**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, 2007**





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.)





1061
1⁄2
N
      Spaulding Ave., West Hollywood, CA 90046


(Address
      of principal executive offices)


Issuer’s
      telephone number, including area code: (323) 822-1750





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 x No o




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, 2007 were
      $6,950,000.




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 April 11, 2008 was
      $5,364,535 based on the closing price of the registrant's common stock on such
      date of $1.05 as reported by the NASDAQ Capital Market **.**




At
      April
      11, 2008, 5,109,081 shares of common stock (the only class of voting stock)
      were
      outstanding **** of
      which
      3,498,562 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
            
            25ITEM
                3.
            
            LEGAL
                PROCEEDINGS
            
            27ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            29**PART
                II**
            
            
            
            **30**ITEM
                5.
            
            MARKET
                FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS
            
            30ITEM
                6.
            
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            
            32ITEM
                7.
            
            FINANCIAL
                STATEMENTS
            
            46ITEM
                8.
            
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            
            46ITEM
                8A
            
            CONTROLS
                AND PROCEDURES
            
            48ITEM
                8B
            
            OTHER
                INFORMATION
            
            49**PART
                III**
            
            
            
            **51**ITEM
                9.
            
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(A) OF THE EXCHANGE ACT
            
            51ITEM
                10.
            
            EXECUTIVE
                COMPENSATION
            
            54ITEM
                11.
            
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            
            60ITEM
                12.
            
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS
            
            62ITEM
                13.
            
            EXHIBITS
            
            63ITEM
                14.
            
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            
            63SIGNATURES
            
            65INDEX
                TO EXHIBITS
            
            66




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”. Emvelco’s business
      that was first implemented in 1997 is identifying,
      developing and operating companies within emerging industries for the purpose
      of
      consolidation and sale if favorable market conditions exist. Although the
      Company primarily focuses on the operation and development of its core
      businesses, the Company pursues consolidations and sale opportunities as
      presented in order to develop its core businesses as well as outside of its
      core
      business.





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 development
      and 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





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 investments in development and real
      estate.





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 was
      $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 owed to the Company was
      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 was presented and delivered to the
      Company within two weeks of the date of the Stock Transfer Agreement. As of
      December 31, 2007, the outstanding Line of Credit owed to the Company was
      approximately $763 thousand, which was eliminated upon
      consolidation.




4




The
      effective date of the Stock Transfer Agreement was 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 became the sole secured
      and
      primary beneficiary under the Investment Agreement, and the Company had 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.





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors intend to invest in an entity listed on the Tel Aviv Stock Exchange
      -
      the Atia Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred
      to
      as AGL). In addition, the Investors intend to transfer rights and control of
      various real estate projects to AGL. The Investors and AGL then effected a
      transaction, pursuant to which the Investors and/or the Investors' affiliates
      acquired together about 76% of the AGL in consideration of the transfer of
      the
      rights to the various real estate projects (including Verge) to AGL (the
      "Transaction"). Upswing, among other items, advised the Investors on the steps
      necessary to effectuate the contemplated transfer of real estate project rights
      to AGL.





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, intends to exercise
      its option (the "Verge Option") to purchase a multi-use condominium and
      commercial property in Las Vegas, Nevada, via the purchase and acquisition
      of
      all outstanding shares of common stock of Verge. The Verge Option is exercisable
      in the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.




Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      further intends to exercise its option (the "Sitnica Option") to purchase ERC's
      derivative rights and interest in Sitnica d.o.o. through ERC's holdings
      (one-third (1/3) interest) in AP Holdings Limited ("AP Holdings"), a company
      organized under the Companies (Jersey) Law 1991, which equates to a one-third
      interest in Sitnica d.o.o. (excluding ERC's interest in AP Holdings). The
      Sitnica Option is exercisable in the amount of $4,000,000, payable by reducing
      the outstanding loan amount owing to the Company under the Investment Agreement
      by $3,550,000 and reducing the Company's deposit with Shalom Atia, Trustee
      of AP
      Holdings, by $450,000.





The
      above
      transaction was closed on November 2, 2007. Upon closing, Verge became a fully
      owned subsidiary of AGL and the Company owns 58.3% of AGL and consolidates
      AGL’s
      results in these financial statements.




Through
      its subsidiaries and series of agreements with ERC, the Company developed and
      sold in 2007 three properties in the Los Angeles vicinity. The Company has
      currently two other residential single families’ homes under development in Los
      Angeles vicinity.





Currently,
      the Company has majority ownership of a subsidiary with operations outside
      the
      United States. The Company’s headquarters are now located in West Hollywood,
      California.





The
      Company has entered into a term sheet which provides that the Company will
      purchase an entity that owns certain gas development rights, all the mineral
      acreage and land rights for drilling on that certain property located in Texas
      (the “Gas Lease Rights”). Specifically, the Company will purchase all the
      outstanding membership interests of Davy Crockett Gas Company, LLC, a Nevada
      limited liability company (“DCG”), which currently owns the Gas Lease Rights.
      The purchase price shall be $50 million, which shall be payable in 50,000,000
      shares of common stock of the Company. At closing the Company will issue
      25,000,000 shares of common stock and then will issue as additional 5 million
      shares upon each of the first five wells going into production. The purchase
      price may be increased up to $250 million based on actual proven developed
      product. The Company is still undertaking due diligence in connection with
      proof
      of good title to the Gas Lease Rights. The transaction was presented to the
      Board of Directors for approval at a meeting on March 13, 2008. The terms and
      provisions of the Gas Lease Rights and acquisition thereof is delineated in
      the
      Agreement and Plan of Exchange (the “Agreement and Plan of Exchange”). The
      transaction is subject to a Proxy Statement to be delivered to the Shareholders.




5





If
      the
      DCG acquisition is consummated, DCG will become a wholly-owned subsidiary of
      the
      Company and the outstanding membership interests will be exchanged by the
      holders thereof for shares of the Company. The shares of Emvelco common stock
      that holders of DCG’s membership interest will be entitled to receive pursuant
      to the Agreement and Plan of Exchange are expected to represent approximately
      83% of the shares of the Company immediately following the consummation of
      the
      transaction. If the fifth well goes into production, the DCG membership interest
      will then own 91% of the Company. DCG, headquartered in Bel Air, is a newly
      formed LLC, which holds certain development rights for gas drilling in Crockett
      County, Texas.





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.




**Emvelco
      Strategy**





INVESTMENTS
      AND 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. As of December
      31, 2007, the outstanding Line of Credit owed to the Company was approximately
      $763 thousand, which was eliminated upon consolidation.




6




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 was
      $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 was presented and delivered to the
      Company within two weeks of the date of the Stock Transfer
      Agreement.





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 was
      $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.





7




The
      effective date of the Stock Transfer Agreement was 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 became the sole secured
      and
      primary beneficiary under the Investment Agreement, and the Company had 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. T he
      Company and Verge agreed to extend the term of the agreement until funds are
      available for repayment, which is expected in the year ending December 31,
      2008.
      Interest continues to accrue at 12% per annum. 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.





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,
      develops 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. As of December 31, 2007, EVC remains a shell company
      and is not yet entitled to receive $10,000 per month.




8




(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.





From
      January 1 2007, after the exchange with TIHG, ERC is no longer a controlled
      subsidiary of the Company and is not consolidated. The Company’s interest in
      Micrologic has been consolidated as of January 1, 2007 in accordance with
      FIN46R, “Consolidation of Variable Interest Entities”, due to Micrologic’s sole
      reliance on the Company to finance its’ ongoing business activities. Emvelco has
      exposure to a majority of the expected losses and/or expected residual returns
      of Micrologic. (See Note 4 in the financial statements - Investment in
      Micrologic). On
      November 15, 2007, the Company entered into a Settlement and Release Agreement
      and Amendment No. 1 (the "Amendment") to that certain Term Sheet Agreement
      (the
      "Agreement") which was entered into by and between Dr. Danny Rittman ("Rittman")
      and the Company and which the Amendment is entered into by and between the
      same
      parties. Pursuant to the Agreement, the Company was obligated to fund Micrologic
      $1 million and has funded $400,000 to date. Pursuant to the Amendment, the
      Company shall only be required to fund an additional $50,000 for a total
      investment of $450,000, and shall receive ten percent (10%) equity ownership
      in
      Micrologic. The Amendment also contains a settlement and release clause
      releasing the parties from any further obligations to each other. As of December
      31, 2007, the Company has consolidated the results of operation of Micrologic,
      however, pursuant to the Settlement and Release Agreement, the Company will
      not
      consolidate the balance sheet at December 31, 2007, nor will it consolidate
      future results of operations.





(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.o.o. (“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,
      2007.





(D)
      The
      Atia Group Limited





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors invested in an entity listed on the Tel Aviv Stock Exchange - the
      Atia
      Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred to as
      AGL).
      In addition, the Investors transferred rights and control of various real estate
      projects to AGL. The Investors and AGL then effected a transaction, pursuant
      to
      which the Investors and/or the Investors' affiliates acquired together about
      76%
      of the AGL in consideration of the transfer of the rights to the various real
      estate projects (including Verge) to AGL (the "Transaction"). Upswing, among
      other items, advised the Investors on the steps necessary to effectuate the
      contemplated transfer of real estate project rights to AGL.





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, intends to exercise
      its option (the "Verge Option") to purchase a multi-use condominium and
      commercial property in Las Vegas, Nevada, via the purchase and acquisition
      of
      all outstanding shares of common stock of Verge. The Verge Option is exercisable
      in the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.




9




Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      exercised its option (the "Sitnica Option") to purchase ERC's derivative rights
      and interest in Sitnica d.o.o. through ERC's holdings (one-third (1/3) interest)
      in AP Holdings Limited ("AP Holdings"), a company organized under the Companies
      (Jersey) Law 1991, which equates to a one-third interest in Sitnica d.o.o.
      (excluding ERC's interest in AP Holdings). The Sitnica Option to be exercised
      in
      the amount of $4,000,000, payable by reducing the outstanding loan amount owing
      to the Company under the Investment Agreement by $3,550,000 and reducing the
      Company's deposit with Shalom Atia, Trustee of AP Holdings, by $450,000. Based
      on the actual closing and exchange of shares with AGL, where Sitnica became
      fully owned subsidiary of AGL, the Company did not exercise its Sitnica option.





This
      transaction was closed on November 2, 2007. Upon closing, Verge and Sitnica
      became fully owned subsidiaries of AGL and the Company owns 58.3% of AGL and
      consolidates AGL’s results in these financial statements.





(E)
      Crescent Heights and Dickens LLC





The
      Company formed and organized 610 N Crescent Heights LLC and 13059 Dickens LLC,
      for the purpose of developing two separate single family homes for future sales.
      Said properties are under development.




10




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, except as set forth below, 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.





The
      Company has entered into the final stages of negotiation on a term sheet which
      provides that the Company will purchase an entity that owns certain gas
      development rights, all the mineral acreage and land rights for drilling on
      that
      certain property located in Texas (the “Gas Lease Rights”). The purchase price
      shall be $50 million, which shall be payable in 50,000,000 shares of common
      stock of the Company. At closing the Company will issue 25,000,000 shares of
      common stock and then will issue as additional 5 million shares upon each of
      the
      first five wells going into production. The purchase price may be increased
      up
      to $250 million based on actual proven developed product. The Company is
      presently conducting due diligence. The transaction was presented to the Board
      of Directors for approval. The terms and provisions of the Gas Lease Rights
      will
      be delineated in a definitive agreement. The closing of this transaction is
      subject to shareholder approval.





If
      the
      acquisition of Davy Crockett Gas Company LLC (“DCG”) is consummated, DCG will
      become a wholly-owned subsidiary of the Company and outstanding membership
      interest will be exchange by the holders thereof for shares of the Company.
      The
      shares of Emvelco common stock that holders of DCG’s membership interest will be
      entitled to receive pursuant to the Agreement and Plan of Exchange are expected
      to represent approximately 83% of the shares of the Company immediately
      following the consummation of the Plan of Exchange of DCG. If the fifth well
      goes into production, the DCG membership interest will then own 91% of the
      Company. DCG, headquartered in Bel Air, is a newly formed LLC, which holding
      certain development rights for gas drilling in Crockett County, TX.





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




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.




11




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.




12




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 and 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.




13




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.





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors intend to invest in an entity listed on the Tel Aviv Stock Exchange
      -
      the Atia Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred
      to
      as AGL). In addition, the Investors intend to transfer rights and control of
      various real estate projects to AGL. The Investors and AGL then effected a
      transaction, pursuant to which the Investors and/or the Investors' affiliates
      acquired about 76% of the AGL in consideration of the transfer of the rights
      to
      the various real estate projects (including Verge) to AGL (the "Transaction").
      Upswing, among other items, advised the Investors on the steps necessary to
      effectuate the contemplated transfer of real estate project rights to
      AGL.





Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      further intends to exercise its option (the "Sitnica Option") to purchase ERC's
      derivative rights and interest in Sitnica d.o.o. through ERC's holdings
      (one-third (1/3) interest) in AP Holdings Limited ("AP Holdings"), a company
      organized under the Companies (Jersey) Law 1991, which equates to a one-third
      interest in Sitnica d.o.o. (excluding ERC's interest in AP Holdings). The
      Sitnica Option is exercisable in the amount of $4,000,000, payable by reducing
      the outstanding loan amount owing to the Company under the Investment Agreement
      by $3,550,000 and reducing the Company's deposit with Shalom Atia, Trustee
      of AP
      Holdings, by $450,000.





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, intends to exercise
      its option (the "Verge Option") to purchase a multi-use condominium and
      commercial property in Las Vegas, Nevada, via the purchase and acquisition
      of
      all outstanding shares of common stock of Verge. The Verge Option is exercisable
      in the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.




The
      transaction was closed on November 2, 2007. Upon closing, Verge became a fully
      owned subsidiary of AGL and the Company owns 58.3% of AGL and consolidates
      AGL’s
      results in the financial statements.




Through
      its subsidiaries and series of agreements with ERC, the Company developed and
      sold three properties in Los Angeles vicinity in the year ended December 31,
      2007. The Company has two other residential single family homes under
      development in Los Angeles vicinity.





**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.




Emvelco’s business
      that was first implemented in 1997 is identifying, developing and operating
      companies within emerging industries for the purpose of consolidation and sale
      if favorable market conditions exist. Although the Company primarily focuses
      on
      the operation and development of its core businesses, the Company pursues
      consolidations and sale opportunities as presented in order to develop its
      core
      businesses as well as outside of its core business. Since
      June 2006, the Company has focused on 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”) and Croatia. The Company is also engaged in investment and
      financing activities, as well as conducting real estate operations on its own
      properties. During
      2007, the Company developed and sold three properties and as of December 31,
      2007 the Company has two additional properties under development. In addition,
      the Company has entered into a term sheet and is conducting due diligence with
      respect an oil and gas oppurtunity.




**Organization**




*Project
      management*




The
      Company employs six full-time professionals including management, in its West
      Hollywood, 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.




**Employees**




As
      of
      April 11, 2008, the Company employed a total of thirteen full-time
      employees.




14




**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.





**Sub-Prime
      Lending**





The
      current situation in the US mortgage market is tightening, whereby many
      borrowers are having a difficult time obtaining financing. The tightening of
      the
      market is the result of several factors: an increase in home foreclosures;
      an
      increase in the failure of mortgage companies; a steep decline in funding
      available mortgages (primarily sub prime mortgage but also A credit mortgages)
      and a decline in housing prices. Management does not believe this will hinder
      sales because its projects are unique and the Company has already sold the
      vast
      majority of the condo units.





**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 $10,899,790 for the year ended
      December 31, 2007 and $2,279,285 for the year ended December 31, 2006. 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.




15




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





Our
      real
      estate activities are entirely located in Las Vegas, Los Angeles, and Croatia.
      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.
      Accordingly, the performance of the Nevada, California, and Croatia economies
      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.




16




***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
      current situation in the US mortgage market is tightening, whereby many
      borrowers are having a difficult time obtaining financing. The tightening of
      the
      market is the result of several factors: an increase in home foreclosures;
      an
      increase in the failure of mortgage companies; a steep decline in funding
      available mortgages (primarily sub prime mortgage but also A credit mortgages)
      and a decline in housing prices. Management does not believe this will hinder
      sales because this project is unique and the Company has already sold the vast
      majority of the condo units, yet can not predict the global or nationwide
      effects of such crisis. 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,
      and
      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, Las Vegas and Croatia, our ability to develop these properties
      and
      realize future income from our properties could be delayed, reduced, prevented
      or made more expensive.




17




***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
      exists in the Las Vegas, Los Angeles, and Croatia 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 and Croatia.





***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.




18




***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.





***Potential
      Issuance of Additional Common Stock in our majority owned subsidiary
      AGL***





On
      January 30, 2008, Atia Group f/k/a Kidron Industrial Holdings, Ltd. ("Atia
      Group"), of which the Company is a principal shareholder, notified the Company
      that it had entered into two (2) material agreements (wherein the Company was
      not a party but will be directly affected by their terms) with Trafalgar Capital
      Specialized Investment Fund ("Trafalgar"). Specifically, Attia Group and
      Trafalgar entered into a Committed Equity Facility Agreement ("CEF") in the
      amount of 45,683,750 New Israeli Shekels (approximately US$12 million per the
      exchange rate at the Closing) and a Loan Agreement ("Loan Agreement") in the
      amount of US $500,000 (collectively, the "Finance Documents") pursuant to which
      Trafalgar grants Atia Group financial backing. The Company is not a party to
      the
      Finance Documents. Upon full implantation of said agreements, AGL may issue
      considerable amount of new shares to Trafalgar as fees, which may dilute the
      Company holdings substantially, as such new issuing is calculated based on
      actual average price of AGL shares in the Tel Aviv Stock Exchange - See Item
      8B
      below.




**Risks
      Related to the Proposed Oil and Gas Segment**




***The
      number of shares that DCG member will be entitled to receive is dependent upon
      the results of operations for DCG. As a result, your ownership percentage in
      the
      combined company may be diluted in the future.***




We
      are
      currently evaluating acquiring DCG, which is engaged in the oil and gas industry
      in Texas. The closing of the acquisition is subject to finalizing due diligence
      and definitive documents. On the closing date, we will issue 25, 000,000 shares
      of common stock to the members of DCG, which will be followed with additional
      25,000,000 in five increments of 5,000,000 shares each upon the first five
      wells
      going into gas production. However, based on the future results of DCG, the
      members of DCG may be entitled to receive up to a maximum of 250,000,000 shares
      of common stock of Emvelco. As a result, although the existing shareholders
      of
      Emvelco will hold about 17% of the outstanding shares of common stock of
      Emvelco, upon closing, depending upon the results of DCG, the existing
      shareholders may only hold about 2% of the issued and outstanding shares of
      Emvelco.




***Because
      the lack of a public market for DCG’s******members
      interest******makes it difficult to evaluate the fairness of the Agreement and Plan of
      Exchange, the members of DCG may receive consideration in the Agreement and
      Plan
      of Exchange that is greater than or less than the fair market value of DCG’s
      capital stock.***




DCG
      is
      privately-held and its membership interests are not traded in any public market.
      The lack of a public market makes it extremely difficult to determine the fair
      market value of DCG. Since the percentage of Emvelco equity to be issued to
      DCG
      members was determined based on negotiations between the parties, it is possible
      that the value of Emvelco common stock to be issued to DCG stockholders in
      connection with the Agreement and Plan of Exchange will be greater than the
      fair
      market value of DCG. Alternatively, it is possible that the value of the shares
      of Emvelco common stock to be issued in connection with the Agreement and Plan
      of Exchange will be less than the fair market value of DCG.




