and Officer of Consolidated Gems, Joseph Gutnick was appointed President, Chief Executive Officer and a Director and Peter Lee was appointed Chief Financial Officer and Secretary.

On August 12, 2009, the Company re-incorporated in the State of Delaware (the “Reincorporation”) through a merger involving We Sell for U Corp. and Consolidated Gems, a Delaware Corporation that was a wholly owned subsidiary of We Sell for U. The Reincorporation was effected by merging We Sell for U with Consolidated Gems, with Consolidated Gems being the surviving entity. For purposes of the Company’s reporting status with the Securities and Exchange Commission, Consolidated Gems is deemed a successor to We Sell for U.

We have incurred net losses since our inception and may continue to incur substantial and increasing losses for the next several years. Since inception we have incurred accumulated (deficit) of  A$2,595,900 which was funded primarily by advances from affiliates and by the sale of equity securities.

In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry and has identified silver and base metal exploration in Central America and gem opportunities in Australia for its potential business opportunities.

 As a result of management’s decision to refocus its efforts from energy opportunities to explore opportunities in the resources industry, effective March 31, 2013, the Company ceased reporting as a development stage company.  Since April 1, 2013, the Company has been evaluating potential gem related projects and has been granted an exploration tenement in New South Wales, Australia.  Accordingly, from April 1, 2013 the Company has been classified as an exploration stage company.
 
 
10

 
 
In January 2009, the Company entered into an agreement with AXIS Consultants Pty Ltd (“AXIS”) to provide geological, management and administration services to the Company. AXIS has some common management and is incorporated in Australia. AXIS is paid by each company it manages for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, legal, human resources, company secretarial, land management, certain exploration and mining support, financial, accounting advice and services. AXIS procures items of equipment necessary in the conduct of the business of the Company. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company. We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company.  In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. Under the agreement, we are not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month. As our arrangements with AXIS have evolved, the arrangements have changed, which have verbally been agreed to by AXIS, as a result of the requirements of certain suppliers to be able to deal directly with us. In these cases, AXIS does not charge us a management or service fee in respect to these arrangements with suppliers who deal with us directly. The types of services that are provided directly to us include audit and tax services, legal services, stock transfer services and Delaware franchise tax.

Results of Operations

As set out in Management’s Discussion and Analysis of Financial Condition and Results of Operation – Overview, the Company is managed by AXIS. Certain costs and expenses are incurred by the Company and certain costs and expenses are incurred by AXIS on behalf of the Company and billed to the Company by AXIS. The total amount of expenses billed to the Company by AXIS in fiscal 2013 was A$697,303 (2012: A$77,487). The discussion in the next paragraphs relates to costs and expenses of the Company, incurred by both the Company; and by AXIS that are billed to the Company.

Year ended December 31, 2013 versus Year ended December 31, 2012

Total costs and expenses have increased from A$169,554 for the year ended December 31, 2012 to A$699,034 for the year ended December 31, 2013.  The increase was a net result of:

i)
An increase in legal, accounting and professional costs from A$52,761 for the year ended December 31, 2012 to A$60,513 for the year ended December 31, 2013. Included within legal, accounting and professional costs for the year ended December 31, 2013 is A$10,907 for stock transfer agent fees for management of the share register (2012: A$10,639), A$2,558 for legal expenses (2012: A$4,207), A$128 for professional consultant fees (2012: A$955), and A$46,920 for audit and tax fees and professional services in relation to financial statements in the quarterly reports on Form 10-Q and annual reports on Form 10-K (2012: A$36,953).
   
ii)
A decrease in administrative expenses from A$116,793 for the year ended December 31, 2012 to A$64,132 for the year ended December 31, 2013.  Included with administrative expenses for the year ended December 31, 2013 is A$26,955 for charges by AXIS for salaries incurred on behalf of the Company which relate to amounts paid to the President and Chief Executive Officer, Secretary and Chief Financial Officer and other staff of AXIS who provide services to the Company (2012: A$65,899); A$2,604 for information systems costs (2012: A$2,114); A$26,151 for lodgement of company filings with the SEC (2012: A$26,186); telecommunication costs of A$nil for the year ended December 31, 2013 (2012: A$2,426); insurance costs of A$3,952 (2012: A$6,493); travel and accommodation costs of A$821 incurred (2012: A$8,967); storage costs of A$982 (2012: A$1,034); printing and stationary costs of A$61 (2012: A$1,029); bank charges pf A$1,176 (2012: A$966) and administration fees of A$1,430 (2012: A$1,282).  The decrease is primarily as a result of a decrease in the cost of services provided by AXIS in accordance with the service agreement.
 
 
 
11

 
 
   
iii)
An increase in exploration expenditure expense from  A$nil for the year ended December 31, 2012 to A$574,389 for the year ended December 31, 2013. The primary reason for the increase is due to the commencement of exploration activities in 2013and there are no comparable figures for the previous twelve months ending December 31, 2012.

Accordingly, the loss from operations increased from A$169,554 for the year ended December 31, 2012 to A$699,034 for the year ended December 31, 2013.

Foreign currency exchange loss increased from A$2,502 for the year ended December 31, 2012 to A$5,630 for the year ended December 31, 2013 primarily due to the conversion of the Company’s functional currency from the US dollar to the Australian dollar from the April 1, 2013.  The balance of the foreign currency exchange loss was due to the revaluation of amounts payable to affiliates which are denominated in Australian dollars through March 31, 2013.

The net loss for the year ended December 31, 2012 was A$172,056 compared to a net loss for the year ended December 31, 2013 of A$704,663.

