Global Equity International, Inc.
23 Frond "K" Palm Jumeirah
Dubai, UAE
May 29, 2012
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Attention: Jennifer Gowetski, Senior Counsel
Sandra B. Hunter, Staff Attorney
Kevin Woody, Accounting Branch Chief
Mark Rakip, Staff Accountant
Kyle Ahlgren, Division of Investment Management
Re: Global Equity International, Inc.
Amendment No.4 to Form 10-12G
Filed April 26, 2012
File No. 000-54557
Amendment No. 1 to Form 10-K for Fiscal Year Ended
December 31, 2011
Filed March 30, 2012
File No. 000-54557
Form 10-Q for the Quarter Ended March 31, 2012
Filed May 15, 2012
File No. 000-54557
Dear Madam or Sir,
This letter is in response to your letter to me of May 21, 2012, regarding
the above referenced matter ("Comment Letter"). Our revised filing is attached.
Our responses to the Comment Letter follow:
General
1. SINCE YOU APPEAR TO QUALIFY AS AN "EMERGING GROWTH COMPANY," AS DEFINED IN
THE JUMPSTART OUR BUSINESS STARTUPS ACT ("THE ACT"), PLEASE DISCLOSE IN THE
BEGINNING OF YOUR REGISTRATION STATEMENT THAT YOU ARE AN EMERGING GROWTH
COMPANY, AND REVISE YOUR PROSPECTUS TO PROVIDE THE FOLLOWING ADDITIONAL
DISCLOSURES:
* DESCRIBE HOW AND WHEN A COMPANY MAY LOSE EMERGING GROWTH COMPANY
STATUS;
* A BRIEF DESCRIPTION OF THE VARIOUS EXEMPTIONS THAT ARE AVAILABLE TO
YOU, SUCH AS EXEMPTIONS FROM SECTION 404(B) OF THE SARBANES-OXLEY ACT
OF 2002 AND SECTION 14A(A) AND (B) OF THE SECURITIES EXCHANGE ACT OF
1934; AND
* YOUR ELECTION UNDER SECTION 107(B) OF THE ACT:
* IF YOU HAVE ELECTED TO OPT OUT OF THE EXTENDED TRANSITION PERIOD FOR
COMPLYING WITH NEW OR REVISED ACCOUNTING STANDARDS PURSUANT TO SECTION
107(B) OF THE ACT, INCLUDE A STATEMENT THAT THE ELECTION IS
IRREVOCABLE; OR
* IF YOU HAVE ELECTED TO USE THE EXTENDED TRANSITION PERIOD FOR
COMPLYING WITH NEW OR REVISED ACCOUNTING STANDARDS UNDER SECTION
102(B)(1) OF THE ACT, PROVIDE A RISK FACTOR EXPLAINING THAT THIS
ELECTION ALLOWS YOU TO DELAY THE ADOPTION OF NEW OR REVISED ACCOUNTING
STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE
COMPANIES UNTIL THOSE STANDARDS APPLY TO PRIVATE COMPANIES. PLEASE
STATE IN YOUR RISK FACTOR THAT, AS A RESULT OF THIS ELECTION, YOUR
FINANCIAL STATEMENTS MAY NOT BE COMPARABLE TO COMPANIES THAT COMPLY
WITH PUBLIC COMPANY EFFECTIVE DATES. INCLUDE A SIMILAR STATEMENT IN
YOUR CRITICAL ACCOUNTING POLICY DISCLOSURES IN MD&A.
YOU MAY DISCLOSE THE EXTENT TO WHICH YOU WOULD BE EXEMPT IN ANY EVENT AS A
RESULT OF YOUR STATUS AS A SMALLER REPORTING COMPANY.
Response:
In response to this comment, we have added a new disclosure to our amended
Form 10 under the heading "Implications of being an Emerging Growth Company" on
page 1 of Item 1. Business.
We have also added the following new risk factor on page 14 of our amended
Form 10 and to page 17 of our amended Form 10-K:
"WE ARE AN "EMERGING GROWTH COMPANY" AND WE CANNOT BE CERTAIN IF WE WILL BE ABLE
TO MAINTAIN SUCH STATUS OR IF THE REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO
EMERGING GROWTH COMPANIES WILL MAKE OUR COMMON STOCK LESS ATTRACTIVE TO
INVESTORS.
We are an "emerging growth company," as defined in the Jumpstart Our
Business Startups Act of 2012 or "JOBS Act," and we may adopt certain exemptions
from various reporting requirements that are applicable to other public
companies that are not "emerging growth companies," including, but not limited
to, not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirement of holding a nonbinding advisory vote on
executive and stockholder approval of any golden parachute payments not
previously approved. We may remain an "emerging growth company" for up to five
full fiscal years following our initial public offering. We would cease to be an
emerging growth company, and, therefore, ineligible to rely on the above
exemptions, if we have more than $1 billion in annual revenue in a fiscal year,
if we issue more than $1 billion of non-convertible debt over a three-year
period, or if we have more than $700 million in market value of our common stock
held by non-affiliates as of June 30 in the fiscal year before the end of the
five full fiscal years. Additionally, we cannot predict if investors will find
our common stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result of our reduced
disclosures, there may be less active trading in our common stock (assuming a
market ever develops) and our stock price may be more volatile."
