-----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, Aoi9d4caE5gHdEc78TnlKOBdpwrAlBCzDfbcPkVZ6onIfeKYxaVL+EWCwieMC+qG YSMs1+qV8r+aszffb/AJrA== 0001144204-05-009781.txt : 20050331 0001144204-05-009781.hdr.sgml : 20050331 20050331163738 ACCESSION NUMBER: 0001144204-05-009781 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050331 DATE AS OF CHANGE: 20050331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GSV INC CENTRAL INDEX KEY: 0001051591 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133979226 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23901 FILM NUMBER: 05720946 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 10KSB 1 v015391_10ksb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 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, Connecticut 06880 (Address of principal executive offices) (Zip Code) Issuer'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. [X] The issuer's revenues for the year ended December 31, 2004 were $431,176. As of March 24, 2005, the aggregate market value of the voting stock held by non-affiliates, based on the average of the high and the low bid and asked prices reported on such date, was $382,446. As of March 24, 2005, there were 7,472,703 shares of the issuer's common stock outstanding. Transitional Small Business Disclosure Format (check one): [_] Yes [X] No PART I ITEM 1. DESCRIPTION OF BUSINESS. We were formed as a Delaware corporation on October 29, 1997. Since July 2003 our business operations have been focused on managing our existing investments in oil and gas assets and entering into new investments in this industry. From June 2001 to July 2003, our business operations included managing our existing investments and entering into new business operations through acquisitions or mergers. Prior to June 2001, we had sought to identify and develop attractive early stage internet companies in exchange for equity positions in such companies. We have since made substantial write downs of these investments to more accurately reflect current market valuations, and these investments do not represent a significant asset. As of December 31, 2004, these investments were valued at approximately 1.7% 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 these 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. ("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 the 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 Preferred Stock. As a result of the merger, we acquired, through Cybershop, L.L.C., an interest in Century Royalty LLC, a Texas limited liability company that holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which we presently hold an interest. Century Royalty 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 has a carried interest with this partnership of 20% for the first well drilled in the first 5 prospects or $ 1.25 million of investment, whichever comes first. Century 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. We are entitled to the first $4,168,659 of net income in Century Royalty and to 75% of net income thereafter. We have already received $216,590 of this amount as of the date of this report. We face intense competition for good exploratory prospects or existing developmental prospects from entities possessing substantially larger financial resources and staffs. The demand for domestically produced gas remains substantial and should remain substantial in the foreseeable future especially in light of the turmoil in the Middle East. We own less than 100% of the working interest in our gas holdings. We do not conduct any operations. Operations are conducted by operating companies that follow the instructions of the working interest owners. Because of this structure, drilling and operating decisions are not entirely within our control. If we disagree with the decision of a majority of working interest owners, we may be required, among other things, to decline to participate in a particular activity. If we decline to participate, we might be required to relinquish our interest. Under most operating agreements, the operator is given direct and full control over all operations on the property and is obligated to conduct operations in a workman-like manner; however the operator is usually not liable to the working interest owners for losses sustained or for liabilities incurred, except those resulting from its own gross negligence or willful misconduct. Each working interest owner is generally liable for its share of the costs of developing and operating jointly owned properties. The operator is required to pay the expenses of developing and operating the property and will invoice working interest owners for their proportionate share of such costs. 1 As of December 31, 2004, we had one full-time employee (including management). Our employee is not represented by any collective bargaining organization. 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. Wells and acreage: At March 24, 2005, 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 producing oil and gas. For the year ended December 31, 2004, the wells produced 22,998 gross, 1,380 net barrels of oil at an average price of $45.20 per barrel, and 766,000 million cubic feet (mcf) gross, 46,000 mcf net natural gas at an average price of $7.24 per mcf. For the year ended December 31, 2003, the wells produced 9,310 gross, 260 net barrels of oil at an average price of $27.05 per barrel, and 439,290 million cubic feet (mcf) gross, 11,930 mcf net natural gas at an average price of $6.24 per 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 our last fiscal year. We participated in the drilling of one exploratory well in Texas in 2004 and it was decided it was not economical to complete the well. We are currently in the process of obtaining leases for two additional prospects and expect to commence drilling them in 2005. 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. On May 5, 2004 we filed a proof of claim against Nekema's estate in the United States Bankruptcy Court for the Southern District of New York. The proof of claim is for the total sum of $421,455.15 as permitted by law. We cannot assure you that we will be able to collect any of this claim. We ceased paying rent beginning in July 2003 and since then have been negotiating towards a settlement with the landlord. If we are unable to negotiate a settlement with the landlord, we will remain obligated to pay rent on the space until our lease expires in December 2008. The lease contains automatic increases based upon the consumer price index. Estimated minimum future lease payments, including such increases, aggregate approximately $737,257. ITEM 3. LEGAL PROCEEDINGS. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 2 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION Our common stock is currently trading on the OTC Bulletin Board under the symbol "GSVI." The following table sets forth the range of quarterly high and low sales prices for shares of our common stock for the periods indicated, as reported on the OTC Bulletin Board. 2005 2004 2003 ---- ---- ---- HIGH LOW HIGH LOW HIGH LOW ----- ----- ----- ----- ----- ----- Quarter ended March 31 $0.11 $0.07 $0.14 $0.08 Quarter ended June 30 $0.80 $0.07 $0.21 $0.07 Quarter ended September 30 $0.73 $0.35 $0.40 $0.10 Quarter ended December 31 $0.45 $0.25 $0.25 $0.08 January 1 through March 24 $0.30 $0.15 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, 2005, there were 97 holders of record of our common stock. DIVIDENDS We do not anticipate paying cash dividends in the foreseeable future. We presently intend to reinvest our cash back into the company rather than pay dividends to our common stockholders. RECENT SALES OF UNREGISTERED SECURITIES We did not sell any of our securities without registration under the Securities Act of 1933 during the fourth quarter of 2004. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since July 2003 our business operations have been focused on managing our existing investments in oil and gas assets and entering into new investments in this industry. From June 2001 to July 2003, our business operations included managing our existing investments and entering into new business operations through acquisitions or mergers. Prior to June 2001, we had sought to identify and develop attractive early stage internet companies in exchange for equity positions in such companies. We have since made substantial write downs of these investments to more accurately reflect current market valuations, and our investments do not represent a significant asset. As of December 31, 2004, these investments were valued at approximately 1.7% 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 these 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. The consideration consisted of $550,000 in cash and 850,000 shares of our common stock valued at $0.25 per share. Additionally, we acquired a one-year option valued at $80,210, including the right of first refusal, to purchase other oil and gas properties held by Polystick. 