Liquidity and Capital Resources

For fiscal 2013, net cash used in operating activities was A$718,406 primarily consisting of the net loss of A$704,663, offset by a non-cash charge for foreign currency exchange loss of A$5,630, a decrease in prepayments of A$3,871, an increase in receivables of A$15,422 and a decrease in accounts payable and accrued expenses of A$7,822.  Financing activities in 2013 consisted of an advance of A$726,065 from AXIS. All of the Company’s operations since inception have been funded by AXIS.

As of December 31, 2013, the Company has short term obligations of A$54,658 comprising accounts payable and accrued expenses, and had long term obligations of A$972,838 comprising advances payable to an affiliate.

During 2013, AXIS charged the Company A$136,115 for management and administration services and A$561,188 for exploration services. The net amount owed by the Company to AXIS at December 31, 2013 of A$972,838 is included under non-current liabilities.

The Company has funded operations since inception through advances from affiliated entities. The Company’s ability to continue operations through 2014 is dependent upon future funding from affiliated entities, capital raisings, or its ability to commence revenue producing operations and positive cash flows, of which there can be no assurance. AXIS has advised it does not currently intend to require repayment of these advances prior to December 31, 2014, accordingly the Company has decided to classify the amounts payable as non-current in the accompanying balance sheets.

The Company continues to search for additional sources of capital, as and when needed; however, there can be no assurance funding will; be successfully obtained. Even if it is obtained, there is no assurance that it will not be secured on terms that are highly dilutive to existing shareholders.

As a result of management’s decision to refocus its efforts from energy opportunities to explore opportunities in the resources industry, effective March 31, 2013, the Company ceased reporting as a development stage company.  Since April 1, 2013, the Company has been evaluating potential gem related projects and has been granted an exploration tenement in New South Wales, Australia.  Accordingly, from April 1, 2013 the Company has been classified as an exploration stage company.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of Consolidated Gems as a going concern. However, Consolidated Gems has limited assets, has not yet commenced revenue producing operations and has sustained recurring losses since inception.
 
 
12

 
 
Our budget for general and administration and for professional expenses for fiscal 2014 is A$0.25 million.  Once we have identified a specific exploration or mining project we will also need to prepare a budget for these activities.  We are currently investigating capital raising opportunities which may be in the form of either equity or debt, to provide funding for working capital purposes. There can be no assurance that such a capital raising will be successful, or that even if an offer of financing is received by the Company, it is on terms acceptable to the Company.

Impact of Australian Tax Law

On December 28, 2008 the management and control of Consolidated Gems was effectively transferred to Australia making the Company an Australian resident corporation under Australian law. Australian resident corporations are subject to Australian income tax on their non-exempt worldwide assessable income (which includes capital gains), less allowable deductions, at the rate of 30%. Foreign tax credits are allowed where tax has been paid on foreign source income, provided the tax credit does not exceed 30% of the foreign source income.

Under the U.S./Australia tax treaty, a U.S. resident corporation such as us is subject to Australian income tax on net profits attributable to the carrying on of a business in Australia through a “permanent establishment” in Australia. A “permanent establishment” is a fixed place of business through which the business of an enterprise is carried on. The treaty limits the Australian tax on interest and royalties paid by an Australian business to a U.S. resident to 10% of the gross interest or royalty income unless it relates to a permanent establishment. Although we consider that the Company does not have a permanent establishment in Australia, it may be deemed to have such an establishment due to the location of its administrative offices in Melbourne. In addition we may receive interest or dividends from time to time.

Impact of Australian Governmental, Economic, Monetary or Fiscal Policies

Although Australian taxpayers are subject to substantial regulation, we believe that our operations are not materially impacted by such regulations nor is it subject to any broader regulations or governmental policies than most Australian taxpayers.

Impact of Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements on the Company’s financial statements, see Note 3 to the Company’s Financial Statements which are included elsewhere in this Annual Report.


At December 31, 2013, the Company had no outstanding borrowings under Loan Facilities.
 

See F Pages


None
 
 
13

 
 

(a)
Evaluation of disclosure controls and procedures.
   
 
       Our principal executive officer and our principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended) as of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financial officer concluded that, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable level of assurance.
   
(b)
Management’s Report on Internal Control over Financial Reporting
   
 
       Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d – 15(f) under the Securities Exchange Act of 1934, as amended.  Under the supervision of management and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992 Framework).  Based on our evaluation of internal control over financial reporting, our management concluded that our internal control over financial reporting was effective as of December 31, 2013.
   
(c)
Attestation report of the Registered Public Accounting Firm
   
 
       This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
   
(d)
Change in Internal Control over Financial Reporting.
   
 
       There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
   
(e)
Other.
   
 
       We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.  Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Our disclosure controls and procedures are designed to provide such reasonable assurance of achieving our desired control objectives, and our principal executive officer and principal financial officer have concluded, as of December 31, 2013, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
 

None.
 
 
 
14

 
 


The following table sets forth our director and officer, their ages and all offices and positions with our company.  Officers and other employees serve at the will of the Board of Directors.

Name
Age
Position(s) Held
 
Joseph Gutnick
61
Chairman, President and Chief Executive Officer
 
Peter Lee
56
Secretary, Chief Financial Officer and Principal Accounting Officer

Director Qualifications

The following paragraphs provide information as of the date of this report about our sole director as well as about each executive officer.  The information presented includes information such director has given us about his age, all positions he holds, his principal occupation and business experience for the past five years, and the names of other publicly-held companies of which he currently serves as a director or has served as a director during the past five years which we believe demonstrates our sole director’s qualifications to serve on our Board of Directors.

