-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JSEj4FGrAU8J7/daQ50soKLnedmc7SNvNdR5GX7//zwEGlPtm/ynYPOWyiNIXGoA rSwSiIvcbVSMmKDLwH173Q== 0000908230-04-000100.txt : 20041115 0000908230-04-000100.hdr.sgml : 20041115 20041115140551 ACCESSION NUMBER: 0000908230-04-000100 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GSV INC CENTRAL INDEX KEY: 0001051591 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133979226 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23901 FILM NUMBER: 041143841 BUSINESS ADDRESS: STREET 1: 191 POST ROAD WEST CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2125323553 MAIL ADDRESS: STREET 1: 191 POST ROAD WEST CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: CYBERSHOP INTERNATIONAL INC DATE OF NAME CHANGE: 19971217 10QSB 1 gsv_10q-111504.txt GSV, INC. 111504 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 /x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 / / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission File Number 0-23901 GSV, INC. ---------- (Exact name of small business issuer as specified in its charter) Delaware 13-3979226 --------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 191 Post Road West, Westport, CT 06880 -------------------------------------- Address of principal executive offices) (Zip Code) (203) 221-2690 -------------- Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- The number of shares of the issuer's common stock, par value $.001 per share, outstanding on November 8, 2004 was 7,472,703 shares, excluding 168,592 shares held in Treasury. Transitional Small Business Disclosure Format (check one): Yes No X --- --- GSV, INC. AND SUBSIDIARIES INDEX TO FORM 10-QSB Page Number ------ PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements: 3 Consolidated Balance Sheet (unaudited) 3 Consolidated Statements of Operations for the Three Months ended September 30, 2004 and 2003 (unaudited) 4 Consolidated Statements of Operations for the Nine Months ended September 30, 2004 and 2003 (unaudited) 5 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2004 and 2003 (unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Controls and Procedures 15 PART II. OTHER INFORMATION 16 Item 6. Exhibits 16 SIGNATURES 17
-2- PART I. FINANCIAL INFORMATION Item 1. - Financial Statements GSV, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET September 30, 2004 ASSETS CURRENT ASSETS Cash and cash equivalents $ 63,939 Account receivable 108,142 Other current assets 4,013 -------------- Total current assets 176,094 Investments 50,000 Other long-term assets - geologic studies 2,319,905 Investments - oil & gas wells, net 404,748 Property and equipment, net 8,424 Other assets 4,599 -------------- Total assets $ 2,963,770 ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 365,785 Note payable 450,000 -------------- Total current liabilities 815,785 -------------- Total liabilities 815,785 -------------- STOCKHOLDERS' EQUITY Series B Preferred stock, $0.001 par value; 1,500,000 shares authorized; 1,500,000 shares issued and outstanding 1,500 Common stock, $0.001 par value; 75,000,000 shares authorized; 7,641,303 issued; 7,472,703 outstanding 7,641 Additional paid-in capital 40,867,678 Treasury stock (558,998) Accumulated deficit (38,169,836) -------------- Total stockholders' equity 2,147,985 -------------- Total liabilities and stockholders' equity $ 2,963,770 ==============
The accompanying notes are an integral part of the financial statements -3- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS For the three months ended September 30, 2004 and 2003 2004 2003 ---------- ---------- Sublease income $ -- $ 27,930 Oil and gas income 196,908 75,264 Other income 6,609 -- ---------- ---------- Total revenues 203,517 103,194 General and administrative expenses 243,278 192,769 ---------- ---------- Total operating expenses 243,278 192,769 ---------- ---------- Loss from operations before other income (39,761) (89,575) and expense Interest income, net 4 681 Interest expense (9,000) -- Gain on sale of investments -- -- ---------- ---------- NET LOSS $ (48,756) $ (88,894) ========== ========== Net loss per common share: Loss per common share from operations - basic $ (0.01) $ (0.01) ========== ========== Weighted average common shares outstanding, basic 7,472,703 6,112,916 ========== ==========
The accompanying notes are an integral part of the financial statements -4- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS For the nine months ended September 30, 2004 and 2003 2004 2003 ---------- ---------- Sublease income $ -- $ 131,205 Oil and gas income 231,998 117,430 Other income 21,061 -- ---------- ---------- Total revenues 253,059 248,635 General and administrative expenses 541,348 590,991 ---------- ---------- Total operating expenses 541,348 590,991 Loss from operations before other income (288,289) (342,356) and expense Interest income, net 34 2,638 Interest expense (17,500) -- Gain on sale of investments 16,077 -- ---------- ---------- NET LOSS $ (289,677) $ (339,718) ========== ========== Net loss per common share: Loss per common share from operations - basic $ (0.04) $ (0.08) ========== ========== Weighted average common shares outstanding, basic 7,417,882 3,810,420 ========== ==========