3 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 Preferred Stock. As a result of the merger we acquired, through Cybershop L.L.C., an interest in Century Royalty LLC, a Texas limited liability company that holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which we presently hold an interest. Century Royalty LLC also holds the rights to certain geologic studies. Due to the existence of certain revenue overrides accruing to the benefit of Polystick, the operations of Century Royalty LLC are included in the accompanying statements of operations. The sole shareholder of Polystick is RT Sagi Holding Ltd., an Israeli corporation. The sole stockholder of RT Sagi and indirect owner of Polystick is Mr. Sagi Matza. Effective as of the consummation of the merger, Mr. Matza was appointed to our board of directors as the designee of Polystick. Polystick has the right to elect two additional persons to our board of directors, but has not yet done so. Each share of Series B 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 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. As of March 24, 2005, the Series B Preferred Stock owned by Polystick was convertible into 1,500,000 shares of common stock. No dividends are payable on the Series B Preferred Stock, except that in the event dividends are declared with respect to the common stock each holder of shares of Series B 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 Preferred Stock had such shares of Series B Preferred Stock been converted into common stock immediately before the dividend was declared. Upon any Liquidation Event, as defined in the Certificate of Designations, the holders of the outstanding Series B Convertible Preferred Stock will be entitled, before any distribution or payment is made to any holder of common stock or any other Junior Stock (as defined in the Certificate of Designations), to be paid an amount equal to $1.00 per share plus the amount of any declared and unpaid dividends thereon. If upon any Liquidation Event our net assets distributable among the holders of the Series B Preferred Stock are insufficient to permit the payment in full of such preferential amount to the holders of the Series B Preferred Stock, then our entire net assets of will be distributed ratably among the holders of the Series B Preferred Stock in proportion to the amounts they otherwise would have been entitled to receive. The Certificate of Designations provides that so long as any shares of Series B 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 Preferred Stock, increase the maximum number of directors constituting our board of directors to more than seven. The Certificate of Designations also provides that, so long as any shares of Series B Preferred Stock are outstanding, the holders of the Series B 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 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 Preferred Stock. The Series B 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. 4 OFF-BALANCE SHEET TRANSACTIONS In June 2001, we sublet to Nekema.com our former offices in Jersey City, New Jersey through December 31, 2008. The rent on the sublease was guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company, until May 2003. In September 2002 Nekema ceased business operations and defaulted on the sublease. Kemper Insurance Company made all payments of rent due under the sublease through May 2003. On May 5, 2004 we filed a proof of claim against Nekema's estate in the United States Bankruptcy Court for the Southern District of New York. The proof of claim is for the total sum of $421,455.15 as permitted by law. We cannot assure you that we will be able to collect any of this claim. We ceased paying rent beginning in July 2003 and since then have been negotiating towards a settlement with the landlord. If we are unable to negotiate a settlement with the landlord, we will remain obligated to pay rent on the space until our lease expires in December 2008. The lease contains automatic increases based upon the consumer price index. Estimated minimum future lease payments, including such increases, aggregate approximately $737,257. RESULTS OF OPERATIONS Year Ended December 31, 2004 compared to Year Ended December 31, 2003. Revenue: Revenue in 2004 consisted primarily of royalty payments from our working interests in two oil and gas wells in the state of Louisiana, plus other income consisting of miscellaneous refunds and fees earned. Revenues increased by 51%, or $146,426, to $431,176 in 2004 from $284,750 in 2003. The increase in revenues for 2004 is primarily a result of the increase in production resulting from the expansion of one of the two wells in Louisiana, which was completed on June 10, 2004, and is also due to our owning the additional interest in the Louisiana wells for the entire year of 2004 as compared with only six months in 2003. Total revenues for 2003 were comprised of oil and gas revenues of $134,366 and sublease income of $150,384. Sublease income ceased in mid-2003 with the failure of Nekema to meet its sublease obligations. 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, depreciation, depletion, finance expenses and general corporate expenses. General and administrative expenses decreased by 3%, or $32,994, to $955,500 in the year ended December 31, 2004, from $988,494 in the prior year. The decrease in 2004 was primarily the result of cost cutting measures we implemented. Also included in general and administrative expenses was $148,507 in 2004 and $28,331 in 2003 of non-cash compensation recorded as a result of the issuance of stock and equity instruments. Interest income, net: Interest income decreased by 99%, or $3,806, to $39 in the year ended December 31, 2004, from $3,845 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 25%, or $179,420, to $524,324, in the year ended December 31, 2004, or ($0.07) per basic and diluted common share, from $703,744 in the prior year, or ($0.15) per basic and diluted common share. Net loss available to common stockholders in the year ended December 31, 2004, was $534,709, or ($0.07) per basic and diluted common share, as compared to $721,566, or ($0.15) per basic and diluted common share, in the prior year. Year Ended December 31, 2003 compared to Year Ended December 31, 2002. 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 decreased by 6.8%, to $284,750 in 2003 from $305,611 in 2002. The decrease in revenues for this period is a result of the decrease in production is the Louisiana wells and the termination of rent on the space in Jersey City in June 2003. 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, depreciation and general corporate expenses. General and administrative expenses increased by 36.3%, or $263,161, to $988,494 in the year ended December 31, 2003, from $725,333 in the prior year. The increase in 2003 was the result of increased activity relating to the oil and gas operations, a write-off of $131,169 of fixed equipment related primarily to the New Jersey office in the fourth quarter of 2003, and an increase in legal and accounting fees resulting from the merger in July 2003. 5 Interest income, net: Interest income decreased by 71.6%, or $9,710, to $3,845 in the year ended December 31, 2003, from $13,546 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 16.1%, or $138,498, to $703,744 in the year ended December 31, 2003, or ($0.15) per basic and diluted common share, from $860,064 in the prior year, or ($0.38) per basic and diluted common share. The decreased loss was primarily due to the change in operations. Net loss available to common stockholders in the year ended December 31, 2003, was $721,566, or ($0.16) per basic and diluted common share, as compared to $908,064, or ($0.38) per basic and diluted common share, in the prior year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations increased by 125%, or $323,521, from a deficit of $260,518 in the year ended December 31, 2003, to $62,673 in the year ended December 31, 2004. The increase in cash provided by operations was primarily due to the sharp increase in revenues from the wells in Louisiana and a drop in general and administrative expenses. During the fourth quarter of 2004, we recorded positive cash flow from operations of $157,547. Net cash used in investing activities during the year ended December 31, 2004, was $(163,860), as compared to $(55,739) in the prior year. The expenditures consist of the payment of our share of the costs to drill an exploratory well in Texas, as well as the recompletion of our two Louisiana properties. Net cash provided by financing activities during the year ended December 31, 2004, was $250,000, as compared to $(263,801) used in the prior year. The increase was due to loans received from Brooks Station Holdings and D. Emerald Investments Ltd., as described below, in 2004, as compared with the redemption of preferred shares and dividends in 2003. In 2003, we issued to Polystick 4,500,000 shares of common stock and 1,500,000 shares of Series B Preferred Stock valued at $2,625,000 to acquire assets in a non-cash transaction. 