**United
      States**


**Securities
      and Exchange Commission**





**Washington,
      D.C. 20549**





**Form
      10-KSB**




x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




**For
      the fiscal year ended December 31, 2006**





OR




o
            TRANSITIONAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      transition period from _______________to_________________





**Commission
      File Number 001-12000**




**EMVELCO
      CORP.**


(Name
      of
      small business issuer as specified in its charter)


**Delaware**
              **13-3696015**(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No .)





468
      N.
      Camden Drive, Suite 315, Beverly Hills, CA 90210


(Address
      of principal executive offices)


Issuer’s
      telephone number, including area code: (310) 285-5350





Securities
      registered under Section 12(g) of the Exchange Act:


**Title
                  of Each Class**
              **Name
                  of Each Exchange on which Registered**Common
                  Stock, par value $.001 per share
              NASDAQ
                  CAPITAL MARKET




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15
      (d) of the Exchange Act. o




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




Check
      if
      there is no disclosure of delinquent filers in response 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. o




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




The
      registrant’s total revenues for the year ended December 31, 2006 were
      $22,594.




The
      aggregate market value of the registrant’s common stock (the only class of
      voting stock) held by non-affiliates of the Company as of March 26, 2007 was
      $3,039,579 based on
      the closing price of the registrant's common stock on such date of $1.61 as
      reported by the Nasdaq Capital Market **.**




At
      March
      19, 2007, 4,705,546 shares of common stock (the only class of voting stock)
      were
      outstanding **** of
      which
      1,887,937 were held by **** non-affiliates
      of the Company.




Transitional
      Small Business Disclosure Format (check one): Yes o No x














**TABLE
        OF CONTENTS**


**Page****PART
                  I**ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              
              3ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTIES
              
              16ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              
              18ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              19**PART
                  II**
              
              
              
              **20**ITEM
                  5.
              
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS
              
              20ITEM
                  6.
              
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              
              22ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              
              37ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              37ITEM
                  8A
              
              CONTROLS
                AND
                PROCEDURES
              
              38ITEM
                  8B
              
              OTHER
                INFORMATION
              
              38**PART
                  III**
              
              
              
              **39**ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(A) OF THE EXCHANGE ACT
              
              39ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              
              42ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              
              48ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              49ITEM
                  13.
              
              EXHIBITS
              
              50ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              50SIGNATURES
              
              52INDEX
                TO EXHIBITS
              
              53




2




ITEM
                1.
              DESCRIPTION
                  OF BUSINESS




**History
      of Business**




Emvelco
      Corp., formerly known as (“f/k/a”) Euroweb International Corp., is a Delaware
      corporation and was organized on November 9, 1992. It was a development stage
      company through December 1993. Emvelco Corp. and its consolidated subsidiaries
      are collectively referred to herein as “Emvelco” or the “Company”.





In
      1997,
      Emvelco entered the Internet field in Hungary and grew through various
      acquisitions not only in Hungary, but also in the Czech Republic, Slovakia
      and
      Romania.





In
      December 2004, Emvelco disposed of its 100% interest in its subsidiary in Czech
      Republic and in April 2005, Emvelco sold its 100% interest in its subsidiary
      in
      Slovakia.





In
      October 2005, the Company entered into the information technology ("IT") sector
      by acquiring 100% ownership of Navigator Informatika Rt. ("Navigator"), a
      Hungary-based provider of IT outsourcing, applications development and IT
      consulting services.





On
      December 19, 2005, the Company entered into a definitive Share Purchase
      agreement with Invitel Tavkozlesi Szolgaltato Rt. (“Invitel”) for the sale of
      its two Internet and telecommunication related operating subsidiaries, Euroweb
      Internet Szolgaltato Rt. ("Euroweb Hungary") and Euroweb Romania S.A. ("Euroweb
      Romania"). Pursuant to the Agreement, the Company sold and, Invitel purchased,
      100% of its interest in Euroweb Hungary and Euroweb Romania. The closing
      occurred on May 23, 2006 and the Company exited the internet service provider
      (“ISP”) industry. The purchase price was $30.0 million.





On
      June
      11, 2006, the Board of Directors of Emvelco, as part of its strategy to redirect
      the Company into new markets, voted to pursue an investor role in real estate
      business opportunities through focusing on the financial aspects of developing
      majority or minority owned affiliates, providing loans for the development
      of
      property, engaging in the financing segments for development of property and
      the
      construction of various types of facilities and investing in real estate
      opportunities. The Company commenced its investments in the real estate industry
      through its former wholly-owned subsidiary, Emvelco RE Corp (“ERC”), f/k/a
      Euroweb RE Corp. in June 2006.





In
      September 2006, ERC formed Lorraine Properties, LLC (“Lorraine”), a Nevada
      limited liability company. In October 2006, ERC acquired majority ownership
      in
      non-operational asset holding companies as follows: 66.67% of Stanley Hills
      LLC
      (“Stanley”), a Nevada limited liability company and 51% of 846 AR Huntley, LLC
      (“Huntley”), a California limited liability company,





On
      December 31, 2006, Emvelco and its wholly owned subsidiary ERC entered into
      an Agreement and Plan of Exchange (“Exchange Agreement”) with Verge Living
      Corporation (“Verge”), a Nevada corporation and its sole shareholder and
      unaffiliated third party, The International Holdings Group Ltd. (“TIHG”), a
      corporation formed and registered in the Marshall Islands. The Exchange
      Agreement closed on December 31, 2006. Pursuant to the Exchange Agreement,
      ERC
      issued new shares to TIHG in exchange for 100% of the outstanding securities
      of
      Verge. After the exchange, Emvelco owned 43.33% of ERC and TIHG owned 56.67%
      of
      ERC. Verge became a wholly-owned subsidiary of ERC.




3




Based
      on
      the operations of ERC throughout the year and as a result of the Exchange
      Agreement, the Company’s ownership structure as of December 31, 2006, which is
      discussed further below, was as follows:





·
            Emvelco
                directly owns 43.33% of ERC, a real estate development company, 25.1%
                of
                Micrologic, Inc. (“Micrologic”), a software development company
                incorporated in Nevada, and 50% of an investment holding company
                EA
                Emerging Ventures Corp. (“EVC”), through a joint venture with Ashfield
                Finance LLC (“Ashfield”).





·
            ERC
                directly owns real estate development companies as follows: 100%
                of Verge,
                51% of Huntley, 66.67% of Stanley and 100% of Lorraine. Stanley is
                a
                related party as its minority owner is D’vora Attia, sister of Yossi
                Attia, the Company’s CEO.





·
            ERC
                directly owns 33.33% of AP Holdings Limited (“AP Holdings”), a Jersey
                Company. AP Holdings is a related party, as its majority owner is
                Shalom
                Atia, the brother of Yossi Attia, the Company’s CEO. AP Holdings is a
                non-operational holding company which owns 100% of Atia Projekt d.o.o,
                a
                Croatian Company (“Atia Project”), a real estate development company.




On
      February 16, 2007, the Company completed the disposal of Navigator and exited
      from the IT outsource industry, which has been classified as a discontinued
      operation as of December 31, 2006. Accordingly, the Company’s principal
      operations are solely for financial investment in real estate
      development.





On
      May
      14, 2007, the Company entered into a Stock Transfer and Assignment of Contract
      Rights Agreement (the “Stock Transfer Agreement”) with ERC, ERC’s principal
      shareholder TIHG, and ERC’s wholly owned subsidiary Verge. Pursuant to the
      Agreement, the Company transferred and conveyed its 1,000 Shares (representing
      a
      43.33% interest) (the “Shares”) in ERC to TIHG to submit to ERC for cancellation
      and return to Treasury. ERC, TIHG and Verge agreed to assign (the “Assignment”)
      to the Company all rights in and to that certain Investment Agreement, dated
      as
      June 19, 2006, and all Amendments thereto (collectively, the “Investment
      Agreement”) wherein ERC (from funds available to ERC from the Company) agreed to
      provide secured loans to Verge for the construction of a multi-use condominium
      and commercial property in Las Vegas, Nevada (the “Verge Property”) and for
      other projects and properties as provided therein.





The
      consideration payable to the Company under the Stock Transfer Agreement is
      $500,000, which in TIHG’s discretion, may be added to the outstanding loan
      amount owing to the Company by ERC pursuant to the secured line of credit
      agreement (the "Line of Credit") with ERC, entered into on June 14, 2006,
      pursuant to which the Company agreed to loan ERC up to $10.0 million. In
      December 2006, the Board of Directors and Audit Committee of the Company
      approved an increase of the Line of Credit up to $20.0 million. ERC can use
      this
      line for the various different projects they are engaged in. The loans are
      payable on demand and accrue interest at 12% per annum.





As
      of
      December 31, 2006, the outstanding Line of Credit owing to the Company is
      approximately $12 million. Under the Stock Transfer Agreement, in no event
      shall
      the Line of Credit exceed eighty percent (80%) of the fair market value of
      the
      Verge Property. As a condition precedent to the Stock Transfer Agreement, a
      current appraisal of the Verge Property shall be presented and delivered to
      the
      Company within two weeks of the date of the Stock Transfer
      Agreement.




4





The
      effective date of the Stock Transfer Agreement is January 1, 2007 (the
“Effective Date”). All rights assigned to the Company under the Investment
      Agreement will be considered to be assigned as of the Effective Date.
      Accordingly, as of the Effective Date, the Company shall be the sole secured
      and
      primary beneficiary under the Investment Agreement, and the Company shall have
      no ownership interest in ERC.





As
      of the
      Effective Date, under the Investment Agreement, each loan made to Verge is
      due
      on demand or upon maturity on January 14, 2008. If the Company requests that
      the
      funds be paid on demand prior to maturity, then Verge shall be entitled to
      reduce the amount requested to be prepaid by 10%. The 10% discount will be
      paid
      in the form of shares of common stock of the Company, which will be computed
      by
      dividing the dollar amount of the 10% discount by the market price of the
      Company's shares of common stock. The terms of the loans require that the
      Company, be paid-off the greater of (i) the principal including 12% interest
      per
      annum or (ii) 33% of all gross profits derived from the Verge Property. In
      addition, the Company has the right to acquire the Verge Property for a purchase
      price of $15,000,000 through January 1, 2015. The purchase is payable in
      $10,000,000 in cash and $5,000,000 in shares of common stock of the
      Company.





Currently,
      the Company does not have operations in Hungary. The Company’s headquarters are
      now located in Beverly Hills, California.





**Emvelco
      Strategy**





REAL
      ESTATE DEVELOPMENT IN THE UNITED STATES OF AMERICA





In
      June
      2006, the Company commenced its financial investments in the real estate
      industry through the acquisition of ERC. ERC was a shell corporation with no
      operations seeking opportunities in the real estate industry. Based on the
      parameters set by the Board of Directors, ERC’s opportunities are limited as
      follows:





·
            any
                investment in the real estate opportunity (the "Proposed RE Investment"),
                including loans, shall not exceed a planned period of three years;





·
            the
                expected return on investment on the Proposed real estate Investment
                must
                be a minimum of 15% per year;





·
            the
                Proposed RE Investment shall not be leveraged in excess of more than
                $1.50
                for each $1.00 invested in equity; and





·
            each
                Proposed RE Investment shall have a clear exit strategy (i.e. purchase,
                development and sale) and no Proposed RE Investment will be intended
                to
                acquire income producing real estate.





On
      June
      14, 2006, the Company entered into a secured line of credit agreement (the
      "Line
      of Credit") with ERC, pursuant to which the Company agreed to loan ERC up to
      $10.0 million. In December 2006, the Board of Directors and Audit Committee
      of
      the Company approved an increase of the Line of Credit up to $20.0 million.
      ERC
      can use this line for the various different projects they are engaged in. The
      loans are payable on demand and accrue interest at 12% per annum. At December
      31, 2006, the balance on the secured Line of Credit was $11.3 million.




5





On
      June
      19, 2006, ERC entered into the Investment Agreement with Verge, f/k/a The
      Aquitania Corp. and AO Bonanza Las Vegas, Inc., pursuant to which ERC, within
      its sole discretion, agreed to provide secured loans to Verge, as part of the
      Line of Credit described above, which is not to exceed the amount of $10.0
      million. Verge is developing the Verge Property in downtown Las Vegas, Nevada,
      where it intends to build approximately 296 condominiums plus commercial space.
      Verge obtained entitlements to the Verge Property, and has advised that it
      expects to break ground and commence sales during 2007. Each loan provided
      to
      Verge is due on demand or upon maturity on January 14, 2008. All loans are
      secured by a first deed of trust, assignment of rents and security agreement
      with respect to the property, along with American Land Title Association
      (“ALTA”) title policy issued by a title company.





In
      October 2006, as part of developing the Company’s financial real estate
      development business, ERC acquired a majority ownership in two real estate
      companies, Huntley and Stanley, which are planning for the development of two
      to
      three unit residences. In September, ERC also formed Lorraine, which are lots
      designated for an apartment or condominium complex containing 14 multi-family
      units. ERC is also developing single family homes in Los Angeles known as the
      Harper, Edinburgh and Laurel projects.





On
      December 31, 2006, Emvelco and its wholly-owned subsidiary ERC entered into
      an
      Exchange Agreement with Verge and its sole shareholder, TIHG an unaffiliated
      third party. The Exchange Agreement closed on December 31, 2006. Pursuant to
      the
      Exchange Agreement, ERC issued new shares to TIHG in exchange for 100% of the
      outstanding securities of Verge. After the exchange, Emvelco owned 43.33% of
      ERC
      and TIHG owned and control 56.67% of ERC. Verge became a wholly-owned subsidiary
      of ERC.





On
      May
      14, 2007, pursuant to the Stock Transfer Agreement, the Company transferred
      and
      conveyed its 1,000 Shares (representing a 43.33% interest) in ERC to TIHG to
      submit to ERC for cancellation and return to Treasury. ERC, TIHG and Verge
      agreed to assign to the Company all rights in and to the Investment
      Agreement.





The
      consideration payable to the Company under the Stock Transfer Agreement is
      $500,000, which in TIHG’s discretion, may be added to the outstanding loan
      amount owing to the Company by ERC pursuant to the secured line of credit
      agreement (the "Line of Credit") with ERC, entered into on June 14, 2006,
      pursuant to which the Company agreed to loan ERC up to $10.0 million. In
      December 2006, the Board of Directors and Audit Committee of the Company
      approved an increase of the Line of Credit up to $20.0 million. ERC can use
      this
      line for the various different projects they are engaged in. The loans are
      payable on demand and accrue interest at 12% per annum.





As
      of
      December 31, 2006, the outstanding Line of Credit owing to the Company is
      approximately $12 million. Under the Stock Transfer Agreement, in no event
      shall
      the Line of Credit exceed eighty percent (80%) of the fair market value of
      the
      Verge Property. As a condition precedent to the Stock Transfer Agreement, a
      current appraisal of the Verge Property shall be presented and delivered to
      the
      Company within two weeks of the date of the Stock Transfer
      Agreement.





OTHER
      INVESTMENTS





(a)
      EA
      Emerging Ventures Corp. (“EVC”).





On
      August
      30, 2006, the Company entered into an agreement by and between the Company
      and
      Ashfield Finance LLC (“Ashfield”), a Delaware limited liability company to form,
      develop and initially fund EVC, a Nevada Corporation. The agreement was
      developed for the purpose of identifying Electronic Design Automation ("EDA")
      and IT development projects, as well as potential financing of real estate
      properties related thereto and other business ventures and investments. EVC
      is
      owned 50% by the Company and 50% by Ashfield. The Company shall provide the
      initial funds for implementation of the business purposes of the joint venture
      and shall be entitled to a first priority return on any proceeds or income
      received by EVC. Ashfield shall provide services in the area of business,
      finance and taxation advice and has entered into a Consulting Agreement with
      EVC
      regarding these services. In consideration for such services, Ashfield shall
      receive its 50% interest as well as a payment of $10,000 per month. EVC is
      evaluating various projects, although at the present time, has not presented
      the
      Company with a specific project for consideration. EVC is a shell company as
      of
      the date of this filing.




6





(b)
      Micrologic, Inc.





On
      October 11, 2006, as the first transaction in connection with the agreement
      with
      Ashfield (where Ashfield and EVC accepted no consideration) (see above), the
      Company entered into a Term Sheet that will be formally documented in a contract
      with associated exhibits, License Agreement and Warrants by and between the
      Company and Dr. Danny Rittman - a third party, in connection with the formation
      and initial funding of Micrologic, Inc. (“Micrologic”), a Nevada corporation,
      for the design and production of EDA applications and Integrated Circuit ("IC")
      design processes; specifically, the development and production of the
      NanoToolBox TM tools
      suite which shortens the time to market factor. NanoToolBox TM is a
      smart platform that is designed to accelerate IC's design time and shrink time
      to market factor. The Term Sheet provides for an initial investment by the
      Company of up to $1.0 million, with warrants to purchase additional equity
      for
      additional investment. Initially, the Company owns 25.1% and Dr. Rittman owns
      74.9% of Micrologic, Inc. but such equity positions would be revised depending
      upon the exercise of the warrants as follows: (1) Warrant A - the Company shall
      be granted a two year option to acquire an additional 10% of Micrologic for
      $1.0
      million (2) Warrant B - the Company shall be granted a three year option to
      acquire an additional 15% of Micrologic for $3.0 million. The consideration
      of
      warrants A and B can be paid at the discretion of the Company, 50% in cash
      and
      50% in the Company’s shares. As of December 31, 2006, $50,000 was transferred by
      the Company as part of this commitment and no warrants were purchased.
      Micrologic will enter into a License Agreement with Dr. Danny Rittman, which
      grants Micrologic the right to technology invented, owned and registered by
      Dr.
      Rittman. Parties agreed that this investment will be handled directly between
      Micrologic and Emvelco without the involvement of EVC or Ashfield, however,
      the
      Company has no influence over the operation of Micrologic. The Company and
      Dr.
      Rittman are working on finalizing these agreements, which have not been signed
      as of the date of this report.





(C)
      AP
      Holdings Limited - A Jersey Corporation (“AP Holdings”)





As
      a
      result of the Exchange Transaction entered into on December 31, 2006, ERC,
      through Verge, acquired a 33.33% equity investment in AP Holdings Limited,
      a
      Jersey Company for $3.0 million which was paid in cash at closing. AP Holdings,
      a non-operational holding Company owns 100% of Atia Projekt d.oo. (“Atia
      Project”), a Croatian company engaged in real estate development. The Company
      has no influence over the operation of AP Holdings. The majority owner (66.67%)
      of AP Holdings is Shalom Atia, the brother of the Company’s Chief Executive
      Officer. During the accounting related to the Exchange Transaction, it was
      determined that there is no accounting value associated with this investment
      and
      therefore, the fair value of AP Holdings is its cost as of December 31, 2006.




7





The
      Company may invest in other unidentified industries that the Company deems
      profitable. If the opportunity presents itself, the Company will consider
      implementing its consolidation strategy with its subsidiaries and any other
      business that it enters. However, the Company does not presently have any plans,
      proposals or arrangements to redeploy its remaining capital funds or engage
      in
      any specific acquisitions. The Company has not yet identified any additional
      specific industries in which to invest.





**History
      of Acquisitions and Dispositions - ISP and IT industry**




Over
      the
      past nine years, Emvelco participated in the ISP market in Central Europe
      through various acquisitions of companies in that geographic area. In 2005,
      the
      scope of the Company’s business activity was changed by the decision to sell the
      Company’s operations in the ISP market and furthermore by the acquisition of
      Navigator, a company active in the IT services industry. In 2007, the Board
      also
      approved the exit from IT service industry, and completed the exit with the
      sale
      of Navigator. Currently, the Company has no operations in Hungary. A history
      of
      the Company’s acquisitions and disposals within the ISP and IT industry are
      presented below.





*Hungary*





On
      January 2, 1997, the Emvelco acquired all of the outstanding stock of three
      Hungarian ISPs for a total purchase price of approximately $1,785,000,
      consisting of 28,800 shares of common stock of the Company and $1,425,000 in
      cash (collectively, the “1997 Acquisitions”). The 1997 Acquisitions included the
      following:





·
            Eunet
                (Hungary Ltd.) for a cost of $1,000,000 in cash, and the assumption
                of
                $128,000 in liabilities;





·
            E-Net
                Hungary Telecommunications and Multimedia for a cost of $200,000
                in cash
                and $150,000 in stock (12,000 shares);
                and





·
            MS
                Telecom Rt. for a cost of $225,000 in cash and $210,000 in stock
                (16,800
                shares).





Subsequent
      to completion of these acquisitions, all three Hungarian companies were combined
      and merged into a new Hungarian entity, Euroweb Hungary. On November 22, 1998,
      the Company sold 51% of the outstanding shares of Euroweb Hungary to Pantel
      Rt.
      (“Pantel”) for $2,200,000 in cash and an agreement to increase the share capital
      of Euroweb Hungary by $300,000 without changing the ownership ratio. In February
      2004, the Company acquired the 51% of Euroweb Hungary that it had sold to
      Pantel. The consideration paid by the Company for the 51% interest comprised
      $2,105,000 in cash and a guarantee that Euroweb Hungary will purchase at least
      $3,000,000 worth of services from Pantel in each of the three years ending
      December 31, 2006. The purchase commitment was fulfilled by Euroweb
      Hungary.





On
      June
      9, 2004, the Company acquired all of the outstanding shares of Elender, an
      ISP
      located in Hungary that provides Internet access to the corporate and
      institutional (public) sector and, amongst others, 2,300 schools in Hungary.
      Consideration paid in the amount of $9,350,005 consisted of $6,500,000 in cash
      and 677,201 of the Company’s shares of common stock, valued at $2,508,353
      excluding registration cost, and $391,897 in transaction costs (consisting
      primarily of professional fees incurred related to attorneys, accountants and
      valuation advisors).





Under
      the
      terms of this agreement, the Company placed 248,111 unregistered shares of
      newly
      issued stock (in the name of the Company) with an escrow agent as security
      for
      approximately $1.5 million loans payable to former shareholders of Elender.
      The
      shares will be returned to the Company from escrow once the outstanding loans
      have been fully repaid. However, if there is a default on the outstanding loan,
      then the shares will be issued to the other party and the Company is then
      obliged to register the shares. As of December 31, 2005, the Company repaid
      all
      of the loans that were outstanding. In January 2006, the Company acquired and
      subsequently cancelled the shares that were put into escrow.




8





On
      October 7, 2005, the Company acquired all of the outstanding shares of
      Navigator, a Hungary-based provider of IT outsourcing, applications development
      and IT consulting services. Consideration paid in the amount of $10,760,772
      consisted of $8,500,000 in cash and 441,566 shares of the Company’s common stock
      valued at $1,752,134 excluding registration cost, and $508,638 in transaction
      costs (consisting primarily of professional fees incurred related to attorneys,
      accountants and valuation advisors).





On
      December 19, 2005, Emvelco entered into a share purchase agreement with Invitel
      for the sale of Euroweb Hungary and Euroweb Romania. The purchase price for
      the
      subsidiaries specified in the share purchase agreement was approximately $30
      million. As part of the closing, approximately $6 million of the cash proceeds
      paid by Emvelco were paid to Euroweb Hungary in exchange for the 85% ownership
      of Navigator currently held by Euroweb Hungary. This cash was used by Euroweb
      Hungary for the repayment of an approximately $6 million bank loan obtained
      for
      the acquisition of Navigator. The closing of the sale of Euroweb Hungary and
      Euroweb Romania occurred on May 23, 2006.





On
      February 16, 2007, the Company completed the disposal of Navigator. The purchase
      price paid to the Company is $3,200,000 in cash and the transfer to the Company
      of 622,531 shares of the Company. On May 3, 2007 the Company surrendered 622,531
      stock certificates together with stock powers to American Stock Transfer &
Trust Company, the Company’s transfer agent for cancellation and return to
      Treasury.





*Romania*




On
      May
      19, 2000, the Company purchased all of the Internet related assets of Sumitkom
      Rokura, S.R.L., an ISP in Romania, for $1,561,125 in cash. The acquisition
      was
      accounted for as an asset purchase with a value of $1,150,000 being assigned
      to
      the customer lists acquired.




On
      June
      14, 2000, the Company acquired all of the outstanding shares of capital stock
      of
      Mediator S.A., an ISP in Romania for $2,040,000 in cash and the assumption
      of a
      $540,000 liability to the former owner payable in annual installments of
      $180,000, commencing on June 1, 2001. Goodwill arising on this purchase was
      $2,455,223. Immediately after the purchase, the name of this company was changed
      to Euroweb Romania. This acquisition was effective as of July 1, 2000.




On
      December 19, 2005, Emvelco entered into a share purchase agreement with Invitel
      for the sale of Euroweb Hungary and Euroweb Romania. The purchase price for
      the
      subsidiaries specified in the share purchase agreement was approximately $30
      million. As part of the closing, approximately $6 million of the cash proceeds
      paid by Emvelco were paid to Euroweb Hungary in exchange for the 85% ownership
      of Navigator currently held by Euroweb Hungary. This cash was used by Euroweb
      Hungary for the repayment of an approximately $6 million bank loan obtained
      for
      the acquisition of Navigator. The closing of the sale of Euroweb Hungary and
      Euroweb Romania occurred on May 23, 2006.





*Czech
      Republic*





On
      June
      11, 1999, the Company acquired all of the participating interests of Luko
      CzechNet, an ISP in the Czech Republic, for a total cost of $1,862,154,
      including 90,000 shares of the Company’s common stock and 50,000 options valued
      at $2.00 per share; the balance paid in cash. This acquisition was effective
      as
      of June 1, 1999.




9




On
      August
      25, 2000, the Company, through its subsidiary, Luko Czech, acquired all of
      the
      outstanding capital stock of Stand s.r.o., an ISP in the Czech Republic, for
      $280,735 in cash. Stand s.r.o. was merged into Luko Czech under the name of
      Euroweb Czech Republic. This acquisition was effective as of September 1,
      2000.




On
      December 16, 2004, the Company sold all of its shares in its wholly-owned
      subsidiary, Euroweb Czech for cash of $500,000. Additionally, as a part of
      the
      transaction, the Company forgave $400,000 of loans receivable from Euroweb
      Czech.




*Slovakia*




On
      July
      15, 1999, the Company acquired all of the outstanding shares of capital stock
      of
      EUnet Slovakia, an ISP in the Slovak Republic, for a total cost of $813,299
      including 47,408 shares of the Company’s common stock valued at $400,005 issued
      August 9, 1999; the balance was paid in cash. This acquisition was effective
      as
      of August 1, 1999.




The
      Company made another acquisition of a Slovak ISP on July 15, 1999 with the
      purchase of 70% of the outstanding shares of Dodo s.r.o.’s subsidiary, R-Net,
      for a total cost of $630,234, including 29,091 shares of the Company’s common
      stock valued at $200,000 issued August 13, 1999; the balance was paid in cash.
      This acquisition was effective as of August 1, 1999.




On
      September 23, 1999 and November 16, 1999, the Company acquired from Slavia
      Capital o.c.p., a.s. 70% and 30%, respectively, of the issued and outstanding
      stock of Global Network Services a.s.c., a Slovakian corporation providing
      Internet service primarily to businesses located in Bratislava and other major
      cities in Slovakia for a total purchase price of $1,633,051, including 71,114
      shares of the Company’s common stock valued at $499,929 issued on September 23,
      1999; the balance was paid in cash. The acquisition of 70% of Global Network
      Services a.s.c. was effective as of October 1, 1999.




On
      April
      21, 2000, the Company acquired all of the outstanding capital stock of Isternet
      SR, s.r.o., an ISP in the Slovak Republic, for $1,029,299 in cash. Goodwill
      arising on this purchase was $945,200. This acquisition was effective May 1,
      2000.




On
      May
      22, 2000, the Company acquired the remaining 30% of R-Net (the initial 70%
      being
      acquired in 1999) for $355,810 in cash. Goodwill arising on this purchase was
      $357,565.




All
      of
      the Company’s Slovakian operations were then merged into one company under the
      name of Euroweb Slovakia. On April 15, 2005, Emvelco sold 100% of its interest
      in its wholly-owned subsidiary Euroweb Slovakia to DanubiaTel a.s. The purchase
      price was $2,700,000.




