10-Q 1 gemco_10q-022809.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended February 28, 2009 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______ to _______ Commission File Number 000-51523 GEMCO MINERALS INC. ------------------------------- (Exact name of registrant as specified in its charter) Florida 98-0582366 - ---------------------------- ------------------- (State or other jurisdiction of IRS Employer incorporation or organization) Identification No.) #203 - 20189 56th Avenue, Langley, British Columbia, Canada, V3A 3Y6 ------------------------------------------------- (Address of principal executive offices) (Zip Code) 866-848-2940 -------------- (Registrant's telephone number, including area code) ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" 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| The number of shares of the registrant's Common Stock, no par value, outstanding as of February 28, 2009 was 23,380,839 shares. C O N T E N T S Page Part I. FINANCIAL INFORMATION Item 1. Financial Statements........................................F1-F13 Item 2. Management's Discussion and Analysis or Plan of Operation.....2 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...9 Item 4. Controls and Procedures.......................................10 Part II. OTHER INFORMATION Item 1. Legal Proceedings.............................................10 Item 2. Sales of Unregistered Securities ............................ 11 Item 3. Defaults Upon Senior Securities...............................11 Item 4. Submission of Matters to a Vote of Security Holders...........11 Item 5. Other Information............................................ 11 Item 6. Exhibits......................................................11 SIGNATURES..............................................................11

(The Accompanying Notes are an Integral part of the Financial Statements) F-1

(The Accompanying Notes are an Integral part of the Financial Statements) F-2

(The Accompanying Notes are an Integral part of the Financial Statements) F-3 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 1. Exploration Stage Company Gemco Minerals Inc. (the "Company") was incorporated in the State of Florida on August 21, 1997 and is an Exploration Stage Company, as defined by Statement of Financial Accounting Standard ("SFAS") No.7 "Accounting and Reporting by Development Stage Enterprises". The Company's principal business is the acquisition and exploration of mineral resources. The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable. These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated minimal revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations and to determine the existence, discovery and successful exploitation of economically recoverable reserves in its resource properties, confirmation of the Company's interests in the underlying properties, and the attainment of profitable operations. As at February 28, 2009, the Company has a working capital deficit of $686,468 and has accumulated losses of $2,624,282 since inception. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. 2. Summary of Significant Accounting Policies a) Basis of Presentation and Consolidation These condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. These condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Firstline Recovery Systems Inc. ("Firstline"), a company incorporated in the Province of British Columbia, Canada, on June 1, 1998 and its 66.67% owned subsidiary EKG Minerals Inc. ("EKG")a company incorporated in the Province of British Columbia, Canada, on October 8, 2004. All intercompany transactions and balances have been eliminated. The Company's fiscal year end is May 31. b) Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management's estimates and assumptions. Interim results are not necessarily indicative of results for a full year. The information included in this Form l0-Q should be read in conjunction with information included in the Form 10-K. F-4 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 2) Summary of Significant Accounting Policies (continued) c) Use of Estimates The preparation of these consolidated 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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to donated expenses, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. d) Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. e) Basic and Diluted Net Income (Loss) Per Share The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. f) Financial Instruments The fair values of cash, investments, accounts payable, accrued liabilities, amounts due to shareholders and amounts due to related parties, approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Foreign currency transactions are primarily undertaken in Canadian dollars. The financial risk is the risk to the Company's operations that arise from fluctuations in foreign exchange rates and the degree of volatility to these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. g) Foreign Currency Transactions/Balances The Company's functional currency is the United States dollar. The consolidated financial statements of the Company are translated to United States dollars in accordance with SFAS No. 52 "Foreign Currency Translation" ("SFAS No. 52). Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these consolidated financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. The functional currency of the wholly owned subsidiary is the Canadian dollar. The financial statements of the subsidiary are translated to United States dollars in accordance with SFAS No. 52 using period-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Foreign currency transaction gains and losses are included in current operations. F-5 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 2. Summary of Significant Accounting Principles (continued) h) Mineral Property Costs The Company is primarily engaged in the acquisition, exploration and development of mineral properties. Mineral property acquisition costs are capitalized in accordance with EITF 04-2 when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met. In the event that mineral property acquisition costs are paid with Company shares, those shares are valued at market at the time the shares are due. Mineral property exploration costs are expensed as incurred. When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares. Because option payments do not meet the definition of tangible property under EITF 04-2, all option payments are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and pre feasibility, the costs incurred to develop such property are capitalized. Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis. Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred. i) Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. j) Comprehensive Loss SFAS No. 130, "Reporting Comprehensive Income" establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at February 28, 2009, the Company's accumulated comprehensive loss was $69,760 comprised was foreign currency translation adjustments of $64,972 and adjustment on the consolidation of EKG Minerals Inc. of $4,788. F-6 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 2. Summary of Significant Accounting Principles (continued) k) Income Taxes Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 "Accounting for Income Taxes" as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. l) Stock-based Compensation Prior to January 1, 2006, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company's employee stock options was less than the market price of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R "Share Based Payments", using the modified retrospective transition method. The Company has not issued any stock options or share based payments since its inception. Accordingly, there was no effect on the Company's reported loss from operations, cash flows or loss per share as a result of adopting SFAS No 123R. m) Recent Accounting Pronouncements In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company's financial position, statements of operations, or cash flows at this time. In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB's amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company's financial position, statements of operations, or cash flows at this time. In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities--an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows. F-7 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 2. Summary of Significant Accounting Principles (continued) m) Recent Accounting Pronouncements (continued) In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for "plain vanilla" share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements--an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations.'This Statement replaces FASB Statement No. 141, Business Combinations, but retains the fundamental requirements in Statement 141. This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. F-8 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 2. Summary of Significant Accounting Principles (continued) m) Recent Accounting Pronouncements (continued) In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities--Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entities first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements. The Company will adopt SFAS No. 159 beginning March 1, 2008 and is currently evaluating the potential impact the adoption of this pronouncement will have on its consolidated financial statements. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt this statement March 1, 2008, and it is not believed that this will have an impact on the Company's consolidated financial position, results of operations or cash flows. n) Reclassifications Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current period's presentation. 3. Investments On February 3, 2008, the Company accepted consideration in the form of a mortgage on real property, for the subscription of 750,000 shares at $0.37 per share, for a total value of $275,000. The mortgage is registered at $300,000, and carries an interest rate of 16% compounded monthly. The mortgage is a third mortgage against the property known as 2939 Shuswap Road, Kamloops, BC, Canada, and owned by Akal Forest Products Ltd. (Inc. No. BC0552200) and legally described as Lot C, DL 282, Kamloops Div., Yale District, Plan 37425 (PID No. 005-311-853).The Company's intention is to liquidate the mortgage at the earliest reasonable opportunity to fund the Company. The mortgage has generated $36,546 in interest during the fiscal period ended February 28, 2009, which the Company has impaired in the financial statements until realization upon liquidation of the mortgage. The mortgage was due on demand as of February 5, 2009, and is now in default. The Company has taken legal action and was awarded a court ordered conduct of sale by the Kamloops Supreme Court, whereby the Company will proceed with listing and disposing the property to the benefit of all secured on the property. F-9 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 4. Property and Equipment Cost $ Accumulated Net Book Depreciation $ Value $ February 28, 2009 295,842 252,881 42,961 ----------------------------------------------------------------- May 31, 2008 295,842 246,726 49,116 ----------------------------------------------------------------- 5. Mineral Property (a) On May 15, 