UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2014

 

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: 000-53559

 

Gepco, Ltd.

(Name of small business issuer specified in its charter)

 

Nevada		80-0214025
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
9025 Carlton Hills Blvd. Ste. B
Santee, CA 92071		92071
(Address of principal executive offices)		(Zip Code)
(909) 708-3708
(Registrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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: Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, a non –accelerated filer, or a smaller reporting company.   See definitions of large accelerated filer, accelerated filer and smaller reporting company in Section 12b-2 of the Exchange Act.

 

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 Exchange Act). Yes o No x

 

On May 9, 2014, the Company had 231,109,790 outstanding shares of Common Stock, $.001 par value per share.

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The accompanying consolidated financial statements of Gepco, Ltd. ( the “Company”, “Gepco, Ltd.”, “we” or “us”) have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Commission.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gepco, Ltd.

(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

 

		March 31, 2014				December 31, 2013
ASSETS
Cash		$	10,385			$	–
Accounts receivable			125,000				–
Inventory			264,268				–
Total current assets			399,653				–
TOTAL ASSETS		$	399,653			$	–
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Accounts payable and accrued liabilities		$	91,578			$	27,087
Convertible notes, related party (net of discount of $39,018 and $109,498, respectively)			62,139				119,951
Advances payable			10,000				1,261
Note payable to related party			252,329				–
Note payable to related party - in default			50,000				50,000
Total current liabilities			466,046				198,299
Total liabilities			466,046				198,299
Stockholders' Deficit
Preferred stock, $.001 par value, 15,000,000 shares authorized none issued and outstanding			–				–
Common stock, $.001 par value, 250,000,000 shares authorized 221,252,555 and 193,582,555 issued and outstanding, respectively			221,253				193,583
Additional paid in capital			135,530				–
Subscriptions payable			35,000				–
Deficit accumulated during development stage			(458,176	)			(391,882	)
Total stockholders' deficit			(66,393	)			(198,299	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	399,653			$	–

 

See notes to consolidated financial statements.

 

 

Gepco, Ltd.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended March 31, 2014				From October 2, 2013 (GemVest, Ltd. Inception) to March 31, 2014
Revenue		$	605,000			$	605,000
Cost of goods sold			(533,900	)			(533,900	)
Gross profit			71,100				71,100
Operating expenses
General and administrative			17,146				18,918
Legal and accounting			27,380				40,903
Total expenses			44,526				59,821
Operating income			26,574				11,279
Interest expense			(92,867	)			(100,679	)
Other expense			(92,867	)			(100,679	)
Net loss		$	(66,294	)		$	(89,401	)
Loss per share - basic		$	(0.00	)		$	(0.00	)
Weighted average common shares - basic			210,495,666				186,510,643

 

See notes to consolidated financial statements.

 

 

Gepco, Ltd.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended March 31, 2014				From October 2, 2013 (GemVest, Ltd. Inception) to March 31, 2014
Cash flows from operating activities
Net loss		$	(66,294	)		$	(89,401	)
Adjustment to reconcile net loss to net cash used in operations
Amortization of debt discount			85,330				91,865
Changes in operating assets and liabilities
Accounts receivable			(125,000	)			(125,000	)
Inventory			(264,268	)			(264,268	)
Accounts payable and accrued liabilities			64,491				68,859
Accrued interest			2,329				2,329
Accrued interest included in convertible notes payable			5,208				6,485
Total cash used in operations			(298,204	)			(309,131	)
Cash from financing activities
Proceeds from advances			10,000				10,000
Repayment of advances			(1,261	)			(1,261	)
Proceeds from convertible notes			14,850				25,777
Proceeds from notes payable related party			250,000				250,000
Proceeds from subscriptions payable			35,000				35,000
Total cash from financing activities			308,589				319,516
INCREASE IN CASH			10,385				10,385
BEGINNING CASH			–				–
ENDING CASH		$	10,385			$	10,385
Supplemental disclosure of cash flow information:
Interest paid		$	–			$	–
Income taxes paid		$	–			$	–
Supplemental disclosure of non-cash investing activities:
Accounts payable acquired in reverse merger		$	–			$	(22,719	)
Advances payable in reverse merger		$	–			$	(1,261	)
Convertible notes, related party (net of $116,033 debt discount) acquired in reverse merger		$	–			$	(101,212	)
Note payable acquired in reverse merger		$	–			$	(50,000	)
Shares issued to satisfy convertible notes		$	148,350			$	148,350

 

See notes to consolidated financial statements.

 

 

Gepco, Ltd.

(A Development Stage Company)

Notes to Unaudited Consolidated Financial Statements

For the three months ended March 31, 2014

 

 

NOTE 1: HISTORY OF OPERATIONS

 

Gepco, Ltd. (“Gepco, Ltd.” or the “Company”) was incorporated on June 27, 2008 in the State of Nevada as Kensington Leasing, Ltd.  The Company’s initial business plan was to specialize in leasing equipment to a select clientele. Because it took longer than anticipated to launch the Company’s leasing business, the Company elected to investigate additional lines of business. The leasing business generated minimal revenues since inception and was discontinued.