Joseph Gutnick

Mr. Gutnick is a leading mining industry entrepreneur and has been President and a Director since December 2008, and Chief Executive Officer from December 2008 to June 2011, (re-appointed in April 2012) and Executive Chairman since June 2011. He has been a Director of numerous publicly listed companies in Australia and the USA specialising in the mining sector since 1980. He is currently President, Director and CEO of Legend International Holdings Inc. (since 2004), Golden River Resources Corporation (for more than 10 years), and Aurum, Inc. (since 2009), which are US corporations listed on the OTC market in the USA, President and CEO of Northern Capital Resources Corp, Great Central Resources Corporation, US corporations, and Executive Chairman and Managing Director of Merlin Diamonds Limited, Top End Minerals Limited and Quantum Resources Limited; and Non-Executive Chairman of Blackham Resources Limited which are listed on the Australian Stock Exchange. He has previously been a Director of Acadian Mining Corporation and Royal Roads Corporation in the last five years. Mr. Gutnick has been responsible for overseeing the discovery of the Plutonic gold deposit and the discovery, development and operation of the world class Bronzewing and Jundee gold mines in Australia. He was awarded the Diggers award at the 1997 Diggers and Dealers Industry Awards and is a former Director of the World Gold Council. He is a Fellow of the Australasian Institute of Mining & Metallurgy and the Australian Institute of Management and a Member of the Australian Institute of Company Directors.

Mr. Gutnick’s extensive experience in leading teams in building and operating major mining operations in Australia as well as his experience in founding and serving as the chief executive officer and chairman of a number of public companies will provide our Board with valuable executive leadership and management experience.
 
 
15

 
 
Peter Lee

Mr. Lee has been Chief Financial Officer and Principal Accounting Officer since December 2008. Mr. Lee is a Member of the Institute of Chartered Accountants in Australia, a Fellow of the Governance Institute in Australia, a Member of the Australian Institute of Company Directors and holds a Bachelor of Business (Accounting) from Royal Melbourne Institute of Technology. He has over 30 years commercial experience and is currently CFO and Secretary of Legend International Holdings Inc, (since 2005) Director, CFO and Secretary of Golden River Resources Corporation (for more than 10 years), and Secretary of Aurum, Inc. (since 2009), which are US corporations listed on the OTC market in the USA; CFO and Secretary of Northern Capital Resources Corporation and Great Central Resources Corporation, US Corporations; and CFO and Secretary of Merlin Diamonds Limited, Director, CFO and Secretary of Top End Minerals Limited and Quantum Resources Limited, all listed on the Australian Securities Exchange. He was a Director of Acadian Mining Corporation, which was listed on the Toronto Stock Exchange until October 2013.

Involvement on Certain Material Legal Proceedings During the Last Ten Years

No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.  No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities. No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.

Mr. Gutnick was formerly the Chairman of the Board and Mr. Lee was formerly Company Secretary of Centaur Mining & Exploration Ltd., an Australian corporation, which commenced an insolvency proceeding in Australia in March 2001.

Board, Audit Committee and Remuneration Committee Meetings

Our Board of Directors consists of one director. During fiscal 2013, our Board of Directors had one meeting. The Board of Directors also use resolutions in writing to deal with certain matters, and during fiscal 2013, one resolution in writing was signed by the Director.

Directors are elected for an annual term and generally hold office until the next Directors have been duly elected and qualified. Directors may receive compensation for their services as determined by the Board of Directors. A vacancy on the Board may be filled by the remaining Directors even though less than a quorum remains. A Director appointed to fill a vacancy remains a Director until his successor is elected by the Stockholders at the next annual meeting of Shareholder or until a special meeting is called to elect Directors.
 
We do not have a nominating committee. Historically our entire Board has selected nominees for election as directors. The Board believes this process has worked well thus far particularly since it has been the Board's practice to require unanimity of Board members with respect to the selection of director nominees. In determining whether to elect a director or to nominate any person for election by our stockholders, the Board assesses the appropriate size of the Board of Directors, consistent with our bylaws, and whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are anticipated, or otherwise arise, the Board will consider various potential candidates to fill each vacancy. Candidates may come to the attention of the Board through a variety of sources, including from current members of the Board, stockholders, or other persons. The Board of Directors has not yet had the occasion to, but will, consider properly submitted proposed nominations by stockholders who are not directors, officers, or employees of Consolidated Gems on the same basis as candidates proposed by any other person. We do not have a policy with respect to the use of diversity as a criteria for Board membership and do not consider diversity in the selection of our Directors.

Audit Committee

At December 31, 2013, the Company had not formed an audit committee or adopted an audit committee charter. In lieu of an audit committee, the Company's board of directors assumes the responsibilities that would normally be those of an audit committee. Given the limited scope of the Company’s operations to date, the Board of Directors does not at present have a director that would qualify as an audit committee financial expert under the applicable federal securities law regulations.
 
 
16

 
 
Remuneration Committee

At December 31, 2013, the Company had not formed a remuneration committee or adopted a remuneration committee charter. In lieu of a remuneration committee, the Company's board of directors assumes the responsibilities that would normally be those of an remuneration committee.

Code of Ethics

We have adopted a Code of Conduct and Ethics and it applies to all Directors, Officers and employees. A copy of the Code of Conduct and Ethics is posted on our website at www.electrumint.com and we will provide a copy to any person without charge.  If you require a copy, you can download it from our website or alternatively, contact us by facsimile or email and we will send you a copy.

Stockholder Communications with the Board

Stockholders who wish to communicate with the Board of Directors should send their communications to the Chairman of the Board at the address listed below.  The Chairman of the Board is responsible for forwarding communications to the appropriate Board members.

Mr. Joseph Gutnick
Consolidated Gems, Inc.
PO Box 6315 St Kilda Road Central
Melbourne, Victoria 8008 Australia

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our Directors, executive officers and beneficial owners of more than 10% of the outstanding Common Stock are required to file reports with the Securities and Exchange Commission concerning their ownership of and transactions in our Common Stock and are also required to provide to us copies of such reports.  Based solely on such reports and related information furnished to us, we believe that in fiscal 2012, all such filing requirements were complied with in a timely manner by all Directors and executive officers and 10% stockholders.