OUR BUSINESS IN 2012, PAGE 6
2. WE NOTE YOUR RESPONSE TO COMMENT 6 OF OUR LETTER DATED APRIL 12, 2012.
PLEASE REVISE TO QUANTIFY HOW MUCH MONTHLY REVENUE YOU WOULD REQUIRE BEFORE
PAYING ANY OF THE ACCRUED SALARIES.
Response:
In response to this comment, we have revised our disclosures on pages 11
and 25, of our amended Form 10, and to pages 14 and 35 of our amended Form 10-K
by adding the following language:
"In any given month in which we receive revenues in excess of $25,000, we will
use the excess revenues to pay accrued salaries."
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ITEM 2. FINANCIAL INFORMATION, PAGE 17
3. WE NOTE YOUR DISCLOSURE THAT IN 2010 YOU RECEIVED COMPENSATION FROM MONKEY
ROCK IN THE FORM OF 1,500,000 SHARES OF COMMON STOCK VALUED AT $975,000 AT
THE TIME OF ISSUANCE. WE FURTHER NOTE THE FORM 8-K FILED SEPTEMBER 15, 2011
BY MONKEY ROCK GROUP, INC. REGARDING THE SHARE PURCHASE AGREEMENT WITH
NISSI GROUP, A MINING COMPANY, DATED JUNE 23, 2011 AND THAT THE LAST CLOSE
PRICE OF THESE SHARES WAS $0.75 ON MAY 21, 2011 WITH NO VOLUME. PLEASE
REVISE YOUR DISCLOSURE TO EXPLAIN HOW YOU ARE CURRENTLY VALUING THESE
SECURITIES AND THE BASIS FOR YOUR VALUATION.
Response:
In responses to Comment 3, we would like to confirm that we have measured
the fair value of the investment in Monkey Rock Group Inc, at 12/31/2011 and
03/31/2012, using level 2 inputs which include quoted prices for identical
assets in markets that are not active (thinly traded securities). 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 inactive markets. Our basis for valuing the
stock was the market approach valuation methodology stated in ASC 820.
On December 31, 2011, the Monkey Rock Group Inc stock was trading at $1.06
and we own 1,500,000 shares, hence our balance sheet reflected shares available
for sale amounting to $1,590,000.
On March 31, 2012 the same stock was trading at $0.75, hence we reflected
shares available for sale on our balance sheet amounting to $1,125,000.
At the end of each reporting period we have measured the fair value of this
stock and we have adjusted the values according by way of other unrealized gains
or losses.
We believe that an "other-than-temporary impairment" would not be
justified, as according to ASC 320-10 an investment is considered impaired when
the fair value of an investment is less than its amortized cost basis. The
impairment is considered either temporary or other-than-temporary. The
accounting literature does not define other-than-temporary. It does, however,
state that other-than-temporary does not mean permanent; although, all permanent
impairments are considered other-than-temporary. The literature does provide
some examples of factors which may be indicative of an "other-than-temporary
impairment", such as:
* the length of time and extent to which market value has been less than
cost;
* the financial condition and near-term prospects of the issuer; and
* the intent and ability of the holder to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated
recovery in market value.
We believe that the fair value of the stock has been correctly measured as
the length of time that the stock has been less than cost is nominal, as the
cost basis of the stock was initially $0.65 and the price has almost always been
higher. After researching Nissi Group, the financial condition and near-term
prospects of the issuer, Monkey Rock Group Inc, in our opinion, will only get
better as a result of the merger.
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LIQUIDITY AND CAPITAL RESOURCES, PAGE 22
4. PLEASE INCLUDE DISCLOSURE HEREIN TO HIGHLIGHT THAT AS OF AND FOR THE PERIOD
ENDED DECEMBER 31, 2011, THERE IS SUBSTANTIAL DOUBT REGARDING THE COMPANY'S
ABILITY TO CONTINUE AS A GOING CONCERN.
Response:
In response to this comment, we have added the following language as the
first paragraph on page 22 of our amended Form 10, to page 31 of our amended
Form 10-K and to page 22 of our amended Form 10-Q:
"Our audited financial statements contained herein have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has a net loss of $1,688,102 and net cash used
in operations of $92,780 for the year ended December 31, 2011. The Company also
has a working capital deficit of $185,123 at December 31, 2011. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plan in regards to these matters is also described in Note
8. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty."
AMENDMENT 1 TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011
ITEM 9A. CONTROLS AND PROCEDURES, PAGE 25
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING, PAGE 26
5. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 13 AND REISSUE THE COMMENT IN FULL.
PLEASE ADDRESS THE FOLLOWING:
* YOUR UPDATED DISCLOSURE INDICATES THAT YOUR DISCLOSURE CONTROLS AND
PROCEDURES ARE BOTH EFFECTIVE (E.G., ON PAGE 36) AND NOT EFFECTIVE
(E.G., ON PAGE 37). PLEASE ADVISE.