 

On June 4, 2010, the Company, through its newly formed wholly-owned subsidiary Allianex Corp., purchased substantially all of the assets of Allianex, LLC (the “Allianex acquisition”). The Company’s primary business after the Allianex acquisition until the acquisition of Wikifamilies SA, as discussed below, was the production, marketing and distribution of a retail line of prepaid stored value cards for the purchase of technology support and security services for electronic devices. Allianex Corp. generated nominal revenues since the acquisition and the assets were disposed of on December 22, 2011.

 

On May 20, 2011, the Company acquired all of the outstanding equity securities of Wikifamilies SA (the “Wikifamilies acquisition”), making Wikifamilies SA a wholly owned subsidiary of Kensington Leasing, Ltd. For accounting purposes, the Wikifamilies acquisition was treated as a reverse acquisition with Wikifamilies SA treated as the acquirer and Kensington Leasing, Ltd. as the acquired party. As a result, the business and financial information included in previous reports was the business and financial information of Wikifamilies SA prior to May 20, 2011 and the combined entity after May 20, 2011.

 

On October 27, 2011, the Company changed its name to Wikifamilies, Inc. through a short-form merger with its newly formed wholly owned subsidiary of the same name.

 

As of May 20, 2011, the Company’s business plan as Wikifamilies was to design, develop and operate an Internet-based social media website, Wikifamilies.com, with a unique emphasis on families and new technologies which web-based platform was intended to enhance the ability of families to communicate and share family history and events while providing a secure location to transact family-related business matters. Then, on September 7, 2012, our business plan changed to the development and marketing of an Internet search engine through the licensing from ClairNET, Ltd. of their  process enabling online and mobile viewers to search, index, watch and personalize web-based videos while facilitating the monetizing of investments by video content providers, advertisers and marketers.

 

On September 7, 2012, Wikifamilies, Inc. entered into a Share Exchange Agreement with ClairNET Ltd., a Hong Kong entity and their shareholders by which all of the issued and outstanding shares of ClairNET were to be exchanged for 36,504,056 shares in Wikifamilies Inc, representing 75% of the company’s common stock. Additionally, ClairNET Ltd was to receive 2,500,000 shares of Voting Only Preferred Stock in Wikifamilies, with 100:1 voting rights. On the same date, the parties also signed a License Agreement by which Wikifamilies was to acquire exclusive global licensing rights to ClairNET’s products, with an end goal of ClairNET becoming a subsidiary of Wikifamilies, Inc.

 

On September 8, 2012, the Company and the founders of Wikifamilies SA entered into a Rescission Agreement, whereby the share consideration originally tendered by the corporation for the acquisition of the Wikifamilies SA assets, was rescinded by mutual agreement. This Rescission unwound the March 23, 2011, Exchange Agreement between Wikifamilies Inc. and Wikifamilies SA, and Wikifamilies SA agreed to return the remaining 26,925,000 shares to Wikifamilies treasury, being the full balance of the original 31,500,000 shares tendered as part of the original Exchange Agreement and the Company returned its interest in Wikifamilies SA to the Wikifamilies SA founders. The Wikifamilies SA founders retained all assets and liabilities of Wikifamilies SA. Additionally, Wikifamilies, Inc forgave the intercompany loans from Wikifamilies Inc. to Wikifamilies SA in full compensation for non-payment of salaries, fees and expenses to the founders.

 

On September 10, 2012, the full Board of Directors of the Company elected John Karlsson, Dan Clayton and Vincent Qi as Members of the Board of Directors.

 

 

On September 10, 2012, following the appointment of the new Board Members, Robert Coleridge, Chris Dengler, Steve Brown, William Hogan and Thomas Hudson resigned from their positions on the Board. Trisha Malone resigned her position as Board Member and Chief Financial Officer effective September 13, 2012, and Malcolm Hutchinson resigned his position as Board Member and Chief Executive Officer effective September 13, 2012.

 

The three members of the Board of Directors elected on September 10, 2012 changed the Company’s name in the State of Nevada to ClairNET, Ltd. but failed to complete the ClairNET, Ltd. merger, which left the Company with no operating entity, and failed to file any and all required filings with the Securities and Exchange Commission (the “SEC”), in effect abandoning the Company. After repeated attempts at contact with the Board of Directors with no response, certain creditors of the Company petitioned the Eighth Judicial District Court in Clark County Nevada to receive custodianship of the Company.

 

On April 8, 2013, the Eighth District Court of the State of Nevada appointed Trisha Malone as Custodian of Wikifamilies, Inc. pursuant to section 78.347 of the Nevada Revised Statutes, and authorized her to appoint a new Board of Directors, to continue the business of the Company, and to bring current the Company’s filings with the SEC. The appointment was made pursuant to a petition filed by Trisha Malone with the Court on February 27, 2013, to become Custodian of the Company due to former management’s malfeasance and nonfeasance in allowing the filings with the SEC to become delinquent, exposing the Company to potential revocation of registration proceedings under Section 12j of the Securities Exchange Act of 1934 and a potential trading suspension under Section 12k of the Securities Exchange Act, and in failing to maintain the business of the Company.

 

The Court also nullified the issuance of shares of Company Common Stock issued as a result of the Exchange Agreement entered into between the Company and ClairNET, Ltd., a Hong Kong corporation, dated September 7, 2012 and the Technology License Agreement between the Company and ClairNET, Ltd., a Hong Kong corporation. Among the nonfeasance of the prior management was the failure to effect the change of the Company's name from Wikifamilies, Inc. to ClairNET, Ltd. in the marketplace, by notification to FINRA. Prior to being known as ClairNET, Ltd., the Company was known as Wikifamilies, Inc., to reflect the business plan of operations of its foreign subsidiary, Wikifamilies, S.A. However, Wikifamilies, S.A. was returned to its founders by reason of a Rescission Agreement executed between the founders and the Company on September 8, 2012.

