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EXCEL - IDEA: XBRL DOCUMENT - ARGENTUM 47, INC.Financial_Report.xls
EX-31.2 - ARGENTUM 47, INC.ex31-2.htm
EX-32.1 - ARGENTUM 47, INC.ex32-1.htm
EX-31.1 - ARGENTUM 47, INC.ex31-1.htm
EX-32.2 - ARGENTUM 47, INC.ex32-2.htm

 

 

 

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 September 30, 2012

 

or

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION FROM ______ TO ______.

 

Commission File Number: 0-54557

_______________________

 

GLOBAL EQUITY INTERNATIONAL, INC.

 (Exact name of registrant as specified in its charter)

 

Nevada   27-3986073
(State or other Jurisdiction of Incorporation
or Organization)
 

(I.R.S. Employer
Identification No.)

 

Al Habtoor Business Tower

Level 28, P.O. Box 29805

Dubai Marina, Dubai, UA

 
(Address of principal executive offices)   (Zip code)

 

Registrant’s telephone number: +971 (7) 204 7593

 

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. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 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). Yes [X] No [  ]

 

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

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   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 [  ] No [X]

 

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

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 16, 2012, there were 29,325,700 outstanding shares of the Registrant’s Common Stock, $.001 par value.

 

 

 

 
 

  

INDEX

 

    Page
     
PART I – FINANCIAL INFORMATION   3
     
Item 1. Financial Statements   3
     
Notes to Financial Statements (Unaudited)   F-4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   5
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk   9
     
Item 4. Controls and Procedure   9
     
PART II – OTHER INFORMATION   11
     
Item 1. Legal Proceedings   11
     
Item 1A. Risk Factors   11
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   11
     
Item 3. Defaults Upon Senior Securities   11
     
Item 4. Mine Safety Disclosure   11
     
Item 5. Other Information   11
     
Item 6. Exhibits   11
     
SIGNATURES   13

 

2
 

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Global Equity International, Inc. and Subsidiary

Financial Statements

September 30, 2012

(Unaudited)

  

3
 

 

CONTENTS

 

    Page(s)
     
Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011   F-1
     
Consolidated Statements of Operations and Comprehensive Loss Three and Nine Months Ended September 30, 2012 and September 30, 2011 (unaudited)   F-2
     
Consolidated Statements of Cash Flows Nine Months Ended September 30, 2012 and September 30, 2011 (unaudited)   F-3
     
Notes to Consolidated Financial Statements (unaudited)   F-4 - F-17

 

4
 

 

Global Equity International, Inc. and Subsidiary

Consolidated Balance Sheets

 

   September 30, 2012   December 31, 2011 
   Unaudited      
Assets          
           
Current Assets          
Cash  $31,526   $2,218 
Accounts receivable   30,020    35,000 
Prepaids   1,919    551 
Total Current Assets   63,465    37,769 
           
Marketable Securities   160,000    1,690,000 
           
Total Assets  $223,465   $1,727,769 
           
Liabilities, Redeemable Preferred Stock and Stockholders’ Equity (Deficit)          
           
Current Liabilities          
Accounts payable  $26,300   $37,191 
Accounts payable - Related parties   346,833    145,528 
Loans payable - Related party   26,975    40,173 
Total Current Liabilities   400,108    222,892 
           
Redeemable Series A, Convertible Preferred Stock: 5,000,000 shares authorized and 1,533,332 shares issued and outstanding, respectively, $0.001 par value (redemption amount $480,000) (liquidation preference of $0)   480,000    480,000 
           
Stockholders’ Equity / (Deficit)          
           
Common Stock: 70,000,000 shares authorized; 29,325,700 and  28,780,700 shares issued and outstanding, respectively, $0.001 par value   29,326    28,781 
Additional Paid In Capital   672,026    393,103 
Accumulated deficit   (1,357,197)   (12,007)
Accumulated other comprehensive loss   (798)   615,000 
Total Stockholders’ Equity (Deficit)   (656,643)   1,024,877 
           
Total Liabilities, Redeemable Preferred Stock & Stockholders’ Equity (Deficit)  $223,465   $1,727,769 

  

 See accompanying notes to financial statements.