The accompanying notes are an integral part of the financial statements -5- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2004 and 2003 2004 2003 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss (292,177) (339,718) Adjustments to reconcile net loss to net cash flows From operating activities: Cost of preferred stock previously issued -- 20,000 Correction of an error -- (28,789) Depreciation 1,950 42,079 Depletion 153,677 78,349 Increase (decrease) in cash from changes in: Account receivable and other current assets (93,378) (207,699) Other assets 8,547 26,642 Accounts payable and other current liabilities 126,478 288,204 Tenant security deposit -- (51,250) Dividends payable -- (63,801) --------- --------- Net cash flows from operating activities (94,875) (235,983) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment - oil & gas wells (109,596) (48,207) --------- --------- Net cash flows from investing activities (109,596) (48,207) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in notes payable 250,000 -- Redemption of preferred stock (200,000) --------- --------- Net cash flows from financing activities 250,000 (200,000) --------- --------- Net increase (decrease) in cash 45,529 (484,190) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,410 598,467 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD 63,939 114,277 ========= =========
The accompanying notes are an integral part of the financial statements -6- GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the Business and Basis of Presentation Since July 2003 the business operations of GSV, Inc. and Subsidiaries ("the Company") have been focused on managing existing investments in oil and gas assets and entering into new investments in this industry. From June 2001 to July 2003 the Company's business operations included entering into new business operations through acquisitions or mergers and managing existing investments including the Company's oil and gas assets. Prior to June 2001, the Company had sought to identify and develop attractive early stage Internet companies in exchange for equity positions in such companies. The Company has since made substantial write downs of its internet investments to more accurately reflect current market valuations, and these investments do not represent a significant asset. As of September 30, 2004, these investments were valued at approximately 1.7% of the total value of the Company's assets. The Company received approximately $16,000 in January 2004 when one of these investments, Fasturn, Inc., was liquidated. The Company is continuing to investigate whether or not there are any business prospects through which material value can be realized from the remaining internet investments. Effective June 1, 2002, the Company acquired working interests in two oil and gas wells in the state of Louisiana pursuant to an asset purchase agreement with Polystick U.S. Corporation ("Polystick"), a privately held New York corporation. Additionally, the Company acquired an option, including a right of first refusal, to purchase other oil and gas properties held by Polystick. The consideration consisted of $550,000 in cash and 850,000 shares of the Company's common stock valued at $0.25 per share. On July 21, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Polystick, Cybershop, L.L.C., a New Jersey limited liability company and wholly-owned subsidiary of the Company ("Merger Sub"), and Polystick Oil & Gas, Inc., a Delaware corporation and a wholly-owned subsidiary of Polystick ("POGI"), pursuant to which, on the same day, POGI was merged into Merger Sub (the "Merger") and in consideration thereof the Company issued to Polystick 4,500,000 shares of common stock and 1,500,000 shares of Series B convertible preferred stock. As a result of the Merger, the Company, through Merger Sub, acquired an interest in Century Royalty LLC ("Century"), a Texas limited liability company that holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which the Company already held an interest. Century also holds the rights to certain geologic studies. The information presented as of September 30, 2004 is unaudited, but, in the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for the fair presentation of the Company's financial position as of September 30, 2004, the results of its operations for the three and nine month periods ended September 30, 2004 and 2003 and its cash flows for the three and nine month periods ended September 30, 2004 and 2003. The consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the year ended December 31, 2003, included in the Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission. Certain prior period amounts have been reclassified to conform to the current period presentation. -7- 2. Investments The Company has investments in four internet-related