19




***If
      the conditions to the Agreement and Plan of Exchange are not met, the
      transaction may not occur.***




Even
      if
      the necessary approvals are obtained from the stockholders of Emvelco specified
      conditions must be satisfied or waived for the Agreement and Plan of Exchange
      to
      be consummated. These conditions, which are described in detail in the Agreement
      and Plan of Exchange include:




·
            
            the
                issuance of Emvelco’s common stock in the Agreement and Plan of Exchange,
                the change of control, the amendment to Emvelco’s certificate of
                incorporation to increase the authorized shares of capital
                stock;




·
            
            the
                representations and warranties of the other party set forth in the
                Agreement and Plan of Exchange being true and correct as of the date
                of
                the agreement and the date the Agreement and Plan of Exchange occurs,
                except for (i) those representations and warranties that address
                matters only as of a particular date and (ii) breaches, inaccuracies
                or omissions of such representations and warranties which have neither
                had
                nor reasonably would be expected to have a material adverse effect
                on the
                other party;




·
            
            the
                other party to the Agreement and Plan of Exchange having performed
                or
                complied with all of the agreements and covenants required by the
                Agreement and Plan of Exchange to be performed by such party at or
                before
                completion of the Agreement and Plan of
                Exchange;




·
            
            no
                material adverse effect with respect to the other party to the Agreement
                and Plan of Exchange having
                occurred;




·
            
            the
                amendments to Emvelco’s certificate of incorporation increasing the
                authorized capital stock having become effective;
                and




·
            
            Emvelco
                receiving an opinion from its financial advisor, Sophos Investment
                Limited, that the Agreement and Plan of Exchange is fair to Emvelco’
                stockholders from a financial point of view as of the execution date
                of
                the Agreement and Plan of Exchange.




Each
      of
      the conditions listed above may be waived by the party or parties whose
      obligations to complete the Agreement and Plan of Exchange are so conditioned.
      For purposes of these conditions, the Agreement and Plan of Exchange provides
      that “material adverse effect” means any circumstance that, individually or in
      the aggregate, has or would reasonably be expected to have a material adverse
      effect on the business, assets, liabilities, condition or results of operation
      of the other party, taken as a whole, subject to certain exceptions as stated
      in
      the Agreement and Plan of Exchange. We cannot assure you that all of the
      conditions will be satisfied. If the conditions are not satisfied or waived,
      the
      Agreement and Plan of Exchange will not occur or will be delayed, and we may
      lose some or all of the intended benefits of the Agreement and Plan of
      Exchange




**Risks
      Related to Emvelco’ Business**




***If
      the Agreement and Plan of Exchange with DCG is not consummated, we will need
      substantial additional funding to identify and develop our real estate
      opportunities and for our future operations.***





In
      the
      event the Agreement and Plan of Exchange with DCG is not consummated, we will
      need to identify additional real estate opportunities, which will require a
      commitment of substantial funds to conduct the costly and time-consuming
      research and due diligence approvals and bring our product candidates to market. We will need to raise
      substantial additional capital to fund our future operations. We cannot be
      certain that additional financing will be available on acceptable terms, or
      at
      all. To the extent we raise additional funds by issuing equity securities;
      our
      existing stockholders will be diluted. If additional funds are raised through
      the issuance of debt securities, these securities are likely to have rights,
      preferences and privileges senior to our common stock and preferred stock.
      Moreover, we may enter into financing transactions at prices that represent
      a
      substantial discount to market price. A negative reaction by investors and
      securities analysts to any discounted sale of our equity securities could result
      in a decline in the market price of our common stock.




**Risks
      Related to the Company’s Financial Results and Need for
      Financing**




***The
      combined company’s operations in the real estate and oil and gas areas may never
      achieve or sustain profitability.***




DCG
      is a
      newly formed oil and gas development company and has no operating history.
      As
      DCG was formed specifically to consummate this transaction, to date, DCG has
      not
      derived any revenue. DCG does anticipate that it will generate revenue from
      the
      sale of oil and/or gas for foreseeable future. If DCG’s is unable to generate
      revenue through the sale of oil and gas or Emvelco is unable to generate sales
      in connection with the development of its real estate opportunities, the company
      may never become profitable. Even if the company achieves profitability in
      the
      future, it may not be able to sustain profitability in subsequent
      periods.




***The
      combined company will require substantial additional funding promptly after
      the
      consummation of the Agreement and Plan of Exchange to continue developing its
      real estate and oil and gas operations, which may not be available to the
      combined company on acceptable terms, or at all. Any such financing will dilute
      your ownership interest in the combined company.***




The
      combined company will need to raise substantial additional capital to explore
      additional real estate opportunities as well as develop its oil and gas
      projects. We do expect that the cash on hand held by Emvelco and DCG at closing
      will not be sufficient to meet the combined company’s cash requirements beyond
      June 2008. We currently estimate that the combined company will need to raise
      approximately $50,000,000 in financing during 2008.




20




The
      combined company will need to raise substantial additional capital
      to  explore
      additional real estate, gas and oil and energy related
      opportunities.




Until
      the
      combined company can generate a sufficient amount of revenue to finance its
      cash
      requirements, which the combined company may never do, the combined company
      expects to finance future cash needs primarily through public or private equity
      offerings, debt financings or strategic collaborations. Sales of additional
      equity securities will reduce your ownership percentage in the combined company.
      The combined company does not know whether additional financing will be
      available on acceptable terms, or at all. If the combined company is not able
      to
      secure additional equity or debt financing when needed, the combined company
      may
      not be able to explore its real estate and oil and gas ventures. This could
      lower the economic value of these collaborations to the combined
      company.




**Risks
      Related to the Company’s Proposed Oil and Gas Business**




**We
      intend to acquire rights for oil and gas development properties that are located
      in Texas, making us vulnerable to risks associated with operating in one
      geographic area.**




Our
      operations are focused in Texas, which means that our targeted properties are
      geographically concentrated in that area. As a result, we may be
      disproportionately exposed to the impact of delays or interruptions of
      production from these wells caused by significant governmental regulation,
      transportation capacity constraints, curtailment of production or interruption
      of transportation of natural gas produced from the wells in these basins.





**If
      we are unable to obtain funding our business operations will be
      harmed.**





We
      intend
      to raise funds the sale of shares of our Common Stock. We will require funding
      to meet increasing capital costs associated with our operations. We will be
      unable to fund our planned capital program if we are unable to secure funding.
      We do not know if financing will be available when needed, or if it is
      available, if it will be available on acceptable terms. The lack of available
      future funding may prevent us from implementing our business strategy.





**Drilling
      for and producing oil and natural gas are high-risk activities with many
      uncertainties that could adversely affect our business, financial condition,
      or
      results of operations.**





Our
      future success will depend on the success of our exploitation, exploration,
      development, and production activities. Our oil and natural gas exploration
      and
      production activities are subject to numerous risks beyond our control;
      including the risk that drilling will not result in commercially viable oil
      or
      natural gas production. Any future decision to Plan of Exchange, explore,
      develop, or otherwise exploit prospects or properties will depend in part on
      the
      evaluation of data obtained through geophysical and geological analyses,
      production data and engineering studies, the results of which are often
      inconclusive or subject to varying interpretations. Our cost of drilling,
      completing and operating wells are often uncertain before drilling commences.
      Overruns in budgeted expenditures are common risks that can make a particular
      project uneconomic. Further, many factors may curtail, delay, or cancel
      drilling, including the following:


·
            delays
                imposed by or resulting from compliance with regulatory
                requirements;·
            pressure
                or irregularities in geological formations;·
            shortages
                of or delays in obtaining equipment, including drilling rigs, and
                qualified personnel;·
            equipment
                failures or accidents;·
            adverse
                weather conditions;·
            reductions
                in oil and natural gas prices;·
            title
                problems; and·
            Limitations
                in the market for oil and natural gas.





**Our
      business involves numerous operating hazards for which our insurance and other
      contractual rights may not adequately cover our potential
      losses.**





Our
      operations are subject to certain hazards inherent in drilling for oil or
      natural gas, such as blowouts, reservoir damage, and loss of production, loss
      of
      well control, punchthroughs, craterings, or fires. The occurrence of these
      events could result in the suspension of drilling operations, equipment
      shortages, damage to or destruction of the equipment involved and injury or
      death to rig personnel.




21




Operations
      also may be suspended because of machinery breakdowns, abnormal drilling
      conditions, failure of subcontractors to perform or supply goods or services
      or
      personnel shortages. Damage to the environment could also result from our
      operations, particularly through oil spillage or extensive uncontrolled fires.
      We may also be subject to damage claims by other oil and gas
      companies.




Although
      we and/or our operating partners will maintain insurance in the areas in which
      we operate, pollution and environmental risks generally are not fully insurable.
      Our insurance policies and contractual rights to indemnity may not adequately
      cover our losses, and we do not have insurance coverage or rights to indemnity
      for all risks. If a significant accident or other event occurs and is not fully
      covered by insurance or contractual indemnity, it could adversely affect our
      financial position and results of operations.





**Acquisitions
      are a part of our business strategy and are subject to the risks and
      uncertainties of evaluating recoverable reserves and potential
      liabilities.**





Our
      proposed business strategy will be based on an acquisition program. We are
      seeking to acquire working interests or serve as the developer on various
      projects. Possible future acquisitions, if any, could result in our incurring
      additional debt, contingent liabilities, and increased expenses, all of which
      could have a material adverse effect on our financial condition and operating
      results. We could be subject to significant liabilities related to our
      acquisitions.





The
      successful acquisition of producing and non-producing properties requires an
      assessment of a number of factors, many of which are inherently inexact and
      may
      prove to be inaccurate. These factors include:




·
            evaluating
                recoverable reserves,




·
            estimating
                future oil and gas prices,




·
            estimating
                future operating costs,




·
            future
                development costs,




·
            the
                costs and timing of plugging and abandonment and potential environmental
                and other liabilities,




·
            assessingtitle
                issues, and




·
            Other
                factors.




Our
      assessments of potential acquisitions will not reveal all existing or potential
      problems, nor will such assessments permit us to become familiar enough with
      the
      properties fully to assess their capabilities and deficiencies. In the course
      of
      our due diligence, we may not inspect every well, platform, or pipeline.
      Inspections may not reveal structural and environmental problems, such as
      pipeline corrosion or groundwater contamination, when they are made.




We
      may
      not be able to obtain contractual indemnities from a seller of a property for
      liabilities that we assume or the contractual indemnification we do receive
      may
      be inadequate to cover the liabilities we do assume. We may be required to
      assume the risk of the physical condition of acquired properties in addition
      to
      the risk that the acquired properties may not perform in accordance with our
      expectations. As a result, some of the acquired businesses or properties may
      not
      produce revenues, reserves, earnings or cash flow at anticipated levels and
      in
      connection with these acquisitions, we may assume liabilities that were not
      disclosed to or known by us or that exceed our estimates.





**Our
      ability to complete acquisitions could be affected by competition with other
      companies and our ability to obtaining financing or regulatory
      approvals.**




In
      pursuing acquisitions, we will compete with other companies, many of which
      have
      greater financial and other resources to acquire attractive companies and
      properties. Competition for acquisitions may increase the cost of, or cause
      us
      to refrain from, completing acquisitions. Our strategy of completing
      acquisitions is dependent upon, among other things, our ability to obtain debt
      and equity financing and, in some cases, regulatory approvals. Our ability
      to
      pursue our acquisition strategy may be hindered if we are not able to obtain
      financing or regulatory approvals.





**Competitive
      industry conditions may negatively affect our ability to conduct
      operations.**





Competition
      in the oil and gas industry is intense, particularly with respect to the
      acquisition of properties. Major and independent oil and gas companies actively
      bid for desirable oil and gas properties, as well as for the equipment,
      supplies, labor and services required to operate and develop their properties.
      Many of our competitors have financial resources that are substantially greater
      than ours, which may adversely affect our ability to compete within the
      industry.





**We
      have no long-term contracts to sell oil and gas.**





We
      do not
      have any long-term supply or similar agreements with governments or other
      authorities or entities for which we act as a producer. We are therefore
      dependent upon our ability to sell oil and gas at the prevailing wellhead market
      price. There can be no assurance that Plan of Exchange will be available or
      that
      the prices they are willing to pay will remain stable.




22





**Oil
      and gas prices fluctuate, and low prices for an extended period of time are
      likely to have a material adverse impact on our business, results of operations
      and financial condition.**





Our
      revenues, profitability and future growth and reserve calculations depend
      substantially on reasonable prices for oil and gas. These prices also affect
      the
      amount of our cash flow available for capital expenditures and working capital.
      In addition, the prices of oil and natural gas may affect our ability to borrow
      money or raise equity capital. Lower prices may also reduce the amount of oil
      and gas that we can produce economically. Among the factors that can cause
      fluctuations in the prices for oil and gas are:


·
            domestic
                and foreign supply, and perceptions of supply, of oil and natural
                gas;·
            level
                of consumer demand;·
            political
                conditions in oil and gas producing regions;·
            weather
                conditions;·
            world-wide
                economic conditions;·
            domestic
                and foreign governmental regulations; and·
            price
                and availability of alternative fuels.





**Reserve
      estimates depend on many assumptions that may turn out to be inaccurate. Any
      material inaccuracies in these reserve estimates or underlying assumptions
      will
      materially affect the quantities and present value of our
      reserves.**





The
      process of estimating oil and natural gas reserves is complex. It requires
      interpretations of available technical data and many assumptions, including
      assumptions relating to economic factors. Any significant inaccuracies in these
      interpretations or assumptions could materially affect the estimated quantities
      and present value of reserves shown in our financial statements.




In
      order
      to prepare our estimates, we must project production rates and timing of
      development expenditures. We also must analyze available geological,
      geophysical, production and engineering data. The extent, quality and
      reliability of this data can vary. The process also requires economic
      assumptions about matters such as oil and natural gas prices, drilling and
      operating expenses, capital expenditures, taxes and availability of funds.
      Therefore, estimates of oil and natural gas reserves are inherently imprecise.




Actual
      future production, oil and natural gas prices, revenues, taxes, development
      expenditures, operating expenses and quantities of recoverable oil and natural
      gas reserves most likely will vary from our estimates. Any significant variance
      could materially affect the estimated quantities and present value of reserves
      in our financial statements. In addition, we may adjust estimates of proved
      reserves to reflect production history, results of exploration and development,
      prevailing oil and natural gas prices and other factors, many of which are
      beyond our control.





You
      should not assume that the present value of future net revenues from our proved
      reserves is the current market value of our estimated oil and natural gas
      reserves. In accordance with SEC requirements, we generally base the
      estimated discounted future net cash flows from our proved reserves on prices
      and costs on the date of the estimate. Actual future prices and costs may differ
      materially from those presented using the present value estimate.





**We
      are subject to extensive government regulations.**




Our
      proposed business is affected by numerous federal, state and local laws and
      regulations, including energy, environmental, conservation, tax and other laws
      and regulations relating to the oil and gas industry. These include, but are not
      limited to:





·
            the
                prevention of waste,




·
            the
                discharge of materials into the
                environment,




·
            the
                conservation of oil and natural
                gas,




·
            pollution,




·
            permits
                for drilling operations,




·
            drilling
                bonds, and




·
            reports
                concerning operations, the spacing of wells, and the unitization
                and
                pooling of properties.




23




Failure
      to comply with any laws and regulations may result in the assessment of
      administrative, civil and criminal penalties, the imposition of injunctive
      relief or both. Moreover, changes in any of these laws and regulations could
      have a material adverse effect on our business. In view of the many
      uncertainties with respect to current and future laws and regulations, including
      their applicability to us, we cannot predict the overall effect of such laws
      and
      regulations on our future operations. ****




**Risks
      Related to the Securities Market and Ownership of the Combined Company’s Common
      Stock**




***The
      combined company’s shares of common stock may be required to re-apply for
      listing on the NASDAQ Capital Market, which would adversely affect your ability
      to sell your shares of the combined company’s common
      stock.***




Although
      management does not believe that this transaction is a “reverse merger” as that
      term is defined by Rule 4340, the transaction will result in a change in control
      as a result of the issuance of the Emvelco shares to the DCG members. In the
      event that NASDAQ considers this transaction to be a “reverse merger”, the
      combined company may be required to meet NASDAQ’s initial listing requirements
      at the time of closing of the Agreement and Plan of Exchange. These requirements
      include a number of quantitative criteria, including a requirement that the
      combined company’s stockholders’ equity immediately after the Agreement and Plan
      of Exchange exceeds $5.0 million, that the combined company’s common stock
      satisfies a $4.00 per share minimum bid price immediately after closing of
      the
      Agreement and Plan of Exchange and that the combined company maintain a public
      float of common stock of at least $15.0 million. If we are required to meet
      the
      initial listing criteria, there can be no assurance that we will be able to
      meet
      these standards and, as a result, we may be delisted from NASDAQ.




If
      the
      combined company is unable to obtain a new listing on the NASDAQ Capital Market,
      the combined company may seek to have its stock quoted on the FINRA’s OTC
      Bulletin Board, which is an inter-dealer, over-the-counter market that provides
      significantly less liquidity than the NASDAQ Capital Market, or in a non-NASDAQ
      over-the-counter market, such as the “pink sheets.” Quotes for stocks included
      on the OTC Bulletin Board/pink sheets are not as widely listed in the financial
      sections of newspapers as are those for the NASDAQ Capital Market. Therefore,
      prices for securities traded solely on the OTC Bulletin Board may be difficult
      to obtain and holders of the combined company’s common stock may be unable to
      resell their securities at any price.




If
      the
      combined company is forced to move trading of its common stock to the FINRA’s
      OTC Bulletin Board, the combined company’s common stock will be a “penny stock”
under Rule 3a51-1 under the Securities Exchange Act of 1934, or the Exchange
      Act. Compliance with the penny stock requirements would make it more difficult
      for you to resell your shares to third parties or to dispose of them in the
      public market or otherwise. Securities broker-dealers would not be permitted
      to
      recommend the combined company’s common stock and would only be permitted to
      trade in it on an unsolicited basis. Additionally, Section 15(g) of the
      Exchange Act and Rule 15g-2 require broker-dealers dealing in penny stocks
      to
      provide potential investors with a document disclosing the risks of penny stocks
      and to obtain a manually signed and dated written receipt of the document before
      effecting any transaction in a penny stock for the investor’s account. Moreover,
      Rule 15g-9 requires broker-dealers in penny stocks to approve the account of
      any
      investor for transactions in such stocks before selling any penny stock to
      that
      investor. This procedure requires the broker-dealer to:




·
            
            obtain
                from the investor information concerning his or her financial situation,
                investment experience and investment
                objectives;




·
            
            reasonably
                determine, based on that information, that transactions in penny
                stock are
                suitable for the investor and that the investor has sufficient knowledge
                and experience as to be reasonably capable of evaluating the risks
                of
                penny stock transactions;




·
            
            provide
                the investor with a written statement setting forth the basis on
                which the
                broker-dealer made this determination;
                and




·
            
            receive
                a signed and dated copy of this statement from the investor, confirming
                that it accurately reflects the investor’s financial situation, investment
                experience and investment
                objectives.




If
      the
      combined company’s common stock is required to meeting the initial listing
      standards and does not satisfy such listing on the NASDAQ Capital Market, the
      price of the combined company’s common stock may decline and the liquidity of
      the common stock may be significantly reduced. In addition, failure to maintain
      a NASDAQ Capital Market listing may negatively affect the combined company’s
      ability to obtain necessary additional equity or debt financing on favorable
      terms or at all.




***The
      stock price of the company’s common stock is likely to be volatile and you may
      lose all, or a substantial portion, of your
      investment.***




The
      trading price of the combined company’s common stock following completion of the
      Agreement and Plan of Exchange is likely to be volatile and could be subject
      to
      wide fluctuations in price in response to various factors, many of which are
      beyond the combined company’s control including, among others, market perception
      of the Agreement and Plan of Exchange and DCG’s business operations, the
      combined company’s need for substantial additional financing shortly following
      the closing of the Agreement and Plan of Exchange. Such fluctuations may be
      even
      more pronounced in the trading market shortly following this merger. These
      broad
      market and industry factors may seriously harm the market price of the combined
      company’s common stock, regardless of the combined company’s actual operating
      performance. In addition, in the past, following periods of volatility in the
      overall market and the market price of a company’s securities, securities class
      action litigation has often been instituted against these companies. This
      litigation, if instituted against the combined company, could result in
      substantial costs and a diversion of management’s attention and
      resources.




24




***Neither
      Emvelco nor DCG has ever paid cash dividends on its common stock, and we do
      not
      anticipate that the company will pay any cash dividends on its common stock
      in
      the foreseeable future.***




Neither
      Emvelco nor DCG has ever declared or paid cash dividends on its common stock.
      We
      do not anticipate that the combined company will pay any cash dividends on
      its
      common stock in the foreseeable future. The combined company intends to retain
      all available funds and any future earnings to fund the development and growth
      of its business. As a result, capital appreciation, if any, of the combined
      company’s common stock will be your sole source of gain for the foreseeable
      future.