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. We recorded non-cash compensation for the shares issued at the trading price on the date of issue, totaling $17,000 in the aggregate. Each loan is evidenced by a promissory note bearing interest at 8% per annum and is secured by a lien on all of our assets. On September 20, 2004, we negotiated an extension of the maturity of the notes from their original maturity date of September 1, 2004 to March 1, 2005. On March 10, 2005, we repaid the February note and negotiated an extension of the maturity of the March note to September 1, 2005. On May 11, 2004, we sold a convertible promissory note in the principal amount of $200,000 and a warrant to purchase up to 1,142,857 shares of our common stock at a price of $.70 per share to D. Emerald Investments Ltd., a private investment corporation ("Emerald"). The note bears interest at the rate of 8% per annum and is convertible into shares of our common stock at a price of $.70 per share. The aggregate purchase price of these securities was $200,000. In connection with the sale of these securities we agreed that if Emerald exercises the warrant in full and converts the convertible note in full, then, at Emerald's request, we will appoint a person designated by Emerald to our Board of Directors and, in addition, for so long as Emerald holds at least eighty-five percent (85%) of the common stock issued upon such exercise and conversion, to nominate such person (or a different person designated by Emerald) to be reelected to the Board of Directors in connection with any meeting of our stockholders at which directors are to be elected. We also agreed that within 120 days of the exercise of the warrant and/or conversion of the note for an aggregate of at least 428,572 shares of common stock (subject to adjustment for dilutive events as set forth in the warrant and the note) we will register all of the shares issuable upon conversion of the note and exercise of the warrant under the Securities Act of 1933. Additionally, we granted Emerald rights to have the shares included in other registration statements we may file for the public offering of our securities for cash proceeds. We recorded a charge to operations of $129,000 for the value of the warrants and the beneficial conversion feature of the convertible note. 6 Our principal stockholder, Polystick, entered into a guaranty and a pledge agreement with Emerald under which Polystick pledged 200,000 shares of our Series B convertible preferred stock as collateral security for the note. Polystick also entered into a voting agreement with Emerald under which Polystick agreed that if we fail to fully and timely fulfill our obligations to appoint or nominate a representative for election to our board of directors, then, at Emerald's request, Polystick will vote its shares of Series B convertible preferred stock in favor of a nominee designated by Emerald in any election of directors occurring during such time and for so long as Emerald holds at least 85% of the common stock issued upon exercise of the warrant and conversion of the note. Polystick also agreed that, provided that Polystick continues to have the right to designate and elect three directors to the Company's board of directors under the terms of the Series B convertible preferred stock, any such nominee will count as one of such directors. Additionally, Polystick agreed to use all its power and authority as provided by our by-laws and the Series B convertible preferred stock to convene, at Emerald's request, meetings of stockholders as may be necessary to elect Emerald's nominee to the board of directors. We believe that our existing capital resources will enable us to maintain our operations at existing levels for at least the next twelve months. However, it is difficult to project our capital needs. There can be no assurance that any additional financing or other sources of capital will be available to us upon acceptable terms, if at all. The inability to obtain additional financing, when needed, would have a material adverse effect on our business, financial condition and operating results. FORWARD-LOOKING STATEMENTS: Some of the statements in this report are forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements about our plans, objectives, expectations, intentions and assumptions that are not statements of historical fact. You can identify these statements by the following words: - "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 the other risks described in Exhibit 99.1 to this report. 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 disagreements with our principal independent accountants on accounting and financial disclosure. ITEM 8A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, our company conducted an evaluation, under the supervision and with the participation of our president and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this evaluation, our president and chief financial officer concluded that our 7 company's disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal controls, which are included within disclosure controls and procedures, during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls. ITEM 8B. OTHER INFORMATION None. 8 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 ---- --- ----- Sagi Matza 36 Chairman of the Board Gilad Gat 41 Chief Executive Officer, Chief Financial Officer and Director Yoav Bitter 37 Director SAGI MATZA has served as Chairman of the Board of GSV, Inc. since July 28, 2003 and as a director since July 21, 2003. He has been the Chief Executive Officer of Polystick U.S. Corp., a New York corporation engaged in the business of investing in oil and gas assets, since April 1999. From 1989 until April 1999 he was the Chief Executive Officer of Polystick Ltd., an Israeli corporation engaged in chemical manufacturing, petrochemical trading and manufacturing and adhesives manufacturing and distribution. Mr. Sagi founded Polystick U.S. Corp. GILAD GAT has served as President and Chief Executive Officer of GSV, Inc. since May 2001 and as Chief Financial Officer since September 30, 2002. He served as Chairman of the Board from May 2001 until July 28, 2003. Mr. Gat was the President and a director of Brooks Station Holdings, Inc., a private investment corporation, from February 2001 to December 2002. From 1996 until May 2001, Mr. Gat was 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 GSV, Inc. since May 2001. Since December 1999, Mr. Bitter has been President of TIG Ventures, a company engaged in strategic consulting and implementation. From August 1999 until May 2002, he was Executive Vice President of Strategic Business Development of ElephantX Online Securities LLC, an internet financial services company, which he co-founded. From 1997 until August 1999, Mr. Bitter was a partner and Director, Marketing/Sales 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. AUDIT COMMITTEE FINANCIAL EXPERT Currently, our entire board acts as our audit committee. Our board presently does not include any member who qualifies as an "audit committee financial expert" (as defined in Regulation 228.401(e)(1)(i)(A) of Regulation S-B). Given our limited financial resources and operations at present the board does not believe that it is necessary at this time to establish a separate audit committee or appoint an "audit committee financial expert" to the board. 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, 2004, all of the Reporting Persons complied with their Section 16(a) filing requirements. 9 CODE OF ETHICS. We adopted a code of ethics for our officers, directors and employees in April 2004. We filed a copy of the code of ethics as Exhibit 14.1 to our annual report for the year ended December 31, 2003. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth all compensation awarded to, earned by, or paid for all services rendered to us during the fiscal years ended December 31, 2004, 2003 and 2002, by our chief executive officer and our other executive officers whose total compensation exceeded $100,000 ("Named Executive Officers"). SUMMARY COMPENSATION TABLE -------------------------- ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- ---------------------- OTHER SECURITIES NAME AND ANNUAL UNDERLYING PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS - ------------------ ---- ------ ----- ------------ ------- Gilad Gat 2004 $ 120,000 $ 27,000 - - President 2003 120,000 - - 120,000 2002 120,000 $ 30,000 - - OPTION GRANTS IN LAST FISCAL YEAR We did not grant any stock options to the Named Executive Officers during 2004. STOCK OPTION EXERCISES AND HOLDINGS Our Named Executive Officers did not exercise any options in 2004. The following table sets forth the number of shares of common stock underlying unexercised options held by our Named Executive Officers as of December 31, 2004. At December 31, 2004, none of our Named Executive Officers held any "in-the-money" stock options. NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS/WARRANTS AT FISCAL YEAR END NAME EXERCISABLE/UN-EXERCISABLE(1) ---- ----------------------------- Gilad Gat 140,000/0 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 GSV, Inc., provided however that, if he is terminated without cause, he is entitled to a severance payment of $120,000. 