companies, which have been accounted for using the cost method. During the quarter ended March 31, 2004, the Company recorded a gain to operations of approximately $16,000 as a fifth internet investment, Fasturn, Inc., was liquidated. As described above, the Company acquired working interests in two oil and gas wells effective June 1, 2002 for $550,000 in cash and common stock of the Company valued at $212,500, for a total investment of $762,500. The asset is depleted on a periodic basis using the units of production method. Depletion expense for the quarter ended September 30, 2004 was $153,677. In the fourth quarter of 2002, the properties exhibited a marked decrease in the volume of oil and gas produced. Based upon an independent reserve study performed effective March 2003, the Company reduced the carrying amount of its oil and gas properties by approximately $479,000 for the year ended December 31, 2002. On May 20, 2004, the Company elected to participate in re-completion of one of the wells in Louisiana. The work was successfully completed on June 10, 2004. The total cost to the Company was $74,063. The Company has seen an increase in revenues as a result of the re-completion of this well. As described above, on July 21, 2003, the Company entered into the Merger Agreement, pursuant to which, on the same day, POGI was merged into Merger Sub and in consideration thereof the Company issued to Polystick 4,500,000 shares of common stock and 1,500,000 shares of Series B convertible preferred stock. Each share of Series B convertible preferred stock is convertible at any time at the holder's option into a number of shares of common stock equal to $1.00 divided by the conversion price then in effect. The conversion price is initially $1.00. No dividends are payable on the Series B convertible preferred stock, except that in the event dividends are declared with respect to common stock, each holder of share of Series B convertible preferred stock shall be entitled to receive an amount equal to the amount of dividends that would have been paid on the shares of common stock issuable upon conversion of such shares of Series B convertible preferred stock has such shares been converted into common stock immediately before such dividend was declared. Upon any Liquidation Event, the holders of the outstanding Series B convertible preferred stock will be entitled to be paid an amount equal to $1.00 per share plus the amount of any declared and unpaid dividends thereon. If upon any Liquidation Event, the net assets of the Company are insufficient to permit payment in full of such preferential amount to the holders of Series B convertible preferred stock, then the entire net assets of the Company will be distributed ratably among the holders of the Series B convertible preferred stock. In connection with and as a condition to the Merger, the Company redeemed all of its existing outstanding Series A preferred stock, par value $0.001 per share, for $400,001, plus dividends payable. The Company paid $263,801 of the redemption price in cash and $200,000 by a full recourse promissory note bearing interest at a rate of 8% per annum and due September 4, 2004, secured by a lien on all of the Company's assets. As a result of the Merger, the Company acquired an interest in Century Royalty LLC ("Century"), which holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which the Company presently holds an interest. Century also holds the rights to certain geologic studies that are included in other long term assets on the accompanying balance sheet. Century is a member of a working interest partnership that has identified several prospects derived from the geological studies and is working towards drilling these prospects. Century has a carried interest with this partnership of 20% for the first well drilled in the first 5 prospects or $ 1.25 million of investment, whichever comes first. Century has a 20% participation interest in all subsequent wells drilled in the first 5 prospects. For later prospects, Century is entitled to an 80% participation interest. GSV is entitled to the first $4,168,659 of net income in Century and to 75% of net income thereafter. On November 1, 2004, the working interest -8- partnership started work on a re-entry prospect in Texas. After reaching 6,000 feet and logging, it was determined that it was not economical to compete the well and it was decided on November 8, 2004, to plug and abandon the well. 3. Stockholders' Equity Pursuant to the terms of the asset purchase agreement with Polystick, effective June 1, 2002, the Company issued 850,000 shares of common stock valued at a price of $.25 per share, the closing price on May 28, 2002, to Polystick. On October 31, 2003, the Company issued 113,326 share of common stock to a consultant to the Company in exchange for the cancellation of the Company's obligation to pay accrued fees aggregating $28,331. On February 9, 2004, the Company borrowed $25,000 from Brooks Station Holdings, Inc., a private investment corporation ("Brooks