**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




Washington,
      DC 20549




**FORM
      10-Q**




(Mark
      One)




**x**  **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




For
      the
      quarterly period ended September 30, 2008




OR




**o**  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




For
      the
      transition period from ____________ to ____________




*Commission
      File Number 0-23901*





**GSV,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **13-3979226**(State
                or other jurisdiction of incorporation or  
                organization)
            
            (I.R.S.
                Employer Identification No.)





**191
                Post Road West, Westport, CT**
            **06880**(Address
                of principal executive offices)
            (Zip
                Code)





**(203)
      221-2690**


(Registrant’s
      telephone number, including area code)





**N/A**


(Former
      name, former address and former fiscal year, if changed since last
      report)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large accelerated filer
            o
            
            Accelerated filer
            oNon-accelerated filer
            o
            
            Smaller
                reporting company
            x


(Do
      not
      check if a smaller reporting company)




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




Indicate
        the number of shares outstanding of each of the registrant’s classes of common
        stock, as of the latest practicable date: As of November 12, 2008, there
        were 7,502,703 shares of common stock outstanding, excluding 168,592 shares
        held
        in treasury.









**GSV,
      INC. AND SUBSIDIARIES**




**INDEX
      TO FORM 10-Q**





Page
                NumberPART
                  I. FINANCIAL INFORMATION
              3Item
                  1. Financial Statements (unaudited):
              3Condensed
                  Consolidated Balance Sheets at September 30, 2008 and December
                  31,
                  2007
              3Condensed
                  Consolidated Statements of  Income for the Nine Months and Three
                  Months ended September 30, 2008 and 2007
              4Condensed
                  Consolidated Statements of Cash Flows for the Nine Months ended
                  September
                  30, 2008 and 2007
              6Notes
                  to Unaudited Condensed Consolidated Financial Statements
              7Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              11Item
                  4T. Controls and Procedures
              18PART
                  II. OTHER INFORMATION
              19Item
                  6. Exhibits
              19SIGNATURES
              20










**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**GSV,
      Inc.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS - UNAUDITED**




September
                    30,
                
                December
                    31,2008
                
                2007ASSETSCURRENT
                    ASSETSCash
                    and cash equivalents
                
                $
                552,841
                
                $
                398,261Accounts
                    receivable and other current assets
                
                
                30,171
                
                
                170,094Total
                    current assets
                
                
                583,012
                
                
                568,355Investments:Internet
                    related
                
                
                50,000
                
                
                50,000Geologic
                    studies
                
                
                -
                
                
                2,316,721Oil
                    and gas wells, net of accumulated depletion of $1,032,012
                
                
                2,527,852
                
                
                45,5782,577,852
                
                
                2,412,299Total
                    assets
                
                $
                3,160,864
                
                $
                2,980,654LIABILITIES
                    AND STOCKHOLDERS' EQUITYCURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                175,701
                
                $
                98,030Current
                    portion of long-term debt
                
                
                526,193
                
                
                558,125Other
                    current liabilities
                
                
                79,199
                
                
                106,352Accrued
                    interest
                
                
                83,684
                
                
                121,899Total
                    current liabilities
                
                
                864,777
                
                
                884,405LONG-TERM
                    DEBT, LESS CURRENT PORTION
                
                
                41,548
                
                
                178,125Total
                    liabilities
                
                
                906,325
                
                
                1,062,530STOCKHOLDERS'
                    EQUITYSeries
                    B convertible preferred stock, $0.001 par value; 1,500,000
                
                
                1,500
                
                
                1,500shares
                    authorized, issued, and outstandingSeries
                    C convertible preferred stock, $ 0.001 par value;
                
                
                200
                
                
                200200,000
                    shares authorized, issued andoustandingCommon
                    stock, $0.001 par value; 75,000,000 shares
                
                
                7,671
                
                
                7,671authorized;
                    7,671,303 shares issuedAdditional
                    paid-in capital
                
                
                41,048,955
                
                
                41,048,955Treasury
                    stock (168,600 shares) - at cost
                
                
                (558,998
                )
                
                (558,998
                )Accumulated
                    deficit
                
                
                (38,244,789
                )
                
                (38,581,204
                )Total
                    stockholders' equity
                
                
                2,254,539
                
                
                1,918,124Total
                    liabilities and stockholders' equity
                
                $
                3,160,864
                
                $
                2,980,654
   The
                  accompanying notes are an integral part of the financial
                  statements.
  3
  **GSV,
                      Inc.****CONSOLIDATED
                      STATEMENT OF INCOME -
                      UNAUDITED**
  For
                      the nine months ended September 30,2008
                  
                  2007Revenues
                      from oil and gas investments
                  
                  $
                  821,472
                  
                  $
                  578,227General
                      and administrative expenses
                  
                  
                  477,972
                  
                  
                  452,153Income
                      from operations
                  
                  
                  343,500
                  
                  
                  126,074Interest
                      expense
                  
                  
                  (30,949
                  )
                  
                  (42,703
                  )Gain
                        on settlement of indebtedness
                  
                  
                  23,863
                  
                  
                  -NET
                      INCOME
                  
                  $
                  336,414
                  
                  $
                  83,371Net
                      income per common share:Basic
                  
                  $
                  0.04
                  
                  $
                  0.01Diluted
                  
                  $
                  0.03
                  
                  $
                  0.01Weighted
                      average common sharesBasic
                  
                  
                  7,502,703
                  
                  
                  7,502,703Diluted
                  
                  
                  10,731,657
                  
                  
                  10,708,600
  The
                    accompanying notes are an integral part of the financial
                    statements.
  4
  **GSV,
                      Inc.****CONSOLIDATED
                      STATEMENT OF INCOME
                      - UNAUDITED**
  For
                      the three months ended September 30,2008
                  
                  
                  2007Revenues
                      from oil and gas investments
                  
                  $
                  8,780
                  
                  $
                  223,115General
                      and administrative expenses
                  
                  
                  158,315
                  
                  
                  210,597(Loss):
                      Income from operations
                  
                  
                  (149,535
                  )
                  
                  12,518Interest
                      expense
                  
                  
                  (10,183
                  )
                  
                  (14,234
                  )NET
                      LOSS
                  
                  $
                  (159,718
                  )
                  $
                  (1,716
                  )Net
                      loss per common share:Basic
                      and diluted
                  
                  $
                  (0.02
                  )
                  $
                  (0.00
                  )Weighted
                      average common shares outstanding:Basic
                  