 

The Court further ordered that all stock issued as a result of the September 7, 2012 Share Exchange Agreement between the Company and ClairNET Ltd., a Hong Kong entity and their shareholders, are declared null and void and ordered to be returned to the Company or its transfer agent for cancellation. The Court further ordered that the License Agreement between the Company and ClairNET, Ltd. a Hong Kong entity, is declared null and void.

 

Finally, the Court ordered the cancellation of an aggregate of 26,925,000 shares of Common Stock to effectuate the Company's September 8, 2012 Rescission agreement with the founders of Wikifamilies SA.

 

On April 9, 2013, the duly appointed Custodian of the Company appointed Trisha Malone and Larry A. Zielke as Members of the Board of Directors. Ms. Malone was also appointed as Chief Executive Officer, Chief Financial Officer and Secretary of the Company and Mr. Zielke was appointed as Vice President and Corporate Counsel.

 

On August 27, 2013, the Company held a Special Meeting of Shareholders.  At the Special Meeting, the shareholders of the Company approved the change in the Corporation’s name from Wikifamilies, Inc. to Gepco, Ltd. On September 11, 2013, the Company filed an amendment to its Articles of Incorporation to, inter alia, change its name to Gepco, Ltd. from ClairNET, Ltd. (Wikifamilies, Inc.) In conjunction with the amendment, the Company filed with FINRA to change its name and ticker symbol. Effective October 8, 2013, the Company’s common stock, which was previously traded under the ticker symbol “WFAM” on the OTCQB market, began trading under the new ticker symbol “GEPC”.

 

 

On October 15, 2013, the “Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with GemVest, Ltd. pursuant to which the Company agreed to purchase (the “Acquisition”) 100% of the issued and outstanding capital stock (“GemVest Shares”) of GemVest, Ltd., a Nevada corporation (“GemVest”) in exchange for 150,000,000 shares of the Company’s restricted Common Stock. The Acquisition was consummated (the “Closing”) on December 6, 2013, in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933, as amended and resulted in a change in control of the Company. Pursuant to the Agreement, GemVest and the Company agreed to the following covenants regarding management of the Company for a period of five years from the date of Closing:

 

·

Angelique de Maison shall serve as Executive Chairman of the Company and of GemVest, Peter Voutsas shall serve as Chief Executive Officer and Chief Investment Officer of the Company and of GemVest, Trisha Malone shall serve as President, Chief Financial Officer and Secretary of the Company and Chief Financial Officer, Chief Operating Officer and Secretary of GemVest, Nicholas Marlin shall serve as Chief Marketing Officer of the Company and President and Chief Marketing Officer of GemVest and Ronald Loshin shall serve as Chief Creative Officer of the Company and of GemVest.

 

·

The Board of the Company shall consist of six directors: Angelique de Maison, Peter Voutsas, Trisha Malone, Larry Zielke, Ronald Loshin and Nicholas Marlin. The Board of GemVest shall consist of five directors: Angelique de Maison, Peter Voutsas, Trisha Malone, Ronald Loshin and Nicholas Marlin.

 

·

If the Company’s EBITDA (as defined in GAAP) is not at least $750,000 for the fiscal year ended December 31, 2014, then on a pro rata basis, based on percentage of ownership of Gepco immediately prior to Closing, the shareholders of Gepco shall return to the Company one million shares of the Company’s Common Stock for each $10,000 increment by which EBITDA is less than $750,000.

 

Subsequent to the Closing of the Acquisition, GemVest became a wholly owned subsidiary of Gepco. For accounting purposes, GemVest is deemed the accounting acquirer.

 

For accounting purposes, the acquisition of GemVest by Gepco has been recorded as a reverse merger of a public company, with the exception that no goodwill is generated. Consequently, the historical financial information in the accompanying consolidated financial statements is that of Gemvest from its date of inception, October 2, 2013 and that of the combined entity from December 6, 2013 through December 31, 2013.  GemVest is a start-up development stage company that has had no revenue or expenses from its inception through December 31, 2013. As the Company was a shell company prior to the acquisition of GemVest, GemVest is the acquirer for accounting purposes, and future financial reporting shall be set forth as if GemVest acquired the Company. As a result of the Merger, Gepco now owns all of the assets, liabilities and operations of GemVest and ownership to all intellectual property rights for GemVest in the future. 

 

Unless the context otherwise requires, references to the “Company” mean the Company and its subsidiary GemVest, Ltd. In the context of Common Stock, notes and other securities, references to the “Company” mean Gepco, Ltd. unless otherwise stated.

