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, 2008


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




VORTEX
RESOURCES 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.)




9107
Wilshire Blvd., Suite 450, Beverly Hills, CA 90210


(Address
of principal executive offices)




Issuer’s
telephone number, including area code: (310) 461-3559




Issuer’s
facsimile number, including area code: (310) 461-1901




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





Title of Each
      Class
            
            Name of Each Exchange
      on which RegisteredCommon
      Stock, par value $.001 per share
            
            OTC
      BBPreferred
      Stocks Series B par value $0.001 Per share
            
            OTC
      BB




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, 2008 were
$0.




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 14,
2009 was $5,889,256 based on the closing price of the registrant’s common stock
on such date of $0.625 as reported by the Over the Counter Bulletin Board.




At April
15, 2009, 97,884,347 shares of common stock were outstandingof which 9,422,809 were
held bynon-affiliates of the
Company (said number of shares is post reverse split of 1:100 that became
effective on February 24, 2009).




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










TABLE
OF CONTENTS





PagePART
      IITEM
      1.
            
            DESCRIPTION
      OF BUSINESS
            
            3ITEM
      2.
            
            DESCRIPTION
      OF PROPERTIES
            
            20ITEM
      3.
            
            LEGAL
      PROCEEDINGS
            
            22ITEM
      4.
            
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            24PART
      IIITEM
      5.
            
            MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS
            
            25ITEM
      6.
            
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            30ITEM
      7.
            
            FINANCIAL
      STATEMENTS
            
            F-1ITEM
      8.
            
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            
            42ITEM
      8A
            
            CONTROLS
      AND PROCEDURES
            
            43ITEM
      8B
            
            OTHER
      INFORMATION
            
            45PART
      IIIITEM
      9.
            
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A) OF THE EXCHANGE ACT
            
            48ITEM
      10.
            
            EXECUTIVE
      COMPENSATION
            
            51ITEM
      11.
            
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            
            57ITEM
      12.
            
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
            
            59ITEM
      13.
            
            EXHIBITS
            
            61ITEM
      14.
            
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            
            62SIGNATURES
            
            63INDEX
      TO EXHIBITS
            
            64





2




ITEM
      1.
            DESCRIPTION
      OF BUSINESS




History
of Business




Vortex
Resources Corp, formerly known as (“f/k/a”) Euroweb International Corp. and
Emvelco Corp., is a Delaware corporation and was organized on November 9, 1992.
It was a development stage company through December 1993. Vortex Resources Corp.
and its consolidated subsidiaries are collectively referred to herein as
“Vortex” or the “Company”. Vortex’s business that was first implemented in 1997
was identifying, developing and operating companies within emerging industries
for the purpose of consolidation and sale if favorable market conditions exist.
Through December 31, 2007, the Company invested in the real estate development,
and in the financing business through Emvelco RE Corp. (“ERC”) and its
subsidiaries in the United States of America (“US”) and in Europe. 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 included 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 Beverly Hills, California.




Through
its subsidiaries and series of agreements with ERC, the Company developed and
sold in 2007 three properties in the Los Angeles vicinity. The balance of the
Company real estate interests were sold during 2008. The Company does not have
currently any further properties in the real estate industry.





In 2008,
the Company changed or amended its business model to focus on the mineral
resources industry, commencing gas and oil sub-industry, which was approved by
its shareholders. Effective August 19, 2008, the Company changed its name to
Vortex Resources Corp., which was accomplished by merger of a wholly owned
subsidiary into the Company with the Company being the survivor entity. On May
1, 2008, the Company entered into an Agreement and Plan of Exchange (the “DCG
Agreement”) with Davy Crockett Gas Company, LLC (“DCG”) and its members (“DCG
Members”). Pursuant to the DCG Agreement, the Company acquired and the DCG
Members sold, 100% of the outstanding membership in DCG. DCG is a limited
liability company organized under the laws of the State of Nevada and
headquartered in Bel Air, California.  As a newly formed designated
LLC, DCG holds certain development rights for gas drilling in Crockett County,
Texas. DCG has entered into the final DCG Agreement with the Company, which
provided that the members sold all of their membership units to the Company in
exchange for 50 million preferred shares of the Company. The sales price was $50
million, as calculated by the 50 million shares at an agreed price of
$1.00




The
Company elected to move from The NASDAQ Stock Market to the OTCBB to reduce, and
more effectively manage, its regulatory and administrative costs, and to enable
Company’s management to better focus on its business of developing the natural
gas drilling rights recently acquired in connection with the acquisition of
DCG.