Euroweb
      Hungary, Euroweb Slovakia, Euroweb Czech, Euroweb Romania and Navigator are
      classified as discontinued operations in the Company’s financial statements for
      all periods presented.





**History
      of Acquisitions and Dispositions - Financial Investment in Real Estate
      Industry**




On
      June
      11, 2006, the Company commenced operations in the financial aspects of the
      real
      estate industry through the acquisition of a non-operational, wholly-owned
      subsidiary, ERC, which was acquired for a stock purchase price totally $1,000.
      The primary activity of ERC includes development and subsequent sale of real
      estate, as well as investment in the form of loans provided to, or ownership
      acquired in, property development companies, directly or via majority or
      minority owned affiliates.




10





In
      the
      third quarter of 2006, ERC acquired the following non-operational asset holding
      companies: 51% in Huntley for a purchase price of $510, 66.67% of Stanley for
      a
      purchase price $667 and 100% of Lorraine for a capital contribution of
      $1,000.





On
      December 31, 2006, Emvelco and its wholly-owned subsidiary ERC entered into
      an
      Exchange Agreement with Verge and its sole shareholder, TIHG. The Exchange
      Agreement closed on December 31, 2006. Pursuant to the Exchange Agreement,
      ERC
      issued 1,308 new shares to TIHG in exchange for 100% of the outstanding
      securities of Verge, resulting in TIHG having voting control over ERC.
      Subsequent to the exchange, Emvelco owned 43.33% of ERC, while TIHG owned the
      remaining 56.67%. Verge became a wholly-owned subsidiary of ERC.





On
      May
      14, 2007, pursuant to the Stock Transfer Agreement, the Company transferred
      and
      conveyed its 1,000 Shares (representing a 43.33% interest) in ERC to TIHG to
      submit to ERC for cancellation and return to Treasury. ERC, TIHG and Verge
      agreed to assign to the Company all rights in and to the Investment
      Agreement.





**Products
      and Services**




Upon
      completion of the sale of Navigator in February 2007, which is presented as
      discontinued operations for the year ended December 31, 2006, the Company no
      longer operates within the IT outsourcing industry.




Since
      June 2006, the Company is engaged in the financial aspects of acquisition,
      development, management, rental and sale of commercial, multi-family and
      residential real estate properties located primarily the United States of
      America (“US”). The Company is also engaged in investment and financing
      activities, as well as conducting real estate operations on its own properties.
      Currently, all of the real estate properties are in the initial phase of
      development, and therefore no sales of property have occurred.





**Organization**




*Project
      management*




The
      Company employs five full-time
      professionals including management, in its
      Beverly Hills, California headquarters. Headquarter personnel are responsible
      for project management, bid-management and operations service management
      activities. Their main tasks involve creating business and interaction with
      subsidiaries and vendors. Post the Exchange Agreement with TIHG, the Company
      currently employs one full time employee.




**Employees**




As
      of
      March 31, 2007, the Company employed a total of 5 full-time
      employees.




11





**Government
      Regulations**




The
      Company’s subsidiary or affiliate operations are subject to building,
      environmental and other codes, ordinances, zoning, building design and
      regulations of various federal, state, and local governing authorities to comply
      with building permit, as well as on-going-inspections, including local
      regulations which impose restrictive zoning and density requirements in order
      to
      limit the number of homes that can eventually be built within the boundaries
      of
      a particular property or locality. We must satisfy valuation standards and
      site,
      material and construction requirements of those authorities. More stringent
      requirements could be imposed in the future on homebuilders and developers,
      thereby increasing the cost of compliance.





In
      addition, the Company is subject to various licensing, registration and filing
      requirements in connection with the construction, advertisement and sale of
      homes in its communities. Although these laws have increased our overall costs,
      they have not had a material effect on the Company.





**Competition**





The
      real
      estate development business is highly competitive and fragmented. We compete
      with numerous real estate developers of varying sizes, ranging from local to
      national in scope, some of which have greater sales and financial resources
      than
      we have.





Our
      dedication to customer satisfaction is evidenced by our consumer and value-based
      brand approach to product development, and we believe that this dedication
      distinguishes us in the homebuilding industry and will contribute to our
      long-term competitive advantage. The real estate industry in the United States,
      however, is highly competitive. In each of our market areas, there are numerous
      real estate developers with which we compete. We also compete with the resale
      of
      existing house inventory. Any provider of housing units, for-sale or to rent,
      including apartment builders, may be considered a competitor. Conversion of
      apartments to condominiums further provides certain segments of the population
      an alternative to traditional housing, as well as manufactured housing. We
      compete primarily on the basis of price, reputation, design, location and
      quality of our homes. The real estate industry is affected by a number of
      economic and other factors including: (1) significant national and world events,
      which impact consumer confidence; (2) changes in the costs of building
      materials and labor; (3) changes in interest rates; (4) changes in
      other costs associated with home ownership, such as property taxes and energy
      costs; (5) various demographic factors; (6) changes in federal income
      tax laws; (7) changes in government mortgage financing programs, and
      (8) availability of sufficient mortgage capacity. In addition to these
      factors, our business and operations could be affected by shifts in demand
      for
      new homes.





**Risk
      Factors**





In
      addition to the other information contained in this Annual Report on
      Form 10-KSB, the following risk factors should be considered carefully in
      evaluating our business. Our business, financial condition, or results of
      operations or future prospects could be materially adversely affected by
      operating results, and could cause our actual results to differ materially
      from
      our plans, projections, or other forward-looking statements included in “Item 6.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” below and elsewhere in this Report on Form 10-KSB.





***We
      have incurred a loss from continuing operations for the prior periods and we
      will again incur net losses if we are unable to generate sufficient revenue
      and
      control costs.***





We
      incurred a loss from continuing operations of $2,279,285 for the year ended
      December 31, 2006 and $1,703,466 for the year ended December 31, 2005. We may
      not achieve profitability on a quarterly or annual basis in the future. If
      revenues grow more slowly than we anticipate, or if operating expenses exceed
      our expectations or cannot be adjusted accordingly, we will continue to incur
      losses. Our future performance is dependent upon the successful development
      and
      marketing of our services and products and additional acquisition about which
      there is no assurance. Any future success that we might enjoy will depend upon
      many factors, including factors out of our control or which cannot be predicted
      at this time. These factors may include changes in or increased levels of
      competition, including the entry of additional competitors and increased success
      by existing competitors, changes in general economic conditions, increases
      in
      operating costs, including costs of supplies, personnel and equipment, reduced
      margins caused by competitive pressures and other factors. These conditions
      may
      have a materially adverse effect upon us or may force us to reduce or curtail
      operations.




12





***Our
      common stock may be delisted by the Nasdaq Capital
      Market***





On
      April
      19, 2007, the Company received a Nasdaq Staff Determination (the
“Determination”) indicating that the Company has failed to comply with the
      requirement for continued listing set forth in Marketplace Rule 4310(c)(14)
      requiring the Company to file its Form 10-KSB for the year ended December 31,
      2006 with the Securities and Exchange Commission and that its securities are,
      therefore, subject to delisting from the Nasdaq Capital Market. The Company
      requested and received a hearing before a Nasdaq Listing Qualifications Panel
      (the “Panel”) to review the Determination. The Panel hearing will take place on
      May 31, 2007.





On
      May
      17, 2007, the Company received a Nasdaq Additional Staff Determination (the
      “Additional Determination”) indicating that the Company has failed to comply
      with the requirement for continued listing set forth in Marketplace Rule
      4310(c)(14) requiring the Company to file its Form 10-QSB for the quarter ended
      March 31, 2007 with the Securities and Exchange Commission (the “SEC”) and that
      that this failure serves as an additional basis for why its securities are
      subject to delisting from the Nasdaq Capital Market. The Company will review
      the
      Additional Determination at its Panel hearing. There can be no assurance that
      the Panel will grant the Company’s request for continued
      listing.





***We
      are vulnerable to concentration risks because our operations are currently
      almost exclusive to the Las Vegas, Nevada and Los Angeles, California real
      estate market.***





Our
      real
      estate activities are entirely located in Las Vegas and Los Angeles. Because
      of
      our geographic concentration and limited number of projects, our operations
      are
      more vulnerable to local economic downturns and adverse project-specific risks
      than those of larger, more diversified companies. Our European investment via
      AP
      Holdings is limited to dividends or profit sharing. Accordingly, the performance
      of the Nevada and California economy has a significant impact on our revenues
      and consequently the underlying values of our properties.





***Aggressive
      attempts by certain parties to restrict growth in the area of our holdings
      may
      in the future have a negative effect on our development and sales
      activities*** *.*





Although
      the efforts of certain special interest groups have not experienced, but may
      be
      experienced in the future, which negatively impact our development and sales
      activities; we will protect and defend our rights to the development
      entitlements of our properties.




13





***If
      we are unable to generate sufficient cash from operations, we may find it
      necessary to curtail our development activities.***





Significant
      capital resources will be required to fund our development expenditures. Our
      performance continues to be dependent on future cash flows from real estate
      sales and rental income from our financial real estate developments, and there
      can be no assurance that we will generate sufficient cash flow or otherwise
      obtain sufficient funds to meet the expected development plans for our
      properties.





***Our
      results of operations and financial condition are greatly affected by the
      performance of the real estate industry.***





Our
      real
      estate activities are subject to numerous factors beyond our control, including
      local real estate market conditions (both where our properties are located
      and
      in areas where our potential customers reside), substantial existing and
      potential competition, general national, regional and local economic conditions,
      fluctuations in interest rates and mortgage availability and changes in
      demographic conditions. Real estate markets have historically been subject
      to
      strong periodic cycles driven by numerous factors beyond the control of market
      participants.





Real
      estate investments often cannot easily be converted into cash and market values
      may be adversely affected by these economic circumstances, market fundamentals,
      competition and demographic conditions. Because of the effect these factors
      have
      on real estate values, it is difficult to predict with certainty the level
      of
      future sales or sales prices that will be realized for individual
      assets.





***Our
      real estate operations are also dependent upon the availability and cost of
      mortgage financing for potential customers, to the extent they finance their
      purchases, and for buyers of the potential customers’ existing
      residences.***





Unfavorable
      changes in market and economic conditions could hurt occupancy or rental rates.
      The market and economic conditions may significantly affect rental rates.
      Occupancy and rental rates in our market, in turn, may significantly affect
      our
      profitability and our ability to satisfy our financial obligations. The risks
      that may affect conditions in our market include the following:






·
      the economic climate, which may be
      adversely impacted by industry slowdowns and other factors;





·
      local conditions, such as oversupply of
      office space and the demand for office space;





·
      the inability or unwillingness of tenants
      to pay their current rent or rent increases; and





·
      competition from other available office
      buildings and changes in market rental rates.





***Our
      operations are subject to an intensive regulatory approval process, which may
      influence the cost of developments.***





Before
      we
      can develop a property, we must obtain a variety of approvals from local and
      state governments with respect to such matters as zoning, density, parking,
      subdivision, site planning and environmental issues. Certain of these approvals
      are discretionary by nature. Because certain government agencies and special
      interest groups may expressed concerns about our development plans in or near
      Los Angeles or Las Vegas, our ability to develop these properties and realize
      future income from our properties could be delayed, reduced, prevented or made
      more expensive.




14




***Certain
      special interest groups may opposed our plans and have taken various actions
      to
      partially or completely restrict development in some areas, including areas
      where some of our most valuable properties are located.***





We
      have
      actively opposed these actions. We currently do not believe unfavorable rulings
      would have a significant long-term adverse effect on the overall value of our
      property holdings. However, because of the regulatory environment that has
      existed in the Las Vegas and Los Angeles and the intensive opposition of certain
      interest groups, there can be no assurance that such expectations will prove
      correct.





***Our
      operations are subject to governmental environmental regulation, which can
      change at any time and generally would result in an increase to our costs.***





Real
      estate development is subject to state and federal regulations and to possible
      interruption or termination because of environmental considerations, including,
      without limitation, air and water quality and protection of endangered species
      and their habitats. We are making, and will continue to make, expenditures
      with
      respect to our real estate development for the protection of the environment.
      Emphasis on environmental matters will result in additional costs in the
      future.





***The
      real estate business is very competitive and many of our competitors are larger
      and financially stronger than we are which may affect our sales activities
      and
      margins***





The
      real
      estate business is highly competitive. We compete with a large number of
      companies and individuals, and many of them have significantly greater financial
      and other resources than we have. Our competitors include local developers
      who
      are committed primarily to particular markets and also national developers
      who
      acquire properties throughout the U.S.





***Our
      operations are subject to natural risks. Our performance may be adversely
      affected by weather conditions that delay development or damage
      property.***





The
      U.S.
      military intervention in Iraq, the terrorist attacks in the U.S. on September
      11, 2001 and the potential for additional future terrorist acts have created
      economic, political and social uncertainties that could materially and adversely
      affect our business. It is possible that further acts of terrorism may be
      directed against the U.S. domestically or abroad, and such acts of terrorism
      could be directed against properties and personnel of companies such as ours.
      Moreover, while our property and business interruption insurance covers damages
      to insured property directly caused by terrorism, this insurance does not cover
      damages and losses caused by war. Terrorism and war developments may materially
      and adversely affect our business and profitability and the prices of our common
      stock in ways that we cannot predict at this time.





***Our
      future success is dependent, in part, on the performance and continued service
      of our Chief Executive Officer and our ability to attract additional qualified
      personnel. If we are unable to do so our results from operations may be
      negatively impacted.***





Our
      success will be dependent on the personal efforts of Yossi Attia, Chief
      Executive Officer. The loss of the services of Mr. Attia could have a material
      adverse effect on our business and prospects. We do not have and do not intend
      to obtain "key-man" insurance on the life of any of our officers. The success
      of
      our company is largely dependent upon our ability to hire and retain additional
      qualified management, marketing, technical, financial and other personnel.
      Competition for qualified personnel is intense, and there can be no assurance
      that we will be able to hire or retain additional qualified management. The
      inability to attract and retain qualified management and other personnel will
      have a material adverse effect on our company as our key personnel are critical
      to our overall management as well as the development of our technology, our
      culture and our strategic direction.




15





***Possible
      Future Capital Needs.*** ****




The
      Company currently anticipates that its available cash resources will be
      sufficient to meet its presently anticipated working capital for at least the
      next 12 months. The Company, however, required obtaining additional financial
      resources for the development of properties. Therefore, the Company may need
      to
      raise additional funds in order to support more rapid expansion and capital
      expenditure, acquire complementary businesses or technologies or take advantage
      of unanticipated opportunities through public or private financing, strategic
      relationships or other arrangements. There can be no assurance that such
      additional funding, if needed, will be available on terms acceptable to the
      Company, or at all. If adequate funds are not available on acceptable terms,
      the
      Company may be unable to develop or enhance its services and products or take
      advantage of future opportunities either of which could have a material adverse
      effect on the Company's business, results of operations and financial
      condition.




***No
      Dividends*** **.**




It
      has
      been the policy of the Company not to pay cash dividends on its common stock.
      At
      present, the Company will follow a policy of retaining all of its earnings,
      if
      any, to finance the development and expansion of its business.




***Potential
      Issuance of Additional Common and Preferred Stock.*** ****




The
      Company is currently authorized to issue up to 35,000,000 common shares. The
      Board of Directors of the Company will have the ability, without seeking
      stockholder approval, to issue additional shares of common stock in the future
      for such consideration as the Board of Directors may consider sufficient. The
      issuance of additional common stock in the future will reduce the proportionate
      ownership and voting power of the common stock offered hereby. The Board of
      Directors of the Company is also authorized to issue up to 5,000,000 shares
      of
      preferred stock, the rights and preferences of which may be designated in series
      by the Board of Directors. To the extent of such authorization, such
      designations may be made without stockholder approval. The designation and
      issuance of series of preferred stock in the future would create additional
      securities which may have voting, dividend, liquidation preferences or other
      rights that are superior to those of the common stock, which could effectively
      deter any takeover attempt of the Company.




**ITEM
              2.**
            **DESCRIPTION
                OF PROPERTIES**




The
      following table lists the office space that the Company, as of December 31,
      2006, leases from unaffiliated parties:




Lessee
            
            Address
                of Property
            
            Primary
                Use
            
            Sq.
                feet
            
            Rent
                Amount/ Month
            
            Lease
                TermsEmvelco
                Corporation
            
            
            468
                North Camden Drive, Suite 315 Beverly Hills, California
                90210
            
            
            Stockholder
                relations, general executive, administrative, operations,
                legal
            
            
            As
                needed
            
            $
            1,600
            
            
            1
                year from Jan 2007ERC
                and Verge
            
            
            1061
                1⁄2 N. Spaulding Ave.
              Los
                Angeles, CA 90046
            
            
            General
                operation, real estate operations
            
            
            1,500
            
            $
            2,200
            
            
            5
                years from June 2006




16




In
      management’s opinion, these properties are in good condition and its office
      space is currently adequate for its operating needs.





The
      following is a summary of property, or lots, owned by the Company as of December
      31, 2006, which are intended for development:


Development
                  Project
              
              Address
                  of Property
              
              Primary
                  UseVerge
                  -
                Eleven
                  lots in Las Vegas, Nevada 89101
              
              604
                  N Main Street,Las Vegas, NV 89101
                634
                  N Main Street, Las Vegas, NV 89101
                601
                  1st Street, Las Vegas, NV 89101
                603
                  1st Street, Las Vegas, NV 89101
                605
                  1st Street, Las Vegas, NV 89101
                607
                  1st Street, Las Vegas, NV 89101
                625
                  1st Street, Las Vegas, NV 89101
                617
                  1st Street, Las Vegas, NV 89101
                701
                  1st Street, Las Vegas, NV 89101
                703
                  1st Street, Las Vegas, NV 89101
                705
                  1st Street, Las Vegas, NV 89101
              
              Plan
                  to build up to 296 condos plus commercial retail in down town Las
                  Vegas.
                  Construction estimated to commence during 2007.ERC
                  -
                Three
                  lots in Los Angeles, CA 90048
              
              347
                  N Laurel Avenue, Los Angeles, CA 90048
                360
                  N Harper Avenue, Los Angeles, CA 90048
                435
                  N Edinburgh Avenue, Los Angeles, CA 90048
              
              All
                  lots for the
                development
                  of single
                family
                  homes, expected
                To
                  be completed in 2007.Huntley
                  -
                One
                  lot in West Hollywood, CA 90046
              
              846
                  North Huntley Avenue, West Hollywood, CA 90046
              
              One
                  lot for the
                development
                  of two lots,
                Expected
                  to be completed in late 2007 or early 2008.Stanley
                  -
                Three
                  lots in Los Angeles, CA 90048
              
              2240
                  Stanley hills drive, Los Angeles Ca 90046
                2244
                  Stanley hills drive, Los Angeles Ca 90046
                2234
                  Stanley hills drive, Los Angeles Ca 90046
              
              All
                  lots for the
                development
                  of single
                family
                  homes, expected
                To
                  be completed in 2008.Lorraine
                  -
                Two
                  adjacent lots with two existing separate single homes in Los Angeles,
                  CA
                  90005
              
              678
                  Lorraine Blvd, Los Angeles, CA 90005
                678
                  Lorraine Blvd, Los Angeles, CA 90005
              
              Intends
                  to design and developed a14 unitcondos
                  building. Both
                homes
                  are currently being
                leased
                  through September
                2008.Improved
                  Lots, LLC -
                Eight
                  lots with one existing home in Los Angeles, CA 90046*)
              
              8351
                  Kirkwood Dr., Los Angeles, CA 90046
              
              Intends
                  to design and develop up to 8 single family homes. Home is currently
                  beingleased.Beverly
                  Estate Properties, LLC - One lot in Los Angeles, CA *)
              
              1345
                  Beverly Estate Dr., Los Angeles, CA 90210
              
              One
                  lot for thedevelopment
                  of one homes




*)
      - Both
      transactions were closed on March 12, 2007




17




The
      Company has obtained complete ownership of the detailed above, however the
      financial institutions - if applicable, that provided the loans for mortgages
      associated with such properties, have first priority mortgages and assignment
      of
      rent rights on Harper, Stanley, Huntley and Lorraine properties in the event
      of
      default.





The
      Company maintains a general liability insurance policy, course of construction
      policy for each property. Management’s opinion is that the properties are
      adequately covered by insurance.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




From
      time
      to time, we are a party to litigation or other legal proceedings that we
      consider to be a part of the ordinary course of our business. We are not
      involved currently in legal proceedings other than detailed below that could
      reasonably be expected to have a material adverse effect on our business,
      prospects, financial condition or results of operations. We may become involved
      in material legal proceedings in the future **.**




On
      April
      26, 2006, a lawsuit was filed in the Delaware Court of Chancery (the "Court")
      by
      a stockholder of the Company against the Company, each of the Company's
      Directors and CORCYRA d.o.o., a stockholder of the Company that beneficially
      owned 39.81% of the Company's outstanding common stock at the date of the
      lawsuit. The Complaint is entitled Laurence Paskowitz v. Csaba Toro et al.,
      C.A.
      No. 2110-N and was brought individually, and as a class action on behalf of
      certain of the Company's common stockholders, excluding defendants and their
      affiliates. The plaintiff alleged that the proposed sale of 100% of the
      Company's interest in the Company's two Internet and telecom related operating
      subsidiaries (the "Subsidiaries") constitutes a sale of substantially all of
      the
      Company's assets and required approval by a majority of the voting power of
      the
      Company's outstanding common stock under Section 271 of the Delaware General
      Corporation Law. The plaintiff also alleged the defendants breached their
      fiduciary duties in connection with the sale of the Subsidiaries, as well as
      the
      disclosures contained in the proxy statement filed on April 24, 2006. The
      plaintiff applied for a temporary restraining order seeking to enjoin the
      special meeting on May 15, 2006.




The
      Company denies any and all allegations of wrongdoing; however, in the interests
      of conserving resources, on April 28, 2006, the parties to the litigation
      entered into a Memorandum of Understanding (“MOU”) providing for, subject to
      confirmatory discovery by plaintiff, the negotiation of a formal stipulation
      of
      a settlement of the litigation. Pursuant to the MOU, the Board of Directors
      of
      the Company agreed to: (i) increase the vote required to approve the sale of
      100% of the Company's interest in the Subsidiaries, (ii) revise the disclosure
      within the Proxy Statement to eliminate the bonus of up to US $400,000, which
      the Compensation Committee of the Company had the option to pay to select
      members of management, as the Board of Directors had previously elected to
      terminate the ability to pay such bonus and (iii) provide supplemental
      disclosure as contained in the Supplemental Proxy Statement to be mailed to
      stockholders and filed with the SEC on May 3, 2006.




18




The
      parties entered into a stipulation of settlement on April 3, 2007. The
      settlement will provide for dismissal of the litigation with prejudice and
      is
      subject to Court approval. As part of the settlement, the Company has agreed
      to
      attorneys' fees and expenses to plaintiff's counsel in the amount of $151,000.
      Pursuant to the stipulation of settlement, the Company sent out notices to
      the
      members of the class on May 3, 2007. A fairness hearing will take place on
      June
      8, 2007.




The
      Company filed a Complaint in the Superior Court for the County of Los Angeles,
      against an attorney. The case was filed on February 14, 2007, and service of
      process has been done. In the Complaint the Company is seeking judgment against
      it this attorney in the amount of approximately $250,000, plus interest, costs
      and fees. Defendent has not yet appeared in the action. The Company believes
      that it has a meritorious claim for the return of monies deposited with
      defendent in a trust capacity, and, from the documents in the Company’s
      possession, there is no reason to doubt the validity of the claim. However,
      management does not have any information on the collectibility of any judgment
      that might be entered in Court. During April 2007 defendant returned
      approximately $70,000 and the Company has granted him a 15-day extension to
      file
      his defense.




**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




The
      followings matters were submitted to a vote of the Company’s security holders
      through the solicitation of proxies:




The
      Company held a Special Meeting of Stockholders on Monday, May 15, 2006, at
      10:00
      am (EST local time), at the law offices of Sichenzia Ross Friedman Ference
      LLP,
      1065 Avenue of the Americas, 21 st Floor,
      New York, New York 10018. The purpose of the Special Meeting of Stockholders
      was
      to consider and vote upon a proposal to sell 100% of the Company’s interest in
      the Company’s two Internet and telecom related operating subsidiaries, Euroweb
      Internet Szolgáltató Rt and Euroweb Romania S.A as contemplated in that certain
      Share Purchase Agreement entered by and between Invitel Távközlési Szolgáltató
Rt., a Hungarian joint stock company and the Company on December 19, 2005.
      The
      proposal to sell the underlined assets was approved.




The
      Company held the Annual Meeting of Stockholders (the "Meeting") of Euroweb
      International Corp., a Delaware corporation (the "Company" or "Euroweb"), 2:00
      p.m. (Los Angeles, California time), on Friday August 11, 2006 at its corporate
      offices located at 468 North Camden Drive, Beverly Hills, California 90210
      for
      the following purposes: 1. To elect six (6) directors of the Company to serve
      until the 2007 Annual Meeting of Stockholders or until their successors have
      been duly elected and qualified; 2. To ratify the selection of Deloitte Kft.
      as
      our independent auditors for the fiscal year ending December 31, 2006; and
      3. To
      transact such other business as may properly come before the Meeting and any
      adjournment or postponement thereof. Per the Board recommendations, 6 directors
      were elected and ratification of the appointment of Deloitte KFT as the auditors
      of the Company for the fiscal year ending December 31, 2006 was approved.




19




**PART
      II**




**ITEM
      5.**  **MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**




**Market
      Information** ****




The
      Company's common stock is traded on the Nasdaq Capital Market ("NASDAQ") under
      the symbol "EMVL".




The
      following table sets forth the high and low bid prices for the Company’s common
      stock during the periods indicated as reported by NASDAQ.




**High
                ($)**
            
            **Low
                ($)****Quarter
                Ended:**


**2005**March
                31, 2005
            
            
            4.03
            
            
            2.93June
                30, 2005
            
            
            4.89
            
            
            2.81September
                30, 2005
            
            
            4.73
            
            
            2.97December
                31, 2005
            
            
            4.52
            
            
            3.10


**2006**March
                31, 2006
            
            
            4.05
            
            
            3.14June
                30, 2006
            
            
            3.35
            
            
            2.36September
                30, 2006
            
            
            2.61
            
            
            1.41December
                31, 2006
            
            
            2.76
            
            
            1.67**2007****March
                31, 2007**
            
            
            1.91
            
            
            1.27




On
      March
      30, 2007 the closing bid price on the NASDAQ for the Company’s common stock
      was **** $1.69.




On
      April
      19, 2007, the Company received a Nasdaq Staff Determination (the
“Determination”) indicating that the Company has failed to comply with the
      requirement for continued listing set forth in Marketplace Rule 4310(c)(14)
      requiring the Company to file its Form 10-KSB for the year ended December 31,
      2006 with the Securities and Exchange Commission and that its securities are,
      therefore, subject to delisting from the Nasdaq Capital Market. The Company
      requested and received a hearing before a Nasdaq Listing Qualifications Panel
      (the “Panel”) to review the Determination. The Panel hearing will take place on
      May 31, 2007.




20





On
      May
      17, 2007, the Company received a Nasdaq Additional Staff Determination (the
      “Additional Determination”) indicating that the Company has failed to comply
      with the requirement for continued listing set forth in Marketplace Rule
      4310(c)(14) requiring the Company to file its Form 10-QSB for the quarter ended
      March 31, 2007 with the Securities and Exchange Commission (the “SEC”) and that
      that this failure serves as an additional basis for why its securities are
      subject to delisting from the Nasdaq Capital Market. The Company will review
      the
      Additional Determination at its Panel hearing. There can be no assurance that
      the Panel will grant the Company’s request for continued listing.




**Holders
      of Common Stock** ****




As
      of
      March 30, 2007, the Company had 5,843,067 shares of common stock outstanding
      and
      104 shareholders of record. The Company was advised by its transfer agent,
      the
      American Stock Transfer & Trust Company, that according to a search made,
      the Company has approximately 6,153 beneficial owners who hold their shares
      in
      street names **.**




**Dividends**




It
      has
      been the policy of the Company to retain earnings, if any, to finance the
      development and growth of its business.