 

NOTE 2: GOING CONCERN

 

The Company commenced generating revenues in March 2014 and has funded its operations primarily through the issuance of equity. As shown in the accompanying consolidated financial statements, the Company has a limited operating history and limited cash flow and has an accumulated deficit during development stage of $458,176 at March 31, 2014. Accordingly, the Company’s ability to identify and accomplish a business strategy and to ultimately achieve profitable operations is solely dependent upon its ability to obtain additional debt or equity financing.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

 

NOTE 3: SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of Gepco, Ltd. and its 100% wholly-owned subsidiary, GemVest, Ltd. All intercompany balances and transactions have been eliminated in consolidation. As the Company was a shell company prior to the acquisition of GemVest, GemVest is the acquirer for accounting purposes, and future financial reporting shall be set forth as if GemVest acquired the Company. GemVest, Ltd. was incorporated on October 2, 2013 in the State of Nevada.  GemVest is a start-up development stage company that began selling and brokering high end rare investment grade diamonds in the first quarter of 2014, but had no revenue or significant expenses from its inception through December 31, 2013.

 

Estimates

 

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Cash and cash equivalents

 

The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly- liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.

 

Revenue Recognition

 

Revenue is recognized net of indirect taxes, rebates and trade discounts and consists primarily of the sale of products, and services rendered.

 

Revenue is recognized in accordance with Accounting Standards Codification Topic No. 605-10-S99 “Revenue Recognition” (ASC 605-10-S99) when the following criteria are met:

 

·

evidence of an arrangement exists;

·

delivery has occurred or services have been rendered and the significant risks and rewards of ownership have been transferred to the purchaser;

·

transaction costs can be reliably measured;

·

the selling price is fixed or determinable; and

·

collectability is reasonably assured.

 

Inventory

 

Inventory, which consists primarily of diamonds, gemstones and diamond and gemstone jewelry, is stated at the lower of cost or market. Cost is determined by the specific identification method. The specific identification method requires a business to identify each unit of merchandise with the unit's cost and retain that identification until the inventory is sold. Once a specific inventory item is sold, the cost of the unit is assigned to cost of goods sold.

 

The Company evaluates the need to record adjustments for impairment of inventory. As of March 31, 2014, the Company has not needed to adjust for impairment.

 

 

Fair Value of Financial Instruments

 

The carrying amounts for the Company’s cash, investments, accounts payable, accrued liabilities and current portion of long term debt approximate fair value due to the short-term maturity of these instruments.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

The convertible feature of certain of our convertible notes payable provides for a rate of conversion that was at market value at the time of issuance but below market value at market close on the same day. Such feature is normally characterized as a “Beneficial Conversion Feature” (“BCF”). Pursuant to Accounting Standards Codification Topic 470-20-25 “Debt” (ASC 470-20-25), the estimated fair value of the BCF is recorded in the consolidated financial statements as a discount from the face amount of the notes. Such discounts are amortized to accretion of convertible debt discount over the term of the notes (or conversion of the notes, if sooner).

 

At the issuance of a series of convertible notes in 2013 and 2014 the Company recorded a total debt discount of $280,185. As of March 31, 2014, the Company has recorded amortization of the BCF in connection with these convertible notes with a principal value of $325,638 in the amount of $241,167. This amortization has been reported after the Acquisition as a component of interest expense in the amount of $91,865 in the consolidated statement of operations and prior to the Acquisition as a component of retained earnings in the amount of $149,302 on the consolidated balance sheet. The debt discount balance at March 31, 2014 was $39,018 net of amortization.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance based on historical write-off experience and customer specific data. If an amount has not been settled within its contractual payment term then it is considered past due. The Company reviews the allowance for doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are charged off against the allowance when the Company believes that the amount will not be recovered.

 

The Company analyzes accounts receivable and historical bad debts, customer credit-worthiness, current economic trends, and changes in its customer payment terms and collection trends when evaluating the adequacy of its allowance for doubtful accounts. Any change in the assumptions used in analyzing a specific account receivable may result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs. 

 

Earnings (Loss) Per Share

 

Per Accounting Standards Codification Topic 260 “Earnings Per Share” (ASC 260), basic EPS is determined using net income divided by the weighted average shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential shares of Common Stock were issued.

 

NOTE 4: GEMVEST, LTD. ACQUISITION

 

On October 15, 2013, the Company entered into a Stock Purchase Agreement with GemVest pursuant to which the Company purchased 100% of the issued and outstanding capital stock of GemVest, a Nevada corporation in exchange for 150,000,000 shares of the Company’s restricted Common Stock which at closing represented approximately 77.49% of the Company’s outstanding Common Stock.

 

Subsequent to closing of the Acquisition, GemVest became a wholly owned subsidiary of the Company. For accounting purposes, GemVest is deemed the accounting acquirer. As a result, the business and financial information included in the report is the business and financial information of GemVest prior to December 6, 2013 and the combined entity after December 6, 2013. The assets and liabilities of both companies were retained as of December 6, 2013 while the stockholder’s equity of the Company prior to the acquisition was eliminated with the exception of accumulated deficit that exceeded the additional paid in capital balance. Such retained losses in the amount of $368,775 are included as a deficit assumed at merger.