                  
                  7,502,703
                  
                  
                  7,502,703Diluted
                  
                  
                  10,285,560
                  
                  
                  10,285,560
  The
                    accompanying notes are an integral part of the financial
                    statements.
  5
  **GSV,
                      Inc.****CONSOLIDATED
                      STATEMENT OF CASH FLOWS -
                      UNAUDITED**
  For
                      the nine months ended September 30,2008
                  
                  2007OPERATING
                      ACTIVITIESNet
                      income
                  
                  $
                  336,414
                  
                  $
                  83,371Adjustments
                      to reconcile net incometo
                      net cash provided by operating activities:Depreciation
                  
                  
                  -
                  
                  
                  2,250Gain
                      on settlement of indebtedness
                  
                  
                  (23,863
                  )
                  
                  -Depletion
                  
                  
                  54,789
                  
                  
                  208,339Changes
                      in operating assets and liabilitiesAccount
                      receivable and other current assets
                  
                  
                  139,923
                  
                  
                  (46,510
                  )Accounts
                      payable and other current liabilities
                  
                  
                  12,302
                  
                  
                  76,552Net
                      cash provided by operating activities
                  
                  
                  519,565
                  
                  
                  324,001INVESTING
                      ACTIVITIESInvestment
                      in oil and gas wells
                  
                  
                  (220,342
                  )
                  
                  (84,578
                  )Net
                      cash used by investing activities
                  
                  
                  (220,342
                  )
                  
                  (84,578
                  )FINANCING
                      ACTIVITIESRepayment
                      of long-term debt
                  
                  
                  (144,644
                  )
                  
                  (20,000
                  )Net
                      cash used by financing activities
                  
                  
                  (144,644
                  )
                  
                  (20,000
                  )Net
                      increase in cash
                  
                  
                  154,579
                  
                  
                  219,423CASH
                      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                  
                  
                  398,261
                  
                  
                  38,260CASH
                      AND CASH EQUIVALENTS, END OF PERIOD
                  
                  **$**
                  **552,841**
                  
                  **$**
                  **257,683**SUPPLEMENTAL
                      INFORMATIONCash
                      paid for interest
                  
                  $
                  69,165
                  
                  $
                  -Cash
                      paid for income taxes
                  
                  $
                  9,398
                  
                  $
                  -
  The
                    accompanying notes are an integral part of the financial
                    statements
  6


**GSV,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





1.
      Description of the Business





GSV
      Inc.
      (the “Company”) manages investments in oil and gas wells. The Company
      currently is seeking additional related opportunities. The Company
      also has limited internet related investments.





2.
      Basis
      of Presentation





The
      accompanying condensed consolidated financial statements have been prepared
      pursuant to the rules and regulations of the Securities and Exchange Commission
      for interim financial reporting. Accordingly, certain information and notes
      required by accounting principles generally accepted in the United States of
      America for complete financial statements are not included. These financial
      statements should be read in conjunction with the financial statements and
      accompanying notes for the year ended December 31, 2007, included in the
      Company’s Annual Report on Form 10-KSB as filed with the Securities and Exchange
      Commission. In the opinion of management, the accompanying financial statements
      include all adjustments (consisting primarily of normal recurring accruals)
      that
      the Company considers necessary for a fair presentation of its financial
      position, results of operations and cash flows. Results for interim periods
      are
      not necessarily indicative of the results that may be achieved for the full
      year.





The
        Company has incurred substantial operating losses, resulting in an accumulated
        deficit of $38,244,789 as of September 30, 2008. Its current investments
        are
        limited to certain oil and gas producing properties in Louisiana and an interest
        in Century Royalty LLC (“Century Royalty”), a Texas limited liability company
        that holds interests in oil and gas producing properties in
        Texas.





In
      recent
      periods cash flows provided by the Company’s oil and gas investments have been
      sufficient to enable the Company to fund its operating, investing and financing
      needs. However, the Company will be required to obtain additional financing
      to
      fund drilling and development and to pay certain indebtedness as it becomes
      due.
      There is no assurance that the Company will be able to obtain additional
      adequate financing. These conditions raise substantial doubt about the Company’s
      ability to continue as a going concern. The accompanying financial statements
      do
      not include any adjustments that may result from the outcome of this
      uncertainty.





3.
      Recent
      Accounting Pronouncements




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
      establishes a framework for measuring the fair value of assets and liabilities,
      and expands disclosure requirements regarding the fair value measurement. SFAS
      157 does not expand the use of fair value measurements. This statement, as
      issued, is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. FASB
      Staff Position (“FSP”) FAS No. 157-2 was issued in February 2008 and deferred
      the effective date of SFAS 157 for nonfinancial assets and liabilities to fiscal
      years beginning after November 2008. As such, the Company adopted SFAS 157
      as of
      January 1, 2008 for financial assets and liabilities only. There was no
      significant effect on the Company’s financial statements. The Company does not
      believe that the application of SFAS 157 to non-financial assets and liabilities
      will significantly affect its financial statements.




In
      February 2007, the FASB issued SFAS 159, “The Fair Value Option for
      Financial Assets and Liabilities—including an amendment of FASB Statement
      No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
      accounting but does not affect existing standards which require assets or
      liabilities to be carried at fair value. The objective of SFAS 159 is to
      improve financial reporting by providing companies with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. Under SFAS 159, a company may elect to use fair value to
      measure eligible items at specified election dates and report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date. Eligible items include, but are not limited
      to, accounts receivable, accounts payable, and issued debt. If elected,
      SFAS 159 is effective for fiscal years beginning after November 15,
      2007. The Company has not elected to measure any additional assets or
      liabilities at fair value that are not already measured at fair value under
      existing standards.




As
      of
      September 30, 2008, the Company’s financial assets included an investment in an
      internet related company. This investment is carried at cost and reviewed
      periodically for impairment. In connection therewith, fair value is estimated
      under FAS 157 based on third party valuation models (i.e., Level 2 as defined
      under SFAS 157) and compared to cost. There was no impairment loss during the
      quarter ended September 30, 2008.




7


In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations *“* (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements
      for how an acquirer recognizes and measures in its financial statements the
      identifiable assets acquired, the liabilities assumed, any non-controlling
      interest in the acquiree and the goodwill acquired. SFAS 141(R) also
      establishes disclosure requirements to enable the evaluation of the nature
      and
      financial effects of the business combination. SFAS 141(R) is effective for
      fiscal years beginning after December 15, 2008. The Company will apply the
      provisions of SFAS 141(R) to any acquisition after January 1, 2009.