10 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 under the GSV, Inc. 1998 Stock Option Plan. In October 2003 we issued options under the plan to purchase 120,000 shares of common stock at a price of $.60 per share to each of our non-employee directors. Until July 2004, directors who are not employees of GSV, Inc. also received annual compensation in the amount of $12,000 for their service as directors. In July 2004, the board decided there would be no further cash compensation for non-executive board members. Yoav Bitter received $7000 in 2004. EQUITY COMPENSATION PLAN INFORMATION The following table sets forth certain information at December 31, 2004, with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities. NUMBER OF WEIGHTED AVERAGE NUMBER OF SECURITIES TO BE PRICE OF SECURITIES ISSUED UPON OUTSTANDING REMAINING EXERCISE OF OPTIONS, WARRANTS, AVAILABLE FOR OUTSTANDING AND RIGHTS FUTURE ISSUANCE OPTIONS, WARRANTS UNDER EQUITY AND RIGHTS COMPENSATION PLANS ----------------- ------------------ ------------------ Equity compensation 440,000 $.54 per share 160,000 plans approved by security holders Equity compensation 0 $0 14,000 plans not approved by security holders Total 440,000 $.54 per share 174,000 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information as of March 24, 2005, 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 11 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 stockholder list, filings with governmental authorities, or from the named individual, 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. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them. NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED COMMON STOCK - -------------------- ------------------ ------------ Yoav Bitter 140,000(2) * Gilad Gat 140,000(3) * Sagi Matza 6,970,000(4) 76.7% Doron Ofer 1,428,571(5) 16.0% All executive officers and 77.3% directors as a group 7,250,000 (3 persons) * 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) Includes 140,000 shares of common stock issuable upon exercise of options owned by Mr. Bitter. (3) Includes 140,000 shares of common stock issuable upon exercise of options owned by Mr. Gat. (4) Includes 5,350,000 shares of common stock and 1,500,000 shares of common stock issuable upon conversion of an equal number of shares of Series B Preferred Stock held by Polystick U.S. Corp. Mr. Matza is the Chief Executive Officer of Polystick U.S. Corp. and is the indirect owner of all of its outstanding voting securities. Also includes 120,000 shares of common stock issuable upon exercise of options owned by Mr. Matza. (5) Includes 285,714 shares of Common Stock issuable upon conversion of a promissory note held by D. Emerald Investments Ltd. ("Emerald") and 1,142,857 shares of Common Stock issuable upon exercise of a warrant owned by Emerald. Doron Ofer is the sole owner of Emerald. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Gilad Gat, our President, and Chief Executive Officer, 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. In connection with and as a condition to consummation of the merger in July 2003 in which we acquired an interest in Century Royalty LLC, we redeemed all of the outstanding Series A Preferred Stock from Brooks Station 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. On February 9, 2004, we borrowed $25,000 from Brooks Station. In partial consideration for the loan, we issued 100,000 shares of common stock to Brooks Station. On March 18, 2004, we borrowed another $25,000 from Brooks Station and in partial consideration for the loan issued another 100,000 shares of common stock to Brooks Station. Each loan is evidenced by a promissory note bearing interest at 8% per annum and maturing on September 1, 2005, and is secured by a lien on all of our assets. 12 On September 28, 2004, we entered into an agreement with Brooks Station, dated September 27, 2004, pursuant to which Brooks Station agreed to extend the maturity of three promissory notes we issued to Brooks Station from September 1, 2004 to March 1, 2005, and to waive any claim against us or our assets arising from our failure to repay the notes on the original maturity date. The notes have an aggregate principal amount of $250,000, bear interest at a rate of 8% per annum and are secured by a lien on all of our assets. On March 10, 2005, we repaid the $25,000 note issued to Brooks Station on February 9, 2004 and entered into an agreement with Brooks Station, pursuant to which Brooks Station agreed to extend the maturity date of the remaining notes to September 1, 2005 and waive any claim against us or our assets arising from our failure to repay the three notes on March 1, 2005. The remaining notes have an aggregate principal amount of $225,000, bear interest at a rate of 8% per annum and are secured by a lien on all of our assets. On July 21, 2003 we entered into an Agreement and Plan of Merger with Polystick U.S. Corp., a privately held New York corporation ("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 Preferred Stock. 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. On July 28, 2003, he was elected Chairman of the board. Polystick has the right to elect two additional persons to our board, but has not yet done so. ITEM 13. EXHIBITS Exhibit No. Description 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). 2.2 Agreement and Plan of Merger dated as of July 21, 2003, by and among GSV, Inc., Cybershop L.L.C., Polystick Oil & Gas, Inc. and Polystick U.S. Corp. (Incorporated by reference to Exhibit 2.2 of the Company's report on Form 8-K, filed July 21, 2003). 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-QSB 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-KSB 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 Certificate of designations, preferences and rights of Series B Convertible Preferred Stock of GSV, Inc. (Incorporated by reference to Exhibit 4.1 of the Company's report on Form 8-K, filed July 21, 2003). 3.6 By-Laws as currently in effect. (Incorporated by reference to Exhibit 3.5 of the Company's report on Form 10-KSB for the year ended December 31, 2003, File No. 000-23901). 4.1 Specimen Common Stock Certificate (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 (Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, File No. 333-42707). 13 10.2 1998 Stock Option Plan of the Company (Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, File No. 333-42707). 10.3 1998 Directors' Stock Option Plan (Incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, 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-QSB 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-KSB for the year ended December 31, 1999, File No. 000-23901). 10.6 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). 10.7 Stock Redemption Agreement dated as of July 21, 2003, between the Company and Brooks Station Holdings, Inc. (Incorporated by reference to Exhibit 4.2 of the Company's report on Form 8-K, filed July 21, 2003). 10.8 Form of promissory note issued to Brooks Station Holdings, Inc. (Incorporated by reference to Exhibit 4.3 of the Company's report on Form 8-K, filed July 21, 2003). 10.9 Security Agreement dated as of July 21, 2003, by and between the Company and Brooks Station Holdings, Inc. (Incorporated by reference to Exhibit 4.4 of the Company's report on Form 8-K, filed July 21, 2003). 10.10 Purchase Agreement dated as of May 11, 2004, by and between GSV, Inc. and D. Emerald Investments Ltd. (Incorporated by reference to Exhibit 10.1 of the Company's report on Form 8-K, filed May 14, 2004). 10.11 Guaranty dated as of May 11, 2004, by Polystick U.S. Corporation in favor of D. Emerald Investments Ltd. (Incorporated by reference to Exhibit 10.2 to the Company's report on form 8-K filed May 14, 2004). 10.12 Pledge Agreement dated as of May 11, 2004, by and between Polystick U.S. Corporation and D. Emerald Investments Ltd. (Incorporated by reference to Exhibit 10.3 to the Company's report on Form 8-K filed May 14, 2004). 10.13 Voting Agreement dated May 11, 2004, by and between Polystick U.S. Corporation and D. Emerald Investments Ltd. (Incorporated by reference to Exhibit 10.4 to the Company's report on Form 8-K filed May 14, 2004). 10.14 Letter agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated September 20, 2004. (Incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-QSB for the fiscal quarter ended September 30, 2004, File No. 000-23901). 10.15 Convertible Promissory Note Issued to D. Emerald Investments Ltd. Dated May 11, 2004 (Incorporated by reference to Exhibit 4.1 to the Company's report on Form 8-K, filed May 14, 2004). 10.16 Letter agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated March 10, 2005.* 14.1 Code of Ethics (Incorporated by reference to Exhibit 3.5 of the Company's report on Form 10-KSB for the year ended December 31, 2003, File No. 000-23901). 21.1 List of Subsidiaries* 23.1 Consent of Comiskey & Company, P.C.