-----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, GOdWHGyqEM0VggXqwR2+m0hX6fnTNOTgGel0BCHTvVKJudM9jZhSqK5QCq46TA9U 6zq1ICaiSmfNzZGxI/RDsw== 0000908230-06-000103.txt : 20060814 0000908230-06-000103.hdr.sgml : 20060814 20060814151137 ACCESSION NUMBER: 0000908230-06-000103 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060814 DATE AS OF CHANGE: 20060814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GSV INC CENTRAL INDEX KEY: 0001051591 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] 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: 061029600 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_10qsb-063006.txt GSV, INC. 063006 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 June 30, 2006 OR / / 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 incorporation or organization) Identification No.) 191 Post Road West, Westport, CT 06880 (Address of principal executive offices) (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 Securities Exchange Act of 1934 during the past 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 shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 7,472,695 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 and Six Months Ended June 30, 2006 and 2005 (unaudited) 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Controls and Procedures 16 PART II.OTHER INFORMATION 17 Item 6. Exhibits 17 SIGNATURES 18 -2- PART I. FINANCIAL INFORMATION Item 1. - Financial Statements GSV, Inc. And Subsidiaries CONSOLIDATED BALANCE SHEET - Unaudited June 30, 2006 ASSETS Current Assets Cash and cash equivalents $ 240,292 Accounts receivable and other current assets 44,643 ------------ Total current assets 284,935 Investments: Oil & gas wells, net 135,241 Geologic studies 2,316,721 Internet-related companies 50,000 Property and equipment, net of accumulated depreciation 3,924 ------------ 2,505,886 ------------ Total assets $ 2,790,821 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 140,929 Other current liabilities 271,366 Accrued interest 56,892 ------------ Total current liabilities 469,187 Note Payable 556,249 ------------ Total liabilities 1,025,436 STOCKHOLDERS' EQUITY Series B Preferred stock, $0.001 par value; 1,500,000 1,500 shares authorized; 1,500,000 shares issued and outstanding Series C Preferred stock, $ 0.001 par value; 200 shares authorized; 200,000 shares issued and outstanding Common Stock, $0.001 par value; 75,000,000 shares 7,641 authorized; 7,641,303 issued; 7,472,703 outstanding Additional paid-in capital 41,045,985 Treasury stock (558,998) Accumulated deficit (38,730,943) ------------ Total stockholders' equity 1,765,385 ------------ Total liabilities and stockholders' equity $ 2,790,821 ============
The accompanying notes are an integral part of the financial statements. -3- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS - Unaudited For the Six Months Ended June 30, 2006 and 2005 2006 2005 ------------------------- ------------------------- Revenue from oil and gas investments $ 62,187 $ 332,399 General and administrative expenses 193,029 470,876 Loss from operations (130,841) (138,477) Interest income 0 8 Interest expense (28,469) (18,148) ------------------ ------------------ NET LOSS $(159,310) $ (156,617) ================== ================== Basic and diluted net loss per common share $ (0.02) $ (0.02) ================== ================== Weighted average common shares outstanding 7,472,703 7,472,703 ================== ==================
The accompanying notes are an integral part of the financial statements. -4- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS - Unaudited For the Three Months Ended June 30, 2006 and 2005 2006 2005 ------------------------- ------------------------- Revenue from oil and gas investments $ 68,176 $ 166,786 General and administrative expenses 107,297 248,425 Loss from operations (39,121) (81,639) Interest income 0 2 Interest expense (14,234) (8,500) ------------------ ------------------ NET LOSS $ (53,356) $ (90,137) ================== ================== Basic and diluted net loss per common share $ (0.01) $ (0.01) ================== ================== Weighted average common shares outstanding 7,472,703 7,472,703 ================== ==================
The accompanying notes are an integral part of the financial statements. -5- GSV, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS - Unaudited For the Six Months Ended June 30, 2006 and 2005 2006 2005 ------------------------- ------------------- OPERATING ACTIVITIES Net loss (159,310) (156,617) Adjustments to reconcile net loss to net cash flows provided by operating activities: Series C Preferred Stock issued for settlement 30,000 0 Depreciation 1,500 1,500 Depletion 21,192 205,235 Changes in operating assets and liabilities: Account receivable and other current assets 173,549 53 Other assets 0 4,598 Accounts payable and other current liabilities 279,475 71,578 ------------------ ------------------ Net cash flows provided by operating activities 346,406 126,347 INVESTING ACTIVITIES Purchase of investment - oil & gas wells (77,852) (6,954) ------------------ ------------------ Net cash flows used by investing activities (77,852) (6,954) FINANCING ACTIVITIES Repayments of notes payable (200,000) (25,000) ------------------ ------------------ Net cash flows used by financing activities (200,000) (25,000) ------------------ ------------------ Net change in cash 68,553 94,393 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 171,738 167,223 ------------------ ------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD 240,292 261,616 ================== ==================
The accompanying notes are an integral part of the financial statements -6- GSV, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited 1. Description of the Business and Basis of Presentation Since July 2003 the Company's business operations have been focused on managing its existing investments in oil and gas assets and entering into new investments in this industry. Currently, it has been pursuing opportunities in the alternative energies arena, specifically in the biodiesel sector. From June 2001 to July 2003, its business operations included managing its existing investments and entering into new business operations through acquisitions or mergers. 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 these investments to more accurately reflect current market valuations, and these investments do not represent a significant asset. As of June 30, 2006, these investments were valued at approximately 1.8% of the total value of the Company's assets. 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 U.S. Corp. 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 Preferred Stock. As a result of the Merger, the Company, through Merger Sub, acquired interests in certain oil and gas properties in Texas and an undivided one-third interest in Century Royalty LLC ("Century"), a Texas limited liability company that manages the oil and gas properties in Texas plus an additional interest in the Louisiana properties in which the Company already held an interest. Century Royalty LLC also holds the rights to certain geologic studies. 