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




The
      following table lists the office space that the Company, as of December 31,
      2007,





Lessee
            
            Address
                of Property
            
            Primary
                Use
            
            Sq.
                feet
            
            Rent
                Amount/ Month
            
            Lease
                TermsVerge
            
            1061
              1⁄2 N. Spaulding Ave.Los
              Angeles, CA 90046
            
            General
                operation,
            
            
            1,500
            
            $
            2,200
            
            
            5
                years from June 2006Verge*)
            
            Main
              StreetLas
              Vegas, NV 89101(Adjacent
              to Verge Property)
            
            Sales
                Center for Verge project
            
            Approximately
              2 Acres of Vacant Land
            
            $
            3,500
            
            
            2
                years from January 1, 2008Verge
            
            2406
              Sexton, North Las Vegas,**) Nevada
            
            Back
                office and storage
            
            
            1,500
            
            $
            2,000
            
            
            Month-to-Month




*)
      During
      2007 Verge leased a different lot for Sale Center for $13,500 per month on
      month-to month basis. Verge surrender said lot on February 2008, and retains
      its
      security deposit back on March 7, 2008.




25





**)
      Said
      space is leased from Mr. Yossi Attia - the Company CEO





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, 2007, 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 (number of units may be changed due to
                re-alignment) plus commercial retail in down town Las Vegas. Construction
                estimated to commence during 2008.Sitnica
              Consecutive
                lots in Samobor, Croatia
            
            25
                Lots totaling for about 74.7 thousand square meters
            
            Land
                for future development13059
                Dickens
            
            13059
                Dickens St., Studio City, CA 91604
            
            Lot
                under developmentfor
                a single home610
                N Crescent Heights
            
            610
                N Crescent Heights, Los Angeles, CA 90048
            
            Lot
                under developmentfor
                a single home




26




The
      Company has obtained complete ownership of the properties detailed above;
      however the financial institutions, that provided the loans for mortgages
      associated with such properties, have first priority mortgages and assignment
      of
      rent rights on 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.




27




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 took place on June
      8,
      2007, and, as stated above, the Order was entered on June 8, 2007.




The
      Company filed a complaint in the Superior Court for the County of Los Angeles,
      against a foreign 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 this attorney in the amount of approximately 250,000 Euros
      (approximately $316,000 as of the date of actual transferring the funds), plus
      interest, costs and fees. Defendant has not yet appeared in the action. The
      Company believes that it has a meritorious claim for the return of monies
      deposited with defendant in a trust capacity, and, from the documents in the
      Company’s possession, there is no reason to doubt the validity of the claim.
      During April 2007 defendant returned $92,694 (70,000 Euros at the relevant
      time)
      which netted to $72,694 post legal expenses; the Company has granted him a
      15-day extension to file his defense. Post the extension and in lieu of not
      filing a defense, the Company filed for a default judgment. On October 25,
      2007
      the Company obtained a California Judgment by court after default against the
      attorney for the sum of $249,340.65. However, management does not have any
      information on the collectibility of said judgment that entered in
      court.





Verge
      is
      a wholly owned subsidiary of AGL. AGL is a majority owned subsidiary of the
      Company. Verge is involved in legal proceedings in connection with the ongoing
      Chapter 11 bankruptcy proceedings of Prudential Americana LLC of Las Vegas,
      NV.
      Through February 29, 2008, Prudential is the broker of record for the
      condominium project being developed by Verge. Verge currently has approximately
      $50,000 on deposit as an advanced payment of the brokerage commissions. Verge
      presently owes, according to Prudential, $70,000 in monthly progress billings
      and Verge contends that it is entitled to offset the $50,000 against these
      progress billings. Verge believes Prudential breached fiduciary duties in
      connection with Prudential’s performance as a broker and has filed a Proof of
      Claim in Chapter r11 proceedings in excess of $9 million. As of today, the
      Company does not believe it will have a material liability in relation to these
      charges.





On
      November 21, 2007 LM Construction filed a demand for arbitration proceeding
      against Verge in connection with amounts due for general contracting services
      provided by them during the construction of the Company Sales Center. The
      Company agreed to enter into arbitration, deny any wrong doing and counterclaim
      damages. Amount in dispute are approximately $67,585 and are included in other
      current liabilities on the balance sheet.





Navigator
      Acquisition - Registration Rights





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. As of today the Company is in default
      on
      said agreement and therefore made a provision for compensation represent
      $150,000 as agreed FINAL compensation.





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 September 30, 2007 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 September 30, 2007, the Company has accrued $201,020 as the estimated
      fair value of this indemnity.





28





**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.





The
      Company held the Annual Meeting of Stockholders (the “Meeting”) of Emvelco
      Corp., a Delaware corporation (the “Company” or “Emvelco”), at 11:30 A.M. (Los
      Angeles, California time), on December 7, 2007 at its corporate offices located
      at 468 North Camden Drive, Conference Room, 2nd Floor, Beverly Hills, California
      90210 for the following purposes: 1. To elect five (5) directors of the Company
      to serve until the 2008 Annual Meeting of Stockholders or until their successors
      have been duly elected and qualified; 2. To ratify the selection of Robison
      Hill
& Co. as our independent auditors for the fiscal year ending December 31,
      2007; 3. To authorize the Board of Directors to terminate its status as a
      reporting company; and 4. To transact such other business as may properly come
      before the Meeting and any adjournment or postponement thereof.





29





**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:****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
            
            
            1.93
            
            
            1.30June
                30, 2007
            
            
            1.60
            
            
            1.17September
                30, 2007
            
            
            1.56
            
            
            0.92December
                31, 2007
            
            
            1.10
            
            
            0.40**2008**March
                31, 2008
            
            
            1.57
            
            
            0.41




On
      March
      31, 2008 the closing bid price on the NASDAQ for the Company’s common stock
      was **** $0.85.




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. Upon the hearing on May 31, 2007, the
      Panel granted the Company’s request for continued listing.





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. Upon the hearing on May
      31,
      2007, the Panel granted the Company’s request for continued
      listing.





30




On
      November 1, 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)(4)
      requiring the Company to maintain a minimum bid price of $0.80 and that its
      securities are, therefore, subject to delisting from the NASDAQ Capital Market
      if it does not regain compliance by April 29, 2008. If the bid price of the
      Company's common stock closes at $1.00 per share or more for a minimum of 10
      consecutive business days anytime prior to April 29, 2008, then the NASDAQ
      Staff
      will provide written notification that it complies with the Rule. On February
      11, 2008, the Company received a decision letter from NASDAQ informing the
      Company that it has regained compliance with Marketplace Rule 5310(c)(4). The
      Staff letter noted that the closing bid price of the Company's common stock
      has
      been at $1.00 per share or greater for at least 10 consecutive business days.
      On
      February 11, 2008, the Company received a decision letter from The NASDAQ Stock
      Market LLC ("NASDAQ") informing the Company that it has regained compliance
      with
      Marketplace Rule 5310(c)(4). The Staff letter noted that the closing bid price
      of the Company's common stock has been at $1.00 per share or greater for at
      least 10 consecutive business days.




**Holders
      of Common Stock**




As
      of
      March 31, 2008, the Company had 5,109,181 **** 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 J. 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.




On
      February 14, 2008, the Company raised $300,000 from two private offerings of
      its
      securities. One offering was in the amount of $100,000 and the other was in
      the
      amount of $200,000. The private placements were for Company common stock which
      shall be "restricted securities" and were sold at $1.00 per share. The money
      raised from the private placement of the Company’s shares will be used for
      working capital and business operations of the Company. The PPMs were done
      pursuant to Rule 506. A Form D has been filed with the Securities and Exchange
      Commission in compliance with Rule 506 for each Private Placement.




On
      March
      30, 2008, the Company raised $200,000 from the private offering of its
      securities. The private placements were for the Company’s common stock which
      shall be "restricted securities" and were sold at $1.00 per share. The offering
      included 200,000 warrants to be exercised at $1.50 for two years (for 200,000
      Company common stock), and additional 200,000 warrants to be exercised at $2.00
      for four years (for 200,000 Company common stock). The warrants may be exercised
      to common shares of the Company only if the Company issues, subsequent to the
      date of the offering, 25 million or more shares of its common stock. The funds
      raised from the private placement of the Company’s shares will be used for
      working capital and business operations of the Company. The offering was done
      pursuant to Rule 506. A Form D has been filed with the Securities and Exchange
      Commission in compliance with Rule 506 for each Private Placement.





**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, 2007, the Company held
      657,362 treasury shares at a cost of $ 1,279,893 .





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.





31




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, 2007, the Company and its subsidiaries have four 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
      (number of units may be changed due to realignment and redesign) plus commercial
      space. Verge obtained entitlements to the Verge Property, and has advised that
      it expects to break ground in 2008. Sales commenced during 2007.




Each
      loan
      provided to Verge is due on demand or upon maturity on January 14, 2008.
      T he
      Company and Verge agreed to extend the term of the agreement until funds are
      available for repayment, which is expected in the year ending December 31,
      2008.
      Interest continues to accrue at 12% per annum. 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.





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors intend to invest in an entity listed on the Tel Aviv Stock Exchange
      -
      the Atia Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred
      to
      as AGL). In addition, the Investors intend to transfer rights and control of
      various real estate projects to AGL. The Investors and AGL then effected a
      transaction, pursuant to which the Investors and/or the Investors' affiliates
      acquired about 76% of the AGL in consideration of the transfer of the rights
      to
      the various real estate projects (including Verge) to AGL (the "Transaction").
      Upswing, among other items, advised the Investors on the steps necessary to
      effectuate the contemplated transfer of real estate project rights to
      AGL.





Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      further intends to exercise its option (the "Sitnica Option") to purchase ERC's
      derivative rights and interest in Sitnica d.o.o. through ERC's holdings
      (one-third (1/3) interest) in AP Holdings Limited ("AP Holdings"), a company
      organized under the Companies (Jersey) Law 1991, which equates to a one-third
      interest in Sitnica d.o.o. (excluding ERC's interest in AP Holdings). The
      Sitnica Option is exercisable in the amount of $4,000,000, payable by reducing
      the outstanding loan amount owing to the Company under the Investment Agreement
      by $3,550,000 and reducing the Company's deposit with Shalom Atia, Trustee
      of AP
      Holdings, by $450,000.





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, intends to exercise
      its option (the "Verge Option") to purchase a multi-use condominium and
      commercial property in Las Vegas, Nevada, via the purchase and acquisition
      of
      all outstanding shares of common stock of Verge. The Verge Option is exercisable
      in the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.




32





As
      of
      December 31, 2007, Verge is a wholly owned subsidiary of the Company’s majority
      owned subsidiary, the Atia Group Limited (“AGL”). The Company owns 58.3% of the
      outstanding stock of AGL.





(b)
            Sitnica
                d.o.o.Sitnica
                project




The
      Croatian subsidiary of AGL obtained the rights to 25 consecutive lots
      (hereinafter - the "Land" or the "Assets") from the Atia Project at the value
      of
      these assets on the books of the Atia Project. In view of the fact that these
      real estate assets are held for an as yet undetermined future use, Sitnica
      reported this real estate as investment real estate in accordance with
      Accounting Standard No. 16 of the Israel Accounting Standards Board. The
      subsidiary elected to measure the investment real estate at fair value as its
      accounting policy. This treatment is consistent with FAS 141, *Business
      Combination* .
      Gains
      deriving from a change between the cost of the assets and their fair value
      derive mainly from the consolidation of individual assets into one large lot,
      the value of which as a single unit is greater than the costs of its
      parts.





(c)
            Crescent
                Heights project




T he
      Company, formed and organized 610 N. crescent Heights, LLC, a California limited
      liability company (the "CH LLC") on August 13, 2007 as wholly owned subsidiary
      to purchase and develop that certain property located at 610 North Crescent
      Heights, Los Angeles, California 90048 (the "CH Property"). The CH Property
      was
      acquired for $900,000 not including closing costs. On November 13, 2007 the
      CH
      LLC finalized a construction loan with East West Bank of $1,440,000. The CH
      Property is under development.





(d)
            Dickens
                project




T he
      Company, formed and organized 13059 Dickens LLC, a California limited liability
      company (the "Dickens LLC") on November 20, 2007 to purchase and develop that
      certain property located at 13059 Dickens Street, Studio City, California 91604
      (the "Dickens Property"). On December 5, 2007, the Dickens LLC entered into
      an
      All Inclusive Deed of Trust, All Inclusive Promissory Note in the principal
      amount of $1,065,652, Escrow Instructions and Grant Deed in connection with
      the
      purchase of the Dickens Property. Pursuant to the All Inclusive Deed of Trust
      and All Inclusive Promissory Note, the Dickens LLC purchased the Dickens
      Property for the total consideration of $1,065,652 from Kobi Louria ("Seller"),
      an unrelated third party and fifty percent (50%) owner of the Dickens LLC.
      The
      Company and Seller formed the Dickens LLC to own and operate the Dickens
      Property and to develop a single family residence at the location. The Dickens
      LLC is owned 50/50 by the Company and Seller. Escrow closed on December 18,
      2007. The Dickens Property is under design as exiting house was demolished
      on
      February 2008. Development is expected to commence in the second quarter of
      2008.





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.




33




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
      its
      subsidiaries currently in the USA and Croatia.




34




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.





35




**Acquisitions
      and Disposals**





(a)
      Disposal of ERC, Verge and Acquisition of AGL





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. 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.





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors intend to invest in an entity listed on the Tel Aviv Stock Exchange
      -
      the Atia Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred
      to
      as AGL). In addition, the Investors intend to transfer rights and control of
      various real estate projects to AGL. The Investors and AGL then effected a
      transaction, pursuant to which the Investors and/or the Investors' affiliates
      acquired about 76% of the AGL in consideration of the transfer of the rights
      to
      the various real estate projects (including Verge) to AGL (the "Transaction").
      Upswing, among other items, advised the Investors on the steps necessary to
      effectuate the contemplated transfer of real estate project rights to
      AGL.





Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      further intends to exercise its option (the "Sitnica Option") to purchase ERC's
      derivative rights and interest in Sitnica d.o.o. through ERC's holdings
      (one-third (1/3) interest) in AP Holdings Limited ("AP Holdings"), a company
      organized under the Companies (Jersey) Law 1991, which equates to a one-third
      interest in Sitnica d.o.o. (excluding ERC's interest in AP Holdings). The
      Sitnica Option is exercisable in the amount of $4,000,000, payable by reducing
      the outstanding loan amount owing to the Company under the Investment Agreement
      by $3,550,000 and reducing the Company's deposit with Shalom Atia, Trustee
      of AP
      Holdings, by $450,000.





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, intends to exercise
      its option (the "Verge Option") to purchase a multi-use condominium and
      commercial property in Las Vegas, Nevada, via the purchase and acquisition
      of
      all outstanding shares of common stock of Verge. The Verge Option is exercisable
      in the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.





Said
      transaction was closed on November 2, 2007. Upon closing, Verge became a fully
      owned subsidiary of AGL and the Company owns 58.3% of AGL and consolidates
      AGL’s
      results in the financial statements.




36




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





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.




37




**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 existing projects (Verge, Sitnica,
      Dickens, and Crescent Heights projects), including obtaining financing of Verge
      Living for the purpose of commencing or continuing the projects in 2008. Our
      plan is to proceed with financial investment in real estate developments in
      the
      US and Croatia. This phase of development will include the following
      elements:





(a)
      Attempting to raise bond or debt financing through Verge and AGL 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 further
      real estate developments in Croatia. In connection with Verge financing, the
      Company anticipates spending approximately $1,000,000 on professional fees
      over
      the next 12 months in order to facilitate our financial investment, by creating
      more strength to the financial investments of the Company.





(b)
      The
      Company anticipates spending approximately $250,000 on professional fees over
      the next 12 months in order to file the requirements under the Securities
      Laws.




(c)
      T he
      Company and Davy Crockett Gas Company LLC, a privately-held Nevada corporation
      (“DCG”), have entered into an agreement and plan of exchange, pursuant to which
      we will acquire all of the issued and outstanding securities of DCG. If the
      DCG
      acquisition is consummated, DCG will become a wholly-owned subsidiary of Emvelco
      and outstanding membership interest will be exchange by the holders thereof
      for
      shares of Emvelco. DCG headquartered in Bel Air is a newly formed LLC which
      holding certain development rights for Gas drilling in Crockett County, TX.
      The
      closing of the acquisition is subject to due diligence and finalizing definitive
      documentation.




(d)
      Subject to obtaining adequate financing, the Company anticipates that it will
      be
      spending approximately $20,000,000 over the next 12 month period pursuing its
      stated plan of investment operation, subject of obtaining financing. 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, debt or
      equity that would enable it to proceed with its plan of investment
      operation.




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
      major fluctuations in interest rates (in order to depress inflation trends).
      Such fluctuations in interest rates make financing more expensive, and more
      difficult to obtain. The Company anticipates that it will be spending
      approximately $20 million over the next 12 month period pursuing its stated
      plan
      of investment operation. The Company believes that its liquidity will not 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.




38




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, as well as financial suit
      for
      DCG.





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 2007 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.




39




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,
      and the Croatian 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.




40




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 $250,000 to be paid in the form
      of
      Company shares of common stock. The number of shares to be received by Mr.
      Attia
      was calculated based on the average closing price 10 days prior to the
      commencement of each employment year. Mr. Attia will receive 111,458 shares
      of
      the Company’s common stock for his first year service. No shares have been
      issued to date. The financial statements accrued the liability toward Mr. Attia
      employment agreements. The
      board
      of directors of AGL approved the employment agreement between AGL and Mr. Yossi
      Attia, the controlling shareholder and CEO of the Company. The agreement goes
      into effect on the date that the aforementioned allotments are consummated
      and
      stipulates that Mr. Attia will serve as the CEO of AGL in return for a salary
      that costs AGL an amount of US$ 10 thousand a month. Mr. Attia is also
      entitled to reimbursement of expenses in connection with the affairs of AGL,
      in
      accordance with AGL policy, as set from time to time. In addition, Mr. Attia
      is
      entitled to an annual bonus of 2.5% of the net, pre-tax income of the Company
      in
      excess of NIS 8 million.




The
      board
      of directors of AGL approved an employment agreement between the Company and
      Mr.
      Shalom Attia, the controlling shareholder and CEO of AP Holdings Ltd. The
      agreement goes into effect on the date that the aforementioned allotments are
      consummated and stipulates that Mr. Shalom Attia will serve as the VP - European
      Operations of AGL in return for a salary that costs the Company an amount of
      US$10 thousand a month. Mr. Attia is also entitled to reimbursement of expenses
      in connection with the affairs of the Company, in accordance with Company
      policy, as set from time to time. In addition, Mr. Shalom Attia is entitled
      to
      an annual bonus of 2.5% of the net, pre-tax income of AGL in excess of NIS
      8
      million.




The
      aforementioned agreements were ratified by the general shareholders meeting
      of
      AGL on 30 October 2007.




41




During
      2007 and 2006, 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 4 in the 2007 financial
      statements).





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K’s - See Disposal of ERC, Verge and
      Acquisition of AGL), the Company, the Company's chief executive officer Yossi
      Attia, and Darren Dunckel - CEO of ERC (collectively, the "Investors") entered
      into an Agreement (the "Upswing Agreement") with a third party, Upswing, Ltd.
      (also known as Appswing Ltd., hereinafter referred to as "Upswing"). Pursuant
      to
      the Upswing Agreement, the Investors intend to invest in an entity listed on
      the
      Tel Aviv Stock Exchange - the Atia Group Limited, f/k/a Kidron Industrial
      Holdings Ltd (herein referred to as AGL). Based on closing of said transaction,
      on July 23, 2007 the Company issued a straight note to Upswing for the amount
      of
      $2,000,000. This promissory note is made and entered into based upon a series
      of
      agreements by and between Maker and Holder dated as of June 5, 2007,
      July 20, 2007 and July 23, 2007, wherein the actual Closing of the
      transactions which are the subject matter of the Appswing Agreements known
      as
      the Kidron Industrial Holdings, Ltd. Transaction (the “Kidron Transaction”) has
      taken place and therefore this note is final and earned, as referenced in the
      Appswing Agreement dated July 20, 2007 (the “Closing”) and the Company
      becoming the majority shareholder of Kidron with a controlling interest of
      not
      less than 50.1%. The Unpaid Principal Balance of this note shall bear interest
      until due and payable at a rate equal to 8 % per annum. The principal hereof
      shall be due and payable in full in no event sooner than January 22, 2008,
      (the "Maturity Date"). 51% of the Company holdings in AGL, are pledge to secure
      said note.