The following table sets forth the annual salary, bonuses and all other compensation awards and pay outs on account of our Chief Executive Officer for services rendered to us during the fiscal years ended December 31, 2013 and 2012. No other executive officer received more than US$100,000 per annum during this period.

Summary Compensation Table
Name and
Principal
Position
 
Year
   
Salary
   
Bonus
   
Stock
Awards
   
Option
Awards
   
Non-Equity
Incentive
Plan
Compensation
   
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
   
All Other
Compensation
   
Total
 
Joseph Gutnick, Chairman of the Board, President and CEO (1)
   
2013
 2012
     
US$11,927
US$31,230
     
-
 -
     
-
-
     
-
-
     
-
-
     
-
-
     
-
-
     
US$11,927
US$31,230
 
 

 
 
17

 
 
Notes:
 
(1)
Joseph Gutnick resigned as CEO on June 6, 2011 and was re-appointed as CEO on April 30, 2012.

We have a policy that we will not enter into any transaction with an officer, Director or affiliate of the Company or any member of their families unless the terms of the transaction are no less favourable to us than the terms available from non-affiliated third parties or are otherwise deemed to be fair to the Company at the time authorised.

Outstanding Equity Awards at Fiscal Year-End

The Company does not currently have any equity or stock option plans.

Principal Officers Contracts

The principal officers do not have any employment contracts.

Compensation of Directors

The Company’s directors who are also executive officers of the Company did not receive any separate compensation during fiscal 2013 for serving as directors of the Company.


The following table sets forth certain information regarding the beneficial ownership of our common stock by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, each of our directors and named executive officers, and all of our directors and executive officers as a group as of March 26, 2014.

Title of
Class
Name and Address
of Beneficial Owner*
 
Amount and nature of
Beneficial Owner
   
Percentage
of class (1)
 
 
Shares of common stock
Shares of common stock
 
Joseph Gutnick
Peter J. Lee
   
165,600,000  
-  
(2)
 
   
94.46
-
 
 
All officers and Directors
as a group
    165,600,000         94.46  
Unless otherwise indicated, the address of each person is c/o Consolidated Gems, Inc., Level 8, 580 St. Kilda Road, Melbourne, Victoria 3004 Australia

Notes:
 
(1)
Based on 175,315,350 shares outstanding as of March 26, 2014.
(2)
Includes 165,600,000 shares owned by Power Developments Pty Ltd, of which Mr. Joseph Gutnick is the sole Director and stockholder.
 

In January 2009, the Company entered into an agreement with AXIS Consultants Pty Ltd to provide geological, management and administration services to the Company. AXIS has some common management and is incorporated in Australia. One of the Company’s directors (Mr. Joseph Gutnick) is also a director of AXIS and Mr. Peter Lee is Chief Financial Officer and Company Secretary of AXIS and owe fiduciary duties to both parties. AXIS’ principal business is to provide geological, management and administration services to companies. We are one of nine affiliated companies that AXIS provides services to, namely, Legend International Holdings, Inc, Quantum Resources Limited, Merlin Diamonds Ltd, Top End Minerals Ltd, Northern Capital Resources Corp, Golden River Resources Corp, Great Central Resources Corp., Aurum Inc, Consolidated Gems Inc,.
 
 
18

 
 
Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff.  A number of arrangements and transactions have been entered into from time to time between such companies.  It has been the intention of the affiliated companies and respective Boards of Directors that each of such arrangements or transactions should accommodate the respective interest of the relevant affiliated companies in a manner which is fair to all parties and equitable to the shareholders of each. Currently, there are no material arrangements or planned transactions between the Company and any of the other affiliated companies other than AXIS.

AXIS is paid by each company it manages for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, legal, human resources, company secretarial, land management, certain exploration and mining support  including provision of exploration managers and geologists, financial, accounting advice and services. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company.

We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company.  In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us.  We are also not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first requests AXIS to provide the service and AXIS fails to provide the service within one month.
 
The Service Agreement may be terminated by AXIS or us upon 60 days prior notice.  If the Service Agreement is terminated by AXIS, we would be required to independently provide, or to seek an alternative source of providing, the services currently provided by AXIS. There can be no assurance that we could independently provide or find a third party to provide these services on a cost-effective basis or that any transition from receiving services under the Service Agreement will not have a material adverse effect on us.  Our inability to provide such services or to find a third party to provide such services may have a material adverse effect on our operations.
 
The arrangement with AXIS has changed since it was originally entered into as the relationship has evolved as a result of the requirements of certain suppliers to be able to deal directly with us. In these cases, AXIS does not charge us a management or service fee in respect to these arrangements with suppliers who deal with us directly. The types of services that are provided directly to us include audit and tax services, legal services, stock transfer services, and Delaware franchise tax.
 
In accordance with the Service Agreement, AXIS provides the Company with the services of our Chief Executive Officer, Chief Financial Officer and clerical employees, as well as office facilities, equipment, administrative and clerical services. We pay AXIS for the actual costs of such facilities. AXIS has not charged a service fee for this fiscal year.  AXIS billed Consolidated Gems as per the services agreement, for 2013 a total of A$697,303 (2012: A$77,487).