 

F-1
 

  

Global Equity International, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

Three and Nine Months ended September 30, 2012 & September 30, 2011 (Unaudited)

  

   Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended 
   September 30, 2012   September 30, 2011   September 30, 2012   September 30, 2011 
                     
Revenue  $16,500   $73,960   $409,000   $96,541 
                     
General and administrative expenses   231,354    80,580    702,610    218,684 
                     
Net loss from operations   (214,854)   (6,620)   (293,610)   (122,143)
                     
Other income / (expenses):                    
Interest (expense) and income   (2,444)   (500)   (76,968)   190 
Foreign currency transaction gain / (loss)   391    (1,769)   388    (4,197)
Impairment loss on available for sale marketable securities   (975,000)   -    (975,000)   - 
Total other income / (expense) - net   (977,053)   (2,269)   (1,051,580)   (4,007)
                     
Net loss  $(1,191,907)  $(8,889)  $(1,345,190)  $(126,150)
                     
Weighted average number of common shares outstanding - basic and diluted   29,286,135    28,771,381    29,046,211    28,720,833 
                     
Net loss per common share - basic and diluted   (0.04)   (0.00)   (0.05)   (0.00)
                     
Comprehensive Loss:                    
Net loss  $(1,191,907)  $(8,889)  $(1,345,190)  $(126,150)
Unrealized loss on available for sale marketable securities   -    (952,923)   -    (1,308,459)
Foreign currency translation loss   (798)   -    (798)   - 
Comprehensive Loss  $(1,192,705)  $(961,812)  $(1,345,988)  $(1,434,609)

 

 See accompanying notes to financial statements.

 

F-2
 

  

Global Equity International Inc. And Subsidiary

Consolidated Statements of Cash Flows

Nine months ended September 30, 2012 and September 30, 2011 (Unaudited)

  

   September 30, 2012   September 30, 2011 
Cash Flows from Operating Activities          
Net Loss  $(1,345,190)  $(126,150)
           
Adjustments to reconcile net loss to net cash used in operating activities          
          
Impairment loss on available for sale marketable securities   975,000    - 
Bad debt   35,000    - 
Common stock issued for services - Related party   10,000    - 
Common stock issued for services   12,500    4,800 
Consulting revenues received in marketable securities   (60,000)   - 
Issuance of warrants in connection with debt financing treated as interest expense   6,968    - 
Amortization of debt discount   70,000    - 
          
Changes in Operating Assets and Liabilities:          
Accounts receivable   (30,020)   - 
Prepaids   (1,368)   - 
Accounts payable   (10,891)   29,052 
Accounts payable - related parties   201,305    - 
          
Net Cash Used In Operating Activities:   (136,696)   (92,298)
          
Cash Flows from Financing Activities:     
Proceeds from notes - related parties   5,702    40,173 
Proceeds from notes   70,000    35,500 
Repayments of notes - related parties   (18,900)   - 
Repayment of notes   (30,000)   (35,500)
Proceeds from issuance of common stock   140,000    51,550 
          
Net Cash Provided by Financing Activities   166,802    91,723 
          
Net Increase (Decrease) in cash   30,106    (575)
          
Effect of Exchange Rates on Cash   (798)   - 
          
Cash at Beginning of Period   2,218    3,275 
          
Cash at End of Period  $31,526   $2,700 
          
Supplemental disclosure of cash flow information:          
Cash paid for interest  $-   $- 
          
Cash paid for income taxes  $-   $- 
          
Supplemental disclosure of non-cash investing and financing activities:          
Debt discount recorded on notes payable  $70,000   $- 
Conversion of notes payable to common stock  $40,000   $- 

 

 See accompanying notes to financial statements.

 

F-3
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

Note 1 Basis of Presentation

 

The accompanying unaudited consolidated interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to form 10-Q and Article 8 of Regulation S-X.

 

Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and comprehensive loss, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

 

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2011 and 2010. The interim results for the period ended September 30, 2012 are not necessarily indicative of results for the full fiscal year.

 

Note 2 Nature of Operations

 

Global Equity Partners, PLC (“GEP”), a private company, was organized under the laws of the Republic of Seychelles on September 2, 2009. Global Equity International Inc. (the “Company” or “GEI”) a reporting company since June 21, 2012, was organized under the laws of the state of Nevada on October 1, 2010. On November 15, 2010, GEP executed a reverse recapitalization with GEI.

 

Revenue is generated from business consulting services, introduction fees, and equity participation.

 

Note 3 Summary of Significant Accounting Policies

 

Principles of Consolidation

 

All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. 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 financial statements and the reported amounts of revenue and expenses during the reporting period.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non confirming events. Accordingly, the actual results could differ from those estimates.