2005, Firstline assigned its interest to six mineral claims at Burns Mountain, and two lease of placer mineral claims ("LPM") for the Hawk LPM and the Joytown LPM to the Company in exchange for $81,242 (CDN$102,002). (b) On May 9, 2006, the Company acquired two additional mineral claims at Burns Mountain adjacent to its existing tenures in exchange for 50,000 shares of the Company with a fair value of $14,500 from a third party. (c) On May 24, 2006, the Company entered into a joint venture agreement (the "JV Agreement") with Canamex Corporation ("Canamex"), a Mexican mining company duly incorporated in the country of Mexico (Minera Canamex, S.A. de C.V.). In accordance with the JV Agreement, the Company advanced $3,500 to Canamex which was utilized to acquire one mineral claim in the Ensenada region of Baja California. (d) On January 23, 2007, Canamex assigned its interest to additional mineral claims in the Ensenada region of Baja California in the Exchange for 3% of the net sales of all industrial minerals extracted and a 3% net smelter royalty. As further consideration, 300,000 common shares were issued and are held in trust, see Note 9(c), which are to be released only upon verifying the claims can be brought to a commercially viable project. (e) On June 6, 2007, the Company acquired 66.67% of the issued and outstanding shares in EKG Minerals Inc. ("EKG") which holds 100% interest in the 1181.64 hectare (2920 acre) gold/silver `Tom' claim group, also internally referred to as the `Snowflake' mineral property. The property is located north of Oliver, BC consisting of four British Columbia mineral claims with tenure numbers are 536973, 536983, 536985 and 536987. The mineral claims are recorded at $12,613 ($13,491CDN). (f) On June 30, 2007, the option agreement with Georgia International Mining Corporation expired as Georgia did not complete certain exploration as required to that date. The option was originally recognized as a $1 reduction on the mineral claims in August 2005, and this has now been reversed. Further, pursuant to the option agreement, Georgia will not be able to recover its $35,000 initial costs incurred, which the Company had recognized as a payable and has now recorded as a recovery of mineral property costs in the period ending February 29, 2008. (g) On February 25, 2009, the Company's subsidiary EKG Minerals Inc. ("EKG"), disposed of its interest in the `Snowflake' mineral property for proceeds of $9,889 ($12,500 CDN). As at February 28, 2009, cumulative exploration costs on these mineral claims are $518,561 (May 31, 2008 - $485,133). F-10 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 6. Related Party Transactions (a) As at February 28, 2009, the Company owed $79,368 to various management and directors for funding of working capital. The amounts are unsecured, non-interest bearing, and due on demand. (b) As at February 28, 2009, the Company owed $71,374 to various shareholders of the Company for funding of working capital. The amounts are unsecured, non-interest bearing, and due on demand. (c) See Note 7 and Note 9. 7. Notes Payable - Related Parties (a) On January 15, 2007, the Company issued a promissory note to a director of the Company for proceeds of $88,961 (CDN$99,636). The note is unsecured, due interest of 12% per annum, and due on demand. On January 26, 2007, $44,643 (CDN$50,000) was converted into common shares of the Company, and on January 31, 2008 $30,000 (CDN$30,000) was also converted into common shares of the Company. During the period between January 16, 2007 to February 28, 2009, the principal balance of the note has decreased by $1645 (CDN $1950). At February 28, 2009, principal balance of $87,315 (CDN$97,686) and accrued interest of $22,620 (CDN$25,303) remained outstanding. (b) On January 15, 2007, the Company issued a promissory note to a principal of the Company for proceeds of $100,833 (CDN$112,933). The note is unsecured, due interest of 12% per annum, and due on demand. On January 26, 2007, $44,643 (CDN$50,000) was converted into common shares of the Company, and on January 31, 2008 $30,000 (CDN$30,000) was also converted into common shares of the Company. During the period between January 16, 2007 to February 28, 2009, the principal balance of the note has increased by $68,008 (CDN $74,170). At February 28, 2009, principal balance of $168,840 (CDN$187,103) and accrued interest of $38,858 (CDN$42,987) remained outstanding. 8. Notes Payable Between 2000 and 2004, the Company issued promissory notes for proceeds of $402,329 (CDN$459,540). The notes are unsecured, due interest ranging from 0-18% per annum, and due on demand. At February 28, 2009, principal balance of $84,245 (CDN$107,185) and accrued interest of $91,321 (CDN$116,187) remained outstanding. 9. Common Stock (a) On June 6, 2007 the Company agreed to issue a total of 150,000 common shares, at a deemed price of $0.10 per share and value of $15,000, to two related parties of Gemco for the acquisition of 66.67% of the outstanding shares of EKG Minerals Inc., a British Columbia registered company. The EKG shares acquired were equally held by the two related parties who will receive 75,000 shares each for a total of 150,000 common shares from the Company's treasury. The shares were issued February 28, 2008. (b) On November 16, 2007 the Company accepted subscription agreements from two placees for 250,000 units each, of which one placee is a principal shareholder. The combined units consist of a total 500,000 common 144 restricted shares at $0.08 per share for total proceeds of $40,000, and 500,000 warrants, each exercisable into one common share at $0.30 per share for a period of two years. All proceeds have been received and the shares were issued February 28, 