10KSB 1 edgar1202k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10-KSB [X] ANNUAL REPORT UNDER SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF l934 For the fiscal year ended December 31, 2002 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 000-23901 GSV, INC. (Name of small business issuer 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) Registrant's telephone number, including area code: (203) 221-2690 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, par value $.001 per share (Title of Class) ___________________________ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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. X Yes No Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. The issuer's revenues for the year ended December 31, 2002 were $334,400. The aggregate market value of our voting common equity held by non- affiliates on March 17, 2003, was approximately $188,918. On such date, the last sale price of our common stock was $ 0.14 per share. While such market value excludes the market value of shares that may be beneficially owned by executive officers and directors, this should not be construed as indicating that all such persons are affiliates. As of March 31, 2003, there were 2,640,090 shares of common stock outstanding, excluding 168,600 shares of our common stock held in Treasury. Transitional Small Business Disclosure Format (check one) Yes No x PART I Item 1. Description of Business. Commencing in June 2001, GSV, Inc. and Subsidiaries changed the direction of its business. Our business operations since June 2001 include entering into new business operations through acquisitions or mergers and managing existing investments including the recent oil and gas acquisitions. Prior to June 2001, we had sought to identify and develop attractive early stage Internet companies in exchange for equity positions in such companies. In connection with this activity, we made investments in Fasturn, Inc., Weema Technologies, Inc., Telephone.com, Inc., MeetChina.com, Inc., and e-Commerce Solutions, Inc. We have since made substantial write downs of our investments to more accurately reflect current market valuations, and our investments do not represent a significant asset. In September 2002 we restructured our investment in Telephone.com, Inc. and received $75,000 in cash and 358,000 shares of common stock of Telephone.com, Inc. in exchange for our 600,000 shares of Series A Preferred Stock of Telephone.com, Inc. We are presently investigating whether or not there are any business prospects through which material value can be realized from our 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. Corp., a privately held New York corporation. Additionally, we 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 our common stock valued at $0.25 per share. Concurrent with the asset purchase agreement, we signed a management agreement with Polystick to assist us in the management of our oil and gas working interests and the development of new oil and gas activities. The agreement is for one year with an annual consulting fee of $150,000, payable in monthly installments. In June 2001 we sublet our former offices in Jersey City, New Jersey to Nekema.com through December 31, 2008. In September 2002 Nekema.com ceased business operations and defaulted on the sublease. The rent on the sublease is guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company, until May 2003. Kemper Insurance Company has made all payments of rent due under the sublease from October 2002 through April 2003, totaling $120,487.50. We are actively seeking a replacement subtenant for the property. If we are unable to find a subtenant or negotiate a settlement with the landlord we will be obligated to pay rent on the space until the lease expires in December 2008. The aggregate rent for the period June 2003 through December 2008 is approximately $996,000. Our principal executive offices are located at 191 Post Road West, Westport, Connecticut 06880. As of December 31, 2002, we had one full-time employee (including management). Our employee is not represented by any collective bargaining organization. We have never experienced work stoppage and we consider relations with our employee to be good. Item 2. Properties. Our corporate headquarters are located at 191 Post Road West, Westport, Connecticut 06880. We lease approximately 150 square feet of office space at these facilities at a cost of $1,424 per month. We have a revolving six-month lease. We believe that our existing facilities are adequate for our current requirements and that additional space can be obtained to meet our requirements for the foreseeable future. 2 Wells and acreage: At March 31, 2003, we owned non-operated working interests in 2 producing wells on 746 gross (21 net) acres covered by state leases in Assumption Parish, Louisiana. The properties are operated by Southwestern Energy Production Company. The wells are primarily gas producing. For the period June 1, 2002 (the acquisition date) to December 31, 2002, the wells produced 43,000 gross, 862 net barrels of oil at an average price of $27.10 per barrel, and 1,919,000 mcf gross, 38,000 mcf net natural gas at an average price of $3.60/mcf. We pay Southwestern Energy Production Company a monthly fee to support production costs. We have not reported to, nor filed with, any other Federal authority or agency any estimates of total, proved net oil or gas reserves since the beginning of its last fiscal year. We did not participate in the drilling of any wells during fiscal 2002. For additional information, see Notes 3 and 10 of Notes to Consolidated Financial Statements. Item 3. Legal Proceedings. None Item 4. Submission of Matters to a Vote of Security Holders. None. 3 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information Our common stock began trading on The Nasdaq Stock Market (National Market) on March 23, 1998, under the symbol "CYSP." On November 1, 2000, we began trading on The Nasdaq SmallCap Market, under the symbol "GSVI." Effective December 13, 2000, our trading symbol was changed from "GSVI" to "GSVIC," reflecting our failure to maintain the minimum $1.00 per share bid price required. Our common stock was subsequently delisted from The Nasdaq SmallCap Market on March 14, 2001 and is currently trading on the OTC Bulletin Board under the symbol "GSVI." The following table sets forth the range of high and low sales prices for shares of common stock for the first quarter of 2001 as reported by Nasdaq and for the last three fiscal quarters of 2001 and each fiscal quarter of 2002 as reported on the OTC Bulletin Board. Fiscal Year 2002 2001 High Low High Low ------ ------ ------ ------ First Quarter $0.30 $0.03 $1.03 $0.19 Second Quarter $0.29 $0.10 $0.56 $0.25 Third Quarter $0.25 $0.08 $0.31 $0.15 Fourth Quarter $0.14 $0.06 $0.30 $0.08 January 1, 2003 through March 27, 2003 $0.14 $0.06 Our common stock trades only sporadically. The public market for our common stock is limited and you should not assume that