Station"). In partial consideration for the loan, the Company issued 100,000 shares of common stock to Brooks Station. On March 18, 2004, the Company borrowed another $25,000 from Brooks Station and in partial consideration for the loan issued another 100,000 shares of common stock to Brooks Station. Each loan is evidenced by a promissory note bearing interest at 8% per annum and maturing on September 1, 2004 and is secured by a lien on all of the Company's assets. On May 11, 2004, the Company sold a convertible promissory note in the principal amount of $200,000 and a warrant to purchase up to 1,142,857 shares of common stock at a price of $.70 per share to D. Emerald Investments Ltd., a private investment corporation ("Emerald"). The note bears interest at the rate of 8% per annum and is convertible into shares of our common stock at a price of $.70 per share. The aggregate purchase price of these securities was $200,000. In connection with the sale of these securities the Company agreed that if Emerald exercises the warrant in full and converts the convertible note in full, then, at Emerald's request, the Company will appoint a person designated by Emerald to the Company's board of directors and, in addition, for so long as Emerald holds at least eighty-five percent (85%) of the common stock issued upon such exercise and conversion, nominate such person (or a different person designated by Emerald) to be reelected to the board of directors in connection with any meeting of stockholders at which directors are to be elected. The Company also agreed that within 120 days of the exercise of the warrant and/or conversion of the note for an aggregate of at least 428,572 shares of common stock (subject to adjustment for dilutive events as set forth in the warrant and the note) the Company will register all of the shares issuable upon conversion of the note and exercise of the warrant under the Securities Act of 1933. Additionally, the Company granted Emerald rights to have the shares included in other registration statements the Company may file for the public offering of our securities for cash proceeds. The Company's principal stockholder, Polystick, entered into a guaranty and a pledge agreement with Emerald under which Polystick pledged 200,000 shares of the Company's Series B convertible preferred stock as collateral security for the note. Polystick also entered into a voting agreement with Emerald under which Polystick agreed that if the Company fails to fully and timely fulfill its obligations to appoint or nominate a representative for election to the board of directors, then, at Emerald's request, Polystick will vote its shares of Series B convertible preferred stock in favor of a nominee designated by Emerald in any election of directors occurring during such time and for so long as Emerald holds at least 85% of the common stock issued upon exercise of the warrant and conversion of the note. Polystick also agreed that, provided that Polystick continues to have the right to designate and elect three directors to the Company's board of directors under the terms of the Series B convertible preferred stock, any such nominee will count as one of such directors. Additionally, Polystick agreed to use all its power and authority as provided by the Company's by-laws and the Series B convertible preferred stock to convene, at Emerald's request, meetings of stockholders as may be necessary to elect Emerald's nominee to the board of directors. -9- 4. Net Loss Per Common Share Basic net loss per common share is calculated by dividing net loss per common share after effect of adjustable common stock warrants, as explained below, by the weighted average number of shares of common stock outstanding during the period as follows: 9 Months ended September 30 2004 2003 --------------------------------------- -------------------------------------
Per Per Loss Shares Share Loss Shares Share --------------------------------------- -------------------------------------- Loss from continuing operations $ (289,677) 7,253,416 $ (0.04) $(339,718) 3,810,420 $(0.08) Effect of preferred stock dividends -- --- -- ----------- --------- ------- --------- --------- ------ Net loss available for common shareholders $ (289,677) 7,253,416 $ (0.04) $(339,718) 3,810,420 (0.08) =========== ========= ======= ========= ========= ======