2008. F-11 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 9. Common Stock (continued) (c) Pursuant to the assignment agreement with Canamex on January 27, 2007, the Company agreed to issue 150,000 common 144 restricted shares into trust to two arms length parties for a total of 300,000 shares. The shares were issued February 28, 2008 and have been recorded at $300.00 par value with an offsetting amount in additional paid-in capital. The issued shares are held in trust and will either be released or cancelled upon future verification of the claim as commercially viable or non-viable respectfully. Upon any future release of the said shares for a commercially viable project, the recorded value of the shares will be denoted at market value at the time of release from trust. (d) On January 31, 2008, the Company accepted conversion agreements of shares for debt with five parties. The total debt converted was $200,893 at a price of $0.20 per share. A total of 1,004,465 144 restricted shares were issued February 28, 2008. Two of the parties are directors of the Company who received 150,000 and 132,737 shares for conversion of $30,000 as a portion of a note payable and $26,547 of amounts due to related parties respectively. One of the parties is a principal shareholder who received 150,000 shares for conversion of $30,000 as a portion of a note payable. The remaining parties converted $100,000 of a shareholder loan and $14,345 in notes payable to 500,000 and 71,727 shares respectively. (e) On February 3, 2008, the Company accepted consideration in the form of a mortgage on real property, for the subscription of 750,000 shares at a deemed value of $0.37 per share, for a total value of $275,000 (see Note 3(b)). The Company's intention is to liquidate the mortgage at the earliest reasonable opportunity to fund the Company. A finder's fee of 150,000 shares were also issued for this transaction to Solterra Aggregate Ltd, an entity controlled by a director of the Company. All of the shares were issued February 28, 2008. (f) On February 28, 2008, the Company issued 225,000 common 144 restricted shares to two non-related parties for consulting and geological services. The shares were recorded at the deemed price of $0.20 per share for a total value of $45,000. (g) On April 12, 2008 the Company accepted the subscription for 100,000 common shares for proceeds of $20,000 at a price of $0.20 per share. The shares were issued August 20, 2008. (h) On August 20, 2008, the Company issued 265,000 common 144 restricted shares to three non-related parties for consulting services. The shares were recorded at the deemed price of $0.15 per share for a total value of $39,750. F-12 GEMCO MINERALS INC. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months ended February 28, 2009 (Expressed in U.S. dollars) (unaudited) 10. Restated Financial Statements The Company has restated its financial statements for the year ended May 31, 2008. The Company determined that the Non-Controlling Interest should be reported outside of shareholder's deficit and has now been reclassified on the Balance Sheet. It was also determined that the 300,000 shares issued in trust as disclosed in Note 9(c) should have been recorded at $300 par value and also offset in additional paid-in capital until the shares are released from trust. These shares should also have been factored in the weighted average number of shares for computation of the net loss per share. The Company also determined that the $14,503 in interest generated on the mortgage investment, which the Company has impaired as disclosed in Note 3, should have been recorded as other income and subsequently written down, on the Statement of Operations. The following is a comparison of the summarized financial statements of the Company before and after the restatement: BALANCE SHEET Original Restated --------- --------- Total Assets $ 439,279 $ 439,279 ========= ========= Total Liabilities $ 630,888 $ 630,888 Total Shareholder's Deficit (191,609) (192,516) --------- --------- Total Liabilities and Shareholder's Deficit $ 439,279 $ 439,279 ========= ========= STATEMENT OF OPERATIONS Loss from operations $(327,828) $(327,828) Total other income (expense) (45,183) (45,183) --------- --------- Net Loss $(376,307) $(376,307) ========= ========= F-13 Item 2. Management's Discussion and Analysis or Plan of Operation. Overview The following discussion and analysis of the operations, results, and financial position of Gemco Minerals Inc. ("Gemco","We" or the "Company"), for the nine months ended February 28, 2009 should be read in conjunction with the February 28, 2009 Consolidated Financial Statements and the related Notes. These documents are available at www.sedar.com. The Company is traded on the Nasdaq OTC Exchange under the symbol GMML. The effective date of this report is December 15, 2008. Corporate Organization The Company was incorporated in the State of Florida on August 21, 1997 under the name of Project I Corp. On October 18, 2001 the Company changed its name to Firstline Environmental Solutions Inc. and traded under the symbol FEMS. On July 18, 2002 Firstline Environmental Solutions Inc., conducted a reverse takeover with Firstline Recovery Systems Inc., which is now a wholly owned subsidiary of the Company. On March 24, 2006, the Company changed its name to Gemco Minerals, Inc. and in accordance with the name change, the Company's common stock has assigned 368634 10 1 as its new Cusip Number and effective April 10, 2006, the Company's trading symbol was changed to GMML. Our statutory registered agent's office is located at #210 - 7695 SW - 104 Street, Miami, FL 33156 and our business office is located at #203 - 20189 56th Ave, Langley, BC, V3A 3Y6. Our telephone