In
      December 2007, the FASB issued SFAS No. 160, “Accounting for Noncontrolling
      Interests.” SFAS 160 clarifies the classification of noncontrolling interests in
      consolidated balance sheets and reporting transactions between the reporting
      entity and holders of noncontrolling interests. Under this statement,
      noncontrolling interests are considered equity and reported as an element of
      consolidated equity. Further, net income encompasses all consolidated
      subsidiaries with disclosure of the attribution of net income between
      controlling and noncontrolling interests. SFAS No. 160 is effective
      prospectively for fiscal years beginning after December 15, 2008. Currently,
      there are no noncontrolling interests in any of the Company’s
      subsidiaries.




4.
      Investments




*Internet
      Related*




The
      Company has made investments in four internet-related companies that have been
      accounted for using the cost method. Such investments are reviewed periodically
      for impairment. Impaired investments have been written down to a nominal
      amount.




*Louisiana
      Oil and Gas Wells*




The
      Company has working interests in two oil and gas wells in Louisiana. An
      independent reserve study, effective January 2008, estimated that the remaining
      reserve in the wells including PDP and PDNP, net of expenses and discounted
      at
      10%, was $985,829. In June 2008 the well that had been producing oil and gas
      started to produce some water, and production of oil and gas from the well
      has
      fallen sharply as a result. In any event, the Company fully expects to recover
      the carrying value of this asset. In the beginning of October 2008 the operator
      of the well, Chroma Operating Inc., proposed to drill another well close to
      the
      existing wells in order to tap into reserves. However, the members of the
      working interest partnership, including the Company, did not consent to
      participate and the well was not drilled. The Company anticipates that Chroma
      will propose drilling a new well again in 2009.




*Texas
      Oil and Gas Wells*




The
      Company has interests in certain oil and gas properties in Texas and an
      undivided one-third interest in Century Royalty, which manages oil and gas
      properties in Texas and Louisiana. Century Royalty also holds the rights to
      certain geologic studies.  Summary information for these investments
      follows:




Friendswood
      No. 2 RE




On
        June
        28, 2006, the working interest partnership of which Century Royalty is a
        member
        commenced drilling on Friendswood No. 2 RE and planned to commence drilling
        on a
        second prospect once the first was completed. The costs of drilling these
        prospects were expected to exceed Century Royalty’s carried interest in the
        working interest partnership. On June 20, 2006, the Company agreed to contribute
        a maximum of $100,000 towards the drilling of the first prospect and decrease
        its working interest in these two prospects to 11.918%. There has been no
        change
        in the working interest from December 31, 2007 to September 30,
        2008.





On
      October 5, 2006, the Company announced the successful completion of drilling
      in
      the first prospect, located in Liberty County, Texas. The pipeline tie-in of
      the
“Friendswood No. 2 RE” gas well was completed successfully in June 2007. On or
      about September 14, 2007, efforts to increase the pressure of the flow of gas
      from the well were successful and the sale of gas through the pipeline
      commenced. On February 4, 2008, fracturing of the well was completed
      successfully. On February 21, 2008, the well was put back on line full-time.
      Since then, it has produced around 350 - 400 mcf per day, up from about 60
      mcf
      per day prior to fracturing.





In
        June
        2008, the working interest partnership started to drill a re-entry into an
        existing well, targeting some oil sands in the area covered in the East Wilcox
        prospect. However, after encountering some old drill bits and other debris
        in
        the hole, it was decided to secure additional financing and then drill a
        new
        well.  In 2008, the Company invested approximately $21,000 in this
        re-entry and approximately $51,000 in continuing development of this prospect.





8


In
        July
        2008 the Company received an independent engineering report for the East
        Wilcox
        prospect. According to the report the total reserves in the prospect are
        approximately 7.9 BCF gross and approximately 660 mcf net for the adjusted
        revenue interest of the Company in this prospect. As of July 1, 2008, the
        estimated reserve in this prospect, including PDP and PDNP net of expenses
        and
        discounted at 10%, was about $3,835,000. The prospect also has a nominal
        amount
        of oil. According to the report it may take up to 5 additional wells to tap
        the
        reserves. Century Royalty and its partners are preparing to commence drilling
        a
        second well near “Friendswood No. 2 RE” in the near future. Timing of work on
        the second well is dependent on securing sufficient financing. Based on this
        report, an asset previously classified as “geological studies” on the balance
        sheet was reclassified as “oil and gas wells, net of accumulated
        depletion.”  Depletion has commenced on the reclassified asset of
        $2,316,721.




Shirley
      Gay No. 1 and Strong No. 1




In
      October 2006, the Company granted one of the members of the Texas working
      interest partnership the right to drill a well based on the geological seismic
      data that Century Royalty holds. In return, the Company received a 2% carried
      interest in the proposed well until completion, and a 2% working interest
      thereafter. The “Shirley Gay No. 1” well was completed in the beginning of March
      2007. Pipeline tie-in was completed in February 2008 and sales began shortly
      thereafter. The Company started to receive proceeds from these sales in April
      2008. The Company is currently awaiting the completion of an independent
      engineering report to establish the estimated size and projected cash flow
      to be
      generated by the well. When the engineering report becomes available the Company
      will adjust the value of the oil and gas reserves accordingly.





Another
        well, “Strong No. 1”, was commenced in June 2008 in the SE Cleveland Prospect in
        Liberty County, Texas. After several attempts to perforate the well at different
        depths the operator decided not to complete the well and to plug it. The
        Company’s working interest share through Century Royalty is 2.00%. The Company
        invested $110,946 in this well in 2008.





On
      June
      30, 2008, Cybershop, LLC (“Cybershop”), a wholly owned subsidiary of the
      Company, entered into an agreement dated as of June 30, 2008 with B & L Oil
      Company, Inc. (“B & L”) and Randall Petroleum Corp. (“Randall”) to amend the
      terms of an acquisition agreement dated April 7, 1999, by and among B & L,
      Randall and Polystick U.S. Corp. (“Polystick”). (B & L, Randall and
      Polystick had formed Century Royalty pursuant to the acquisition agreement
      and
      Cybershop succeeded to Polystick’s interests under the acquisition agreement and
      in Century Royalty in 2003.) In the amendment, the parties agreed to
      terminate the back-in after payout due B & L and Randall under Article VI of
      the acquisition agreement. The parties also agreed that each will have the
      right to participate in any prospect generated and proposed in the HLM Project
      in Liberty and Montgomery Counties, Texas (except the East Wilcox Prospect,
      the
“Friendswood No. 2 RE” well, the Nickel Prospect and the “Shirley Gay No. 1”
well), as follows: B & L - an undivided 1/3rd interest; Randall -
      an undivided 1/3rd interest; and the Company - an undivided 1/3rd interest.
      During the quarter ended September 30, 2008 the working interest partnership
      secured leases to drill additional prospects. GSV’s expenses related to securing
      leases in 2008 have totaled approximately $21,000 through September 30, 2008.