 

 

NOTE 5: CONVERTIBLE NOTES

 

The following table sets forth the outstanding Convertible Note indebtedness of the Company at the date indicated:

 

		Principal at March 31, 2014				Accrued Interest				Balance at March 31, 2014				Unamortized Debt Discount				Convertible Note Balance at March 31, 2014
Suprafin, Ltd.		$	3,111			$	11,820			$	14,931			$	(1,107	)		$	13,824
Sunatco, Ltd.			80,000				6,226				86,226				(37,911	)			48,315
Total convertible notes		$	83,111			$	18,046			$	101,157			$	(39,018	)		$	62,139

 

On April 16, 2013 the Board of Directors elected to issue Convertible Notes to Trisha Malone in the amount of $40,000 for past services rendered which had been previously been recorded as accrued salaries, see NOTE 8: RELATED PARTY TRANSACTIONS, to Walker River Investments Corp. for costs paid for the custodianship proceeding in the amount of $44,177, and to Suprafin, Ltd. in the amount of $141,461 for past expenses paid on behalf of the Company which had previously been recorded as note payable, see NOTE 6: NOTES PAYABLE. These Convertible Notes are convertible into shares of the Company’s Common Stock at $.005 per share.

 

On April 16, 2013 Trisha Malone requested that her $40,000 Convertible Note be converted to 8,000,000 shares of restricted Common Stock, and Walker River Investments Corp. requested that their $44,177 Convertible Note be converted to 8,835,480 shares of Common Stock. As these Convertible Notes were converted within the conversion term, there was no gain or loss on the conversion.

 

The Company accrued interest at 10% per annum on the Convertible Note for Suprafin, Ltd. Accrued interest in the amount of $11,820 is included in Suprafin, Ltd.’s note balance as of March 31, 2014. On October 15, 2013 Suprafin, Ltd. elected to convert $10,000 of their Note with the Company into 2,000,000 shares of the Company’s Common Stock. On January 13, 2014 Suprafin, Ltd. elected to convert $15,000 of their Convertible Note with the Company into 3,000,000 shares of the Company’s Common Stock. On February 5, 2014 Suprafin, Ltd. elected to convert $113,350 of their Convertible Note with the Company into 22,670,000 shares of the Company’s Common Stock. The principal balance of the Convertible Note was $3,111 as of March 31, 2014.

 

On August 21, 2013 the Board of Directors elected to issue a Convertible Note to Sunatco, Ltd. up to $100,000 for loans for expenses paid on behalf of the Company. Through March 31, 2014, Sunatco, Ltd. loaned the Company a total of $100,000 for working capital needs including $37,601 in past expenses paid on behalf of the Company which had previously been recorded as note payable, see NOTE 7: NOTES PAYABLE. These Convertible Notes are convertible into shares of the Company’s Common Stock at $.01 per share. The Company accrued interest at 10% per annum on the Convertible Note for Sunatco, Ltd. Accrued interest in the amount of $6,226 is included in Sunatco, Ltd.’s note balance as of March 31, 2014. On February 5, 2014 Sunatco, Ltd. elected to convert $10,000 of its Convertible Note with the Company into 1,000,000 shares of the Company’s Common Stock. On March 18, 2014 Sunatco, Ltd. elected to convert $10,000 of its Convertible Note with the Company into 1,000,000 shares of the Company’s Common Stock. The principal balance of the Convertible Note was $80,000 as of March 31, 2014.

 

The Company evaluated beneficial conversion feature as of issuance date of these four Convertible Notes and recorded total debt discount in the amount of $280,185. Debt discount is amortized over term of the Convertible Notes or at conversion of the note if earlier. As of March 31, 2014 $91,865 of the debt discount had been amortized leaving a balance of $39,018 unamortized.

 

 

NOTE 6: NOTES PAYABLE

 

The following table sets forth the outstanding advances and notes payable indebtedness of the Company at the date indicated:

 

		March 31, 2014
		Principal				Accrued Interest				Note Balance
Advances payable:
Sunatco, Ltd.		$	10,000			$	–			$	10,000
Notes payable related parties:
Thomas Hudson			50,000				–				50,000
Ronald Loshin			250,000				2,329				252,329
Total notes payable		$	310,000			$	2,329			$	312,329

 

Through December 31, 2012 Suprafin, Ltd. had loaned the Company a total of $103,944 for working capital needs and assumed $38,565 in loans due for a total loan balance of $142,509 as of December 31, 2012. These loans were provided at no interest, payable on demand. On April 16, 2013 the Board of Directors elected to issue a Convertible Note to Suprafin, Ltd. for past expenses paid totaling $141,461, the total amount due to Suprafin, Ltd. as of April 16, 2013. This note is convertible into shares of the Company’s Common Stock at $.005 per share. The balance due to Suprafin, Ltd. under the original loan not replaced by the Convertible Note is $1,261. See NOTE 5: CONVERTIBLE NOTES. This balance was repaid to Suprafin, Ltd. during the three months ended March 31, 2014.

 

Through August 21, 2013 Sunatco, Ltd. had loaned the Company a total of $37,601 for working capital needs. These loans were provided at no interest, payable on demand. On August 21, 2013 the Board of Directors elected to issue a Convertible Note to Sunatco, Ltd. up to $100,000 for expenses paid on behalf of the Company. This note is convertible into shares of the Company’s Common Stock at $.01 per share. See NOTE 5: CONVERTIBLE NOTES. Sunatco, Ltd. has loaned the Company a total of $110,000 to date, $100,000 in Convertible Notes and $10,000 as an additional loan at no interest and no set repayment terms.