DCG, a
wholly owned subsidiary is a limited liability company and was organized in
Nevada on February 22, 2008. The Company’s members’ capital accounts consist of
10,000 units. As of December 31, 2008, 10,000 member’s units are issued and
outstanding.  DCG has obtained drilling rights from a third party in
Wolfcamp Canyon Sandstone Field in West Texas and entering the natural gas
production & exploration, drilling, and extraction business.  DCG
has the option to purchase rights on up to 180 in-fill drilling locations on
about specific 3,600 acres, based on a 20 acres spacing.  The field
was first developed in the 1970s on a 160 acre well spacing and was later
reduced based on a small radius of the wells drainage. The spacing has
subsequently been reduced to 40 acres, 20 acres, and 10 acres accordingly. DCG’s
drilling program is based on 20 acres spacing.





DCG has
obtained a current reserve evaluation report from an independent engineering
firm, which classifies the gas reserves as “proven
undeveloped”.  According to the independent well evaluation, each well
contains approximately 355 MMCF (355,000 cubic feet) of recoverable natural
gas.





3




As a
result of the series of these reverse merger transactions described above, the
Company’s ownership structure at December 31, 2008 is as follows (designated for
sale – see subsequent events):




100% of
DCG – discontinued operations


50% of
Vortex Ocean One, LLC


7% of
Micrologic, (Via EA Emerging Ventures Corp)
 100% of
610 N. Crescent Heights, LLC and 50% of 13059 Dickens, LLC – both properties
divested





The
accompanying financial statements have been prepared on the basis of accounting
principles applicable to a “going concern”, which assumes that the Company will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of operations.





Vortex
Strategy





2008 -
INVESTMENTS AND DEVELOPMENT OF RESOURCES





In 2008,
the Company changed or amended its business model to focus on the mineral
resources industry, commencing gas and oil sub-industry, which was approved by
its shareholders. Effective August 19, 2008, the Company changed its name to
Vortex Resources Corp., which was accomplished by merger of a wholly owned
subsidiary into the Company with the Company being the survivor entity. On May
1, 2008, the Company entered into the DCG Agreement with DCG and divested during
2008 its real estate interests.





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.  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 into a transaction. 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, other than disclosed on subsequent
events, which are part of this filing.




On
January 20, 2009, the Company entered into a Term Sheet (the “Term Sheet”) with
Yasheng Group (“Yasheng”) a group of companies engaged in the agriculture,
chemicals and biotechnology businesses in the Peoples Republic of China and the
export of such products to the United States, Canada, Australia, Pakistan and
various European Union countries. Yasheng is also developing a logistics centre
and eco-trade cooperation zone in California (the “Project”). Yasheng purchased
80 acres of property located in Victorville, California (the “Project Site”) to
be utilized for the Project. It is intended that the Project will be implemented
in two phases, first, the logistic centre, and then the development of an
eco-trade cooperation zone. The preliminary budget for the development of the
Project is estimated to be approximately $400M. As set forth in the Term Sheet,
Yasheng has received an option to merge all or part of its assets as well as the
Project into the Company. As an initial stage, Yasheng will contribute the
Project Site to the Company which will be accomplished through either the
transferring title to the Project Site directly to the Company or the
acquisition of the entity holding the Project Site by the Company. As
consideration for the Project, the Company will issue Yasheng 130,000,000 shares
of common stock (on a post reverse split basis). In addition, the Company will
be required to issue Capitol Properties, an advisor, 100,000,000 shares of
common stock (on a post reverse split basis).  At the second stage, if
Yasheng exercises its option within its sole discretion, it may merge additional
assets that it owns into the Company in consideration for shares of common stock
of the Company. In the event that Yasheng exercises this option, the number of
shares to be delivered by the Company will be calculated by dividing the value
of the assets by the volume weighted average price for the ten days preceding
the closing date. The value of the assets contributed by Yasheng will be based
upon the asset value set forth in its audited financial statements. On March
2009, the Company and Yasheng entered into an amendment of the Term Sheet (the
“Amendment”), pursuant to which the parties agreed to explore various areas
including an alliance with third parties, a joint venture with various Russian
agencies floating nuclear power plants and the lease of an existing logistics
center in Inland Empire, California; in accordance with the Amendment, the
Company, as an advance issuance, has agreed to issue 50,000,000 shares to
Yasheng and 38,461,538 shares to Capitol in consideration for exploring the
above ventures




The above
transaction is subject to the drafting and negotiation of a final definitive
agreement, performing due diligence as well as board approval of the Company. As
such, there is no guarantee that the Company will be able to successfully close
the above transaction.




4




Due to
current issues in the development of the oil and gas project in Crockett County,
Texas, the board obtained a current reserve report for the Company’s interest in
DCG and Vortex One, which report indicated that
the DCG properties as being negative in value. As a result of such report, the
world and US recessions and the depressed oil and gas prices, the board of
directors elected to dispose of the DCG property and/or desert the project in
its entirety.