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 -7- 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. On November 1, 2004, the working interest 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. Production from the wells in Louisiana was suspended temporarily on or about February 9, 2006, because the water level had risen in one of the wells. On or about May 8, 2006 work to recomplete the wells in a different sand zone was completed and production was restarted. The Company expects that its share of the costs of recompletion, which is estimated to be about $48,000, will be deducted from the royalty payments the Company receives from the operator or the Company may be asked to pay this amount directly to the operator. Also, because of the delay between sales of gas by the operator, the Company's receipt of royalty payments was reduced in the quarter ended June 30, 2006. Further, the Company expects that the temporary suspension of production will also have the effect of reducing its royalty revenues for third quarter of 2006. On June 28, 2006, the working interest partnership of which Century Royalty is a member commenced drilling on one of the prospects and it is anticipated that it will commence drilling on a second prospect soon. The costs of drilling these prospects were expected to exceed Century Royalty's carried interest in the working interest partnership. On June 20, 2006, we agreed to contribute a maximum of $100,000 towards the drilling of the first prospect and decrease our working interest in these two prospects to 11.918%. The Company's management has little practical experience in the oil and gas industry. The Company's management relies to a great extent on the employees of Century Royalty LLC to monitor and implement strategy with respect to our oil and gas assets. The inexperience of the Company's management may detrimentally affect the Company's operations and results because, for example, it could prevent the Company from taking advantage of opportunities that arise on a timely basis or cause the Company to take actions that a more experienced management team might determine are not in the Company's best interests. In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting primarily of normal recurring accruals) that the Company considers necessary for the fair presentation of its financial position, results of operations and cash flows. 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 accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company's audited consolidated -8- financial statements and accompanying notes for the year ended December 31, 2005, 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. 2. Investments The Company has made investments in four internet-related companies which have been accounted for using the cost method. Such investments are reviewed periodically for impairment. Impaired investments have been written down to a nominal amount. 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. In the fourth quarter of 2002, the properties exhibited a marked decrease in the volume of oil and gas produced. 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. Production from the wells in Louisiana was suspended temporarily on or about February 9, 2006, because the water level had risen in one of the wells. On or about May 8, 2006 work to recomplete the wells in a different sand zone was completed and production was restarted. The Company expects that its share of the costs of recompletion, which is estimated to be about $48,000, will be deducted from the royalty payments the Company receives from the operator or the Company may be asked to pay this amount directly to the operator. Also, because of the delay between sales of gas by the operator, the Company's receipt of royalty payments were reduced in the quarter ended June 30, 2006. Further, the Company expects that the temporary suspension of production will also have the effect of reducing its royalty revenues for the third quarter of 2006. An independent reserve study performed effective March 2006 estimated that the remaining reserve in the wells including PDP and PDNP, net of expenses and discounted at 10% was $263,847. 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 Preferred Stock. Each share of Series B 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 Preferred Stock, except that in the event dividends are declared with respect to Common Stock, each holder of a share of Series B 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 Preferred Stock had such shares been converted into Common Stock immediately before such dividend was declared. Upon any Liquidation Event, the holders of the outstanding Series B Preferred Stock will be entitled to be paid an amount equal to $1.00 per share plus the amount of any declared and unpaid -9- 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 Preferred Stock, then the entire net assets of the Company will be distributed ratably among the holders of the Series B 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 through Cybershop L.L.C., interests in certain oil and gas properties in Texas and an undivided one-third interest in Century, which manages the 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 that are included in other long term assets on the accompanying balance sheet. These geologic studies are currently being carried without amortization, since the data relates to properties which are currently under evaluation, but for which there are yet no established reserves. On June 28, 2006, the working interest partnership of which Century Royalty is a member commenced drilling on one of the prospects and it is anticipated that it will commence drilling on a second prospect soon. The costs of drilling these prospects were expected to exceed Century Royalty's carried interest in the working interest partnership. On June 20, 2006, we agreed to contribute a maximum of $100,000 towards the drilling of the first prospect and decrease our working interest in these two prospects to 11.918%. The working interest partnership has begun a drilling program for the subject properties in 2006, at which time amortization of the geologic studies will begin. If the drilling program is not successful, the Company will likely record an impairment loss of some or all of the carrying value of its geologic studies. 3. Stockholders' Equity As described in Note 5 below, on January 3, 2006, the Company issued 200,000 shares of Series C Preferred Stock to 116 Newark Avenue Corporation. 