* 31.1 Section 302 Certification* 32.1 Section 906 Certification* 99.1 Risk Factors* * Filed herewith 14 ITEM 14. Principal Accountant Fees and Services 2004 2003 ---- ---- Audit Fees(1) 19,866.79 $35,208.13 Audit-Related Fees 0 0 Tax Fees (2) $3,485.13 $2,627.50 All Other Fees 0 0 Total $23,351.92 $37,838.63 (1) Represents the aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements for the years ended December 31, 2004, and December 31, 2003 and review of financial statements included in our quarterly reports on Form 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those periods. There were no additional fees billed by our principal accountant during the years ended December 31, 2004 and 2003. (2) Represents the aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the years ended December 31, 2004 and 2003. Our entire board of directors acts as our audit committee. In accordance with Section 10A(i) of the Securities Exchange Act of 1934, before we engage our independent accountant to render audit or non-audit services, the engagement is approved by our full board of directors. Our entire board of directors approved all of the fees referred to in the sections entitled "Audit Fees," "Audit-Related Fees," "Tax Fees" and "All Other Fees" above. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, GSV, Inc. 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 Chief Executive Officer, Chief Financial Officer and President Date: March 31, 2005 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 - --------- ----- ---- Chief Executive Officer, Chief /s/ Gilad Gat Financial Officer and President March 31, 2005 - --------------- (Principal Executive Officer, Gilad Gat Principal Financial and Accounting Officer) /s/ Yoav Bitter Director March 31, 2005 - ---------------- Yoav Bitter /s/ Sagi Matza Director March 31, 2005 - --------------- Sagi Matza 16 INDEX TO FINANCIAL STATEMENTS GSV, INC.
Report of Comiskey & Company, Independent Registered Public Accounting Firm.....................F-2 Balance Sheet as of December 31, 2004...........................................................F-3 Statements of Operations for the years ended December 31, 2004 and 2003.........................F-4 Statements of Stockholders' Equity for the years ended December 31, 2004 and 2003...............F-5 Statements of Cash Flows for the years ended December 31, 2004 and 2003.........................F-6 Notes to Financial Statements...................................................................F-7
F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004 and the related consolidated statements of operations, changes of stockholders' equity and cash flows for the years ended December 31, 2004 and 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and the results of its operations and its cash flows for the year ended December 31, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements are prepared assuming that the Company will continue as a going concern. As more fully described in footnote 1, the Company has incurred recurring operating losses, and it has a deficit in working capital at December 31, 2004 of $ 607,172. The Company's expected future sources of revenue will be derived from its investments in oil and gas, but the exploitation of the Company's holdings will be dependent upon obtaining financing to engage in drilling of the prospects, of which there can be no assurance. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to overcome this uncertainty are also described in footnote 1. The accompanying financial statements do not include any adjustments which may be necessary if the Company is unable to continue. Denver, Colorado March 29, 2005 /s/ Comiskey & Company PROFESSIONAL CORPORATION ------------------------ F-2 GSV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 2004 ASSETS CURRENT ASSETS Cash and cash equivalents $ 167,223 Accounts receivable and other current assets 126,102 ------------ Total Current Assets 293,325 Investments 50,000 Other long-term assets - geologic studies 2,316,721 Investments - oil & gas wells, net accumulated depletion 279,125 Property and equipment, net accumulated depreciation 8,424 Other assets 4,598 ------------ 2,658,869 ------------ Total Assets $ 2,952,193 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 291,834 Notes payable 450,000 Other current liabilities 140,662 Accrued interest 18,000 ------------ Total Current Liablities 900,496 STOCKHOLDERS' EQUITY Series B preferred stock, $0.001 par value; 1,500,000 shares authorized; 1,500,000 shares issued and outstanding 1,500 Common stock, $0.001 par value; 75,000,000 shares authorized; 7,472,703 issued; 7,472,703 outstanding 7,641 Additional paid-in capital 41,016,185 Treasury stock (558,998) Accumulated deficit (38,414,631) ------------ Total Stockholders' Equity 2,051,697 ------------ Total Liabilities and Stockholders' Equity $ 2,952,193 ============ The accompanying notes are an integral part of the financial statements. F-3 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the Years Ended December 31, 2004 and 2003 2004 2003 ---- ---- Sublease income $ -- $ 150,384 Oil and gas income 386,245 134,366 Other income 44,931 -- ----------- ----------- Total Revenues 431,176 284,750 General and administrative expenses 955,500 988,494 ----------- ----------- Loss From Operations Before Other Income and Expense (524,324) (703,744) Interest income, net 38 3,845 Interest expense (26,500) (6,667) Writedown of investments -- (15,000) Gain on sale of investments 16,077 -- ----------- ----------- NET LOSS $ (534,709) $ (721,566) =========== =========== Net loss per common share: Loss per common share from operations - basic $ (0.07) $ (0.15) =========== =========== Weighted average common shares outstanding, basic 7,431,663 4,668,929 =========== =========== The accompanying notes are an integral part of the financial statements. F-4 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock, Series A Preferred Stock, Series B --------------------------- --------------------------- Number of Par Number of Par Shares Value Shares Value ------ ----- ------ ----- Balance at December 31, 2002 363,637 $ 380,000 -- -- Issuance of preferred stock for asset purchase -- -- 1,500,000 1,500 Issuance of common stock for asset purchase -- -- -- -- Issuance of common stock for services -- -- -- -- Redemption of preferred stock (363,637) (380,000) -- -- Net loss -- -- -- -- ------------ ------------ ------------ ------------ Balance at December 31, 2003 -- -- 1,500,000 1,500 Issuance of common stock for note payable Issuance of common stock for services Net loss -- -- -- -- ------------ ------------ ------------ ------------ Balance at December 31, 2004 -- $ -- 1,500,000 $ 1,500 ============ ============ ============ ============
Common Stock -------------------------- Additional Total Number of Par Paid-in Treasury Accumulated Stockholders' Shares Value Capital Stock Deficit Equity ------ ----- ------- ----- ------- ------ Balance at December 31, 2002 2,640,090 $ 2,809 $ 38,220,679 $ (558,998) $ (37,086,215) $ 958,275 Issuance of preferred stock for asset purchase -- -- -- -- -- 1,500 Issuance of common stock for asset purchase 4,500,000 4,500 2,619,000 -- (72,141) 2,551,359 Issuance of common stock for services 113,326 113 28,218 -- -- 28,331 Redemption of preferred stock -- -- -- -- -- (380,000) Net loss -- -- -- -- (721,566) (721,566) ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2003 7,253,416 7,422 40,867,897 (558,998) (37,879,922) 2,437,899 Issuance of common stock for note payable 200,000 200 16,800 17,000 Issuance of common stock for services 19,287 19 2,488 2,507 129,000 129,000 Net loss -- -- -- -- (534,709) (534,709) ------------ ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2004 7,472,703 $ 7,641 $ 41,016,185 $ (558,998) $(38,414,631) $ 2,051,697 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. F-5 GSV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(534,709) $(721,566) Adjustments to reconcile net loss to net cash flows from operating activities: Cost of preferred stock previously issued -- 20,000 Common stock issued for services 19,507 28,331 Non-cash value of warrants and beneficial conversion 129,000 -- Depreciation 1,950 52,668 Depletion 336,985 51,883 Impairment of property & equipment -- 120,580 Writedown of investments -- 15,000 Increase (decrease) in cash from changes in: Account receivable and other current assets (107,324) (78,517) Other assets 8,574 22,426 Accounts payable and other current liabilities 208,690 279,927 Tenant security deposit -- (51,250) --------- --------- Net cash flows from operating activities 62,673 (260,518) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment - oil & gas wells (163,860) (55,739) --------- --------- Net cash flows from investing activities (163,860) (55,739) CASH FLOWS FROM FINANCING ACTIVITIES Redemption of preferred stock -- (200,000) Preferred dividends paid -- (63,801) Increase in notes payable 250,000 -- --------- --------- Net cash flows from financing activities 250,000 (263,801) --------- --------- Net Increase (decrease) in cash 148,813 (580,058) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,410 598,467 --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 167,223 $ 18,410 ========= ========= The accompanying notes are an integral part of the financial statements. F-6 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 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 Company's oil and gas assets. Prior to June 2001, the Company had sought to identify and develop attractive early stage Internet companies in exchange for equity positions in such companies. 