 

On February 14, 2012, former Director Thomas Hudson loaned the Company a total of $50,000 for working capital needs. The loan was originally due on September 30, 2012. On August 17, 2012 Mr. Hudson agreed to extend the due date to September 30, 2012. The loan is currently in default. Should the Company, at its sole discretion, decide that it is not in a financial position to repay said funds in currency, both parties mutually agree that said amount repayable may be converted into common shares of the Company calculated at a rate per share of twenty five cents per share or at eighty percent (80%) of the previous week’s averaged closing price, whichever is the lesser. If the Company does not repay the loan in cash, as a penalty it shall provide Lender with one hundred thousand (100,000) warrants enabling him to purchase one hundred thousand (100,000) shares of Common Stock at a redemption price of twenty five cents ($.25) per share. Redemption of such warrants in entirety or in part is at the sole discretion of Lender. By way of interest on such loan, Lender shall be provided with two hundred thousand (200,000) warrants enabling him to purchase two hundred thousand (200,000) shares of Common Stock at a redemption price of twenty cents ($.20) per share being a total of forty thousand dollars ($40,000). Redemption of such warrants in entirety or in part is at the sole discretion of Lender. The options shall remain valid for a period of three years from the date of this Agreement, after which they shall become null and void. As the warrants were in lieu of interest, we recorded an interest expense as of December 31, 2012 of $37,487. The fair value of the warrants in lieu of interest expenses is valued using Black-Sholes option-pricing model. The loan was not repaid as of March 31, 2014.

 

On January 22, 2014, director Ronald Loshin loaned the Company a total of $250,000 for the purchase of inventory under a Promissory Note. The Promissory Note accrues interest at 5% per annum and the principal and accrued interest is due and payable immediately upon the sale of the investment grade diamond purchased with the funds received. Accrued interest in the amount of $2,329 is included in Mr. Loshin’s note balance of $252,329 as of March 31, 2014.

 

 

NOTE 7: RELATED PARTY TRANSACTIONS

 

Common Stock Issuances

 

On April 16, 2013 the Board of Directors elected to issue Convertible Notes to Trisha Malone in the amount of $40,000 for past services rendered, Suprafin, Ltd. for past expenses paid totaling $141,461, and to Walker River Investments Corp. for costs paid for the custodianship proceeding in the amount of $44,177. These notes are convertible into shares of the Company’s Common Stock at $.005 per share. Trisha Malone requested that her $40,000 note be converted to 8,000,000 shares of Common Stock, and Walker River Investments Corp. requested that their $44,177 note be converted to 8,835,480 shares of Common Stock. Ms. Malone is an officer and director of the Company and is therefore a related party. Walker River Investments Corp. owned more than 10% of the Company following the conversion of their note into common stock and may therefore be considered a related party. Zirk de Maison is the husband of Angelique de Maison, our Executive Chairman and therefore may be considered a related party to the Company although Mr. and Mrs. de Maison individually disclaim beneficial ownership of the other’s property and investments. Mr. de Maison is the sole officer and shareholder of Suprafin, Ltd.

 

Also on April 16, 2013 the Board of Directors granted Trisha Malone 2,000,000 shares of Common Stock valued at $19,800 as advance payment for services to be performed as Chief Executive Officer, Chief Financial Officer and Secretary of the corporation and granted Larry A. Zielke 1,000,000 shares of Common Stock valued at $9,900 as advance payment for services to be performed as Vice President of the Company.

 

Notes and Loans

 

On February 14, 2012, former Director Thomas Hudson loaned the Company a total of $50,000 for working capital needs. The loan was due on September 30, 2012 and is currently in default. See NOTE 6: NOTES PAYABLE. Mr. Hudson is no longer a director of the Company.

 

On April 16, 2013 the Board of Directors elected to issue a Convertible Note to Suprafin, Ltd. for loans for past expenses paid totaling $141,461, the total amount due to Suprafin, Ltd. as of April 16, 2013. This note is convertible into shares of the Company’s Common Stock at $.005 per share. Suprafin, Ltd. has elected to convert a total of $138,350 of their Note with the Company into 27,670,000 shares of the Company’s Common Stock leaving a principal balance due of $3,111 as of March 31, 2014. In addition the balance due to Suprafin, Ltd. under the original loan not replaced by the Convertible Note was $1,261 which was repaid during the three months ended March 31, 2014. See NOTE 5: CONVERTIBLE NOTES and NOTE 6: NOTES PAYABLE.

 

On August 21, 2013 the Board of Directors elected to issue a Convertible Note to Sunatco, Ltd. for up to $100,000 for loans for expenses paid on behalf of the Company. This note is convertible into shares of the Company’s Common Stock at the rate of $0.01 per share. $100,000 had been borrowed under this note as of March 31, 2014. Sunatco, Ltd. has elected to convert a total of $20,000 of their Note with the Company into 2,000,000 shares of the Company’s Common Stock leaving a principal balance due of $80,000 as of March 31, 2014. In addition, Sunatco, Ltd. has loaned the Company $10,000 as an additional loan at no interest and no set repayment terms. See NOTE 5: CONVERTIBLE NOTES and NOTE 6: NOTES PAYABLE. Mr. de Maison is the sole officer and shareholder of Sunatco, Ltd.

 

Accrued Salaries

 

On April 16, 2013 the Board of Directors elected to issue a Convertible Note to Trisha Malone in the amount of $40,000 for accrued salaries for past services rendered and on the same day Trisha Malone requested that her Convertible Note be converted to shares of Common Stock. As of March 31, 2014 there were no accrued salaries due.