During the year ended December  31, 2013, AXIS provided services in accordance with the Services Agreement and incurred direct costs on behalf of the Company of A$697,303 (2012: A$77,487), and advanced the Company A$28,760 (2012: A$62,500).  The Company has received advances from AXIS in connection with the ongoing business relationship between the two parties, which have been disclosed in the Company’s SEC reports, but which are not specifically provided for in the AXIS Services Agreement. Historically, the shortfall in our cash receipts has been covered by cash advances from AXIS. The purpose of such advances is to assist us in meeting our ongoing cash flow requirements. The parties are in discussions in relation to the Company providing security to AXIS for the amount outstanding and such discussions are anticipated to be concluded by the end of the second fiscal quarter of 2014, however no agreement has been reached to-date. Our director (Mr. Gutnick) is also a director of AXIS and Mr. Peter Lee is Chief Financial Officer & Company Secretary of AXIS and owe fiduciary obligations to both parties. It is the intention of the Boards of Directors of AXIS and the Company that this issue be resolved in a manner that is fair to all parties and equitable to the shareholders of each, but there are no agreements or understandings addressing the priority or dispensation of fiduciary duties with respect to the discussions to resolve the amount outstanding owed to AXIS or any other conflict of interest with AXIS or other affiliates. The Company intends to repay these amounts with funds raised either via additional debt or equity offerings. AXIS has advised it does not currently intend to require repayment of these advances prior to December 31, 2014, accordingly, the Company has decided to classify the amounts payable as non-current in the accompanying balance sheets.
 
 
19

 
 
Transactions with Management.

We have a written policy that we will not enter into any transaction with an Officer, Director or Affiliate of us or any member of their families unless the transaction is approved by a majority of our disinterested non-employee Directors and the disinterested majority determines that the terms of the transaction are no less favourable to us than the terms available from non-affiliated third parties or are otherwise deemed to be fair to us at the time authorised.
 

The following table shows the fees incurred for fiscal 2013 and 2012.

   
2013
   
2012
 
      A$       A$  
                 
Audit fees
    39,596       31,168  
Audit related fees
    -       -  
Tax fees
    7,324       5,785  
Total
    46,920       36,953  

Audit fees were for the audit of our annual financial statements, review of financial statements included in our 10-Q quarterly reports, and services that are normally provided by independent auditors in connection with our other filings with the SEC. This category also includes advice on accounting matters that arose during, or as a result of, the audit or review of our interim financial statements.

Tax fees relate to the preparation of the Company’s income tax returns and other tax compliance filings.
 
 
20

 
 


 
(a)
Financial Statements and Notes thereto.

The Financial Statements and Notes thereto listed on the Index at page 25 of this Annual Report on Form 10-K are filed as a part of this Annual Report.

 
(b)
Exhibits

The Exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index at page 24 of this Annual Report.


 
21

 


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorised.
 
 
CONSOLIDATED GEMS, INC.
   
 
(Registrant)
   
 
By:
/s/ Peter J Lee                    
   
Peter J Lee
   
Secretary and
   
Chief Financial Officer
   
(Principal Financial Officer)
     
 
Dated: March 27, 2014

 
 
22

 
 
FORM 10-K Signature Page

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.


Signature
Title
Date
     
     
     
     
     
     
1.            /s/ Joseph I Gutnick                
Joseph Gutnick
Chairman, President and Chief
Executive Officer
March 27, 2014
 
(Principal Executive Officer)
 
     
     
     
     
     
     
     
2.            /s/ Peter J Lee                          
Peter Lee
Secretary and
Chief Financial Officer
 
 
(Principal Financial Officer)
March 27, 2014
     


 
23

 

EXHIBIT INDEX



Incorporated by
Reference to:
Exhibit
No
Exhibit
       
       
(1)
Exhibit 99.1 Annex B
3.1
Certificate of Incorporation of Consolidated Gems, Inc.
(1)
Exhibit 99.1 Annex C
3.2
Bylaws of Consolidated Gems, Inc.
(1)
Exhibit 99.1 Annex A
3.3
Agreement and Plan of Merger between We Sell For U Corp and Consolidated Gems Inc.
(2)
Exhibit 99.1 Annex A
3.4
Amendment to Certificate of Incorporation
(2)
Exhibit 4.1
4.1
Specimen Stock Certificate of Consolidated Gems, Inc.
(3)
Exhibit 99.1 Annex A
10.1
Service Agreement dated January 30, 2009, by and between the Registrant and AXIS Consultants Pty Ltd
(3)
Exhibit 99.1 Annex A
10.2
Agreement with IFFCO
(4)
Exhibit 99.1
16.1
Letter from former independent accountant
   
21.1
Subsidiaries of the Registrant
 
*
31.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by. Joseph Isaac Gutnick
 
*
31.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Peter James Lee.
 
*
32.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Joseph Isaac Gutnick.
 
*
32.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Peter James Lee

*Filed herewith


 
(1)
Incorporated by reference to the Company’s  Form 8-K filed on July 16, 2009.
 
(2)
Incorporated by reference to the Company’s  Form 10-K filed on March 30, 2011.
 
(3)
Incorporated by reference to the Company’s  Form 10-K filed on March 26, 2010.
 
(4)
Incorporated by reference to the Company’s  Form 8-K filed on January 29, 2009.


 
24

 
 
Financial Statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012.

Consolidated Gems, Inc.
Audited Financial Statements for the Company for the years ended December 31, 2013 and 2012.


 
25

 
 
CONSOLIDATED GEMS, INC.

Financial Statements

December 31, 2013 and 2012

(with Report of Independent Registered Public Accounting Firm)
 
 
 
 

 

 
CONTENTS

 
Page
   
   
Report of Independent Registered Public Accounting Firm
F-3
 
Balance Sheets
F-4
 
Statements of Operations
F-5
 
Statements of Stockholders’ Equity (Deficit)
F-6
 
Statements of Cash Flows
F-7
 
Notes to Financial Statements
F-8 to F-13
 
 
 
F-2

 
 
Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of
Consolidated Gems, Inc.