**Equity
      Compensation Plans**




The
      equity compensation plan information required by this Item is set forth in
      Part
      III, Item 11 of this Annual Report on Form 10-KSB.




**Sale
      of Securities that were not registered Under the Securities Act of
      1933**




During
      the year ended December 31, 2006, the Company issued an aggregate of 104,975
      shares of common stock to Moshe Schnapp in payment of services rendered to
      the
      Company. These shares were issued in reliance on the exemption provided by
      Section 4(2) of the Securities Act of 1933, as amended, as transactions not
      involving a public offering.




**Treasury
      Stock Repurchase**




In
      June
      2006, the Company's Board of Directors approved a program to repurchase, from
      time to time, at management's discretion, up to 700,000 shares of the Company's
      common stock in the open market or in private transactions commencing on June
      20, 2006 and continuing through December 15, 2006 at prevailing market prices.
      Repurchases will be made under the program using our own cash resources and
      will
      be in accordance with Rule 10b-18 under the Securities Exchange Act of 1934
      and
      other applicable laws, rules and regulations. The Shemano Group acts as agent
      for our stock repurchase program. As of December 31, 2006, the Company held
      476,804 treasury shares at a cost of $995,360.





Pursuant
      to the unanimous consent of the Board of Directors in September 2006, the number
      of shares that may be purchased under the Repurchase Program was increased
      from
      700,000 to 1,500,000 shares of common stock and the Repurchase Program was
      extended until October 1, 2007, or until the increased amount of shares is
      purchased.




21





Information
      on the shares purchased during the fourth quarter of 2006 is as follows:




Period
                in 2006
            
            (a)
                Total Number of Shares (or Units) Purchased
            
            (b)
                Average Price Paid per Share (or Unit)
            
            (c)
                Total Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans or Programs
            
            (d)
                Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                that May
                Yet Be Purchased Under the Plans or Programs**October
                1 to October 31**
            
            
            **105,889**
            
            **$**
            **1.97**
            
            
            **433,183**
            
            
            **1,066,817****November
                1 to November 30**
            
            
            **43,621**
            
            **$**
            **2.18**
            
            
            **476,804**
            
            
            **1,023,196****December
                1 to December 31**
            
            
            **0**
            
            
            **-**
            
            
            **0****Total**
            
            
            **149,510**
            
            **$**
            **2.04**
            
            
            **476,804**
            
            
            **1,023,196**




On
      February 16, 2007, the Company completed the final sale of Navigator. The
      purchase price paid to the Company is $3,200,000 in cash and the transfer to
      the
      Company of 622,531 shares of the Company. On
      May 3,
      2007 the Company surrendered said 622,531 stock certificates together with
      stock
      powers to American Stock Transfer & Trust Company the Company’s transfer
      agent for cancellation and return to Treasury.




**ITEM
              6**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**




As
      of
      December 31, 2006, Emvelco operated in the US through its minority owned
      affiliate, ERC, a Nevada corporation and its subsidiaries. For the period from
      June 11, 2006 through December 30, 2006, ERC was a wholly owned subsidiary
      of
      Emvelco. Accordingly, the net loss of ERC is presented in the Company’s
      statement of operations for that period. On December 31, 2006, the Company
      entered into an exchange agreement with TIHG, whereby TIHG became the primary
      beneficiary of ERC. Thus, the Company is not required to consolidate ERC, but
      rather report the Company’s interest in ERC by using the equity method.




22





The
      Company’s position is based on a detailed analysis conducted by management of
      FASB Interpretation No. 46R: *Consolidation
      of Variable Interest Entities, an interpretation of ARB No. 51* (“FIN
      46R”), the accounting pronouncements governing consolidation.





Under
      its
      FIN 46R analysis, the Company determined that ERC is a variable interest entity.
      This in turn required a determination as to which enterprise is the primary
      beneficiary. The Company determined that TIHG, rather than Emvelco, is the
      primary beneficiary. The Company performed an analysis of the calculated
      expected losses of ERC. Of these amounts 56.67% was allocated to TIHG. Because
      Emvelco is not the primary beneficiary of ERC, Emvelco should not consolidate
      ERC under FIN 46R, but should report the 43.33% interest in ERC using the equity
      method. Accordingly, TIHG should consolidate ERC.





As
      a
      result of the Company’s analysis set forth above, the Company determined that,
      under FIN 46R, the Company will not consolidate ERC for the year ended December
      31, 2006.





On
      May
      14, 2007, pursuant to the Stock Transfer Agreement, the Company transferred
      and
      conveyed its 1,000 Shares (representing a 43.33% interest) in ERC to TIHG to
      submit to ERC for cancellation and return to Treasury. ERC, TIHG and Verge
      agreed to assign to the Company all rights in and to the Investment
      Agreement.




On
      April
      15, 2005, the Company disposed of Euroweb Slovakia a.s. ("Euroweb Slovakia")
      for
      cash in the amount of $2,700,000 and, as a result, has ceased operations in
      Slovakia.




On
      December 15, 2005, our Board of Directors decided to sell 100% of Euroweb
      Internet Szolgaltato Rt. ("Euroweb Hungary") and Euroweb Romania S.A. ("Euroweb
      Romania"). On December 19, 2005, the Company entered into a share purchase
      agreement with third party - Invitel Tavkozlesi Szolgaltato Rt. ("Invitel"),
      a
      Hungarian joint stock company, to sell 100% of the Company’s interest in Euroweb
      Hungary and Euroweb Romania. The closing of the sale of Euroweb Hungary and
      Euroweb Romania occurred on May 23, 2006 upon our receipt of the first part
      of
      the purchase price of $29,400,000. The remaining part of the purchase price
      of
      $613,474 was fully paid in two installments: $232,536 in June and $380,938
      in
      the beginning of July 2006. The purchase price was partly utilized for the
      repayment of $6,044,870 Commerzbank loan in order to ensure debt free status
      of
      the subsidiaries, and partly for settlement of $2,130,466 of transaction
      costs.





On
      February 16, 2007, the Company completed the sale of Navigator for $3,200,000
      in
      cash and the transfer to the Company of 622,531 shares of the Company. The
      closing of the sale of Navigator occurred on February 16, 2007. On May 3, 2007
      the Company surrendered said 622,531 stock certificates together with stock
      powers to American Stock Transfer & Trust Company the Company’s transfer
      agent for return to Treasury and cancellation.




The
      sale
      of Euroweb Slovakia, Euroweb Hungary, Euroweb Romania and Navigator met the
      criteria for presentation as discontinued operations under the provisions of
      Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
      the Impairment or Disposal of Long-Lived Assets" (“SFAS 144”). Therefore,
      Euroweb Slovakia, Euroweb Hungary, Euroweb Romania and Navigator are
      reclassified as discontinued operations in the financial statements of the
      Company in 2006.





The
      Company operates in financial investment in real estate development for
      subsequent sales, Investment and Financing Activities, directly or through
      ERC
      and its subsidiaries currently in the USA.




23





In
      June
      2006, the Company commenced operations in the real estate industry through
      ERC
      and its subsidiaries. ERC has commenced developments in the real estate
      industry, which must satisfy the parameters set by the Board of Directors as
      follows:




·
            Any
                investment in the real estate opportunity (the “Proposed RE Investment”),
                including loans, shall not exceed a planned period of three
                years;




·
            The
                expected return on investment on the Proposed RE Investment will
                be at
                minimum 15% per year;




·
            The
                Proposed RE Investment will not be leveraged in excess of more than
                $1.50
                for each $1.00 invested in equity;
                and




·
            Each
                Proposed RE Investment will have a clear exit strategy (i.e. purchase,
                development and sale) and no Proposed RE Investment intent will be
                to
                acquire income producing real
                estate.





As
      of
      December 31, 2006, the Company via ERC had five projects in development as
      follows:





(a)
            Verge
                project




On
      June
      19, 2006, ERC entered into the Investment Agreement with Verge, pursuant to
      which ERC, within its sole discretion, has agreed to provide secured loans
      to
      Verge not to exceed the amount of $10,000,000. The loan is secured via first
      trust deed as well as Lender ALTA title policy for $10,000,000.




Verge
      is
      an asset company developing the Verge Property, consisting of real property
      in
      downtown Las Vegas, Nevada, where it intends to build up to 296 condominiums
      plus commercial space. Verge obtained entitlements to the Verge Property, and
      has advised that it expects to break ground and commence sales during 2007.




Each
      loan
      provided to Verge is due on demand or upon maturity on January 14, 2008. All
      loans are secured by a first deed of trust, assignment of rents and security
      agreement with respect to the property, along with ALTA (American Land Title
      Association) title policy.




If
      ERC
      requests that the funds be paid on demand prior to maturity, then Verge shall
      be
      entitled to reduce the amount requested to be prepaid by 10%. The 10% discount
      will be paid to Verge in the form of shares of common stock of Emvelco, which
      will be computed by dividing the dollar amount of the 10% discount by the market
      price of Emvelco's shares of common stock.




The
      terms
      of the loans require that ERC to be paid-off the greater of (i) the principal
      including 12% interest per annum or (ii) 33% of all gross profits derived from
      the Property.





Said
      line
      of credit was increased via an Amendment to the Investment Agreement up to
      $20
      Million with the same original terms.





On
      December 31, 2006, the Company and its subsidiary ERC entered into an Exchange
      Agreement with Verge and its sole shareholder, THIG. Pursuant to the Exchange
      Agreement, ERC issued new shares to THIG in exchange for 100% of the outstanding
      securities of Verge. After the exchange, Euroweb owns 43.33% of ERC and THIG
      own
      56.67%. Verge Living Corporation and its subsidiaries became a wholly-owned
      subsidiary of ERC.




24




(b)
            Los
                Angeles Projects :





Harper
      project





ERC
      has
      entered into agreements in connection with the purchase of property located
      at
      360 N. Harper Ave., Los Angeles, California 90048 (the "Harper Property").
      The
      Harper Property was purchased from a third party for approximately $1,000,000.
      ERC has entered into a binding Loan Agreement with a commercial bank to provide
      construction financing for a single family residence located on the Harper
      Property. ERC directly developing the Harper Property and intend to sell it
      upon
      completion.





Edinburg
      & Laurel projects





On
      January 17 and 18, 2007, ERC culminated the purchase of the two properties
      located on Edinburgh Avenue and Laurel Avenue, respectively. Each property
      was
      acquired for approximately $1,000,000. ERC has entered into binding Loan
      Agreements with a commercial bank to provide construction financing for a single
      family residence located on the Edinburgh Avenue and Laurel Avenue Properties.
      ERC directly developing the Edinburgh and Laurel Properties and intend to sell
      it upon completion.





(c)
            Huntley
                project





ERC
      acquired 51% of ownership interest of 846 AR Huntley, LLC, a California limited
      liability company (the "Huntley LLC") from Avi Raccah, an individual ("Raccah")
      in the third quarter of 2006. Mr. Raccah is a third party who formerly owned
      100% of the Huntley LLC. The Huntley LLC will develop two multi-family
      residences, located at 846 Huntley Drive, West Hollywood, California 90069.
      ERC
      and Raccah will pursue the Huntley Project under the terms of the Operating
      Agreement that was signed on October 3, 2006. Yossi Attia, an executive officer
      and director of the Company, was appointed as the sole manager of the Huntley
      LLC.





The
      Huntley LLC purchased the Huntley Property pursuant to a Purchase Agreement
      dated July 31, 2006 for approximately $1,246,258. The purchase was paid pursuant
      to an All Inclusive Trust Deed pursuant to which the seller has agreed to carry
      the financing of the purchase until a substitute loan is obtained. Huntley
      LLC
      assumed $1,555,872 in bank debt that was originally issued to Raccah. Escrow
      closed on the Huntley Property on September 11, 2006. Approval for the
      development of the two multi-family residences was obtained in principal from
      the City of West Hollywood, and construction commenced during 2006 Huntley
      LLC
      intend to sell the two units upon completion.





(d)
            Stanley
                project





ERC
      acquired 66.67% of ownership interest of Stanley Hills LLC, a Nevada limited
      liability company (the "Stanley LLC") in the third quarter of 2006 from D’vora
      Attia, an individual ("D’vora"). D'vora Attia owned the Stanley Property prior
      to the purchase by the Stanley LLC, is the sister of Yossi Attia. The
      structuring of the Stanley LLC was negotiated as an arm length transaction
      and
      was based on appraisal received from an independent third party. ERC and D’vora
      will pursue the Stanley Property under the terms of the Operating Agreement
      that
      was signed on October 3, 2006 to develop three adjacent single family residences
      located at 2234 and 2240 Stanley Hills Drive and 2214 N. Merrywood Drive, Los
      Angeles, California 90046 (the "Stanley Property"). The Stanley LLC purchased
      the Stanley Property pursuant to a Purchase Agreement dated July 1, 2006 for
      $1,650,000. Yossi Attia, an executive officer and director of the Company,
      was
      appointed as the sole manager of the Stanley LLC. Stanley LLC has obtained
      a
      letter of intent from a commercial bank to provide the construction loan to
      the
      Stanley Project. Stanley LLC filed for two permits with the city of Los Angeles
      in order to obtain permit for these development, while the third house is still
      under planning. Stanley LLC will pursue plans for three single family homes,
      intend to develop it and sell the three homes upon completion.




25





(e)
            Lorraine
                project





ERC
      through its wholly owned subsidiary Lorraine Properties, LLC a Nevada limited
      liability company (the "Lorraine LLC") will develop two adjacent properties
      located at 678 and 686 Lorraine Blvd., Los Angeles, California 90005 (the
      "Lorraine Property"). ERC purchased the Lorraine Property from a third Party
      -
      Zamir Investments LLC, for an aggregate purchase price of approximately
      $3,000,000. The Lorraine LLC is undertaking to develop condominium building
      containing 14 units on the Lorraine Property. Yossi Attia, an executive officer
      and director of the Company, was appointed as the sole manager of the Lorraine
      LLC. Management estimate that the planning process of this project will take
      more than a year.





In
      June
      2006, the Company’s Board of Directors approved a program to repurchase, from
      time to time, at management's discretion, up to 700,000 shares of Euroweb's
      common stock in the open market or in private transactions commencing on June
      20, 2006 and continuing through December 15, 2006 at prevailing market prices.
      Repurchases will be made under the program using our own cash resources and
      will
      be in accordance with Rule 10b-18 under the Securities Exchange Act of 1934
      and
      other applicable laws, rules and regulations. The Shemano Group will act as
      agent for our stock repurchase program. As of December 31, 2006, the Company
      held 476,804 treasury shares at a cost of $995,360.





Pursuant
      to the unanimous consent of the Board of Directors in September 2006, the number
      of shares that may be purchased under the Repurchase Program was increased
      from
      700,000 to 1,500,000 shares of common stock and the Repurchase Program was
      extended until October 1, 2007 or until the increased amount of shares is
      purchased.





**Acquisitions
      and Disposals**





On
      December 31, 2006, the Company and its subsidiary ERC entered into an Agreement
      and Plan of Exchange with Verge and its sole shareholder, TIHG. Pursuant to
      the
      Exchange Agreement, ERC issued shares to TIHG in exchange for 100% of the
      outstanding securities of Verge. After the exchange, the Company owned 43.33%
      of
      ERC, TIHG owned 56.67% and Verge became a wholly-owned subsidiary of ERC.





Because
      ERC’s shares are not publicly traded, management concluded that the fair value
      of Verge is more readily determinable than the fair value of the ERC shares,
      and
      accordingly, the transaction was valued based on the fair value of Verge, which
      was supported by appraisal.





In
      accordance with FAS141, *Business
      Combinations* ,
      the
      transaction was valued based on the fair value of Verge, the acquired company,
      which was supported by appraisal.




26





For
      accounting purposes, the acquisition of Verge was treated as an acquisition
      of
      assets and not a business combination because Verge does not meet the definition
      of a business under EITF Issue No. 98-3, “Determination Whether a Nonmonetary
      Transaction Involves Receipt of Productive Assets or of a Business.” The
      following table summarizes the estimated fair values of the acquired assets
      and
      assumed liabilities of Verge at the date of acquisition of December 31, 2006:


Cash
              
              $
              30,614Prepaid
                  and other current assets
              
              
              255,822Fixed
                  assets
              
              
              32,538Land
                  development investments
              
              
              2,999,385Vacant
                  Land for Development
              
              
              10,500,000Total
                  assets acquired
              
              
              13,818,359Accounts
                  payable and other liabilities
              
              
              (456,936
              )Deferred
                  tax liabilities
              
              
              (806,040
              )Loan
                  payable to ERC (Including Interest)
              
              
              (5,459,104
              )Net
                  assets acquired
              
              $
              7,096,279




The
      vacant land was originally purchased by Verge in 2005, when it was a wholly
      owned subsidiary of TIHG, and cost Verge $2,800,000. Verge invested
      approximately $3,000,000 in additional expenses, which were incurred to obtain
      the proper planning for condominium development through December 30, 2006.
      In
      November 2006, Verge had a valuation of the vacant property by an independent
      third party appraisal company. The vacant land with the proper zoning was
      appraised at $10,500,000. At December 31, 2006, when business combination was
      effected, the fair value, $10,500,000, of the vacant land was recorded in the
      consolidated financial statements of ERC in accordance with FAS141, *Business
      Combinations* ,
      to
      adjust the land value accordingly.





On
      May
      14, 2007, pursuant to the Stock Transfer Agreement, the Company transferred
      and
      conveyed its 1,000 Shares (representing a 43.33% interest) in ERC to TIHG to
      submit to ERC for cancellation and return to Treasury. ERC, TIHG and Verge
      agreed to assign to the Company all rights in and to the Investment
      Agreement.





(b)
      Disposal of Euroweb Slovakia, Euroweb Hungary, Euroweb Romania and
      Navigator





On
      April
      15, 2005, the Company disposed of Emvelco Slovakia for cash of $2,700,000 and,
      as a result, has ceased operations in Slovakia.




On
      May
      23, 2006, the closing of the sale of Euroweb Hungary and Euroweb Romania
      occurred upon our receipt of the first part of the purchase price of
      $29,400,000. The remaining part of the purchase price of $613,474 was fully
      paid
      in two installments: $232,536 in June and $380,938 in the beginning of July
      2006. The purchase price was partly utilized for the repayment of $6,044,870
      Commerzbank loan in order to ensure debt free status of the subsidiaries, and
      partly for settlement of $2,130,466 of transaction costs.





On
      February 16, 2007, the Company completed the sale of Navigator for $3,200,000
      in
      cash and the transfer to the Company of 622,531 shares of the Company for
      cancellation. The closing of the sale of Navigator occurred on February 16,
      2007. On May 3, 2007 the Company surrendered said 622,531 stock certificates
      together with stock powers to American Stock Transfer & Trust Company the
      Company’s transfer agent for cancellation and return to Treasury.




27




**Plan
      of operation**




The
      Company’s plan of operation for the next 12 months will include the following
      components:




We
      plan
      to finance and invest in development of ERC existing projects (Stanley, Huntley,
      Harper, Lorraine and Verge), including obtaining financing of Verge Living
      for
      the purpose of commencing or continuing the projects in 2007. Our plan is to
      proceed with financial investment in real estate developments in the US. This
      phase of development will include the following elements:





(a)
      Attempting to raise bond or debt financing through Verge and AP Holdings if
      possible. Any cash receipt from financing will be utilized partly by the
      Company’s financial investment in real estate developments in the US and partly
      by AP Holdings’ further real estate developments in Croatia. In connection with
      Verge and AP Holdings’ financing, the Company anticipates spending approximately
      $500,000 on professional fees over the next 12 months in order to facilitate
      our
      financial investment, by creating more strengh to the financial investments
      of
      the Company.





(b)
      Verge
      Project - Verge is pursuing construction loan and mezzanine financing for the
      project. The Company is seeking to participate in financing of a construction
      loan though a commercial bank and/or private investors.





(c)
      The
      Company anticipates spending approximately $200,000 on professional fees over
      the next 12 months in order to file SB-2 under the Securities Laws.




(d)
      Subject to obtaining adequate financing, the Company anticipate that it will
      be
      spending approximately $10,000,000 over the next 12 month period pursuing its
      stated plan of investment operation. The Company’s present cash reserves are not
      sufficient for it to carry out its plan of operation without substantial
      additional financing. The Company is currently attempting to arrange for
      financing through mezzanine arrangements that would enable it to proceed with
      its plan of investment operation.




(e)
      The
      Company will continue its treasury share repurchase program. Based on the stock
      price as of March 31, 2007, approximately $2 million cash is needed for the
      completion of the program. The repurhase program however is contingent on the
      financial ability of the Company as well as available shares and share prices
      on
      the open market.




(f)
      The
      Company’s investment in Micrologic is expected to mature during 2007. The
      outstanding amount of commitment is $950,000. Micrologic believes it will have
      developed products in 2007 of which there is no guarantee. The Company owns
      25.1% of Micrologic along with an option to acquire additional 24.9%. Upon
      actual sales, if any, the Company will revaluate its option. If the Company
      elects to exercise its option, consolidation of Micrologic may add elements
      of
      income or losses which we can not quantify as of
      now.




The
      Company’s actual expenditures and business plan may differ from the one stated
      above. Its board of directors may decide not to pursue this plan as a whole
      or
      part of it. In addition, the Company may modify the plan based on available
      financing.





The
      US
      real estate market trends are toward a soft market in the last year. Management
      believes that the “softer market” is due to the Federal Reserve Bank Policy of
      raising interest rates (in order to depress inflation trends). Such rising
      interest rates make financing more expensive, and more difficult to obtain.
      The
      Company anticipates that it will be spending approximately $10,000,000 over
      the
      next 12 month period pursuing its stated plan of investment operation. The
      Company believes that its liquidity will be enough for implementing its plan,
      and the Company has confidence that subject to actual pre-sales, it will obtain
      financing to complete its projects in the short-term as well as in the
      long-term. If actual sales will not be adequate, the Company will not continue
      spending its existing cash, and therefore it can avoid liquidity problems.




28





The
      Company’s primary source of liquidity comes from divesting its ISP business in
      Central Eastern Europe, which was concluded on May 2006, when it completed
      the
      disposal of Euroweb Hungary and Euroweb Romania to Invitel. In February 2007,
      the Company closed the disposal of Navigator, which added approximately $3.2
      million net of cash to its internal source of liquidity.





Our
      external source of liquidity is based on a project by project basis. The Company
      intends to obtain financial investment in land and construction loans from
      commercial lenders for its development activities.





The
      residential real estate market in Southern California, Nevada and Croatia is
      more active during spring and summer. It is the Company’s desire to complete its
      financial development during the summer, to increase the potential for a fast
      sale. In some markets, such as Nevada, regulations allow for the sale of units
      from plans. As a result, these seasonal factors should not affect the financial
      condition or results of operation, though they may have a moderate effect on
      the
      liquidity position of the Company.





**Critical
      Accounting Estimates**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements that have been prepared in
      accordance with generally accepted accounting principles in the United States
      of
      America ("US GAAP"). This preparation requires management to make estimates
      and
      assumptions that affect the reported amounts of assets, liabilities, revenues
      and expenses, and the disclosure of contingent assets and liabilities. US GAAP
      provides the framework from which to make these estimates, assumptions and
      disclosures. We choose accounting policies within US GAAP that management
      believes are appropriate to accurately and fairly report our operating results
      and financial position in a consistent manner. Management regularly assesses
      these policies in light of current and forecasted economic conditions. Although
      we believe that our estimates, assumptions and judgments are reasonable, they
      are based upon information presently available. Actual results may differ
      significantly from these estimates under different assumptions, judgments or
      conditions for a number of reasons. Our accounting policies are stated in Note
      2
      to the 2006 Consolidated Financial Statements. We identified the following
      accounting policies as critical to understanding the results of operations
      and
      representative of the more significant judgments and estimates used in the
      preparation of the consolidated financial statements: impairment of goodwill,
      allowance for doubtful accounts, acquisition related assets and liabilities,
      accounting of income taxes and analysis of FIN46R as well as FASB 67.





·
            Investment
                in Real Estate and Commercial Leasing Assets. Real estate held for
                sale
                and construction in progress is stated at the lower of cost or fair
                value
                less costs to sell and includes acreage, development, construction
                and
                carrying costs and other related costs through the development stage.
                Commercial leasing assets, which are held for use, are stated at
                cost.
                When events or circumstances indicate than an asset’s carrying amount may
                not be recoverable, an impairment test is performed in accordance
                with the
                provisions of SFAS 144. For properties held for sale, if estimated
                fair
                value less costs to sell is less than the related carrying amount,
                then a
                reduction of the assets carrying value to fair value less costs to
                sell is
                required. For properties held for use, if the projected undiscounted
                cash
                flow from the asset is less than the related carrying amount, then
                a
                reduction of the carrying amount of the asset to fair value is required.
                Measurement of the impairment loss is based on the fair value of
                the
                asset. Generally, we determine fair value using valuation techniques
                such
                as discounted expected future cash
                flows.




29




Our
      expected future cash flows are affected by many factors including:




a)
      The
      economic condition of the Las Vegas, Nevada and Los Angeles, California
      market;




b)
      The
      performance of the real estate industry in the markets where our properties
      are
      located;




c)
      Our
      financial condition, which may influence our ability to develop our real estate;
      and




d)
      Governmental regulations.





Because
      any one of these factors could substantially affect our estimate of future
      cash
      flows, this is a critical accounting policy because these estimates could result
      in us either recording or not recording an impairment loss based on different
      assumptions. Impairment losses are generally substantial charges. We are
      currently in the beginning state of development of real estates, therefore
      no
      impairment is required. Any impairment charge would more likely than not have
      a
      material effect on our results of operations.





The
      estimate of our future revenues is also important because it is the basis of
      our
      development plans and also a factor in our ability to obtain the financing
      necessary to complete our development plans. If our estimates of future cash
      flows from our properties differ from expectations, then our financial and
      liquidity position may be compromised, which could result in our default under
      certain debt instruments or result in our suspending some or all of our
      development activities.





·
            Allocation
                of Overhead Costs. We periodically capitalize a portion of our overhead
                costs and also allocate a portion of these overhead costs to cost
                of sales
                based on the activities of our employees that are directly engaged
                in
                these activities. In order to accomplish this procedure, we periodically
                evaluate our “corporate” personnel activities to see what, if any, time is
                associated with activities that would normally be capitalized or
                considered part of cost of sales. After determining the appropriate
                aggregate allocation rates, we apply these factors to our overhead
                costs
                to determine the appropriate allocations. This is a critical accounting
                policy because it affects our net results of operations for that
                portion
                which is capitalized. In accordance with paragraph 7 of SFAS No.
                67, we
                only capitalize direct and indirect project costs associated with
                the
                acquisition, development and construction of a real estate project.
                Indirect costs include allocated costs associated with certain pooled
                resources (such as office supplies, telephone and postage) which
                are used
                to support our development projects, as well as general and administrative
                functions. Allocations of pooled resources are based only on those
                employees directly responsible for development (i.e. project manager
                and
                subordinates). We charge to expense indirect costs that do not clearly
                relate to a real estate project such as salaries and allocated expenses
                related to the Chief Executive Officer and Chief Financial
                Officer.





·
            Revenue
                Recognition. In accordance with SFAS No. 66, “Accounting for Sales of Real
                Estate,” we recognize revenues from property sales when the risks and
                rewards of ownership are transferred to the buyer, when the consideration
                received can be reasonably determined and when we have completed
                our
                obligations to perform certain supplementary development activities,
                if
                any exist, at the time of the sale. Consideration is reasonably determined
                and considered likely of collection when we have signed sales agreements
                and have determined that the buyer has demonstrated a commitment
                to pay.
                The buyer’s commitment to pay is supported by the level of their initial
                investment, our assessment of the buyer’s credit standing and our
                assessment of whether the buyer’s stake in the property is sufficient to
                motivate the buyer to honor its obligation to us. This is a critical
                accounting policy because for certain sales, we use our judgment
                to
                determine the buyer’s commitment to pay us and thus determine when it is
                proper to recognize revenues.