-10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Since July 2003 our business operations have been focused on managing our existing investments in oil and gas assets and entering into new investments in this industry. From June 2001 to July 2003, our business operations included managing our existing investments and entering into new business operations through acquisitions or mergers. Prior to June 2001, we had sought to identify and develop attractive early stage internet companies in exchange for equity positions in such companies. We have since made substantial write downs of these investments to more accurately reflect current market valuations, and our investments do not represent a significant asset. As of September 30, 2004, these investments were valued at approximately 1.7% of the total value of our assets. We received approximately $16,000 in January 2004 when one of these investments, Fasturn, Inc., was liquidated. We are continuing to investigate whether or not there are any business prospects through which material value can be realized from the remaining investments. Effective June 1, 2002, we acquired working interests in two oil and gas wells in the state of Louisiana pursuant to an asset purchase agreement with Polystick U.S. Corporation ("Polystick"). The consideration consisted of $550,000 in cash and 850,000 shares of our common stock valued at $0.25 per share. Additionally, we acquired a one-year option valued at $80,210, including the right of first refusal, to purchase other oil and gas properties held by Polystick. On May 20, 2004, we elected to participate in re-completion of one of the wells in Louisiana. The work was successfully completed on June 10, 2004. The total cost to us was $74,063. We have seen an increase in revenues as a result of the re-completion of this well. On July 21, 2003, we entered into an Agreement and Plan of Merger with Polystick, Cybershop, L.L.C., a New Jersey limited liability company and wholly-owned subsidiary of GSV, Inc. and Polystick Oil & Gas, Inc., a Delaware corporation and wholly-owned subsidiary of Polystick ("POGI"), pursuant to which, on the same day, POGI was merged into Cybershop, L.L.C. and in consideration thereof we issued to Polystick 4,500,000 shares of our common stock and 1,500,000 shares of our Series B convertible preferred stock. As a result of the merger we acquired, through Cybershop L.L.C., an interest in Century Royalty LLC, a Texas limited liability company that holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which we presently hold an interest. Century Royalty LLC also holds the rights to certain geologic studies. Due to the existence of certain revenue overrides accruing to the benefit of Polystick, the operations of Century Royalty LLC are included in the accompanying statements of operations. The sole shareholder of Polystick is RT Sagi Holding Ltd., an Israeli corporation. The sole stockholder of RT Sagi and indirect owner of Polystick is Mr. Sagi Matza. Effective as of the consummation of the Merger, Mr. Matza was appointed to our board of directors as the designee of Polystick. Polystick has the right to elect two additional persons to our board of directors, but has not yet done so. Each share of Series B convertible preferred stock is convertible at any time at the holder's option into a number of shares of common stock equal to $1.00 divided by the conversion price then in effect. The terms upon which the Series B convertible preferred stock may be converted into common stock are set forth in the Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock filed by the Company with the Secretary of State of the State of Delaware on July 18, 2003 ("Certificate of Designations"). As of November 1, 2003, the Series B convertible preferred stock owned by Polystick was convertible into 1,500,000 shares of common stock. -11- No dividends are payable on the Series B convertible preferred stock, except that in the event dividends are declared with respect to the common stock each holder of shares of Series B convertible preferred stock will be entitled to receive an amount equal to the amount of dividends that would have been paid on the shares of common stock issuable upon conversion of such shares of Series B convertible preferred stock had such shares of Series B convertible preferred stock been converted into common stock immediately before the dividend was declared. Upon any Liquidation Event, as defined in the Certificate of Designations, the holders of the outstanding Series B convertible preferred stock will be entitled, before any distribution or payment is made to any holder of common stock or any other Junior Stock (as defined in the Certificate of Designations), to be paid an amount equal to $1.00 per share plus the amount of any declared and unpaid dividends thereon. If upon any Liquidation Event the net assets of GSV, Inc. distributable among the holders of the Series B convertible preferred stock are insufficient to permit the payment in full of such preferential amount to the holders of the Series B convertible preferred stock, then the entire net assets of GSV, Inc. will be distributed ratably among the holders of the Series B convertible preferred stock in proportion to the amounts they otherwise would have been entitled to receive. The Certificate of Designations provides that so long as any shares of Series B convertible preferred stock are outstanding, we will not, without the written approval of the holders of at least a majority of the then-outstanding Series B convertible preferred stock, increase the maximum number of directors constituting our board of directors to more than seven. The Certificate of Designations also provides that, so long as any