As
      the
      Company defaulted on said note, on April 11, 2008 the parties amended the note
      terms, by adding a contingent convertible feature to the note, as well as extend
      its Maturity Date in no event sooner than January 22, 2013. The outstanding
      debt represented by this Note (including accrued Interest) may be converted
      to
      ordinary common shares of the Company only if The Company issues during any
      six
      (6) month period subsequent to the date of this Note, 25,000,000 (twenty five
      million) or more shares of its common stock. Holder may, at any time after
      the
      occurrence of the preceding event, have the right to convert this note in whole
      or in part into The Company common shares at a conversion price of $0.08 per
      share.




**Off
      Balance Sheet Arrangements**





There
      are
      no material off balance sheet arrangements.





**Results
      of Operations**





**Year
      Ended December 31, 2007 compared to Year Ended December 31,
      2006**





The
      consolidated statements of operations for the years ended December 31, 2007
      and
      2006 are compared in the sections below :





*Revenues*





The
      following table summarizes our revenues for the year ended December 31, 2007
      and
      2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Total
                revenues
            
            $
            6,950,000
            
            $
            22,594




The
      revenue increase reflects the sales of three real estate properties in 2007
      of
      approximately $7.0 million. The 2006 revenue consisted of rent income from
      real
      estate activity. There was no revenue from the majority owned subsidiary, AGL,
      for the period November 2, 2007 through December 31, 2007.  The $23
      thousand of revenue in 2006 related to rental income.





*Cost
      of revenues*





The
      following table summarizes our cost of revenues for the year ended December
      31,
      2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Total
                cost of revenues
            
            $
            6,505,506
            
            $
            -





The
      cost
      of revenue increase reflects the sales of three real estate properties in 2007
      of approximately $6.5 million. There was no cost of revenues from the majority
      owned subsidiary, AGL, for the period November 2, 2007 through December 31,
      2007.  There was no cost of revenues for the year ended December 31,
      2006.





There
      was
      no cost of revenue from the majority owned subsidiary, AGL for the period
      November 2, 2007 through December 31, 2007.





42




*Compensation
      and related costs*





The
      following table summarizes our compensation and related costs for the year
      ended
      December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Compensation
                and related costs
            
            $
            762,787
            
            $
            583,773




Overall
      compensation and related costs increased by 31%, or $179,014 primarily as the
      result of the compensation charge for the settlement with Navigator, amounting
      to $150,000. Also, the CEO’s salary increased $278,676 from $81,324 for the year
      ended December 31, 2006 to $360,000 for the year ended December 31, 2007. These
      increases were offset by the stock compensation expense decreasing approximately
      $260,973 from $341,206 for the year ended December 31, 2006 to $80,233 for
      the
      year ended December 31, 2007.





*Severance
      to officer*





The
      following table summarizes severance to officer costs for the year ended
      December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Severance
                to officer
            
            $
            —
            
            $
            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.
      There was no severance agreements issued in the year ended December 31,
      2007.





*Consulting,
      professional and director fees*





The
      following table summarizes our consulting, professional and director fees for
      the year ended December 31, 2007 and 2006:





Year
                ended December 31
            
            **2007**
            
            **2006**Consulting,
                professional and director fees
            
            $
            1,195,922
            
            $
            2,106,316




Overall
      consulting, professional and director fees decreased by 43%, or $906,394,
      primarily as the result of the following factors: (i) a decrease in consulting
      expense of $186,707 relating to the acquisition of the real estate subsidiary
      in
      2006; (ii) a decrease in compensation charge on stock options to the directors
      in accordance with SFAS 123R, amounting to $276,549, (iii) a decrease of
      $443,138 related to the cost of 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, 2007 and 2006:





Year
                ended December 31
            
            **2007**
            
            **2006**Other
                selling, general and administrative expenses
            
            $
            469,942
            
            $
            921,004




43




Overall,
      other selling, general and administrative expenses decreased by 49%, or
      $451,062, primarily attributable to the reduction expenses incurred in
      connection with the real estate subsidiary acquired in June 2006 and a decrease
      in connection with traveling cost and corporate costs.





*Goodwill
      impairment*





The
      following table summarizes our goodwill impairment fees for the year ended
      December 31, 2007 and 2006:





Year
                ended December 31
            
            **2007**
            
            **2006**Goodwill
                impairment
            
            $
            10,245,377
            
            $
            —




For
      the
      year ended December 31, 2007, an analysis was performed on the goodwill
      associated with the investment in AGL, and an impairment expense was charged
      against the P&L for approximately $10.2 million. There was no goodwill
      impairment for the year ended December 31, 2006.





*Software
      development expense*





The
      following table summarizes our software development expense for the year ended
      December 31, 2007 and 2006:





Year
                ended December 31
            
            **2007**
            
            **2006**Software
                development expense
            
            $
            136,236
            
            $
            —




In
      the
      year ended December 31, 2007, the Company consolidated the results of operations
      of Micrologic, which incurred $136,236 of software development expense. There
      was no software development expense in the year ended December 31, 2006.





*Depreciation
      and amortization*





The
      following table summarizes our depreciation and amortization for the year ended
      December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Depreciation
            
            $
            —
            
            $
            13,516




Depreciation
      has decreased by $13,516 in the year ended December 31, 2007 compared to the
      same period in 2006. There is no depreciation expense in the year ended December
      31, 2007 due to the capitalization of depreciation into the Investment in Land
      Development accounts for the majority owned subsidiary.





*Net
      interest income*





The
      following table summarizes our net interest income for the year ended December
      31, 2007 and 2006:




Year
                ended December 31,
            
            **2007**
            
            **2006**Interest
                income
            
            $
            1,665,379
            
            $
            635,099Interest
                expense
            
            $
            (386,108
            )
            $
            (59,934
            )Net
                interest income
            
            $
            1,279,271
            
            $
            575,165





An
      amount
      of $1,030,280 increase in interest income is attributable to the increasing
      note
      receivable balance from a former subsidiary, Emvelco RE Corp, and an increasing
      restricted cash balance, which accrued interest on a certificate of deposit.
      Interest expenses increased due to the increasing secured bank loan balances
      as
      well as interest accrued on the Appswing note payable.





*Gain
      on issuance of subsidiary stock*





The
      following table summarizes our gain on issuance of subsidiary stock for the
      year
      ended December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**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. There
      was no issuance of subsidiary stock in the year ended December 31, 2007.




44




**Liquidity
      and Capital Resources**




As
      of
      December 31, 2007, our cash and cash equivalents were $0.4 million, a decrease
      of $2.5 million from the end of fiscal year 2006.




Cash
      provided by operations in fiscal 2007 was $0.1 million, an increase of $2.9
      million from cash used in operations of $2.8 million in fiscal 2006. The change
      in mainly attributable to the gains recorded on the sales of two subsidiaries
      in
      the year ending December 31, 2006, as well as the increase in current
      liabilities in the year ended December 31, 2007.





In
      2007,
      cash used in investing activities was $3.8 million, which consisted of the
      following: (i) $8.6 million additional funding provided to ERC, which was offset
      by (ii) $3.2 cash received in connection with the Navigator sale and (iii)
      $2.1
      million of cash which was acquired in the AGL transaction. 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.
      I





Cash
      provided by financing activities in 2007 was $1.3 million. Of this amount,
      the
      Company received $5.4 million of proceeds from loans utilized, while $3.9
      million was used as payment on notes payable. 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 $1.0 million was used for
      repurchase of the Company’s common stock





The
      Company currently anticipates that its available cash resources will not be
      sufficient to meet its presently anticipated working capital requirements.
      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**





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. The Company adopted FIN 48 on January 1, 2007 and
      the
      adoption did not have a material impact on the Company.




45




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.




46




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, 2007 and for the years ended December 31 2006, 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
      believed that this communication was 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.




47




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 years ended December
      31, 2007 and 2006. The decision to engage RHC as the Company's independent
      registered public accounting firm was approved by the Company's Board of
      Directors, and ratify the selection of Robison Hill & Co. as our independent
      auditors for the fiscal year ending December 31, 2007, by our shareholders
      meeting that took place on December 7, 2007.




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**





Evaluation
      of Disclosure Controls and Procedures





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission's rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by us in the reports that we file under the Exchange
      Act is accumulated and communicated to our management, including our principal
      executive and financial officers, as appropriate to allow timely decisions
      regarding required disclosure.





As
      of the
      end of the period covered by this Annual Report, we conducted an evaluation,
      under the supervision and with the participation of our Chief Executive Officer
      (Principal Executive, Financial and Accounting Officer), of our disclosure
      controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of
      the
      Exchange Act). Based upon this evaluation, our Chief Executive Officer
      (Principal Executive, Financial and Accounting Officer) concluded that the
      Company’s disclosure controls and procedures are effective to ensure that
      information required to be disclosed by the Company in the reports that we
      file
      or submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms and which also
      are effective in ensuring that information required to be disclosed by the
      Company in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the Company’s management, including the
      Company’s Chief Executive Officer (Principal Executive, Financial and Accounting
      Officer), to allow timely decisions regarding required disclosure.





Management's
      Report on Internal Control over Financial Reporting





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting of the Company. Because of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements. Also, projections of any evaluation of effectiveness to future
      periods are subject to the risk that controls may become inadequate because
      of
      changes in conditions, or that the degree of compliance with the policies and
      procedures may deteriorate.





Management,
      with the participation of our principal executive officer, financial and
      accounting officer, has evaluated the effectiveness of our internal control
      over financial reporting as of December 31, 2007 based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
      because of the Company’s limited resources and limited number of employees,
      management concluded that, as of December 31, 2007, our internal control
      over financial reporting is not effective in providing reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with U.S. generally
      accepted accounting principles.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the SEC that permit the
      Company to provide only management’s report in this annual report.





Limitations
      on Effectiveness of Controls and Procedures





Our
      management, including our Chief Executive Officer (Principal Executive,
      Financial and Accounting Officer), does not expect that our disclosure controls
      and procedures or our internal controls will prevent all errors and all fraud.
      A
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Further, the design of a control system must reflect the fact that
      there are resource constraints and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within the Company have been
      detected. These inherent limitations include, but are not limited to, the
      realities that judgments in decision-making can be faulty and that breakdowns
      can occur because of simple error or mistake. Additionally, controls can be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by management override of the control. The design of any system
      of
      controls also is based in part upon certain assumptions about the likelihood
      of
      future events and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future conditions. Over time,
      controls may become inadequate because of changes in conditions, or the degree
      of compliance with the policies or procedures may deteriorate. Because of the
      inherent limitations in a cost-effective control system, misstatements due
      to
      error or fraud may occur and not be detected.




48





Changes
      in internal controls





There
      have been no changes in our internal control over financial reporting identified
      in connection with the evaluation required by paragraph (d) of Rule 13a-15
      or
      15d-15 under the Exchange Act that occurred during the quarter ended December
      31, 2007 that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





Notwithstanding
      the foregoing, 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.





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.





The
      Panel
      hearing took place on May 31, 2007, and the panel determined that the Company
      complies with NASDAQ Rules.




On
      November 1, 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)(4)
      requiring the Company to maintain a minimum bid price of $1.00 and that its
      securities are, therefore, subject to delisting from the NASDAQ Capital Market
      if it does not regain compliance by April 29, 2008. If the bid price of the
      Company's common stock closes at $1.00 per share or more for a minimum of 10
      consecutive business days anytime prior to April 29, 2008, then the NASDAQ
      Staff
      will provide written notification that it complies with the Rule. In the event
      that the Company does not meet the minimum bid requirement by April 29, 2008
      but
      satisfies all initial listing criteria, the Company will be given a 180 day
      extension to meet the minimum bid price. In the event that the Company does
      not
      meet the initial listing criteria, NASDAQ will provide the Company with written
      notification that the Company's securities will be delisted, which such
      determination may be appealed by the Company.




On
      February 11, 2008, the Company received a decision letter from The NASDAQ Stock
      Market LLC ("NASDAQ") informing the Company that it has regained compliance
      with
      Marketplace Rule 5310(c)(4). The Staff letter noted that the closing bid price
      of the Company's common stock has been at $1.00 per share or greater for at
      least 10 consecutive business days.





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




On
      January 30, 2008, Atia Group f/k/a Kidron Industrial Holdings, Ltd. ("Atia
      Group" or “AGL”), of which the Company is a principal shareholder, notified the
      Company that it had entered into two (2) material agreements (wherein the
      Company was not a party but will be directly affected by their terms) with
      Trafalgar Capital Specialized Investment Fund ("Trafalgar"). Specifically,
      Attia
      Group and Trafalgar entered into a Committed Equity Facility Agreement ("CEF")
      in the amount of 45,683,750 New Israeli Shekels (approximately US$12,000,000.00
      per the exchange rate at the Closing) and a Loan Agreement ("Loan Agreement")
      in
      the amount of US $500,000 (collectively, the "Finance Documents") pursuant
      to
      which Trafalgar grants Atia Group financial backing. The Company is not a party
      to the Finance Documents.




49




The
      CEF
      sets forth the terms and conditions upon which Trafalgar will advance funds
      to
      Atia Group. Trafalgar is committed under the CEF until the earliest to occur
      of:
      (i) the date on which Trafalgar has made payments in the aggregate amount of
      the
      commitment amount (45,683,750 New Israeli Shekels); (ii) termination of the
      CEF;
      and (iii) thirty-six (36) months. In consideration for Trafalgar providing
      funding under the CEF, the Atia Group will issue Trafalgar ordinary shares,
      as
      existing on the dual listing on the Tel Aviv Stock Exchange (TASE) and the
      London Stock Exchange (LSE) in accordance with the CEF. As a further inducement
      for Trafalgar entering into the CEF, Trafalgar shall receive that number of
      ordinary shares as have an aggregate value calculated pursuant to the CEF,
      of
      U.S. $1,500,000.




The
      Loan
      Agreement provides for a discretionary loan in the amount of $500,000 ("Loan")
      and bears interest at the rate of eight and one-half percent (81⁄2%) per annum.
      The Loan is to be used by Atia Group for the sole purpose of investment in
      its
      subsidiary Sitnica d.o.o. which controls the Samobor project in Croatia. The
      security for the Loan shall be a pledge of Atia Group's shareholder equity
      (75,000 shares) in Verge Living Corporation.




The
      aforementioned transactions as set forth under a non-binding term sheet were
      reported on the Company's Form 8K on December 5, 2007.




Simultaneously,
      on the same date as the aforementioned Finance Documents, the Company entered
      into a Share Exchange Agreement (the "Share Exchange Agreement") with Trafalgar.
      The Share Exchange Agreement provides that the Company must deliver, from time
      to time, and at the request of Trafalgar, those shares of Atia Group, in the
      event that the ordinary shares issued by Atia Group pursuant to the terms of
      the
      Finance Documents are not freely tradable on the Tel Aviv Stock Exchange or
      the
      London Stock Exchange. In the event that an exchange occurs, the Company will
      receive from Trafalgar the same amount of shares that were exchanged. The
      closing and transfer of each trench of the Exchange Shares shall take place
      as
      reasonably practicable after receipt by the Company of a written notice from
      Trafalgar that it wishes to enter into such an exchange transaction. To date,
      all of the Company's shares in Atia Group are restricted by Israel law for
      a
      period of six (6) months since the issuance date, and then such shares may
      be
      released in the amount of one percent (1%) (From the total outstanding shares
      of
      Atia Group which is the equivalent of approximately 1,250,000 shares per
      quarter), subject to volume trading restrictions.




Trafalgar
      is an unrelated third party comprised of a European Euro Fund registered in
      Luxembourg as FIS ( Fund
      Investment Special) and regulated by the CSSF . Trafalgar
      has assets currently in excess of US $150 million. The
      Company, its subsidiaries, officers and directors are not affiliates of
      Trafalgar or its officers.




50


**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
            
            64
            
            Director,
                Board Chairman, Audit and Compensation Committees
                ChairmanRobin
                Ann Gorelick
            
            50
            
            Secretary
                & Company CounselIlan
                Kenig***)**
            
            47
            
            Director,
                Audit and Compensation Committee’s memberGerald
                Schaffer
            
            84
            
            Director,
                Audit and Compensation Committee’s memberDarren C Dunckel***)**
            
            39
            
            Director,
              Verge
              President




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. Upon closing the acquisition of AGL Mr. Attia was appointed as
      the
      CEO of AGL. Mr. Yossi Attia serves as interim chairmen of the board of AGL.





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. Mr. Kenig is partial equity
      owner in Micrologic and serving as President and director at Micrologic.




51




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.




On
      September 17, 2007, the Board of Directors voted to appoint Darren C. Dunckel
      as
      a director of the Company. There are no understandings or arrangements between
      Mr. Dunckel and any other person pursuant to which Mr. Dunckel was selected
      as a
      director. Said appointment was ratified by our shareholders meeting on December
      7, 2007. Mr. Dunckel presently does not serve on any Company committee. Mr.
      Dunckel may be appointed to serve as a member of a committee although there
      are
      no current plans to appoint Mr. Dunckel to a committee as of the date hereof.
      Mr. Dunckel does not have any family relationship with any director, executive
      officer or person nominated or chosen by the Company to become a director or
      executive officer. From 2006 to the present, Mr. Dunckel serves as President
      of
      Emvelco RE Corp., a Nevada corporation and former subsidiary of the Company
      ("ERC"). As President, he oversees management of real estate acquisitions,
      development and sales in the United States and Croatia where ERC holds
      properties. From 2005 to the present, Mr. Dunckel has been President of Verge
      Living Corporation, a Nevada corporation ("Verge") and wholly owned subsidiary
      of ERC (f/k/a The Aquitania Corp. and AO Bonanza Las Vegas, Inc.). In connection
      with this position, Mr. Dunckel oversees management of the Verge Project, a
      318
      unit 30,000 sq ft commercial mixed use building in Las Vegas, Nevada. The
      Company was the initial financier of the Verge Project. Concurrently, Mr.
      Dunckel is the Managing Director of The International Holdings Group Ltd.
      ("TIHG"), the sole shareholder of ERC and as such manages the investment
      portfolio of this holding company. Since 2004, Mr. Dunckel is the President
      of
      MyDaily Corporation managing the operations of this financial services company.
      Prior to 2004, from 2002 through 2004, Mr. Dunckel was Vice President, Regional
      Director for the Newport Group managing the territory for financial and
      consulting services. From 2000 to 2002, Mr. Dunckel was Vice President, Regional
      Director for New York Life Investment Management consulting with financial
      advisors and corporations with respect to investments and financial services.




Mr.
      Dunckel has entered into various transactions and agreements with the Company
      on
      behalf of ERC, Verge and TIHG (all such transactions have been reported on
      the
      Company filings of Form 8Ks). On December 31, 2006, Mr. Dunckel executed the
      Agreement and Plan of Exchange on behalf of TIHG which was issued shares in
      ERC
      in consideration for the exchange of TIHG's interest in Verge. Pursuant to
      that
      certain Stock Transfer and Assignment of Contract Rights Agreement dated as
      of
      May 14, 2007, the Company transferred its shares in ERC in consideration for
      the
      assignment of rights to that certain Investment and Option Agreement, and
      amendments thereto, dated as of June 19, 2006 which gives rights to certain
      interests and assets. Mr. Dunckel has represented and executed the foregoing
      agreements on behalf of ERC, Verge and TIHG as well as executed agreements
      on
      behalf of Verge to transfer 100% of Verge.





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.
      On
      October 4, 2007, Robin Gorelick, resigned as a director of Emvelco Corp. (the
      "Company"). Ms. Gorelick continues to act as general counsel and corporate
      secretary for the Company





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.





***)
      - Contingent upon the approval of the DCG transaction by our Shareholders,
      Messers Kenig and Dunckel will tender their resignations as 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.





**2007
      BOARD MEETINGS**





In
      2007,
      the Board met one (1) time and made nine (9) written consents and 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
      2007.