30




We
      recognize our rental income based on the terms of our signed leases with tenants
      on a straight-line basis. We recognize sales commissions and management and
      development fees when earned, as lots or acreages are sold or when the services
      are performed.





·
            Accounting
                for Income Taxes: We recognize deferred tax assets and liabilities
                for the
                expected future tax consequences of transactions and events. Under
                this
                method, deferred tax assets and liabilities are determined based
                on the
                difference between the financial statement and tax bases of assets
                and
                liabilities using enacted tax rates in effect for the year in which
                the
                differences are expected to reverse. If necessary, deferred tax assets
                are
                reduced by a valuation allowance to an amount that is determined
                to be
                more likely than not recoverable. We must make significant estimates
                and
                assumptions about future taxable income and future tax consequences
                when
                determining the amount of the valuation allowance. In addition, tax
                reserves are based on significant estimates and assumptions as to
                the
                relative filing positions and potential audit and litigation exposures
                related thereto. To the extent the Company establishes a valuation
                allowance or increases this allowance in a period, the impact will
                be
                included in the tax provision in the statement of operations.





**Commitments
      and contingencies**





Effective
      July 1, 2006, the Company entered into a five-year employment agreement with
      Yossi Attia as the President of ERC which commenced on July 1, 2006 and provides
      for annual compensation of $240,000 and an annual bonus of not less than
      $120,000 per year, as well as an annual car allowance for the same period.
      Mr.
      Attia will be entitled to a special bonus equal to 10% of the earnings before
      interest, depreciation and amortization (“EBITDA”) of ERC, which such bonus is
      payable in shares of common stock of the Company; provided, however, the special
      bonus is only payable in the event that Mr. Attia remains continuously employed
      by ERC and Mr. Attia shall not have sold shares of common stock of the Company
      on or before the payment date of the Special Bonus unless such shares were
      received in connection with the exercise of an option that was scheduled to
      expire within one year of the date of exercise. In addition, on August 14,
      2006,
      the Company amended the Agreement to provide that Mr. Attia shall serve as
      the
      Chief Executive Officer of the Company for a term of two years commencing August
      14, 2006 and granting annual compensation of $250,000 to be paid in the form
      of
      Company shares of common stock. The number of shares to be received by Mr.
      Attia
      was calculated based on the average closing price 10 days prior to the
      commencement of each employment year. Mr. Attia will receive 111,458 shares
      of
      the Company’s common stock for his first year service. No shares have been
      issued to date. The financial statements accrued the liability toward Mr. Attia
      employment agreements.





According
      to the Term Sheet that will be formally documented in an Agreement with
      associated exhibits, License Agreement and Warrants by and between the Company
      and Dr. Danny Rittman in connection with the formation and initial funding
      of
      Micrologic for the design and production of EDA applications and Integrated
      Circuit ("IC") design processes. The Term Sheet provides for an initial
      investment by the Company of up to $1,000,000, with warrants to purchase
      additional equity for additional investment. Initially, the Company owns 25.1%
      and Dr. Rittman owns 74.9% of Micrologic, Inc. but such equity positions would
      be revised depending upon the exercise of the warrants as follows: (1) Warrant
      A
      - the Company shall be granted a two year option to acquire an additional 10%
      of
      Micrologic for $1 million (2) Warrant B - the Company shall be granted a three
      year option to acquire an additional 15% of Micrologic for $3 million. The
      consideration of warrants A and B can be paid at the discretion of the Company,
      50% in cash and 50% in the Company’s shares. No warrants have been issued. The
      outstanding amount of the Company’s investment in Micrologic is $50,000 as of
      December 31, 2006.




31





During
      2006 and 2007, the Company and ERC entered into several loan agreements with
      different financial institutions in connection with the financing of the
      different real estate projects (see Note 7 to the 2006 financial
      statements).




**Off
      Balance Sheet Arrangements**





There
      are
      no material off balance sheet arrangements.





**Results
      of Operations** ****





**Year
      Ended December 31, 2006** **compared
      to Year Ended December 31, 200** **6**





Due
      to
      the new financial investment in real estate activity, which commenced in June
      2006 and the discontinued operation presentation of Euroweb Hungary, Euroweb
      Romania, Euroweb Slovakia and Navigator, the consolidated statements of
      operations for the years ended December 31, 2006 and 2005 are not comparable.
      The financial figures for 2005 only include the corporate expenses of the
      Company’s legal entity registered in the State of Delaware, as the Company
      commenced its financial investment in real estate related activity with related
      revenues and costs in June 2006.





*Revenues*





The
      following table summarizes our revenues for the year ended December 31, 2006
      and
      2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Total
                revenues
            
            $
            22,594
            
            $
            -




The
      revenue increase reflects the rent income from real estate activity in 2006.





Emvelco
      is not the primary beneficiary of ERC. As such Emvelco will not be required
      to
      consolidate ERC under FIN 46R ERC Profit and Loss activities for the period
      ended on December 31, 2006, and prior of the exchange was fully consolidated
      into the Company’s profit and loss statement, as ERC prior to the exchange was
      fully owned subsidiary of the Company.




*Cost
      of revenues*





The
      following table summarizes our cost of revenues for the year ended December
      31,
      2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Total
                cost of revenues
            
            $
            -
            
            $
            -




32




The
      Company is currently in the beginning phase of financial investment in real
      estate development; therefore no cost of revenues occurred.





*Compensation
      and related costs*





The
      following table summarizes our compensation and related costs for the year
      ended
      December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Compensation
                and related costs
            
            $
            583,773
            
            $
            559,839




Overall
      compensation and related costs increased by 4%, or $23,934 primarily as the
      result of the compensation charge on stock options to the CEO in accordance
      with
      SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), amounting to
      $21,241.





*Severance
      to officer*





The
      following table summarizes severance to officer costs for the year ended
      December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Compensation
                and related costs
            
            $
            750,000
            
            $
            -





On
      May
      24, 2006, the Company entered into a Severance Agreement with Mr. Csaba Toro
      as
      a means to define the severance relationship between the two parties. In
      consideration for Mr. Toro agreeing to relinquish and release all rights and
      claims under the Employment Agreement, including the payment of his annual
      salary, the Company agreed to pay Mr. Toro $750,000. In addition, Mr. Toro
      has
      submitted his resignation as Chief Executive Officer and as a director of the
      Company, effective June 1, 2006. The severance was paid in full in May
      2006.





*Consulting,
      professional and director fees*





The
      following table summarizes our consulting, professional and director fees for
      the year ended December 31, 2006 and 2005:





Year
                ended December 31
            
            **2006**
            
            **2005**Consulting,
                professional and director fees
            
            $
            2,106,316
            
            $
            1,010,654




Overall
      consulting, professional and director fees increased by 109%, or $1,095,662,
      primarily as the result of the following factors: (i) new Director compensation
      policy in the amount of $52,506; (ii) compensation charge on stock option to
      the
      Directors in accordance with SFAS 123R, amounting to $249,454, (iii) increased
      consulting cost related to the real estate related subsidiary acquired in 2006
      in the amount of $330,041, and (iv) an increase of $463,661 related to the
      cost
      of several consultants, investment bankers, advisors, accounting and lawyers
      fee
      over last year.





*Other
      selling, general and administrative expenses*





The
      following table summarizes our other selling, general and administrative
      expenses for the year ended December 31, 2006 and 2005:





Year
                ended December 31
            
            **2006**
            
            **2005**Other
                selling, general and administrative expenses
            
            $
            921,004
            
            $
            302,973




33




Overall,
      other selling, general and administrative expenses increased by 205%, or
      $618,031, primarily attributable to (i) the write-off of receivables in the
      amount of $233,931 - See Legal Procedure (ii) $212,414 of additional expenses
      incurred in connection with the real estate subsidiary (acquired in June 2006).
      The remaining part of increase is in connection with traveling cost and
      corporate costs.





*Depreciation
      and amortization*





The
      following table summarizes our depreciation and amortization for the year ended
      December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Depreciation
            
            $
            13,516
            
            $
            -




Depreciation
      has increased by $2,147 in the year ended December 31, 2006 compared to the
      same
      period in 2005. The increase can be attributed exclusively to the fixed assets
      purchased by the real estate subsidiaries of the Company.





*Net
      interest income*





The
      following table summarizes our net interest income for the year ended December
      31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Interest
                income
            
            $
            635,099
            
            $
            -Interest
                expense
            
            $
            (59,934
            )
            $
            -Net
                interest income
            
            $
            575,165
            
            $
            -





An
      amount
      of $350,438 increase in interest income is attributable to the fact that the
      Company has realized over $21 million net cash on the sale of Euroweb Hungary
      and Euroweb Romania, which was partly invested into money market funds and
      certificate of deposits. An additional $284,661 interest income was earned
      by
      ERC on loans given to Verge prior to the acquisition of Verge. Interest expenses
      increased due to the $3 million line of credit utilized by the Company from
      EastWestBank in the fourth quarter of 2006, as well as interest charged to
      real
      estate subsidiaries.





*Gain
      on issuance of subsidiary stock*





The
      following table summarizes our gain on issuance of subsidiary stock for the
      year
      ended December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Gain
                on issuance of subsidiary stock
            
            $
            1,497,565
            
            $
            -




On
      December 31, 2006, Emvelco and TIHG entered into an exchange agreement whereby
      ERC issued 1,308 shares of stock, which represents 57% equity interest, to
      TIHG
      in exchange for 100% of the securities of Verge. After the exchange, Emvelco
      owns 43% of ERC, TIHG owns 57% of ERC, and Verge is a 100% subsidiary of ERC.
      In
      accordance with SAB 51 and SAB 84, *Accounting
      for Sales of Stock by a Subsidiary* ,
      Emvelco
      realized a gain on the exchange transaction for $1,497,565. This gain resulted
      in the carrying value of the Emvelco’s investment in ERC for
      $500,000,




34





**Liquidity
      and Capital Resources**




As
      of
      December 31, 2006, our cash and cash equivalents were $2.9 million, an increase
      of $1.3 million from the end of fiscal year 2005.




Cash
      used
      in operations in fiscal 2006 was $3.1 million, a decrease of $7.2 million from
      fiscal 2005. The change in mainly attributable to the disposal of cash
      generating subsidiaries, Euroweb Hungary and Euroweb Romania, as well as
      increased losses of the parent company, partly due to severance paid to an
      officer and the various costs associated involved with the newly acquired real
      estates subsidiaries, which are still in the planning stages.





Cash
      provided by investing activities in 2006 was $2.1 million consisting of proceeds
      from the sale of Euroweb Hungary and Euroweb Romania in the amount of $21.8
      million reduced by (i) $8 million invested into a certificate of deposit, (ii)
      $0.1 million invested into Micrologic, (iii) $11.2 million loan provided to
      ERC
      and (iv) $0.4 million of capital expenditures of discontinued operations. In
      2005, $8.9 million cash used in investing activities was $8.9 million, which
      consisted of the following: (i) $2.7 million positive inflow in connection
      with
      of sale of Euroweb Slovakia reduced by (ii) $9 million for the acquisition
      of
      Navigator, and (ii) $2.6 million in capital expenditures related to discontinued
      operations.





Cash
      provided by financing activities in 2006 was $2.0 million. Of this amount,
      the
      Company received $3.0 million of proceeds from loans utilized, while $1 million
      was used for repurchase of the Company’s common stock. In 2005, a $4 million was
      in connection with financing activities from discontinued operation.





The
      Company currently anticipates that its available cash resources will be
      sufficient to meet its presently anticipated working capital requirements for
      at
      least the next 12 months. The Company however is required to ensure additional
      bank loans or fund raising to be used for father investment in development
      of
      real estate, financing and investments activities.




**Effect
      of Recent Accounting Pronouncements**




Effective
      January 1, 2006, the Company adopted SFAS 123R using the modified
      prospective transition method and therefore did not restate results for prior
      periods. Prior to January 1, 2006, the Company accounted for share-based
      compensation arrangements in accordance with Accounting Principles Board Opinion
      No. 25, “Accounting for Stock Issued to Employees” and related interpretations.
      Under the modified prospective method, new awards are valued and accounted
      for
      prospectively upon adoption. Outstanding prior awards that are unvested as
      of
      January 1, 2006 are recognized as compensation cost over the remaining requisite
      service periods. The adoption of SFAS 123R resulted in a non-cash compensation
      charge of $561,451 for the year ended December 31, 2006.




In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) as an
      interpretation of SFAS No. 109, “Accounting for Income Taxes”. This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized by prescribing a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on de-recognition of tax benefits previously recognized and additional
      disclosures for unrecognized tax benefits, interest and penalties. The
      evaluation of a tax position in accordance with this Interpretation begins
      with
      a determination as to whether it is more likely than not that a tax position
      will be sustained upon examination based on the technical merits of the
      position. A tax position that meets the more-likely-than-not recognition
      threshold is then measured at the largest amount of benefit that is greater
      than
      50 percent likely of being realized upon ultimate settlement for recognition
      in
      the financial statements. FIN 48 is effective no later than fiscal years
      beginning after December 15, 2006, and is required to be adopted by the Company
      on January 1, 2007. Management is currently assessing the impact of the adoption
      of FIN 48.




35




In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Qualifying Misstatements in Current Year Financial
      Statements” (“SAB 108”) which provides interpretive guidance on the
      consideration of the effects of prior year misstatements in quantifying current
      year misstatements for the purpose of a materiality assessment. SAB 108 is
      effective for companies with fiscal years ending after November 15, 2006 and
      is
      required to be adopted by the Company in fiscal 2007. However, early application
      is encouraged in any report for an interim period of the first fiscal year
      ending after November 15, 2006, filed after the publication of this guidance.
      Management is currently assessing the impact of the adoption of SAB
      108.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the FASB having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. SFAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. This Statement is required to be adopted by the
      Company on July 1, 2008. Management is currently assessing the impact of the
      adoption of this Statement.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—including an amendment of FASB
      Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure
      many financial instruments and certain other items at fair value. This statement
      provides entities the opportunity to mitigate volatility in reported earnings
      caused by measuring related assets and liabilities differently without having
      to
      apply complex hedge accounting provisions. This Statement is effective as of
      the
      beginning of an entity’s first fiscal year that begins after November 15, 2007.
      Management is currently evaluating the impact of adopting this
      Statement.




**Forward-Looking
      Statements**




When
      used
      in this Form 10-KSB, in other filings by the Company with the SEC, in the
      Company’s press releases or other public or stockholder communications, or in
      oral statements made with the approval of an authorized executive officer of
      the
      Company, the words or phrases “would be,” “will allow,” “intends to,” “will
      likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimate,” “project,” or similar expressions are intended to identify
“forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995.




The
      Company cautions readers not to place undue reliance on any forward-looking
      statements, which speak only as of the date made, are based on certain
      assumptions and expectations which may or may not be valid or actually occur,
      and which involve various risks and uncertainties, including but not limited
      to
      the risks set forth above. See “Risk Factors.” In addition, sales and other
      revenues may not commence and/or continue as anticipated due to delays or
      otherwise. As a result, the Company’s actual results for future periods could
      differ materially from those anticipated or projected.




36




Unless
      otherwise required by applicable law, the Company does not undertake, and
      specifically disclaims any obligation, to update any forward-looking statements
      to reflect occurrences, developments, unanticipated events or circumstances
      after the date of such statement.




**ITEM
      7.**  **FINANCIAL
      STATEMENTS.**




Reference
      is made to the audited Consolidated Financial Statements of the Company as
      of
      December 31, 2006 and for the years ended December 31, 2006 and 2005, beginning
      with the index hereto on page F-1.




**ITEM
              8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




DELOITTE
      RESIGNATION -




As
      the
      Company disclosed in its Form 8-K filed April 30, 2007, on April 25, 2007 (the
      "Resignation Date"), Deloitte Kft. (the "Former Auditor") advised the Company
      that it has resigned as the Company's independent auditor. The Former Auditor
      performed the audit for the one year period ended December 31, 2005, which
      report did not contain any adverse opinion or a disclaimer of opinion, nor
      was
      it qualified as to audit scope or accounting principles. During the Company's
      two most recent fiscal years and during any subsequent interim period prior
      to
      the Resignation Date, there were no disagreements with the Former Auditor,
      with
      respect to accounting or auditing issues of the type discussed in Item
      304(a)(iv) of Regulation S-B.




Prior
      to
      the Resignation Date, the Former Auditor advised the Company that it had raised
      certain issues relating to the accounting of ERC. As of December 31, 2006,
      the
      Company owned 43.33% of the outstanding securities of ERC. The Former Auditor
      believes that this communication is a disclosable event pursuant to Item
      304(a)(v). The issues raised by the Former Auditor related to the recording
      of
      the cost of real estate purchased by Verge (a wholly owned subsidiary of ERC),
      the production of records relating to loans made to VLC and the valuation of
      land in connection with Lorraine Properties, LLC (a wholly owned subsidiary
      of
      ERC). Management of the Company disagrees with the aforementioned statements
      and
      believes that it has adequately explained each of the above inquires made by
      the
      Former Auditor. Further, prior to being advised of the above issues, the Company
      maintained that ERC and its subsidiaries do not need to be consolidated in
      the
      Company's financial statements, which such position was subsequently confirmed
      by a detailed analysis by management and an independent third party consultant
      of the accounting pronouncements governing consolidation.




The
      Former Auditor advised the Company that it intended to furnish a letter to
      the
      Company, addressed to the Staff, stating that it agreed with the statements
      made
      herein or the reasons why it disagreed. The letter from the Former Auditor
      was
      filed as an amendment to Form 8-K on May 14, 2007.




37




Appointment
      of New Auditors - Robison, Hill & Co. ("RHC") -




On
      April
      26, 2007, the Company engaged Robison, Hill & Co. ("RHC") as its independent
      registered public accounting firm for the Company's fiscal year ended December
      31, 2006. The decision to engage RHC as the Company's independent registered
      public accounting firm was approved by the Company's Board of Directors.




During
      the two most recent fiscal years and through April 26, 2007, the Company has
      not
      consulted with RHC regarding either:




1.
      the
      application of accounting principles to any specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      the Company's financial statements, and neither a written report was provided
      to
      the Company nor oral advice was provided that RHC concluded was an important
      factor considered by the Company in reaching a decision as to the accounting,
      auditing or financial reporting issue; or




2.
      any
      matter that was either subject of disagreement or event, as defined in Item
      304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304
      of
      Regulation S-B, or a reportable event, as that term is explained in Item
      304(a)(1)(iv)(A) of Regulation S-B.





**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES**





As
      of
      December 31, 2006, an evaluation was performed under the supervision and with
      the participation of the Company's management, including Yossi Attia, the Chief
      Executive Officer and the Principal Financial Officer, of the effectiveness
      of
      the design and operation of the Company's disclosure controls and procedures.
      Based on that evaluation, the Company's management, including the Chief
      Executive Officer and the Principal Financial Officer, concluded that the
      Company's disclosure controls and procedures were effective as of December
      31,
      2006. There have been no significant changes in the Company's internal controls
      or in other factors that could significantly affect internal controls in the
      quarter ended December 31, 2006 that materially affected or are reasonably
      likely to materially affect the Company’s internal controls.





On
      April
      19, 2007, the Company received a Nasdaq Staff Determination (the
      "Determination") indicating that the Company has failed to comply with the
      requirement for continued listing set forth in Marketplace Rule 4310(c)(14)
      requiring the Company to file its Form 10-KSB for the year ended December 31,
      2006 with the Securities and Exchange Commission and that its securities are,
      therefore, subject to delisting from the Nasdaq Capital Market. The Company
      requested and received a hearing before a Nasdaq Listing Qualifications Panel
      (the "Panel") to review the Determination. The Panel hearing will take place
      on
      May 31, 2007.





On
      May
      17, 2007, the Company received a Nasdaq Additional Staff Determination (the
      “Additional Determination”) indicating that the Company has failed to comply
      with the requirement for continued listing set forth in Marketplace Rule
      4310(c)(14) requiring the Company to file its Form 10-QSB for the quarter ended
      March 31, 2007 with the Securities and Exchange Commission and that that this
      failure serves as an additional basis for why its securities are subject to
      delisting from the Nasdaq Capital Market. The Company will review the Additional
      Determination at its Panel hearing. There can be no assurance that the Panel
      will grant the Company’s request for continued listing.




**ITEM
      8B.**  **OTHER
      INFORMATION**





None.




38




**PART
      III**




ITEM
      9.  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A)
      OF THE EXCHANGE ACT** ****




The
      following table sets forth certain information regarding the executive officers
      and directors of the Company as of March 31, 2007:


**Name**
              
              **Age**
              
              **Position
                  with Company**Yossi
                  Attia
              
              46
              
              Director,
                  Chief Executive Officer, Principal Financial Officer,
                  PresidentStewart
                  Reich
              
              63
              
              Director,
                  Board Chairman, Audit and Compensation Committees
                  ChairmanRobin
                  Ann Gorelick
              
              49
              
              Director,
                  Secretary & Company CounselIlan
                  Kenig
              
              47
              
              Director,
                  Audit and Compensation Committee’s
                  memberGerald
                  Schaffer
              
              84
              
              Director,
                  Audit and Compensation Committee’s
                  member




Yossi
      Attia, has been self employed as a real estate developer since 2000. Mr. Attia
      was appointed to the Board of Directors (“Board”) on February 1, 2005, as CEO of
      ERC on June 15, 2006 and as the CEO and President of the Company on August
      14,
      2006. Prior to entering into the real estate development industry, Mr. Attia
      served as the Senior Vice President of Investments of Interfirst Capital from
      1996 to 2000. From 1994 though 1996, Mr. Attia was a Senior Vice President
      of
      Investments with Sutro & Co. and from 1992 through 1994. Mr. Attia served as
      the Vice President of Investments of Prudential Securities. Mr. Attia received
      a
      Bachelor of Arts (“BA”) in economics and marketing from Haifa University in 1987
      and a Masters of Business Administration (“MBA”) from Pepperdine University in
      1995. Mr. Attia held Series 7 and 63 securities licenses from 1991 until 2002.
      Effective March 21, 2005, Mr. Attia was appointed as a member of the Audit
      Committee and the Compensation Committee. In June 2006, Mr. Attia was appointed
      as the CEO of ERC. Upon his appointment as the CEO of ERC, Mr. Attia was not
      considered an independent Director. Consequently, Mr. Attia resigned from all
      committees. In August 2006, Mr. Attia was appointed as the CEO and President
      of
      the Company.





Stewart
      Reich, Chairman of the Board since June 2004, was CEO and President of Golden
      Telecom Inc., Russia's largest alternative voice and data service provider
      as
      well as its largest ISP, since 1997. In September 1992, Mr. Reich was employed
      as Chief Financial Officer (“CFO”) at UTEL (Ukraine Telecommunications), of
      which he was appointed President in November 1992. Prior to that, Mr. Reich
      held
      various positions at a number of subsidiaries of AT&T Corp. Mr. Reich have
      been a Director of the Company since 2002. Mr. Reich is Chairman of the Board,
      as well as head of the Audit Committee and the Compensation
      Committee.





Ilan
      Kenig has over 20 years of management, legal, venture capital and investment
      banking experience with specific emphasis in the technology and
      telecommunications arena. Mr. Kenig was appointed to the Company's Board on
      February 1, 2005. Mr. Kenig joined Unity Wireless Corporation ("Unity"), a
      designer, developer and manufacturer of wireless systems, as Vice President
      of
      Business Development in December 2001 before assuming the position of President
      and CEO in April 2002. From January 1999 until December 2001, Mr. Kenig pursued
      international finance activities and mergers and acquisitions in New York.
      Mr.
      Kenig was a founder of a law firm in Tel-Aviv representing technology and
      telecommunications interests. Mr. Kenig holds a law degree from Bar-Ilan
      University. Effective March 21, 2005, Mr. Kenig was appointed as a member of
      the
      Audit Committee and the Compensation Committee.




39





Gerald
      Schaffer, on June 22, 2006, was unanimously appointed to the Board of Directors
      of the Company, as well as a member of the Audit and Compensation Committees.
      Mr. Schaffer has been extensively active in corporate, community, public, and
      government affairs for many years, having served on numerous governmental boards
      and authorities, as well as public service agencies, including his current
      twenty-one year membership on the Board of Directors for the American Lung
      Association of Nevada. Additionally, Mr. Schaffer is a past member of the Clark
      County Comprehensive Plan Steering Committee, as well as a former Commissioner
      for Public Housing on the Clark County Housing Authority. For many years he
      served as a Planning Commissioner for the Clark County Planning Commission,
      which included the sprawling Las Vegas Strip. His tenure on these various
      governmental entities was enhanced by his extensive knowledge of the federal
      government. Mr. Schaffer is Chairman Emeritus of the Windsor Group and a
      founding member of both Windsor and its affiliate - Gold Eagle Gaming. Over
      the
      years the principals of Windsor have developed shopping and marketing centers,
      office complexes, hotel/casinos, apartments, residential units and a wide
      variety of large land parcels. Mr. Schaffer continues to have an active daily
      role in many of these subsidiary interests. He is also President of the Barclay
      Corporation, a professional consulting service, as well as the Barclay
      Development Corporation, dealing primarily in commercial land acquisitions
      and
      sales. Mr. Schaffer resides in Nevada and oversees the Company’s interest in the
      Verge project, specifically with compliance and obtaining governmental
      licensing.





Robin
      Ann
      Gorelick, from 1992 to the present, has served as the Managing Partner at the
      Law Offices of Gorelick & Associates, specializing in the representation of
      various public and private business entities. Ms. Gorelick received her Juris
      Doctor (“JD”) and her BA in economics and political science from the University
      of California, Los Angeles in 1982 and 1979, respectively. Ms. Gorelick is
      admitted to practice law in California, the District of Columbia and Texas.





Directors
      are elected annually and hold office until the next annual meeting of the
      stockholders of the Company and until their successors are elected. Officers
      are
      elected annually and serve at the discretion of the Board of
      Directors.





**ROLE
      OF THE BOARD**





Pursuant to Delaware law,
      our business, property and affairs are managed under the direction of the Board.
      The Board has responsibility for establishing broad corporate policies and
      for
      the overall performance and direction of Emvelco, but is not involved in
      day-to-day operations. Members of the Board keep informed of the business by
      participating in Board and committee meetings, by reviewing analyses and reports
      sent to them regularly, and through discussions with the executive
      officers.





**2006
      BOARD MEETINGS**





In 2006, the Board met
      five times and made eleven additional resolutions. No director attended less
      than 75% of all of the combined total meetings of the Board and the committees
      on which they served in 2006.




40





**BOARD
      COMMITTEES**





**Audit
      Committee**




The Audit Committee of the Board reviews the internal
      accounting procedures of the Company and consults with and reviews the services
      provided by our independent accountants. During the beginning of 2006, the
      Audit
      Committee consisted of Messrs. Stewart Reich, Ilan Kenig and Yossi Attia. Mr.
      Attia resigned in August, 2006 upon his election and appointment as CEO of
      Emvelco. Consequently, the Audit Committee appointed Gerald Schaffer to serve
      as
      the third member. Mssrs. Reich, Kenig and Schaffer are independent members
      of
      the Board. The Audit Committee held four meetings and made one additional
      resolution in 2006. Mr. Reich serves as the financial expert on the Audit
      Committee.




The
      audit
      committee has reviewed and discussed the audited financial statements with
      management; the audit committee has discussed with the independent auditors
      the
      matters required to be discussed by the statement on Auditing Standards No.
      61,
      as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted
      by the Public Company Accounting Oversight Board in Rule 3200T; and the audit
      committee has received the written disclosures and the letter from the
      independent accountants required by Independence Standards Board Standard No.
      1
      (Independence Standards Board Standard No. 1, Independence Discussions with
      Audit Committees), as adopted by the Public Company.