these quotations reflect prices that you might be able to obtain in actual market transactions or in transactions involving substantial numbers of shares. As of March 24, 2003, there were 133 holders of record of our common stock. We did not sell any of our securities without registration under the Securities Act of 1933 during the fourth quarter of 2002. Item 6. Management's Discussion And Analysis Of Financial Condition And Results Of Operations Overview Commencing in June 2001, we changed the direction of our business. The business operations since June 2001 include entering into new business operations through acquisitions or mergers and managing existing investments including the recent oil and gas acquisitions. A limiting factor has been the pending class action litigation brought against the Company. This class action lawsuit was dismissed in March 2002 with prejudice subject to the right of appeal by the plaintiffs. This right of appeal expired on April 18, 2002. We believe that because the litigation is no longer pending, our opportunities for completing successful business transactions have been greatly enhanced. However, we cannot assure you that such opportunities will continue to be available to us on acceptable terms. Prior to June 2001, we had sought to identify and develop attractive early stage Internet companies in exchange for equity positions in such companies. In connection with this activity, we made investments in Fasturn, Inc., Weema Technologies, Inc., Telephone.com, Inc., MeetChina.com, Inc., and e-Commerce Solutions, Inc. We have since made substantial write downs of our investments to more accurately reflect current market valuations, and our investments do not represent a significant asset. In September 2002 we 4 restructured our investment in Telephone.com, Inc. and received $75,000 in cash and 358,000 shares of common stock of Telephone.com, Inc. in exchange for our 600,000 shares of Series A Preferred Stock of Telephone.com, Inc. We are presently investigating whether or not there are any business prospects through which material value can be realized from our 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. Corp., a privately held New York corporation. Additionally, we 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. Concurrent with the asset purchase agreement, we signed a management agreement with Polystick pursuant to which Polystick agreed to assist us in the management of our oil and gas working interests and the development of new oil and gas activities. The agreement is for one year with an annual consulting fee of $150,000, payable in monthly installments. In June 2001 we sublet our former offices in Jersey City, New Jersey to Nekema.com through December 31, 2008. In September 2002 Nekema.com ceased business operations and defaulted on the sublease. The rent on the sublease is guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company, until May 2003. Kemper Insurance Company has made all payments of rent due under the sublease from October 2002 through April 2003, totaling $120,487.50. We are actively seeking a replacement subtenant for the property. If we are unable to find a subtenant or negotiate a settlement with the landlord we will be obligated to pay rent on the space until the lease expires in December 2008. The aggregate rent for the period June 2003 through December 2008 is approximately $996,000. Results of Operations Year Ended December 31, 2002 compared to Year Ended December 31, 2001. Revenue: Revenue consisted of royalty payments from our working interests in two oil and gas wells in the state of Louisiana and rent payments on the space in Jersey City sublet to Nekema.com. Revenues increased by 207,181, or 162.9%, to $334,400 in 2002 from $127,219 in 2001, primarily because of the addition of revenues from the interests in the oil and gas wells. General and administrative: General and administrative expenses consisted primarily of payroll and payroll related expenses for administrative, information technology, accounting, and management personnel, recruiting, legal fees, and general corporate expenses. General and administrative expenses decreased by 45.6%, or $609,011 to $725,333 in the year ended December 31, 2002 from $1,334,344 in the prior year. The decrease in the current period is the result of decreased wages and an insurance settlement received by the Company in 2002. Interest income, net: Interest income decreased by 84.0%, or $71,371 to $13,546 in the year ended December 31, 2002 from $84,917 in the prior year. The decrease is primarily the result of a decrease in average cash and cash equivalents. Net Losses: Loss from operations decreased by 62.1%, or $1,574,388, to $831,275 in the year ended December 31, 2002, or ($0.36) per basic and diluted common share, from $2,405,663 in the prior year, or ($1.34) per basic and diluted common share. The decreased loss was primarily due to the change in operations and a smaller writedown on investments, as well as increased revenues. The Company invested in two oil and gas wells, increasing revenue. Net loss available to common shareholders in the year ended December 31, 2002 was $879,275, or ($0.38) per basic and diluted common share, as compared to $2,446,463 or ($1.36) in the prior year. 5 Year Ended December 31, 2001 compared to Year Ended December 31, 2000. General and administrative: General and administrative expenses consisted primarily of payroll and payroll related expenses for administrative, information technology, accounting, and management personnel, recruiting, legal fees, and general corporate expenses. General and administrative expenses decreased by 43.9%, or $1,042,656 to $1,334,344 in the year ended December 31, 2001 from $2,377,000 in the prior year. The decrease in the current period is the result of the scaling back of operations and change in our management focus. Interest income, net: Interest income decreased by 66.4%, or $168,083 to $84,917 in the year ended December 31, 2001 from $253,000 in the prior year. The decrease is primarily the result of a decrease in average cash and cash equivalents. Net Losses: Loss from continuing operations decreased by 33.7%, or $1,221,337, to $2,405,663 in the year ended December 31, 2001, or ($1.36) per basic and diluted common share, from $2,377,000 in the prior year, or ($1.78) per basic and diluted common share. The decreased loss was primarily due to the scaling back of operations and change in our management focus. Net loss in the year ended December 31, 2001 was $2,446,463, or ($1.36) per basic and diluted common share, as compared to $16,128,000 or ($9.47) in the prior year (as adjusted for a 1 for 5 reverse stock split initiated in August of 2000.) The net loss in the year ended December 31, 2000 included a $12,501,000 net loss on disposal of discontinued operations, primarily attributable to the sale of the Tools for Living Division. Liquidity and Capital Resources Net cash used in operations decreased 83.4%, or $1,081,017, from $1,294,893 in the year ended