2007 -
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 were 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.





OTHER
INVESTMENTS





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 funds 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 was
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
evaluated various projects, yet at the relevant time, had not presented the
Company with a specific project for consideration. AS lack of vital project to
EVC, the company and Ashfield amended their holdings, so the Company own 100% of
EVC effective from inception. The company vested its holding in Micrologic via
EVC.




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 owned 25.1%
and Dr. Rittman owned 74.9% of Micrologic, Inc. however, the Company has no
influence over the operation of Micrologic.





5




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.  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 100,000 shares of Micrologic (vested via EVC) represents about ten
percent (10%) equity ownership in Micrologic, prior to further
dilution.





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 did not
consolidate the balance sheet at December 31, 2007, nor will it consolidate
future results of operations. During 2008, Micrologic raised about $1,500,000 in
gross proceeds via private placement to third parties. Post the placement, the
Company was diluted to about 6.161% holding with Micrologic, and to about 5.294%
based on fully diluted basis per said placement.





DCG
Transaction:





Based on
series of agreements commonly known as “reverse merger” which were formalized on
May 1, 2008, the Company entered into an Agreement and Plan of Exchange (the
“DCG Agreement”) with Davy Crockett Gas Company, LLC (“DCG”) and its members
(“DCG Members”). Pursuant to the DCG Agreement, the Company acquired and the DCG
Members sold, 100% of the outstanding membership in DCG. DCG is a limited
liability company organized under the laws of the State of Nevada and
headquartered in Bel Air, California.  DCG held certain development
rights for gas drilling in Crockett County, Texas. DCG has entered into the
final DCG Agreement with the Company, which provided that the members sold all
of their membership units to the Company in exchange for 50 million preferred
shares of the Company. The sales price was $50 million, as calculated by the 50
million shares at an agreed price of $1.00.





Based on
a new current reserve report (see supplemental information on gas and oil –
financial statements), in lieu of the world economy turmoil and 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,
2008, an analysis was performed on the goodwill associated with the investment
in DCG, and impairment was charged against the P&L for approximately $35.0
million.





Vortex Ocean
One, LLC





On June
30, 2008, the Company formed a limited liability company with Tiran Ibgui, an
individual (“Ibgui”), named Vortex Ocean One, LLC (the “Vortex One”). The
Company and Ibgui each own a fifty percent (50%) membership interest in Vortex
One. The Company is the Manager of the Vortex One. Vortex One has been formed
and organized to raise the funds necessary for the drilling of the first well
being undertaken by the Company’s wholly owned subsidiary DCG (as reported on
the Company’s Form 8-Ks filed on May 7, 2008 and May 9, 2008 and amended on June
16, 2008). The Company and Ibgui entered into a Limited Liability Company
Operating Agreement which sets forth the description of the membership
interests, capital contributions, allocations and distributions, as well as
other matters relating to Vortex One.  Mr. Ibgui paid $525,000 as cash
consideration for his 50% ownership in Vortex One and the Company issued 525,000
common shares at an establish $1.00 per share price for its 50% ownership in
Vortex One. In essence the agreements between the Company and Ibgui, allow him
to recover his cash investment based on obtaining 80% from any future proceeds
from specific 4 wells, and then after Ibgui has retained his investment, the
parties would share future income based on 50/50 split. Mr. Ibgui was also
granted security in form of mortgage 4 wells, until he recovered his investment
in full. In October and November 2008, the Company entered into settlement
arrangements with Mr. Ibgui, whereby the Company agree to transfer the 525,000
common shares previously owned by Vortex, as well as pledging its interests with
the 4 wells.





6




Due to
current issues in the development of the oil and gas project in Crockett County,
Texas, the board obtained a current reserve report for the Company’s interest in
DCG and Vortex One, which report indicated that the DCG properties as being
negative in value. As a result of such report, the world and US recessions and
the depressed oil and gas prices, the board of directors elected to dispose of
the DCG property and/or desert the project in its entirely. On October 29, 2008,
the Company entered into a settlement arrangement with Mr. Ibgui, whereby the
Company agreed to transfer the 525,000 common shares previously owned by Vortex
One to Mr. Ibgui. Further, in February 28, 2009, Ibgui, as the secured lender to
Vortex One, directed Vortex One to assign the term assignments with 80% of the
proceeds being delivered to Ibgui, as secured lender, and 20% of the proceeds
being delivered to the Company - as per the original agreement.