* PROVIDE AN ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING.
REFER TO ITEM 308(A)(3) OF REGULATION S-K.
* PROVIDE THE FRAMEWORK USED BY MANAGEMENT TO EVALUATE THE EFFECTIVENESS
OF YOUR INTERNAL CONTROL OVER FINANCIAL REPORTING. REFER TO ITEM
308(A)(2) OF REGULATION S-K.
Response:
In response to this comment, we have added the following disclosure
beginning on page 35 of our amended Form 10-K and beginning at page 27 of our
amended Form 10-Q:
"Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2011. In making this assessment,
management used the framework set forth in the report entitled Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. The COSO framework summarizes
each of the components of a company's internal control system, including (i) the
control environment, (ii) risk assessment, (iii) control activities, (iv)
information and communication, and (v) monitoring. This annual report does not
include an attestation report of our registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permits us to provide only
management's report in this annual report.
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IDENTIFIED MATERIAL WEAKNESSES AND SIGNIFICANT DEFICIENCIES
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the financial statements will not be prevented or detected.
Management identified the following internal control deficiency which we had
assessed as a material weakness as of December 31, 2011, during our assessment
of our internal control over financial reporting as follows:
1. We did not have adequate segregation of duties over certain areas of
our financial reporting process.
The internal control deficiency identified above will only be completely
corrected if the company expands and has the capacity to adequately segregate
the duties to mitigate risk in financial reporting. Expansion will depend mostly
on the ability of management to generate enough income to warrant growth in
personnel.
We did not have effective comprehensive entity-level internal controls
specific to the structure of our board of directors and organization of critical
committees. Due to our expected expansion, without correcting this significant
deficiency and ensuring that our board of directors has the proper oversight and
committees are properly established, the control environment in subsequent years
may not be effective.
MANAGEMENT'S REMEDIATION INITIATIVES
We are in the further process of evaluating our material and significant
deficiencies. We have already begun to remediate many of the deficiencies.
However, others will require additional people, including adding to our board of
directors, which will take longer to remediate.
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
1. Identify and retain one or two new directors for our board of
directors including a member who is appropriately credentialed as a
financial expert with a goal of having sufficient independent board of
directors oversight;
2. Ensure all entity level controls are applied at all levels of the
organization and are scalable for acquisition or merge targets;
3. Establish comprehensive formal general accounting policies and
procedures and require directors or employees to sign off such
policies and procedures as documentation of their understanding of and
compliance with company policies;
4. Make all directors or employees subject to our Code of Ethics
(including those employees in acquisition targets) and require all
employees and directors to sign our Code of Ethics on an annual basis
and retain the related documentation; and,
5. Implement better segregation of duties given the size of our company.
We plan to test our updated controls and remediate our deficiencies by June
30, 2012.
CONCLUSION
Our management concluded that our internal control over financial reporting
was ineffective. However, the above identified material weaknesses and
deficiency did not result in material audit adjustments to our 2011 or 2010
financial statements. However, it is reasonably possible that, if not
re-mediated, one or more of the identified material weaknesses noted above could
result in a material misstatement in our reported financial statements that
might result in a material misstatement in a future annual or interim period."
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) (1) FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKETABLE SECURITIES
(A) CLASSIFICATION OF SECURITIES
COST METHOD INVESTMENTS, PAGE F-9
6. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 14 AND REISSUE THE COMMENT IN PART.
PLEASE JUSTIFY YOUR EXEMPTION FOR ESTIMATING THE FAIR VALUE AND RELATED
IMPAIRMENT OF YOUR COST METHOD IMPAIRMENT, AS YOUR UPDATED REFERENCE
CONTINUES TO REFER TO A NON-EXISTING ASC TOPIC. PLEASE TELL US THE
ACCOUNTING LITERATURE RELIED UPON FOR YOUR EXEMPTION OF FAIR VALUING SUCH
ASSET.
Response:
In response to this comment, we have revised our amended Form 10-K and
10-Q, on pages F-9 and 9, respectively, by taking out the reference to ASC No.
320-10-35-26 and adding in an additional disclosure stating the following:
"Additionally, there are no identifiable events or changes in circumstances that
had a significant adverse effect on the fair value of this investment."
GENERAL AMENDMENTS TO OUR FILING
In addition to the amendments and revisions described above, we have made
various minor updating revisions to the dates of information in some of the
tables and other sections in the filings and we have corrected a few
typographical errors.
ACKNOWLEDGEMENT
We acknowledge that:
* the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing;
* the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission from taking any action with
respect to the filings; and
* the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Please address any further comments to our attorney, David E. Wise, Esq.
Mr. Wise's contact information is set forth below:
Law Offices of David E. Wise, P.C.
Attorney at Law
The Colonnade
9901 IH-10 West, Suite 800
San Antonio, Texas 78230
Telephone: (813) 645-3025
Facsimile: (210) 579-1775
Email: wiselaw@verizon.net
Sincerely,
By: /s/ Enzo Taddei
---------------------------------
Enzo Taddei
Chief Financial Officer
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