4. Net Loss Per Common Share Basic and diluted net loss per common share is calculated by dividing the net loss by the weighted average common shares outstanding. Potential dilution related to the warrant was excluded because it was anti-dilutive. -10- 5. Lease Termination and Issuance of Series C Preferred Stock On January 3, 2006, the Company entered into a Termination, Settlement and Release Agreement with 116 Newark Avenue Corporation, dated as of November 30, 2005, pursuant to which the Company agreed to terminate the lease for its former offices in Jersey City, New Jersey. Under the terms of the agreement, the Company paid 116 Newark $70,000 in cash, and issued a promissory note in the principal amount of $356,249.04 and 200,000 shares of Series C Preferred Stock to 116 Newark and reimbursed 116 Newark for $10,000 of its legal fees. The promissory note matures on November 29, 2007 and bears interest at a rate of 7% per annum. Payment and performance under the promissory note has been guaranteed by Polystick and secured by a pledge agreement between Polystick and 116 Newark pursuant to which Polystick has pledged 356,249 shares of the Company's Series B preferred stock that it holds to 116 Newark. The estimated fair value of the 200 shares of Series C Preferred Stock was $30,000. -11- 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. Currently, we have been pursuing opportunities in the alternative energies arena, specifically in the biodiesel sector. 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 these investments do not represent a significant asset. As of June 30, 2006, these investments were valued at approximately 1.8% of the total value of our assets. We are presently investigating whether or not there are any business prospects through which material value can be realized from the remaining Internet 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"), a privately held New York corporation. 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 a right of first refusal, to purchase other oil and gas properties held by Polystick. 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., interests in certain oil and gas properties in Texas and an interest in Century Royalty LLC, a Texas limited liability company that manages the oil and gas properties in Texas plus an additional interest in the Louisiana properties in which we already held an interest. Century Royalty also holds the rights to certain geologic studies. Century Royalty 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 Royalty had 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 Royalty has a 20% participation interest in all subsequent wells drilled in the first 5 prospects. For later prospects, Century Royalty is entitled to an 80% participation interest. Century Royalty's net carried interest falls to 14% after royalty payments for the leases. Due to the existence of these revenue overrides, the operations of Century Royalty are included in the accompanying statements of operations. On June 28, 2006, the working interest partnership of which Century Royalty is a member commenced drilling on one of the prospects and it is anticipated that it will commence drilling on a second prospect soon. The costs of drilling these prospects were expected to exceed Century Royalty's carried interest in the working interest partnership. On June 20, 2006, we agreed to contribute a maximum of $100,000 towards the drilling of the first prospect and decrease our working interest in these two prospects to 11.918%. Our management has little practical experience in the oil and gas industry. Our management relies to a great extent on the employees of Century Royalty LLC to monitor and implement strategy with respect to our oil and gas assets. Our management's inexperience may detrimentally affect our operations and results because, for example, it could prevent us from taking advantage of opportunities that arise on a timely basis or cause us to take actions that a more experienced management team might determine are not in our best interests. 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 ("Series B Certificate of Designations"). As of May 15, 2006, the Series B convertible preferred stock owned by Polystick was convertible into 1,500,000 shares of common stock. 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. -12- Upon any Liquidation Event, as defined in the Series B 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 Series B 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 our net assets 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 our net assets 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 Series B 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 Series B 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. 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 under the lease for this space in July 2003. 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 was for the total sum of $421,455.15 as permitted by law and the court approved a settlement of $363,048.88. On November 15, 2005, the trustee in the bankruptcy filed a notice of filing of final accounts. On February 15, 2006, we received $22,300.77 in settlement of our claim. On January 3, 2006, we entered into a Termination, Settlement and Release Agreement with 116 Newark Avenue Corporation, dated as of November 30, 2005, pursuant to which we agreed to terminate the lease for our former offices in Jersey City, New Jersey. Under the terms of the agreement, we paid 116 Newark $70,000 in cash, issued a promissory note in the principal amount of $356,249.04 and 200,000 shares of Series C preferred stock to 116 Newark and reimbursed 116 Newark for $10,000 of its legal fees. The promissory note matures on November 29, 2007 and bears interest at a rate of 7% per annum. Payment and performance under the promissory note has been guaranteed by Polystick U.S. Corporation and secured by a pledge agreement between Polystick and 116 Newark pursuant to which Polystick has pledged 356,249 shares of our Series B preferred stock that it holds to 116 Newark. Off-Balance Sheet Transactions There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the small business issuer's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Results of Operations Three Months Ended June 30, 2006 compared to Three Months Ended June 30, 200 Revenues: Revenues for the quarter decreased by $98,610, or 59.1%, to $68,176 in 2006 from $166,786 in 2005. This decrease was due to a temporary suspension of production from the wells. Production from the two Louisiana wells was suspended temporarily on or about February 9, 2006, because the water level had risen in one of the wells. On or about May 8, 2006 work to recomplete the wells in a different sand zone was completed and production was restarted. We expect that our share of the costs of recompletion, which is estimated to be about $48,000, will be deducted from the royalty payments we receive from the operator or we may be asked -13- to pay this amount directly to the operator. Also, because of the delay between sales of gas by the operator and our receipt of royalty payments from the operator, we expect that the temporary suspension of production will have the effect of reducing our royalty revenues for possibly the third quarter of 2006. 