5.
      Net
      Income Per Common Share





Basic
      earnings per share is computed by dividing net income by the weighted average
      number of common shares outstanding at period end. Diluted earnings per share
      is
      computed by dividing net income by the weighted average number of common shares
      and dilutive potential common shares outstanding.




A
        summary
        of the denominators used to compute basic and diluted earnings per share
        follow:





September
                  302008
              
              
              2007Weighted
                  average shares outstanding - used to compute basic earnings per
                  share
              
              
              7,502,703
              
              
              7,502,703Dilution
                  applicable to:Warrant
              
              
              1,142,857
              
              
              1,142,857Convertible
                  note payable
              
              
              386,097
              
              
              363,240Series
                  B Preferred Stock
              
              
              1,500,000
              
              
              1,500,000Series
                  C Preferred Stock
              
              
              200,000
              
              
              200,000Weighted
                  average shares outstanding - used to compute diluted earnings per
                  share
              
              
              10,731,657
              
              
              10,708,800




9


6.
        Amendment of Note Issued to 116 Newark Avenue Corporation





On
        January 9, 2008, the Company entered into an agreement, dated as of January
        3,
        2008, with 116 Newark Avenue Corporation (“116 Newark”) to amend and restate the
        terms of a promissory note issued to 116 Newark dated as of November 30,
        2005.
        Pursuant to the agreement, the Company paid all accrued and unpaid interest
        on
        the promissory note through the date of the agreement, and the original note
        was
        amended and restated in a substitute note with a maturity date of December
        20,
        2009. The Company agreed to pay the substitute note’s outstanding principal
        balance of $356,249 in 24 consecutive monthly installments of $14,844, each
        payable on or before the 20th day of the month, beginning in January 2008.
        The
        amended note was non-interest bearing, therefore, the Company
        discounted the note at its original interest rate of 7 percent resulting
        in a
        gain on settlement of indebtedness of $23,863. Payment and performance under
        the
        substitute note has been guaranteed by Polystick and secured by a pledge
        agreement between Polystick and 116 Newark pursuant to which Polystick has
        pledged 356,249 shares of the Company’s Series B convertible preferred stock to
        116 Newark.




7.
      Income
      Taxes




Income
      taxes otherwise required to be provided for all periods presented have been
      eliminated as a result of net operating loss carryover benefits
      realized.





10


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




**Overview**





Since
      July 2003 our business operations have been focused on managing our existing
      investments in oil and gas assets and entering into new investments in this
      industry. From June 2001 to July 2003, our business operations included managing
      our existing investments and entering into new business operations through
      acquisitions or mergers.




Prior
      to
      June 2001, we had sought to identify and develop attractive early stage Internet
      companies in exchange for equity positions in such companies. We have since
      made
      substantial write downs of these investments to more accurately reflect current
      market valuations, and these investments do not represent a significant asset.
      As of December 31, 2007, these investments were valued at approximately 1.6%
      of
      the total of our assets. We are continuing to investigate whether or not there
      are any business prospects through which material value can be realized from
      the
      remaining Internet investments.




We
      hold
      working interests in two oil and gas wells in the state of Louisiana. An
      independent reserve study, effective January 2008, estimated that the remaining
      reserve in the wells, including PDP and PDNP, net of expenses and discounted
      at
      10%, was $985,829. In June 2008 the well that had been producing oil and gas
      started to produce some water, and production of oil and gas from the well
      has
      fallen sharply as a result. In any event, we fully expect to recover the
      carrying value of this asset.





Through
        Cybershop we also own interests in certain oil and gas properties in Texas
        and
        an interest in Century Royalty LLC (“Century Royalty”), a Texas limited
        liability company that manages the oil and gas properties in Texas and holds
        a
        portion of our interests in the oil and gas wells in Louisiana. Century Royalty
        also holds the rights to certain geologic studies. Century Royalty was a
        member
        of a working interest partnership that identified several prospects derived
        from
        the geological studies and worked towards drilling these prospects. Century
        Royalty had a carried interest with this partnership of 20% for the first
        well
        drilled in the first 5 prospects or $1.25 million of investment, whichever
        came
        first. Century Royalty continues to have a 20% participation interest in
        all
        subsequent wells drilled in the first 5 prospects. As these joint interest
        partnership agreements have expired, they relate only to prospects for which
        leases had already been taken and not expired at the time the agreements
        expired.




On
      June
      28, 2006, the working interest partnership of which Century Royalty was a member
      commenced drilling on one of the prospects and planned to drill on a second
      prospect once the first was completed. The costs of drilling these prospects
      were expected to exceed Century Royalty’s carried interest in the working
      interest partnership. On June 20, 2006, we agreed to contribute a maximum of
      $100,000 towards the drilling of these two prospects and decrease our working
      interest in these two prospects to 11.918%.





On
      October 5, 2006, we announced the successful completion of drilling in the
      first
      prospect, located in Liberty County, Texas. The pipeline tie-in of the
“Friendswood No. 2 RE” gas well was completed successfully in June 2007. On or
      about September 14, 2007, efforts to increase the pressure of the flow of gas
      from the well were successful and the sale of gas through the pipeline
      commenced. On February 4, 2008, we successfully completed fracturing of the
      well. On February 21, 2008, the well was put back on line full-time. Since
      then,
      it has produced around 350 - 400 mcf per day, up from about 60 mcf per day
      prior
      to fracturing. The well continues to produce a small amount of water, up to
      about 20 bbls per day.





In
        June
        2008, the working interest partnership started to drill a re-entry into an
        existing well, targeting some oil sands in the area covered in the East Wilcox
        prospect. However after encountering some old drill bits and other debris
        in the
        hole, it was decided to secure additional financing and then drill a new
        well.
        We invested about $21,000 in this re-entry and approximately $51,000 in
        continuing development of this prospect in 2008.


Our
          wholly-owned subsidiary Cybershop entered into an agreement dated as of
          June 30,
          2008, with B & L and Randall Petroleum Corp. to amend the terms of an
          acquisition agreement dated April 7, 1999, by and among B & L, Randall and
          Polystick U.S. Corp. (“Polystick”). (B & L, Randall and Polystick had formed
          Century Royalty pursuant to the acquisition agreement and Cybershop succeeded
          to
          Polystick’s interests under the acquisition agreement and in Century Royalty in
          2003.) In the amendment, the parties agreed to terminate the back-in after
          payout due B & L and Randall under Article VI of the acquisition agreement.
          The parties also agreed that each will have the right to participate in
          any
          prospect generated and proposed in the HLM Project in Liberty and Montgomery
          Counties, Texas (except the East Wilcox Prospect, the “Friendswood No. 2 RE”
well, the Nickel Prospect and the “Shirley Gay No. 1” well), as follows: B
& L - an undivided 1/3rd interest; Randall - an undivided 1/3rd
          interest; and GSV - an undivided 1/3rd
          interest.