 

F-4
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

Risks and Uncertainties

 

The Company’s operations are subject to significant risk and uncertainties including financial, operational, competition and potential risk of business failure. The risk of social and governmental factors is also a concern since the Company is headquartered in Dubai.

 

Cash

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2012 and December 31, 2011 respectively, the Company had no cash equivalents.

 

Reclassification

 

We have reclassified certain prior period amounts to conform to the current period presentation. These reclassifications have no effect on the financial position or on the results of operations or cash flows for the periods presented.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company recognizes accounts receivable in connection with the services provided. The Company recognizes an allowance for doubtful accounts based on an analysis of current receivables aging and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. During the nine months ended September 30, 2012, the Company recorded $35,000 of bad debt expense pertaining to two Invoices the Company deemed were uncollectible.

 

Marketable Securities

 

(A)Classification of Securities

 

At the time of the acquisition, a security is designated as held-to-maturity, available-for-sale or trading, which depends on the ability and intent to hold such security to maturity. Securities classified as trading and available-for-sale are reported at fair value, while securities classified as held-to-maturity are reported at amortized cost.

 

All securities held at September 30, 2012 and December 31, 2011 are designated as available for sale. Any unrealized and realized gains and losses are reported as a component of other comprehensive income (loss). Realized gains (losses) will be computed on a specific identification basis and will be reflected in the statement of operations.

 

F-5
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

Cost Method Investment

 

At September 30, 2012, the Company has one investment, having a fair value of $160,000 that is treated as a cost method investment. The value of the cost method investment pertains to the receipt of 10% of the common stock in a private company in which the best evidence of fair value was the services rendered.

 

In accordance with ASC NO. 325-20, “cost method investments”, the Company recognizes an investment in the stock of an investee as an asset, as a component of marketable securities.

 

Under the cost method of accounting for investments in common stock, dividends will be the basis for recognition by the Company of earnings from the investment. The net accumulated earnings of an investee subsequent to the date of investment are recognized by the Company only to the extent distributed by the investee as dividends. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions of cost of the investment. At September 30, 2012, the Company had not received any dividends.

 

It is not practicable to estimate the fair value of the investment since the cost of obtaining an independent valuation appears excessive considering the materiality of the investment to the Company. Additionally, there have been identifiable events or changes in circumstances that have had a significant adverse effect on the fair value of this investment.

  

(B)Other than Temporary Impairment

 

The Company reviews its equity investment portfolio for any unrealized losses that would be deemed other-than-temporary and require the recognition of an impairment loss in income. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and the Company’s intent and ability to hold the investments. Management also considers the type of security, related-industry and sector performance, as well as published investment ratings and analyst reports, to evaluate its portfolio. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments. The Company recorded as permanent impairment loss on available for sale marketable securities of $975,000 and $0, as of September 30, 2012 and 2011 respectively.

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

 

F-6
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.

 

Derivative Liabilities

 

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments. Once the derivative liabilities are determined, they are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes pricing model.

 

Debt Issue Costs and Debt Discount

 

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of debt, convertible debt and warrants. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

Original Issue Discount

 

For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

 

Revenue Recognition

 

Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the related fee is reasonably assured.

 

The Company’s services do not include a provision for cancellation, termination, or refunds.

 

For the nine months ended September 30, 2012 the Company received marketable securities and cash as consideration for services rendered. For the nine months ended September 30, 2011 the Company received only cash as consideration for services rendered.

 

F-7
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

At September 30, 2012 and December 31, 2011, the Company had the following concentrations of accounts receivables with customers:

 

Customer  September 30, 2012   December 31, 2011 
D   -%   43%
E   -%   57%
G   99%   -%

 

For the nine months ended September 30, 2012 and 2011, the Company had the following concentrations of revenues with customers:

 

Customer  September 30, 2012   September 30, 2011 
C   12%   59%
D   -%   41%
F*   15%   -%
G   29%   -%
H   37%   -%

 

No securities were acquired from customers “C”, “D”, “G” & “H” as all of this revenue was received in cash.

 

* Non-marketable securities, accounted for under the cost method.

 

During the nine months ended September 30, 2012, the Company received $60,000 in equity securities in a private company in exchange for services performed. The valuation was based on 1,200,000 shares at $0.05 per share.

 

Share-based payments

 

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants at their fair value on the grant date, which is based on the estimated number of awards that are ultimately expected to vest.