The
transaction closed on February 28, 2009 in consideration of a cash payment in
the amount of $225,000, a 12 month promissory note in the amount of $600,000 and
a 60 month promissory note in the amount of $1,500,000. Mr. Ibgui paid $25,000
fee, and from the net consideration of $200,000 Mr. Ibgui paid the Company its
20% portion of $40,000 on March 3, 2009. No relationship exists between Ibgui,
the assignee of the leases and the Company and/or its affiliates, directors,
officers or any associate of an officer or director.





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.. The Company owns 100% of subsidiary 610 N. Crescent Heights, LLC,
which is located in Los Angeles, CA.  On April 2008, the Company
obtained Certificate of Occupancy from the City of Los Angles, and listed the
property for sale at selling price of $2,000,000. At September 30, 2008, the
Company sold the property for the gross sale price of
$1,990,000.   The Company has resolved to discontinue its real
estate operations.  (Note 10)





The
Company owns 50% of 13059 Dickens, LLC, as reported by the Company on Form 8-K
on December 21, 2007, through a joint venture with a third party at no cost to
the Company. As all balances due under this venture is via All Inclusive Trust
Deed, and in lieu of the Company new strategy, the Company entered advanced
negotiations with regards to selling its interest to the other party at no cost
to the Company, or liability, by conveying back title of said property, and
releasing the Company from any associated liability. As of September 30, 2008,
the project was sold back to the third party, by reversing the transaction, at
no cost to the Company.





We 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 $1,065,652.39, 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 $1,065,652.39 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.





History
of Acquisitions and Dispositions - ISP and IT industry




The
Company 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.





7




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.





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, the Company 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, The Company
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.





8




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. 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, The Company 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, The Company 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.
On October 15, 2007, The Company 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, The Company, subject to performance under the Upswing Agreement (see
below) 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 was 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, 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.





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
and Verge (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
(““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, intended 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 was 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, The Company 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 was 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 owned
58.3% of AGL and consolidates AGL’s results in its 2007 financial
statements.





9




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 Project 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 Project
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 Project to Sitnica. On April
29, 2008, the Company entered into Amendment No. 1 (“Amendment No. 1”) to that
certain Share Exchange Agreement between the Company and Trafalgar Capital
Specialized Investment Fund, (“Trafalgar”). Amendment No. 1 states that due to
the fact that the Israeli Securities Authority (“ISA”) delayed the issuance of
the Implementation Shares issuable from the Atia Group to Trafalgar, that the
Share Exchange Agreement shall not apply to 69,375,000 of the Implementation
Shares issuable under the Committed Equity Facility. All other terms of the
Share Exchange Agreement remain in full force and effect.




The above
transactions were 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 2007 financial statements.





Disposal
of Atia Group LTD shares: On August 19, 2008 the Company entered into a final
fee agreement with C. Properties Ltd. (“Consultant”), where the Company had to
pay Consultant certain fees in accordance with the agreement entered into with
the Consultant, the Consultant had agreed that, in lieu of cash payment, it
would receive an aggregate of up to 734,060,505 shares of stock of the Atia
Group Ltd. (the “Atia Shares”). The Consultant was not advised on the
restructuring of the acquisition of DCG by the Company and in order to
compensate the Consultant and avoid any potential litigation, the Company has
agreed to waive the production requirements set forth in the Consultant
Agreement and transfer all of the Atia Shares immediately which such transfer
shall be considered effective January 1, 2008. There was goodwill recorded in
the transaction with AGL totaling $1.2 million as of December 31,
2007.  Since this subsidiary was divested as of January 1, 2008 in
compliance with the C Properties Agreement, this goodwill was impaired during
the first quarter of 2008 and presented as a consulting, director and
professional fees in the P&L




Based on
the agreement, the Company disposed all its holdings in AGL effective January 1,
2008, and the company financials reflect such disposal.




Products
and Services





Year
2008 Forward





In 2008,
the Company changed amended its business model to focus on the mineral resources
industry, commencing gas and oil sub-industry, which was approved by its
shareholders.. Based on series of agreements commonly known as “reverse merger”
which were formalized on May 1, 2008, the Company entered into the DCG Agreement
with DCG and DCG Members. Pursuant to the DCG Agreement, the Company acquired
100% of the outstanding membership in DCG. DCG is a limited liability company
organized under the laws of the State of Nevada and headquartered in Bel Air,
California.  As a newly formed designated LLC, DCG holds certain
development rights for gas drilling in Crockett County, Texas – See more
discussion of Oil & Gas as supplemental information included in this
filling.