In
      July
      2008 we received an independent engineering report for the East Wilcox prospect.
      According to the report the total reserves in the prospect are approximately
      7.9
      BCF gross and approximately 660 mcf net for our adjusted revenue interest in
      this prospect. The prospect also has a nominal amount of oil. According to
      the
      report it may take up to 5 additional wells to tap the reserves. Century Royalty
      and its partners are preparing to commence drilling a second well near
“Friendswood No. 2 RE” in the near future. Based on this report, an asset
      previously classified as “geological studies” on the balance sheet was
      reclassified as “oil and gas wells, net of accumulated depletion.” 
Depletion has commenced on the reclassified asset of $2,316,721.





11


In
      October 2006, we granted one of the members of the Texas working interest
      partnership the right to drill a well based on the geological seismic data
      that
      Century Royalty holds. In return, we received a 2% carried interest in the
      proposed well until completion, and a 2% working interest thereafter. The
“Shirley Gay No. 1” well was completed in the beginning of March 2007.
      Pipeline tie-in was completed in February 2008 and sales began shortly
      thereafter. We started to receive proceeds from these sales in April 2008.
       When the engineering report on the “Shirley Gay No. 1” well becomes
      available we will adjust the value of the oil and gas reserves accordingly.





Another
        well, “Strong No. 1”, was commenced in June 2008 in the SE Cleveland Prospect in
        Liberty County, Texas. Our working interest share through Century Royalty
        is
        2.00%. After several attempts to perforate the well at different depths the
        operator decided not to complete the well and to plug it. We invested $110,946
        in this well in 2008.





Our
      management has little practical experience in the oil and gas industry. Our
      management relies to a great extent on the employees of Century Royalty to
      monitor and implement strategy with respect to our oil and gas assets. Our
      management’s inexperience may detrimentally affect our operations and results
      because, for example, it could prevent us from taking advantage of opportunities
      that arise on a timely basis or cause us to take actions that a more experienced
      management team might determine are not in our best interests. We are currently
      seeking to engage additional professional managers to assist in extracting
      value
      from the properties.





Our
        principal stockholder is Polystick, which holds 1,500,000 shares of our Series
        B
        convertible 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. Polystick has the right to elect two additional persons to
        our
        board of directors but has not yet done so.




Each
        share of Series B convertible preferred stock is convertible at any time
        at the
        holder’s option into a number of shares of common stock equal to $1.00 divided
        by the conversion price then in effect. The terms upon which the Series B
        convertible preferred stock may be converted into common stock are set forth
        in
        the Certificate of Designations, Preferences and Rights of Series B convertible
        preferred stock filed by the Company with the Secretary of State of the State
        of
        Delaware on July 18, 2003 (“Series B Certificate of Designations”). As of
        October 31, 2008, the Series B convertible preferred stock owned by Polystick
        was convertible into 1,500,000 shares of common stock.




No
      dividends are payable on the Series B convertible preferred stock, except that
      in the event dividends are declared with respect to the common stock each holder
      of shares of Series B convertible preferred stock will be entitled to receive
      an
      amount equal to the amount of dividends that would have been paid on the shares
      of common stock issuable upon conversion of such shares of Series B convertible
      preferred stock had such shares of Series B convertible preferred stock been
      converted into common stock immediately before the dividend was
      declared.




Upon
      any
      Liquidation Event, as defined in the Series B Certificate of Designations,
      the
      holders of the outstanding Series B convertible preferred stock will be
      entitled, before any distribution or payment is made to any holder of common
      stock or any other Junior Stock (as defined in the Series B Certificate of
      Designations), to be paid an amount equal to $1.00 per share plus the amount
      of
      any declared and unpaid dividends thereon. If upon any Liquidation Event our
      net
      assets distributable among the holders of the Series B convertible preferred
      stock are insufficient to permit the payment in full of such preferential amount
      to the holders of the Series B convertible preferred stock, then our net assets
      will be distributed ratably among the holders of the Series B convertible
      preferred stock in proportion to the amounts they otherwise would have been
      entitled to receive.




The
      Series B Certificate of Designations provides that so long as any shares of
      Series B convertible preferred stock are outstanding, we will not, without
      the
      written approval of the holders of at least a majority of the then-outstanding
      Series B convertible preferred stock, increase the maximum number of directors
      constituting our board of directors to more than seven. The Series B Certificate
      of Designations also provides that, so long as any shares of Series B
      convertible preferred stock are outstanding, the holders of the Series B
      convertible preferred stock, voting separately as a class, will be entitled
      to
      designate and elect three of the members of our board of directors. Also, a
      vacancy in any directorship elected by the holders of the Series B convertible
      preferred stock may be filled only by vote or written consent of the holders
      of
      at least a majority of the then outstanding shares of Series B convertible
      preferred stock. The Series B convertible preferred stock has no other voting
      rights except as provided by applicable law.




12


On
        January 3, 2006, we entered into a Termination, Settlement and Release Agreement
        with 116 Newark Avenue Corporation (“116 Newark”), dated as of November 30,
        2005, pursuant to which we agreed to terminate the lease for our former offices
        in Jersey City, New Jersey. Under the terms of the agreement, we paid 116
        Newark
        $70,000 in cash, issued a promissory note in the principal amount of $356,249.04
        and 200,000 shares of Series C preferred stock to 116 Newark and reimbursed
        116
        Newark for $10,000 of its legal fees. The promissory note bears interest
        at a
        rate of 7% per annum and is secured by a pledge agreement between Polystick
        and
        116 Newark pursuant to which Polystick has pledged 356,249 shares of our
        Series
        B convertible preferred stock that it holds to 116 Newark. On January 9,
        2008,
        we entered into an agreement, dated as of January 3, 2008, with 116 Newark
        to
        amend and restate the terms of the promissory note. Pursuant to the agreement,
        we paid all accrued and unpaid interest on the promissory note through the
        date
        of the agreement, and the original note was amended and restated in a substitute
        note with a maturity date of December 20, 2009. We agreed to pay the substitute
        note’s outstanding principal balance of $356,249.04 in 24 consecutive monthly
        installments of $14,843.71, each payable on or before the 20th day of the
        month,
        beginning in January 2008. The substitute note will not accrue interest,
        except
        that if any monthly installment is not received by 116 Newark within ten
        days of
        its applicable monthly installment date (the “Trigger Date”) then (i) interest
        at the rate of 7% per annum shall be deemed to have begun to accrue from
        the
        date of the agreement on the then unpaid principal balance of the substitute
        note, and shall continue to accrue until all principal and accrued interest
        on
        the substitute note is paid in full; (ii) all interest that is accrued and
        unpaid as of the Trigger Date shall be immediately due and payable on the
        Trigger Date; and (iii) with each monthly installment following the Trigger
        Date, we will pay all then accrued and unpaid interest on the unpaid principal
        balance of the substitute note through the relevant monthly installment date.
        Payment and performance under the substitute note has been guaranteed by
        Polystick and secured by a pledge agreement between Polystick and 116 Newark
        pursuant to which Polystick has pledged 356,249 shares of our Series B
        convertible preferred stock to 116 Newark.