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. In 2004, the Company sold its investment in Fasturn, Inc. The Company is presently investigating whether or not there are any business prospects through which material value can be realized from its 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. 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. On July 21, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Polystick U.S. Corp., 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 an interest in Century Royalty LLC ("Century"), a Texas limited liability company that holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which the Company previously held an interest. Century 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 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. Presentation as a Going Concern The Company has incurred substantial operating losses, resulting in an accumulated retained earnings deficit of approximately $38,400,000 at December 31, 2004. Its current investments are limited to its investments in certain oil and gas producing properties in Louisiana, and an interest in Century Royalty LLC, which has as its primary asset an investment in geologic studies to exploit other as yet unowned oil and gas properties. At the present time, the Company is receiving cash flow from its oil and gas investments sufficient to sustain its current activities. Future realization of the Company's investment in geologic studies will be dependent upon the Company's ability to obtain financing for drilling and development, of which there can be no assurance. The Company projects that potential F-7 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 future cash flows related to the studied prospects will exceed their carrying value, if all of the subject prospects are developed. 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. 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 Advertising costs are expensed as incurred. 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. 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. An impairment was also recognized on leasehold improvements as explained in Note 8. Stock-based Compensation The Company applies Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plan. Accordingly, no compensation costs were recorded for options issued at prices which reflect no intrinsic value at the grant or modification date. The Company considered the effects of recognizing compensation cost pursuant to the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123). Using the Black-Scholes option pricing model, which takes into account the exercise price of the options, expected life, current price of the underlying stock, its expected volatility and dividends, and the risk-free interest rate, net income would have been decreased to the pro forma amounts as follows for the years ending December 31: F-8 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 2004 2003 ---------------------------- ---------------------------- AS PRO AS PRO REPORTED FORMA REPORTED FORMA ------------ ------------ ------------ ------------ Net loss $ (534,709) $ (534,709) $ (721,566) $ (721,566) ============ ============ ============ ============ Net loss per share $ (0.07) $ (0.07) $ (0.15) $ (0.15) ============ ============ ============ ============ 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, 2004 was approximately $0. 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. 3. Investments The Company has investments in four internet-related companies, which have been accounted for using the cost method. As described above, the Company acquired working interests in two oil and gas wells effective June 1, 2002 for $550,000 in cash and common stock of the Company valued at $212,500, for a total investment of $762,500. The asset is depleted on a periodic basis using the units of production method. Depletion expense for the years ended December 31, 2004 and 2003 was $ 336,985 and $51,883, respectively. 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. An independent reserve study performed effective March 2005, estimates the total remaining reserves in this well including PDP and PDNP, net of expenses and discounted at 10% is $778,954. 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 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 has such shares been converted into Common Stock immediately before such dividend was declared. Upon any Liquidation Event, the holders of the outstanding Series B Preferred Stock will be entitled to be paid an amount equal to $1.00 per share plus the amount of any declared and unpaid dividends thereon. If upon any Liquidation Event, the net assets of the Company are insufficient to permit payment in full of such preferential amount to the holders of Series B Preferred Stock, then the entire net assets of the Company will be distributed ratably among the holders of the Series B Preferred Stock. F-9 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 Following is a condensed balance sheet showing the fair values of the assets acquired and the liabilities assumed as of the date of the acquisition: Current assets $ 210,784 Other long-term assets 2,316,721 Investments - oil & gas wells 219,420 ----------- 2,746,925 Current liabilities (121,925) ----------- Net assets acquired $ 2,625,000 =========== In connection with and as a condition to the Merger, the Company redeemed all of its existing outstanding Series A Preferred Stock, par value $0.001 per share, for $400,001, plus dividends payable. The Company paid $263,801 of the redemption price in cash and $200,000 by a full recourse promissory note bearing interest at a rate of 8% per annum and due September 4, 2004, secured by a lien on all of the Company's assets. As a result of the merger, the Company acquired an interest in Century Royalty LLC ("Century"), which holds certain oil and gas properties in Texas plus an additional interest in the Louisiana properties in which the Company presently holds an interest. Century also holds the rights to certain geologic studies that are included in other long term assets on the accompanying balance sheet. 4. Stockholders' Equity 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 is evidenced by a promissory note bearing interest at 8% per annum and is secured by a lien on all of our assets. On September 20, 2004, we negotiated an extension of the maturity of the notes from their original maturity date of September 1, 2004 to March 1, 2005. On March 10, 2005, we repaid the February note and related interest and negotiated an extension of the maturity of the March note and a note from July 2003 to September 1, 2005. The amount charged to expense for the value of the shares issued was $17,000. 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"). As a result of these warrant and conversion rights the company recorded an expense of $129,000 calculated using the Black Scholes method. The note bears interest at the rate of 8% per annum and is convertible into shares of our common stock at a price of $.70 per share. The aggregate purchase price of these securities was $200,000. In connection with the sale of these securities we agreed that if Emerald exercises the warrant in full and converts the convertible note in full, then, at Emerald's request, we will appoint a person designated by Emerald to our Board of Directors and, in addition, for so long as Emerald holds at least eighty-five percent (85%) of the common stock issued upon such exercise and conversion, to nominate such person (or a different person designated by Emerald) to be reelected to the Board of Directors in connection with any meeting of our stockholders at which directors are to be elected. We also agreed that within 120 days of the exercise of the warrant and/or conversion of the note for an aggregate of at least 428,572 shares of common stock (subject to adjustment for dilutive events as set forth in the warrant and the note) we will register all of the shares issuable upon conversion of the note and exercise of the warrant under the Securities Act of 1933. Additionally, we granted Emerald rights to have the shares included in other registration statements we may file for the public offering of our securities for cash proceeds. Our principal stockholder, Polystick, entered into a guaranty and a pledge agreement with Emerald under which Polystick pledged 200,000 shares of our Series B convertible preferred stock as collateral security for the note. Polystick also entered into a voting agreement with Emerald under which Polystick agreed that if we fail to fully and timely fulfill our obligations to appoint or nominate a representative for election to our board of directors, then, at Emerald's request, Polystick will vote its shares of Series B convertible preferred stock in favor of a nominee F-10 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 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. 