52




**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 in 2007. 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 did not meet as a committee since it had no business
      to
      discuss outside of the general board meetings.





**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 2007. 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, 2007, there was no failure to
      comply with Section 16(a) filing requirements applicable to its officers,
      Directors and ten percent stockholders.


53




**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 2007 approaching $1 million, and the Company does not believe that any
      executive officer’s compensation is likely to exceed $1 million in 2007, 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, 2007
      to
      the Company’s CEO and our most highly compensated officers other than the CEO at
      December 31, 2007 whose total compensation exceeded $100,000.





**SUMMARY
      COMPENSATION TABLE**





Name
                & Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards($)
            
            Option
                Awards ($)
            
            Total
                ($)Yossi
                Attia
            
            
            2007
            
            $
            240,000
            
            
            120,000
            
            $
            —
            
            
            —
            
            $
            360,000Robin
                Gorelick
            
            
            2007
            
            
            155,000
            
            
            —
            
            
            —
            
            
            —
            
            
            155,000Totals
            
            
            2007
            
            $
            395,000
            
            
            120,000
            
            $
            —
            
            
            
            
            $
            515,000Yossi
                Attia (1) (2)
            
            
            2006
            
            $
            184,000
            
            
            —
            
            $
            93,750
            
            
            —
            
            $
            277,750





(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 was 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.




54




**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 was entitled
                to receive 111,458 shares of common stock for the first year. No
                shares
                have been issued. The 25,000 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 $0.51 as of December 31,
                2007.





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, 2007.





Name
            
            Fees
                Earned or Paid in Cash
            
            Stock
                Awards
            
            Option
              Awards
            
            All
                Other Compensation
            
            TotalStewart
                Reich
            
            $
            65,000
            
            
            —
            
            
            —
            
            
            —
            
            $
            65,000Ilan
                Kenig
            
            
            50,000
            
            
            —
            
            
            —
            
            
            —
            
            
            50,000Darren
                C Dunckel*)
            
            
            120,000
            
            
            —
            
            
            —
            
            
            —
            
            
            120,000Gerald
                Schaffer
            
            
            50,000
            
            
            —
            
            
            —
            
            
            —
            
            
            50,000Total
            
            $
            285,000
            
            
            —
            
            
            —
            
            
            —
            
            $
            285,000




*)
      - As
      salary via Verge




55




**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, 2007.





**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 31, 2007, which was $0.51 per share. None of Mr.
      Attia's options are presently in the money.




**EMPLOYMENT
      AND MANAGEMENT AGREEMENTS**




The
      Company entered into a six-year agreement with its former 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 amended 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 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. For the year ended April 14, 2006, Mr.
      Schnapp received 82,781 of the Company 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 $250,000 to be paid in the form
      of
      Company shares of common stock. The number of shares to be received by Mr.
      Attia
      is calculated based on the average closing price 10 days prior to the
      commencement of each employment year. Mr. Attia will receive 111,458 of the
      Company shares of common stock for his first year service. No shares have been
      issue to Mr. Attia in 2006. The
      board
      of directors of AGL approved the employment agreement between AGL and Mr. Yossi
      Attia, the controlling shareholder and CEO of the Company. The agreement goes
      into effect on the date that the aforementioned allotments are consummated
      and
      stipulates that Mr. Attia will serve as the CEO of AGL in return for a salary
      that costs AGL an amount of US$ 10 thousand a month. Mr. Attia is also
      entitled to reimbursement of expenses in connection with the affairs of AGL,
      in
      accordance with AGL policy, as set from time to time. In addition Mr. Attia
      is
      entitled to an annual bonus of 2.5% of the net, pre-tax income of the Company
      in
      excess of NIS 8 million.




The
      board
      of directors of AGL approved an employment agreement between the Company and
      Mr.
      Shalom Attia, the controlling shareholder and CEO of AP Holdings Ltd. The
      agreement goes into effect on the date that the aforementioned allotments are
      consummated and stipulates that Mr. Shalom Attia will serve as the VP - European
      Operations of AGL in return for a salary that costs the Company an amount of
      US$
      10 thousand a month. Mr. Attia is also entitled to reimbursement of expenses
      in
      connection with the affairs of the Company, in accordance with Company policy,
      as set from time to time. In addition, Mr. Shalom Attia is entitled to an annual
      bonus of 2.5% of the net, pre-tax income of AGL in excess of NIS 8 million.




The
      aforementioned agreements were ratified by the general shareholders meeting
      of
      AGL on 30 October 2007.




Effective
      July 1, 2006, Verge entered into a non written year employment agreement with
      Darren C Dunckel as the President of Verge which commenced on July 11, 2006
      and
      provides for annual compensation in the amount of $120,000, the employment
      expense which was capitalized related to such agreement was $120,000 for the
      year ended December 31, 2007.





56





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.





57




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.




58




(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.




59





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




The
      following table sets forth certain information relating to the ownership of
      common stock by (i) each person known by us be the beneficial owner of more
      than
      five percent of the outstanding shares of our common stock, (ii) each of our
      directors, (iii) each of our named executive officers, and (iv) all of our
      executive officers and directors as a group. Unless otherwise indicated, the
      information relates to these persons, beneficial ownership as of April 11,
      2008.
      Except as may be indicated in the footnotes to the table and subject to
      applicable community property laws, each person has the sole voting and
      investment power with respect to the shares owned.


Name
                  and Address
              
              Shares
                Beneficially
                  Owned(1)
              
              Percent
                  Owned (1)KPN
                  Telecom B.V. (3)
              
              
              820,399
              
              
              14.44
              %Maanplein
                  5The
                  Hague, The NetherlandsCORCYRA
                  d.o.o.(2)
              
              
              2,326,043
              
              
              40.95
              %Valdabecki
                  put 118Pula
                  Croatia 52100Graeton
                  Holdings Limited
              
              
              441,566
              
              
              7.77
              %256
                  Makarios Avenue, EftapatonCourt,
                  CY3105 Limassol, Cyprus;Stewart
                  Reich (5)(6)
              
              
              100,000
              
              
              1.76
              %7582
                  Tarpon Cove CircleLake
                  Work, FL 33467Yossi
                  Attia (2)(4)(5)(7)
              
              
              2,506,018
              
              
              44.12
              %1061
                  1/2 Spalding Ave.West
                  Hollywood, CA 90046Ilan
                  Kenig (5)(7)
              
              
              75,000
              
              
              1.32
              %7438
                  Fraser Park DriveBurnaby,
                  BC Canada V5J 5B9Robin
                  Ann Gorelick(4)
              
              
              
              
              
              0
              %468
                  N Camden Dr. 244Beverly
                  Hills, CA 90210Gerald
                  Schaffer(5)
                3040
                  E Cheyenne # 100
                North
                  Las Vegas, NV 89032
              
              
              0
              
              
              0
              %Darren
                  C Dunckel(5)
                9
                  Buckskin Rd.
                Bell
                  Canyon, CA 91307
              
              
              0
              
              
              0
              %All
                  Officers and Directors as a
                Group
                  (6 Persons)
              
              
              2,618,081
              
              
              47.20
              %




*
      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 29, 2008. For
      purposes of computing the percentage of outstanding shares held by each person
      or group of persons named above on March 29, 2008, 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.




60




(2)
      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 increments 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
      was entitled to additional 111,458 shares of the Company per his employment
      agreement with the Company. Based on adversary between the parties (KPN and
      Corcyra) - of which the Company is not a party to such dispute - the remaining
      820,399 shares are in certain dispute. In our calculations above, we did not
      give affect to the dispute.




61




(3)
      KPN
      Telecom B.V. is a subsidiary of Royal KPN N.V.




(4)
      An
      officer of the Company.




(5)
      A
      director of the Company.




(6)
      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




(7)
      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 **5,109,181** shares
      of common stock outstanding as of April 11, 2008.




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




On
      October 3, 2006, ERC entered into an Operating Agreement with D’vora Greenwood
      (Attia), an individual (“D’vora”) in connection with Stanley. Stanley developed
      three adjacent single family residences located at 2234 and 2240 Stanley Hills
      Drive and 2214 N. Merry wood Drive, Los Angeles, California 90046. ERC owns
      66.67% of the outstanding interest of the Stanley. D’vora owns the remaining
      interest. D’vora Greenwood (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 owing to D’vora was $308,321 as of December 31,
      2006.




62




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 (Shalom
      Atia is the brother of Mr. Yossi Attia) 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. Upon
      the execution of the Upswing Agreement, this deposit was counted as the Company
      partial investment in AGL transaction as a whole, since upon closing; Sitnica
      (as well as Verge) became a wholly owned subsidiary of AGL.





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.





Verge
      loaned to Mr. Darren Dunckel, the sum of $93,822, of which $90,000 was paid-off
      via Mr. Dunckel employment agreement, and the balance of $3,822 is included
      in
      Prepaid and other current assets as of December 31, 2006. As of December 31,
      2007, the balance for advances to Mr. Dunckel was paid off.




On
      March
      31, 2008, the Company raised $200,000 from a private offering of its securities
      pursuant to a Private Placement Memorandum ("PPM"). The private placement was
      for Company common stock which shall be "restricted securities" and were sold
      at
      $1.00 per share. The offering included 200,000 warrants to be exercised at
      $1.50
      for two years (for 200,000 shares of the Company common stock), and an
      additional 200,000 warrants to be exercised at $2.00 for four years (for 200,000
      shares of the Company common stock). Said Warrants may be exercised to ordinary
      common shares of the Company only if the Company issues subsequent to the date
      of the PPM, 25 million or more shares of its common stock. The money raised
      from
      the private placement of the Company’s shares will be used for working capital
      and business operations of the Company. The PPM was done pursuant to Rule 506.
      A
      Form D has been filed with the Securities and Exchange Commission in compliance
      with Rule 506 for each Private Placement. The investor is D’vora Greenwood
      (Attia), the sister of Mr. Yossi Attia. Mr. Attia abstained from voting on
      this
      matter in the board meeting which approved this PPM.





**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, Fahn Kanne and Company,
      and Robison Hill and Company for the audits of the Company’s annual financial
      statements for the fiscal years ended December 31, 2007 and 2006,
      respectively, and fees billed for other services rendered.




2007
            
            2006Audit
                Fees (1)
            
            $
            213,400
            
            $
            160,000Audit-Related
                Fees (2) (4)
            
            
            38,000
            
            
            21,500Tax
                Fees (3)
            
            
            20,570
            
            
            —Total
            
            $
            271,970
            
            $
            181,500





**Fee
      of the independent Auditors in AGL:**




The
      following is a breakdown of the fees, which are included in the totals above,
      of
      the external independent auditors of AGL:




**2007****Hours**
            
            **NIS'000**
            
            **$US
                ‘000**Auditing
                services
            
            
            1,510
            
            
            375
            
            
            94Tax
                services
            
            
            20
            
            
            5
            
            
            1Total
            
            
            1,530
            
            
            380
            
            
            95




The
      following is a breakdown of the fees of the independent Auditors of the Croatian
      subsidiary, Sitnica:




**2007****Hours**
            
            **NIS
                '000**
            
            **$US
                '000**Auditing
                services
            
            
            18
            
            
            15
            
            
            4





(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, 2007 and 2006, and for the reviews of the financial
      statements included in the Company's Quarterly Reports on Form 10-QSB during
      the
      fiscal years were $115,400 and $160,000, respectively.





(2)
      Audit
      Related Fees: Consulting fees in conjunction with year end audits and quarterly
      reviews were approximately $38,000 incurred in fiscal year ended December 31,
      2007. The fees also relate to the SB-2 registration statement
      costs.





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





63




(4)
      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.




64





**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
                AttiaChief
                Executive Officer and Director
              (Principal
                Financial Officer)
              Dated:
                April __ , 2008




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)
            
            April
                14, 2008By: 
                /s/ Stewart Reich
              
              Stewart
                Reich
            
            Chairman
                of the Board and Director
            
            April
                14, 2008By:
                 /s/ Gerald Schaffer
              
              Gerald
                Schaffer
            
            Director
            
            April
                14, 2008By: 
                /s/ Ilan Kenig
              Ilan
                Kenig
            
            Director
            
            April
                14, 2008By: 
                /s/ Darren C Dunckel
              
              Darren
                C Dunckel
            
            Director
            
            April
                14, 2008




65





**INDEX
      TO EXHIBITS**


Exhibit
                  No.
              
              Description3.1
              
              Certificate
                  of Incorporation filed November 9, 1992(1)3.2
              
              Amendment
                  to Certificate of Incorporation filed July 9, 1997(2)3.3
              
              Bylaws(1)4.1
              
              Form
                  of Common Stock Certificate(1)10.1
              
              Shares
                  Purchase Agreement between PanTel Tavkozlesi es Kommunikacios rt.,
                  a
                  Hungarian company, and Emvelco Corp., a Delaware corporation
                  (3)10.2
              
              Guaranty
                  by Euroweb International Corp., a Delaware corporation, in favor
                  of PanTel
                  Tavkozlesi es Kommunikacios rt., a Hungarian company
                  (3)10.3
              
              Shares
                  Purchase Agreement between Vitonas Investments Limited, a
                  Hungarian corporation, Certus Kft., a Hungarian corporation, Rumed
                  2000 Kft., a Hungarian corporation and Euroweb International Corp.,
                  a
                  Delaware corporation, dated as of February 23, 2004.
                  (4)10.4
              
              Share
                  Purchase Agreement by and between Euroweb International Corp. and
                  Invitel
                  Tavkozlesi Szolgaltato Rt. (5)10.5
              
              Shares
                  Purchase Agreement between Vitonas Investments Limited, a Hungarian
                  corporation, Certus Kft., a Hungarian corporation, Rumed 2000 Kft.,
                  a
                  Hungarian corporation and Euroweb International Corp., a Delaware
                  corporation, dated as of February 23, 2004.
                  (4)
  66
  10.6
              
              Investment
                  Agreement, dated as of June 19, 2006, by and between EWEB RE Corp.
                  and AO
                  Bonanza Las Vegas, Inc. (6)10.7
              
              Sale
                  and Purchase Agreement, dated as of February 16, 2007, by and between
                  Emvelco Corp. and Marivaux Investments Limited (7)10.8
              
              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)10.9
              
              Agreement,
                  dated as of June 5, 2007, among Emvelco Corp., Yossi Attia, Darren
                  Dunckel, and Upswing, Ltd.(9)10.10
              
              Subscription
                  Agreement and Option Agreement with KPN(1)(2)10.11
              
              Agreement(10)10.12
              
              All-Inclusive
                  Purchase Money Deeds of Trust with Assignment of Rents - Edinburgh
                  Avenue
                  (10)10.13
              
              All-Inclusive
                  Purchase Money Deeds of Trust with Assignment of Rents - Harper
                  Avenue
                  (10)10.14
              
              All-Inclusive
                  Purchase Money Deeds of Trust with Assignment of Rents - Laurel
                  Avenue
                  (10)10.15
              
              Notice
                  of Exercise of Options(11)10.16
              
              Appswing
                  Agreement (12)10.17
              
              Kidron
                  Agreement (12)10.18
              
              Indemnification
                  Agreement (13)10.19
              
              Notice
                  of Exercise of Options(14)10.20
              
              Settlement
                  and Release Agreement and Amendment No. 1. (15)10.21
              
              All
                  Inclusive Deed of Trust (16)10.22
              
              All
                  Inclusive Promissory Note
                  (16)




31.1
            Certification
                of the Chief Executive Officer and Principal Financial Officer of
                Emvelco
                Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





32.1
            Certification
                of the Chief Executive Officer and Principal Financial Officer of
                Emvelco
                Corp. Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.




67




99.1
            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




(9)
      Filed
      as an exhibit to Form 8-K on June 11, 2007





(10)
      Filed as an exhibit to Form 8-K on July 12, 2007





(11)
      Filed as an exhibit to Form 8-K on July 20, 2007





(12)
      Filed as an exhibit to Form 8-K on July 26, 2007





(13)  Filed
      as
      an exhibit to Form 8-K on September 26, 2007





(14)  Filed
      as
      an exhibit to Form 8-K on October 19, 2007





(15)
      Filed as an exhibit to Form 8-K on November 19, 2007





(16)  Filed
      as
      an exhibit to Form 8-K on December 21, 2007




68




**EMVELCO
      CORP.**





Consolidated
      Financial Statements





As
      of
      December 31, 2007 and for the Years Ended December 31, 2007 and
      2006




**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




To
      the
      Board of Directors and Shareholders


Emvelco
      Corp., and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Emvelco Corp., and
      Subsidiaries as of December 31, 2007 and 2006 and the related consolidated
      statements of operations, comprehensive income, stockholder’s equity and cash
      flows for the years 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 audits. We did not audit
      the
      financials statements of Atia Group Ltd., a 58.3% owned subsidiary, which
      statements reflect total assets of $812,910 as of December 31, 2007 and total
      revenues of $847,743 for the period from September 13, 2007 (date of
      acquisition) to December 31, 2007. Those statements were audited by other
      auditors whose report has been furnished to us, and our opinion, insofar as
      it
      relates to the amounts included for Atia Group Ltd., is based solely on the
      report of the other auditors.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the 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, based on our audit and the report of the other auditors, 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, 2007 and 2006 and the results of its operations and its cash
      flows for the years ended December 31, 2007 and 2006 in conformity with
      accounting principles generally accepted in the United States of
      America.




/s/
              Robison, Hill
              & Co.Certified
                Public Accountants




Salt
      Lake
      City, Utah


April
      14,
      2008




F-2





**Emvelco
      Corp.**


**Consolidated
      Balance Sheet**


**As
      of December 31, 2007**


**Amounts
      in US dollars**




**2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            369,576Accounts
                receivable
            
            
            218,418Restricted
                cash, certificate of deposit (Note 3)
            
            
            13,008,220Intangible,
                debt discount on conversion option, current (Note 8)
            
            
            195,266Loan
                to Affiliated Party - Emvelco RE Corp (Note 6)
            
            
            4,538,976Total
                current assets
            
            
            18,330,456Fixed
                assets, net
            
            
            32,425Construction
                in progress
            
            
            2,215,725Intangible,
                debt discount on conversion option, net of current portion (Note
                8)
            
            
            694,936Investment
                in land development (Note 5)
            
            
            33,050,052Goodwill
                (Note 9)
            
            
            1,185,000Total
                assets
            
            $
            55,
                508.594**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses (Note 7)
            
            
            15,380,205Due
                to related party (Note 15)
            
            
            516,084Secured
                bank loans (Note 3)
            
            
            8,401,154Other
                current liabilities
            
            
            305,520Total
                current liabilities
            
            
            24,602,963Liability
                for escrow refunds
            
            
            4,489,235Fees
                due on closing
            
            
            2,384,176Convertible
                Note Payable to Third Party (Note 8)
            
            
            2,277,633Deferred
                taxes
            
            
            812,711Other
                long term liabilities
            
            
            1,919,964Total
                liabilities
            
            
            36,486,682Commitments
                and contingencies (Note 13)
            
            
            —Minority
                interest in subsidiary’s net assets
            
            
            6,145,474Stockholders'
                equityCommon
                stock, $.001 par value - Authorized 35,000,000 shares;5,889,074
                shares issued of which 4,609,181 shares are outstanding
            
            
            4,609Additional
                paid-in capital
            
            
            53,281,396Accumulated
                deficit
            
            
            (38,289,630
            )Accumulated
                other comprehensive income
            
            
            (2,226
            )Treasury
                stock - 1,279,893 common shares, at cost (Note 16)
            
            
            (2,117,711
            )Total
                stockholders' equity
            
            
            12,876,438Total
                liabilities and stockholders' equity
            
            $
            55,508,594





See
      accompanying notes to consolidated financial statements.