Each
        share of Series C preferred stock is convertible at any time into a number
        of
        shares of common stock equal to $1.00 divided by the conversion rate then
        in
        effect. The terms upon which the Series C convertible preferred stock may
        be
        converted into common stock are set forth in the Certificate of Designations,
        Preferences and Rights of Series C convertible preferred stock filed by the
        Company with the Secretary of State of the State of Delaware on January 3,
        2006
        (“Series C Certificate of Designations”). As of July 31, 2008, the Series C
        convertible preferred stock owned by 116 Newark was convertible into 200,000
        shares of common stock.




No
      dividends are payable on the Series C convertible preferred stock.




Upon
      any
      Liquidation Event, as defined in the Series C Certificate of Designations,
      the
      holders of the outstanding Series C convertible preferred stock will be
      entitled, before any distribution or payment is made to any holder of common
      stock or any other Junior Stock (as defined in the Series C Certificate of
      Designations), to be paid an amount equal to $1.00 per share. If upon any
      Liquidation Event our net assets distributable among the holders of the Series
      C
      convertible preferred stock are insufficient to permit the payment in full
      of
      such preferential amount to the holders of the Series C convertible preferred
      stock, then our net assets will be distributed ratably among the holders of
      the
      Series C convertible preferred stock in proportion to the amounts they otherwise
      would have been entitled to receive.




The
      Series C Certificate of Designations provides that so long as any shares of
      Series C convertible preferred stock are outstanding, we will not, without
      the
      written approval of the holders of at least a majority of the then-outstanding
      Series C convertible preferred stock, (i) issue any additional shares of Series
      C convertible preferred stock, or (ii) issue any Senior Stock or Parity Stock
      (as such terms are defined in the Series C Certificate of Designations), unless
      such Senior Stock or Parity Stock is to be issued in exchange for (A) cash
      or
      services rendered or to be rendered by parties who are not Affiliates (as
      defined in the Series C Certificate of Designations) of the Company, in either
      case having a value greater than the aggregate liquidation preference of such
      Senior Stock or Parity Stock, or (B) equity securities or assets of one or
      more
      businesses that are not Affiliates of the Company, in either case having a
      value
      that is equal to or greater than the aggregate liquidation preference of such
      Senior Stock or Parity Stock. The Series C convertible preferred stock has
      no
      other voting rights except as provided by applicable law.




**Results
      of Operations**




Three
      Months Ended September 30, 2008 compared to Three Months Ended September 30,
      2007




Revenues:
        Revenues for the quarter decreased by $214,335 or 96%, to $8,780 in 2008
        from
        $223,115 in 2007. This decrease was due to the drop in oil and gas prices,
        the
        decrease in production from the Louisiana well and an adjustment for
        over-accrual of production in the second quarter of 2008.




General
        and administrative: General and administrative expenses consist primarily
        of
        payroll and payroll related expenses for administrative, information technology,
        accounting, and management personnel, legal fees, depletion and
        general corporate expenses. General and administrative expenses decreased
        by
        $52,282 or 24.8%, to $158,315 in the quarter ended September 30, 2008 from
        $210,597 in the quarter ended September 30, 2007, primarily as a result of
        a
        decrease in depletion of the well in Louisiana which was offset by an increase
        in fees for accounting and consulting services.





13


Interest
      expense: Interest expense for the quarter ended September 30, 2008 was $10,183
      and for the quarter ended September 30, 2007 was $14,234. The decrease is a
      result of the reduction in outstanding debt.





Net
        Loss:
        Net loss increased by $158,002 from net loss of $1,716 in the third quarter
        of
        2007, or $0.00 per basic and diluted common share, to net loss of $159,718
        in
        the third quarter of 2008, or $(0.02) per basic and diluted common
        share.




Nine
      months ended September 30, 2008 compared to nine months ended September 30,
      2007




Revenues:
      Revenues for the period increased by $243,245, or 42.1%, to $821,472 in 2008
      from $578,227 in 2007. This increase was due to the commencement of production
      from the Friendswood No. 2 RE and Shirley Gay wells, the increase in production
      from the Louisiana well and the increase in oil and gas prices.




General
        and administrative: General and administrative expenses consist primarily
        of
        payroll and payroll related expenses for administrative, information technology,
        accounting, and management personnel, legal fees, depletion and general
        corporate expenses. General and administrative expenses increased by $25,819,
        or
        5.7%, to $477,972 in the nine months ended September 30, 2008 from $452,153
        in
        the nine months ended September 30, 2007, primarily as a result of increases
        in
        depletion and fees for legal accounting and consulting
        services.




Interest
      expense: Interest expense for the nine months ended September 30, 2008 was
      $30,949 and for the nine months ended September 30, 2007 was $42,703. The
      decrease is a result of the reduction in outstanding debt.




Net
      Income: Income from operations increased by $253,043 from income of $83,371
      in
      the first nine months of 2007, or $0.01 per basic and diluted common share,
      to
      income of $336,414 in the first nine months of 2008, or $0.04 per basic and
      $0.03 per diluted common share.




Income
      taxes otherwise required to be provided for all periods presented have been
      eliminated as a result of net operating loss carryover benefits
      realized.




**Liquidity
      and Capital Resources**




Net
      cash
      provided by operations increased by 60.4%, or $195,564, from $324,001 for the
      nine months ended September 30, 2007, to $519,565 for the nine months ended
      September 30, 2008.The increase was due primarily to an increase in revenues
      from the wells.





Net
        cash
        used by investing activities during the nine months ended September 30, 2008,
        was $220,342, as compared to $84,578 in the corresponding period of the prior
        year. The increase relates to the verification by an independent reserve
        engineering report of the reserves in the East Wilcox prospect that resulted
        in
        the reclassification of an asset from “geological studies” to “oil and gas
        wells, net of accumulated depletion” as well as additional investments in Texas
        wells.