**Compensation
      Committee**





The
      Compensation Committee of the Board performs the following: i) reviews and
      recommends to the Board the compensation and benefits of our executive officers;
      ii) administers the stock option plans and employee stock purchase plan; and
      iii) establishes and reviews general policies relating to compensation and
      employee benefits. In 2006, the Compensation Committee consisted of Messrs
      Reich, Kenig and Attia. Mr. Attia resigned as a member of the Compensation
      Committee in August, 2006 upon his appointment as CEO of Emvelco. To fill this
      vacancy, the Board appointed Mr. Gerald Schaffer, an independent member of
      the
      Board, to serve as a member of the Compensation Committee. No interlocking
      relationships exist between the Board or Compensation Committee and the Board
      or
      Compensation Committee of any other company. During the past fiscal year the
      Compensation Committee had two meetings and made two additional resolutions.





**SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE**




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors
      and executive officers, and persons who own more then 10 percent of the
      Company’s common stock, to file with the SEC the initial reports of ownership
      and reports of changes in ownership of common stock. Officers, Directors and
      greater than 10 percent stockholders are required by SEC regulation to furnish
      the Company with copies of all Section 16(a) forms they file.




Specific
      due dates for such reports have been established by the SEC and the Company
      is
      required to disclose in this Proxy Statement any failure to file reports by
      such
      dates during fiscal 2006. Based solely on its review of the copies of such
      reports received by it, or written representations from certain reporting
      persons that no Forms 5 were required for such persons, the Company believes
      that during the fiscal year ended December 31, 2006, there was no failure to
      comply with Section 16(a) filing requirements applicable to its officers,
      Directors and ten percent stockholders.




41




**POLICY
      WITH RESPECT TO SECTION 162(m)**




Section
      162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), provides
      that, unless an appropriate exemption applies, a tax deduction for the Company
      for compensation of certain executive officers named in the Summary Compensation
      Table will not be allowed to the extent such compensation in any taxable year
      exceeds $1 million. As no executive officer of the Company received compensation
      during 2006 approaching $1 million, and the Company does not believe that any
      executive officer’s compensation is likely to exceed $1 million in 2006, the
      Company has not developed an executive compensation policy with respect to
      qualifying compensation paid to its executive officers for deductibility under
      Section 162(m) of the Code.




**CODE
      OF ETHICS**




The
      Company has adopted its Code of Ethics and Business Conduct for Officers,
      Directors and Employees that applies to all of the officers, Directors and
      employees of the Company.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




The
      following table sets forth the cash compensation (including cash bonuses) paid
      or accrued and equity awards granted by us for years ended December 31, 2006
      to
      the Company’s CEO and our most highly compensated officers other than the CEO at
      December 31, 2006 whose total compensation exceeded $100,000.





**SUMMARY
      COMPENSATION TABLE**





Name
                & Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards($)
            
            Option
                Awards ($)
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Change
                in Pension Value and Non-Qualified Deferred Compensation Earnings
                ($)
            
            All
                Other Compensation ($)
            
            Total
                ($)Yossi
                Attia
            
            
            2006
            
            $
            184,000
            
            
            —
            
            $
            93,750
            (2)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Chief
                Executive Officer (1)
            
            
            2005
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A





(1)
      Mr.
      Attia was appointed as CEO of the Company on August 14, 2006.





(2)
      In
      accordance with Mr. Attia’s employment agreements, Mr. Attia is entitled to
      receive 111,458  shares
      of
      common stock for the period from August 14, 2006 to August 13, 2007 representing
      a compensation of $250,000 to be paid in the form of Company shares of common
      stock. No shares have been issued.




42




**OUTSTANDING
      EQUITY AWARDS**


Option
                  Awards
              
              Stock
                  AwardsName
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Exercisable
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options
                (#)
                Unexercisable
              
              Equity
                Incentive
                Plan
                Awards:
                Number
                of
                Securities
                  Underlying
                Unexercised
                Unearned
                Options
                (#)
              
              Option
                Exercise
                Price
                ($)
              
              Option
                Expiration
                Date
              
              Number
                of
                  Shares
                or
                  Units
                of
                  Stock
                That
                  Have
                Not
                Vested
                (#)
              
              Market
                Value
                  of
                Shares
                  or
                Units
                  of
                Stock
                That
                  Have
                Not
                Vested
                ($)
              
              Equity
                Incentive
                Plan
                  Awards:
                Number
                of
                Unearned
                Shares,
                Units
                  or
                Other
                  Rights
                That
                  Have
                Not
                Vested
                (#)
              
              Equity
                  Incentive
                Plan
                  Awards:
                Market
                  or Payout
                Value
                of
                Unearned
                Shares,
                Units
                  or
                Other
                Rights
                That
                  Have
                Not
                Vested
                ($)Yossi
                  Attia (1)
              
              
              100,000(2
              )
              
              —
              
              
              —
              
              $
              3.40
              
              
              03/12/2011
              
              
              50,000
                  (3
              )
              $
              92,500
              (3)
              
              —
              
              
              —





(1)
            Mr.
                Attia was appointed as Chief Executive Officer of the Company on
                August
                14, 2006.





(2)
            On
                March 22, 2005, the Company granted 100,000 options to Yossi Attia.
                The
                stock options granted vest at the rate of 25,000 options on each
                September
                22 of 2005, 2006, 2007 and 2008, respectively. The exercise price
                of the
                options ($3.40) is equal to the market price on the date the options
                were
                granted.





(3)
            In
                accordance with Mr. Attia’s employment agreement, Mr. Attia is entitled to
                receive 111,458 shares of common stock for the first year. No shares
                have
                been issued. The 50,000 option represents the shares of common stock
                that
                have not vested to date. The value of such shares is based on the
                closing
                price for the Company’s common stock of $1.85 as of December 29, 2006 (the
                last trading day of 2006).





Except
      as
      set forth above, no other named executive officer has received an equity
      award.





**DIRECTOR
      COMPENSATION**





The
      following table sets forth with respect to the named Director, compensation
      information inclusive of equity awards and payments made in the year end
      December 31, 2006.





Name
            
            Fees
                Earned or Paid in Cash
            
            Stock
                Awards
            
            Option
              Awards
            
            Non-Equity
                Incentive Plan Compensation
            
            Change
                in Pension Value and Nonqualified Deferred Compensation Earnings
            
            All
                Other Compensation
            
            Total($)
            
            ($)
            
            ($)
            
            ($)
            
            
            
            ($)
            
            ($)Stewart
                Reich
            
            $
            36,502
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            36,502Ilan
                Kenig
            
            $
            29,002
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            29,002Robin
                Ann Gorelick
            
            $
            59,500
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            59,500Gerald
                Schaffer
            
            $
            25,002
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            25,002




43




**OPTIONS/SAR
      GRANTS IN LAST FISCAL YEAR**





There
      were other grants of Stock Options/SAR made to the named Executive and President
      during the fiscal year ended December 31, 2006.





**AGGREGATED
      OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
      VALUES**




**Name**
            
            **Shares
                acquired on exercise (#)**
            
            **Value
                realized ($)**
            
            **Number
                of securities underlying unexercised options/SARs at FY-end (#)**
              **Exercisable/Unexercisable**
            
            **Value
                of the unexercised in the money options/SARs at FY-end
                ($)***
              **Exercisable/Unexercisable**Yossi
                Attia, CEO, Director
            
            
            None
            
            
            None
            
            
            100,000
            
            $
            0.00




*
      Fair
      market value of underlying securities (calculated by subtracting the exercise
      price of the options from the closing price of the Company's common stock quoted
      on the NASDAQ as of December 29, 2006, which was $1.85 per share. None of Mr.
      Yossi's options are presently in the money.




**EMPLOYMENT
      AND MANAGEMENT AGREEMENTS**




The
      Company entered into a six-year agreement with its CEO, Csaba Törő on October
      18, 1999, which commenced January 1, 2000, and provided for an annual
      compensation of $96,000. The agreement was amended in 2004 and 2005. The
      amende d
      agreement provided for an annual salary of $200,000 and a bonus of up to
      $150,000 in 2006, 2007 and 2008, as well as an annual car allowance of $30,000
      for the same period.





On
      May
      24, 2006, the Company entered into a Severance Agreement with Mr. Toro in order
      to define the severance relationship between the two parties. In consideration
      for Toro agreeing to relinquish and release all rights and claims under the
      Employment Agreement, including the payment of his annual salary, the Company
      agreed to pay Mr. Toro $750,000. In addition, Mr. Toro has submitted his
      resignation as CEO and as a Director of the Company effective June 1, 2006.
      The
      severance was paid in full in May 2006.





The
      Company entered into a two-year employment agreement with Moshe Schnapp as
      President and Director of the Company which commenced on April 15, 2005, and
      provided for an annual compensation of $250,000 to be paid in the form of
      Euroweb shares of common stock. The number of shares to be received by Mr.
      Schnapp was calculated based on the average closing price 10 days prior to
      the
      commencement of each employment year. For the year ended April 14, 2006, Mr.
      Schnapp received 82,781 Euroweb shares of common stock of which 58,968 were
      issued in January 2006. In July 2006, we issued the remaining 46,007 shares
      of
      common stock for services through July 30, 2006. Mr. Schnapp resigned as
      President and director in August 2006. Mr. Schnapp waived his rights to any
      further compensation.





Effective
      July 1, 2006, the Company entered into a five-year employment agreement with
      Yossi Attia as the President of ERC which commenced on July 1, 2006 and provides
      for annual compensation of $240,000 and an annual bonus of not less than
      $120,000 per year, as well as an annual car allowance for the same period.
      Mr.
      Attia will be entitled to a special bonus equal to 10% of the EBITDA of ERC,
      which such bonus is payable in shares of common stock of the Company; provided,
      however, the special bonus is only payable in the event that Mr. Attia remains
      continuously employed by ERC and Mr. Attia shall not have sold shares of common
      stock of the Company on or before the payment date of the special bonus unless
      such shares were received in connection with the exercise of an option that
      was
      scheduled to expire within one year of the date of exercise. In addition, on
      August 14, 2006, the Company amended the Agreement to provide that Mr. Attia
      shall serve as the CEO of the Company for a term of two years commencing August
      14, 2006 and granting annual compensation of $250,000 to be paid in the form
      of
      Company shares of common stock. The number of shares to be received by Mr.
      Attia
      is calculated based on the average closing price 10 days prior to the
      commencement of each employment year. Mr. Attia will receive 111,458 of the
      Company shares of common stock for his first year service. No shares have been
      issue to Mr. Attia in 2006.




44





The
      employment agreements mentioned above further provide that, if employment is
      terminated other than for willful breach by the employee, for cause or in event
      of a change in control of the Company, then the employee has the right to
      terminate the agreement. In the event of any such termination, the employee
      will
      be entitled to receive the payment due on the balance of his employment
      agreement.





The
      Company has no pension or profit sharing plan or other contingent forms of
      remuneration with any officer, Director, employee or consultant, although
      bonuses are paid to some individuals.




**DIRECTOR
      COMPENSATION**




Before
      June 11, 2006, Directors who are also officers of the Company were not
      separately compensated for their services as a Director. Directors who were
      not
      officers received cash compensation for their services: $2,000 at the time
      of
      agreeing to become a Director; $2,000 for each Board Meeting attended either
      in
      person or by telephone; and $1,000 for each Audit and Compensation Committee
      Meeting attended either in person or by telephone. Non-employee Directors were
      reimbursed for their expenses incurred in connection with attending meetings
      of
      the Board or any committee on which they served and were eligible to receive
      awards under the Company’s 2004 Incentive Plan.





The
      Board
      has approved the modification of Directors' compensation on its special meeting
      held on June 11, 2006. Directors who are also officers of the Company are not
      separately compensated for their services as a Director. Directors who are
      not
      officers receive cash compensation for their services as follows: $40,000 per
      year and an additional $5,000 if they sit on a committee and an additional
      $5,000 if they sit as the head of such committee. Non-employee directors are
      reimbursed for their expenses incurred in connection with attending meetings
      of
      the Board or any committee on which they serve and are eligible to receive
      awards under our 2004 Incentive Plan.





**STOCK
      OPTION PLAN**




**2004
      Incentive Plan**





**General**





The
      2004
      Incentive Plan was adopted by the Board. The Board initially reserved 800,000
      shares of common stock for issuance under the 2004 Incentive Plan. In 2005,
      the
      Plan was adjusted to increase the number of shares of common stock issuable
      under such plan from 800,000 shares to 1,200,000 shares. Under the Plan, options
      may be granted which are intended to qualify as Incentive Stock Options ("ISOs")
      under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which
      are
      not ("Non-ISOs") intended to qualify as Incentive Stock Options thereunder.




45





The
      2004
      Incentive Plan and the right of participants to make purchases thereunder are
      intended to qualify as an "employee stock purchase plan" under Section 423
      of
      the Internal Revenue Code of 1986, as amended (the "Code"). The 2004 Incentive
      Plan is not a qualified deferred compensation plan under Section 401(a) of
      the
      Internal Revenue Code and is not subject to the provisions of the Employee
      Retirement Income Security Act of 1974 ("ERISA").





**Purpose**





The
      primary purpose of the 2004 Incentive Plan is to attract and retain the best
      available personnel for the Company in order to promote the success of the
      Company's business and to facilitate the ownership of the Company's stock by
      employees.





**Administration**





The
      2004
      Incentive Plan is administered by the Company's Board, as the Board may be
      composed from time to time. All questions of interpretation of the 2004
      Incentive Plan are determined by the Board, and its decisions are final and
      binding upon all participants. Any determination by a majority of the members
      of
      the Board at any meeting, or by written consent in lieu of a meeting, shall
      be
      deemed to have been made by the whole Board.





Notwithstanding
      the foregoing, the Board may at any time, or from time to time, appoint a
      committee (the "Committee") of at least two members of the Board, and delegate
      to the Committee the authority of the Board to administer the Plan. Upon such
      appointment and delegation, the Committee shall have all the powers, privileges
      and duties of the Board, and shall be substituted for the Board, in the
      administration of the Plan, subject to certain limitations.





Members
      of the Board who are eligible employees are permitted to participate in the
      2004
      Incentive Plan, provided that any such eligible member may not vote on any
      matter affecting the administration of the 2004 Incentive Plan or the grant
      of
      any option pursuant to it, or serve on a committee appointed to administer
      the
      2004 Incentive Plan. In the event that any member of the Board is at any time
      not a "disinterested person", as defined in Rule 16b-3(c)(3)(i) promulgated
      pursuant to the Securities Exchange Act of 1934, the Plan shall not be
      administered by the Board, and may only by administered by a Committee, all
      the
      members of which are disinterested persons, as so defined.





**Eligibility**





Under
      the
      2004 Incentive Plan, options may be granted to key employees, officers,
      Directors or consultants of the Company, as provided in the 2004 Incentive
      Plan.





**Terms
      of Options**





The
      term
      of each option granted under the Plan shall be contained in a stock option
      agreement between the optionee and the Company and such terms shall be
      determined by the Board consistent with the provisions of the Plan, including
      the following:





(a)
      PURCHASE PRICE. The purchase price of the common shares subject to each ISO
      shall not be less than the fair market value (as set forth in the 2004 Incentive
      Plan), or in the case of the grant of an ISO to a principal stockholder, not
      less that 110% of fair market value of such common shares at the time such
      option is granted. The purchase price of the common shares subject to each
      Non-ISO shall be determined at the time such option is granted, but in no case
      less than 85% of the fair market value of such common shares at the time such
      option is granted.




46





(b)
      VESTING. The dates on which each option (or portion thereof) shall be
      exercisable and the conditions precedent to such exercise, if any, shall be
      fixed by the Board, in its discretion, at the time such option is granted.





(c)
      EXPIRATION. The expiration of each option shall be fixed by the Board, in its
      discretion, at the time such option is granted; however, unless otherwise
      determined by the Board at the time such option is granted, an option shall
      be
      exercisable for ten (10) years after the date on which it was granted (the
      "Grant Date"). Each option shall be subject to earlier termination as expressly
      provided in the 2004 Incentive Plan or as determined by the Board, in its
      discretion, at the time such option is granted.





(d)
      TRANSFERABILITY. No option shall be transferable, except by will or the laws
      of
      descent and distribution, and any option may be exercised during the lifetime
      of
      the optionee only by him. No option granted under the Plan shall be subject
      to
      execution, attachment or other process.





(e)
      OPTION ADJUSTMENTS. The aggregate number and class of shares as to which options
      may be granted under the Plan, the number and class shares covered by each
      outstanding option and the exercise price per share thereof (but not the total
      price), and all such options, shall each be proportionately adjusted for any
      increase decrease in the number of issued common shares resulting from split-up
      spin-off or consolidation of shares or any like capital adjustment or the
      payment of any stock dividend.





Except
      as
      otherwise provided in the 2004 Incentive Plan, any option granted hereunder
      shall terminate in the event of a merger, consolidation, acquisition of property
      or stock, separation, reorganization or liquidation of the Company. However,
      the
      optionee shall have the right immediately prior to any such transaction to
      exercise his option in whole or in part notwithstanding any otherwise applicable
      vesting requirements.





(f)
      TERMINATION, MODIFICATION AND AMENDMENT. The 2004 Incentive Plan (but not
      options previously granted under the Plan) shall terminate ten (10) years from
      the earlier of the date of its adoption by the Board or the date on which the
      Plan is approved by the affirmative vote of the holders of a majority of the
      outstanding shares of capital stock of the Company entitled to vote thereon,
      and
      no option shall be granted after termination of the Plan. Subject to certain
      restrictions, the Plan may at any time be terminated and from time to time
      be
      modified or amended by the affirmative vote of the holders of a majority of
      the
      outstanding shares of the capital stock of the Company present, or represented,
      and entitled to vote at a meeting duly held in accordance with the applicable
      laws of the State of Delaware.




47




**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      information required by this item is incorporated herein by reference from
      the
      Company's definitive Proxy Statement for the Annual Meeting of
      Stockholders.




stock
      beneficially owned by it or him as set forth opposite its or his name.




Name
                and Address
            
            Shares
              Beneficially
                Owned(1)
            
            Percent
                Owned (1)KPN
                Telecom B.V. (4)
            
            
            820,399
            
            
            28.15
            %Maanplein
                5The
                Hague, The NetherlandsCORCYRA
                d.o.o.(3)
            
            
            2,326,043
            
            
            40.88
            %Valdabecki
                put 118Pula
                Croatia 52100Graeton
                Holdings Limited
            
            
            441,566
            
            
            7.76
            %256
                Makarios Avenue,EftapatonCourt,
                CY3105 Limassol, Cyprus;Stewart
                Reich (6)(7)
            
            
            100,000
            
            
            1.32
            %18
                Dorset Lane,Bedminister,
                NJ 07921Yossi
                Attia (3)(5)(6)(8)
            
            
            2,376,043
            
            
            41.76
            %1061
                1/2 Spalding Ave.West
                Hollywood, CA 90046Ilan
                Kenig (6)(8)
            
            
            50,000
            
            
            *7438
                Fraser Park DriveBurnaby,
                BC Canada V5J 5B9All
                Officers and Directors as a
            
            
            2,526,043
            
            
            44.40
            %Group
                (6 Persons)




*
      Less
      than one percent




(1)
      Unless otherwise indicated, each person has sole investment and voting power
      with respect to the shares indicated. For purposes of this table, a person
      or
      group of persons is deemed to have "beneficial ownership" of any shares which
      such person has the right to acquire within 60 days after March 23, 2007. For
      purposes of computing the percentage of outstanding shares held by each person
      or group of persons named above on March 23, 2007, any security which such
      person or group of persons has the right to acquire within 60 days after such
      date is deemed to be outstanding for the purpose of computing the percentage
      ownership for such person or persons, but is not deemed to be outstanding for
      the purpose of computing the percentage ownership of any other
      person.




(2)
      Intentionally left blank.




(3)
      Pursuant to a Stock Purchase Agreement dated as of January 28, 2005, by and
      between KPN Telecom B.V. ("KPN Telecom"), a company incorporated under the
      laws
      of the Netherlands, and CORCYRA d.o.o., a Croatian company ("CORCYRA"), (the
      "Purchase Agreement"), KPN Telecom sold to CORCYRA (i) 289,855 shares (the
      "Initial Shares") of our common stock for US $1,000,000 (the "Initial Closing"),
      (ii) 434,783 shares (the "Secondary Shares") of our common stock for US
      $1,500,000 on April 28, 2006 and (iii) 781,006 shares of the Company’s common
      stock pursuant to the Second Special Closing of our common stock on January
      26,
      2007. The Initial Closing occurred on February 1, 2005. Pursuant to the Purchase
      Agreement, CORCYRA also agreed to purchase and, KPN agreed to sell, KPN
      Telecom's remaining 1,604,405 shares of our common stock (the "Final Shares")
      on
      December 1, 2006 (the "Final Closing"); provided, however, that upon 14 days'
      prior written notice to KPN Telecom, CORCYRA may accelerate the Final Closing
      to
      an earlier month-end date as specified in such notice; provided, further, that
      the Final Closing is subject to the satisfaction or waiver of all of the
      conditions to closing set forth in the Purchase Agreement. Assuming the final
      closing occurred on December 1, 2006, the purchase price to be paid by CORCYRA
      at the final closing shall be equal to $5,801,817 (“Base Price”) plus the
      product of 1,601,405 multiplied by .35, which in turn is multiplied by the
      difference of the average closing price for 60 trading days prior to the closing
      date less $3.45 (the “Additional Payment”). In addition, CORCYRA will be
      required to pay a premium of $28,560 per month. The Base Price to be paid
      decreases in the event that Corcyra closes prior to December 1, 2006. KSD
      Pacific, LLC, a Nevada limited liability company ("KSD") purchased from Moshe
      Har Adir all of the issued and outstanding shares of capital stock of CORCYRA
      in
      exchange for $10,830,377. Yossi Attia, sole officer and director of CORCYRA
      and
      sole member of KSD is chief executive officer and a director of the Company.
      Pursuant to Amendment No. 2 dated as of December 1, 2006, to the Purchase
      Agreement, CORCYRA and KPN agreed to split the purchase of the remaining
      1,601,405 shares of Common Stock into two tranches rather than purchasing all
      of
      the remaining stock in one tranche on December 1, 2006. In accordance with
      the
      terms of Amendment No. 2 781,006 shares of the Remaining Stock were purchased
      by
      CORCYRA from KPN on December 1, 2006 paying $3.85 per share. The balance of
      the
      Remaining Stock of 820,399 shares is scheduled to be purchased by CORCYRA from
      KPN on or before July 2, 2007; provided, however, that CORCYRA may accelerate
      the closing to an earlier month-end date as specified in such agreement.
      Accordingly, CORCYRA, and Mr. Attia through his ownership of KSD and
      CORCYRA, presently owns 1,505,644 shares of common stock and is deemed to
      own, pursuant to Rule 13d-3(d), promulgated under the Securities Exchange Act
      of
      1934, as amended, the remaining 820,399 shares held by KPN Telecom. Mr. Attia
      is
      entitled to additional 111,458 shares of the Company per his employment
      agreement with the Company.




48




(4)
      KPN
      Telecom B.V. is a subsidiary of Royal KPN N.V.




(5)
      An
      officer of the Company.




(6)
      A
      director of the Company.




(7)
      Includes an option to purchase 100,000 shares of common stock at an exercise
      price of $4.21 per share. 25,000 options vest on April 13, 2004, 25,000 options
      vest on April 13, 2005, 25,000 options vest on April 13, 2006, while 25,000
      options vest on April 13, 2007




(8)
      Effective March 22, 2005 the Board of Directors granted the two directors,
      Mr.
      Attia and Mr. Kenig, 100,000 options each at an exercise price of $3.40 per
      share under the 2004 Incentive Plan. Each directors options vest in four equal
      installments of 25,000 shares on September 22, 2005, September 22, 2006,
      September 22, 2007 and September 22, 2008.





The
      foregoing table is based upon 5,689,656 shares of common stock outstanding
      as of
      March 23, 2007.





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




On
      October 3, 2006, ERC entered into an Operating Agreement with D’Vora Attia, an
      individual (“D’Vora”) in connection with Stanley. Stanley will develop three
      adjacent single family residences located at 2234 and 2240 Stanley Hills Drive
      and 2214 N. Merrywood Drive, Los Angeles, California 90046. ERC owns 66.67%
      of
      the outstanding interest of the Stanley. D’Vora owns the remaining interest.
      D’vora Attia, who owned the Stanley Property prior to the purchase by the
      Stanley, is the sister of Yossi Attia. The structuring of Stanley was negotiated
      as an arm length transaction and was based on a current appraisal received
      from
      an independent third party. Outstanding balance of the purchase price of the
      Property towards D’Vora was $308,321 as of December 31, 2006.




49





On
      December 31, 2006, ERC acquired 100% interest in Verge Living Corporation from
      a
      third party, TIHG. Verge had a 33.33% equity investment in AP Holdings with
      a
      fair value of $3,000,000. The majority owner and sole director of AP Holdings
      is
      Mr. Shalom Atia, who is Yossi Attia’s brother.





In
      the
      fourth quarter of 2006, the Company deposited $450,000 with Shalom Atia in
      connection with a possible co-operation in real estate development in the area
      of Sitnica - Samobor in Croatia, Europe. The deposit is repayable upon the
      Company’s first demand.





There
      are
      no other relationship among AP Holdings, Shalom Atia and Yossi
      Attia.





The
      Company via ERC rented its office premises in Las Vegas from Yossi Attia for
      a
      monthly fee of $2,000. The Contract extends for 2 years from June
      2006.





**ITEM
      13.**  **EXHIBITS**




Exhibits
      required to be attached by Item 601 of Regulation S-B are listed in the Index
      to
      Exhibits on page xx of this Form 10-KSB, and are incorporated herein by this
      reference





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANTS FEES AND SERVICES**




The
      following table presents aggregate fees for professional audit services rendered
      by Deloitte
      Auditing and Consulting Kft. and affiliates for
      the
      audit of the Company’s annual financial statements for the fiscal years ended
      December 31, 2006 and 2005, respectively, and fees billed for other
      services rendered.




2006
            
            2005Audit
                Fees (1)
            
            $
            160,000
            
            $
            192,000Audit-Related
                Fees (2)
            
            $
            —
            
            $
            127,000Tax
                Fees (3)
            
            $
            —
            
            $
            —All
                Other Fees (4)
            
            $
            21,500
            
            $
            67,200





(1)
      Audit
      Fees. The aggregate fees billed by our auditors for professional services
      rendered for the audit of the Company's annual financial statements for the
      years ended December 31, 2006 and 2005, and for the reviews of the financial
      statements included in the Company's Quarterly Reports on Form 10-QSB during
      the
      fiscal years were $160,000 and $192,000, respectively.





(2)
      Audit
      Related Fees: In 2005, fees for the audit of the 2004 US GAAP financials
      statements of Navigator (for 8-K filing purposes) were $127,000. In 2006, no
      such fees were paid.





(3)
      Tax
      fees: There were no tax services provided in fiscal year 2006 and
      2005.





(4)
      All
      Other Fees: The aggregate fees billed by auditors for services rendered to
      the
      Company, other than the services covered in "Audit Fees" and “Audit related
      fees” and for the fiscal years ended December 31, 2006 and 2005 were $21,500 and
      $67,200. The 2006 and 2005 fees relate to the SB-2 registration statement
      costs.




50





(5)
      During April 2007, the Company was invoiced by the former auditors for $124,661
      as a result of over run fees, which exceed the written
      agreement.





The
      Company’s Audit Committee’s policy is to pre-approve all audit and permissible
      non-audit services provided by the independent auditors. These services may
      include audit services, audit-related services, tax services and other services.
      All services rendered have been approved by the Audit Committee.





Upon
      resignation of former auditors, the Company was presented with overrun fees
      by
      its former auditors, as well as open balances aggregate to $175,281 for audit
      works NOT performed in the US. The Company investigates such charges, and demand
      breakdown of fees from its former auditors which were not produce to date.




51




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, as amended, the Registrant has duly caused this Report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized.


**EMVELCO
                CORP.**By
            /s/
              Yossi AttiaYossi
                Attia
              Chief
                Executive Officer and Director
              (Principal
                Financial Officer)
              Dated:
                May
                29, 2007




Pursuant
      to the requirements of the Securities Exchange of 1934, as amended, this Report
      has been signed below by the following persons in the capacities and on the
      dates indicated.