number is 866-848-2940. Our Current Business Mining - Precious Metals We are engaged in the acquisition and exploration of mineral properties in the Province of British Columbia. Our primary focus is the exploration of our Burns Group Property, located 45 miles east of Quesnel, British Columbia. Our plan of operations is to carry out mineral exploration activities at the Burns Group property as advised by a combination of professional recommendations located in historical documents as well as recent recommendations made in Gemco Minerals Inc. most recently published NI43-101 technical report for the property dated December 15, 2007. We are an exploration stage company and all of our properties are presently in the exploration stage. To date, we do not have any commercially viable reserves on any of our properties. There is no assurance that a commercially viable mineral deposit exists on any of our mineral properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility of mining of any of our properties is determined. There is no assurance that further exploration will result in a final evaluation that a commercially viable mineral deposit exists on any of our mineral properties. 2 We continue to expand our Burns Group property by acquiring strategically located mineral claims adjacent to our existing property. The most recent acquisition occurred in May and June 2006 when Gemco acquired an additional 2,792 acres (1,129 hectares) of mineral tenure to bring the Burns Group property to a total of 12,685 contiguous acres (5,134 hectares). The Company first commenced its work program on the Burns Group property in June 2006. Trenching, geochemistry and SP geophysical surveys were conducted over soil anomalies near Oregon Gulch. Dip needle and SP geophysical surveys combined with general reconnaissance exploration in the vicinity of the Perkins Showing and Perkins Gulch were also reported. Assessment reports for the 2006 season were submitted to the Ministry of Energy, Mines and Petroleum Resources by Angelique Justason and Brad Davies. In the 2007 and 2008 seasons, Gemco contracted Tenorex GeoServices to begin the expansion of the Burns Grid adjacent several surface workings and the historical Perkins showing where, in 1902, 10 tonnes of rock was processed and produced 311 grams gold as described in Gemco's NI43-101 report published in November 2007. 2.4 line kilometers (Lkm) of self-potential geophysical surveys over 9.0 Lkm of new grid were extended to the south of prior surveys completed in 2002 in an effort to locate an extension of the known mineralization: an assessment report outlining the findings and subsequent recommendations was submitted to the Ministry of Energy, Mines and Petroleum Resources. Robert "Ned" Reid, PGeo, and Angelique Justason published Gemco Minerals Inc. NI43-101 technical report titled "Summary of Mineral Exploration Activities at the Mount Burns Claim Group" dated December 15, 2007. On the recommendations of the NI43-101 technical report, Gemco is preparing for a trenching and surface diamond drill hole program to define previously outlined geochemical and geophysical anomalies and follow the anomalous "northwest trend" which extends from Mount Nelson to Mount Burns. An internal report was also made by Tenorex GeoServices summarizing the professional recommendations of various geologists working on the property from 2000 through to 2007 in an effort to define a strategic and focused field program for the Burns Group Gold Property. With this report and the recommendations presented within the NI43-101 technical report an aggressive and detailed exploration program was outlined for the 2008 field season, some of which has been deferred to the 2009 season, and includes the following: o Continue expansion of the geo-grid on Mount Burns o Establish survey control on the property o Trail upgrade and maintenance program o Detailed geologic mapping o 50 line kilometers of self-potential geophysical surveying o Beep mat reconnaissance surveys of key areas at previously defined airborne geophysical anomalies in addition to surveying all roads and trails o Follow up on geophysical surveys with trenching and channel sampling projects o Conduct a surface diamond drill hole program in key target areas o Expand grassroots prospecting to the more remote perimeter of the property o Compile all historical and current exploration / mining data into an online interactive map-server application for use by company geologists and the public 3 Detailed research and the compilation of archived historical reports and maps are also ongoing. Already the research has significantly advanced the knowledge and value of the Burns Group gold/silver property. In June 2007, Gemco acquired of 66.67% of the outstanding shares of EKG Minerals Inc. ("EKG"). EKG is a British Columbia registered private company which holds 100% interest in the 1181.64 hectare (2920 acre) gold/silver `Tom' claim group, also internally referred to as the 'Snowflake' property, located north of Oliver, BC. Tenorex GeoServices was contracted in the summer of 2007 to conduct assessment work on the property and a geophysical technical report was submitted to the BC Ministry of Energy and Mines upon completion of several days field work at the property. Physical and technical exploration activities were recorded on the property in 2008. On February 25, 2009 EKG's interest in the `Snowflake' mineral property was disposed for proceeds of $9,889 ($12,500 CDN Gemco also has 100% interest in two placer properties in the Cariboo region: namely the Hawk LPM (lease of placer minerals) located four kilometers from Barkerville and the Joytown LPM which is located near the headwaters of Cunningham Creek. A permit to conduct