F-3




**Emvelco
      Corp.**


**Consolidated
      Statements of Operations and Comprehensive Income**


**Years
      Ended December 31, 2007 and 2006**


**Amounts
      in US dollars**





2007
            
            2006**Revenues
                from Sales- rental income in 2006**
            
            $
            6,950,000
            
            $
            22,594**Cost
                of revenues**
            
            
            6,505,506
            
            
            -**Operating
                expenses**Compensation
                and related costs
            
            
            762,787
            
            
            583,773Severance
                to officer
            
            
            —
            
            
            750,000Consulting,
                professional and directors fees
            
            
            1,195,922
            
            
            2,106,316Other
                selling, general and administrative expenses
            
            
            469,942
            
            
            921,004Goodwill
                impairment
            
            
            10,245,377
            
            
            —Software
                development expense
            
            
            136,236
            
            
            —Depreciation
                and amortization
            
            
            —
            
            
            13,516Total
                operating expenses
            
            
            12,810,264
            
            
            4,374,609Operating
                loss
            
            
            (12,365,770
            )
            
            (4,352,015
            )Interest
                income
            
            
            1,665,379
            
            
            635,099Interest
                expense
            
            
            (386,108
            )
            
            (59,934
            )Gain
                on issuance of subsidiary stock (Note 4)
            
            
            —
            
            
            1,497,565Other
                income
            
            
            13,899
            
            
            —**Loss
                before income taxes**
            
            
            (11,072,600
            )
            
            (2,279,285
            )**Income
                tax expense**
            
            
            —
            
            
            -**Loss
                from continuing operations**
            
            
            (11,072,600
            )
            
            (2,279,285
            )Income
                from discontinued operations, net of tax (Note 8)
            
            
            —
            
            
            9,191,876**Net
                income before minority interest in loss of consolidated
                subsidiary**
            
            
            (11,072,600
            )
            
            6,912,591Less
                minority interest in loss of consolidated subsidiary
            
            
            172,810
            
            
            —Net
                (loss) income
            
            
            (10,899,790
            )
            
            6,912,591Other
                comprehensive loss
            
            
            (7,765
            )
            
            (94,142
            )**Comprehensive
                (loss) income**
            
            $
            (10,907,555
            )
            $
            6,818,449**Loss
                per share from continuing operations, basic and
                diluted**
            
            
            (2.30
            )
            
            (0.40
            )**Income
                per share from discontinued operations, basic and
                diluted**
            
            
            —
            
            
            1.61**Net
                income per share, basic and diluted**
            
            
            (2.30
            )
            
            1.21**Weighted
                average number of shares outstanding, basic and
                diluted**
            
            
            4,734,266
            
            
            5,715,543





See
      accompanying notes to consolidated financial statements.




F-4




**EMVELCO
      CORP.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**


**YEARS
      ENDED DECEMBER 31, 2007 and 2006**


**Amounts
      in US dollars**





Common
                Stock
            
            Additional
            
            
            
            Accumulated
                Other
            
            
            
            TotalNumber
                of shares
            
            Amount
            
            Paid-in
              Capital
            
            Accumulated
                Deficit
            
            Comprehensive
                Income (Loss)
            
            Treasury
                Stock
            
            Stockholders'
                Equity**Balances,
                January 1, 2006**
            
            
            **5,784,099**
            
            **$**
            **5,784**
            
            **$**
            **51,558,123**
            
            **$**
            (34,302,431
            )
            **$**
            **99,681**
            
            
            **-**
            
            **$**
            **17,361,157**Foreign
                currency translation loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (94,142
            )
            
            -
            
            
            (94,142
            )Compensation
                charge on share options and warrants issued to 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**
            
            **$**
            **5,413**
            
            **$**
            **52,224,829**
            
            **$**
            (27,389,840
            )
            **$**
            **5,539**
            
            **$**
            (994,884
            )
            **$**
            **23,851,057**Foreign
                currency translation loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,765
            )
            
            
            
            
            (7,765
            )Compensation
                charge on share options and warrants issued to employees, directors
                and
                consultants
            
            
            
            
            
            
            
            
            80,233
            
            
            
            
            
            
            
            
            
            
            
            80,233Treasury
                stock - Open Market
            
            
            (180,558
            )
            
            (181
            )
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            (288,636
            )
            
            (288,817
            )Treasury
                stock - Navigator Sale
            
            
            (622,531
            )
            
            (623
            )
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            (834,191
            )
            
            (834,814
            )Discount
                on Appswing Note Payable
            
            
            
            
            
            
            
            
            976,334
            
            
            
            
            
            
            
            
            
            
            
            976,334Net
                lose for the year
            
            
            
            
            
            
            
            
            
            
            
            (10,899,790
            )
            
            
            
            
            
            
            
            (10,899,790
            )**Balances,
                December 31, 2007**
            
            
            **4,609,181**
            
            **$**
            **4,609**
            
            **$**
            **53,281,396**
            
            **$**
            (38,289,630
            )
            **$**
            (2,226
            )
            **$**
            (2,117,711
            )
            **$**
            **12,876,438**





See
      accompanying notes to consolidated financial statements.




F-5




**Emvelco
      Corp.**


**Consolidated
      Statements of Cash Flows**


**Year
      Ended December 31, 2007 and 2006**


**Amounts
      in US dollars**




**2007**
            
            **2006**Net
                (loss) income
            
            $
            (10,899,790
            )
            $
            6,912,591Adjustments
                to reconcile net income to net cash (used in)/provided by operating
                activities:Depreciation
                and amortization
            
            
            88,662
            
            
            13,516Share-based
                compensation expense
            
            
            80,233
            
            
            341,206Change
                in minority interest of subsidiary’s net assets
            
            
            (177,030
            )Realized
                gain on sale of subsidiaries
            
            
            —
            
            
            (15,644,296
            )Foreign
                exchange rate adjustment
            
            
            (7,765
            )
            
            —Impairment
                of goodwill
            
            
            10,245,377
            
            
            —Accrued
                interest income, net
            
            
            (1,373,184
            )Investment
                into affiliate, equity
            
            
            —
            
            
            997,565Deferred
                income taxes
            
            
            (90,289
            )
            
            —Gain
                on issuance of subsidiary stock
            
            
            —
            
            
            (1,497,565
            )Changes
                in operating assets and liabilities, net of effects of
                acquisitions:Accounts
                receivable
            
            
            (96,424
            )
            
            —Prepaid
                and other assets
            
            
            525,924
            
            
            (59,529
            )Related
                party receivable
            
            
            516,084
            
            
            (450,000
            )Investment
                in land development
            
            
            (1,786,183
            )
            
            —Construction
                in progress
            
            
            (2,215,725
            )Accounts
                payable, other current liabilities and accrued expenses
            
            
            3,223,182
            
            
            (346,473
            )Liability
                for escrow refunds
            
            
            134,600
            
            
            —Other
                long term liabilities
            
            
            1,919,964
            
            
            —Cash
                received from sale of discontinued operations
            
            
            —
            
            
            6,935,364Net
                cash provided by/(used in) operating activities
            
            
            87,636
            
            
            (2,797,621
            )Cash
                flows from investing activities:Investment
                in certificate of deposit and restricted cash
            
            
            (559,765
            )
            
            (8,000,000
            )Transaction
                fees paid in AGL transaction
            
            
            (569,753
            )
            
            —Proceeds
                from sale of Emvelco RE Corp
            
            
            500,000
            
            
            -Proceeds
                from sale of Euroweb Hungary and Euroweb Romania, net of
                cash
            
            
            —
            
            
            21,838,138Investment
                in affiliates, at cost
            
            
            50,000
            
            
            (50,000
            )Cash
                acquired in AGL transaction
            
            
            2,120,797
            
            
            —Loan
                provided to Emvelco RE Corp
            
            
            (8,573,602
            )
            
            (11,275,094
            )Proceeds
                received from sale of Navigator
            
            
            3,200,000
            
            
            —Capital
                expenditures in discontinued operations
            
            
            —
            
            
            (374,380
            )Net
                cash (used in)/provided by investing activities
            
            
            (3,832,323
            )
            
            2,138,664Cash
                flows from financing activities:Payments
                to acquire treasury stock
            
            
            (289,439
            )
            
            (995,360
            )Proceeds
                from notes payable
            
            
            5,401,155
            
            
            3,000,000Payment
                on notes payable
            
            
            (1,972,367
            )
            
            —Payment
                to AP Holdings in AGL transaction
            
            
            (1,877,706
            )
            
            —Financing
                activities from discontinued operations
            
            
            —
            
            
            (53,925
            )Net
                cash provided by financing activities
            
            
            1,261,643
            
            
            1,950,715Net
                increase (decrease) in cash and cash equivalents
            
            
            (2,483,044
            )
            
            1,291,758Cash
                and cash equivalents, beginning of year
            
            
            2,852,620
            
            
            1,560,862Cash
                and cash equivalents, end of year
            
            $
            369,576
            
            $
            2,852,620Supplemental
                disclosure:Cash
                paid for interest expense
            
            $
            24,751
            
            
            146,618Cash
                received for interest income
            
            
            411,064
            
            
            —Summary
                of non-cash transactionsLoan
                to ERC reduced for consideration in AGL transaction
            
            $
            15,000,000
            
            $
            —Note
                payable to Appswing for consideration in AGL transaction
            
            
            4,250,000
            
            
            —Shares
                issued to the President of the Company
            
            
            —
            
            
            325,605Treasury
                shares acquired in sale of subsidiary
            
            $
            834,191
            
            
            —





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, 2007, there are
      5,889,074  shares
      issued and outstanding.




The
      Company is invests in the development and 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’s headquarters are located in West
      Hollywood, California.





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 year ended December 31, 2006, the Euroweb Hungary
      and Euroweb Romania operations have been presented as discontinued operations
      in
      the Company’s consolidated financial statements (see Note 10).





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 9). 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
                owned 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 year ended December 31,
      2006, the operations of Navigator have been presented as discontinued operations
      in the Company’s consolidated financial statements (see Note 10). 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 10)





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 16).





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K filed June 11, 2007), the Company, the
      Company's chief executive officer Yossi Attia, and Darren Dunckel - CEO of
      ERC
      (collectively, the "Investors") entered into an Agreement (the "Upswing
      Agreement") with a third party, Upswing, Ltd. (also known as Appswing Ltd.,
      hereinafter referred to as "Upswing"). Pursuant to the Upswing Agreement, the
      Investors invested in an entity listed on the Tel Aviv Stock Exchange - the
      Atia
      Group Limited, f/k/a Kidron Industrial Holdings Ltd (herein referred to as
      AGL).
      In addition, the Investors transferred rights and control of various real estate
      projects to AGL. The Investors and AGL then effected a transaction, pursuant
      to
      which the Investors and/or the Investors' affiliates acquired about 76% of
      the
      AGL in consideration of the transfer of the rights to the various real estate
      projects (including Verge) to AGL (the "Transaction"). Upswing, among other
      items, advised the Investors on the steps necessary to effectuate the
      contemplated transfer of real estate project rights to AGL.





Pursuant
      to the Notice, the Company, subject to performance under the Upswing Agreement,
      exercised its option (the "Sitnica Option") to purchase ERC's derivative rights
      and interest in Sitnica d.o.o. through ERC's holdings (one-third (1/3) interest)
      in AP Holdings Limited ("AP Holdings"), a company organized under the Companies
      (Jersey) Law 1991, which equates to a one-third interest in Sitnica d.o.o.
      (excluding ERC's interest in AP Holdings). The Sitnica Option was exercised
      in
      the amount of $4,250,000, payable by reducing the outstanding loan amount owing
      to the Company under the Investment Agreement by $3,550,000 and reducing the
      Company's deposit with Shalom Atia, Trustee of AP Holdings, by
      $450,000.





F-8




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**





On
      October 15, 2007, Emvelco delivered that certain Notice of Exercise of Options
      ("Notice") to ERC, TIHG, Verge and Darren C. Dunckel, individual, President
      of
      ERC and/or representative of the foregoing parties. Pursuant to the Notice,
      Emvelco, subject to performance under the Upswing Agreement, exercised its
      option (the "Verge Option") to purchase a multi-use condominium and commercial
      property in Las Vegas, Nevada, via the purchase and acquisition of all
      outstanding shares of common stock of Verge. The Verge Option was exercised
      in
      the amount of $5,000,000 payable in cash, but in no event is the option
      exercisable prior to Verge breaking ground, plus conversion of $10,000,000
      loans
      given to Verge into Equity as consideration for 75,000 shares of
      Verge.





The
      transaction was closed on November 2, 2007. Upon closing, Verge and Sitnica
      became fully owned subsidiaries of AGL. The Company owns 58.3% of AGL and
      consolidates AGL’s results in these financial statements.




As
      a
      result of the transactions above, the Company’s ownership structure at December
      31, 2007 was as follows:





·
            58.3%
                of Atia Group Limited·
            10%
                of Micrologic





·
            Atia
                Group Limited owns:·
            100%
                of Verge Living Corporation100%
                of Sitnica





The
      Company has entered into the final stages of negotiation on a term sheet which
      provides that the Company will purchase and receive from an entity that owns
      certain gas development rights, all the mineral acreage and land rights for
      drilling on that certain property located in Texas (the “Gas Lease Rights”). The
      initial purchase price shall be $25 million as the first increment, followed
      by
      an additional 5 increments of $5,000,000 each, contingent upon actual production
      of the first five wells. The purchase price may be increased up to $250 million
      based on actual proven developed producing. In consideration of the actual
      assignment of the Gas Lease Rights, the Company shall issue a minimum of 25
      million new EMVELCO shares to the Seller upon closing followed by 5 increments
      of 5,000,000 shares each for each of the first five wells going into production,
      wherein the share price shall be at an agreed upon price of $1.00 per share
      in
      exchange for all the shares of the entity that may be transferring the Gas
      Lease
      Rights. The Company is undertaking due diligence and upon proof of good title
      to
      the Gas Lease Rights, the transaction was presented to the Board of Directors
      for approval on April xx, 2008. The terms and provisions of the Gas Lease Rights
      will be delineated in a definitive agreement. The transaction may be subject
      to
      a Proxy Statement to be delivered to Shareholders.





If
      the
      Davy Crockett Gas Company, LLC (“DCG”) acquisition is consummated, DCG will
      become a wholly-owned subsidiary of the Company and outstanding membership
      interest will be exchanged by the holders thereof for shares of the Company.
      The
      shares of Emvelco common stock that holders of DCG’s membership interest will be
      entitled to receive pursuant to the Agreement and Plan of Exchange are expected
      to represent approximately upon closing about 83% of the shares of the Company
      immediately following the consummation of the Agreement and Plan of Exchange
      of
      DCG. If the fifth well goes into production, the DCG membership interest will
      then own 91% of the Company. DCG headquartered in Bel Air is a newly formed
      LLC
      which holds certain development rights for gas drilling in Crockett County,
      Texas.





**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. The Company owns 58.3%
      of AGL and consolidates AGL’s results in these financial statements for the
      period started November 2, 2007 and ended on December 31, 2007.





F-9




**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.





Based
      on
      the transactions, which were closed on November 2, 2007, the Company owns 58.3%
      of Atia Group Limited (AGL). Since the company is the primary beneficiary,
      the
      financial statements of AGL are consolidated into these financial
      statements.





*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-10




**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.





*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, 2007, the costs of revenues
      related to sale of the three real estate projects was approximately $6.5
      million. For the years ended December 31, 2006, 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
      Forit
      as its functional currency, the majority owned subsidiary, AGL, which reports
      it’s financial statements in New Israeli Sheqel.(N.I.S) 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-11




**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 10), the Company
      did not have any marketable securities within continuing operations for the
      years ended December 31, 2007 and 2006.





*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, 2007 and 2006,
      the
      Company did not enter into any capital leases.




F-12




**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, 2007 and 2006 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.
      There was goodwill recorded in the transaction with AGL totaling $11.4 million
      (See Note 9). There was no goodwill related to the Company’s continuing
      operations for the years ended December 31 2006.





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 a market approach. For
      the
      year ended December 31, 2007, an analysis was performed on the goodwill
      associated with the investment in AGL, and impairment was charged against the
      P&L for approximately $10.2 million.





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. On July 22, 2007, the Company
      entered into a $2 million note payable agreement with Appswing, which included
      an option to convert the debt into equity. Accordingly, the Company recorded
      in
      intangible assets related to the discount on the issuance of debt. The estimated
      value of the conversion feature is approximately $976,334, and will be reported
      as interest expense over the anticipated repayment period of the debt. There
      were no intangible assets related to the Company’s continuing operations for the
      year ended December 31, 2006.





*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 2007
      and 2006. 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*





Based
      on
      the closing of the AGL transaction on November 2, 2007, the Company manages
      its
      continuing operations in two geographic locations, however both locations
      primarily manage the real estate development business and accordingly the
      Company has concluded that it has one operating segment, real estate
      development.





F-13




**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.





See
      Note
      14 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
      Company did not grant any share-based payments during the year ended December
      31, 2007.





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 years ended
      December 31, 2007 and 2006:





Categories
                of cost and expenses
            
            Year
                ended December 31, 2007
            
            Year
                ended December 31, 2006Compensation
                and related costs
            
            $
            36,817
            
            $
            21,241Consulting,
                professional and directors fees
            
            
            43,416
            
            
            249,454Total
                stock-based compensation expense
            
            $
            80,233
            
            $
            270,695





There
      was
      no expense related to options and warrants granted to consultants recorded
      in
      the year ended December 31, 2007. In addition to stock-based compensation
      expense for employees and directors, the Company recognized compensation expense
      of $70,511 in the year ended December 31, 2006 related to options and warrants
      granted to consultants. Therefore, total stock based compensation for both
      employees and consultants was $80,233 and $340,206 for the years ended December
      31, 2007 and 2006, respectively.





*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. The Company adopted FIN 48 on January 1, 2007. The
      adoption of FIN 48 did not have a material impact on the Company.




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.





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. ****





F-15




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




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





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.




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.





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
      interest rate on the line of credit is 5.87% annually.





As
      of
      December 31, 2007, the outstanding balance on the line of credit including
      interest was $8,401,154 and the balance of the related certificate of deposit
      including interest was $8,518,985.




At
      December 31, 2007, 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
            
            $
            8,000,000
            
            
            5.87
            %
            
            2008Total
                principal amounts of loans
            
            
            
            
            $
            8,000,000Less
                current portion
            
            
            
            
            
            -Long
                term portion of loans
            
            
            
            
            $
            8,000,000




The
      Company’s debt repayment schedule, excluding interest, as of December 31,
      2007 is as follows:




**2008**$
            8,000,000





F-16




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




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





The
      consolidated financial statements include the accounts of wholly owned
      subsidiaries whose investments in real estate development businesses are
      accounted for under the equity method.





**Investment
      in Atia Group Limited**





As
      of
      December 31, 2007, the Company owns approximately 58.3% of the outstanding
      stock
      of the Atia Group Limited (AGL). AGL owns and manages two real estate
      development companies, Verge Living Corporation (Verge), which is in the process
      of building a condominium development in Las Vegas, Nevada and Sitnica, which
      is
      developing land in Croatia. The Company's consolidated statement of operations
      for the years ended December 31, 2007 include AGL’s expenses for the period
      November 2, 2007 to December 31, 2007, when the Company's owned 58.3% of AGL
      as
      follows:




2007Revenues
            
            $
            —Operating
                expenses
            
            
            (395,155
            )Interest
                expense
            
            
            (19,258
            )Net
                loss
            
            
            (414,413
            )Minority
                interest in subsidiary’s losses
            
            
            172,810Company’s
                portion of subsidiary’s losses
            
            
            (241,603
            )




**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-17




**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 17)




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





**5.
      Investment in Land development**





As
      of
      December 31, 2007, the Company’s subsidiary, AGL, owns 100% of the shares of
      Verge Living Corporation (Verge). Verge holds title to 11 adjacent lots in
      Las
      Vegas, Nevada and intends to develop approximately about 296 (number of units
      may be changed due to realignment of the design) condos plus commercial retail
      in down town Las Vegas. Construction is planned to commence during 2008, subject
      of obtaining financing and a construction permit from the City of Las
      Vegas.