**SIGNATURE**
              
              **TITLE**
              
              **DATE**By:
                  /s/ Yossi Attia
                
                Yossi
                  Attia
              
              Chief
                  Executive Officer and Director (Principal Financial
                  Officer)
              
              May
                  29, 2007By:
                  /s/ Stewart Reich
                
                Stewart
                  Reich
              
              Chairman
                  of the Board and Director
              
              May
                    29, 2007By:
                  /s/ Robin Ann Gorelick
                
                Robin
                  Ann Gorelick
              
              Secretary,
                  Director
              
              May
                    29, 2007By:
                  /s/ Gerald Schaffer
                
                Gerald
                  Schaffer
              
              Director
              
              May
                    29, 2007By:
                  /s/ Ilan Kenig
                
                Ilan
                  Kenig
              
              Director
              
              May
                    29, 2007





52




**INDEX
      TO EXHIBITS**


**EXHIBIT****NO.**
              
              **PAGE****NO.**
              
              **DESCRIPTION**
  A.
        Exhibits (numbers below reference Regulation S-B, Item 601)
  (2)
              Subscription
                  Agreement and Option Agreement with KPN(1)(2)
  (3)
              (a)
                  Certificate of Incorporation filed November 9, 1992(1)


A.
      Exhibits (numbers below reference Regulation S-B, Item 601)




(2)
              Subscription
                  Agreement and Option Agreement with KPN(1)(2)
  (3)
              (a)
                  Certificate of Incorporation filed November 9, 1992(1)
  (c) Amendment
          to Certificate of Incorporation filed July 9, 1997 (2)
  (d) By-laws (2)
  (4)
              (a)
                  Form of Common Stock Certificate(1)
  (b) Form
            of
            Underwriters' Warrants to be sold to Underwriters (1)
  (c)  Placement
          Agreement between Registrant and J.W. Barclay & Co., Inc. and form of
          Placement Agent Warrants issued in connection with private placement
          financing(1)
 (10)
                  (a)Shares
                      Purchase Agreement between PanTel Tavkozlesi esKommunikacios
                      rt., a Hungarian company, and EmvelcoCorp.,
                      a Delaware corporation
                      (3)
  (10)
              (b)
                  Guaranty by Emvelco International Corp., a Delawarecorporation,
                  in favor of PanTel Tavkozlesi es Kommunikaciosrt.,
                  a Hungarian company (3)
  (10)
              (c)
                  Shares Purchase Agreement between Vitonas Investments Limited,
                  a
                  Hungariancorporation,
                  Certus Kft., a Hungarian corporation, Rumed 2000 Kft., a Hungariancorporation
                  and
                  Emvelco International Corp., a Delaware corporation, dated asof
                  February 23, 2004. (4)
  (10)
              (d)
                  Share Purchase Agreement by and between Emvelco International Corp.
                  and
                  InvitelTavkozlesi
                  Szolgaltato Rt. (5)
  (31)
              (a)
                  Certification of the Chief Executive Officer of Emvelco International
                  Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
 (31)
                (b)
                    Certification
                    of the Chief Accounting Officer of Emvelco International Corp.
                    pursuant to
                    Section 302 of the Sarbanes-Oxley Act of
                    2002.




(32)
              (a)
                  Certification
                  of the Chief Executive Officer of Emvelco International Corp. Pursuant
                  to
                  18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of
                  2002.
  53
  (32)
              (b)
                  Certification of the Chief Accounting Officer of Emvelco International
                  Corp., Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of
                  2002.
 
 (99)
              (a)
                  Code of Ethics and Business Conduct of Officers, Directors and
                  Emvelco
                  International Corp.




(1)
        Exhibits are incorporated by reference to Registrant's Registration Statement
        on
        Form SB-2 dated May 12, 1993 (Registration No. 33-62672-NY, as
        amended)


(2)
      Filed
      with Form 10-QSB for quarter ended June 30, 1998.




(3)
      Filed
      as an exhibit to Form 8-K on February 27, 2004.




(4)
      Filed
      as an exhibit to Form 8-K on March 9, 2004.




(5)
      Filed
      as an exhibit to Form 8-K on December 21, 2005.




(4)
            (a)
                Form of Common Stock Certificate(1)




(e)  Form
      of
      Underwriters' Warrants to be sold to Underwriters (1)




(f)  Placement
      Agreement between Registrant and J.W. Barclay & Co., Inc. and form of
      Placement Agent Warrants issued in connection with private placement
      financing (1)




(10)
            (a)Shares
                Purchase Agreement between PanTel Tavkozlesi esKommunikacios
                rt., a Hungarian company, and EmvelcoCorp.,
                a Delaware corporation (3)




(10)
            (b)
                Guaranty by Emvelco International Corp., a Delawarecorporation,
                in favor of PanTel Tavkozlesi es Kommunikaciosrt.,
                a Hungarian company (3)




(10)
            (c)
                Shares Purchase Agreement between Vitonas Investments Limited, a
                Hungariancorporation,
                Certus Kft., a Hungarian corporation, Rumed 2000 Kft., a Hungariancorporation
                and Emvelco International Corp., a Delaware corporation, dated asof
                February 23, 2004. (4)




(10)
            (d)
                Share Purchase Agreement by and between Emvelco International Corp.
                and
                InvitelTavkozlesi
                Szolgaltato Rt. (5)




(10)
            (e)Investment Agreement, dated as of June 19, 2006, by and between
                EWEB RE Corp. and AO Bonanza Las Vegas, Inc.
                (6)




(10)
            (f)
                Sale and Purchase Agreement, dated as of February 16, 2007, by and
                between
                Emvelco Corp. and Marivaux Investments Limited
                (7)




(10)
            (g)
                Stock Transfer and Assignment of Contract Rights Agreement, dated
                as of
                May 14, 2007 among Emvelco Corp., Emvelco RE Corp., The International
                Holdings Group Ltd., and Verge Living Corporation
                (8)




(31)
            (a)
                Certification of the Chief Executive Officer of Emvelco International
                Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.


54
  (32)
              (a)
                  Certification
                  of the Chief Executive Officer of Emvelco International Corp. Pursuant
                  to
                  18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of
                  2002.




(99)
            (a)
                Code of Ethics and Business Conduct of Officers, Directors and Emvelco
                International Corp.




(1)
        Exhibits are incorporated by reference to Registrant's Registration Statement
        on
        Form SB-2 dated May 12, 1993 (Registration No. 33-62672-NY, as
        amended)




(2)
      Filed
      with Form 10-QSB for quarter ended June 30, 1998.




(3)
      Filed
      as an exhibit to Form 8-K on February 27, 2004.




(4)
      Filed
      as an exhibit to Form 8-K on March 9, 2004.




(5)
      Filed
      as an exhibit to Form 8-K on December 21, 2005.




(6)
      Filed
      as an exhibit to Form 8-K on June 23, 2006




(7)
      Filed
      as an exhibit to Form 8-K on February 20, 2007




(8)
      Filed
      as an exhibit to Form 8-K on May 16, 2007




55




**EMVELCO
      CORP.**




Consolidated
      Balance Sheet as of December 31, 2006, and


Consolidated
      Statements of Operations and Comprehensive Income,


Stockholders’
      Equity, and Cash Flows for the


Years
      ended December 31, 2006 and 2005











**EMVELCO
      CORP.**





Consolidated
      Financial Statements





As
      of
      December 31, 2006 and for the Years Ended December 31, 2006 and
      2005




**TABLE
      OF CONTENTS**


**Page**Report
                  of the Independent Registered Public Accounting Firm
              F-2Consolidated
                  Financial Statements:Consolidated
                  Balance Sheet
              F-3Consolidated
                  Statements of Operations and Comprehensive Income
              F-4Consolidated
                  Statements of Stockholders’ Equity
              F-5Consolidated
                  Statements of Cash Flows
              F-6Notes
                  to Consolidated Financial Statements
              F-7
  F-1




REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
  
 Board
        of
        Directors and Stockholders
 Emvelco
        Corp.
 
 We
        have
        audited the accompanying consolidated balance sheets of Emvelco Corp., and
        subsidiaries (a Delaware corporation) as of December 31, 2006 and the related
        consolidated statements of operations, comprehensive income, stockholders'
        equity and cash flows for the year then ended. These financial statements
        are
        the responsibility of the Company's management. Our responsibility is to
        express
        an opinion on these financial statements based on our audit. The financial
        statements of Emvelco Corp., and subsidiaries for the year ended December
        31,
        2005, were audited by other auditors whose report thereon, dated March 24,
        2006,
        expressed an unqualified opinion.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, 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 Emvelco Corp., and
        subsidiaries as of December 31, 2006, and the results of its operations and
        its
        cash flows for the year then ended in conformity with accounting principles
        generally accepted in the United States of America.
   /s/
                  Robison, Hill &
                  Co.
                Certified
                  Public Accountants
  Salt
        Lake
        City, Utah
 May
        25,
        2007


F-2




**Emvelco
      Corp.**


**Consolidated
      Balance Sheet**


**As
      of December 31, 2006**


**Amounts
      in US dollars**




2006**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,852,620Related
                party receivable (Note 13)
            
            
            450,000Prepaid
                and other current assets
            
            
            146,863Total
                current assets of continuing operations
            
            
            3,449,483Total
                assets of discontinued operations (Note 8)
            
            
            6,859,183Total
                current assets
            
            
            10,308,666Restricted
                cash**-**certificate of deposit (Note 3)
            
            
            8,093,820Loan
                to Emvelco Re Corp (Note 5)
            
            
            11,738,940Investment
                in affiliates, at cost
            
            
            50,000Investment
                in affiliates, at equity (Note 4)
            
            
            500,000Total
                assets
            
            $
            30,691,426**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Other
                current liabilities
            
            
            253,294Accrued
                expenses
            
            
            762,083Total
                current liabilities of continuing operations
            
            
            1,015,377Total
                liabilities of discontinued operations (Note 8)
            
            
            2,824,992Total
                current liabilities
            
            
            3,840,369Bank
                loan (Note 6)
            
            
            3,000,000Total
                liabilities
            
            
            6,840,369Commitments
                and contingencies (Note 11)Stockholders'
                equityCommon
                stock, $.001 par value - Authorized 35,000,000 shares;5,889,074
                shares issued of which 5,412,270 shares are outstanding
            
            
            24,877Additional
                paid-in capital
            
            
            52,205,365Accumulated
                deficit
            
            
            (27,389,840
            )Accumulated
                other comprehensive income
            
            
            5,539Treasury
                stock - 476,804 common shares, at cost
            
            
            (994,884
            )Total
                stockholders' equity
            
            
            23,851,057Total
                liabilities and stockholders' equity
            
            $
            30,691,426





See
      accompanying notes to consolidated financial statements.




F-3


**Emvelco
      Corp.**


**Consolidated
      Statements of Operations and Comprehensive Income**


**Years
      Ended December 31, 2006 and 2005**


**Amounts
      in US dollars**





2006
            
            2005**Revenues
                - rental income**
            
            $
            22,594
            
            $
            -**Cost
                of revenues**
            
            
            -
            
            
            -**Operating
                expenses**Compensation
                and related costs
            
            
            583,773
            
            
            559,839Severance
                to officer
            
            
            750,000
            
            
            -Consulting,
                professional and directors fees
            
            
            2,106,316
            
            
            1,010,654Other
                selling, general and administrative expenses
            
            
            921,004
            
            
            302,973Depreciation
                and amortization
            
            
            13,516
            
            
            -Total
                operating expenses
            
            
            4,374,609
            
            
            1,873,466Operating
                loss
            
            
            (4,352,015
            )
            
            (1,873,466
            )Interest
                income
            
            
            635,099
            
            
            -Interest
                expense
            
            
            (59,934
            )
            
            -Gain
                on issuance of subsidiary stock (Note 4)
            
            
            1,497,565
            
            
            -Other
                income
            
            
            -
            
            
            170,000**Loss
                from continuing operations before income taxes**
            
            
            (2,279,285
            )
            
            (1,703,466
            )**Income
                tax expense**
            
            
            -
            
            
            -**Loss
                from continuing operations**
            
            
            (2,279,285
            )
            
            (1,703,466
            )Income
                from discontinued operations, net of tax (Note 8)
            
            
            9,191,876
            
            
            3,383,761**Net
                income**
            
            
            6,912,591
            
            
            1,680,295Other
                comprehensive loss
            
            
            (94,142
            )
            
            (8,585
            )**Comprehensive
                income**
            
            $
            6,818,449
            
            $
            1,671,710**Loss
                per share from continuing operations, basic and
                diluted**
            
            
            (0.40
            )
            
            (0.31
            )**Income
                per share from discontinued operations, basic and
                diluted**
            
            
            1.61
            
            
            0.62**Net
                income per share, basic and diluted**
            
            
            1.21
            
            
            0.31**Weighted
                average number of shares outstanding, basic and
                diluted**
            
            
            5,715,543
            
            
            5,445,363





See
      accompanying notes to consolidated financial statements.




F-4




**EMVELCO
      CORP.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


**YEARS
      ENDED DECEMBER 31, 2006 and 2005**


**Amounts
      in US dollars**


Common
                  Stock
              
              Additional
              
              
              
              Accumulated
                  Other
              
              
              
              TotalNumber
                  of shares
              
              Amount
              
              Paid-in
                  Capital
              
              Accumulated
                  Deficit
              
              ComprehensiveIncome (Loss)
              
              TreasuryStock
              
              Stockholders'Equity**Balances,
                  January 1, 2005**
              
              
              **5,342,533**
              
              **$**
              **24,807**
              
              **$**
              **50,780,084**
              
              **$**
              **(35,982,726**
              **)**
              **$**
              **108,266**
              
              **$**
              **(1,115,412**
              **)**
              **$**
              **13,815,019**Foreign
                  currency translation loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,585
              )
              
              -
              
              
              (8,585
              )Compensation
                  charge on shareoptions
                  and warrants issued to consultants
              
              
              -
              
              
              -
              
              
              192,294
              
              
              
              
              
              
              
              
              
              
              
              192,294Issuance
                  of shares (Navigator acquisition)
              
              
              441,566
              
              
              441
              
              
              1,681,693
              
              
              -
              
              
              -
              
              
              -
              
              
              1,682,134Cancellation
                  of treasury stock
              
              
              -
              
              
              -
              
              
              (1,115,412
              )
              
              -
              
              
              -
              
              
              1,115,412
              
              
              -Net
                  income for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              1,680,295
              
              
              -
              
              
              -
              
              
              1,680,295**Balances,
                  December 31, 2005**
              
              
              **5,784,099**
              
              **$**
              **25,248**
              
              **$**
              **51,538,659**
              
              **$**
              **(34,302,431**
              **)**
              **$**
              **99,681**
              
              
              **-**
              
              **$**
              **17,361,157**Foreign
                  currency translation loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (94,142
              )
              
              -
              
              
              (94,142
              )Compensation
                  charge on shareoptions
                  and warrants issued to employees, directors and
                  consultants
              
              
              -
              
              
              -
              
              
              341,206
              
              
              
              
              
              
              
              
              
              
              
              341,206Issuance
                  of shares to the President
              
              
              104,975
              
              
              105
              
              
              325,500
              
              
              -
              
              
              -
              
              
              -
              
              
              325,605Treasury
                  stock
              
              
              (476,804
              )
              
              (476
              )
              
              -
              
              
              -
              
              
              -
              
              
              (994,884
              )
              
              (995,360
              )Net
                  income for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              6,912,591
              
              
              -
              
              
              -
              
              
              6,912,591**Balances,
                  December 31, 2006**
              
              
              **5,412,270**
              
              **$**
              **24,877**
              
              **$**
              **52,205,365**
              
              **$**
              **(27,389,840**
              **)**
              **$**
              **5,539**
              
              **$**
              **(994,884**
              **)**
              **$**
              **23,851,057**





See
      accompanying notes to consolidated financial statements.




F-5




**Emvelco
      Corp.**


**Consolidated
      Statements of Cash Flows**


**Year
      Ended December 31, 2006 and 2005**


**Amounts
      in US dollars**




2006
            
            2005Net
                income
            
            $
            6,912,591
            
            $
            1,680,295Adjustments
                to reconcile net income to net cash (used in)/provided by operating
                activities:Depreciation
                and amortization
            
            
            13,516
            
            
            -Share-based
                compensation expense
            
            
            341,206
            
            
            192,294Realized
                gain on sale of subsidiaries
            
            
            (15,644,296
            )
            
            (1,733,470
            )Investment
                into affiliate, equity
            
            
            997,565
            
            
            -Gain
                on issuance of subsidiary stock
            
            
            (1,497,565
            )
            
            -Changes
                in operating assets and liabilities, net of effects of
                acquisitions:Prepaid
                and other assets
            
            
            (59,529
            )
            
            12,666Related
                party receivable
            
            
            (450,000
            )
            
            -Accounts
                payable, other current liabilities and accrued expenses
            
            
            (346,473
            )
            
            774,636Cash
                provided by discontinued operations
            
            
            6,935,364
            
            
            3,181,134Net
                cash (used in)/provided by operating activities
            
            
            (2,797,621
            )
            
            4,107,555Cash
                flows from investing activities:Investment
                in certificate of deposit (restricted cash)
            
            
            (8,000,000
            )
            
            -Proceeds
                from sale of Euroweb Slovakia
            
            
            -
            
            
            2,700,000Proceeds
                from sale of Euroweb Hungary and Euroweb Romania, net of
                cash
            
            
            21,838,138
            
            
            -Investment
                in affiliates, at cost
            
            
            (50,000
            )
            
            -Acquisition
                of 100% of Navigator, net of cash acquired
            
            
            -
            
            
            (9,008,638
            )Loan
                provided to Emvelco Re Corp
            
            
            (11,275,094
            )
            
            -Capital
                expenditures in discontinued operations
            
            
            (374,380
            )
            
            (2,581,834
            )Net
                cash provided by/(used in) investing activities
            
            
            2,138,664
            
            
            (8,890,472
            )Cash
                flows from financing activities:Payments
                to acquire treasury stock
            
            
            (995,360
            )
            
            -Proceeds
                from loans
            
            
            3,000,000
            
            
            -Financing
                activities from discontinued operations
            
            
            (53,925
            )
            
            3,964,227Net
                cash provided by financing activities
            
            
            1,950,715
            
            
            3,964,227Net
                increase (decrease) in cash and cash equivalents
            
            
            1,291,758
            
            
            (818,690
            )Cash
                and cash equivalents, beginning of year
            
            
            1,560,862
            
            
            2,379,552Cash
                and cash equivalents, end of year
            
            $
            2,852,620
            
            $
            1,560,862Supplemental
                disclosure:Cash
                paid for interest
            
            $
            146,618
            
            
            -Cash
                paid for income taxes
            
            
            -
            
            
            -Summary
                of non-cash transactionsShares
                issued as consideration in acquisition of Navigator
            
            
            -
            
            $
            1,682,134Shares
                issued to the President of the Company
            
            $
            325,605
            
            
            -





See
      accompanying notes to consolidated financial statements.




F-6


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**
 **1.
          Organization and Business**
  Emvelco
          Corp. (“Emvelco”), formerly known as Euroweb International Corp., is a Delaware
          Corporation, which was incorporated on November 9, 1992. Emvelco and its
          consolidated subsidiaries are collectively referred to herein as the “Company”. The
          Company's authorized capital stock consists of 35,000,000 shares with a
          par
          value of $0.001 per share.  As
          of
          December 31, 2006, 5,889,074 shares are issued and 5,412,270 shares are
          outstanding .


The
      Company is a holding company and it invests in the real estate development,
      financing and investments business through Emvelco RE Corp. (“ERC”) and its
      subsidiaries in the United States of America (“US”). The Company commenced
      operations in the investment real estate industry through the acquisition of
      an
      empty, non-operational, wholly-owned subsidiary, ERC, which was acquired in
      June
      2006. Primary activity of ERC includes investment, development and subsequent
      sale of real estate, as well as investment in the form of loans provided to,
      or
      ownership acquired in, property development companies, directly or via majority
      or minority owned affiliates. The Company also has an investment in Micrologic,
      Inc., a software development company. The Company’s headquarters are located in
      West Hollywood, California.





On
      April
      15, 2005, the Company disposed of Euroweb Slovakia a.s. ("Euroweb Slovakia")
      for
      cash in the amount of $2,700,000 and, as a result, has ceased operations in
      Slovakia. For the year ended December 31, 2005, the operations of Euroweb
      Slovakia have been presented as discontinued operations in the Company’s
      consolidated financial statements (see Note 8).





On
      December 15, 2005, the Board of Directors decided to sell 100% of Euroweb
      Internet Szolgaltato Rt. ("Euroweb Hungary") and Euroweb Romania S.A. ("Euroweb
      Romania"). On December 19, 2005, the Company entered into a share purchase
      agreement to sell 100% of the Company’s interest in Euroweb Hungary and Euroweb
      Romania. The closing of the sale of Euroweb Hungary and Euroweb Romania occurred
      on May 23, 2006. For the years ended December 31, 2006 and 2005, the
      Euroweb Hungary and Euroweb Romania operations have been presented as
      discontinued operations in the Company’s consolidated financial statements (see
      Note 8).





In
      September 2006, ERC formed Lorraine Properties, LLC (“Lorraine”), a Nevada
      limited liability company. In October 2006, ERC has acquired majority ownership
      in non-operational asset holding companies as follows: 66.67% of Stanley Hills
      LLC (“Stanley”), a Nevada limited liability company and 51% of AR 846 Huntley
      (“Huntley”), LLC, a California limited liability company,





Emvelco
      and its wholly-owned subsidiary ERC entered into an Agreement and Plan of
      Exchange (“Exchange Agreement”) dated December 31, 2006 with Verge Living
      Corporation (“Verge”), a Nevada corporation, and Verge’s sole shareholder, The
      International Holdings Group Ltd. (“TIHG”) a corporation formed and registered
      in the Marshall Islands, controlled by a third party. The Exchange Agreement
      closed on December 31, 2006. Pursuant to the Exchange Agreement, ERC issued
      shares to TIHG in exchange for 100% of the outstanding securities of Verge
      Living Corporation (“Verge”). Subsequent to the exchange, Emvelco ownership in
      ERC was diluted to 43.33%, while TIHG owned the remaining 56.67%. Verge became
      a
      wholly-owned subsidiary of ERC (see Note 7). ERC directly owns 33.33% of AP
      Holdings Limited (“AP Holdings”), a Jersey Island non operating holding Company.
      AP Holdings owns 100% of Atia project d.o.o, a Croatian Company (“Atia
      project”), a real estate development company.





As
      a
      result of the Exchange Agreement, as well as the operation of ERC throughout
      the
      year, the Company’s ownership structure at December 31, 2006 was as
      follows:





·
            Emvelco
                owns 43.33% of ERC, and 25.1% of Micrologic, Inc. (“Micrologic, Inc”) a
                software development company incorporated in Nevada.




F-7


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


·
            ERC
                owns real estate development via non-operational asset companies
                as
                follows:


·
            100%
                of Verge


·
            100%
                of Lorraine


·
            66.67%
                of Stanley


·
            51%
                of AR Huntley


·
            33.33%
                of AP Holdings


·
            AP
                Holdings owns 100% of Atia project.





On
      February 16, 2007, the Company entered into a Sale and Purchase Agreement (the
      “Agreement”) to sell a 100% of Navigator Informatika Rt. (“Navigator”), a
      wholly-owned subsidiary of the Company. For the years ended December 31,
      2006 and 2005, the operations of Navigator have been presented as discontinued
      operations in the Company’s consolidated financial statements (see Note
      8).





In
      2006,
      the Navigator assets were examined for impairment and the net assets of
      Navigator were written down to fair value of $4,034,191. The resulting
      impairment charge was $5,598,438, which is presented in the financial statements
      in the income from discontinued operations in 2006. (see Note 8)





On
      May
      14, 2007, the Company entered into a Stock Transfer and Assignment of Contract
      Rights Agreement (the "Agreement") with ERC, ERC's principal shareholder TIHG
      and ERC's wholly owned subsidiary Verge. Pursuant to the Agreement, the Company
      transferred and conveyed its 1,000 Shares (representing a 43.33% interest)
      (the
      "Shares") in ERC to TIHG to submit to ERC for cancellation and return to
      Treasury (see
      Note
      15).




**2.** **Summary
      of Significant Accounting Policies**





The
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America (“US
      GAAP”).





*Basis
      of consolidation*





The
      consolidated financial statements include the accounts of Emvelco, its
      majority-owned subsidiaries and all variable interest entities for which the
      Company is the primary beneficiary. All intercompany balances and transactions
      have been eliminated upon consolidation.





The
      consolidated financial statements include the accounts of Emvelco and the
      subsidiaries it controls. Control is determined based on ownership rights or,
      when applicable, whether the Company is considered the primary beneficiary
      of a
      variable interest entity. For the period from June 14, 2006 to December 30,
      2006, ERC was a wholly owned subsidiary of Emvelco and the results of operations
      are presented in the consolidating financial statements. As of December 31,
      2006, after the exchange with TIGH, there are no controlled subsidiaries of
      Emvelco. The Company’s interest in entities for which it owns, ranging from
      25.1% to and 43.33%, are not controlled by the Company. These interests are
      accounted for using the equity method for ERC and its subsidiaries and for
      Micrologic, Inc.,




F-8


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**
  *Variable
        Interest Entities*
 
 Under
        Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised
        December 2003) “Consolidation of Variable Interest Entities” (“FIN 46R”), the
        Company is required to consolidate variable interest entities (“VIE's”), where
        it is the entity’s primary beneficiary. VIE's are entities in which equity
        investors do not have the characteristics of a controlling financial interest
        or
        do not have sufficient equity at risk for the entity to finance its activities
        without additional subordinated financial support from other parties. The
        primary beneficiary is the party that has exposure to a majority of the expected
        losses and/or expected residual returns of the VIE.


Based on the
      Company’s analysis at the date of acquisition, as well as all other
      reconsideration events as defined under FIN 46R, management determined that
      despite the various ownership interests, Emvelco was not the primary beneficiary
      of ERC and all of its subsidiaries, including Lorraine, Stanley, AP Holdings,
      and Huntley. Therefore, Emvelco does not consolidate ERC as of December 31,
      2006. The primary beneficiary of ERC is TIGH, an unrelated company, which owns
      56.67% of ERC, and will therefore consolidate ERC.





*Use
      of estimates*





The
      preparation of consolidated financial statements in conformity with US GAAP
      requires management to make estimates and assumptions that affect the amounts
      reported in the consolidated financial statements and accompanying notes. Actual
      results could differ from those estimates.





*Fair
      value of financial instruments*





The
      carrying values of cash equivalents, notes and loans receivable, accounts
      payable, loans payable and accrued expenses approximate fair values.





*Revenue
      recognition*




The
      Company applies the provisions of Securities and Exchange Commission’s (“SEC”)
      Staff Accounting Bulletin ("SAB") No. 104, “Revenue Recognition in
      Financial Statements” (“SAB 104”), which provides guidance on the recognition,
      presentation and disclosure of revenue in financial statements filed with the
      SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue
      and provides guidance for disclosure related to revenue recognition policies.
      The Company recognizes revenue when persuasive evidence of an arrangement
      exists, the product or service has been delivered, fees are fixed or
      determinable, collection is probable and all other significant obligations
      have
      been fulfilled.




Revenues
      from rent income are recognized on a straight-line basis over the term of the
      lease. Rent income received prior to the due date is deferred.




Revenues
      from property sales are recognized in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 66, “Accounting for Sales of Real Estate,”
when the risks and rewards of ownership are transferred to the buyer, when
      the
      consideration received can be reasonably determined and when Emvelco has
      completed its obligations to perform certain supplementary development
      activities, if any exist, at the time of the sale. Consideration is reasonably
      determined and considered likely of collection when Emvelco has signed sales
      agreements and has determined that the buyer has demonstrated a commitment
      to
      pay. The buyer’s commitment to pay is supported by the level of their initial
      investment, Emvelco’ assessment of the buyer’s credit standing and Emvelco’
assessment of whether the buyer’s stake in the property is sufficient to
      motivate the buyer to honor their obligation to it.