 

 

NOTE 8: COMMON STOCK

 

The authorized capital stock of Gepco, Ltd. consists of 250,000,000 shares of Common Stock, $0.001 par value per share, and 15,000,000 shares of Preferred Stock, par value of $0.001 per share. At March 31, 2014, there were outstanding 221,252,555 shares of Common Stock and no shares of Preferred Stock.

 

On February 14, 2012, the Company issued 200,000 warrants for the purchase of 200,000 shares of Common Stock at a redemption price of twenty cents ($.20) per share in connection with a loan agreement. Redemption of such warrants in entirety or in part is at the sole discretion of warrant holder. The warrants shall remain valid for a period of three years from the date of the loan or February 14, 2015, after which they shall become null and void. See NOTE 6: NOTES PAYABLE.

 

The following is a summary of warrant activity for the three months ended March 31, 2014:

 

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Life

Outstanding - December 6, 3013:

200,000

$

0.20

14.5 months

Warrants Issued

–

–

Warrants Exercised

–

–

Outstanding - December 31, 2013:

200,000

$

0.20

13.7 months

Warrants Issued

–

–

Warrants Exercised

–

–

Outstanding - March 31, 2014

200,000

$

0.20

10.7 months

 

On December 6, 2013, the Company issued 150,000,000 shares of Common Stock to the shareholders of GemVest, Ltd. upon closing of the Stock Purchase Agreement with GemVest, Ltd. as described in NOTE 4: GEMVEST ACQUISITION.

 

From October 15, 2013 through March 31, 2014, Suprafin, Ltd. elected to convert a total of $138,350 of their Note with the Company into 27,670,000 shares of the Company’s Common Stock. See NOTE 5: CONVERTIBLE NOTES and NOTE 6: NOTES PAYABLE.

 

From February 5, 2013 through March 31, 2014, Sunatco, Ltd. elected to convert a total of $20,000 of their Note with the Company into 2,000,000 shares of the Company’s Common Stock. See NOTE 5: CONVERTIBLE NOTES and NOTE 6: NOTES PAYABLE.

 

On October 15, 2013 the Board of Directors approved the sale of up to 15,000,000 shares of Common Stock at a price of $0.10 per share. The sale of such shares began in March of 2014 with 350,000 shares sold as of the March 31, 2014 recorded as subscription payable.

 

NOTE 9: NEW ACCOUNTING PRONOUNCEMENTS

 

In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-05, Service Concession Arrangements (Topic 853), a consensus of the FASB Emerging Issues Task Force. The objective of the update is to specify that an operating entity should not account for a service concession arrangement within the scope of this update as a lease in accordance with Topic 840, Leases. It is effective for fiscal years beginning after December 15, 2014. The Company does not expect ASU 2014-05 to have a material effect on its financial condition, results of operation, or cash flows.

 

 

NOTE 10: SUBSEQUENT EVENTS

 

New Share Issuances

 

On April 9, 2014, Sunatco, Ltd. elected to convert the entire $80,000 principal amount of their debt and $5,072.35 in accrued interest into 8,507,235 shares of Common Stock.

 

On October 15, 2013 the Board of Directors approved the sale of up to 15,000,000 shares of Common Stock at a price of $0.10 per share. The sale of such shares began in March of 2014 with 350,000 shares sold as of March 31, 2014 recorded as subscription payable. On April 11, 2014 the Company requested the issuance of these 350,000 shares of Common Stock. An additional 1,000,000 shares were sold on April 17, 2014 and were issued on May 8, 2014.

 

Other Events

 

On April 29, 2014, the Company signed a letter of intent with Peter Marco, LLC to acquire 100% of its outstanding equity interests, which are owned by Peter Voutsas, Gepco’s CEO. The purchase price shall be payable in cash, Company common stock, and a purchase money note in amounts based upon good faith negotiation after receipt of a third party appraisal. The closing of this transaction is subject to definitive documentation and the satisfaction of all conditions set forth therein, and is expected to occur in late July 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2: Management’s Discussion and Analysis or Plan of Operation

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2013.

 

Forward Looking Statements

 

This discussion and the accompanying financial statements (including the notes thereto) may contain “forward-looking statements” that relate to future events or our future financial performance, which are made pursuant to the safe harbor provisions of the Exchange Act. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others, those contained in our Annual Report on Form 10-K for the year ended December 31, 2013 and elsewhere in this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publicly update any forward-looking statements.

 

Overview

 

GemVest, Ltd. was incorporated on October 2, 2013 in the State of Nevada.  GemVest is a start-up development stage company that commenced material operations in March 2014.

 

The Company sells and brokers high end rare investment grade diamonds that are obtained from wholesale diamond cutters all over the world with which our Chief Executive Officer, Peter Voutsas, has long, outstanding relationships and from individuals and estates seeking liquidity who possess investment grade diamonds and heirloom quality jewelry.

 

As the Company was a shell company prior to the acquisition of GemVest, GemVest is the acquiror for accounting purposes, and future financial reporting shall be set forth as if GemVest acquired the Company.

 

Critical Accounting Policies and Estimates  

 

Basis of Presentation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

 

Revenue Recognition

 

Revenue is recognized net of indirect taxes, rebates and trade discounts and consists primarily of the sale of products, and services rendered.