 

Share based payments, excluding restricted stock, are valued using a Black-Scholes pricing model. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted but vesting does not occur any previously recognized compensation cost is reversed in the period related to the termination of service.

 

F-8
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

When computing fair value, the Company considered the following variables:

 

The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the share based payment in effect at the time of the grant.
The expected term was developed by management estimate.
The Company has not paid any dividends on common stock since inception and does not anticipate paying dividends on its common stock in the near future.
The expected volatility is based on management estimates regarding private company stock, where future trading of stock in a public market is expected to be highly volatile.
The forfeiture rate is based on historical experience.

 

Earnings per Share

 

Basic earnings (loss) per share are computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

 

The Company has no common stock equivalents, which, if exercisable, would be dilutive. A separate computation of diluted earnings (loss) per share is not presented.

 

Comprehensive Income (Loss)

 

The comprehensive income or loss consists of the change in unrealized gain (loss), realized gain (loss) on available-for-sale marketable securities and changes in accumulated foreign currency translation adjustments.

 

Accumulated other comprehensive income - December 31, 2011  $615,000 
Unrealized losses on available for sale securities   (1,590,000)
Impairment loss on available for sale securities   975,000 
Foreign currency translation loss   (798)
Accumulated other comprehensive loss – September 30, 2012   (798)

 

Foreign currency

 

The Consolidated Financial Statements are presented in United States Dollars. The company has a bank account in foreign currency. The balance of this bank account was translated from its local currency (Euros) into the reporting currency, U.S. dollars, using period end exchange rates. The resulting translation adjustments were recorded as a separate component of accumulated other comprehensive loss. Revenues and expenses were translated using weighted average exchange rate for the period.

 

F-9
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

Transaction gains and losses resulting from foreign currency transactions were recorded as foreign exchange gains or losses in the consolidated statement of operations. The Company did not enter into any financial instruments to offset the impact of foreign currency fluctuations.

 

Fair Value of Financial Assets and Liabilities

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

 

    Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
       

 

    Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
       
    Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts reported in the balance sheet for prepaid expenses, accounts receivable, accounts payable, accounts payable to related parties and loans payable to related parties, approximate fair value based on the short-term nature of these instruments.

 

The Company has assets measured at fair market value on a recurring basis. Consequently, the Company had gains and losses reported in the statement of comprehensive income (loss), that were attributable to the change in unrealized gains or losses relating to those assets still held at September 30, 2012.

 

The Company permanently impaired 1,500,000 shares of Monkey Rock Group Inc. due to the fact that the company was demoted to the Pink sheets; there was no current financial information available on the company and no market to allow the Company to sell the stock.

 

The following is the Company’s assets measured at fair value on a recurring and nonrecurring basis at September 30, 2012 and December 31, 2011, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

F-10
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

   September 30, 2012   December 31, 2011 
Level 1 – None  $-   $- 
Level 2 – Marketable Securities   -    1,590,000 
Level 3 – Non-Marketable Securities   160,000    100,000 
Total  $160,000   $1,690,000 

  

The following section describes the valuation methodologies the Company uses to measure financial instruments at fair value:

 

Marketable Securities — The Level 2 position consists of the Company’s investment in equity securities of stock held in publically traded companies. The valuation of these securities is based on significant inputs that are observable or can be derived from or corroborated by observable market data. These valuations are typically based on quoted prices in active markets. The Company´s investments in equity securities are in relatively inactive markets.

 

Non-Marketable Securities at Fair Value on a Nonrecurring Basis — Certain assets are measured at fair value on a nonrecurring basis. The level 3 position consist of investments accounted for under the cost method. The Level 3 position consists of investment in an equity security held in a private company.

 

Changes in Level 3 assets measured at fair value for the nine months ended September 30, 2012 and the year ending December 31, 2011 were as follows:

 

Balance, December 31, 2010  $- 
Realized and unrealized gains (losses)   - 
Purchases, sales and settlements   100,000 
Impairment loss   - 
Balance, December 31, 2011   100,000 
Realized and unrealized gains (losses)   - 
Purchases, sales and settlements   60,000 
Impairment loss   - 
Balance, September 30, 2012  $160,000 

 

Recent Accounting Pronouncements

 

There are no new accounting pronouncements that have any impact on the Company’s financial statements.