Net
      cash
      used by financing activities during the nine months ended September 30, 2008,
      was $144,644, as compared to $20,000 used by financing activities in the same
      period of the prior year. The cash used in 2008 was attributable to a repayment
      of principal on notes payable.




On
        October 17, 2008, we entered into an agreement (the “Waiver and Extension
        Agreement”) with Brooks Station Holdings, Inc. (“Brooks Station”), pursuant to
        which we and Brooks Station agreed to amend and restate the terms of an 8%
        promissory note in the principal amount of $160,000 (the “Original Note”) in the
        form of a substitute note (the “Substitute Note”) dated as of September 1, 2008.
        Pursuant to the Waiver and Extension Agreement, Brooks Station agreed to
        extend
        the maturity date of the Original Note from September 1, 2008, to March 1,
        2009,
        and to waive any claim against us or our assets arising from our failure
        to
        repay the Original Note on the maturity date. The Original Note was issued
        on
        July 21, 2003, and had previously been amended by agreements dated August
        31,
        2007 and March 11, 2008 between the parties. Also, pursuant to the Waiver
        and
        Extension Agreement, we and Brooks Station agreed to amend a security agreement
        between us to provide that Brooks Station’s security interest in our assets
        would continue to support our obligations under the Substitute
        Note.





Contemporaneously
        with the execution of the Waiver and Extension Agreement, we paid Brooks
        Station
        $10,000 of the principal balance of the Original Note, thus reducing the
        outstanding principal balance of the Substitute Note to $150,000. As of
        September 1, 2008, the accrued and unpaid interest on the Substitute Note
        was
        $28,933.33. The Substitute Note provides that upon the occurrence of an event
        of
        default, all amounts remaining unpaid on the Substitute Note shall become
        immediately due and payable. Events of default include our application for
        appointment of a receiver, our admission in writing of our inability to pay
        our
        debts as they become due, our making of a general assignment for the benefit
        of
        creditors, the filing against us of an involuntary petition in bankruptcy
        or
        other insolvency proceeding, or a petition or an answer seeking reorganization
        or an arrangement with creditors, the filing by us of an application for
        judicial dissolution or the entry of an order, judgment or decree by any
        court
        of competent jurisdiction, approving a petition seeking reorganization of
        us or
        all or a substantial part of our properties or assets or appointing a receiver,
        trustee or liquidator for us.





14


On
      May
      11, 2004, we sold a convertible promissory note in the principal amount of
      $200,000 and a warrant to purchase up to 1,142,857 shares of our common stock
      at
      a price of $.70 per share to D. Emerald Investments Ltd., a private investment
      corporation (“Emerald”). The note bears interest at the rate of 8% per annum and
      is convertible into shares of our common stock at a price of $.70 per share.
      The
      aggregate purchase price of these securities was $200,000. In connection with
      the sale of these securities we agreed that if Emerald exercises the warrant
      in
      full and converts the convertible note in full, then, at Emerald’s request, we
      will appoint a person designated by Emerald to our Board of Directors and,
      in
      addition, for so long as Emerald holds at least eighty-five percent (85%) of
      the
      common stock issued upon such exercise and conversion, we will nominate such
      person (or a different person designated by Emerald) to be reelected to the
      Board of Directors in connection with any meeting of our stockholders at which
      directors are to be elected. We also agreed that within 120 days of the exercise
      of the warrant and/or conversion of the note for an aggregate of at least
      428,572 shares of common stock (subject to adjustment for dilutive events as
      set
      forth in the warrant and the note) we will register all of the shares issuable
      upon conversion of the note and exercise of the warrant under the Securities
      Act
      of 1933. Additionally, we granted Emerald rights to have the shares included
      in
      other registration statements we may file for the public offering of our
      securities for cash proceeds.




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.




Since
      the
      date we originally issued the note and warrant to Emerald, we entered into
      a
      series of agreements with Emerald extending the maturity date of the note and
      the expiration date of the warrant. Most recently, on July 1, 2008, we entered
      into an agreement dated as of May 10, 2008 pursuant to which we and Emerald
      agreed to further extend and renew the note and warrant. Under the terms of
      the
      agreement, the original note has been amended and restated in a substitute
      note
      with a maturity date of July 10, 2009 and the original warrant has been amended
      and restated in a substitute warrant with an expiration date of May 10, 2009.
      The substitute note bears interest at the rate of 8% per annum, payable
      quarterly in arrears. On May 10, 2008, there was $64,000 of interest accrued
      on
      the substitute note. Principal and accrued interest on the substitute note
      is
      convertible at a price of $.70 per share at any time prior to July 10, 2009.
      The
      substitute note provides that if the principal and interest due on the maturity
      date is not paid, the substitute note will bear interest at a default rate
      of
      12% per annum. Upon the occurrence of an event of default, Emerald may, at
      its
      sole option, declare the entire principal amount of the substitute note and
      any
      interest due thereon immediately due and payable. Events of default include
      failure to pay the principal amount on the maturity date or any interest when
      due, commencement by us or against us of any proceeding or other action relating
      to bankruptcy or reorganization, our breach or failure to perform or observe
      any
      obligation contained in the substitute note, the purchase agreement or
      substitute warrant or our failure to ensure that any conversion of the
      substitute note is effected upon request. Payment and performance under the
      substitute note continues to be guaranteed by Polystick and secured by a pledge
      agreement between Polystick and Emerald pursuant to which Polystick has pledged
      200,000 shares of our Series B convertible preferred stock to
      Emerald.