F-9


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


Revenue
      from fixed price contracts is recognized on the percentage of  
completion   method.   The   percentage of
      completion method is also used for condominium projects in which the Company
      is
      a real estate developer and all units have been sold prior to the completion
      of
      the preliminary stage and at least 25% of the project has been carried out.
      Percentage of completion is measured by the percentage of costs incurred to
      balance sheet date to estimated total costs.  Selling,   general,
      and administrative costs are charged to expense as incurred.  Profit
      incentives are included in revenues, when their realization is reasonably
      assured. Provisions for estimated losses on uncompleted projects are made in
      the
      period in which such losses are first determined, in the amount of the
      estimated loss of the full contract. Differences between estimates and actual
      costs and revenues are recognized in the year in which such differences are
      determined. The provision for warranties is provided at certain percentage
      of
      revenues, based on the preliminary calculations and best estimates of the
      Company's management.





The
      Company is currently under the initial phase as investor in real estate
      development and, therefore, no revenue has been recognized from sale of
      real estate; however, the Company did realize revenues related to rental
      income.





*Cost
      of revenues*





Cost
      of
      revenues includes the cost of real estate sold and rented as well as costs
      directly attributable to the properties sold such as marketing, selling and
      depreciation. For the years ended December 31, 2006 and 2005, there were no
      costs of revenues related to the rental income recorded.





*Real
      estate*





Real
      estate held for development is stated at the lower of cost or market. All direct
      and indirect costs relating to the Company's development project are capitalized
      in accordance with SFAS No. 67 "Accounting for Costs and Initial Rental
      Operations of Real Estate Projects". Such standard requires costs associated
      with the acquisition, development and construction of real estate and real
      estate-related projects to be capitalized as part of that project. The
      realization of these costs is predicated on the ability of the Company to
      successfully complete and subsequently sell or rent the property.





*Treasury
      Stock*





Treasury
      stock is recorded at cost. Issuance of treasury shares is accounted for on
      a
      first-in, first-out basis. Differences between the cost of treasury shares
      and
      the re-issuance proceeds are charged to additional paid-in capital.





*Foreign
      currency translation*





The
      Company considers the United States Dollar (“US Dollar” or "$") to be the
      functional currency of Emvelco and its subsidiaries, with the exception of
      Navigator (presented as a discontinued operation) which has the Hungarian Forint
      as its functional currency. The reporting currency of the Company is the US
      Dollar and accordingly, all amounts included in the consolidated financial
      statements have been presented or translated into US Dollars.




F-10


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


For
      non-US subsidiaries that do not utilize the US Dollar as its functional
      currency, assets and liabilities are translated to US Dollars at year-end
      exchange rates, and income and expense items are translated at weighted-average
      rates of exchange prevailing during the year. Translation adjustments are
      recorded in “Accumulated other comprehensive income” within stockholders’
equity.




Foreign
      currency transaction gains and losses are included in the consolidated results
      of operations for the periods presented.





*Cash
      and cash equivalents*





Cash
      and
      cash equivalents include cash at bank and money market funds with maturities
      of
      three months or less at the date of acquisition by the Company.





*Marketable
      securities*





The
      Company determines the appropriate classification of all marketable securities
      as held-to-maturity, available-for-sale or trading at the time of purchase,
      and
      re-evaluates such classification as of each balance sheet date in accordance
      with SFAS No. 115, “Accounting for Certain Investments in Debt and
      Equity Securities” (“SFAS 115”). In accordance with Emerging Issues Task
      Force (“EITF”) No. 03-01, “The Meaning of Other-Than-Temporary Impairment and
      Its Application to Certain Investment” (“EITF 03-01”), the Company assesses
      whether temporary or other-than-temporary gains or losses on its marketable
      securities have occurred due to increases or declines in fair value or other
      market conditions.





Other
      than those classified within discontinued operations (see Note 7), the Company
      did not have any marketable securities within continuing operations for the
      years ended December 31, 2006 and 2005.





*Property
      and equipment*





Property
      and equipment are stated at cost, less accumulated depreciation. The Company
      provides for depreciation of property and equipment using the straight-line
      method over the following estimated useful lives:




Software
              3
                  yearsComputer
                  equipment
              3-5
                  yearsOther
                  furniture equipment and fixtures
              5-7
                  years


The
      Company’s policy is to evaluate the appropriateness of the carrying value of
      long-lived assets. If such evaluation were to indicate an impairment of assets,
      such impairment would be recognized by a write-down of the applicable assets
      to
      the fair value. Based on the evaluation, no impairment was indicated in
      accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets" (“SFAS 144”).





Equipment
      purchased under capital leases is stated at the lower of fair value and the
      present value of minimum lease payments at the inception of the lease, less
      accumulated depreciation. The Company provides for depreciation of leased
      equipment using the straight-line method over the shorter of estimated useful
      life and the lease term. During the years ended December 31, 2006 and 2005,
      the
      Company did not enter into any capital leases.




F-11


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


Recurring
      maintenance on property and equipment is expensed as incurred.





Any
      gain
      or loss on retirements and disposals is included in the results of operations
      in
      the period of the retirement or disposal. No retirements and disposals occurred
      for the years ended December 31, 2006 and 2005 for the Company’s continuing
      operations.





*Goodwill
      and intangible assets*





Goodwill
      results from business acquisitions and represents the excess of purchase price
      over the fair value of identifiable net assets acquired at the acquisition
      date.
      In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”,
      goodwill is tested for impairment annually and whenever events or changes in
      circumstances indicate that the carrying amount may not be recoverable.
      Management evaluates the recoverability of goodwill by comparing the carrying
      value of the Company’s reporting units to their fair value. Fair value is
      determined based on discounted future cash flows. There was no goodwill related
      to the Company’s continuing operations for the years ended December 31 2006 and
      2005, respectively - other than Navigator which was presented as discontinued
      operation, (see Note 8)





Intangible
      assets that have finite useful lives, whether or not acquired in a business
      combination, are amortized over their estimated useful lives, and also reviewed
      for impairment in accordance with SFAS 144. There were no intangible assets
      related to the Company’s continuing operations for the years ended December 31,
      2006 and 2005, respectively.





*Earnings
      (loss) per share*





Basic
      earnings (loss) per share is computed by dividing income (loss) attributable
      to
      common stockholders by the weighted-average number of common shares outstanding
      for the period. Diluted earnings (loss) per share reflects the effect of
      dilutive potential common shares issuable upon exercise of stock options and
      warrants. There were no dilutive options and warrants for the year ended 2006
      and 2005. Stock options and warrants convertible into 690,125 and 779,067 shares
      of common stock, respectively, were excluded from the computation of diluted
      earnings per share since such options and warrants have an exercise price in
      excess of the average market value of the Company’s common stock during the
      periods.





*Comprehensive
      income*





Comprehensive
      income includes all changes in equity except those resulting from investments
      by
      and distributions to owners.





*Business
      segment reporting*





The
      Company manages its continuing operations on a geographic basis, and accordingly
      had concluded that it has one operating segment, the US.




F-12


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


*Income
      taxes*





Income
      taxes are accounted for under the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases and operating
      loss and tax credit carry-forwards. Deferred tax assets are reduced by a
      valuation allowance if it is more likely than not that some portion or all
      of
      the deferred tax asset will not be realized. Deferred tax assets and
      liabilities, are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date.





*Stock-based
      compensation*





Effective
      January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based
      Payment” (“SFAS 123R”). Under SFAS 123R, the Company is required to
      measure the cost of employee services received in exchange for an award of
      equity instruments based on the grant-date fair value of the award. The measured
      cost is recognized in the statement of operations over the period during which
      an employee is required to provide service in exchange for the award.
      Additionally, if an award of an equity instrument involves a performance
      condition, the related compensation cost is recognized only if it is probable
      that the performance condition will be achieved.





Prior
      to
      the adoption of SFAS 123R , the Company accounted for stock-based employee
      compensation using the intrinsic value method prescribed in Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”) and related interpretations, and chose to adopt the disclosure-only
      provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,
“Accounting for Stock-based Compensation” (“SFAS 123”), as amended by SFAS No.
      148, “Accounting for Stock-Based Compensation — Transition and Disclosure”
(“SFAS 148”). Under APB 25, the Company did not recognize expense related to
      employee stock options because the exercise price of such options was equal
      to
      the quoted market price of the underlying stock at the grant date.





The
      Company adopted SFAS 123R using the modified prospective method, which requires
      the application of the accounting standard as of January 1, 2006, the first
      day of the Company’s fiscal year 2006.  Under
      this method, compensation cost recognized during the year ended December 31,
      2006 includes: (a) compensation cost for all share-based payments granted prior
      to, but not yet vested, as of January 1, 2006, based on the grant date fair
      value estimated in accordance with the original provisions of SFAS 123 and
      amortized on an straight-line basis over the requisite service period, and
      (b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant date fair value estimated in accordance with the
      provisions of SFAS 123R amortized on a straight-line basis over the requisite
      service period. Results for prior periods have not been restated.





As
      a
      result of adopting SFAS 123R on January 1, 2006, the Company’s loss from
      continuing operations before income taxes and loss from continuing operations
      are $270,695 higher and net income is $270,695 lower than if it continued to
      account for share-based compensation under APB 25. Basic and diluted earnings
      per share are $0.05 lower than if the Company continued to account for
      share-based compensation under APB 25.  The adoption of SFAS 123R had no
      impact on cash flows.




F-13


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


See
      Note
      12 for a further discussion on stock-based compensation plans.





The
      Company estimates the fair value of each option award on the date of the grant
      using the Black-Scholes option valuation model. Expected volatilities are based
      on the historical volatility of the Company’s common stock over a period
      commensurate with the options’ expected term. The expected term represents the
      period of time that options granted are expected to be outstanding and is
      calculated in accordance with SEC guidance provided in the SAB 107, using a
      “simplified” method. The risk-free interest rate assumption is based upon
      observed interest rates appropriate for the expected term of the Company’s stock
      options .




The
      following table summarizes the weighted-average assumptions used in the
      Black-Scholes model for options granted during the year ended December 31,
      2005.





**Year**
              **Ended
                December 31, 2005**Expected
                volatility
            
            
            88
            %Expected
                dividends
            
            
            -Expected
                term (in years)
            
            
            6Risk-free
                rate
            
            
            4
            %





The
      Company did not grant any share-based payments during the year ended December
      31, 2006.





As
      noted
      above, the Company used the modified prospective method at the date of adoption
      and therefore results for the year ended December 31, 2005 have not been
      restated. Had compensation expense for share-based payments granted to employees
      been determined based on fair value at the grant date consistent with SFAS
      123,
      net income and earnings per share for the year ended December 31, 2005
      would have been the pro forma amounts indicated below:


Twelve
                  months ended
              
              December
                  31, 2005Net
                  income:Net
                  income, as reported
              
              $
              1,680,295Total
                  stock-based employee compensationexpense
                  determined under fair value basedmethod
                  for all awards, net of tax effects
              
              
              (842,572
              )Pro
                  forma net income
              
              
              837,723Basic
                  and diluted earnings per share:As
                  reported, basic
              
              $
              0.31Pro
                  forma, basic
              
              $
              0.15As
                  reported, diluted
              
              $
              0.31Pro
                  forma, diluted
              
              $
              0.15




F-14


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


The
      following table shows total non-cash stock-based employee compensation expense
      included in the consolidated statement of operations for the year ended December
      31, 2006:


Categories
                  of cost and expenses
              
              Year
                  ended December 31, 2006Compensation
                  and related costs
              
              $
              21,241Consulting,
                  professional and directors fees
              
              
              249,454Total
                  stock-based compensation expense
              
              $
              270,695





In
      addition to stock-based compensation expense for employees and directors, the
      Company recognized compensation expense of $70,511 (2005: $ 192,294) related
      to
      options and warrants granted to consultants.





*Recently
      Issued But Not Yet Adopted Accounting Standards*





In
      July
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48 ” )
      as an
      interpretation of SFAS No. 109, “Accounting for Income Taxes”. This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized by prescribing a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on de-recognition of tax benefits previously recognized and additional
      disclosures for unrecognized tax benefits, interest and penalties. The
      evaluation of a tax position in accordance with this Interpretation begins
      with
      a determination as to whether it is more likely than not that a tax position
      will be sustained upon examination based on the technical merits of the
      position. A tax position that meets the more-likely-than-not recognition
      threshold is then measured at the largest amount of benefit that is greater
      than
      50 percent likely of being realized upon ultimate settlement for recognition
      in
      the financial statements. FIN 48 is effective no later than fiscal years
      beginning after December 15, 2006, and is required to be adopted by the Company
      on January 1, 2007. The Company is currently assessing the impact of the
      adoption of FIN 48.




In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Qualifying Misstatements in Current Year Financial
      Statements” (“SAB 108”) which provides interpretive guidance on the
      consideration of the effects of prior year misstatements in quantifying current
      year misstatements for the purpose of a materiality assessment. SAB 108 is
      effective for companies with fiscal years ending after November 15, 2006 and
      is
      required to be adopted by the Company in fiscal 2007. However, early application
      is encouraged in any report for an interim period of the first fiscal year
      ending after November 15, 2006, filed after the publication of this guidance.
      The Company is currently assessing the impact of the adoption of SAB
      108.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the FASB having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. SFAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. This Statement is required to be adopted by the
      Company on July 1, 2008. The Company is currently assessing the impact of the
      adoption of this Statement.




F-15


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


In
      December 2006, the FASB issued Staff Position (“FSP”) EITF 00-19-2, “Accounting
      for Registration Payment Arrangements”. This FSP specifies that the contingent
      obligation to make future payments or otherwise transfer consideration under
      a
      registration payment arrangement, whether issued as a separate agreement or
      included as a provision of a financial instrument or other agreement, should
      be
      separately recognized and measured in accordance with SFAS No. 5,
“Accounting for Contingencies”. The guidance is effective for fiscal years
      beginning after December 15, 2006, with early adoption permitted. The
      Company does not plan to early adopt the provisions of this FSP. Management
      is
      currently evaluating the impact of adopting this Statement.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities **—** Including
      an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities
      to choose to measure many financial instruments and certain other items at
      fair
      value. This statement provides entities the opportunity to mitigate volatility
      in reported earnings caused by measuring related assets and liabilities
      differently without having to apply complex hedge accounting provisions. This
      Statement is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007. Management is currently evaluating the impact
      of
      adopting this Statement. ****




**3.
      Line of Credit and Restricted Cash**





On
      August
      28, 2006, the Company entered into a $4,000,000 Revolving Line of Credit (“line
      of credit”) with a commercial bank. As security for this credit facility, the
      Company deposited $4,000,000 into a certificate of deposit (“CD”) as collateral
      for a two year period. The CD earns interest at a rate of 5.25% annually, and
      any interest earned on the CD is restricted from withdrawal and must remain
      in
      the account for the entire term. The interest rate on the line of credit is
      6%
      annually.





On
      November 21, 2006, the Company deposited an additional $4,000,000 into another
      CD with the same restrictions on withdrawal. This CD matures on November 21,
      2008 and the deposit bears an interest rate of 5.12% annually.





The
      outstanding balance on the line of credit was $3,000,000 as of December 31,
      2006
      - see Note 6.




**4.**  **Investment
      in Affiliates, at equity**





**Investment
      in ERC**





The
      Company's consolidated statement of operations for the years ended December
      31,
      2006 include ERC’s revenues and cost for the period June 14, 2006 to December
      31, 2006, when the Company's owned 100% of ERC as follows:





2006Revenues
            
            $
            22,594Net
                loss
            
            $
            (997,665
            )




F-16


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


On
      December 31, 2006, Emvelco and TIGH entered into an exchange agreement whereby
      ERC issued 1,308 shares of stock, which represents 57% equity interest, to
      TIGH
      in exchange for 100% of the securities of Verge. After the exchange, Emvelco
      owns 43% of ERC, TIGH owns 57% of ERC, and Verge is a 100% subsidiary of ERC.
      In
      accordance with SAB 51 and SAB 84, *Accounting
      for Sales of Stock by a Subsidiary* ,
      Emvelco
      realized a gain on the exchange transaction for $1,497,565. This gain resulted
      in the carrying value of the Emvelco’s investment in ERC for $500,000, which is
      the amount Emvelco realized when it sold its remaining interest to TIGH on
      May
      14, 2007, see Subsequent Events (Note 15)




The
      carrying value of the net investment in affiliate was accounted as
      follows:


Investment
                  by Emvelco:
              
              $
              100Result
                  of operation until December 31, 2006
              
              
              (997,665
              )Gain
                  from issuance of subsidiary stock
              
              
              1,497,565Total
              
              $
              500,000





The
      following information is a summary of selected items from ERC.'s consolidated
      balance sheet as at December 31, 2006 (in thousands):




Total
                  current assets
              
              $
              581Land,
                  building, and equipment
              
              
              18,195Investment
                  in AP Holdings
              
              
              3,000Total
                  current liabilities
              
              
              (1,945
              )Loan
                  payable to Emvelco
              
              
              (11,739
              )Loans
                  payable to banks
              
              
              (4,988
              )




**Investment
      in Micrologic, Inc.**





Investment
      in affiliates consists of equity investments in which the Company has no
      influence on operations, rather are held for future dividends and profit
      sharing. At December 31, 2006, the investment in affiliates was as follows:




**Name**
              ****
              **Interest
                  in %**
              
              **Investment**Micrologic,
                  Inc
              
              
              25.10
              %
              $
              50,000Total
              
              
              
              
              $
              50,000
 F-17
  **Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


On
      October 11, 2006, the Company committed itself in the financing of Micrologic,
      Inc. (“Micrologic”), a Nevada corporation, engaged in the design and production
      of Electronic Design Automation (“EDA”) applications and Integrated Circuit
      (“IC”) design processes; specifically, the development and production of the
      NanoToolBox TM tools
      suite, which is a smart platform designed to accelerate IC's design time and
      shrink time to market factor. The agreement provides for an initial investment
      by the Company of up to $1,000,000, with warrants to purchase additional equity
      for additional investment. The Company owns 25.10% of Micrologic; however such
      equity positions might be revised contingent upon the exercise of the warrants.
      As of December 31, 2006, $50,000 was transferred as part of this commitment,
      and
      no warrants were issued. The Company has currently no influence neither sits
      on
      the board or management over the operation of Micrologic. As of December 31,
      2006, Mirologic has no material income or loss, therefore the $50,000
      contributed approximates the value of Emvelco’s interest using the equity
      method.





**5.
      Loans to Affiliate - Emvelco RE Corp**





On
      June
      14, 2006, Emvelco issued a $10 million line of credit to ERC. Outstanding
      balances bear interest at an annual rate of 12% and the line of credit has
      a
      maximum borrowing limit of $10 million. Initially on October 26, 2006 and then
      again ratified on December 29, 2006, the Board of Directors of Emvelco approved
      an increase in the borrowing limit of the line of credit to $20 million. The
      Board also restricted use of the funds to real estate development.





At
      December 31, 2006, the outstanding loan balances were as follows:


Capital
                  of loans provided:
              
              $
              11,275,094Accrued
                  interest on loan
              
              
              463,846Total
              
              $
              11,738,940





**6.
      Bank Loans**





The
      Company’s real estate investment operations require substantial
      up-front expenditures for land development contracts and construction.
      Accordingly, the Company requires a substantial amount of cash on hand, as
      well
      as funds accessible through lines of credit with banks or third parties, to
      conduct its business.  The Company has financed its working capital needs
      on a project-by-project basis, primarily with loans from banks and debt via
      the
      All Inclusive Trust Deed Agreement (AITDA), and with the existing cash of the
      Company.





At
      December 31, 2006, the outstanding loan balances were as follows:


**Project
                  name**
              ****
              **Bank
                  name/financial institution**
              
              **Principal**
                    **Amount**
              
              **Annual**
                      **Interest
                        Rate**
              
              **Expiration**General
                  financing (line of credit)
              
              
              EastWestBank
              
              $
              3,000,000
              
              
              5.87
              %
              
              2008Total
                  principal amounts of loans
              
              
              
              
              $
              3,000,000Less
                  current portion
              
              
              
              
              
              -Long
                  term portion of loans
              
              
              
              
              $
              3,000,000




F-18


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


The
      Company’s debt repayment schedule, excluding interest, as of December 31,
      2006 is as follows:




**2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **Thereafter**$
            0
            
            $
            3,000,000
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0





**7.
      Acquisition**





On
      December 31, 2006, the Company and its subsidiary ERC entered into an Exchange
      Agreement with Verge and its sole shareholder, TIHG. Pursuant to the Exchange
      Agreement, ERC issued shares to TIHG in exchange for 100% of the outstanding
      securities of Verge. Subsequent to the Exchange Agreement, Emvelco’s ownership
      in ERC was diluted to 43.33%, while THIG owned the remaining 56.67%. Verge
      became a wholly-owned subsidiary of ERC as a result of the transaction.





In
      accordance with FAS141, *Business
      Combinations* ,
      the
      transaction was valued based on the fair value of Verge, the acquired company,
      which was supported by appraisal.





The
      following table summarizes the estimated fair values of the acquired assets
      and
      assumed liabilities of Verge at the date of acquisition of December 31, 2006:


Cash
              
              $
              30,614Prepaid
                  and other current assets
              
              
              255,822Fixed
                  assets
              
              
              32,538Land
                  development investments
              
              
              2,999,385Vacant
                  Land for Development
              
              
              10,500,000Total
                  assets acquired
              
              
              13,818,359Accounts
                  payable and other liabilities
              
              
              (456,936
              )Deferred
                  tax liabilities
              
              
              (806,040
              )Loan
                  payable to ERC (Including Interest)
              
              
              (5,459,104
              )Net
                  assets acquired
              
              $
              7,096,279




The
      vacant land was originally purchased by Verge in 2005, when it was a wholly
      owned subsidiary of TIGH, and cost Verge $2,800,000. Verge invested
      approximately $3,000,000 in additional expenses, which were incurred to obtain
      the proper planning for condominium development through December 30, 2006.
      In
      November 2006, Verge had a valuation of the vacant property by an independent
      third party appraisal company. The vacant land with the proper zoning was
      appraised at $10,500,000. At December 31, 2006, when business combination was
      effected, the fair value, $10,500,000, of the vacant land was recorded in the
      consolidated financial statements of ERC in accordance with FAS141, *Business
      Combinations* ,
      to
      adjust the land value accordingly.




F-19


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


**8.
      Dispositions**





*Completed
      sale of Euroweb Slovakia*





On
      April
      15, 2005, the Company sold Euroweb Slovakia for $2,700,000 in cash, resulting
      in
      a gain of $1,701,200.





*Completed
      sale of Euroweb Hungary and Euroweb Romania*




On
      December 15, 2005, the Board of Directors of the Company decided to sell its
      wholly-owned subsidiaries Euroweb Hungary and Euroweb Romania. On December
      19,
      2005, the Company entered into a share purchase agreement with Invitel
      Tavkozlesi Szolgaltato Rt., a Hungarian joint stock company, to sell Euroweb
      Hungary and Euroweb Romania, subject to various conditions including, but not
      limited to, shareholders’ approval. The closing of the sale of Euroweb Hungary
      and Euroweb Romania occurred on May 23, 2006 upon the Company’s receipt of the
      first part of the purchase price in the amount of $29,400,000. The remaining
      part of the purchase price of $613,474 was fully paid in two installments:
      $232,536 in June 2006 and $380,938 in the beginning of July 2006. The purchase
      price was partly utilized for the repayment of $6,044,870 Commerzbank loan
      in
      order to ensure debt free status of the subsidiaries, and partly for settlement
      of $2,130,466 of transaction costs.





*Completed
      sale of Navigator*





On
      February 16, 2007, the Company entered into a Sale and Purchase Agreement (the
      “Agreement”) with Marivaux Investments Limited (“MIL”) and Fleminghouse
      Investments Limited (“FIL” and collectively with MIL, the “Buyers”). Pursuant to
      the Agreement, the Company sold 100% of the Company’s interest in Navigator (a
      wholly-owned subsidiary of the Company) for $4,034,191 consisting of $3,200,000
      in cash and 622,531 shares of the Company’s common stock, excluding estimated
      transaction costs, success fees and a guarantee provision of approximately
      $124,000. The Company shares were valued at $1.34 per share, representing the
      closing price of the Company on the NASDAQ Capital Market on February 16, 2007,
      the closing of the sale. The Company intends to cancel the Emvelco common stock
      acquired during the disposition.




The
      sale
      of Euroweb Slovakia, Euroweb Hungary, Euroweb Romania, and Navigator all met
      the
      criteria for presentation as a discontinued operation under the provisions
      of
      SFAS 144, and therefore amounts relating to Euroweb Slovakia, Euroweb Hungary,
      Euroweb Romania and Navigator have been reclassified as discontinued operations
      for all periods presented.





The
      following table provides a detail of the results of discontinued operations
      per
      component for the years ended December 31, 2006 and 2005, as
      follows:





2006
            
            2005Loss
                from discontinued Navigator operations
            
            $
            (853,982
            )
            $
            (314,700
            )Impairment
                of Navigator assets
            
            
            (5,598,438
            )
            
            -Income
                from discontinued Euroweb Slovakia operations, net of gain on sale
                of
                $1,701,200 and tax of $0
            
            
            -
            
            
            1,733,470Gain
                on sale of Euroweb Hungary and Euroweb Romania, net of tax of
                $0
            
            
            15,975,778
            
            
            -(Loss)/income
                from discontinued Euroweb Hungary operations, net of tax of $0 and
                $0
                respectively
            
            
            (928,122
            )
            
            637,256Income
                from discontinued Euroweb Romania operations, net of tax of $0 and
                $0
                respectively
            
            
            596,640
            
            
            1,327,735Income
                from discontinued operations, net of tax
            
            $
            9,191,876
            
            $
            3,383,761




F-20


**Emvelco
        Corp.**
 **Notes
        to Consolidated Financial Statements**


The
      following information is a summary of the major classes of assets and
      liabilities from Navigator’s consolidated balance sheet as at December 31,
      2006:




Description
              
              2006Cash
                  and cash equivalents
              
              $
              43,769Trade
                  account receivable, net
              
              
              1,386,358Prepaid,
                  unbilled receivable and other current assets
              
              
              135,086Customer
                  contracts
              
              
              1,742,341Goodwill
              
              
              2,482,540Property
                  and equipment, net
              
              
              1,069,089Total
                  assets of discontinued operations
              
              
              6,859,183Trade
                  account payable
              
              
              (997,745
              )Other
                  current liabilities, deferred revenue, and accrued
                  expenses
              
              
              (486,546
              )Deferred
                  tax liability
              
              
              (209,061
              )Short
                  term and long term bank loans and overdrafts
              
              
              (1,131,640
              )Total
                  liabilities of discontinued operations
              
              
              (2,824,992
              )Net
                  assets of discontinued operations
              
              $
              4,034,191


**9.
      Income taxes**





The
      net
      income before income taxes by tax jurisdiction for the years ended December
      31,
      2006 and 2005 was as follows:


2006
              
              2005Net
                  income before income taxes:Domestic
              
              $
              6,912,591
              
              $
              1,680,295Foreign
              
              
              -
              
              
              -Total
              
              $
              6,912,591
              
              $
              1,680,295
 F-21
 **Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


The
      provision for income taxes from continuing operations reflected in the
      consolidated statements of operations is zero; as such, there are no separate
      components.