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, depletion and general corporate expenses. General and administrative expenses decreased by $141,128, or 56.8%, to $107,297 in the quarter ended June 30, 2006 from $248,425 in the quarter ended June 30, 2005, primarily as a result of a drop in depletion resulting from the temporary suspension of production from the Louisiana wells. Interest expense: Interest expense for the quarter ended June 30, 2006 increased $5,734 or 67.4% to $14,234 in the quarter ended June 30, 2006 as compared with $8,500 in the corresponding period of the preceding year due to an increase in notes payable which resulted from the issuance in January 2006 of a note in the principal amount of $356,249.04 to 116 Newark Avenue Corporation in connection with the termination of the lease for our former offices in Jersey City, New Jersey. Net Losses: Loss from operations decreased by $36,781 from $90,137 in the second quarter of 2005, or ($0.01) per basic and diluted common share, to $53,356 in the second quarter of 2006, or ($0.01) per basic and diluted common share. Six Months Ended June 30, 2006 compared to Six Months Ended June 30, 2005 Revenues: Revenues for the period decreased by $270,212, or 81.3%, to 62,187 in 2006 from $332,399 in 2005. This decrease was due to the temporary suspension of production from the wells in Louisiana wells. 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, depletion and general corporate expenses. General and administrative expenses decreased by $277,847, or 59.0%, to $193,029 in the six months ended June 30, 2006 from $470,876 in the six months ended June 30, 2005, primarily as a result of a drop in depletion resulting from the temporary suspension of production from the Louisiana wells. Interest expense: Interest expense for the six months ended June 30, 2006 increased by $10,321, or 56.9%, to $28,469 in the six months ended June 30, 2006 as compared with $18,148 in the corresponding period of the preceding year due to an increase in notes payable which resulted from the issuance in January 2006 of a note in the principal amount of $356,249.04 to 116 Newark Avenue Corporation in connection with the termination of the lease for our former offices in Jersey City, New Jersey. Net Losses: Loss from operations increased by $2,693 from $156,617 in the first six months of 2005, or ($0.02) per basic and diluted common share, to $159,310 in the first six months of 2006, or ($0.02) per basic and diluted common share. Liquidity and Capital Resources Net cash provided by operations increased by $20,059, from $126,347 for the six months ended June 30, 2005, to $146,406 for the six months ended June 30, 2006. The increase in cash provided by operations was primarily due payments from the operator of the Louisiana wells against accounts receivable. Production from the wells was suspended temporarily on or about February 9, 2006, because the water level had risen in one of the wells. On or about May 8, 2006 work to recomplete the wells in a different sand zone was completed and production was restarted. We expect that our share of the costs of recompletion, which is estimated to be about $48,000, will be deducted from the royalty payments we receive from the operator or we may be asked to pay this amount directly to the operator. Also, because of the delay between sales of gas by the operator and our receipt of royalty payments from the operator, we expect that the temporary suspension of production will have the effect of reducing our royalty revenues for the third quarter of 2006. Net cash provided by investing activities during the six months ended June 30, 2006, was $(77,852), as compared to $(6,954) in the corresponding period of the prior year. Net cash provided by financing activities during the quarter ended June 30, 2006, was $0, as compared to $(25,000) in the prior year. This change is attributable to the repayment of an outstanding note in the first quarter of 2005. In 2003, we issued to Polystick 4,500,000 shares of common stock and 1,500,000 shares of Series B convertible preferred stock valued at $2,625,000 to acquire assets in a non-cash transaction. In 2003, we issued to Polystick 4,500,000 shares of common stock and 1,500,000 shares of Series B convertible preferred stock valued at $2,625,000 to acquire assets in a non-cash transaction. -14- On February 11, 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 was evidenced by a promissory note bearing interest at 8% per annum 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, 2005. On March 10, 2005, we repaid the note issued on February 11, 2004 and negotiated an extension of the maturity of the note dated March 18, 2004 to September 1, 2005. We also extended to the same date the maturity of an 8% secured promissory note we issued to Brooks Station on July 21, 2003 in the principal amount of $200,000. On August 31, 2005, we repaid the March 18, 2004 note and negotiated an extension of the maturity date of the July 21, 2003 note to March 1, 2006. On March 20, 2006, we repaid $20,000 of the accrued and unpaid interest on the July 21, 2003 note and negotiated an extension of the maturity date of the note to September 1, 2006. 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, we will 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. In 2004, we recorded a charge to operations of $129,000 for the value of the warrants and the beneficial conversion feature of the convertible note. 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. On July 3, 2005, we entered into an agreement with Emerald dated as of May 10, 2005, pursuant to which we agreed to extend and renew the note and the warrant. Under the terms of the agreement, the maturity date of the note was extended from May 10, 2006 to May 10, 2007 and Emerald's right to convert the note and all accrued interest on the note into common stock at a price of $.70 per share was extended until any time prior to May 10, 2006. The term of the warrant was also extended from May 10, 2005 to May 10, 2006. On July 11, 2006, we entered into an agreement with Emerald dated as of May 10, 2006, pursuant to which we agreed to further extend and renew the note and the warrant. Under the terms of the agreement, the maturity date of the note was extended from May 10, 2007 to January 10, 2008 and Emerald's right to convert the note and all accrued interest on the note into common stock at a price of $.70 per share was extended until any time prior to May 10, 2007. The term of the warrant was also extended from May 10, 2006 to May 10, 2007. On January 3, 2006, we entered into a Termination, Settlement and Release Agreement with 116 Newark Avenue Corporation, dated as of November 30, 2005, pursuant to which we agreed to terminate the lease for our former offices in Jersey City, New Jersey. Under the terms of the agreement, we paid 116 Newark $70,000 in cash, issued a promissory note in the principal amount of $356,249.04 and 200,000 shares of Series C preferred stock to 116 Newark and reimbursed 116 Newark for $10,000 of its legal fees. The promissory note matures on November 29, 2007 and bears interest at a rate of 7% per annum. Payment and performance under the promissory note has been guaranteed by Polystick and secured by a pledge agreement between Polystick and 116 Newark pursuant to which Polystick has pledged 356,249 shares of our Series B Preferred Stock that it holds to 116 Newark. 