 

F-11
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

Note 4 Marketable Securities and Fair Value

 

The following table represents the Company’s available for sale marketable securities holdings as of September 30, 2012:

 

Equity securities at fair value – December 31, 2010  $2,227,236 
      
Equity securities acquired in 2011   100,000 
Unrealized gains - 2011   405,000 
Impairment loss – 2011   (1,042,236)
      
Equity securities at fair value – December 31, 2011   1,690,000 
      
Equity securities acquired through settlements during the nine months ended September 30, 2012   60,000 
Reclassification of other comprehensive losses due to the permanent impairment of marketable securities.   (615,000)
Impairment loss during the nine months ended September 30, 2012   (975,000)
      
Equity securities at fair value – September 30, 2012  $160,000 

 

Note 5 Debt

 

(A)Related Party

 

The Company received loans from related parties. The loans are non-interest bearing, unsecured and due on demand. The following table represents the loans payable activity as of September 30, 2012:

 

Loans payable – related parties – December 31, 2010  $40,173 
      
Loans payable – related parties – December 31, 2011  $40,173 
Proceeds from loans   5,702 
Repayments   (18,900)
      
Loans payable – related parties – September 30, 2012  $26,975 

 

F-12
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

(B) Accounts payable – Related parties.

 

The following table represents the accounts payable to related parties as of September 30, 2012 and December 31, 2011:

 

   2012   2011 
           
Salaries   343,834    133,332 
Expenses   2,999    12,196 
   $346,833   $145,528 

 

(C) Notes Payable

 

In February and March 2012, the Company entered into two 90 day bridge loan agreements to raise a total of $70,000; $20,000 from “note holder A” and $50,000 from “note holder B”. The loans had interest ranging from 0% - 3%. The loans were unsecured.

 

In connection with these loans, the Company issued 140,000 shares of common stock, having a fair value of $70,000 ($0.50/share), based upon recent third party services rendered at that time, and 20,000 warrants to one lender having an exercise price of $1, expiring September 2013. The fair value of the warrants was $6,968.

 

The 140,000 shares of common stock issued in connection with the bridge loans were treated as a debt discount of $70,000. The remaining valuation of the warrants, $6,968, was recorded as interest expense.

 

The Company applied fair value accounting for the warrants issued to the lender. The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes pricing model.

 

The Black-Scholes assumptions used were as follows:

 

Exercise price  $1.00 
Expected dividends   0%
Expected volatility   200%
Risk fee interest rate   0.35%
Expected life   1.5 years 

 

On June 25, 2012, $30,000 was repaid to “note holder B” and the remaining $20,000 was converted into 40,000 shares of common stock ($0.50/share) in September of 2012. There was no gain or loss on conversion.

 

On July 5, 2012, “note holder A”, $20,000 was converted into 40,000 shares of common stock ($0.50/share). There was no gain or loss on conversion.

 

F-13
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

(D) Debt Discount

 

The following is a summary of 2012 Debt and Debt Discount activity:

 

Debt discount (face amount of debt - $70,000)  $70,000 
      
Amortization of debt discount to interest expense 2012   (70,000)
      
Debt discount - net  $- 
      
Balance - December 31, 2011  $- 
      
Proceeds from notes   70,000 
      
Repayments   (30,000)
      
Conversion of notes to common stock   (40,000)
      
Balance - September 30, 2012  $- 

 

Note 6 Temporary Equity and Stockholders’ Equity

 

(A) Preferred Stock

 

On November 30, 2011, the Company authorized and designated 5,000,000 Series “A” convertible preferred shares of stock, as a bonus to its Chief Executive Officer for services rendered, having a fair value of $480,000 ($0.096/share), based upon the fair value of the services rendered, which represented the best evidence of fair value.

 

On November 13, 2012 the Company´s board of directors approved an amendment to the Certificate of Designation; to amend the voting rights and conversion rights of these Company´s Series “A” preferred shares as follows:

 

Voting Rights: 10 votes per share (votes along with common stock);
Conversion Rights: Each share of Series “A” Preferred is convertible into ten (10) shares of common stock 1 day after the second anniversary of issuance;
Dividend Rights: None;
Liquidation Rights: None;

 

F-14
 

 

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

The board of directors subsequently agreed that the Chief Executive Officer of the Company would retire to treasury 3,466,668 of these Series “A” preferred shares and retain, the balance, 1,533,332 shares.

 

The Company has determined that no beneficial conversion feature or derivative financial instruments exist in connection with the Series “A”, convertible preferred stock, as the conversion rate was fixed at an amount equal to the market price of the Company’s common stock. Additionally, there are a stated number of fixed shares.