The
      provision for income taxes differs from the amount computed by applying the
      statutory federal income tax rate to the loss from continuing operations before
      income taxes. The sources and tax effects of the differences for the years
      ended
      December 31, 2006 and 2005 is summarized as follows:


2006
              
              2005Amount
              
              %
              
              Amount
              
              %Computed
                  expected taxExpense/(Benefit)
              
              $
              2,419,407
              
              
              35.00
              
              $
              588,103
              
              
              35.00Change
                  in Valuation Allowance
              
              
              (2,419,407
              )
              
              (35.00
              )
              
              (588,103
              )
              
              (35.00
              )Total
                  expense/(benefit)
              
              $
              0
              
              
              0
              %
              $
              0
              
              
              0
              %





For
      U.S.
      Federal income tax purposes, the Company had unused net operating loss
      carryforwards at December 31, 2005 of approximately $12.8 million available
      to
      offset future taxable income. From the $12.8 million of losses, $1.2 million
      expire in various years from 2008-2010, $1.6 million expires in 2011, and the
      remaining $10 million expire in various years from 2016 through 2025. In
      addition, the Company has a capital loss carryover for US income tax purposes
      of
      approximately $5.4 million. $2.1 million of the loss is from 2004 and will
      expire after 2009. The remainder of the capital loss, $3.3 million, will expire
      after 2010.





In
      May
      2006, the Company sold Euroweb Hungary and Euroweb Romania, which resulted
      in
      the utilization of approximately $10M of the capital loss carryforwards and
      net
      operating loss carryforwards. As further discussed in Note 8, the results of
      operations of Euroweb Hungary and Euroweb Romania are presented as discontinued
      operations in the consolidated statements of operations.





The
      Tax
      Acts of some jurisdictions contain provisions which may limit the net operating
      loss and capital loss carryforwards available to be used in any given year
      if
      certain events occur, including significant changes in ownership interests.
      As a
      result of various equity transactions, management believes the Company
      experienced an “ownership change” in the second half of 2006, as defined by
      Section 382 of the Internal Revenue Code, which limits the annual utilization
      of
      net operating loss carryforwards incurred prior to the ownership change. As
      calculated, the Section 382 limitation does not necessarily impact the ultimate
      recovery of the U.S. net operating loss, although it will defer the realization
      of the tax benefit associated with certain of the net operating loss
      carryforwards.





The
      Company recorded a full valuation allowance against the net deferred tax assets.
      In assessing deferred tax assets, management considers whether it is more likely
      than some portion or all of the deferred tax assets will not be realized. The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      and tax loss carryforwards become deductible. Management considers the scheduled
      reversal of deferred tax liabilities, projected future taxable income and tax
      planning strategies in making this assessment. Based upon the level of
      historical taxable income and projections for future taxable income over the
      periods in which the deferred tax assets are deductible, management believes
      that it is more likely than not that the Company will not realize the benefit
      of
      these deductible differences, net of existing valuation allowances at December
      31, 2006.




F-22


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


Undistributed
      earnings of the Company’s indirect investment into foreign subsidiaries are
      currently not material. Those earnings are considered to be indefinitely
      reinvested; accordingly, no provision for US federal and state income tax has
      been provided thereon. Upon repatriation of those earnings, in the form of
      dividends or otherwise, the Company would be subject to both U.S. income taxes
      (subject to an adjustment for foreign tax credits) and withholding taxes payable
      to the various foreign countries. Determination of the amount of unrecognized
      deferred U.S. income tax liability is not practicable due to the complexities
      associated with its hypothetical calculation.




**10.
      Stockholders’ Equity**





In
      connection with the acquisition of Navigator, the Company issued 441,566 shares
      of common stock during 2005.





The
      Company entered into a two-year employment agreement with Moshe Schnapp as
      President and Director of the Company beginning on April 15, 2005, which
      provided for annual compensation in the amount of $250,000 to be paid in the
      form of the Company shares of common stock. The number of shares to be received
      by Mr. Schnapp was calculated based on the average closing price 10 days prior
      to the commencement of each employment year. On August 14, 2006, Moshe Schnapp
      resigned as President of the Company. In January 2006, the Company issued 58,968
      shares of common stock out of the total 82,781 covering the service period
      from
      April 15, 2005 to December 31, 2005. In July 2006, the Company issued the
      remaining 46,007 shares of common stock for services from January 1, 2006
      through July 31, 2006. Mr. Schnapp waived his rights to any further
      compensation.





Effective
      August 14, 2006, the Company entered into a two-year employment agreement with
      Yossi Attia as the Chief Executive Officer of the Company, which provided for
      annual compensation in the amount of $250,000 to be paid in the form of Company
      shares of common stock. The number of shares to be received by Mr. Attia was
      calculated based on the average closing price 10 days prior to the commencement
      of each employment year. Mr. Attia will receive 111,458 Emvelco shares of common
      stock for his first year service. No shares have been issued in connection
      with
      his services in 2006.





Through
      its share repurchase program, the Company acquired 476,804 shares of its common
      stock at a cost of $995,360 as of December 31, 2006 (see Note 14).





There
      were no options or warrants exercised in the years ended December 31, 2006
      and
      2005, respectively.





Pursuant
      to the Sale Agreement of Navigator, the Company got on closing (2/16/2007)
      622,531 shares of the Company’s common stock as partial consideration. The
      Company shares were valued at $1.34 per share, representing the closing price
      of
      the Company on the NASDAQ Capital Market on February 16, 2007, the closing
      of
      the sale. The Company intends to cancel the Emvelco common stock acquired during
      the disposition in the amount of $834,192.




F-23


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


**11.
      Commitments and Contingencies**





(a)
      Employment Agreements





The
      Company entered into a six-year agreement with its Chief Executive Officer,
      Csaba Törő ,
      on
      October 18, 1999, which commenced January 1, 2000, and provided for annual
      compensation in the amount of $96,000. The agreement was amended in 2004 and
      2005. The amended agreement provides for an annual salary of $200,000 and a
      bonus of up to $150,000 in 2006, 2007 and 2008, as well as an annual car
      allowance of $30,000 for the same periods.





On
      May
      24, 2006, the Company entered into a Severance Agreement with Mr. Toro. In
      consideration for Mr. Toro agreeing to relinquish and release all rights and
      claims under the employment agreement, including the payment of his annual
      salary, the Company agreed to pay Mr. Toro a one-time settlement fee of
      $750,000. Mr. Toro submitted his resignation as Chief Executive Officer and
      Director of the Company effective June 1, 2006. The severance was paid in full
      in May 2006.





The
      Company entered into a two-year employment agreement with Moshe Schnapp as
      President and Director of the Company, which commenced on April 15, 2005 and
      provided for annual compensation in the amount of of $250,000 to be paid in
      the
      form of the Company’s shares of common stock. The number of shares to be
      received by Mr. Schnapp was calculated based on the average closing price 10
      days prior to the commencement of each employment year. At April 14, 2006,
      Mr.
      Schnapp received 82,781 Emvelco shares of common stock of which 58,968 were
      issued in January 2006. In July 2006, the Company issued the remaining 46,007
      shares of common stock for services from January 1, 2006 through July 30, 2006.
      Mr. Schnapp resigned as President and Director in August 2006. Mr. Schnapp
      waived his rights to any further compensation, and commited to assist the
      Company until it will file the financials of 2006.





Effective
      July 1, 2006, the Company entered into a five-year employment agreement with
      Yossi Attia as the President of ERC which commenced on July 1, 2006 and provides
      for annual compensation in the amount of $240,000, an annual bonus not less
      than
      $120,000 per year, and an annual car allowance. At December 31, 2006, the car
      allowance expense amounted to $19,220. Mr. Attia is also entitled to a special
      bonus equal to 10% of the earnings before income tax, depreciation and
      amortization (“EBITDA”) of ERC, which such bonus is payable in shares of common
      stock of the Company; provided, however, the special bonus is only payable
      in
      the event that Mr. Attia remains continuously employed by ERC, and Mr. Attia
      shall not have sold shares of common stock of the Company on or before the
      payment date of the special bonus, unless such shares were received in
      connection with the exercise of an option that was scheduled to expire within
      one year of the date of exercise.





In
      addition, on August 14, 2006, the Company amended the agreement to provide
      that
      Mr. Attia shall serve as the Chief Executive Officer of the Company for a term
      of two years commencing August 14, 2006 and granting annual compensation of
      $250,000 to be paid in the form of Company shares of common stock. The number
      of
      shares to be received by Mr. Attia is calculated based on the average closing
      price 10 days prior to the commencement of each employment year. Mr. Attia
      will
      receive 111,458 Emvelco shares of common stock for his first year service.
      Mr.
      Attia also agreed to not directly or indirectly compete with the business of
      the
      Company or Emvelco RE during his employment and for a period of two years
      following termination of employment. No shares were issued to Mr. Attia in
      2006.




F-24




**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**
 (b)
      Lease
      Agreements





In
      2006,
      the Company, through ERC, entered into various agreements for office space.
      The
      rent expense related to such leases was $13,200 and $0 in 2006 and 2005,
      respectively.





Future
      minimum payments of obligations under operating leases at December 31, 2006
      are as follows :




**2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **Thereafter**$
            26,400
            
            $
            26,400
            
            $
            26,400
            
            $
            13,200
            
            $
            -
            
            $
            92,400




(c)
      Legal
      Proceedings





Except
      as
      set forth below, there are no known significant legal procedures that have
      been
      filed and are outstanding against the Company.




From
      time
      to time, we are a party to litigation or other legal proceedings that we
      consider to be a part of the ordinary course of our business. We are not
      involved currently in legal proceedings other than detailed below that could
      reasonably be expected to have a material adverse effect on our business,
      prospects, financial condition or results of operations. We may become involved
      in material legal proceedings in the future **.**




On
      April
      26, 2006, a lawsuit was filed in the Delaware Court of Chancery (the "Court")
      by
      a stockholder of the Company against the Company, each of the Company's
      Directors and CORCYRA d.o.o., a stockholder of the Company that beneficially
      owned 39.81% of the Company's outstanding common stock at the date of the
      lawsuit. The Complaint is entitled Laurence Paskowitz v. Csaba Toro et al.,
      C.A.
      No. 2110-N and was brought individually, and as a class action on behalf of
      certain of the Company's common stockholders, excluding defendants and their
      affiliates. The plaintiff alleged that the proposed sale of 100% of the
      Company's interest in the Company's two Internet and telecom related operating
      subsidiaries (the "Subsidiaries") constitutes a sale of substantially all of
      the
      Company's assets and required approval by a majority of the voting power of
      the
      Company's outstanding common stock under Section 271 of the Delaware General
      Corporation Law. The plaintiff also alleged the defendants breached their
      fiduciary duties in connection with the sale of the Subsidiaries, as well as
      the
      disclosures contained in the proxy statement filed on April 24, 2006. The
      plaintiff applied for a temporary restraining order seeking to enjoin the
      special meeting on May 15, 2006.




The
      Company denies any and all allegations of wrongdoing; however, in the interests
      of conserving resources, on April 28, 2006, the parties to the litigation
      entered into a Memorandum of Understanding (“MOU”) providing for, subject to
      confirmatory discovery by plaintiff, the negotiation of a formal stipulation
      of
      a settlement of the litigation. Pursuant to the MOU, the Board of Directors
      of
      the Company agreed to: (i) increase the vote required to approve the sale of
      100% of the Company's interest in the Subsidiaries, (ii) revise the disclosure
      within the Proxy Statement to eliminate the bonus of up to US $400,000, which
      the Compensation Committee of the Company had the option to pay to select
      members of management, as the Board of Directors had previously elected to
      terminate the ability to pay such bonus and (iii) provide supplemental
      disclosure as contained in the Supplemental Proxy Statement to be mailed to
      stockholders and filed with the SEC on May 3, 2006.




F-25


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


The
      parties entered into a stipulation of settlement on April 3, 2007. The
      settlement will provide for dismissal of the litigation with prejudice and
      is
      subject to Court approval. As part of the settlement, the Company has agreed
      to
      attorneys' fees and expenses to plaintiff's counsel in the amount of $151,000.
      Pursuant to the stipulation of settlement, the Company sent out notices to
      the
      members of the class on May 3, 2007. A fairness hearing will take place on
      June
      8, 2007.




The
      Company filed a Complaint in the Superior Court for the County of Los Angeles,
      against an attorney. The case was filed on February 14, 2007, and service of
      process has been done. In the Complaint the Company is seeking judgment against
      it this attorney in the amount of approximately $250,000, plus interest, costs
      and fees. Defendent has not yet appeared in the action. The Company believes
      that it has a meritorious claim for the return of monies deposited with
      defendent in a trust capacity, and, from the documents in the Company’s
      possession, there is no reason to doubt the validity of the claim. However,
      management does not have any information on the collectibility of any judgment
      that might be entered in Court. During April 2007 defendant returned
      approximately $70,000 and the Company has granted him a 15-day extension to
      file
      his defense.




(d)
      Navigator Acquisition





The
      Company entered into a registration rights agreement dated July 21, 2005,
      whereby it agreed to file a registration statement registering the 441,566
      shares of Company common stock issued in connection with the Navigator
      acquisition within 75 days of the closing of the transaction. The Company also
      agreed to have such registration statement declared effective within 150 days
      from the filing thereof. In the event that Company failed to meet its
      obligations to register the shares, it may have been required to pay a penalty
      equal to 1% of the value of the shares per month. The Company obtained a written
      waiver from the seller stating that the seller would not raise any claims in
      connection with the filing of registration statement through May 30, 2006.
      The
      Company since received another waiver extending the registration deadline
      through May 30, 2007 without penalty.





(e)
      Indemnities Provided Upon Sale of Subsidiaries





On
      April
      15, 2005, the Company sold Euroweb Slovakia. According to the securities
      purchase contract (the “Contract”); the Company will indemnify the buyer for all
      damages incurred by the buyer as the result of seller’s breach of certain
      representations, warranties, or obligations as set in the Contract up to an
      aggregate amount of $540,000. The buyer shall not be entitled to make any claim
      under the Contract after the fourth anniversary of the date of the Contract.
      No
      claims have been made to-date. At December 31, 2006, the Company accrued $35,000
      as the estimated fair value of this indemnity.





On
      May
      23, 2006, the Company sold Euroweb Hungary and Euroweb Romania. According to
      the
      share purchase agreement (the “SPA”), the Company will indemnify the buyer for
      all damages incurred by the buyer as the result of seller’s breach of certain
      representations, warranties or obligations as provided for in the SPA. The
      Company shall not incur any liability with respect to any claim for breach
      of
      representation and warranty or indemnity, and any such claim shall be wholly
      barred and unenforceable unless notice of such claim is served upon Emvelco
      by
      buyer no later than 60 days after the buyer’s approval of Euroweb Hungary and
      Euroweb Romania’s statutory financial reports for the fiscal year 2006, but in
      any event no later than June 1, 2007. In the case of Clause 8.1.6 (Taxes) or
      Clause 9.2.4 of SPA, the time period is five years from the last day of the
      calendar year in which the closing date occurs. No claims have been made to
      date. At December 31, 2006, the Company has accrued $201,020 as the estimated
      fair value of this indemnity.




F-26


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**




**12.
      Stock Option Plan and Employee Options**





a)
      Stock
      option plans





In
      2004,
      the Board of Directors established the “2004 Incentive Plan” (“the Plan”), with
      an aggregate of 800,000 shares of common stock authorized for issuance under
      the
      Plan. The Plan was approved by the Company’s Annual Meeting of Stockholders in
      May 2004. In 2005, the Plan was adjusted to increase the number of shares of
      common stock issuable under such plan from 800,000 shares to 1,200,000 shares.
      The adjustment was approved at the Company’s Annual Meeting of Stockholders in
      June 2005. The Plan provides that incentive and nonqualified options may be
      granted to key employees, officers, directors and consultants of the Company
      for
      the purpose of providing an incentive to those persons. The Plan may be
      administered by either the Board of Directors or a committee of two directors
      appointed by the Board of Directors (the "Committee"). The Board of Directors
      or
      Committee determines, among other things, the persons to whom stock options
      are
      granted, the number of shares subject to each option, the date or dates upon
      which each option
      may be exercised and the exercise price per share.





Options
      granted under the Plan are generally exercisable for a period of up to ten
      years
      from the date of grant. Incentive options granted to stockholders that hold
      in excess of 10% of the total combined voting power or value of all classes
      of
      stock of the Company must have an exercise price of not less than 110% of the
      fair market value of the underlying stock on the date of the grant . The Company
      will not grant a nonqualified option with an exercise price less than 85% of
      the
      fair market value of the underlying common stock on the date of the grant.





The
      Company has granted the following options under the Plan:





On
      April
      26, 2004, the Company granted 125,000 options to its Chief Executive Officer,
      an
      aggregate of 195,000 options to five employees and an aggregate of 45,000
      options to two consultants of the Company (which do not qualify as employees).
      The stock options granted to the Chief Executive Officer vest at the rate of
      31,250 options on November 1, 2004, October 1, 2005, October 1, 2006 and October
      1, 2007. The stock options granted to the other employees and consultants vest
      at the rate of 80,000 options on November 1, 2004, October 1, 2005 and October
      1, 2006. The exercise price of the options ($4.78) was equal to the market
      price
      on the date of grant. The options granted to the Chief
      Executive Officer were
      forfeited/ cancelled in August 2006 due to the termination of his employment.
      Of
      the 195,000 options originally granted to employees, 60,000 options were
      forfeited or cancelled during 2005, while the remaining 135,000 options were
      forfeited or cancelled in August 2006 due to termination of the five employee
      contracts. 15,000
      options granted to one of the consultants were also forfeited or cancelled
      in
      April 2006 due to the termination of the consultant’s contract.




F-27


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statement**


Through
      December 31, 2005, the Company did not recognize compensation expense under
      APB
      25 for the options granted to the Chief Executive Officer and the five employees
      as the options had a zero intrinsic value at the date of grant. The adoption
      of
      SFAS 123R on January 1, 2006 resulted in a compensation charge of $21,241 for
      the year ended December 31, 2006.





In
      accordance with SFAS 123, as amended by SFAS 123R, and EITF Issue No. 96-18,
      “Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services”, the Company
      computed total compensation charges of $162,000 for the grants made to the
      two
      consultants. Such compensation charges are recognized over the vesting period
      of
      three years. Compensation expense for the year ended December 31, 2006 was
      $9,921 (2005: $50,884).





On
      March
      22, 2005, the Company granted an aggregate of 200,000 options to two of the
      Company’s Directors. These stock options vest at the rate of 50,000 options on
      each September 22 of 2005, 2006, 2007 and 2008, respectively. The exercise
      price
      of the options ($3.40) was equal to the market price on the date the options
      were granted. Through December 31, 2005, the Company did not recognize
      compensation expense under APB 25 as the options had a zero intrinsic value
      at
      the date of grant. The adoption of SFAS 123R on January 1, 2006 resulted in
      a
      compensation charge of $128,284 for the year ended December 31, 2006. One of
      the
      directors was elected as Chief Executive Officer from August 14,
      2006.





On
      June
      2, 2005, the Company granted 100,000 options to a director of the Company,
      which
      vest at the rate of 25,000 options on December 2 of 2005, 2006, 2007, and 2008,
      respectively. Through December 31, 2005, the Company did not recognize
      compensation expense under APB 25 as the options had a zero intrinsic value
      at
      the date of grant. The adoption of SFAS 123R on January 1, 2006 resulted in
      a
      compensation charge of $89,346 for the year ended December 31, 2006. On November
      13, 2006, the Director filed his resignation. His options were vested
      unexercised in February 2007.





(b)
      Other
      Options





On
      October 13, 2003, the Company granted two Directors 100,000 options each, at
      an
      exercise price (equal to the market price on that day) of $4.21 per share,
      with
      25,000 options vesting on each April 13, 2004, 2005, 2006 and 2007. There were
      100,000 options outstanding as of December 31, 2006. The adoption of SFAS 123R
      on January 1, 2006 resulted in a compensation charge of $31,824 during the
      year
      ended December 31, 2006.





The
      following table summarizes the total number of shares for which options have
      been issued (Stock Option Plan, 2004 Incentive Plan, Employment Agreements
      and
      grants to Directors) and are outstanding:




2006
            
            2005Options
            
            Weighted
                average exercise price
            
            Options
            
            Weighted
                average exercise priceOutstanding,
                January 1,
            
            
            705,000
            
            $
            4.20
            
            
            654.000
            
            $
            5.33Granted
            
            
            -
            
            
            -
            
            
            300,000
            
            
            3.62Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
                or expired
            
            
            (275,000
            )
            
            4.78
            
            
            (249,000
            )
            
            6.47Outstanding,
                December 31
            
            
            430,000
            
            $
            3.84
            
            
            705,000
            
            $
            4.20




F-28


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**




The
      weighted average grant date fair value of the 300,000 options granted during
      the
      year ended December 31, 2005 was $3.62.





No
      options were granted during the year December 31, 2006, and no options were
      exercised during the years ended December 31, 2006 and 2005.




The
      following table summarizes information about shares subject to outstanding
      options as of December 31, 2006, which were issued to current or former
      employees, consultants or directors pursuant to the 2004 Incentive Plan and
      grants to Directors:




**Options
                Outstanding**
            
            **Options
                Exercisable****Number**
              **Outstanding**
            
            **Range
                of**
              **Exercise Prices**
            
            **Weighted-**
              **Average**
              **Exercise Price**
            
            **Weighted-**
              **Average
                Remaining**
              **Life in Years**
            
            **Number**
              **Exercisable**
            
            **Weighted-**
              **Average**
              **Exercise Price**100,000
            
            $
            4.21
            
            $
            4.21
            
            
            3.76
            
            
            75,000
            
            $
            4.2130,000
            
            $
            4.78
            
            $
            4.78
            
            
            4.31
            
            
            30,000
            
            $
            4.78200,000
            
            $
            3.40
            
            $
            3.40
            
            
            5.22
            
            
            100,000
            
            $
            3.40100,000
            
            $
            4.05
            
            $
            4.05
            
            
            5.42
            
            
            50,000
            
            $
            4.05430,000
            
            $
            3.40-$4.78
            
            $
            3.84
            
            
            4.46
            
            
            255,000
            
            $
            3.93





(c)
      Warrants





On
      June
      7, 2005, the Company granted 100,000 warrants to a consulting company as
      compensation for investor relations services at exercise prices as follows:
      40,000 warrants at $3.50 per share, 20,000 warrants at $4.25 per share, 20,000
      warrants at $4.75 per share and 20,000 warrants at $5 per share. The warrants
      have a term of five years and tranches vest proportionately at a rate of a
      total
      8,333 warrants per month over a one year period. The warrants are being expensed
      over the performance period of one year. In February 2006, the Company
      terminated its contract with the consultant company providing investor relation
      services. The warrants granted under the contract were reduced
      time-proportionally to 83,330, based on the time in service by the consultant
      company.





**13.
      Related party transactions**





On
      October 3, 2006, ERC entered into an Operating Agreement with D’Vora Attia
      (“D’Vora”), an individual, to adjust the ownership interest of Stanley Hills LLC
      (“Stanley LLC”), a Nevada limited liability company. Stanley LLC will develop
      three adjacent single family residences located at 2234 and 2240 Stanley Hills
      Drive and 2214 N. Merrywood Drive, Los Angeles, California 90046 (the “Stanley
      Property”). ERC owns 66.67% of the outstanding interest of the Stanley LLC,
      while D’Vora owns the remaining interest. D’vora owned the Stanley Property
      prior to the purchase by the Stanley LLC and is the sister of Yossi Attia,
      CEO
      of the Company. The structuring of the Stanley LLC was negotiated as an arm
      length transaction and was based on a current appraisal received from an
      independent third party. At December 31, 2006, the outstanding balance on the
      purchase price of the Stanley Property payable to D’Vora was $308,321, which was
      paid on February 2007.




F-29


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


On
      December 31, 2006, ERC acquired a 100% interest in Verge from a third party,
      TIHG. ERC has a 33.33% equity investment in AP Holdings. The majority owner
      and
      sole director of AP Holdings is Mr. Shalom Atia, brother of Yossi Attia, CEO
      of
      the Company. There are no other relationship between AP Holdings, Shalom Atia
      and Yossi Attia.





In
      the
      fourth quarter of 2006, the Company provided Mr. Shalom Atia $450,000 to be
      used
      in connection with a possible cooperation in real estate developments in the
      Sitnica - Samobor area in Croatia, Europe. The receivable is repayable upon
      the
      Company’s first demand.




**14.
      Treasury Stock**




In
      June
      2006, the Company's Board of Directors approved a program to repurchase, from
      time to time, at management's discretion, up to 700,000 shares of the Company's
      common stock in the open market or in private transactions commencing on June
      20, 2006 and continuing through December 15, 2006 at prevailing market prices.
      Repurchases will be made under the program using our own cash resources and
      will
      be in accordance with Rule 10b-18 under the Securities Exchange Act of 1934
      and
      other applicable laws, rules and regulations. The Shemano Group is acting as
      agent for our stock repurchase program. As of December 31, 2006, the Company
      acquired 476,804 shares at a cost of $995,360.




Pursuant
      to the unanimous consent of the Board of Directors in September 2006, the number
      of shares that may be purchased under the Repurchase Program was increased
      from
      700,000 to 1,500,000 shares of common stock and the Repurchase Program was
      extended until October 1, 2007, or until the increased amount of shares is
      purchased.





Pursuant
      to the Sale Agreement of Navigator, the Company got on closing (2/16/2007)
      622,531 shares of the Company’s common stock as partial consideration. The
      Company shares were valued at $1.34 per share, representing the closing price
      of
      the Company on the NASDAQ Capital Market on February 16, 2007, the closing
      of
      the sale. The Company intends to cancel the Emvelco common stock acquired during
      the disposition in the amount of $834,192.





**15.
      Subsequent events**




On
      May
      14, 2007, the Company entered into a Stock Transfer and Assignment of Contract
      Rights Agreement (the "Agreement") with ERC, ERC's principal shareholder TIHG
      and ERC's wholly owned subsidiary Verge. Pursuant to the Agreement, the Company
      transferred and conveyed its 1,000 Shares (representing a 43.33% interest)
      (the
      "Shares") in ERC to TIHG to submit to ERC for cancellation and return to
      Treasury. ERC, TIHG and Verge agreed to assign (the "Assignment") to the Company
      all rights in and to that certain Investment Agreement, dated as June 19, 2006,
      and all Amendments thereto (collectively, the "Investment Agreement") wherein
      ERC (from funds available to ERC from the Company) agreed to provide secured
      loans to Verge for the construction of a multi-use condominium and commercial
      property in Las Vegas, Nevada (the "Verge Property") and for other projects
      and
      properties as provided therein. The Investment Agreement was disclosed by the
      Company in its Form 8-K filed on June 23, 2006.




F-30


**Emvelco
          Corp.**
 **Notes
          to Consolidated Financial Statements**


The
      consideration payable to the Company under the Agreement is $500,000, which
      in
      TIHG's discretion, may be added to the outstanding loan amount owing to the
      Company by ERC (the "Loan Amount"). As of May 14, 2007, the current outstanding
      Loan Amount owing to the Company is approximately $12 million. Under the
      Agreement, in no event shall the Loan Amount exceed eighty percent (80%) of
      the
      fair market value of the Verge Property. As a condition precedent to the
      Agreement, a current appraisal of the Verge Property shall be presented and
      delivered to the Company within two weeks of the date of the Agreement.




The
      effective date of the Agreement is January 1, 2007 (the "Effective Date").
      All
      rights assigned to the Company under the Investment Agreement will be considered
      to be assigned as of the Effective Date. Accordingly, as of the Effective Date,
      the Company shall be the sole secured and primary beneficiary under the
      Investment Agreement.




As
      of the
      Effective Date, under the Investment Agreement, each loan made to Verge is
      due
      on demand or upon maturity on January 14, 2008. If the Company requests that
      the
      funds be paid on demand prior to maturity, then Verge shall be entitled to
      reduce the amount requested to be prepaid by 10%. The 10% discount will be
      paid
      in the form of shares of common stock of the Company, which will be computed
      by
      dividing the dollar amount of the 10% discount by the market price of the
      Company's shares of common stock. The terms of the loans require that the
      Company, be paid-off the greater of (i) the principal including 12% interest
      per
      annum or (ii) 33% of all gross profits derived from the Verge Property. In
      addition, the Company has the right to acquire the Verge Property for a purchase
      price of $15,000,000 through January 1, 2015. The purchase is payable in
      $10,000,000 in cash and $5,000,000 in shares of common stock of the Company.




The
      Board
      of Directors of the Company has approved the Agreement and ratified the
      transaction.




F-31