Below
      are
      the addresses of said lots (“Real Property”):


604
                  N Main Street, Las Vegas,
              NV 89101634
                  N Main Street, Las Vegas,
              NV 89101601
                  1st Street, Las Vegas,
              NV
                  89101603
                  1st Street, Las Vegas,
              NV
                  89101605
                  1st Street, Las Vegas,
              NV
                  89101607
                  1st Street, Las Vegas,
              NV
                  89101625
                  1st Street, Las Vegas,
              NV
                  89101617
                  1st Street, Las Vegas,
              NV
                  89101701
                  1st Street, Las Vegas,
              NV
                  89101703
                  1st Street, Las Vegas,
              NV
                  89101705
                  1st Street, Las Vegas,
              NV
                  89101




The
      following table summarizes the carrying values of the investment in land
      development as of December
      31, 2007:





****Land
                vested from LLC - transfer of title - historical cost
            
            $
            2,800,000****Land
                development investments
            
            
            11,125,795****Accrued
                interest
            
            
            1,229,680****Total
                Investment in Land Development
            
            $
            15,551,475





F-18




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




As
      of
      December 31, 2007, the Company’s subsidiary, AGL, owns 100% of the shares of
      Sitnica d.o.o. Sitnica holds title to 25 adjacent plots of land in Samobor,
      Croatia. The aggregate land is approximately 74.7 thousand square meters and
      was
      appraised for $17,299,230. The appraisal was performed by an independent
      professional appraisal firm in Israel and is based on fair value on July 11,
      2007. The fair value was based on comparing market values of similar real estate
      which have similar characteristics in the Croatia market. Also, there are no
      lease agreements on the land and the property was evaluated as one lot. As
      of
      December 31, 2007, Sitnica’s investment in land development increased to
      $17,498,582.





As
      at 31
      December 2007, the contractual rights of the subsidiary in these assets included
      the following rights in land in Samobor, Croatia:




**Detail
                - Lot Number**
            
            **Sq.m.**3782
            
            
            1,5743783
            
            
            1,9653780
            
            
            1,5543783
            
            
            1,9653777
            
            
            5,9273778
            
            
            6,2893779
            
            
            6,9923723
            
            
            3,2573724/1
            
            
            3,2273724/2
            
            
            3,0073722/2
            
            
            3,4203732/1
            
            
            2,4543743
            
            
            1,6643740
            
            
            2,6043737
            
            
            3,0383738
            
            
            1,5623742
            
            
            1,6123731
            
            
            5,2243744
            
            
            2,5883726
            
            
            8993727/2
            
            
            7143727/1
            
            
            1,9473737
            
            
            3,0383738
            
            
            1,5623776
            
            
            6,61874,701




The
      following table summarizes the carrying values of the investment in land
      development as of December 31, 2007:





****Investment
                in Land Development - Verge
            
            $
            15,551,475****Investment
                in Land Development - Sitnica
            
            
            17,498,582****Investment
                in Land Development - Total for AGL
            
            
            33,050,057****Less: minority interest in subsidiary’s net assets (41.7%)
            
            
            (13,781,874
            )Investment
                in Land Development - Company’s portion
            
            $
            19,268,183




**6.
      Loans to 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. On November
      2, 2007, the Company exercised the Verge option, thereby reducing the amount
      outstanding by $10 million. Additionally, the Verge option requires that the
      Company pays TIGH, the then parent of ERC, another $5 million when construction
      begins on the Verge Project. As of December 31, 2007, the Company has accrued
      and recorded that payment as a reduction to this loan receivable balance. As
      of
      December 31, 2007, the outstanding loan receivable balance is $4,538,976.





F-19




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**7.
      Payable to Land Sellers**





Amounts
      payable to the sellers of the Sitnica land are included in accounts payable
      and
      accrued expense. Pursuant to the Upswing Agreement, AP Holdings, a related
      party, paid 10% of the agreed amount of the land. The Company paid AP Holdings
      the amount due from the Upswing agreement, however Sitnica still owes the
      sellers of the land the remaining 90% as well as 5% of the cost of the land
      is
      due to the tax authorities for a purchase land local tax - See note 17 -
      Subsequent events.





The
      following table summarizes the carrying values of the amounts due to the Sitnica
      land sellers as of December 31, 2007:





****Due
                to land sellers - 90%
            
            $
            11,960,466****Sales
                tax due to Croatia tax authorities 5%
            
            
            649,746****Total
                amounts due for land purchase - Total for AGL
            
            
            12,610,212****Less: minority interest in subsidiary’s net assets (41.7%)
            
            
            (5,258,428
            )Investment
                in Land Development - Company’s portion
            
            $
            7,351,754




**8.
      Convertible Notes Payable and Debt Discount**





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K’s - See Disposal of ERC, Verge and
      Acquisition of AGL), the Company, the Company's chief executive officer Yossi
      Attia, and Darren Dunckel - CEO of ERC (collectively, the "Investors") entered
      into an Agreement (the "Upswing Agreement") with a third party, Upswing, Ltd.
      (also known as Appswing Ltd., hereinafter referred to as "Upswing"). Pursuant
      to
      the Upswing Agreement, the Investors intend to invest in an entity listed on
      the
      Tel Aviv Stock Exchange - the Atia Group Limited, f/k/a Kidron Industrial
      Holdings Ltd (herein referred to as AGL). Based on closing of said transaction,
      on July 23, 2007 the Company issued a straight note to Upswing for the amount
      of
      $2,000,000. This promissory note is made and entered into based upon a series
      of
      agreements by and between Maker and Holder dated as of June 5, 2007,
      July 20, 2007 and July 23, 2007, wherein the actual Closing of the
      transactions which are the subject matter of the Appswing Agreements known
      as
      the Kidron Industrial Holdings, Ltd. Transaction (the “Kidron Transaction”) has
      taken place and therefore this note is final and earned, as referenced in the
      Appswing Agreement dated July 20, 2007 (the “Closing”) and the Company
      becoming the majority shareholder of Kidron with a controlling interest of
      not
      less than 50.1%. The Unpaid Principal Balance of this note shall bear interest
      until due and payable at a rate equal to 8 % per annum. The principal hereof
      shall be due and payable in full in no event sooner than January 22, 2008,
      (the "Maturity Date"). The amount of 51% of the Company holdings in AGL, are
      pledged to secure said note.





As
      the
      Company defaulted on said note, on April 11, 2008 the parties amended the note
      terms, by adding a contingent convertible feature to the note, as well as extend
      its Maturity Date in no event sooner than January 22, 2013. The outstanding
      debt represented by this Note (including accrued Interest) may be converted
      to
      ordinary common shares of the Company only if The Company issues during any
      six
      (6) month period subsequent to the date of this Note, 25,000,000 (twenty five
      million) or more shares of its common stock. Holder may, at any time after
      the
      occurrence of the preceding event, have the right to convert this note in whole
      or in part into The Company common shares at a conversion price of $0.08 per
      share.





The
      Company recorded in intangible assets related to the discount on the issuance
      of
      debt. The estimated value of the conversion feature is approximately $976,334,
      and will be reported as interest expense over the anticipated repayment period
      of the debt. As of December 31, 2007, the unamortized debt discount intangible
      asset is $890,202 to be amortized over the life of the loan. The amount of
      $195,
      266 represents the current portion to be expensed in 2008.





As
      of
      December 31, 2007, the outstanding balance for the notes payable to the third
      party is $2,277,633 including interest.





F-20


**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**9.
      Acquisition - Atia Group Limited**





On
      November 2, 2007, the Company acquired approximately 58.3% of the outstanding
      stock of the Atia Group Limited (AGL). AGL owns and manages two real estate
      development companies, Verge Living Corporation (Verge), which is in the process
      of building a condominium development in Las Vegas, Nevada and Sitnica, which
      is
      developing land in Croatia. The Company's consideration paid to acquire 58.3%
      of
      AGL’s outstanding stock was as follows:




Conversion
                of loan receivable from Emvelco RE Corporation
            
            $
            10,000,000Amount
                due to TIGH, parent of ERC, upon groundbreaking of Verge
                project
            
            
            5,000,000Convertible
                note payable to Upswing
            
            
            4,250,000Conversion
                of note receivable from related party
            
            
            450,000Transaction
                related fees
            
            
            569,753Consideration
                paid to acquire 58.3% of AGL
            
            
            20,269,753




The
      book
      value of AGL’s net assets at the transaction date was substantially lower than
      the consideration paid. As such, the Company recorded goodwill, calculated
      as
      follows:




Book
                value of AGL’s net assets at November 2, 2007
            
            $
            15,161,881Minority
                interest in subsidiary’s net assets
            
            
            (6,322,504
            )Company’s
                portion of AGL’s net assets
            
            
            8,839,376Consideration
                paid to acquire 58.3% of AGL
            
            
            20,269,753Goodwill
                recorded at November 2, 2007
            
            
            11,430,377




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 using a market
      approach. As such, the Company recorded an impairment of goodwill at December
      31, 2007 in the amount of $10,245,377





F-21




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**





**10.
      Dispositions**




*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 canceled 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 year ended December 31, 2006, as follows:





2006Loss
                from discontinued Navigator operations
            
            $
            (853,982
            )Impairment
                of Navigator assets
            
            
            (5,598,438
            )Gain
                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
            )Income
                from discontinued Euroweb Romania operations, net of tax of $0 and
                $0
                respectively
            
            
            596,640Income
                from discontinued operations, net of tax
            
            $
            9,191,876




F-22




**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




**11.
      Income taxes**





The
      net
      income before income taxes by tax jurisdiction for the years ended December
      31,
      2007 and 2006 was as follows:





2007
            
            2006Net
                income before income taxes:Domestic
            
            $
            (10,658,187
            )
            $
            6,912,591Foreign
            
            
            (241,603
            )
            
            -Total
            
            $
            (10,899,790
            )
            $
            6,912,591




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, 2007 and 2006 is summarized as follows:




2007
            
            2006Amount
            
            %
            
            Amount
            
            %Computed
                expected taxExpense/(Benefit)
            
            $
            (3,814,926
            )
            
            (35.00
            )
            $
            2,419,407
            
            
            35.00Change
                in Valuation Allowance
            
            
            3,814,926
            
            
            (35.00
            )
            
            (2,419,407
            )
            
            (35.00
            )Total
                expense/(benefit)
            
            $
            0
            
            
            0
            %
            $
            0
            
            
            0
            %





F-23




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




For
      U.S.
      Federal income tax purposes, the Company had unused net operating loss carry
      forwards at December 31, 2006 of approximately $15.2 million available to offset
      future taxable income. From the $15.2 million of losses, $1.2 million expire
      in
      various years from 2008-2010, $1.6 million expires in 2011, and the remaining
      $12.4 million expire in various years from 2016 through 2026. 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 carry forwards and
      net
      operating loss carry forwards. As further discussed in Note 10, 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 carry forwards 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 carry forwards 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 carry
      forwards.





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 carry forwards 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, 2007.





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.





Taxation
      of companies in Israel:





The
      Company’s subsidiary AGL is taxed in Israel under the provisions of the Israel
      Tax Ordinance (New Version) 1961 (hereinafter - the “Ordinance”).  Until
      31
      December 2007, AGL was subject to the Income Tax Law (Inflationary Adjustments)
      - 1985, whereby the results of operations for tax purposes are measured on
      a
      "real" basis" by adjusting the income for changes in the ICPI. Commencing on
      1
      January 2008, this law has been cancelled and transition provisions were set
      out. Accordingly, the results of operations will be measured for tax purposes
      on
      a nominal basis. Tax rates applicable to the income of the Company: On July
      25,
      the Israeli parliament passed an amendment to the Income Tax Ordinance (No.
      147)
      - 2005 (hereinafter - the “Amendment”) which stipulates, among other things,
      that the corporate tax rate will be gradually reduced to the following tax
      rates: 2006 - 31%; 2007 - 29%; 2008 - 27%; 2009 - 26%; 2010 and thereafter
      -
      25%.





Taxation
      in Croatia (Sitnica)





Corporate
      tax -  Regular
      income is taxed in Croatia (hereinafter - "Croatian Corporate Tax") at a rate
      of
      20%. Therefore, income from construction, sale or rental of real estate in
      Croatia is liable for Croatian Corporate Tax at this rate. Tax losses may be
      carried forward over a five-year period but they cannot be carried back to
      prior
      periods. There is no limit to the amount of the loss that can be carried
      forward.





Recognition
      of financing expenses for tax purposes -  Financing
      expenses are tax deductible in Croatia. However, a distinction is made between
      loans from third parties and loans granted or guaranteed by related parties.
      According to the thin financing rules in Croatia, the company may not take
      into
      account for tax purposes interest charges on loans received from foreign
      shareholders holding at least 25% of the share capital or voting rights in
      the
      Company, if the amount of the loan is four times the share of the shareholder
      in
      the capital of the borrower at any given point in time during the tax period.
      This law applied to loans granted by a third party but guaranteed by a
      shareholder.





VAT
      and
      purchase tax - The sale of apartments and commercial properties is subject
      to
      VAT of 22%. However, the part of the purchase price attributed to land is exempt
      from VAT, but is subject to purchase tax of 5%. According to Croatian law,
      the
      purchaser is required to pay the purchase tax and the VAT. This law is also
      applicable to the sale of buildings for business purposes.





F-24




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**12.
      Stockholders’ Equity**





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.





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, 2007, the Company held
      657,362 treasury shares.





There
      were no options or warrants exercised in the years ended December 31, 2007
      and
      2006, respectively.





Pursuant
      to the Sale Agreement of Navigator, the Company received 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
      canceled the Emvelco common stock acquired during the disposition in the amount
      of $834,192.




F-25




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**13.
      Commitments and Contingencies**





(a)
      Employment Agreements





The
      Compa ny
      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 $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 committed 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
      $250,000 to be paid in the form of Company shares of common stock. The number
      of
      shares to be received by Mr. Attia is calculated based on the average closing
      price 10 days prior to the commencement of each employment year. Mr. Attia
      will
      receive 111,458 Emvelco shares of common stock for his first year service.
      Mr.
      Attia also agreed to not directly or indirectly compete with the business of
      the
      Company or Emvelco RE during his employment and for a period of two years
      following termination of employment. No shares were issued to Mr. Attia in
      2006. The
      board
      of directors of AGL approved the employment agreement between AGL and Mr. Yossi
      Attia, the controlling shareholder and CEO of the Company. The agreement goes
      into effect on the date that the aforementioned allotments are consummated
      and
      stipulates that Mr. Attia will serve as the CEO of AGL in return for a salary
      that costs AGL an amount of US$ 10 thousand a month. Mr. Attia is also
      entitled to reimbursement of expenses in connection with the affairs of AGL,
      in
      accordance with AGL policy, as set from time to time. In addition Mr. Attia
      is
      entitled to an annual bonus of 2.5% of the net, pre-tax income of the Company
      in
      excess of NIS 8 million.




The
      board
      of directors of AGL approved an employment agreement between the Company and
      Mr.
      Shalom Attia, the controlling shareholder and CEO of AP Holdings Ltd. The
      agreement goes into effect on the date that the aforementioned allotments are
      consummated and stipulates that Mr. Shalom Attia will serve as the VP - European
      Operations of AGL in return for a salary that costs the Company an amount of
      US$
      10 thousand a month. Mr. Attia is also entitled to reimbursement of expenses
      in
      connection with the affairs of the Company, in accordance with Company policy,
      as set from time to time. In addition, Mr. Shalom Attia is entitled to an annual
      bonus of 2.5% of the net, pre-tax income of AGL in excess of NIS 8 million.




The
      aforementioned agreements were ratified by the general shareholders meeting
      of
      AGL on 30 October 2007.




F-26




(b)
      Construction Loans





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 3).




(c)
      Closing the AGL Transaction:





Based
      on
      series of agreements commencing June 5, 2007 and following by July 23, 2007
      (as
      reported on the Company's Form 8-K’s - See Disposal of ERC, Verge and
      Acquisition of AGL), the Company, the Company's chief executive officer Yossi
      Attia, and Darren Dunckel - CEO of ERC (collectively, the "Investors") entered
      into an Agreement (the "Upswing Agreement") with a third party, Upswing, Ltd.
      (also known as Appswing Ltd., hereinafter referred to as "Upswing"). Pursuant
      to
      the Upswing Agreement, the Investors intend to invest in an entity listed on
      the
      Tel Aviv Stock Exchange - the Atia Group Limited, f/k/a Kidron Industrial
      Holdings Ltd (herein referred to as AGL). Based on closing of said transaction,
      on July 23, 2007 the Company issued a straight note to Upswing for the amount
      of
      $2,000,000. This Promissory Note is made and entered into based upon a series
      of
      agreements by and between Maker and Holder dated as of June 5, 2007,
      July 20, 2007 and July 23, 2007, wherein the actual Closing of the
      transactions which are the subject matter of the Appswing Agreements known
      as
      the Kidron Industrial Holdings, Ltd. Transaction (the “Kidron Transaction”) has
      taken place and therefore this note is final and earned, as referenced in the
      Appswing Agreement dated July 20, 2007 (the “Closing”) and the Company
      becoming the majority shareholder of Kidron with a controlling interest of
      not
      less than 50.1%. The Unpaid Principal Balance of this note shall bear interest
      until due and payable at a rate equal to 8 % per annum. The principal hereof
      shall be due and payable in full in no event sooner than January 22, 2008,
      (the "Maturity Date"). 51% of the Company holdings in AGL, are pledge to secure
      said note.





As
      the
      Company defaulted on said note, on April 11 2008 the parties amended the note
      terms, by adding a contingent convertible feature to the note, as well as extend
      its Maturity Date in no event sooner than January 22, 2013. The outstanding
      debt represented by this Note (including accrued Interest) may be converted
      to
      ordinary common shares of the Company only if The Company issues during any
      six
      (6) month period subsequent to the date of this Note, 25,000,000 (twenty five
      million) or more shares of its common stock. Holder may, at any time after
      the
      occurrence of the preceding event, have the right to convert this Note in whole
      or in part into The Company common shares at a conversion price of $0.08 per
      share.




As
      part
      of the AGL closing, the Company undertook to indemnify the AGL in respect of
      any
      tax to be paid by Verge, deriving from the difference between (a) Verge's
      taxable income from the Las Vegas project, up to an amount of $21.7 million
      and
      (b) the book value of the project in Las Vegas for tax purposes on the books
      of
      Verge, at the date of the closing of the transfer of the shares of Verge to
      the
      Company. Accordingly, the amount of the indemnification is expected to be the
      amount of the tax in respect of the aforementioned difference, up to a maximum
      difference of $11 million. The Company believes it as no exposure under said
      indemnification. Atia Projekt undertook to indemnify AGL in respect of any
      tax
      to be paid by Sitnica, deriving from the difference between (a) Verge's taxable
      income from the Samobor project, up to an amount of $5.14 million and (b) the
      book value of the project in Samobor for tax purposes on the books of Sitnica,
      at the date of the closing of the transfer of the shares of Sitnica to the
      Company. Accordingly, the amount of the indemnification is expected to be the
      amount of the tax in respect of the aforementioned difference, up to a maximum
      difference of $0.9 million. The Atia Projekt undertook to bear any additional
      purchase tax (if any is applicable) that Sitnica would have to pay in respect
      of
      the transfer of the contractual rights in investment real estate in Croatia,
      from the Atia Projekt to Sitnica.




(d)
      Trafalgar Commitment for Future Equity Facility to AGL:




On
      January 30, 2008, Atia Group Ltd. f/k/a Kidron Industrial Holdings, Ltd. ("Atia
      Group"), of which the Company is a principal shareholder, notified the Company
      that it had entered into two (2) material agreements (wherein the Company was
      not a party but will be directly affected by their terms) with Trafalgar Capital
      Specialized Investment Fund ("Trafalgar"). Specifically, Attia Group and
      Trafalgar entered into a Committed Equity Facility Agreement ("CEF") in the
      amount of 45,683,750 New Israeli Shekels (approximately US$12,000,000.00 per
      the
      exchange rate at the Closing) and a Loan Agreement ("Loan Agreement") in the
      amount of US $500,000 (collectively, the "Finance Documents") pursuant to which
      Trafalgar grants Atia Group financial backing. The Company is not a party to
      the
      Finance Documents.




The
      CEF
      sets forth the terms and conditions upon which Trafalgar will advance funds
      to
      Atia Group. Trafalgar is committed under the CEF until the earliest to occur
      of:
      (i) the date on which Trafalgar has made payments in the aggregate amount of
      the
      commitment amount (45,683,750 New Israeli Shekels); (ii) termination of the
      CEF;
      and (iii) thirty-six (36) months. In consideration for Trafalgar providing
      funding under the CEF, the Atia Group will issue Trafalgar ordinary shares,
      as
      existing on the dual listing on the Tel Aviv Stock Exchange (TASE) and the
      London Stock Exchange (LSE) in accordance with the CEF. As a further inducement
      for Trafalgar entering into the CEF, Trafalgar shall receive that number of
      ordinary shares as have an aggregate value calculated pursuant to the CEF,
      of
      U.S. $1,500,000.