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: Shares Weighted Average Exercise Price ------ ------------------------------- Outstanding at December 31, 2002 40,000 $ 0.30 Granted 400,000 $ 0.56 Cancelled -- -- Exercised -- -- ------- ------ Outstanding at December 31, 2003 440,000 $ 0.54 Granted -- -- Cancelled -- -- Exercised -- -- ------- ------ Outstanding at December 31, 2004 440,000 $ 0.54 The options granted prior to 2003 vest one-third annually over three years and expire five years from the date of grant. The options granted in 2003 vested immediately and expire five years from the date of grant. At December 31, 2004, all options are exercisable. 6. General and Administrative Expenses Supplemental disclosure of General and Administrative Expenses General and Administrative Expenses for 2004 were $955,500. This number includes in addition to other expenses depletion of oil and gas reserves of $336,985 and $129,000 recorded for issuance of conversion rights and warrants connected to the financing with D. Emerald. 7. Notes Payable As described in Note 4, at December 31, 2004 the company had outstanding notes totaling $450,000. Accrued interest at December 31, 2004 totals $26,500. On March 10, 2005, the company repaid the February note of $25,000 and related interest of $2,147.95 and negotiated an extension of the maturity of the March note to September 1, 2005. 8. Leases The Company leases for its own use office space under a non-cancelable operating lease expiring April 30, 2005, with an option for a six-month renewal. Future minimum lease payments on this non-cancelable operating lease for 2004 are approximately $6,800. F-11 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 Rent expense for the years ended December 31, 2004 and 2003 was $186,578 and $194,366 respectively. The number for 2004 includes $164,908 accumulated to accounts payable but unpaid rent for the offices in Jersey City. In June 2001, the Company sublet to Nekema.com its 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 from October, 2002 through May 31, 2003, totaling $133,091. On May 5, 2004 we filed a proof of claim against Nekema's estate in the United States Bankruptcy Court for the Southern District of New York. The proof of claim is for the total sum of $421,455.15 as permitted by law. We cannot assure you that we will be able to collect any of this claim. 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 automatic increases based upon the consumer price index. Estimated minimum future lease payments including such increases are as follows: 2005 $172,329 2006 $180,084 2007 $188,188 2008 $196,656 -------- $737,257 9. 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. For federal income tax purposes, the Company's subsidiary Century Royalty LLC files a partnership tax return and reports the Company's share of profits and losses, which are taxed to the Company as pass-through income from oil and gas activities. The Company files a consolidated federal income tax return with its other subsidiaries. The tax effects of temporary differences and net operating loss carryforwards (in $000's) that give rise to deferred income tax assets and liabilities at December 31, 2004 are as follows: Net operating loss carryforwards $ 7,301 Less taxable temporary differences related to depletion (87) ------- Net deductible temporary differences 7,214 Less valuation allowance (7,214) ------- Net deferred tax asset $ -- ======= Due to uncertainty in the realization of the deferred tax asset, the Company has provided a full valuation allowance. For the years 2004 and 2003, the valuation allowance increased $181,000 and $250,000. As of December 31, 2004, the Company has approximately $21,473,000 in federal net operating loss carryforwards. Certain of these carryforwards may be limited due to change in control provisions in the internal revenue code. The losses expire in various years through 2024. F-12 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 10. Net Loss Per Common Share Basic net loss per common share is calculated by dividing net loss per common share after effect of adjustable common stock warrants, as explained below, by the weighted average number of shares of common stock outstanding during the period as follows:
2004 2003 ---------------------------------- ---------------------------------- LOSS SHARES SHARE LOSS SHARES PER SHARE ---- ------ ----- ---- ------ --------- Loss from continuing operations $(534,709) 7,431,663 $ (.07) $(721,566) 4,668,929 $ (.15) Effect of preferred stock dividends -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Net loss available for common shareholders $(534,709) 7,431,663 $ (.07) $(721,566) 4,668,929 (.15) ========= ========= ========= ========= ========= =========
11. Subsequent Events Subsequent to year end, the Company on March 10, 2005, repaid the February note and related interest and negotiated an extension of the maturity of the March note to September 1, 2005. 12. Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123(R) Share-Based Payment, which addresses the accounting for share-based payment transactions. SFAS No. 123(R) eliminates the ability to account for share-based compensation transactions using APB No. 25, and generally requires instead that such transactions be accounted and recognized in the statement of operations based on their fair value. SFAS No. 123(R) will be effective for public companies that file as small business issuers as of the first interim or annual reporting period that begins after December 15, 2005. The initial adoption of this standard is not expected to have an impact on the Company's financial position and results of operations. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - - an amendment of APB Opinion No. 29." This Statement eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect application of SFAS No. 153 to have a material affect on its financial statements. 13. 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 April 1, 2005, and adjusted by the Company for production through Dec. 31, 2003. 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, 2003 1,038 101,688 Production (1,380) (45,965) Acquisitions Discoveries Revisions of previous estimates 4,015 76,938 -------- -------- Estimated quantity, December 31, 2004 3,673 132,661 ======== ======== F-13 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 Proved developed reserves: Oil (BBLS) December 31, 2003 1, 038 December 31, 2004 3,673 Gas (MCF) December 31, 2003 101,688 December 31, 2004 132,661 Proved undeveloped reserves: Oil (BBLS) December 31, 2004 0 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, 2004 --------------- Future cash inflows $ 1,244,230 Future development and production costs (304,272) --------------- Future net cash flows 940,558 10% annual discount for Estimating timing of cash flows (161,604) --------------- Standardized measure of discounted future net cash flows 778,954 =============== F-14 GSV, Inc. and Subsidiaries NOTES TO FINANCIAL STATEMENTS December 31, 2004 Changes in Standardized measure are as follows: Standardized measure of discounted future net cash flows, December 31, 2003 $ 502,586 Purchase of reserves in place 0 Changes in price, net of future production costs $ 47,588 Changes in estimated future development costs $ 122,334 Changes in estimated quantities $ 538,038 Changes due to operations: Production ($336,985) Accretion of discount ($ 6,803) Other ($ 87,804) --------- Standardized measure of discounted future net cash flows, December 31, 2004 $ 778,954 ========= F-15 Exhibit Index Exhibit No. Description 10.16 Letter agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated March 10, 2005. 21.1 List of Subsidiaries 23.1 Consent of Comiskey & Company, P.C. 31.1 Section 302 Certification 32.1 Section 906 Certification 99.1 Risk Factors EX-10.16 2 v015391_ex10-16.txt EXHIBIT 10.16 GSV, INC. 191 Post Road Westport, Connecticut 06880 March 10, 2005 Brooks Station Holdings, Inc. c/o Cavallo Capital Corp. 660 Madison Avenue New York, New York 10021 Re: Waiver of Default and Amendment of Promissory Notes Dear Sirs: Brooks Station Holdings, Inc. ("Brooks Station") holds three promissory notes issued by GSV, Inc. (the "Company"), as follows: (i) a promissory note dated July 21, 2003, in the principal amount of $200,000 (the "July 2003 Note"), (ii) a promissory note dated February 11, 2004, in the principal amount of $25,000 (the "February 2004 Note") and (iii) a promissory note dated March 18, 2004, in the principal amount of $25,000 (the "March 2004 Note" and, together with the July 2003 Note and February 2004 Note, the "Notes"). Each of the Notes bears interest at the rate of 8% per annum and is secured by a first priority security interest in all assets of the Company pursuant to a Security Agreement between the Company and Brooks Station dated as of July 21, 2003. By agreement dated September 27, 2004, each of the Notes was amended to extend its maturity date to March 1, 2005 (the "Old Maturity Date"). Contemporaneously with the execution of this letter agreement, the Company is paying Brooks Station $27,147.95, representing the principal amount and accrued interest on the February 2004 Note. Brooks Station hereby acknowledges receipt of such payment and herewith surrenders the February 2004 Note to the Company for cancellation. Brooks Station and the Company now wish to extend the maturity of each of the July 2003 Note and the March 2004 Note to September 1, 2005, in accordance with the terms set forth below: 1. Waiver of Default. Brooks Station hereby waives any claim against the Company or its assets arising from the Company's failure to pay the principal and accrued interest on the Notes on the Old Maturity Date or thereafter through the date of this letter agreement. 