On
January 20, 2009, we entered into a Term Sheet (the “Term Sheet”) with Yasheng
Group (“Yasheng”) a group of companies engaged in the agriculture, chemicals and
biotechnology businesses in the Peoples Republic of China and the export of such
products to the United States, Canada, Australia, Pakistan and various European
Union countries.  Yasheng is also developing a logistics centre and
eco-trade cooperation zone in California (the “Project”). Yasheng purchased 80
acres of property located in Victorville, California (the “Project Site”) to be
utilized for the Project.  It is intended that the Project will be
implemented in two phases, first, the logistic centre, and then the development
of an eco-trade cooperation zone. The preliminary budget for the development of
the Project is estimated to be approximately $400M.





10




As set
forth in the Term Sheet, Yasheng has received an option to merge all or part of
its assets as well as the Project into the Company.  As an initial
stage, Yasheng will contribute the Project Site to the Company which will be
accomplished through either the transferring title to the Project Site directly
to the Company or the acquisition of the entity holding the Project Site by the
Company.  As consideration for the Project, the Company will issue
Yasheng 130,000,000 shares of common stock (on a post reverse split
basis).  On March 5, 2009, the Company and Yasheng implemented an amendment
to the Term Sheet pursuant to which the parties agreed to explore further
business opportunities including the potential lease of an existing logistics
center located in Inland Empire, California, and/or alliance with other major
groups complimenting and/or synergetic to the Vortex/Yasheng JV as approved by
the board of directors on March 9, 2009. Further, in accordance with the
amendment, the Company has agreed to issue 50,000,000 shares to Yasheng and
38,461,538 shares to Capitol in consideration for exploring the business
opportunities, based on the pro-ration set in the January Term
Sheet.





Year
2007





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. The Company’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 had 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 five full-time professionals including management personnel
which 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 15, 2009, the Company employed a total of five full-time employees, all of
whom are in executive and administrative functions.  We believe that
our employee relations are good.




11




Competition





2007 -
The real estate development business is highly competitive and fragmented. We
competed 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 made. 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
would 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 is 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.




2008 - We
believe the current market conditions for the energy sectors are less than
adequate from the demand side as evidence by collapsing off mineral prices,
especially oil and gas. Even though there is no sufficient growth in supply to
meet the growing energy needs, the turmoil in the financial markets affected
heavily the energy price. These trends are un-predicable by management, and
maybe address by bigger corporations than that DCG hoped to capitalize on. Some
of these opportunities include the consolidation and rationalization of global
energy assets. The emergence of unconventional resources i.e. tight gas sands,
shale gas, oil sands and coal bed methane to name a few. There are also niche
opportunities in established producing regions in emerging markets. In the
renewable and alternative energy segments investment opportunities are growing
as a result of global trends that are influencing governmental policies. We
operate in the highly competitive oil and gas areas of acquisition and
exploration, areas in which other competing companies have substantially larger
financial resources, operations, staffs and facilities. Such companies may be
able to pay more for prospective oil and gas properties or prospects and to
evaluate, bid for and purchase a greater number of properties and prospects than
our financial or human resources permit.





Sub-Prime
Lending and World Economy 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 on the Verge subsidiary was contingent
upon the future impact of the sub-prime crisis on the financial institutions
operating in the U.S.  Said crisis put ERC as well as Verge Living
Corporation in a fragile none –cash situation (Verge noticed the Company that it
filled Bankruptcy in the beginning of 2009), which brought management to make
provision for doubtful debts on all monitories balances associated with real
estate of ERC and Verge.




The
Sub-prime crisis has also had a significant negative impact on the pricing of
natural gas and oil (as well as other commodities and
industries).  The Company anticipates that the drop in the commodities
prices will present major difficulties in obtaining financing for the drilling
of wells and there is no assurance that the Company will be able to implement
its business plan in a timely manner. In order to reduce the Company risks and
more effectively manage its business and to enable Company management to better
focus on its business on developing the natural gas drilling rights, the board
of directors is pending a discussion and resolution vacating the DCG project and
limiting the Company business to be more focus in the USA. Per the Yasheng
venture, the board pending such decision to further develops projects that in
alliance with the Yasheng Group core of business, of which DCG being infill
domestic play are not synergetic, on top of not being profitable per current
reserve report.




The US
economy, as well as the all world economy entered into turmoil so deep, that any
reasonable predication is no longer relevant, and management need to address new
issues on daily basis.




12




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.





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 losses from continuing operations of $21,175,251 and $827,223 for the
years ended December 31, 2008 and 2007, respectively. 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 (as occurring on daily
basis), 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.





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 our properties,
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 energy industry.





Our
activities are subject to numerous major factors beyond our control, including
local market conditions (our properties are located and in areas where our
potential customers operates), substantial existing and potential competition,
general national, regional and local economic conditions, fluctuations in
interest rates and funding availability and changes in demographic conditions.
Energy markets, especially the sub-industry of gas have historically been
subject to strong periodic cycles driven by numerous factors beyond the control
of market participants.