116 Newark has the right to include any shares of common stock received upon conversion of the Series C preferred stock and upon conversion of the pledged -15- shares as part of any registration statement that we may file in connection with any public offering of our securities (excluding registration statements on Forms S-4 and S-8). We believe that our existing capital resources will enable us to maintain our operations at existing levels for at least the next 12 months. However, it is difficult to project our capital needs. We cannot assure you 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: - - "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, 2005. Item 3. Controls and Procedures We performed an evaluation under the supervision and with the participation of our management, including our chief executive and chief financial officer, of 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) as of June 30, 2006. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports. Following the evaluation described above, our management, including our chief executive and chief financial officer, concluded that based on the evaluation our disclosure controls and procedures were effective at that time. There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred in the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. -16- PART II. OTHER INFORMATION Item 6. Exhibits 10.1 Agreement by and between GSV, Inc. and D. Emerald Investments Ltd. dated as of May 10, 2006. 31.1 Certification of Chief Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -17- 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: August 14, 2006 By: /s/ Gilad Gat --------------------- Gilad Gat Chief Executive Officer and President (principal executive officer) Chief Financial Officer (principal financial and accounting officer) -18- EX-10.1 2 gsv_10qsbexhib101-063006.txt GSV, INC. 063006 Exhibit 10.1 AGREEMENT AGREEMENT (this "Agreement"), dated as of May 10, 2006 (the "Effective Date"), by and between GSV, Inc., a Delaware corporation (the "Company"), and D. Emerald Investments Ltd., an Israeli corporation (the "Investor"). WITNESSETH: WHEREAS, pursuant to a Purchase Agreement dated as of May 11, 2004 (the "Purchase Agreement"), the Investor purchased (i) a two-year 8% convertible promissory note in the principal amount of $200,000 (the "Convertible Note"), and (ii) a warrant to purchase up to 1,142,857 shares ("Shares") of common stock, par value $.001 per share ("Common Stock"), of the Company, at a price of $.70 per share (the "Warrant", and together with the Convertible Note, the "Securities") from the Company; WHEREAS, pursuant to an agreement dated as of May 10, 2005, the Investor and the Company extended and renewed the Convertible Note and Warrant such that the maturity date of the Convertible Note became May 10, 2007, the last date on which the Convertible Note could be converted into common stock became May 10, 2006 and the expiration date of the Warrant became May 10, 2006; and WHEREAS, the Company and the Investor now desire to amend the terms of the Convertible Note and Warrant in order to renew and extend again their respective rights and obligations under such agreements. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendment of Convertible Note. The Convertible Note is hereby amended as follows: (a) Extension of Maturity Date. The first sentence of the first paragraph of the Convertible Note is hereby deleted and replaced in its entirety with the following: FOR VALUE RECEIVED, GSV, INC., a Delaware corporation ("Company"), with its principal office at 191 West Post Road, Westport, Connecticut 06880, hereby promises to pay to the order of D. EMERALD INVESTMENTS LTD., an Israeli corporation ("Holder"), with its principal office at 85 Medinat Ha-Yehudim Street, Herzeliya, Israel (the "Holder's Office"), or its assigns, on January 10, 2008 (the "Maturity Date"), the principal amount of TWO HUNDRED THOUSAND DOLLARS ($200,000) (the "Principal Amount"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest on the unpaid balance of said Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum ("Contract Interest"). (b) Extension of Conversion Rights. Section 3.1 of the Convertible Note is hereby deleted and replaced in its entirety with the following: 3.1 Right to Convert. At any time prior to May 10, 2007, the Holder may, at its option, by written notice to the Company ("Conversion Notice"), elect to convert this Note and all accrued and unpaid Contract Interest thereon, in whole but not in part, into Common Stock at the price of $.70 per share of Common Stock (the "Conversion Price"), as adjusted to reflect stock dividends, stock splits, recapitalizations and the like pursuant to Section 3.3 below. (c) Full Force and Effect. Except as amended hereby, the terms of the Convertible Note remain in full force and effect. 2. Amendment of Warrant. The Warrant is hereby amended as follows: (a) Extension of Term. The second full paragraph of the Warrant is hereby deleted and replaced in its entirety with the following: Subject to the terms of the Purchase Agreement dated as of May 11, 2004, by and between the Company and the Holder, as amended by an agreement dated as of May 10, 2005 and an agreement dated as of May 10, 2006 (the "Purchase Agreement") and subject to the terms and conditions hereinafter set forth below, the Holder is entitled upon surrender of this Warrant and the duly executed Notice of Exercise form annexed hereto as Appendix 1, at the office of the Company, 191 Post Road West, Westport, Connecticut 06880, or such other office as the Company shall notify the Holder of in writing (the "Principal Office"), to purchase from the Company One Million, One Hundred and Forty-Two Thousand and Eight Hundred and Fifty-Seven (1,142,857), duly authorized, validly issued, fully paid and non-assessable shares, free and clear of all liens, pledges, security interests, charges, and encumbrances (the "Shares") of the Company's common stock, $.001 par value per share ("Common Stock"). The purchase price per Share shall be the Exercise Price, subject to adjustment as set forth in Article 2 below. This Warrant may be exercised in whole or in part at any time and from time to time until 5:00 PM, Eastern time, on May 10, 2007 (the "Expiration Date"). Until such time as this Warrant is exercised in full or expires, the Exercise Price and the number of Shares shall be subject to adjustment as hereinafter provided. (b) Full Force and Effect. Except as amended hereby, the terms of the Warrant remain in full force and effect. 