shares of Series B convertible preferred stock are outstanding, the holders of the Series B convertible preferred stock, voting separately as a class, will be entitled to designate and elect three of the members of our board of directors. Also, a vacancy in any directorship elected by the holders of the Series B convertible preferred stock may be filled only by vote or written consent of the holders of at least a majority of the then outstanding shares of Series B convertible preferred stock. The Series B convertible preferred stock has no other voting rights except as provided by applicable law. In connection with and as a condition to consummation of the merger in July 2003, we redeemed all of our outstanding Series A convertible preferred stock, par value $0.001 per share, for $400,001 plus dividends payable. We paid $263,801 of the redemption price in cash and $200,000 by a promissory note secured by a lien on all of our assets. Off-Balance Sheet Transactions In June 2001, we sublet to Nekema.com our former offices in Jersey City, New Jersey through December 31, 2008. The rent on the sublease was guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company, until May 2003. In September 2002 Nekema ceased business operations and defaulted on the sublease. Kemper Insurance Company made all payments of rent due under the sublease through May 2003. We ceased paying rent beginning in July 2003 and since then have been negotiating towards a settlement with the landlord. If we are unable to negotiate a settlement with the landlord, we will remain obligated to pay rent on the space until our lease expires in December 2008. The lease contains automatic increases based upon the consumer price index. Estimated minimum future lease payments, including such increases and existing unpaid balance, aggregate approximately $902,165. On May 5, 2004 we filed a proof of claim against Nekema's estate in the United States Bankruptcy Court for the Southern District of New York. The proof of claim is for the total sum of $421,455.15 as permitted by law. We cannot assure you that we will be able to collect any of this claim. -12- Results of Operations Three Months Ended September 30, 2004 compared to Three Months Ended September 30, 2003. Revenues: Revenues for the quarter increased by $100,323 over the corresponding period of the preceding year due to an increase in production resulting from the expansion of one of the two wells in Louisiana, which was completed on June 10, 2004. The operating company pays gas revenues 60 days after the end of each month and oil revenues 30 days after the end of each month. General and administrative: General and administrative expenses consist primarily of payroll and payroll related expenses for administrative, information technology, accounting, and management personnel, legal fees, and general corporate expenses. General and administrative expenses increased by 26.2%, or $51,509 to $243,278 in the third quarter of 2004 from $192,769 in the third quarter of 2003, primarily as a result of increased depletion in the reserves. Interest income, net: Interest income decreased by $677 to $4 in the third quarter of 2004 from $681 in the second quarter of 2003. The decrease is primarily the result of a decrease in average cash and cash equivalents, as well as a decrease in interest rates. Net Losses: Loss from operations decreased by $40,138 from $88,894 in the third quarter of 2003, or ($0.01) per basic and diluted common share, to $48,756 in the third quarter of 2004, or ($0.01) per basic and diluted common share. Nine Months Ended September 30, 2004 compared to Nine Months Ended September 30, 2003. Revenues: Revenues for the first nine months of 2004 increased by $4,424 over the corresponding period of the preceding year due to an increase in production resulting from the expansion of one of the two wells in Louisiana, which was completed on June 10, 2004. The operating company pays gas revenues 60 days after the end of each month and oil revenues 30 days after the end of each month. This increase was offset by the decrease in sub-lease income. General and administrative: General and administrative expenses consist primarily of payroll and payroll related expenses for administrative, information technology, accounting, and management personnel, legal fees, and general corporate expenses. General and administrative expenses decreased by 8.4%, or $49,643 to $541,348 in the first nine months of 2004 from $590,991 in the first nine months of 2003, primarily as a result of cost cutting measures we implemented. Interest income, net: Interest income decreased by $2,604 to $34 in the first nine months of 2004 from $2,638 in the first nine months of 2003. The decrease is primarily the result of a decrease in cash and cash equivalents, as well as a decrease in interest rates. Net Losses: Loss from operations decreased by $50,041 from $339,718 in the first nine months of 2003, or ($0.08) per basic and diluted common share, to $289,677 in the first nine months of 2004, or ($0.04) per