On
        January 3, 2006, we entered into a Termination, Settlement and Release Agreement
        with 116 Newark Avenue Corporation, dated as of November 30, 2005, pursuant
        to
        which we agreed to terminate the lease for our former offices in Jersey City,
        New Jersey. Under the terms of the agreement, we paid 116 Newark $70,000
        in
        cash, issued a promissory note in the principal amount of $356,249.04 and
        200,000 shares of Series C convertible preferred stock to 116 Newark and
        reimbursed 116 Newark for $10,000 of its legal fees. The promissory note
        matured
        on November 29, 2007 and bore interest at a rate of 7% per annum. Payment
        and
        performance under the promissory note was guaranteed by Polystick and secured
        by
        a pledge agreement between Polystick and 116 Newark pursuant to which Polystick
        pledged 356,249 shares of our Series B convertible preferred stock that it
        holds
        to 116 Newark. 116 Newark has the right to include any shares of common stock
        received upon conversion of the Series C convertible preferred stock and
        upon
        conversion of the pledged shares as part of any registration statement that
        we
        may file in connection with any public offering of our securities (excluding
        registration statements on Forms S-4 and S-8). On January 9, 2008, we entered
        into an agreement, dated as of January 3, 2008, with 116 Newark to amend
        and
        restate the terms of the promissory note. Pursuant to the agreement, we paid
        all
        accrued and unpaid interest on the promissory note through the date of the
        agreement, and the original note was amended and restated in a substitute
        note
        with a maturity date of December 20, 2009. We agreed to pay the substitute
        note’s outstanding principal balance of $356,249.04 in 24 consecutive monthly
        installments of $14,843.71, each payable on or before the 20th day of the
        month,
        beginning in January 2008. The substitute note will not accrue interest,
        except
        that if any monthly installment is not received by 116 Newark within ten
        days of
        its applicable monthly installment date (the “Trigger Date”) then (i) interest
        at the rate of 7% per annum shall be deemed to have begun to accrue from
        the
        date of the agreement on the then unpaid principal balance of the substitute
        note, and shall continue to accrue until all principal and accrued interest
        on
        the substitute note is paid in full; and (ii) all interest that is accrued
        and
        unpaid as of the Trigger Date shall be immediately due and payable on the
        Trigger Date; and (iii) with each monthly installment following the Trigger
        Date, we will pay all then accrued and unpaid interest on the unpaid principal
        balance of the substitute note through the relevant monthly installment date.
        Payment and performance under the substitute note has been guaranteed by
        Polystick and secured by a pledge agreement between Polystick and 116 Newark
        pursuant to which Polystick has pledged 356,249 shares of our Series B
        convertible preferred stock to 116 Newark.




15


We
      believe that our existing capital resources will enable us to maintain our
      operations at existing levels for at least the next 12 months, assuming that
      we
      can extend the maturities of the notes we issued to Brooks Station and Emerald
      beyond the next 12 months. However, it is difficult to project our capital
      needs. We cannot assure you that any additional financing or other sources
      of
      capital will be available to us upon acceptable terms, if at all. The inability
      to obtain additional financing, when needed, would have a material adverse
      effect on our business, financial condition and operating results.




**Critical
      Accounting Policies and Use of Estimates**




The
      Company’s discussion and analysis of financial condition and results of
      operations are based on the condensed financial statements. The preparation
      of
      these financial statements requires the Company to make estimates and judgments
      that affect the amounts reported in them. The Company’s critical accounting
      policies and estimates include those related to oil and natural gas activities,
      full cost method, proved oil and natural gas reserves, depletion reserves,
      future development and abandonment costs, asset retirement obligations, and
      valuation of investment in non-publicly traded companies. The Company bases
      its
      estimates on historical experience and on various other assumptions that
      management believes to be reasonable under the circumstances. Actual results
      may
      differ from these estimates under different assumptions or conditions. For
      additional information about the Company’s critical accounting policies and
      estimates, see Note 2 to the financial statements included in the Company’s Form
      10-KSB for the year ended December 31, 2007. There were no significant changes
      in critical accounting policies and estimates during the nine months ended
      September 30, 2008.





New
      accounting pronouncements and the Company’s assessment of their impact on the
      financial statements are disclosed in Note 2 to the notes to consolidated
      financial statements contained herein.




**Off-Balance
      Sheet Arrangements**




We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future material effect on our financial condition, changes in
      financial condition, revenues or expenses, results of operations, liquidity,
      capital expenditures or capital resources.




**Tabular
        Disclosure of Contractual Obligations**





The
      following summarizes the Company’s estimated contractual obligations at
      September 30, 2008, and the effect such obligations are expected to have on
      its
      liquidity and cash flows in the future periods.





Payments
                  due by periodContractual
                  Obligations
              
              Total
              
              Less
                  than
                1
                  year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than
                5
                  yearsLong-term
                  Debt Obligations
              
              $
              567,741
              
              $
              526,193
              
              $
              41,548
              
              
              0
              
              
              0Capital
                  (Finance) Lease Obligations
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Operating
                  Lease Obligations
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Purchase
                  Obligations
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Other
                  Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under
                  GAAP
              
              
              0
              
              
              0
              
              
              0
              
              
              0
              
              
              0Total
              
              $
              567,741
              
              $
              526,193
              
              $
              41,548
              
              
              0
              
              
              0





16


**Forward-Looking
      Statements**




Some
      of
      the statements in this report are forward-looking statements that involve risks
      and uncertainties. These forward-looking statements include statements about
      our
      plans, objectives, expectations, intentions and assumptions that are not
      statements of historical fact. You can identify these statements by the
      following words:


-
      “may”


-
      “will”


-
      “should”


-
      “estimates”


-
      “plans”


-
      “expects”


-
      “believes”


-
      “intends”


and
      similar expressions. We cannot guarantee our future results, performance or
      achievements. Our actual results and the timing of corporate events may differ
      significantly from the expectations discussed in the forward-looking statements.
      You are cautioned not to place undue reliance on any forward- looking
      statements. Potential risks and uncertainties that could affect our future
      operating results include, but are not limited to, our limited operating
      history, history of losses, need to raise additional capital, the high risk
      nature of our business, and other risks described in our Annual Report on Form
      10-KSB for the year ended December 31, 2007.




17





**Item
      4T. Controls and Procedures**




*Evaluation
      of Disclosure Controls and Procedures* . Our
      management, including our chief executive officer and chief financial officer,
      evaluated the effectiveness of our disclosure controls and procedures as of
      the
      end of the period covered by this report. Based on that evaluation, our
      management, including our chief executive officer and chief financial officer,
      concluded that our disclosure controls and procedures as of the end of the
      period covered by this report were effective such that the information required
      to be disclosed by us in reports filed under the Securities Exchange Act of
      1934
      is (i) recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms and (ii) accumulated and communicated to
      our management, including our chief executive officer and chief financial
      officer, as appropriate to allow timely decisions regarding disclosure. A
      controls system cannot provide absolute assurance, however, that the objectives
      of the controls system are met, and no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      within a company have been detected.




*Changes
      in Internal Control over Financial Reporting.* There
      has been no change in our internal control over financial reporting, known
      to
      the chief executive officer and chief financial officer, that occurred during
      the quarter ended September 30, 2008, that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.




18




**PART
      II. OTHER INFORMATION**




**Item
      6. Exhibits**




31.1
            Certification
                of Chief Executive and Financial Officer pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Chief Executive and Financial Officer pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002.







19




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the Registrant has duly
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.





Date:
                  November 14, 2008By:
              /s/ Gilad GatGilad
                  Gat
                Chief
                  Executive Officer
                (principal
                  executive officer)
                Chief
                  Financial Officer
                (principal financial and accounting officer)




20




**EXHIBIT
      INDEX**





Exhibit No.
            
            Description31.1
            
            Certification
                of Chief Executive and Financial Officer pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive and Financial Officer pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002.




21