3. Representations and Warranties of the Company The Company hereby represents, warrants and agrees to and with the Investor as follows: (a) Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. The rights, preferences, privileges and restrictions granted to or imposed upon the Shares, and the holders -2- thereof are as set forth in the Company's Certificate of Incorporation and Certificates of Amendment thereof, Certificate of Merger and Amended and Restated By-laws, true and complete copies of which have been delivered to Investor and are attached as Exhibit E to the Purchase Agreement, except insofar as such rights are affected by the terms of the Company's Series C preferred stock, the provisions of which are set forth in Annex A hereto. (b) Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Company hereunder has been taken. This Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 4. Representations and Warranties of Investor The Investor hereby represents, warrants and agrees to and with the Company as follows: (a) Organization, Good Standing. The Investor is a corporation duly organized, validly existing and in good standing under the laws of Israel. (b) Authorization. All corporate action on the part of the Investor, its officers, directors and stockholders, necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Investor hereunder has been taken. This Agreement constitutes the valid and legally binding obligation of the Investor, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 5. Miscellaneous. (a) Further Assurances. The parties to this Agreement agree to execute and deliver any and all papers and documents that may be necessary to carry out the terms of this Agreement. (b) Entire Agreement. Except as otherwise provided in this Agreement or the Purchase Agreement, this Agreement, the Purchase Agreement, the Convertible Note and the Warrant contain the entire agreement among the parties hereto and there are no agreements, representations or warranties that are not set forth herein. This 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. (c) Binding Effect, Assignment. This Agreement shall be binding upon and inure to the benefit of the successors of the respective parties hereto. -3- (d) Governing Law and Jurisdiction. This Agreement will be deemed to have been made and delivered in New York City and will be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York. Each of the Company and the Investor hereby (i) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement will be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding, (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York and the United States District Court for the Southern District of New York in any such suit, action or proceeding, (iv) agrees to accept and acknowledge service of any and all process that may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and (v) agrees that service of process upon it mailed by certified mail to its address set forth in Section 6(f) below will be deemed in every respect effective service of process upon it in any suit, action or proceeding. (e) Notices. All notices, consents, requests, demands and other communications herein shall be in writing and shall be deemed duly given to any party or parties (a) upon delivery to the address of the party or parties as specified below if delivered in person or any courier or if sent by certified or registered mail (return receipt requested); or (b) upon dispatch if transmitted by confirmed telecopy or other means of confirmed facsimile transmissions, in each case as addressed to such party or parties at their addresses as set forth in the Purchase Agreement. The parties hereto may designate different addresses or facsimile numbers by written notice in the aforesaid manner. (f) Survival of Representations and Warranties. The representatios, warranties and covenants of the Company and the Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and shall in no way be affected by any investigation of the subject matter thereof by or on behalf of the Investor or the Company. (g) Severability. In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted. (h) Counterparts. This Agreement may be signed in two counterparts, each of which shall be an original and both of which together shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. [Signatures appear on following page] -4- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above. GSV, INC. By: /s/ Gilad Gat ---------------------- Name: Gilad Gat Title: Chief Executive Officer and President D. EMERALD INVESTMENTS LTD. By: /s/ Roy Harel ---------------------- Name: Roy Harel Title: Manager -5- Annex A Certificate of Designations of Series C Preferred Stock ------------------------------------------------------- See the attached. CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF GSV, INC. GSV, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That, pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board") by the Certificate of Incorporation (as amended) (the "Certificate of Incorporation") of said corporation, the Board adopted a resolution, which resolution is as follows: RESOLVED, that a series of the Corporation's Preferred Stock consisting of 200,000 shares of Preferred Stock, be and hereby is, designated as "Series C Convertible Preferred Stock", par value $.001 per share (the "Series C Preferred Stock"), and that the Series C Preferred Stock shall have the designations, powers, preferences, rights and qualifications, limitations and restrictions as set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (the "Series C Certificate"). That said Series C Certificate states that the Board does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and qualifications, limitations and restrictions thereof as follows. 1. Certain Definitions. Unless the context otherwise requires, the terms defined herein shall have the meanings herein specified. (a) Common Stock. The term "Common Stock" shall mean the Common Stock of the Corporation, $.001 par value per share. (b) Junior Stock. The term "Junior Stock" shall mean the Common Stock and any class or series of stock of the Corporation, whether now or hereafter authorized, that by the terms of the Certificate of Incorporation or of an instrument of the Board, acting pursuant to authority granted in the Certificate of Incorporation establishing such class or series shall be subordinated to the Series C Preferred Stock in respect of the right to receive dividends and in respect to the right to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation. (c) Parity Stock. The term "Parity Stock" shall mean any class or series of stock of the Corporation, whether now or hereafter authorized, that by the terms of the Certificate of Incorporation or of an instrument of the Board, acting pursuant to authority granted in the Certificate of Incorporation establishing such class or series, and without violation of any provision hereof, shall be pari passu to the Series C Preferred Stock in respect of the right to receive dividends and in respect to the right to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation. (d) Senior Stock. The term "Senior Stock" shall mean any class or series of stock of the Corporation, whether now or hereafter authorized, that by the terms of the Certificate of Incorporation or of an instrument of the Board, acting pursuant to authority granted in the Certificate of Incorporation establishing such class or series, and without violation of any provision herein, shall be senior to the Series C Preferred Stock in respect of the right to receive dividends and in respect to the right to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation. The Series B Preferred Stock will be Senior Stock and is the only Senior Stock on the date hereof. (e) Series B Preferred Stock. The term "Series B Preferred Stock" shall mean the shares of Series B Convertible Preferred Stock, $.001 par value per share, currently outstanding. 