basic and diluted common share. The decrease in the loss per basic and diluted common share is primarily due to the increase in the number of weighted average common shares outstanding and the decrease in net loss. Liquidity and Capital Resources Net cash used in operations decreased by 59.8%, or $141,108, to $94,875 for the nine months ended September 30, 2004, from $235,983 for the nine months ended September 30, 2003, primarily as a result of the sharp decrease in general and administrative expenses and increase in oil and gas revenues. -13- On February 9, 2004, we borrowed $25,000 from Brooks Station Holdings, Inc., a private investment corporation ("Brooks Station"). In partial consideration for the loan, we issued 100,000 shares of common stock to Brooks Station. On March 18, 2004, we borrowed another $25,000 from Brooks Station and in partial consideration for the loan issued another 100,000 shares of common stock to Brooks Station. Each loan is evidenced by a promissory note bearing interest at 8% per annum and is secured by a lien on all of our assets. On September 20, 2004, we negotiated an extension of the maturity of the notes from their original maturity date of September 1, 2004 to March 1, 2004. On May 11, 2004, we sold a convertible promissory note in the principal amount of $200,000 and a warrant to purchase up to 1,142,857 shares of our common stock at a price of $.70 per share to D. Emerald Investments Ltd., a private investment corporation ("Emerald"). The note bears interest at the rate of 8% per annum and is convertible into shares of our common stock at a price of $.70 per share. The aggregate purchase price of these securities was $200,000. In connection with the sale of these securities we agreed that if Emerald exercises the warrant in full and converts the convertible note in full, then, at Emerald's request, we will appoint a person designated by Emerald to our Board of Directors and, in addition, for so long as Emerald holds at least eighty-five percent (85%) of the common stock issued upon such exercise and conversion, to nominate such person (or a different person designated by Emerald) to be reelected to the Board of Directors in connection with any meeting of our stockholders at which directors are to be elected. We also agreed that within 120 days of the exercise of the warrant and/or conversion of the note for an aggregate of at least 428,572 shares of common stock (subject to adjustment for dilutive events as set forth in the warrant and the note) we will register all of the shares issuable upon conversion of the note and exercise of the warrant under the Securities Act of 1933. Additionally, we granted Emerald rights to have the shares included in other registration statements we may file for the public offering of our securities for cash proceeds. Our principal stockholder, Polystick, entered into a guaranty and a pledge agreement with Emerald under which Polystick pledged 200,000 shares of our Series B convertible preferred stock as collateral security for the note. Polystick also entered into a voting agreement with Emerald under which Polystick agreed that if we fail to fully and timely fulfill our obligations to appoint or nominate a representative for election to our board of directors, then, at Emerald's request, Polystick will vote its shares of Series B convertible preferred stock in favor of a nominee designated by Emerald in any election of directors occurring during such time and for so long as Emerald holds at least 85% of the common stock issued upon exercise of the warrant and conversion of the note. Polystick also agreed that, provided that Polystick continues to have the right to designate and elect three directors to the Company's board of directors under the terms of the Series B convertible preferred stock, any such nominee will count as one of such directors. Additionally, Polystick agreed to use all its power and authority as provided by our by-laws and the Series B convertible preferred stock to convene, at Emerald's request, meetings of stockholders as may be necessary to elect Emerald's nominee to the board of directors. We believe that our existing capital resources will enable us to maintain our operations at existing levels for at least the next twelve months. However, it is difficult to project our capital needs. There can be no assurance that any additional financing or other sources of capital will be available to us upon acceptable terms, if at all. The inability to obtain additional financing, when needed, would have a material adverse effect on our business, financial condition and operating results. Forward-Looking Statements: Some of the statements in this report are forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements about our plans, objectives, expectations, intentions and assumptions that are not statements of historical fact. You can identify these statements by the following words: -14- - "may" - "will" - "should" - "estimates" - "plans" - "expects" - "believes" - "intends" and similar