We have audited the accompanying balance sheets of Consolidated Gems, Inc. (an exploration stage company) as of December 31, 2013 and 2012, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended and for the cumulative period April 1, 2013 (commencement of exploration activities) to December 31, 2013. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Gems, Inc. at December 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended and for the cumulative period April 1, 2013 (commencement of exploration activities) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 1, at December 31, 2013 the Company has limited working capital, has not yet commenced revenue producing operations, has incurred net losses from inception, and has an accumulated (deficit) of A$2,595,900. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Management’s plans in regard to these matters are also discussed in note 1.

 


 
/s/ PKF O’Connor Davies
 
A Division of O’Connor Davies, LLP


New York, NY
March 27, 2014


 
F-3

 

CONSOLIDATED GEMS, INC.
(An Exploration Stage Company)
Balance Sheets
December 31, 2013 and 2012

     
A$
2013
     
A$
2012
 
                 
ASSETS
               
                 
Current Assets:
               
Cash
    2,270       241  
Receivables
    5,422       -  
Prepayments
    5,052       8,923  
Total Current Assets
    12,744       9,164  
                 
Non-Current Assets
               
Deposits
    10,000       -  
Total Non-Current Assets
    10,000       -  
                 
Total Assets
    22,744       9,164  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
               
                 
Current Liabilities:
               
Accounts payable and accrued expenses
    54,658       62,480  
Total Current Liabilities
    54,658       62,480  
                 
Non-Current Liabilities:
               
Advances from affiliate (Note 4)
    972,838       246,773  
Total Non-Current Liabilities
    972,838       246,773  
                 
Total Liabilities
    1,027,496       309,253  
                 
Stockholders’ (deficit):
               
Preferred stock: US$.0001 par value, 20,000,000 shares authorised, none issued and outstanding.
    -       -  
Common stock: US$.0001 par value 500,000,000 shares
authorised, and 175,315,350 issued and outstanding
    16,825       16,825  
Additional paid-in-capital
    1,574,323       1,574,323  
Accumulated (deficit) during development stage
    (1,505,228 )     (1,505,228 )
Accumulated (deficit) prior to exploration stage
    (410,179 )     (386,009 )
Retained (deficit) during exploration stage
    (680,493 )     -  
Total Stockholders’ (deficit)
    (1,004,752 )     (300,089 )
                 
Total Liabilities and Stockholders’ (deficit)
    22,744       9,164  
                 
See Notes to Financial Statements
               
 
 
 
F-4

 

CONSOLIDATED GEMS, INC.
(An Exploration Stage Company)
Statements of Operations

   
Year
 Ended
December 31,
   
Year
Ended
December 31,
   
For the
Period April
1, 2013 to
December,31
 
   
2013
   
2012
   
2013
 
                   
      A$       A$       A$  
                         
Revenues
    -       -       -  
Costs and expenses
                       
Legal, accounting and professional
    60,513       52,761       50,278  
Administration expenses
    64,132       116,793       50,197  
Exploration expenses
    574,389       -       574,389  
      699,034       169,554       674,864  
 
(Loss) from operations
    (699,034 )     (169,554 )     (674,864 )
Foreign currency exchange (loss)
    (5,630 )     (2,502 )     (5,630 )
Interest - other
    1       -       1  
 
(Loss) before income tax
    (704,663 )     (172,056 )     (680,493 )
Provision for income tax
    -       -       -  
                         
Net (Loss)
    (704,663 )     (172,056 )     (680,493 )
                         
Basic net (loss) per common equivalent shares
    (0.00 )     (0.00 )     (0.00 )
                         
Weighted number of common equivalent
shares (000’s)
    175,315       175,315       175,315  
                         
See notes to financial statements
                       
 
 
 
F-5

 
 
CONSOLIDATED GEMS, INC.
(An Exploration Stage Company)
Statements of Stockholders’ Equity (Deficit)

   
 
 
Shares
   
Common
 Stock
Amount
   
Additional
Paid-in
Capital
   
Accumulated
(Deficit)
During
Development
Stage
   
 
 
 
Accumulated
(Deficit) Prior
to Exploration
Stage
 
   
 
 
 
Accumulated
(Deficit)
During
Exploration
Stage
   
 
 
Total
 
            $A       $A       $A       $A       $A       $A  
                                                       
Balance December 31, 2012
    175,315,350       16,825       1,574,323       (1,505,228 )     (386,009 )     -       (300,089 )
                                                         
Net (loss)
    -       -       -       -       (24,170 )     (680,493 )     (704,663 )
                                                         
Balance December 31, 2013
    175,315,350       16,825       1,574,323       (1,505,228 )     (410,179 )     (680,493 )     (1,004,752 )
                                                         
                                                         
                                                         
See notes to financial statements
                                                 


 
F-6

 

CONSOLIDATED GEMS, INC.
(An Exploration Stage Company)
Statements of Cash Flows

   
Year
 Ended
December 31, 2013
   
Year
 Ended
December 31, 2012
   
For the
period
April 1, 2013 to
December 31, 2013
 
      A$       A$       A$  
                         
CASH FLOWS FROM OPERATING ACTIVITIES
                       
                         
Net (Loss)
    (704,663 )     (172,056 )     (680,493 )
                         
Adjustments to reconcile net (loss) to net cash (used)
                       
in operating activities
                       
Foreign currency exchange loss
    5,630       2,502       5,630  
Net change in prepayments
    3,871       1,983       63  
Net change in receivables and deposits
    (15,422 )     -       (15,422 )
Net change in accounts payable and accrued expenses
    (7,822 )     28,173       20,411  
 