 

Redeemable Preferred Stock

 

Under Regulation S-X, Rule 5-02-28, preferred stock must be classified outside shareholders’ equity when the stock is:

 

●Redeemable at a fixed or determinable price on a fixed or determinable date,

●Redeemable at the option of the holder, or

●Redeemable based on conditions outside the control of the issuer.

 

The Series A, convertible preferred stock is redeemable on December 1, 2013 it is presented on the balance sheets as “Redeemable Preferred Stock” in a manner consistent with temporary equity. There are no other features associated with this class of redeemable preferred stock, which require disclosure. The carrying amount and redemption amount is $480,000. There are no redemption requirements.

 

(B) Common Stock

 

During the nine months ended September 30, 2012, the Company issued the following shares:

 

Type  Quantity   Valuation   Range  of  value per share 
                
Cash   280,000   $140,000   $0.50 
Debt discount (1)   140,000   $70,000   $0.50 
Debt conversions   80,000   $40,000   $0.50 
Services rendered (2)   25,000   $12,500   $0.50 
Services rendered - Related Parties (2)   20,000   $10,000   $0.50 
                
Total   545,000   $272,500      

 

(1) See Note 5(C)

 

(2) In connection with the stock issued for services rendered, the Company determined fair value based upon the value of the services provided, which was the most readily available evidence.

 

F-15
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

(C) Stock Warrants

 

The following is a summary of the Company’s warrant activity:

 

   Number of
Warrants
   Weighted
Average
Exercise Price
 
Balance at December 31, 2011   -   $- 
           
Granted   20,000   $1.00 
           
Exercised   -   $- 
           
Forfeited   -   $- 
           
Balance at September 30, 2012   20,000   $1.00 

 

The weighted average remaining life for all outstanding warrants at September 30, 2012 is 0.95 year. The intrinsic value at September 30, 2012 and December 31, 2011 is $0. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes pricing model. The Black Scholes assumptions used are as follows:

 

Exercise price  $1.00 
Expected dividends   0%
Expected volatility   200%
Risk fee interest rate   0.35%
Expected life   1.5 years 
Expected forfeitures   0%

  

Note 7 Going Concern

 

As reflected in the accompanying financial statements, the Company had a loss of $1,345,190 for the nine months ended September 30, 2012, $975,000 of which is due to the permanent impairment of marketable securities; and net cash used in operations of $136,696 for the nine months ended September 30, 2012; and a working capital deficit and stockholders´ deficit of $336,643 and $656,643, respectively, for the period ended September 30, 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue its operations is dependent on Management’s plans, which include the raising of capital through debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur liabilities with certain related parties to sustain the Company’s existence.

 

F-16
 

  

Global Equity International Inc. and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

The Company expects to use its working capital to implement a marketing program to increase awareness of its business model, which includes, but is not limited to, acquisition of private companies, with the intention of taking those companies public in the United States and possibly dual listing those entities abroad. In the event that operating cash flows are slowed or nonexistent, the Company plans to reduce its overhead wherever possible.

 

Depending upon market conditions, the Company may not be successful in raising sufficient additional capital to achieve its business objectives. In such event, the business, prospects, financial condition, and results of operations could be materially adversely affected hence there is certain doubt about the Company’s ability to continue as a going concern.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

F-17
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

For the nine months ended September 30, 2012:

 

The Company had revenues amounting to $409,000 for the nine months ended September 30, 2012. The general and administrative costs were $702,610 which consisted of $59,730 of general office expenses, $369,999 of salaries albeit we accrued almost the entire amount, $155,381 of professional fees and finally $117,500 of other expenses such as commissions paid and bad debt allowances.

 

The net loss from operations for the period was $293,610. The net loss for the period was $1,345,190 due to other expenses and income for the period ended September 30, 2012 amounting to $1,051,580; this amount included $388 of foreign currency transaction income, $76,968 of interest expense and finally $975,000 of realized losses on available for sale marketable securities.

 

The Company’s comprehensive loss amounted to $1,345,988 due to a further $798 of foreign currency adjustments.

 

At September 30, 2012, the Company had 29,325,700 shares issued and outstanding, the weighted average was 29,046,211 shares hence the loss per share was $(0.05).

  

For the nine months ended September 30, 2011:

 

The Company had revenues amounting to $96,541 for the nine months ended September 30, 2011. The general and administrative costs were $218,684 which consisted of $41,619 of general office expenses, $83,293 of salaries albeit we accrued almost the entire amount, $74,043 of professional fees and finally $19,729 of commissions paid.