expressions. We cannot guarantee our future results, performance or achievements. Our actual results and the timing of corporate events may differ significantly from the expectations discussed in the forward-looking statements. You are cautioned not to place undue reliance on any forward- looking statements. Potential risks and uncertainties that could affect our future operating results include, but are not limited to, our limited operating history, history of losses, need to raise additional capital, the high risk nature of our business, and other risks described in our Annual Report on Form 10-KSB for the year ended December 31, 2003. Item 3. Controls and Procedures Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this quarterly report (the "Evaluation Date"), has concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance of the timely collection, evaluation and disclosure of information relating to us that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2004 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting. -15- PART II. OTHER INFORMATION Item 6. Exhibits 10.1 Letter agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated September 20, 2004. 31.1 Certification required by Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. 32.1 Certification pursuant to 18 U.S.C. Section 1350. -16- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 15, 2004 By: /s/ Gilad Gat ------------- Gilad Gat Chief Executive Officer and President (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer) -17- EX-10.1 2 gsv_10q-exhib101111504.txt GSV, INC. 111504 Exhibit 10.1 GSV, INC. 191 Post Road Westport, Connecticut 06880 September 20, 2004 Brooks Station Holdings, Inc. c/o Cavallo Capital Corp. 660 Madison Avenue New York, New York 10021 Re: Waiver of Default and Amendment of Promissory Notes Dear Sirs: Brooks Station Holdings, Inc. ("Brooks Station") holds three promissory notes (collectively, the "Notes") issued by GSV, Inc. (the "Company"), as follows: a promissory note dated July 21, 2003, in the principal amount of $200,000; a promissory note dated February 11, 2004, in the principal amount of $25,000; and a promissory note dated March 18, 2004, in the principal amount of $25,000. Each of the Notes bears interest at the rate of 8% per annum, matured on September 1, 2004 (the "Original Maturity Date"), and is secured by a first priority security interest in all assets of the Company pursuant to a Security Agreement between the Company and Brooks Station dated as of July 21, 2003. Brooks Station and the Company now wish to extend the maturity of each of the Notes to March 1, 2005, in accordance with the terms set forth below: 1. Waiver of Default. Brooks Station hereby waives any claim against the Company or its assets arising from the Company's failure to pay the principal and accrued interest on the Notes on the Original Maturity Date or thereafter through the date of this letter agreement. 2. Extension of Maturity Date. Brooks Station and the Company agree that Section 1 of each of the Notes is hereby amended to read as follows: "1. The principal amount of this Note, together with any unpaid accrued interest thereon, shall be due and payable on March 1, 2005." 3. Miscellaneous. (i) Except as herein amended, the Notes shall remain in full force and effect. This letter agreement may not be amended, revised, terminated or waived except by an instrument in writing signed and delivered by the party to be charged therewith. (ii) This letter agreement shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. (iii) This letter agreement shall be construed and governed by the laws of the State of New York, applicable to agreements made and to be performed entirely therein. If you are in agreement with the foregoing, please sign below and return the original to the Company, keeping a copy for your files. Sincerely, GSV, INC. By:/s/Gilad Gat ------------ Name: Gilad Gat Title: Chief Executive Officer and President Acknowledged and agreed: BROOKS STATION HOLDINGS, INC. By: /s/ Danny Golan ---------------- Name: Danny Golan Title: President EX-31.1 3 gsv_10q-exhib311111504.txt GSV, INC. 111504 Exhibit 31.1 Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 I, Gilad Gat, Chief Executive Officer and Chief Financial Officer of GSV, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GSV, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Omitted]; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 15, 2004 By: /s/ Gilad Gat ------------- Gilad Gat Chief Executive Officer Chief Financial Officer EX-32.1 4 gsv_10q-exhib321111504.txt GSV, INC. 111504 Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of GSV, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2004 (the "Report"), I, Gilad Gat, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirement of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the Company's financial position and results of operations. Date: November 15, 2004 By: /s/ Gilad Gat ------------- Gilad Gat Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----