2. Extension of Maturity Date. Brooks Station and the Company agree that Section 1 of each of the July 2003 Note and the March 2004 Note is hereby amended to read as follows: "1. The principal amount of this Note, together with any unpaid accrued interest thereon, shall be due and payable on September 1, 2005." 3. Miscellaneous. (i) Except as herein amended, the July 2003 Note and the March 2004 Note shall remain in full force and effect. This letter agreement may not be amended, revised, terminated or waived except by an instrument in writing signed and delivered by the party to be charged therewith. (ii) This letter agreement shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. (iii)This letter agreement shall be construed and governed by the laws of the State of New York, applicable to agreements made and to be performed entirely therein. If you are in agreement with the foregoing, please sign below and return the original to the Company, keeping a copy for your files. Sincerely, GSV, INC. By: /s/ Gilad Gat ---------------------------- Name: Gilad Gat Title: Chief Executive Officer and President Acknowledged and agreed: BROOKS STATION HOLDINGS, INC. By: /s/ Daniel Golan ----------------- Name: Daniel Golan Title: President -2- EX-21.1 3 v015391_ex21-1.txt EXHIBIT 21.1 Subsidiaries of GSV, Inc. Name Jurisdiction of Organization ---- ---------------------------- Cybershop, L.L.C. New Jersey Cybershop Holding Corp. New Jersey EX-23.1 4 v015391_ex23-1.txt Exhibit 23.1 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT To the Board of Directors GSV, Inc. and subsidiaries Westport, Connecticut We hereby consent to incorporation by reference in Registration Statement Numbers 333-75159 and 333-91575 on Form S-8 of our report dated March 29, 2005 on the consolidated balance sheet of GSV, Inc. and Subsidiaries as of December 31, 2004 and the related consolidated statements of operations, changes of stockholders' equity and cash flows for the years ended December 31, 2004 and 2003, which appear in the December 31, 2004 Annual Report on Form 10-KSB of GSV, Inc. /s/ Comiskey & Company, P.C. Comiskey & Company, P.C. Denver, Colorado March 30, 2005 EX-31.1 5 v015391_ex31-1.txt EXHIBIT 31.1 CERTIFICATION REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934. I, Gilad Gat, certify that: 1. I have reviewed this Annual Report on Form 10-KSB of GSV, Inc.; 2. Based on my knowledge, this 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. I am 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 my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; (b) [intentionally omitted]; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my 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 fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and to the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 31, 2005 /s/ Gilad Gat ------------------------------- Gilad Gat Chief Executive Officer and Chief Financial Officer EX-32.1 6 v015391_ex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350. In connection with the Annual Report of GSV, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2004 (the "Report"), I, Gilad Gat, Chief Executive Officer, Chief Financial Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirement of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the Company's financial position and results of operations. Date: March 31, 2005 /s/ Gilad Gat ------------------------------- Gilad Gat Chief Executive Officer and Chief Financial Officer EX-99.1 7 v015391_ex99-1.txt EXHIBIT 99.1 RISK FACTORS WE HAVE A HISTORY OF OPERATING LOSSES. We have incurred operating losses of $524,324 and $703,744 for the fiscal years ended December 31, 2004 and 2003, respectively. Our ability to achieve profitability depends primarily upon our ability to manage our existing oil and gas interests successfully. In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and you should not rely upon them as an indication of our future performance. WE MAY NEED ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, AND WE MAY NOT BE ABLE TO OBTAIN IT ON TERMS ACCEPTABLE TO US OR AT ALL. We believe that our existing capital resources will enable us to maintain our current operations through March 31, 2006. However, we may require additional funds during or after that period. In particular, we would be required to secure additional sources of capital to continue operating at our current level or curtail our current operations if we do not achieve the results of operations that we expect as a result of lower than expected revenues, higher than expected expenses, or other possible adverse developments. In addition, if we expand our existing business plan to focus on growth in international markets, make acquisitions of businesses or technologies, or modify our business plan in other ways, we would likely require additional funding. If we require additional financing for any reason, we cannot assure you that such additional financing will be available to us on acceptable terms, or at all. In the event we are unable to raise additional capital, we may be required to substantially reduce or curtail operations. Further, if we raise additional funds through the issuance of additional equity securities, the percentage ownership of our shareholders will be diluted. Any new equity securities may have rights, preferences, or privileges senior to those of our common stock. WE DO NOT CONTROL OPERATIONS AT THE OIL & GAS PROPERTIES IN WHICH WE HOLD INTERESTS. We own less than 100% of the working interest in our gas holdings. We do not conduct any operations. Operations are conducted by operating companies that follow the instructions of the working interest owners. Because of this structure, drilling and operating decisions are not entirely within our control. If we disagree with the decision of a majority of working interest owners, we may be required, among other things, to decline to participate in a particular activity. If we decline to participate, we might be required to relinquish our interest or may be subject to certain non-consent penalties, as provided in the applicable operating agreement. Such penalties typically allow participating working interest owners to recover from the proceeds of production. Under most operating agreements, the operator is given direct and full control over all operations on the property and is obligated to conduct operations in a workman-like manner; however the operator is usually not liable to the working interest owners for losses sustained or for liabilities incurred, except those resulting from its own gross negligence or willful misconduct. Each working interest owner is generally liable for its share of the costs of developing and operating jointly owned properties. The operator is required to pay the expenses of developing and operating the property and will invoice working interest owners for their proportionate share of such costs. We may have a limited ability to exercise control over operations and the associated costs of such operations. The success of our investment in these activities may, therefore, be dependent upon a number of facts that are outside of our control. WE MAY BE LIABLE TO PAY RENT ON OUR FORMER OFFICES IN JERSEY CITY UNTIL DECEMBER 2008. 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 was guaranteed by Lumbermens Mutual Casualty Company, d/b/a Kemper Insurance Company, until only May 2003. The aggregate rent for the period June 2003 through December 2008 is $995,668. 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, which would have a severe negative impact on our cash flow and operating results. 1 TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED. Our common stock is traded on the OTC Bulletin Board. The OTC Bulletin Board is not an exchange and, because trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange or Nasdaq, you may have difficulty reselling your securities. OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION. Our common stock is subject to regulations of the Securities and Exchange Commission relating to the market for penny stocks. These regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated with the penny stock market be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. The regulations applicable to penny stocks may severely limit the market liquidity for our securities and could reduce your ability to sell your securities in the market. 2 -----END PRIVACY-ENHANCED MESSAGE-----