December 31, 2001 to $213,876 in the year ended December 31, 2002. The decrease is primarily due to lower general and administrative expenses in 2002 and to our efforts in 2001 to settle outstanding accounts payable. Net cash provided by investing activities during the year ended December 31, 2002 was $(475,000), as compared to $12,100 in the prior year. The decrease is due to investments in two oil and gas wells offset by proceeds from the disposal of investments. Net cash provided by financing activities during the year ended December 31, 2002 was $(25,000), as compared to $262,136 in the prior year. Sources of cash during the prior period were from the sale of preferred stock, while uses in the current year were the payment of a portion of the preferred stock dividend. We believe that our existing capital resources will enable us to maintain our operations at existing levels for at least the next 36 months. We are, however, currently considering the funding requirements associated with our business plan, including the need for additional debt and/or equity financing. Since our current business activities include managing our existing oil and gas interests and entering into new business operations through acquisitions or mergers, it is difficult to project our capital needs. However, we will evaluate potential investments in terms of our then existing capital resources and the availability of additional debt or equity financing and will ultimately decide on an investment according to the sufficiency of those resources to fund the potential investment as well as continuing operating requirements. 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, and could significantly slow the pace of development of our business operations. 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 6 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, the risk described in Exhibit 99.1 to this report, including our limited operating history, history of losses, need to raise additional capital and the high risk nature of our business. Item 7. Financial Statements. The financial statements required by Item 7 are included in this report beginning on page F-1. Item 8. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure There have been no changes in or disagreement with our principal independent accountants on accounting and financial disclosure. 7 PART III Item 9. Directors, Executive Officers, Promoters And Control Persons; Compliance With Section 16(a) of The Exchange Act Our directors and executive officers are as follows: Name Age Title Gilad Gat 39 Chairman, Chief Executive Officer, Chief Financial Officer and Director Yoav Bitter 37 Director GILAD GAT has served as President, Chief Executive Officer and Chairman of the Board of the Company since May 2001 and as Chief Financial Officer since September 30, 2002. Mr. Gat was the President and a director of Brooks Station Holdings, Inc., a private investment corporation, from February 2001 to December 2002. Since 1996, Mr. Gat has been a self-employed entrepreneur. Prior to 1996, Mr. Gat held various positions in the banking industry in Israel. Mr. Gat holds a BA in economics and an MBA from the Hebrew University in Jerusalem. YOAV BITTER has served as a director of the Company since May 2001. Since December 1999, Mr. Bitter has served as Executive Vice President of Strategic Business Development of ElephantX Online Securities LLC, an internet financial services company, which he co-founded. Prior to founding ElephantX, Mr. Bitter was a partner at Hambro America Securities, Inc., a private equity investment corporation. Mr. Bitter holds a B.A. in economics from Queens College and an M.B.A. with honors (Beta Gamma Sigma) from Zicklin School of Business, Baruch College. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires our officers and directors and holders of more than 10% of our common stock (collectively "Reporting Persons") to file reports of initial ownership, ownership and changes in ownership of the common stock with the Securities and Exchange Commission within certain time periods and to furnish the Company with copies of all such reports. Based solely on our review of copies of such reports furnished to us by such Reporting Persons or on the written representations of such Reporting Persons that no reports on Form 5 were required, the Company believes that during the fiscal year ended December 31, 2002, all of the Reporting Persons complied with their Section 16(a) filing requirements. Item 10. Executive Compensation The following table sets forth the aggregate compensation paid to or accrued by us or our subsidiaries during each of the last three fiscal years reflecting all compensation awarded to, earned by or paid by us to our President and Chief Executive Officer, Gilad Gat, and to Jeffrey S. Tauber, our former Chief Executive Officer. Mr. Tauber resigned as Chief Executive Officer in May 2001. Other than Mr. Tauber and Mr. Gat, no executive officer received an annual base salary and bonus compensation exceeding $100,000 during the fiscal years ended December 31, 2001 and 2002. 8 Annual Compensation Long-Term Compensation Name & Other Securities Principal Annual Underlying Position Year Salary Bonus Compensation Options Gilad Gat(1) 2002 $120,000 $ 30,000 - - 2001 $ 93,500 - - 20,000 Jeffrey Tauber(2) 2001 $104,167 - $250,000(2) - 2000 $250,000 - - - _____________________________________________________ (1) Mr. Gat became President on May 4, 2001. Mr. Gat's annual salary is $120,000. (2) Mr. Tauber resigned on May 4, 2001. Mr. Tauber received a severance payment of $250,000. Stock Option Exercises and Holdings Our executive officers did not exercise any options in 2002. The following table sets forth the number of shares of common stock underlying unexercised options held by our executive officers as of December 31, 2002. At December 31, 2002, none of our executive officers held any "in-the-money" stock options. Number of Securities Underlying Unexercised Options at December 31, 2002 Name Exercisable/Unexercisable Gilad Gat 20,000/0 Employment Agreement On May 4, 2001, we entered into an employment agreement with Gilad Gat pursuant to which Mr. Gat was hired to be our President and Chief Executive Officer. Mr. Gat's salary is $120,000 per annum. Mr. Gat is an "at will" employee of the Company, provided however, if he is terminated without cause, then under his employment agreement, Mr. Gat is entitled to a severance payment of $120,000. Directors' Compensation All directors are reimbursed for certain expenses in connection with attendance at Board of Directors and Committee meetings. Directors are eligible to be granted options to purchase common stock of the Company under the GSV, Inc. 1998 Stock Option Plan. Directors who are not employees of the Company also receive annual compensation in the amount of $12,000 for their service as directors. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of March 31, 2003, regarding the beneficial ownership of our common stock by (i) each person who is known to us to be the beneficial owner of more than five percent (5%) of our common stock; (ii) each director and each executive officer; and (iii) all current directors and executive officers as a group. Information contained in this report with regard to stock ownership was obtained from our stockholders' list, filings with governmental authorities, or from the named individual nominees, directors and officers. The persons identified in the following table disclaim beneficial ownership of shares owned or held in trust for the benefit of members of their families or entities with which they may be associated. 9 Amount and Percentage of Percentage of Nature of Outstanding Outstanding Name and Address of Beneficial Common Stock Preferred Stock Beneficial Owner (1) Ownership(2) Owned (3) Owned (3) Yoav Bitter 20,000(4) * * Gilad Gat 20,000(5) * * Polystick US Corp.(6) 850,000 32.2% * Brooks Station Holdings, Inc. 426,537(7) 13.9% 100% Jane Tauber 377,774(8) 14.3% * Jeffrey S. Tauber 377,774(9) 14.3% * All executive officers and directors as a group (2 persons) 40,000(4)(5) 1.5% * ____________________________ * less than 1 percent. (1) Unless otherwise indicated, the address of each beneficial owner identified is c/o GSV, Inc., 191 Post Road West, Westport, Connecticut 06880. (2) Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our securities beneficially owned by them. (3) Each beneficial owner's percentage ownership is determined by assuming (i) that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this report have been exercised and converted, and (ii) 2,640,090 shares of common stock were outstanding, before any consideration is given to such options, warrants or convertible securities and before any consideration is given to shares of common stock held in treasury. (4) Includes 20,000 shares issuable upon exercise of options owned by Mr. Bitter. (5) Includes 20,000 shares issuable upon exercise of options owned by Mr. Gat. (6) Polystick US Corp. is a New York corporation whose address is 1290 Avenue of the Americas, New York, New York 10104. Mr. Sagi Matza is the director and executive officer of Polystick. (7) Includes 62,900 shares of common stock and 363,637 shares of Series A Convertible Preferred Stock, each of which is presently convertible into one share of common stock (subject to andilution adjustment). (8) Includes 119,427 shares held directly, 69,460 shares of Common Stock held in the name of The Jeffrey S. Tauber Grantor Retained Annuity Trust, with Kevin S. Miller and Jane S. Tauber as trustees, and 188,887 shares of Common Stock held in the name of Mr. Tauber's wife, Jane, including 69,460 shares held in the name of The Jane S. Tauber Grantor Retained Annuity Trust, with Kevin S. Miller and Jeffrey S. Tauber as trustees. Mr. Tauber disclaims beneficial ownership of all of the shares held in the name of the Jane S. Tauber Grantor Retained Annuity Trust. (9) Includes 119,427 shares held directly, 69,460 shares of Common Stock held in the name of The Jane S. Tauber Grantor Retained Annuity Trust, with Kevin S. Miller and Jeffrey S. Tauber as trustees, and 188,887 shares of Common Stock held in the name of Jeffrey S. Tauber, Mrs. Tauber's husband, including 69,460 shares held in the name of The Jeffrey S. Tauber Grantor Retained Annuity Trust with Kevin S. Miller and Jane S. Tauber as trustees. 10 Equity Compensation Plan Information The following table sets forth certain information at December 31, 2002 with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities. Number Of Securities Remaining Number of Available Securities For Future To Be Issuance Under Issued Upon Equity Compen- Exercise of Weighted-Average sation Plans Outstanding Exercise Price of (excluding Options, Outstanding Options securities Warrants, Warrants and reflected in the Plan Category and Rights and Rights first column) Equity Compensation Plans Approved by Security Holders 40,000 $0.30 per share 560,000 Equity Compensation Plans Not Approved by Security Holders 0 $0 14,000 In March 1998, the Board adopted the 1998 Directors' Stock Option Plan (the "Directors' Plan"), pursuant to which each member of the Board of Directors who is not an employee of the Company who is elected or continues as a member of the Board of Directors is entitled to receive annually options to purchase 600 shares of Common Stock at an exercise price equal to fair market value on the date of grant. A Compensation Committee administers the Directors' Plan; however, it cannot direct the number, timing or price of options granted to eligible recipients thereunder. Each option grant under the Directors' Plan vests after the first anniversary of the date of grant and expires three years thereafter. The number of shares of Common Stock related to awards that expire unexercised or are forfeited, surrendered, terminated or canceled are available for future awards under the Directors' Plan. If a director's service on the Board terminates for any reason other than death, all vested options may be exercised by such director until the expiration date of the option grant. In the event of a director's death, any options which such director was entitled to exercise on the date immediately preceding his or her death may be exercised by a transferee of such director for the six-month period after the date of the director's death; provided that such options may not be exercised after their expiration date. In the case of a director who represents an institutional investor that is entitled to the compensation paid by the Company to such director, option grants shall be made directly to the institutional investor on whose behalf such director serves on the Board. The maximum number of shares of Common Stock reserved for issuance under the Directors' Plan is 14,000 shares. No options are currently outstanding under the Directors' Plan. Item 12. Certain Relationships and Related Transactions. Gilad Gat, our President, Chief Executive Officer and Chairman of the Board, was the President and a director of Brooks Station Holdings, Inc., a private investment corporation, from February 2001, until December 2002. Brooks acquired 363,637 shares of our Series A Convertible Preferred Stock in a private placement offering consummated in March 2001. 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. Corp., a privately held New York corporation. The consideration consisted of $550,000 in cash and 850,000 shares of our common 11 stock valued at $0.25 per share. Additionally, we acquired an option, including a right of first refusal, to purchase other oil and gas properties held by Polystick. Concurrent with the asset purchase agreement, we signed a management agreement with Polystick to assist us in the management of our oil and gas working interests and the development of new oil and gas activities. The agreement is for one year with an annual consulting fee of $150,000, payable in monthly installments. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits Item No. Title 2.1 Asset Purchase Agreement, dated as of June 1, 2002, by and between GSV, Inc., Cybershop LLC and Polystick U.S. Corp. (Incorporated by reference to Exhibit 2.1 of the Company's report on Form 8-K filed June 5, 2002). 3.1 Certificate of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No. 333-42707). 3.2 Certificate of Amendment of the Certificate of Incorporation of Cybershop International, Inc. (Incorporated by reference to Exhibit 3.2 of the Company's report on Form 10-Q for the fiscal quarter ended June 30, 1999, File No. 000-23901) 3.3 Certificate of Merger of GSV, Inc into Cybershop.com, Inc. (Incorporated by reference to Exhibit 3.5 of the Company's report on Form 10-K for the year ended December 31, 1999, File No. 000-23901) 3.4 Certificate of designations, preferences and rights of Series A convertible Preferred Stock of GSV, Inc. (incorporated by reference to Exhibit 3.1 of the Company's report on Form 8-K, filed March 6, 2001). 3.5 By-Laws as currently in effect (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, File No. 333-42707). 4.1 Specimen of Certificate for Common Stock (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, File No. 333-42707) 4.2 Convertible Stock Purchase Agreement, dated March 1, 2001, by and between GSV, Inc. and Brooks Station Holding, Inc. (Incorporated by reference to Exhibit 4.1 of the Company's report on Form 8-K filed March 6, 2001). 10.1 Form of Officer and Director Indemnification Agreement (Filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1, effective March 20, 1998, File No. 333-42707). 10.2 1998 Stock Option Plan of the Company (Filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1, effective March 20, 1998, File No. 333-42707). 10.3 1998 Directors' Stock Option Plan (Filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1, effective March 20, 1998, File No. 333-42707). 10.4 Registration Rights Agreement dated September 30, 1999 among Cybershop.com, Inc., Strong River Investments, Inc. and Montrose Investments, L.P. (Incorporated by reference to Exhibit 10.4 of the Company's report on Form 10-Q for the fiscal quarter ended September 30, 1999, File No. 000-23901). 10.5 Registration Rights Agreement dated December 8, 1999 among Cybershop.com, Inc., Strong River Investments, Inc. and Montrose Investments, L.P. (Incorporated by reference to Exhibit 10.14 of the Company's report on Form 10-K for the year ended December 31, 1999, File No. 000-23901). 10.6 Agreement, dated May 4, 2001, by and between GSV, Inc. and Jeffrey S. Tauber (Incorporated by reference to Exhibit 10.2 of the Company's report on Form 8-K, filed May 11, 2001). 10.7 Employment Agreement dated May 4, 2001, by and between GSV, Inc. and Gilad Gat (Incorporated by reference to Exhibit 10.1 of the Company's report on Form 8-K, filed May 11, 2001). 12 10.8 Management Consulting Agreement, dated as of June 1, 2002, by and between GSV, Inc. and Polystick U.S. Corp. (Incorporated by reference to Exhibit 2.1 of the Company's report on Form 8-K filed June 5, 2002). 99.1 Risk factors.* 99.2 Certification pursuant to 18 U.S.C. Section 1350.* * Filed herewith. (b) Reports on Form 8-K. On October 1, 2002, we filed a report on Form 8-K under Item 5 announcing the resignation of Harvey A. Doliner from the Board of Directors of the Company and as Chief Financial Officer and the resignation of Walter M. Epstein from the Board of Directors of the Company. Item 14. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this annual report on Form 10-KSB (the "Evaluation Date"), has concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, GSV has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GSV, INC. By /s/ Gilad Gat Gilad Gat Chairman, Chief Executive Officer and President Date: March 31, 2003 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below. Signature Title Date /s/Gilad Gat Chairman, Chief Executive March 28, 2003 Gilad Gat Officer, Chief Financial Officer and President (Principal Executive Officer, Principal Financial and Accounting Officer) /s/ Yoav Bitter Director March 31, 2003 Yoav Bitter 14 CERTIFICATIONS I, Gilad Gat, certify that: 1. I have reviewed this annual report on Form 10-KSB of GSV, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 By: /s/ Gilad Gat __________________________________ Gilad Gat Chief Executive Officer Chief Financial Officer 15 Item 7: Financial Statements GSV, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants F-2 Consolidated Balance Sheet as of December 31, 2002 F-3 Consolidated Statements of Operations for the years ended December 31, 2002 and 2001 F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2002 and 2001 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001 F-6 Notes to the Consolidated Financial Statements F-7 to F-17 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors GSV, Inc. and Subsidiaries Westport, Connecticut We have audited the accompanying consolidated balance sheet of GSV, Inc., a Delaware corporation, and Subsidiaries ("the Company") as of December 31, 2002 and the related consolidated statements of operations, changes of stockholders' equity and cash flows for the years ended December 31, 2002 and 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GSV, Inc. and Subsidiaries as of December 31, 2002 and the results of its operations and its cash flows for the years ended December 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America. Denver, Colorado March 8, 2003 /s/ Comiskey & Company Professional Corporation F-2 GSV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2002 ----------- ASSETS Current Assets: Cash and cash equivalents $ 598,467 Prepaid expenses and other current assets 72,568 ------------ Total current assets 671,035 Investments 65,000 Option to purchase oil and gas properties 80,210 Investments - oil & gas wells, net 144,170 Property and equipment, net 183,622 Other assets 35,599 ----------- Total assets $ 1,179,636 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 77,522 Tenant security deposit 51,250 Dividends payable 63,800 ------------ Total current liabilities 192,572 ------------ Total liabilities 192,572 ------------ Stockholders' equity: 12% Series A Preferred stock, $0.001 par value; 636,365 shares authorized; 363,637 shares issued and outstanding 380,000 Common stock, $0.001 par value; 75,000,000 shares authorized; 2,808,690 issued; 2,640,090 outstanding 2,809 Additional paid-in capital 38,220,679 Treasury stock (558,998) Accumulated deficit (37,057,426) ------------ Total stockholders' equity 987,064 ------------ Total liabilities and stockholders' equity $ 1,179,636 =========== The accompanying notes are an integral part of the consolidated financial statements. F-3 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended December 31, 2002 2001 -------------- -------------- Sublease income $ 159,742 $ 127,219 Oil and gas income 174,658 --- ------------- -------------- Total revenues 334,400 127,219 Operating expenses: General and administrative 725,333 1,334,344 Loss on investments --- --- ------------- -------------- Total