 

The net loss from operations for the period September 30, 2011 amounted to $122,143, and the net loss, after the foreign currency transaction loss and interest income, amounted to $126,150.

 

The comprehensive loss amounted to $1,434,609 due to $1,308,459 of unrealized losses on available for sale marketable securities.

 

5
 

  

The Company’s other expenses and income for the period ended September 30, 2011 amounted to $4,007; this amount included $190 of interest income and $4,197 of foreign currency translation loss.

 

At September 30, 2011, the Company had 28,780,700 shares issued and outstanding, the weighted average was 28,720,833 shares hence the loss per share was $(0.00).

  

LIQUIDITY AND CAPITAL RESERVES

 

As of September 30, 2012, the Company had $31,526 in cash and net cash used in operations of $136,696. For the nine months ended September 30 2012, the Company had a net loss of $1,345,190 and a net comprehensive loss of $1,345,988. The working capital deficit amounted to $336,643. Finally, the Company had a stockholders´ deficit of $656,643 as of September 30, 2012.

 

It is the Company’s intention to seek additional debt financing, which we plan to use as additional working capital to implement our marketing program to increase awareness of our business model and also to expand our operations via the acquisition of companies that are in a similar space and industry as ours, although we have not identified any companies that we would consider acquiring.

 

However, we do not have any verbal or written agreements with anyone to provide us with debt financing. Any short fall in our projected operating revenues will be covered by:

 

1) The cash fees that we expect to receive during the next 12 months from the four clients we currently have under contract.

 

2) Reducing our expenditures; and

 

3) Receiving loans from one or more of our officers even though at the present time, we do not have verbal or written commitments from any of our officers to lend us money.

 

Depending upon market conditions, the Company may not be successful in raising sufficient additional capital for it to achieve its business objectives.

 

In such event, the business, prospects, financial condition, and results of operations could be materially adversely affected.

 

FUTURE PLANS

 

We currently have seven clients under contract, Arrow Cars International Inc., Black Swan Data Limited, RFC KK., CDP Security Group Limited, Regis Cards Limited, Scorpion Performance Inc and Anglo African Mining Plc.

 

We anticipate signing up an additional client by the end of 2012. However, we cannot guarantee that we will sign up any new clients in 2012 or receive any revenues from new clients in 2012.

 

6
 

 

Our specific plan of operations and milestones for October 2012 through September 2013 are as follows:

 

DURING THE FOURTH QUARTER OF 2012, WE INTEND TO:

 

CONTINUE TO DEVELOP THE INTRODUCER NETWORK FURTHER IN HOPE OF ATTRACTING NEW INTEREST FOR OUR SERVICES.

 

We currently are relying on introductions to potential clients by the following firms in Asia and Europe:

 

1.Merchant House Group (London), a United Kingdom registered investment house;

 

2.TAP 09 Gmbh, an Austrian management consultancy firm based in Wien, Vienna;

 

3.Mashreq Bank, an Asian retail bank based in Dubai, U.A.E.; and

 

4.ABN Amro Private Bank based in Amsterdam, the Netherlands.

 

5.Various other professionals and introducers in the United Kingdom that are not linked to any specific firm.

 

We do not have any verbal or written agreements with the four firms identified above, as our relationship with each of them has been developed over the past year or so.

  

CREATE A MORE EFFICIENT SYSTEM FOR REVIEWING PROSPECTIVE BUSINESS.

 

Our new business review system will change in 2012. We will concentrate our efforts on the quality of the company that is introduced to us. We will start off by sending the client a standard due diligence list and request that they complete the list and send us the support for review. We will then follow-up the due diligence with a “site visit” in order to properly understand our client’s business model and more importantly meet the principals in person.

 

EXPAND OUR CONSULTANCY TO INCLUDE MORE MERGER AND ACQUISITION ACTIVITY.

 

We intend to form relationships with merger and acquisition specialists during 2012 and 2013, which, hopefully, will enable us to:

 

1)Find potential merger and acquisition candidates.
2)Introduce our clients to brokers and investment bankers.
3)Introduce the our clients to the appropriate professionals (attorneys and accountants) to assist them in a public offering or exchange listing.

 

7
 

  

DURING THE FIRST QUARTER OF 2013, WE INTEND TO:

 

EXPAND OUR NETWORK OF CONTACTS WITHIN THE INVESTMENT COMMUNITY IN DUBAI

 

Our network of investment companies in Dubai is currently small; however, we intend to substantially expand our Dubai network in order to enable us to make introductions on a more institutional level. From October 2012 onwards, we intend to develop our network to at least twelve Investment Institutions who may have interests in minority shareholding in companies from outside of the Middle East Region.