 

Revenue is recognized in accordance with Accounting Standards Codification Topic No. 605-10-S99 “Revenue Recognition” (ASC 605-10-S99) when the following criteria are met:

 

·

evidence of an arrangement exists;

·

delivery has occurred or services have been rendered and the significant risks and rewards of ownership have been transferred to the purchaser;

·

transaction costs can be reliably measured;

·

the selling price is fixed or determinable; and

·

collectability is reasonably assured.

 

 

Estimates

 

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Fair Value of Financial Instruments

 

The carrying amounts for the Company’s cash, investments, accounts payable, accrued liabilities and current portion of long term debt approximate fair value due to the short-term maturity of these instruments.

 

Results of Operations For the Three Months Ended March 31, 2014

 

GemVest is a development stage company that had no revenue or expenses since its inception until March 2014. Gepco has incurred expenses required to operate as a publicly reporting company. There is no comparative financial information available due to the fact the company was organized in October 2013 and did not commence significant operations until March 2014.

 

Revenues

 

Revenue for the three months ended March 31, 2014 was $605,000 from the sales of diamond jewelry. We expect revenues for 2014 to increase as we continue to implement our business plan.  The rate at which our revenues will increase will depend on how quickly we can purchase inventory for sale and the amount of sales generated.

 

Operating Expenses

 

Sales, general and administrative expenses for the three months ended March 31, 2014 were $17,146. Legal and accounting expenses for the three months ended March 31, 2014 were $27,380. We expect selling, general and administrative and legal and accounting expenses for 2014 to trend significantly upward as we begin to bring in additional sales and marketing personnel necessary to grow our business and to service the significant demand we expect for our products and services.

 

Other Income/(Expense)

 

Other expense for the three months ended March 31, 2014 was $92,867 which consisted of interest expense on convertible notes payable and amortization of debt discount related to these convertible notes. We will continue to incur interest expense and debt discount amortization until the convertible notes payable are paid or converted in full.

 

Due to the losses during the period the Company has not recorded a provision for income taxes.

 

Financial Condition, Liquidity and Capital Resources

 

As of March 31, 2014 we had a working capital deficit of $66,393. For the three months ended March 31, 2014, we used $298,204 in cash for operations; and generated cash from financing activities in the amount of $308,589; $35,000 from the sale of common stock, $14,850 in convertible notes payable, $10,000 in advances payable and $250,000 from related party loans, and repaid $1,261 in advances payable.

 

Future Financing

 

We plan to rely on equity sales of our common shares and the sale of secured notes in order to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions, expansions and exploration activities or if we are able to secure additional financing, whether such financing shall be on favorable terms.

 

 

Off-Balance Sheet Arrangements

 

As of March 31, 2014, the Company did not have any off-balance sheet debt nor did it have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that have or are reasonably likely to have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

Item 4: Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2014. In designing and evaluating the Company’s disclosure controls and procedures, the Company recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, the Company’s management was required to apply its reasonable judgment. Based upon the required evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2014, the Company has determined that with the small size of its staff, its system of controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s management intends to address the material weaknesses in its disclosure controls and procedures as soon as possible.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On October 15, 2013 the Board of Directors approved the sale of up to 15,000,000 shares of Common Stock at a price of $0.10 per share. The sale of such shares began in March of 2014 with a total of 1,350,000 shares sold as of the date of this filing.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

On January 23, 2014 the Company purchased a 10.76 carat, round cut, nearly colorless, Hearts and Arrows diamond for an undisclosed amount. This diamond was independently graded as “G” in color, SI1 in clarity with no florescence, triple excellent cut (excellent polish, cut and symmetry), and with perfect depth and table.

 

On March 19, 2014 the Company sold a 6.01 carat, round cut, nearly colorless diamond. This diamond was independently GIA graded as “G” in color, SI1 in clarity. The stone was taken in on consignment so GemVest had no exposure on the stone, which was sold on behalf of a third party for $195,000. GemVest made a 21.875% profit on the sale.

 

On March 27, 2014 the Company signed an Employment Agreement with Peter Voutsas in which the Company agreed to pay Mr. Voutsas a 2% commission on all sales in lieu of a salary. Mr. Voutsas and the Company also agreed in part that Mr. Voutsas, as the owner of Peter Marco, LLC, will continue to own and operate Peter Marco, LLC alongside his employment with the Company. As a substantial portion of the Company’s inventory will be located inside of Peter Marco, LLC’s storefront in Beverly Hills, California (dba Peter Marco Extraordinary Jewels of Beverly Hills); Mr. Voutsas agreed to devote all of Mr. Voutsas’s business time, energy and efforts first to the business of the Company and to use his best efforts and abilities faithfully and diligently to promote the Company’s business interests before the interests of Peter Marco, LLC. Mr. Voutsas agreed to display the inventory of the Company in a prime location at the storefront and to promote the sale of the Company’s inventory before the inventory of Peter Marco, LLC.

 

Item 6. Exhibits

 

Exhibit No.	Description
10.1	Employment Agreement dated March 26, 2014 by and between GemVest, Ltd. and Peter Voutsas. Incorporated by reference to the exhibit 10.13 to Annual Report on Form 10-K filed on March 31, 2014.
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instances Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

 

*

Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability.

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	GEPCO, LTD.
Date: May 14, 2014	By:	/s/ Trisha Malone
		Trisha Malone President, Chief Financial Officer and Secretary
	By:	/s/ Peter Voutsas
		Peter Voutsas
		Chief Executive Officer