Gas &
Oil 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 gas properties values, it is difficult to predict with certainty the level of
future sales or sales prices that will be realized for individual
assets.





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.





Operations
on properties in which we have an interest are subject to extensive federal,
state and local laws that regulate the industry from drilling to production, as
well as the discharge or disposal of materials or substances into the
environment and otherwise are intended to protect the environment. Numerous
governmental agencies issue rules and regulations to implement and enforce such
laws, which are often difficult and costly to comply with and which carry
substantial administrative, civil and criminal penalties and in some cases
injunctive relief for failure to comply. We believe that the future operator of
the properties in which we have an interest is in substantial compliance with
applicable laws, rules and regulations relating to the control of air emissions
at all facilities on those properties, and in substantial compliance with all of
the industry laws





13




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 USA 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 future Chief Executive
Officer, which we did not identify yet. 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.




The
number of shares that certain shareholder will be entitled to receive per
conversion feature he has to his preferred shares, and super voting powers. As a
result, your ownership percentage in the company may be diluted in the
future.




As
disclosed by the Company form 8-K that was filled on December 5, 2008 the
Company entered into and closed an Agreement with shareholder pursuant to which
the Company issued 1,000,000 shares of Series B Convertible Preferred Stock,
which such shares carry a stated value equal to $1.20 per share (the “Series B
Stock”). The Series B Stock is convertible, at any time at the option of the
holder, into common shares of the Company based on a conversion price of $0.0016
per share. The Series B Stock shall have voting rights on an as converted basis
multiplied by 6.25. Holders of the Series B Stock are entitled to receive, when
declared by the Company’s board of directors, annual dividends of $0.06 per
share of Series B Stock paid semi-annually on June 30 and December 31 commencing
June 30, 2009. In the event of any liquidation or winding up of the Company, the
holders of Series B Stock will be entitled to receive, in preference to holders
of common stock, an amount equal to the stated value plus interest of 15% per
year.




The
number of shares that certain Shareholders will be entitled to receive per the
Yasheng Term Sheet -  As a result, a shareholder’s ownership
percentage in the Company may be diluted in the future




In March
2009, the Company and Yasheng entered into an amendment of the Term Sheet (the
“Amendment”), pursuant to which the parties agreed to explore various areas
including an alliance with third parties, a joint venture with various Russian
agencies floating nuclear power plants and the lease of an existing logistics
center in Inland Empire, California; in accordance with the Amendment, the
Company, as an advance issuance, has agreed to issue 50,000,000 shares to
Yasheng and 38,461,538 shares to Capitol in consideration for exploring the
above matters;




14




If
the Term Agreement and/or Plan of Exchange (if needed) with Yasheng is not
consummated, we will need substantial additional funding to identify and develop
our business opportunities and for our future operations.





In the
event the Term Sheet and future Plan of Exchange with Yasheng is not
consummated, we will need to identify additional business 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, and faces many
difficulties in lieu of collapsing of gas prices. 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 The
Company is unable to generate sales in connection with the development of its
other business 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. Based on pending board resolution, the
Company will desert the DCG operation, in lieu of the turmoil in the world and
US economy.




The
Company  require substantial additional funding promptly after the
consummation of the Agreement and Plan of Exchange to continue developing
its  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
Company will need to raise substantial additional capital to explore additional
business opportunities as well as develop its oil and gas
projects.  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 Oil and Gas Business





We
acquired 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.





15




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.


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.





16




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,


·
              assessing
      title 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, which collapse lately dramatically. There can be no assurance that Plan
of Exchange will be available or that the prices they are willing to pay will
remain stable.





17




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. Please note that in the
last two quarters of 2008 the price of oil and gas decreases by more than 65%
with huge volatility.





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.
  18


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
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.





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





Neither
The Company 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.





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 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 400,000,000 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.





19





ITEM
      2.
            DESCRIPTION
      OF PROPERTIES




2008 –
Via the Company holdings in DCG which obtained drilling rights from a third
party in Wolfcamp Canyon Sandstone Field in West Texas, the Company has the
option to purchase rights on up to 180 in-fill drilling locations on about
specific 3,600 acres, based on a 20 acres spacing.  The field was
first developed in the 1970s on a 160 acre well spacing and was later reduced
based on a small radius of the wells drainage. The spacing has subsequently been
reduced to 40 acres, 20 acres, and 10 acres accordingly. The Company drilled
four wells which had been connected to the main line, yet not producing due to a
dispute with the driller, as well as other parties. Said wells were sold to a
third party by the Company partner in Vortex One – for details, see – financial
Statements – Subsequent events.