The
      Loan
      Agreement provides for a discretionary loan in the amount of $500,000 ("Loan")
      and bears interest at the rate of eight and one-half percent (81⁄2%) per annum.
      The Loan is to be used by Atia Group for the sole purpose of investment in
      its
      subsidiary Sitnica d.o.o. which controls the Samobor project in Croatia. The
      security for the Loan shall be a pledge of Atia Group's shareholder equity
      (75,000 shares) in Verge Living Corporation.




F-27




The
      aforementioned transactions as set forth under a non-binding term sheet were
      reported on the Company's Form 8K on December 5, 2007.




Simultaneously,
      on the same date as the aforementioned Finance Documents, the Company entered
      into a Share Exchange Agreement (the "Share Exchange Agreement") with Trafalgar.
      The Share Exchange Agreement provides that the Company must deliver, from time
      to time, and at the request of Trafalgar, those shares of Atia Group, in the
      event that the ordinary shares issued by Atia Group pursuant to the terms of
      the
      Finance Documents are not freely tradable on the Tel Aviv Stock Exchange or
      the
      London Stock Exchange. In the event that an exchange occurs, the Company will
      receive from Trafalgar the same amount of shares that were exchanged. The
      closing and transfer of each increment of the Exchange Shares shall take place
      as reasonably practicable after receipt by the Company of a written notice
      from
      Trafalgar that it wishes to enter into such an exchange transaction. To date,
      all of the Company's shares in Atia Group are restricted by Israel law for
      a
      period of six (6) months since the issuance date, and then such shares may
      be
      released in the amount of one percent (1%) (From the total outstanding shares
      of
      Atia Group which is the equivalent of approximately 1,250,000 shares per
      quarter), subject to volume trading restrictions.




Trafalgar
      is an unrelated third party comprised of a European Euro Fund registered in
      Luxembourg. The Company, its subsidiaries, officers and directors are not
      affiliates of Trafalgar.




(d)
      Acquisition of DCG:





If
      the
      DCG acquisition is consummated, DCG will become a wholly-owned subsidiary of
      the
      Company and outstanding membership interest will be exchanged by the holders
      thereof for shares of the Company. The shares of Emvelco common stock that
      holders of DCG’s membership interest will be entitled to receive pursuant to the
      Agreement and Plan of Exchange are expected to represent
      approximately 83% of the shares of the Company immediately following the consummation of the Agreement and Plan of Exchange
      of
      DCG, which upon actual production of gas will represent approximately 91% of
      the
      shares of the Company. DCG headquartered in Bel Air is a newly formed LLC which
      holding certain development rights for gas drilling in Crockett County,
      Texas.





(e)
      Lease Agreements





The
      rent
      expense related to office leases was $34,475 and $13,200 in 2007 and 2006,
      respectively.





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




**2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**$
            92,400
            
            $
            92,400
            
            $
            26,400
            
            $
            13,200
            
            $
            —
            
            $
            —




(f)
      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 **.**





F-28





**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




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.





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 took place on June
      8,
      2007, and, as stated above, the Order was entered on June 8, 2007.




The
      Company filed a complaint in the Superior Court for the County of Los Angeles,
      against a foreign 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 this attorney in the amount of approximately 250,000 Euros
      (approximately $316,000 as of the date of actual transferring the funds), plus
      interest, costs and fees. Defendant has not yet appeared in the action. The
      Company believes that it has a meritorious claim for the return of monies
      deposited with defendant in a trust capacity, and, from the documents in the
      Company’s possession, there is no reason to doubt the validity of the claim.
      During April 2007 defendant returned $92,694 (70,000 Euros at the relevant
      time)
      which netted to $72,694 post legal expenses; the Company has granted him a
      15-day extension to file his defense. Post the extension and in lieu of not
      filing a defense, the Company filed for a default judgment. On October 25,
      2007
      the Company obtained a California Judgment by court after default against the
      attorney for the sum of $249,340.65. However, management does not have any
      information on the collectibles of said judgment that entered in
      court.





Verge,
      a
      wholly owned subsidiary of the Company’s subsidiary via AGL, is involved in
      legal proceedings in connection with the ongoing Chapter 11 bankruptcy
      proceedings of Prudential Americana LLC of Las Vegas, NV. Through February
      29,
      2008, Prudential is the broker of record for the condominium project being
      developed by Verge. Verge currently has approximately $50,000 on deposit as
      an
      advanced payment of the brokerage commissions. Verge presently owes, according
      to Prudential, $70,000 in monthly progress billings and Verge contends that
      it
      is entitled to offset the $50,000 against these progress billings. Verge
      believes Prudential breached fiduciary duties in connection with Prudential’s
      performance as a broker and has filed a Proof of Claim in Chapter r11
      proceedings in excess of $9 million. As of today, the Company does not believe
      it will have a material liability in relation to these charges.





On
      November 21, 2007 LM Construction filed a demand for arbitration proceeding
      against the Company in connection with amounts due for general contracting
      services provided by them during the construction of the Company Sales Center.
      The Company agreed to enter into arbitration, deny any wrong doing and
      counterclaim damages. Amount in dispute are approximately $67,585 and are
      included in other current liabilities on the balance sheet.





F-29




Navigator
      Acquisition - Registration Rights





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. As March 31, 2008, the Company is in
      default of said agreement and therefore made a provision for compensation for
      $150,000 to represent agreed upon final compensation to Navigator.





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, 2007 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, 2007, the Company has accrued $201,020 as the estimated
      fair value of this indemnity.





Sub-Prime
      Crisis





The
      mortgage credit markets in the U.S. have been experiencing difficulties as
      a
      result of the fact that many debtors are finding it difficult to obtain
      financing (hereinafter - the “Sub-prime crisis”). The sub-prime crisis resulted
      from a number of factors, as follows: an increase in the volume of repossessions
      of houses and apartments, an increase in the volume of bankruptcies of mortgage
      companies, a significant decrease in the available resources for purposes of
      financing through mortgages, and in the prices of apartments. The financing
      of
      the project of the Verge subsidiary is contingent upon the future impact of
      the
      sub-prime crisis on the financial institutions operating in the U.S. The
      sub-prime crisis may have an impact on the ability of the Verge subsidiary
      to
      procure the financing required to complete its construction project and on
      the
      terms of the financing, if procured, and it may also impact in the ability
      of
      the customers of the Company to procure mortgages, if necessary, and on the
      terms under which the mortgages will be obtained.




F-30




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**14.
      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-31




**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 $36,817 and
      $21,241 for the years ended December 31, 2007 and 2006,
      respectively.





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.





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 $36,817 and $128,284 for the years ended December 31,
      2007 and 2006, respectively. 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 $6,599 and $31,824
      during the years ended December 31, 2007 and 2006, respectively.





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:




2007
            
            2006Options
            
            Weighted
                average exercise price
            
            Options
            
            Weighted
                average exercise priceOutstanding,
                January 1,
            
            
            330,000
            
            $
            3.77
            
            
            705,000
            
            $
            4.20Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
                or expired
            
            
            -
            
            
            -
            
            
            (375,000
            )
            
            4.59Outstanding,
                December 31
            
            
            330,000
            
            $
            3.77
            
            
            330,000
            
            $
            3.77




F-32




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




No
      options were exercised during the years ended December 31, 2007 and
      2006.




The
      following table summarizes information about shares subject to outstanding
      options as of December 31, 2007, which was 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
            
            
            1.79
            
            
            100,000
            
            $
            4.2130,000
            
            $
            4.78
            
            $
            4.78
            
            
            2.32
            
            
            30,000
            
            $
            4.78200,000
            
            $
            3.40
            
            $
            3.40
            
            
            3.31
            
            
            150,000
            
            $
            3.40330,000
            
            $
            3.40-$4.78
            
            $
            3.77
            
            
            2.66
            
            
            280,000
            
            $
            3.84





(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 increments 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.





F-33





**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**




**15.
      Related party transactions**





On
      October 3, 2006, ERC entered into an Operating Agreement with D’vora Greenwood
      (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 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.




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.





During
      2007, Yossi Attia paid substantial expenses for the Company and also deferred
      his salary. As of December 31, 2007, the Company owes Mr., Attia
      $516,084.





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.





Verge
      loaned to Mr. Darren Dunckel, the sum of $93,822, of which $90,000 was paid-off
      via Mr. Dunckel employment agreement, and the balance of $3,822 is included
      in
      Prepaid and other current assets as of December 31, 2006. As of December 31,
      2007, the balance for advances to Mr. Dunckel was paid off. Mr.
      Dunckel has entered into various transactions and agreements with the Company
      on
      behalf of ERC, Verge and TIHG (all such transactions have been reported on
      the
      Company filings of Form 8Ks). On December 31, 2006, Mr. Dunckel executed the
      Agreement and Plan of Exchange on behalf of TIHG which was issued shares in
      ERC
      in consideration for the exchange of TIHG's interest in Verge. Pursuant to
      that
      certain Stock Transfer and Assignment of Contract Rights Agreement dated as
      of
      May 14, 2007, the Company transferred its shares in ERC in consideration for
      the
      assignment of rights to that certain Investment and Option Agreement, and
      amendments thereto, dated as of June 19, 2006 which gives rights to certain
      interests and assets. Mr. Dunckel has represented and executed the foregoing
      agreements on behalf of ERC, Verge and TIHG as well as executed agreements
      on
      behalf of Verge to transfer 100% of Verge.




The
      Company issued Mrs. D’vora Greenwood (Attia), through an offering of the
      Company’s securities pursuant to a Private Placement Memorandum, 200,000 shares
      along with 400,000 warrants - See note 17 - Subsequent Events.




**16.
      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, 2007, the Company held 657,362 treasury shares.




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.





F-34




**Emvelco
      Corp.**


**Notes
      to Consolidated Financial Statements**





**17.
      Subsequent events**




On
      January 30, 2008, AGL of which the Company is a principal shareholder notified
      the Company that it had entered into two (2) material agreements (wherein the
      Company was not a party but will be directly affected by their terms) with
      Trafalgar Capital Specialized Investment Fund ("Trafalgar"). Specifically,
      AGL
      and Trafalgar entered into a Committed Equity Facility Agreement ("CEF") in
      the
      amount of 45,683,750 New Israeli Shekels (approximately US$12,000,000.00 per
      the
      exchange rate at the Closing) and a Loan Agreement ("Loan Agreement") in the
      amount of US $500,000 (collectively, the "Finance Documents") pursuant to which
      Trafalgar grants AGL financial backing. The Company is not a party to the
      Finance Documents. The CEF sets forth the terms and conditions upon which
      Trafalgar will advance funds to AGL. Trafalgar is committed under the CEF until
      the earliest to occur of: (i) the date on which Trafalgar has made payments
      in
      the aggregate amount of the commitment amount (45,683,750 New Israeli Shekels);
      (ii) termination of the CEF; and (iii) thirty-six (36) months. In consideration
      for Trafalgar providing funding under the CEF, the AGL will issue Trafalgar
      ordinary shares, as existing on the dual listing on the Tel Aviv Stock Exchange
      (TASE) and the London Stock Exchange (LSE) in accordance with the CEF. As a
      further inducement for Trafalgar entering into the CEF, Trafalgar shall receive
      that number of ordinary shares as have an aggregate value calculated pursuant
      to
      the CEF, of U.S. $1,500,000. The Loan Agreement provides for a discretionary
      loan in the amount of $500,000 ("Loan") and bears interest at the rate of eight
      and one-half percent (81⁄2%) per annum. The Loan is to be used by AGL for the sole
      purpose of investment in its subsidiary Sitnica d.o.o. which controls the
      Samobor project in Croatia. The security for the Loan shall be a pledge of
      AGL’s
      shareholder equity (75,000 shares) in Verge Living Corporation.




Simultaneously,
      on the same date as the aforementioned Finance Documents, the Company entered
      into a Share Exchange Agreement (the "Share Exchange Agreement") with Trafalgar.
      The Share Exchange Agreement provides that the Company must deliver, from time
      to time, and at the request of Trafalgar, those shares of AGL, in the event
      that
      the ordinary shares issued by AGL pursuant to the terms of the Finance Documents
      are not freely tradable on the Tel Aviv Stock Exchange or the London Stock
      Exchange. In the event that an exchange occurs, the Company will receive from
      Trafalgar the same amount of shares that were exchanged. The closing and
      transfer of each increment of the Exchange Shares shall take place as reasonably
      practicable after receipt by the Company of a written notice from Trafalgar
      that
      it wishes to enter into such an exchange transaction. To date, all of the
      Company's shares in AGL are restricted by Israel law for a period of six (6)
      months since the issuance date, and then such shares may be released in the
      amount of one percent (1%) (From the total outstanding shares of AGL which
      is
      the equivalent of approximately 1,250,000 shares per quarter), subject to volume
      trading restrictions.




Further
      to the signing of the investment agreement with Trafalgar, the board of
      directors of AGL decided to allot Trafalgar 69,375,000 ordinary shares of AGL,
      no par value each (the "offered shares") which, following the allotment, will
      constitute 5.22% of the capital rights and voting rights in AGL, both
      immediately following the allotment and fully diluted. The offered shares will
      be allotted piecemeal, at the following dates: (i) 18,920,454 shares will be
      allotted immediately following receipt of approval of the stock exchange to
      the
      listing for trade of the offered shares. (ii) 25,227,273 of the offered shares
      will be allotted immediately following receipt of all of the necessary approvals
      in order for the offered shares to be swapped on 30 April 2008 against a
      quantity of shares equal to those held by Emvelco Corp. at that same date.




The
      balance of the offered shares, a quantity of up to 25,277,273 shares, will
      be
      allotted immediately after receipt of the approval of the Israel Securities
      Authority for the issuance of a shelf prospectus. Notwithstanding, if the
      approval of the shelf prospectus will not be granted by the Israel Securities
      Authority by the beginning of May 2008, only 12,613,636 shares will be allotted
      to Trafalgar at that same date




Trafalgar
      is an unrelated third party comprised of a European Euro Fund registered in
      Luxembourg. The Company, its subsidiaries, officers and directors are not
      affiliates of Trafalgar.




On
      10
      February 2008, the Israeli Tax Authority issued a notification (hereinafter
      the
      - "Notification") of the setting up of a joint forum together with professional
      organizations, the goal of which is to work out various standard related issues
      that arose as part of the implementation of IFRS in Israel and the practical
      application thereof in tax returns. It was also decided by the Tax Authority
      that taxable income will continue to be computed pursuant to the guidelines
      that
      were in effect in Israel prior to the adoption of IFRS (except for Accounting
      Standard No. 29, Adoption of IFRS). The calculation of taxable income, as above,
      will be carried out during an interim period until it is decided how to apply
      IFRS to Israeli tax laws.




F-35




On
      February 11, 2008, The Company was notified by the NASDAQ Staff that it has
      regained compliance with Marketplace Rule 5310(c)(4) since the closing bid
      price
      of the Company’s common stock has been at $1.00 per share or greater for at
      least 10 consecutive business days. The matter is now closed.




On
      February 14, 2008, the Company raised Three Hundred Thousand Dollars ($300,000)
      from the private offering of two (2) Private Placement Memorandums dated as
      of
      February 1, 2008 ("PPMs"). One PPM was in the amount of One Hundred Thousand
      Dollars ($100,000) and the other was in the amount of Two Hundred Thousand
      Dollars ($200,000). The offering is for Company common stock which shall be
      "restricted securities" and were sold at $1.00 per share. The money raised
      from
      the Private Placement of the Company shares will be used for working capital
      and
      business operations of the Company. The PPMs were done pursuant to Rule 506.
      A
      Form D has been filed with the Securities and Exchange Commission in compliance
      with Rule 506 for each Private Placement.




The
      Company has entered into a term sheet which provides that the Company will
      purchase and receive from an entity that owns certain gas development rights,
      all the mineral acreage and land rights for drilling on that certain property
      located in Texas (the “Gas Lease Rights”). Specifically, the Company will
      purchase all the outstanding membership interests of Davy Crockett Gas Company,
      LLC, a Nevada limited liability company (“DCG”), which currently owns the Gas
      Lease Rights. The purchase price shall be $25 million as the first increment
      and
      an additional $5 million, payable with 5 million shares at $1.00 per share
      for
      each increment, released for each of the first five wells going into production
      for a total of $50 million. In consideration of the actual assignment of the
      Gas
      Lease Rights, the Company shall issue a minimum of 25,000,000 new EMVELCO shares
      to the Seller, wherein the share price shall be at an agreed upon price of
      $1.00
      per share in exchange for all the shares of the entity that may be transferring
      the Gas Lease Rights. The purchase price may be increased up to $250 million
      based on actual proven developed product. The Company is still undertaking
      due
      diligence in connection with proof of good title to the Gas Lease Rights. The
      transaction was presented to the Board of Directors for approval at a meeting
      on
      March 13, 2008. The terms and provisions of the Gas Lease Rights and
      acquisition thereof is delineated in the Agreement and Plan of Exchange (the
      “Agreement and Plan of Exchange”). The transaction is subject to a Proxy
      Statement to be delivered to Shareholders. If the DCG acquisition is
      consummated, DCG will become a wholly-owned subsidiary of the Company and
      outstanding membership interest will be exchange by the holders thereof for
      shares of the Company. The shares of Emvelco common stock that holders of DCG’s
      membership interest will be entitled to receive pursuant to the Agreement and
      Plan of Exchange are expected to represent approximately 83% of the shares
      of
      the Company immediately following the consummation of the Plan of Exchange
      of
      DCG. If the fifth well goes into production, the DCG membership interest will
      then own 91% of the Company. DCG, headquartered in Bel Air, is a newly formed
      LLC, which holding certain development rights for gas drilling in Crockett
      County, Texas.




On
      January 12, 2008, with effective counterpart signature on February 20, 2008,
      Verge, the 100% subsidiary of the AGL, of which the Company is a principal
      shareholder, entered into an Agreement between Owner and Owner's Representative
      effective as of January 12, 2008 (the "Verge Project Management Agreement")
      with
      TWG Consultant, LLC ("TWG") to appoint TWG as Owner Representative in regards
      to
      the construction of the Verge Project. Pursuant to the Verge Project Management
      Agreement, TWG will design and oversee the actual construction of the Verge
      Project as well as being the onsite manager to supervise and be the liaison
      with
      local governmental authorities, general contractor and subcontractors, lenders
      and vendors as well as preparing the budget and status reports on the Verge
      Project. As consideration for TWG's services, Verge will pay the following
      fees:
      1. All direct costs associated with the Verge Project, including employment
      of a
      construction inspector (superintendent/structural engineer - at an estimated
      cost of $12,500 per month), a part-time office clerk and office and
      administrative expenses. Collectively, said costs are estimated at $20,000
      per
      month. 2. Monthly advances of $24,750 for two personnel senior management.
      3. A
      bonus to be paid in the amount of 5% of the earnings before tax depreciation
      and
      amortization (EBTDA) of the Verge Project, but not less than $1 million.




On
      March
      30, 2008, the Company raised $200,000 from the private offering of Private
      Placement Memorandum ("PPM"). The private placements were for Company common
      stock which shall be "restricted securities" and were sold at $1.00 per share.
      The offering included 200,000 warrants to be exercised at $1.50 for two years
      (for 200,000 Company common stock), and additional 200,000 warrants to be
      exercised at $2.00 for four years (for 200,000 Company common stock). Said
      Warrants may be exercised to ordinary common shares of the Company only if
      the
      Company issues subsequent to the date of this PPM, 25,000,000 (twenty five
      million) or more shares of its common stock. The money raised from the private
      placement of the Company’s shares will be used for working capital and business
      operations of the Company. The PPM was done pursuant to Rule 506. A Form D
      has
      been filed with the Securities and Exchange Commission in compliance with Rule
      506 for each Private Placement. The investor is D’vora Greenwood (Attia), the
      sister of Mr. Yossi Attia. Mr. Attia did not participate in the board meeting
      which approved this PPM.




During
      the first and second quarters of 2008, Sitnica advanced approximately Euro
      1.2
      million to the Land Sellers, as well as paid in full the purchase tax on said
      land. Sitnica borrowed the needed funds from Mr. Shalom Atia as a loan which
      bear no interest.





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