operating expenses 725,333 1,334,344 ----------- -------------- Loss from operations before other income and expense (390,933) (1,207,125) Interest income, net 13,546 84,917 Gain on disposal of property and equipment --- 1,491 Writedown of investments (498,888) (1,284,946) Gain on sale of investments 45,000 --- ------------- ------------- Loss from continuing operations (911,485) (2,405,663) ------------ ---------------- Net loss $(831,275) $(2,405,663) ------------- -------------- Preferred stock dividends 48,000 40,800 ------------- ------------ Net loss available to common shareholders $(879,275) $(2,446,463) =========== =========== Basic and diluted net loss per common share: Loss per common share from operations $ (.38) $ (1.36) ======== ======= Weighted average common shares outstanding, basic and diluted 2,286,117 1,800,819 The accompanying notes are an integral part of the consolidated financial statements. F-4 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Preferred Stock Common Stock --------------- -------------- Number of Par Number of Par Shares Value Shares Value ---------- ---------- -------- -------- Balance at December 31, 2000 -- $ -- 1,848,540 $ 2,000 Shares purchased as treasury stock -- -- (58,450) -- Retirement of treasury stock -- -- -- (179) Sale of preferred shares 363,637 380,000 -- -- Correction of rounding -- -- -- 138 Preferred stock dividend -- -- -- -- Net loss -- -- -- -- --------- ---------- ---------- ------- Balance at December 31, 2001 363,637 380,000 1,790,090 1,959 Sale of common stock -- -- 850,000 850 Preferred stock dividend -- -- -- -- Net loss -- -- -- -- ------- --------- --------- ------- Balance at December 31, 2002 363,637 $380,000 2,640,090 $ 2,809 ======= ========= ========= ======== Additional Paid-In Treasury Accumulated Capital Stock Deficit ---------- ----------- ------------- Balance at December 31, 2000 $38,008,000 $ (512,000) ($33,734,000) Shares purchased as treasury stock -- (42,177) -- Retirement of treasury stock -- 179 -- Sale of preferred shares -- -- -- Correction of rounding 1,029 -- 2,312 Preferred stock dividend -- -- (40,800) Net loss -- -- (2,405,663) ----------- ---------- ------------- Balance at December 31, 2001 38,009,029 (558,998) (36,178,151) Sale of common stock 211,650 -- -- Preferred stock dividend -- -- (48,000) Net loss -- -- (831,275) ----------- --------- ----------- Balance at December 31, 2002 $38,220,679 ($558,998) ($37,057,426) =========== ========== ============ The accompanying notes are an integral part of the consolidated financial statements. F-5 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, 2002 2001 ----------- ------------ Cash flows from operating activities: Net loss $(831,475) $(2,405,663) Adjustments to reconcile net loss to net cash from operating activities: Correction of rounding --- 3,122 Depreciation 160,900 153,928 Depletion 59,232 --- Gain on disposal of investments (45,000) --- Writedown of investments 498,888 1,284,946 Gain on disposal of equipment --- (1,491) Increase (decrease) in cash from changes in: Prepaid expenses and other current assets (47,568) 50,943 Other assets --- 16,755 Accounts payable (9,053) (406,704) Deferred rent --- (41,979) Tenant security deposit --- 51,250 ----------- ------------ Net cash flows from operating activities (213,876) (1,294,893) Cash flows from investing activities: Proceeds from disposal of equipment --- 12,100 Proceeds from disposal of investments 75,000 --- Purchases of investments (550,000) --- ----------- ------------ Net cash flows from investing activities (475,000) 12,100 Cash flows from financing activities: Sale of preferred stock, net of costs --- 380,000 Preferred dividend paid (25,000) --- Purchase of treasury stock --- (47,177) Payments of capital lease obligations --- (70,687) ----------- ------------ Net cash from financing activities (25,000) 262,136 --------- ------------ Net decrease in cash (713,876) (1,020,657) Cash and cash equivalents, beginning of year 1,312,343 2,333,000 ----------- ------------ Cash and cash equivalents, end of year $ 598,467 $ 1,312,343 ========== =========== SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION: Cash paid for interest $ --- $ --- ========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-6 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the Business and Basis of Presentation Commencing in June 2001, GSV, Inc. and Subsidiaries (the "Company") changed the direction of its business. The Company's business operations since June 2001 include entering into new business operations through acquisitions or mergers and managing existing investments including the recent oil and gas acquisitions. 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. In connection with this activity, the Company made investments in Fasturn, Inc., Weema Technologies, Inc., Telephone.com, Inc., MeetChina.com, Inc., and e-Commerce Solutions, Inc. 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. In September 2002 the Company restructured its investment in Telephone.com, Inc. and received $75,000 in cash and 358,000 shares of common stock of Telephone.com, Inc. in exchange for 600,000 shares of series A preferred stock of Telephone.com. The Company is presently investigating whether or not there are any business prospects through which material value can be realized from its 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. Corp., 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. Concurrent with the asset purchase agreement, the Company signed a management agreement with Polystick U.S. Corp. to assist the Company in the management of its oil and gas working interests and the development of new oil and gas activities. The agreement is for one year with an annual consulting fee of $150,000, paid in monthly installments. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies (continued) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all short-term marketable securities with a maturity of three months or less to be cash equivalents. Investments Investments are accounted for on the cost basis. Advertising The recognition of advertising costs is in accordance with the Provisions of the American Institute of Certified Public Accountants Statement of Position 93-7, Reporting of Advertising Costs. Advertising costs other than direct-response are expensed at the time the initial advertising takes place. Direct-response advertising consists primarily of the cost of print advertisements placed in national magazines and newspapers which include unique codes identifying which particular publication and the individual advertisement. Direct-response advertising costs are amortized over the period during which associated net revenues are expected, generally approximating three months or less. Advertising expense was $0 and $18,868 during the years ended December 31, 2002 and 2001, respectively. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the assets' estimated useful lives, which range from three to ten years. F-8 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies (continued) Long-Lived Assets The Company reviews its long-lived assets and certain related intangibles for impairment periodically, and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company determined that impairment existed in certain of its investments as explained in Note 3. Stock-Based Compensation The Financial Accounting Standards Board has issued "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for employee stock-based compensation under a fair value base method. However, SFAS 123 also allows an entity to continue to measure compensation cost for employee stock-based compensation using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Entities electing to remain with the accounting under Opinion 25 are required to make pro forma disclosures of net loss and loss per share as if the fair value based method of accounting under SFAS 123 had been applied. The Company continues to account for employee stock-based compensation under Opinion 25 and has included, in a note below, the pro forma disclosures required under SFAS 123. Income Taxes The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted Federal, state, and local income tax rates and laws that are expected to be in effect when the differences reverse. Significant Concentrations From time-to-time, the Company maintains cash balances in excess of FDIC insured limits. The amount of such excess at December 31, 2002 was approximately $503,000. Fair Value of Financial Instruments Unless otherwise indicated, the fair value of all reported assets and liabilities which represent financial instruments approximate the carrying values of such instruments. F-9 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Investments The Company has made investments in five internet companies, which have been accounted for using the cost method. During the years ended December 31, 2002 and 2001, the Company recorded a charge to operations of $20,000 and $1,284,946, respectively, for impairment of these investments. During the year ended December 31, 2002, the Company surrendered 600,000 shares of preferred stock in one of the internet companies in exchange for $75,000, paid in three installments, and 358,000 shares of common stock, representing a 5% ownership interest in the company. A gain of $45,000 was recognized on the surrender. As described in note 1 above, the Company acquired working interests in two oil and gas wells, and an option to purchase additional 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 option was valued by the parties at $80,210, with the remaining $682,290 allocated to the cost of the owned oil and gas interests. The properties are being depleted using the units of production method and subject to the value of total projected reserves. Depletion expense for the year ended December 31, 2002 was $53,001. 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 has reduced the carrying amount of its oil and gas properties by $479,000 for the year ended December 31, 2002. 4. Stockholders' Equity Pursuant to the terms of the Asset Purchase Agreement with Polystick U.S. Corp. 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 U.S. Corp. On March 1, 2001, the Company entered into a Convertible Preferred Stock Purchase Agreement (the "Purchase Agreement") with Brooks Station Holdings, Inc. ("Brooks Station") for the issuance and sale of its preferred stock for aggregate consideration of $400,000. Pursuant to the Purchase Agreement, the Company sold and issued to Brooks Station a total of 363,637 shares of its Series A Convertible Preferred Stock, $0.001 par value per share (the "Series A Convertible Preferred"), at a purchase price of $1.10 per share (the "Purchase Price"). Brooks Station has the option to purchase up to an aggregate of 272,728 additional Preferred Series A shares, at a purchase price of $1.10 per share, for aggregate consideration of up to $300,000. F-10 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Stockholders' Equity (continued) The Series A Convertible Preferred is convertible into shares of the Company's Common Stock, at a conversion price of $1.10 per share, subject to certain anti-dilution adjustments. The current conversion price is $0.25 per share. The Preferred Stock carries a cumulative 12% dividend payable in June and December of each year, and may participate in common share dividends, if any, on an as-if converted basis, and has preference upon liquidation, including accumulated unpaid dividends. The shares may be redeemed at the option of the holder, but only upon the occurrence of certain triggering events, which include bankruptcy, material judgments and defaults, and suspension of trading of the Company's stock for more than 20 days (which days need not be consecutive). 5. Stock Option Plan In 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Option Plan"). Under the 1998 Option Plan, stock options may be granted to directors, officers, employees, and consultants of the Company. Under the 1998 Option Plan the number of shares available for issuance is 600,000. The 1998 Option Plan is summarized as follows: Weighted Average Exercise Shares Price ---------- ------------- Outstanding at December 31, 2000 357,199 $12.30 Granted 60,000 .30 Cancelled (207,199) 21.00 Exercised -- -- ----------- ------------- Outstanding at December 31, 2001 210,000 .30 Granted -- -- Cancelled (170,000) .30 Exercised -- -- ----------- ------------- Outstanding at December 31, 2002 40,000 $ 0.30 ======== ======== F-11 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Stock Option Plan (continued) As of December 31, 2002, there were 40,000 options exercisable under the 1998 Option Plan, and 210,000 options exercisable as of December 31, 2001. Generally, options vest one-third annually over three years and expire five years from the date of grant. In 1998, the Company adopted the 1998 Directors' Stock Option Plan (the"Directors' Plan"). Pursuant to the Directors' Plan, each member of the Board of Directors who is not an employee of the Company who is elected or continues as a member of the Board of Directors is entitled to receive annually options to purchase 600 shares of common stock at an exercise price equal to fair market value on the date of the grant. The maximum number of shares of common stock reserved for issuance under the Directors' Plan is 14,000 shares. During 2001, 1,800 options granted, outstanding, and exercisable under the Directors' Plan with a weighted average exercise price of $32.50 were cancelled. As of December 31, 2002 and 2001, there were no options granted and outstanding under the Directors' Plan. All options issued under the Directors' Plan vest after the first anniversary of the date of the grant and expire three years thereafter. As permitted by SFAS 123, the Company has elected to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation cost has been recognized for stock options granted at or above market value. Had the fair value method of accounting been applied to all of the Company's