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as the Series C Convertible Preferred Stock (the "Series C Preferred Stock") and the number of shares so designated shall be 200,000. Each share of Series C Preferred Stock shall have a par value of $.001 per share. 3. Voting. (a) Except as set forth in paragraph (b) of this Section 3 and except as to matters on which the holders of Series C Preferred Stock may otherwise be entitled to vote as a matter of law, no holder of Series C Preferred Stock shall be entitled to vote for any matter. (b) Without the prior written consent of the holders of not less than a majority of the then outstanding shares of Series C Preferred Stock, the Corporation may not (i) issue any additional shares of Series C Preferred Stock; or (ii) issue any Senior Stock or Parity Stock, unless such Senior Stock or Parity Stock, as the case may be, is to be issued in exchange for (A) cash and/or services rendered or to be rendered from or by one or more persons or entities who are not Affiliates of the Corporation in an aggregate amount, in the case of cash, or value (as determined by the Board in good faith), in the case of services, that is equal to or greater than the aggregate liquidation preference of such Senior Stock or Parity Stock, as the case may be, provided that if issued in exchange for services to be rendered, such services are to be rendered pursuant to legally binding commitments; or (B) equity securities (including securities convertible into equity securities) or assets of one or more businesses that are not Affiliates of the Corporation, in either case having a value (as determined by the Board in good faith) that is equal to or greater than the aggregate liquidation preference of such Senior Stock or Parity Stock, as the case may be. For purposes hereof, an "Affiliate" of any specified person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with, such specified person or entity. 4. Dividends. No dividends shall be payable on the Series C Preferred Stock. -2- 5. Liquidation. (a) Upon liquidation, dissolution or winding up of the Corporation (each a "Liquidation Event"), whether voluntary or involuntary, the holders of the Series C Preferred Stock (each, a "Holder" and collectively the "Holders") shall be entitled, after any distribution or payment is made to any holder of Senior Stock but before any distribution or payment is made to any holder of Common Stock or any other Junior Stock, to be paid an amount equal to $1.00 per share (appropriately adjusted to reflect any stock split, stock combination, stock dividend, reclassification or like transaction), such amount payable with respect to one share of Series C Preferred Stock being sometimes referred to as the "Series C Liquidation Preference Payment" and with respect to all shares of Series C Preferred Stock being sometimes referred to as the "Series C Liquidation Preference Payments." If, upon any Liquidation Event, the net assets of the Corporation distributable among the holders of all outstanding shares of the Series C Preferred Stock shall be insufficient to permit the payment in full to such Holders of all amounts to which such Holders shall be entitled upon a Liquidation Event, then the entire net assets of the Corporation to be distributed to the Holders shall be distributed among the Holders ratably in proportion to the full amounts to which they would otherwise be respectively entitled in the event of a Liquidation Event. (b) After the distributions described in Section 5(a) above have been paid, subject to the rights of a series of Senior Stock or Parity Stock that may from time to time come into existence, the remaining assets of the Corporation available for distribution to the stockholders shall be distributed among the holders of the Junior Stock in accordance with the Certificate of Incorporation or an instrument of the Board, acting pursuant to authority granted in the Certificate of Incorporation. (c) For purposes hereof, a Liquidation Event shall be deemed to include any (x) merger or consolidation of the Corporation with or into any other entity (other than a merger or consolidation in which shares of the Corporation's voting securities outstanding immediately before such merger or consolidation are converted into or constitute shares which represent 50% or more of the voting power of the surviving entity's voting securities after such consolidation or merger), (y) sale or disposition of all or substantially all of the assets of the Corporation, or (z) transaction or series of related transactions in which any person or entity or "group" (as defined under Rule 13d-5(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule), acquires beneficial ownership (as determined in accordance with Rule 13d-3 under the Exchange Act, or any successor rule) of a controlling interest in the Corporation (for purposes of such definition, to mean in excess of a majority of the voting power of the voting securities of the Corporation). 6. Conversions. The holders of Series C Preferred Stock shall have the following conversion rights: (a) Right to Convert. Subject to the terms and conditions of this Section 6, the Holder of any share or shares of Series C Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series C Preferred Stock into Common Stock (except that upon any Liquidation Event of the Corporation pursuant to Section 5, the right of conversion shall terminate at the close of business on the business day prior to the business day fixed for payment of the amount distributable on the Series C Preferred Stock). The date of determination of the number of shares of Common Stock issued upon conversion of the Series C Preferred Stock pursuant to this Section 6(a) shall be the date (the "Conversion Date") that the Conversion Notice and the certificate or certificates for the shares so converted is received by the Corporation. (b) Conversion Process. To effect conversions of Series C Preferred Stock, Holders shall deliver to the Corporation at its principal office during its usual business hours, the certificate or -3- certificates for the shares so converted, together with a duly completed and executed Conversion Notice, in the form attached hereto as Exhibit A. As promptly as practicable thereafter, the Corporation shall issue and deliver to such Holder a certificate or certificates, registered in the name of such Holder, for the number of whole shares of Common Stock to which such Holder is entitled upon such conversion, together with any payment in lieu of fractional shares to which such Holder may be entitled. Once delivered, a delivery of a Conversion Notice shall be irrevocable. (c) Conversion Rate. Subject to the terms and conditions of this Section 6, the Series C Preferred Stock shall initially convert into such number of fully paid and non-assessable shares of Common Stock as is obtained by multiplying the number of shares of Series C Convertible Preferred Stock to be so converted by $1.00 per share and (ii) dividing the result by the conversion price (which initially shall be $1.00 per share) or, in case an adjustment of such rate has taken place pursuant to the provisions of Section 6(e), then at the conversion rate as last adjusted and in effect at the date any share or shares of Series C Preferred Stock are surrendered for conversion pursuant to Section 6(a) (such rate, or such rate as last adjusted, being referred to as the "Series C Conversion Rate"). (d) Fractional Shares. No fractional shares shall be issued upon conversion of Series C Preferred Stock into Common Stock. If any fractional shares of Common Stock would be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the Holder surrendering the Series C Preferred Stock for conversion an amount in cash equal to the current fair market value of such fractional share as determined in good faith by the Board. (e) Adjustment of Series C Conversion Rate. (i) The Series C Conversion Rate shall be subject to adjustment from time to time in case the Corporation shall pay a stock dividend on its Common Stock, or shall subdivide or combine the outstanding shares of Common Stock or Series C Preferred Stock. On the record date for such event as determined by the Board, the Series C Conversion Rate shall be proportionately adjusted. Upon any adjustment of the Series C Conversion Rate, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, to each holder of record of Series C Preferred Stock, which notice shall state the Series C Conversion Rate resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (f) Reorganization or Reclassification. Without limiting any provision of Section 5 hereof, if any capital reorganization, reclassification, recapitalization, consolidation, merger, sale of all or substantially all of the Corporation's assets or other similar transaction (any such transaction being referred to herein as an "Organic Change") shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such Organic Change, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series C Preferred Stock that remains outstanding thereafter shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of or in addition to, as the case may be, the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Series C Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such Organic Change not taken place, and appropriate provisions shall be made with respect to the rights and interests of each Holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Series C Conversion Rate) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. -4- 7. Notices. Any and all notices or other communications or deliveries to be provided by the Holders of the Series C Preferred Stock hereunder, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by facsimile or sent by a nationally recognized overnight courier service, addressed to the attention of the President of the Corporation addressed to 191 Post Road West, Westport, CT, 06880, Facsimile No.: (203) 221-2691, Attention: President, or to such other address or facsimile number as shall be specified in writing by the Corporation for such purpose. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile or sent by a nationally recognized overnight courier service, addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Corporation, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) (with confirmation of transmission), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date (with confirmation of transmission), (iii) upon receipt, if sent by a nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. 8. Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series C Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series C Preferred Stock. 9. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Series C Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series C Preferred Stock that is being converted. 10. Status of Converted Shares. In case any shares of Series C Preferred Stock shall be converted pursuant hereto, the shares of Series C Preferred Stock so converted shall be canceled, shall not be re-issuable and shall cease to be part of the authorized capital stock of the Corporation. 11. Amendments. Except where the vote or written consent of the holders of a greater number of shares of the Corporation is required herein or by law, no provision of this Series C Certificate may be amended, modified or waived without the written consent or affirmative vote of the Corporation and the holders of at least a majority of the then outstanding shares of Series C Preferred Stock consenting or voting, as the case may be, separately as a class. 12. Lost Certificates. Upon receipt of evidence reasonably satisfactory to the Corporation of the loss, theft, destruction or mutilation of a stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity agreement reasonably satisfactory to the Corporation, or in the case of any such mutilation upon surrender and cancellation of such stock certificate, the Corporation will make and deliver a new stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated stock certificate at the Corporation's own expense. -5- IN WITNESS WHEREOF, GSV, Inc. has caused this certificate to be signed by an authorized officer as of November 30, 2005. GSV, INC. By:/s/ Gilad Gat ------------- Gilad Gat President -6- Exhibit A FORM OF CONVERSION NOTICE To: GSV, Inc. The undersigned owner of _______ shares of Series C Convertible Preferred Stock, $.001 par value per share (the "Series C Preferred Stock"), of GSV, Inc. (the "Corporation") hereby irrevocably exercises the option to convert _____ of Series C Preferred Stock, into shares of Common Stock, $.001 par value per share of the Corporation, in accordance with the terms of the Certificate of Designations, Preferences and Rights for the Series C Preferred Stock, and directs that the certificate or certificates for the shares issuable and deliverable upon the conversion be issued in the name of and delivered to the undersigned, unless a different name has been indicated below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay any transfer taxes payable with respect thereto. - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Address Social security or other taxpayer identifying number of the registered holder is: - -------------------------------------------------------------------------------- Dated: Signature: ---------- -------------------------------------- (Must conform in all respects to name of Holder appearing on face of the certificate reflecting the shares of Series C Preferred Stock) -7- EX-31.1 3 gsv_10qsbexhib311-063006.txt GSV, INC. 063006 Exhibit 31.1 Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 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. By:/s/ Gilad Gat ----------------------- Gilad Gat Chief Executive Officer Chief Financial Officer August 14, 2006 EX-32.1 4 gsv_10qsbexhib321-063006.txt GSV, INC. 063006 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 June 30, 2006 (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. By:/s/ Gilad Gat ---------------------------- Gilad Gat Chief Executive Officer Chief Financial Officer August 14, 2006 -----END PRIVACY-ENHANCED MESSAGE-----