Net Cash (used) in Operating Activities
    (718,406 )     (139,398 )     (669,811 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
                         
Advances from affiliate
    726,065       139,461       671,372  
 
Net Cash provided by Financing Activities
    726,065       139,461       671,372  
                         
Effects of exchange rate on cash
    (5,630 )     (728 )     (612 )
                         
Net increase (decrease) in Cash
    2,029       (665 )     949  
                         
Cash at Beginning of Year
    241       906       1,321  
Cash at End of Year
    2,270       241       2,270  
                         
                         
                         
                         
                         
See notes to financial statements
                       
                         

 
 
F-7

 

 
CONSOLIDATED GEMS, INC.
(An Exploration Stage Company)
Notes to Financial Statements
December 31, 2013 and 2012

(1)
ORGANIZATION AND BUSINESS

Consolidated Gems, Inc. ("Consolidated Gems” or the “Company"), is a Delaware corporation originally incorporated in Florida as We Sell for U Corp.. The principal stockholder of Consolidated Gems is Power Developments Pty Ltd., an Australian corporation (“Power”), an entity majority owned by the Company’s president, which owned 94.46% of Consolidated Gems as of December 31, 2013.

In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry and has identified silver and base metal exploration in Central America and gem opportunities in Australia for its potential business opportunities.

As a result of management’s decision to refocus its efforts from energy opportunities to explore opportunities in the resources industry, effective December 31, 2010, the Company ceased reporting as a development stage company.  Since April 1, 2013, the Company has been evaluating potential gem related projects and has been granted an exploration tenement in New South Wales, Australia.  Accordingly, from April 1, 2013 the Company has been classified as an exploration stage company.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of Consolidated Gems as a going concern. The Company has not yet commenced revenue producing operations and has incurred net losses since inception and may continue to incur substantial and increasing losses for the next several years, all of which raises substantial doubt as to its ability to continue as a going concern. The financial statements do not contain any adjustments that could arise as a result of this uncertainty.

In addition, Consolidated Gems is reliant on loans and advances from corporations affiliated with the Company. Based on discussions with these affiliate companies, the Company believes this source of funding will continue to be available. Other than the arrangements noted above, the Company has not confirmed any other arrangement for ongoing funding. As a result the Company may be required to raise funds by additional debt or equity offerings in order to meet its cash flow requirements during the forthcoming year.

(2)
ACCOUNTING POLICIES

The following is a summary of the significant accounting policies followed in connection with the preparation of the financial statements.

 
(a)
Basis of presentation

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 certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

 
 
F-8

 

 
 
(b)
Foreign Currency Translation

Effective April 1, 2013, the Company’s functional and reporting currency is the Australian dollar.  Revenue and expenses incurred in a currency other than, Australian dollars are translated at the date incurred or invoiced. Assets and liabilities are re-valued at the period end exchange rate where appropriate. Gains or losses from foreign currency transactions are included in the results of operations.

Prior to April 1, 2013, the Company’s functional currency was the US dollar. However, as a result of Australian based activities in the second quarter of 2013 relating to potential gem projects, the Company’s revenue and expenses are now primarily denominated in Australian dollars (A$). ASC 830 Foreign Currency Translation, states that the functional currency of an entity is the currency of the primary economic environment in which the entity operates. Accordingly the Company determined that from April 1, 2013 the functional currency of the Company is the Australian dollar. Assets, liabilities and equity were translated at the rate of exchange at April 1, 2013. Revenue and expenses were translated at rates at date of transaction. Translation gains and losses, if material, are included as part of accumulated other comprehensive income. The resulting translation at April 1, 2013 was not material.

Restatement of comparative numbers was made for the change in functional and reporting currency.

 
(c)
Cash Equivalents

Consolidated Gems considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.  For the periods presented there were no cash equivalents.

 
(d)
Federal Income Tax

ASC Topic 740 prescribes how a company should recognise, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. Additionally for tax positions to qualify for deferred tax benefit recognition under ASC 740, the position must have at least “more than likely not” chance of being sustained upon challenge by the respective taxing authorities, and whether or not it meets that criteria is a matter of significant judgement. The Company believes that it does not have any uncertain tax positions that would require the recognition or disclosure of a potential tax liability.

The Company follows the asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. For the periods presented, there was no taxable income. There are no deferred income taxes resulting from temporary differences in reporting certain income and expense items for income tax and financial accounting purposes. The Company, at this time, is not aware of any net operating losses which are expected to be realized.
 
 
F-9

 

 
 
(e)
Australian Tax Law

The Company is not an Australian resident corporation under Australian law. If the Company became an Australian resident corporation, it would be subject to Australian income tax on its non-exempt worldwide assessable income (which includes capital gains), less allowable deductions, at the rate of 30%. Foreign tax credits are allowed where tax has been paid on foreign source income provided the tax credit does not exceed 30% of the foreign source income.

Under the U.S./Australia tax treaty, a U.S. resident corporation such as us is subject to Australian income tax on net profits attributable to the carrying on of a business in Australia through a “permanent establishment” in Australia. A “permanent establishment” is a fixed place of business through which the business of an enterprise is carried on. The treaty limits the Australian tax on interest and royalties paid by an Australian business to a U.S. resident to 10% of the gross interest or royalty income unless it relates to a permanent establishment. Although we consider that the Company does not have a permanent establishment in Australia, it may be deemed to have such an establishment due to the location of its administrative offices in Melbourne. In addition we may receive interest or dividends from time to time.

 
(f)
Loss per share

The Company calculates loss per share in accordance with FASB ASC Topic 260, “Earnings per Share”.

Basic (loss) per share is computed based on the weighted average number of common shares outstanding during the period. Dilutive loss per share has not been presented as there are no common stock equivalents.