On
September 2008 the Company headquarters was relocated to: 9107 Wilshire Blvd.,
Suite 450, Beverly Hills, CA 90210 in a month-to-month lease paying $219
per month. The Company getting operational and accounting service from ERC
offices located at: 1061 1⁄2 North Spaulding Ave., West Hollywood, CA 90046.
In management’s opinion, the property is in good condition and its office space
is currently adequate for its operating needs.





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
      TermsERC
            
            
            1061
      1⁄2 N. Spaulding Ave.
              Los
      Angeles, CA 90046
            
            
            General
      operation,
            
            
            1,500
            
            $
            2,500
            
            
            5
      years from June 2006Verge*)
            
            
            Main
      Street
              Las
      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.





**)
            Space
      was leased from Mr. Yossi Attia – the Company
  CEO





20




The
following is a summary of property, or lots, owned by the Company as of December
31, 2007, which were intended for development (all properties in the list were
disposed in 2008):





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..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




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.





21





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.




2006
Shareholder Lawsuit





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 certain stockholder of the Company that beneficially owned 39.81%
of the Company’s outstanding common stock at the date of the lawsuit. 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.




2007
Litigation





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 collectability of said judgment that entered in
court.





Verge
Bankruptcy





Verge
which was a wholly owned subsidiary of AGL, where AGL is a majority owned
subsidiary of the Company filed for bankruptcy in Chapter 11 proceedings in
February 2009.  As of today, the Company does not believe it will have
a material liability in relation to these proceeding, yet the Company advised
that in lieu of its past holdings (see AGL transaction) and current in-direct
involvement (via Ocean One, and/or Trafalgar – see below) it may be named as
defendants.





A
consultant that was terminated by an ex-affiliate of the Company, named the
Company as a defendant in litigation that the Company has neither any interest
nor liability. The Company position is that naming the Company in said
litigation is malicious. The Company filed an answer to said complaint
requesting dismissal. In lieu of Verge bankruptcy proceeding an automatic stay
was announced by Verge on the main complaint.





On
November 21, 2007 a Construction Company 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. Verge lost said arbitration, yet failed to pay
the judgment.





Registration
Settlement




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 June 30, 2008 (effective March 31,
2008), the Company was in default of the Registration Rights Agreement and
therefore made a provision for compensation for $150,000 to represent agreed
final compensation (the “Penalty”).




22




The
holder of the Penalty subsequently assigned the Penalty to three unaffiliated
parties (the “Penalty Holders”). On December 26, 2008, the Company closed
agreements with the Penalty Holders pursuant to which the Penalty Holders agreed
to cancel any rights to the Penalty in consideration of the issuance 6,666,667
shares of common stock to each of the Penalty Holders. The shares of common
stock were issued in connection with this transaction in a private placement
transaction made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated there
under. Each of the Penalty Holders is an accredited investor as defined in Rule
501 of Regulation D promulgated under the Securities Act of
1933.





Trafalgar
Capital Litigation





The
Company via series of agreements (directly or via affiliates) with European
based alternative investment fund - Trafalgar Capital Specialized Investment
Fund, Luxembourg (“Trafalgar”) established financial relationship which should
create source of funding to the Company and its subsidiaries (see detailed
description of said series of agreements in this filling). The Company position
is that the DCG transactions (among others) would not have been closed by the
Company, unless Trafalgar will provide the needed financing needed for the
drilling program.





On
December 4, 2008 in lieu of the world economy crisis, the company addressed
Trafalgar formally to summarize amendment to exiting business practice and
modification of terms for existing As well as future financing. On January 16,
2009 based on Trafalgar default, the Company sent to Trafalgar notice of default
together with off-set existing alleged notes due to Trafalgar to mitigate the
Company losses.





Representative
of the parties having negotiations, trying to resolve said adversaries between
the parties, with the Company position that in any event the alleged notes to
Trafalgar should be null and void by the Company. On April 14, 2009 the Company
filled a complaint against Trafalgar and its affiliates, for breach of agreement
and damages.





Vortex
One





As
described in this report, the Company via Vortex One commended its DCG’s
drilling program, where Vortex One via its member Mr. Ibgui, was the first cash
investor. Since said cash investment was done in July 2008, the Company
defaulted on terms, period and presentations (based on third parties
presentations). In lieu of series of defaults of third parties, Vortex One
entered into a sale agreement with third parties regarding specific 4 wells
assignments – see subsequent events. As Mr. Ibgui via Vortex One entered into
future proceeds sale agreement with Verge, and since Verge is under Bankruptcy,
the company was advised verbally that a complaint to establish the rights of
Verge may be filled where the Company will be named as a party to said
lawsuit.