placer testing operations is currently being prepared for the Joytown LPM at Cunningham Creek for the 2009 field season. Mexico Property Gemco has entered into a 50/50 joint venture partnership with Mexican registered Canamex Corporation. Canamex has been in the precious metal extraction research industry over the last twelve years. Gemco's initial joint venture with Canamex involves testing on a 250 hectare placer claim for its industrial minerals and gold values. The property has access and foreshore rights to the Pacific Ocean and is located on the Baja Peninsula of Mexico. Further, Gemco has an option to purchase 100 percent interest in two additional placer claims. These properties consist of over 600 hectares, are approximately 27 kms in length of a dry arroyo with varying widths and several meters in depth. Preliminary testing shows estimates of a potential recovery of 5 million tonnes of alluvial magnetite and ilmenite mineral product. In June 2007, the Company mandated Mr. Jaime Noguera Perez of Estero Servicios Ambientales Engineering (Estero) to conduct a works program to collect, review and evaluate existing geological information, conduct all field work, geological mapping, sourcing all information on applicable regulations and requirements for permits to extract up to 300,000 tonnes of material the first year of operation and up to 2,000,000 tonnes per year thereafter. In August 2007, the Company received a progress report from Estero indicating that all field work has been completed and Estero is preparing an executive report which will be submitted to the Mining office in Mexico City for final approval and attainment of permits to undertake mining operations. Gemco has incorporated a wholly owned subsidiary in Mexico, named Black Stone Industries S.A. de C.V., which will carry out all future business activities on behalf of Gemco in Mexico. 4 The Company will also engage an independent firm to review Estero's report and prepare an in-depth 43-101 technical report to meet standards and requirements for raising capital. The Company has expended over $75,000 to date on its Mexico property for costs including; the environmental study, management of the claims, attainment of permits, consulting and regulatory fees. Further, a balance of $20,000 will be paid upon Black Stone Industries S.A. de C.V. receiving the final mining permits. Natural Mineral Products The Company continues in the business development for the magnetite natural mineral product trade named "Eco-Blast", as well as its Ilmenite "Talon Blast Abrasive" mineral product. These are environmentally safe products used in the industrial abrasive industry as outlined further below. Recent environmental regulations throughout North America have restricted the use of traditional abrasives like silica-sand and some slags. This is particularly true in the blast cleaning (sand blasting) market where 5 million tons of abrasives are used each year. Magnetite and Ilmenite have emerged as less health damaging and more environmentally friendly alternatives to the traditional non-recyclable abrasives. The specific particle size of natural magnetite product performs optimally in blast cleaning applications and can be recycled. ECO-Blast and Talon Blast Abrasive are the branded blast abrasives of the Company using magnetite and Ilmenite blends. Tests have shown these products to be effective replacements for more traditional blast mediums in terms of cost and performance and significantly superior in terms of environmental impact and recyclability. Powertech Labs Inc. conducted an analysis on the magnetite product, which approved the product for use by the BC Ministry of Environment and Parks. A number of comparison demonstration tests were also conducted by Ross-Rex Industries Inc. using Talon blast and competitive/alternative products and the results have been very positive as posted on Gemco's website. 5 The Company recently entered into an Exclusive Supply Agreement with Teichert and Son Inc., a California corporation doing business as Teichert Aggregates (Teichert). This contract pertains to the exclusive distribution rights of the minerals known as Ilmenite and Magnetite. Teichert produces Ilmenite and Magnetite as a by-product from its aggregate mining operations, and currently has an estimated 25,000 tons stored on-site in Central California. These rights allow the Company to distribute and sell this product as a blast medium in the industrial abrasive industry in both Western U.S. and Canada. The Term of the Agreement is for a period of 5 years with an option for an additional 5 years, if agreeable by both parties. As part of the Agreement, the Company has agreed to purchase a minimum tonnage per contract year in order to maintain fixed pricing terms. The effective commencement date of production is dependent on the Company first obtaining California Air Regulation Board approval for the use of these products as a blast medium and then establishing a drying, screening and bagging plant at a nearby location. In conjunction with Teichert, the Company has initiated the CARB test and the Company management is negotiating with a U.S. company for a site on which to locate the drying and bagging facility. On December 2, 2008 the Company announced it had entered into an Agreement (the Agreement) for the sale of ilmenite and magnetite industrial minerals (the Product) with R.A. Temple Inc. (Temple), a California corporation. The Product will be sourced from the Company's location in Sacramento, California, under its Exclusive Supply Agreement with Teichert Aggregate Inc. as announced May 27th, 2008, and will be sold under the Company's Black Talon brand name. Temple may purchase up to 7,000 tons of ilmenite and magnetite per annum, from the commencement date, on a pre-determined pricing framework for a period of five years. The commencement date of the first shipment shall be no later April 1, 2009, which provides time for the Company to complete its California Air Regulation Board (CARB) standard approval for the use of this product as a blast medium and to establish a drying, screening and bagging plant at a nearby location. Temple has supplied both blast abrasives and equipment to the metal finishing and water-jet cutting industry in the western region of the United States for over 28 years. As part of the Agreement, the Company also grants Temple exclusive distributorship for the Product in the State of Nevada and Northern California. 