 
(g)
Fair value of Financial Instruments

FASB issued ASC Topic 825, “Financial Instruments”, which requires the Company to disclose, when reasonably attainable, the fair values of its assets and liabilities which are deemed to be financial instruments.

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate their respective fair values because of the short maturities of those instruments.

The fair value of advances from AXIS are not practicable to estimate as no similar market exists for these instruments and there is no specified date of repayment.

 
(h)
Comparative Figures

Where necessary, comparative figures have been reclassified to be consistent with current year presentation with no effect on operations.

(3)
RECENT ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
 
 
F-10

 

 
(4)
AFFILIATE TRANSACTIONS

 In January 2009, the Company entered into an agreement with AXIS Consultants Pty Ltd (“AXIS”) to provide geological, management and administration services to the Company, (the “Service Agreement”). AXIS has some common management and is incorporated in Australia. One of the Company’s directors (Mr. Joseph Gutnick) is also a director of AXIS and Mr. Peter Lee is Chief Financial Officer and Company Secretary of AXIS and owe fiduciary duties to both parties. AXIS’s principal business is to provide geological, management and administration services to companies. We are one of nine companies that AXIS provides services to, namely, Legend International Holdings, Inc., Quantum Resources Limited, Merlin Diamonds Limited, Top End Minerals Limited, Northern Capital Resources Corp, Golden River Resources Corporation, Great Central Resources Corp, Aurum Inc., and Consolidated Gems Inc.

Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff.  A number of arrangements and transactions have been entered into from time to time between such companies.  It has been the intention of the companies and respective Boards of Directors that each of such arrangements or transactions should accommodate the respective interest of the relevant companies in a manner which is fair to all parties and equitable to the shareholders of each. Currently, there are no material arrangements or planned transactions between the Company and any of the other companies other than AXIS.

AXIS is paid by each company for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, human resources, company secretarial, land management, certain exploration and mining support including provision of exploration managers and geologists, financial, accounting advice and services.  AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company.

We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilisation of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. We are also not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month.

The Service Agreement may be terminated by AXIS or ourselves upon 60 days prior notice. If the Service Agreement is terminated by AXIS, we would be required to independently provide, or to seek an alternative source of providing, the services currently provided by AXIS.  There can be no assurance that we could independently provide or find a third party to provide these services on a cost-effective basis or that any transition from receiving services under the Service Agreement will not have a material adverse effect on us.  Our inability to provide such services or to find a third party to provide such services may have a material adverse effect on our operations.

The payable to affiliate at December 31, 2013 of A$972,838 (2012: A$246,773) is due to AXIS. During the year ended December 31, 2013, AXIS provided services in accordance with the services agreement and incurred direct costs on behalf of the Company and provided funding in a total amount of A$726,065 (2012: A$138,855). The Company intends to repay these amounts with funds raised either via additional debt or equity offerings, but this may not occur within the next 12 months. AXIS has agreed not to call the advance in 2014 and accordingly, the Company has classified the amounts payable as non-current in the accompanying balance sheets.
 
 
F-11

 
 

(5)
INCOME TAXES

Consolidated Gems files its income tax returns on an accrual basis.

The Company files tax returns in the United States. Consolidated Gems has carry-forward losses of approximately US$2,402,000 as of December 31, 2013 which expire in years 2028 through 2032. Due to the uncertainty of the availability and future utilization of those operating loss carry-forwards, management has provided a full valuation against the related tax benefit.

The Company’s tax returns for all years since December 31, 2009 remain open to examination by the respective tax authorities.  There are currently no tax examinations in progress.

(6)
STOCKHOLDERS EQUITY

In November 2007, 72,000,000 shares of common stock were issued to the Company’s founder raising US$6,000.

In September 2008, the Company raised US$24,000 in a registered public offering of 14,400,000 shares of common stock share pursuant to a prospectus dated March 7, 2008.

On January 29, 2009, the Company’s Board of Directors declared a 6-for-1 stock split in the form of a stock dividend that was payable in February, 2009 to stockholders of record as of February 14, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated.

On March 31, 2009, the Company’s Board of Directors declared a 2-for-1 stock split in the form of a stock dividend that was payable in August, 2009 to stockholders of record as of August 12, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated.

Effective on August 12, 2009, the Company completed the reincorporation from a Florida corporation to a Delaware corporation. Each issued and outstanding share of common stock, par value US$0.0001 per share, of We Sell For U Corp., a Florida-incorporation Company, was automatically converted into one issued and outstanding share of common stock, par value US$0.0001 per share, of Consolidated Gems, a Delaware-incorporated Company. The number of authorized shares of capital stock was increased to five hundred twenty million (520,000,000) shares, of which five hundred million (500,000,000) shares shall be Common Stock and twenty million (20,000,000) shares shall be Preferred Stock, each with a par value of US$.0001 per share.

On June 30, 2011, the Company issued 2,515,350 shares of common stock at an issue price of US$0.60, being the closing price on the date of issue, to AXIS in satisfaction of a loan balance of US$1,509,210.

(7)
EXPLORATION STAGE COMPANY

The Company is considered an exploration stage company and accordingly reports operations, stockholders deficit and cash flows since April 1, 2013 the inception of exploration activities through the date that revenues are generated from management’s intended operations. Since the date of exploration activities, the Company has incurred an operating loss of approximately A$680,000. The Company’s working capital has been primarily generated from advances from an affiliated entity as well as through the sales of common stock.
 
 
F-12

 
 
 
(8)
SUBSEQUENT EVENTS

The Company has evaluated events and transactions after the balance sheet date and, through the date the financial statements were issued and believes that all relevant disclosures have been included herein and there are no other which requires recognition or disclosure in the accompanying financial statements.


 
 
F-13