stock option grants, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, the net loss would have been increased by zero per share in 2002 and approximately $44,300 or $0.03 per share in 2001. This pro forma impact takes into account options granted since January 1, 1996 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The average fair value of options granted during the year ended December 31, 2001 was $0.21. The fair value was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions: risk free interest rate of 7.0% in 2001 and 199% volatility in 2001, no assumed dividends and an expected life of one year in 2001. F-12 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Property and Equipment Office equipment and software $ 608,855 Furniture and fixtures 127,381 Leasehold improvement 355,273 ------------ 1,091,509 Less: Accumulated depreciation (907,887) ------------ $ 183,622 ========= 7. Leases The Company leases for its own use office space under a non-cancelable operating lease expiring April 30, 2003, with an option for a six-month renewal. Future minimum lease payments on this non-cancelable operating lease for 2003 are $5,696. Rent expense for the years ended December 31, 2002 and 2001 was $112,265 and $139,998, respectively. In June 2001, the Company sublet to Nekema.com its former offices in Jersey City, New Jersey through December 31, 2008. In September 2002 Nekema ceased business operations and defaulted on the sublease. The rent on the sublease is guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company until May 2003. Kemper Insurance Company has made all payments of rent due under the sublease from October through December 31, 2002, totaling $53,136. The Company is actively seeking a replacement subtenant for the property. If the Company is unable to find a subtenant, or unable to negotiate a settlement with the landlord, the Company will be obligated to pay rent on the space until the lease expires in December 2008. The lease contains automaticincreases based upon the consumer price index. Estimated minimum future lease payments including such increases are as follows: 2003 $ 157,807 2004 164,908 2005 172,329 2006 180,084 2007 188,188 thereafter 196,656 --------- $ 1,059,972 ========= F-13 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Income Taxes Deferred taxes are recognized on the differences between the financial reporting and income tax basis of assets and liabilities using enacted tax rates. The tax effects of temporary differences and the net operating loss carryforwards that give rise to significant portions of the net deferred income tax asset at December 31, 2002 are as follows: Net operating loss carryforwards $11,966,000 Net book value of property and equipment 21,000 Investments (10,000) ------------ 11,977,000 Valuation allowance (11,977,000) ------------ $ -- =========== Due to the uncertain realization of the deferred tax asset, the Company has provided a full valuation allowance. As of December 31, 2002, the Company had net operating loss carryforwards of approximately $31,067,000, which begin to expire in 2013. 9. Net Loss Per Common Share Basic and diluted 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: 2002 2001 --------------------------- --------------------------- Per Per Loss Shares Share Loss Shares Share ---------------------------- --------------------------- Loss from continuing operations $ (831,275) 2,286,117 $ (.36) $(2,405,463) 1,800,819 $(1.34) Effect of preferred stock dividends (48,000) --- (.02) (40,800) --- (.02) ----------- -------- ------ ----------- --------- ----- Net loss available for common shareholders $ (879,275) 2,286,117 $ (.38) $(2,446,263) 1,800,819 $(1.36) ============ ======== ====== ============ ========== ======
F-14 GSV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10: Unaudited Oil and Gas Reserve Quantities _________________________________________________ This section provides information required by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." The following unaudited reserve estimates were prepared internally, based upon a study conducted by Pressler Petroleum Consultants, Inc., an independent engineering company, as of March 25, 2003, and adjusted by the Company for production through Dec. 31, 2002. There are many uncertainties inherent in estimated proved reserve quantities and in projecting future production rates and the timing of development expenditures. In addition, reserve estimates of new discoveries that have little production history are more imprecise than those of properties with more production history. Accordingly, these estimates are expected to change as future information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. Unaudited net quantities of proved and proved developed reserves of crude oil (including condensate) and natural gas, all of which are located within the continental United States, are summarized below: Changes in Proved Reserves: (BBLS) (MCF) Estimated quantity, December 31, 2001 - - Production (862) (38,376) Acquisitions 8,602 508,999 Discoveries - - Revisions of previous estimates (7,116) (424,230) ______ _______ Estimated quantity, December 31, 2002 624 46,393 ====== ======= F-15 GSV, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10: Unaudited Oil and Gas Reserve Quantities (continued) _____________________________________________________________ Proved developed reserves: Oil (BBLS) December 31, 2001 - June 1, 2002 8,602 December 31, 2002 624 Gas (MCF) December 31, 2001 - June 1, 2002 508,999 December 31, 2002 46,393 The following table presents a standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying period- end prices of oil and gas to the estimated future production of proved oil and gas reserves. The future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future unexpected costs or changes in production could affect discounted future net cash flows. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair market value of the Company's oil and gas properties. As of Dec. 31, 2002 _____________ Future cash inflows $ 265,442 Future development and production costs ( 85,404) ___________ Future net cash flows 180,038 10% annual discount for estimating timing of cash flows ( 35,868) ___________ Standardized measure of discounted future net cash flows $ 144,170 =========== F-16 GSV, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10: Unaudited Oil and Gas Reserve Quantities (continued) _____________________________________________________________ As of Dec. 31, 2002 _____________ Standardized measure of discounted future net cash flows, December 31, 2001 $ - Purchase of reserves in place 1,288,178 Changes in price, net of future production costs 772,036 Changes in estimated future development costs 2,925 Changes in estimated quantities (1,704,908) Changes due to operations: Production (161,472) Production costs 10,170 Accretion of discount (128,178) Other 65,419 ___________ Standardized measure of discounted future net cash flows, December 31, 2002 $ 144,170 =========== F-17