6 Results of Operations - Gemco Minerals Inc. Nine Months Ended February 28, 2009 During the nine months ended February 28, 2009 the Company recorded an operating loss of $118,973 as compared to an operating loss of $230,800 for the nine months ended February 28, 2008, and recorded a net loss after other items of $166,526 as compared to a net loss of $265,539 for the nine months ended February 28, 2008. This is a decrease in operating loss of $111,827 and a decrease in the net loss of $99,013. The net loss represents $0.0072 per common share. The Company incurred $118,973 in operating expenses which consist mainly of: mineral property costs of $33,428 (2008 - $112,927), management and consulting fees, including accruals and share issuance, of $78,000 (2007 - $54,000), investor relations of $9,750 (2007 - $21,422) and professional fees of $15,357 (2007 - $15,454). The Company also recorded other items totaling $46,646 for the nine months ending February 28, 2009, which is an increase of $11,908 compared to the $34,738 in other items for the nine months ending February 28, 2008. This included interest and bank charges of $44,830. Other items also included $1,816 for a loss on disposal of mineral rights and $36,546 for the interest generated on the mortgage investment, with a corresponding writedown for impairment, as described in Note 5(g) and Note 3 of the financial statements respectively. The Company has not yet generated any revenues from its Mineral Exploration Program. Our ability to emerge from the exploration stage and conduct mining operations is dependent, in large part, upon our raising additional equity financing As of February 28, 2009, Gemco had total liabilities of $686,627, which is an increase of $55,739 as compared to $630,888 liabilities recorded at May 31, 2008. The Company's liabilities consist of $42,685 in accounts payable, $79,368 due to related parties, $71,374 due to shareholders and $493,200 in notes payable, of which $317,634 are due to related parties. The increase in liabilities is due primarily to additional amounts loaned from related parties during the period net of adjustments in the U.S. exchange rate for amounts denominated in Canadian funds. The Company's current assets at February 28, 2009, consisted of $159 in cash which reduced by $3,118 from $3,277 as at May 31, 2008. Total assets as of February 28, 2009 were $417,394 with mineral claims recorded at $99,273, equipment net of amortization at $42,961, and investments of $275,000 for the mortgage held on real property as disclosed in Note 3(b) of the financial statements. Selected Annual Information The following are highlights of financial data on the Company for the most recently completed three financial years: Fiscal Year Ended May 31, 2008 2007 2006 ---------- --------- ---------- Loss before Income Tax $ (376,307) $ (97,937) $ (422,013) Net Loss (376,307) (97,937) (422,013) Loss Per Share (0.02) (0.01) (0.02) Total Assets 439,279 174,319 198,460 Total Liabilities 630,888 573,237 817,639 7 Liquidity and Capital Resources The Company's assets are recorded at the lower of cost or market value. The total assets at February 28, 2009 were $417,394 net of amortization. The Company had a working capital deficiency of $686,468 at February 28, 2009 compared to a working capital deficiency of $627,611 as of May 31, 2008. The majority of Gemco's assets are long-term in nature and thus considered to be of lower liquidity. It is the Company's intention to liquidate the mortgage denoted above at the earliest reasonable opportunity to fund the Company. The Company's cash inflow has been generated mainly from shareholder loans, related party and short-term loans and subscription of common stock with minimal revenues and government incentive programs since inception. Management continually reviews its overall capital and funding needs to ensure that the capital base can support the estimated needs of the business. These reviews take into account current business needs as well as the Company's future capital requirements. Based upon these reviews, to take advantage of strong market conditions and to fully implement our expansion strategy, management believes that the Company will continue to increase our net capital through the proceeds from sales of our securities. The Company currently maintains minimal cash balances and is funded by management and shareholder loans to satisfy monthly cash requirements in the interim of raising external funding. The Company cannot currently meet its cash requirements without, future sale of shares or its current management and/or advances or loans from controlling shareholders or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity during the development phase. There is no assurance that the Company will be able to obtain additional funding through the sales of additional shares or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. It is the intent of management and controlling shareholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. Management has developed a business plan to address the company's net capital deficiency. This includes raising capital through its current SB2 Prospectus and optioning some of the company's mineral claims to other exploration companies. Forward-Looking Statements From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause a deviation or divergence from the anticipated results or expectations contained in the forward looking statements and the Company's actual results. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include but are not limited to the following: lack of operating capital, revenue and capital resources; reliance upon joint venture members to provide technical and financial expertise to operations; the ability of the Company to access an economically viable energy deposit; the ability of the Company to recover natural resources, if found, and to deliver them to a refiner or distributor in an economically viable manner. 8 Risks and Uncertainties Mining - The Company is engaged in mineral exploration and development, which involves a high degree of risk, and few properties are ultimately developed into producing mines. There is no assurance that the Company's future exploration and development activities will result in any discoveries of commercial bodies of ore. Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable. Cash Flows and Funding - The Company periodically requires equity financing to maintain its working capital position. There is no assurance that the Company will be able to obtain financing, as required, in the future. Environmental and Permitting - Mineral exploration and development is subject to extensive regulation concerning environmental protection and there is no assurance the Company will be able to obtain all necessary permits and approvals in order to carry out its exploration activities. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. Item 4. Controls and procedures Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 9 Inherent Limitations on Effectiveness of Controls. Our management, including our principal executive and financial officer, does not expect that our disclosure controls and procedures or our internal control will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. PART II OTHER INFORMATION Item 1. Legal Proceedings. The Company is currently named as a defendant or Respondent in two related legal proceedings. On the 15th of April, 2008 an action was commenced by a shareholder of Akal Forest Products Ltd. against a group of defendants, including Gemco Minerals Inc. In that action the plaintiff alleges that Gemco Minerals Inc. entered into a non-arms length transaction with Hunter Corey Babcock, an officer and director of Akal Forest Products Ltd. pursuant to which transaction Gemco sold to Babcock a number of shares in Gemco Minerals Inc. That sale was secured by a mortgage and assignment of rents against Lands owned by Akal Forest Products Ltd. Counsel has been retained and a statement of defense has been filed by Gemco Minerals Inc. denying that Gemco Minerals Inc. was anything other than a bona fide purchaser for value in that transaction. On or about April 28, 2008 an interlocutory order, without notice, was granted by the Supreme Court of British Columbia restraining both Mr. Babcock and Gemco from transferring, mortgaging, or hypothecating any of the shares issued by Gemco to Mr. Babcock in relation the aforementioned mortgage and assignment of rents. On the 22nd of July 2008, the first mortgage holder of the Akal Forest Products Ltd. Lands commenced a foreclosure proceeding in the Supreme Court of B.C. against Akal Forest Products Ltd. In that action Gemco Minerals Inc. is named as a third mortgage holder and Respondent in relation to the mortgage and assignment of rents granted by Akal Forest Products Ltd. as security for the Babcock purchase of Gemco shares. Counsel has been retained to protect the interests of Gemco in relation to its charges on the Akal Lands. The Company's mortgage was due on demand as of February 5, 2009, and is now in default. The Company has taken legal action and was awarded a court ordered conduct of sale by the Kamloops Supreme Court, whereby the Company will proceed with listing and disposing the property to the benefit of all secured on the property. 10 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the first quarter the Company issued a total of 365,000 common shares on August 20, 2008 of which all shares were issued to four independent and non-affiliate accredited investors. This included 100,000 shares subscribed on April 12, 2008 for proceeds of $20,000 at a price of $0.20 per share, as well as 265,000 shares issued August 20, 2008 to three non-related parties for consulting services at the deemed price of $0.15 per share for a total value of $39,750 With respect to the unregistered sales made, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The securities were offered to sophisticated, accredited investors who were provided all of the current public information available on the Company. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits Exhibit Identification of Exhibit No. 31.1 Rule 13a-14(a) Certification of Tom Hatton, President and Chief Executive Officer 31.2 Rule 13a-14(a) Certification of Dorlyn Evancic, Treasurer, Chief Financial Officer 32.1 Certification Pursuant to 18 U.S.C. Section 1350 of Tom Hatton. 32.2 Certification Pursuant to 18 U.S.C. Section 1350 of Dorlyn Evancic. SIGNATURES Pursuant to the requirements 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. Gemco Minerals Inc. Date: April 2, 2009 By: /s/ Tom Hatton ---------------------- Tom Hatton, President, Director and Chief Executive Officer 11

Gemco Minerals, Inc. 10-Q