 

We will also identify support member of staff during this time to be engaged when finances allow such.

  

BETWEEN NOVEMBER AND DECEMBER 2012, WE INTEND TO:

 

SIGN CONTRACTS WITH A NEW CLIENT.

 

We have a pipeline of at least twelve potentially new clients that we are currently reviewing and we hope that we will gain at least one new consultancy contracts in 2012. This pipeline of potential clients will undoubtedly grow during 2012 and early 2013, making the possibility of attracting a new client more achievable.

 

This section of the annual report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

 

DURING THE FIRST SIX MONTHS OF 2013, WE INTEND TO:

 

WE INTEND TO EXPAND OUR OPERATION INTO DUBAI

 

If we are able to raise sufficient funds, it is our intention to open a fully staffed office in Dubai within the first half of 2013. The first step will be get obtain a Category Four Dubai Business License. This will permit us to have an office and do business within the confines of the DIFC (the Dubai International Financial Centre). We will be looking to employee at least four new members of staff; two accounting assistants, one office manager and one IT person. If we do not seek a licence in Dubai as we believe there are possibilities that would mean such a licence is detrimental to our business we will still seek to establish a full staffed office with the same personnel indicated.

 

8
 

 

Cautionary Forward - Looking Statement

 

The following discussion and analysis of the results of operations and financial condition of Global Equity International, Inc. should be read in conjunction with the unaudited financial statements, and the related notes. References to “we,” “our,” or “us” in this section refers to the Company and its subsidiaries. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:

 

the volatile and competitive nature of our industry,
the uncertainties surrounding the rapidly evolving markets in which we compete,
the uncertainties surrounding technological change of the industry,
our dependence on its intellectual property rights,
the success of marketing efforts by third parties,
the changing demands of customers and
the arrangements with present and future customers and third parties.

 

Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934) were effective.

 

Management’s Report on Internal Control over Financial Reporting

 

Commencing with our Annual Report for the 2011 fiscal year, our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

(1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

9
 

  

(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

At September 30, 2012, we carried out an evaluation required by Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

 

Based upon such evaluation, such person concluded that as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level because, due to financial constraints, the Company does not maintain a sufficient complement of personnel with an appropriate level of technical accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with our financial accounting and reporting requirements. In the event that we may receive sufficient funds for internal operational purposes, we plan to retain the services of additional internal management staff to provide assistance to our current management with the monitoring and maintenance of our internal controls and procedures.

 

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for companies that have recent become reporting companies.

 

Changes in internal control over financial reporting.

 

We did not change our internal control over financial reporting during our last fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

10
 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Company is not aware of any threatened or pending litigation against the Company.

 

Item 1A. Risk Factors.

 

Not applicable.

 

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

 

On July 5, 2012, the Company issued 40,000 restricted shares of common stock to a lender upon conversion of debt.

 

On September 24, 2012, the Company issued 40,000 restricted shares of common stock to another lender upon conversion of debt.

  

The proceeds from the sales of the Company’s common stock were used as working capital and for repayment of debt.

 

The issuances of the above shares of common stock were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation S promulgated thereunder.

 

Item 3. Defaults upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

See Exhibit Index below for exhibits required by Item 601 of regulation S-K.

 

11
 

  

EXHIBIT INDEX

 

Exhibit No.                      Description

 

List of Exhibits attached or incorporated by reference pursuant to Item 601 of Regulation S-K:

 

Exhibit   Description
31.1 *   Certification under Section 302 of Sarbanes-Oxley Act of 2002
31.2 *   Certification under Section 302 of Sarbanes-Oxley Act of 2002

32.1 *

32.2 *

 

Certification under Section 906 of Sarbanes-Oxley Act of 2002

Certification under Section 906 of Sarbanes-Oxley Act of 2002

 

* Filed herewith.

 

12
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   

  GLOBAL EQUITY INTERNATIONAL, INC.
   
Date: November 19, 2012 /s/ Peter J. Smith
  Peter J. Smith
  President and Chief Executive Officer
  (Principal Executive Officer)

 

Date: November 19, 2012 /s/ Enzo Taddei
  Enzo Taddei
  Chief Financial Officer
  (Principal Accounting and Financial Officer)

 

13