Mustafoglu
Litigation





On August
19, 2008, the Company entered into that certain Employment Agreement with Mike
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed to
serve as the Chairman of the Board of Directors of the Company for a period of
five years. On December 24, 2008, Mike Mustafoglu resigned as Chairman of the
Board of Directors of the Company to pursue other business interests. Further,
that certain Mergers and Acquisitions Consulting Agreement between the Company
and Tran Global Financial LLC, a California limited liability company (Mr.
Mustafoglu is the Chairman of Tran Global) was terminated.  Via its
consultant the Company issued a notice to Mr. Mustafoglu that it hold him
responsible for all the damages the Company suffering and will suffer in lieu of
his presentations, negligence and co-conspire with others to damage the
Company.




On July
1, 2008, DCG entered into a Drilling Contract (Model Turnkey Contract)
(“Drilling Contract”) with Ozona Natural Gas Company LLC (“Ozona”). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells scheduled for as
later phase, by Ozona and Mr. Mustafoglu, as well as the wells locations. Based
on Mr. Mustafoglu negligence and executed un-authorized agreements with third
parties, the Company become adversary to Ozona and others with regards to
surface rights, wells locations and further charges of Ozona which are not
acceptable to the Company.




23




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




On
December 3, 2008 the Company filled a Preliminary Information Statement on
Schedule 14C with the SEC pursuant to which the Company informed its
shareholders that pursuant to a written consent, dated November 24, 2008, a
majority of the shares holders of the Company approved a 1 for 100 reverse split
of the Company’s Common Stock.  A Definite Information Statement on
Schedule 14C was filed with the SEC on January 9, 2009.  The reverse
split was effectuated on February 24, 2009 and the Company’s symbol on the
Over-the-Counter Bulletin Board was changed from VTEX into VXRC.




24




PART
II




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




Market
Information




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
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 any time 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.




During
2008 The Company elected to move from The NASDAQ Stock Market to the OTCBB to
reduce, and more effectively manage, its regulatory and administrative costs,
and to enable Company’s management to better focus on its business of developing
the resources industry – commencing natural gas drilling rights recently
acquired in connection with the acquisition of DCG – The Company is traded on
the OTCBB under the symbol VXRC (on February 24, 2009 the Company symbol was
changed from VTEX into VXRC). Before that, the Company’s common stock was 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 or OTCBB.




High
      ($)
            
            
            Low
      ($)Quarter
      Ended:All
      Market Prices were multiply by 100 to reflect the reverse split that
      occurred on February 24, 20092007March
      31, 2007
            
            
            193
            
            
            130June
      30, 2007
            
            
            160
            
            
            117September
      30, 2007
            
            
            156
            
            
            92December
      31, 2007
            
            
            110
            
            
            40





2008March
      31, 2008
            
            
            85
            
            
            85June
      30, 2008
            
            
            200
            
            
            80September
      30, 2008
            
            
            110
            
            
            109December
      31, 2008
            
            
            2
            
            
            2





25




On April
14, 2009 the closing bid price on the OTCBB for the Company’s common stock was
$0.625.




Holders
of Common Stock




As of
April 15, 2009, the Company had 97,884,347,shares of common stock
outstanding and 131 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 3,351 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




Common
Stocks:




On
February 14, 2008, the Company raised Three Hundred Thousand Dollars ($300,000)
from private offerings pursuant to 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.




On March
30, 2008, the Company raised $200,000 from a private offering 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 Company common stock), and additional 200,000
warrants to be exercised at $2.00 for four years (for 200,000 shares of Company
common stock). Said Warrants may be exercised to common shares of the Company
only if the Company issues subsequent to the date of the 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 was 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.





On May 6,
2008 the Company issued 500,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration.




On June
6, 2008, the Company raised $300,000 from the private offering 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 money raised from the private placement of the Company’s shares was
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.
Based on information presented to the Company, and in lieu of the Company
position which was sent to the investor on June 18, 2008 the investor is in
default for not complying with his commitment to invest an additional $225,000
and the Company vested said 300,000 shares under a trustee.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the “Undes Services Agreement” or “Undes”) pursuant to which the Company
engaged Mr. Undes for purposes of assisting the Company in identifying,
evaluating and structuring mergers, consolidations, acquisitions, joint ventures
and strategic alliances in Southeast Europe, Middle East and the Turkic
Republics of Central Asia. Pursuant to the Undes Services Agreement, Mr. Undes
has agreed to provide the Company services related to the identification,
evaluation, structuring, negotiating and closing of business acquisitions,
identification of strategic partners as well as the provision of legal
services.




26




The term
of the agreement is for five years and the Company has agreed to issue Mr. Undes
525,000 shares of common stock that was issued on August 15, 2008.




On June
30, 2008 and concurrent with the formation and organization of Vortex One,
whereby the Company contributed 525,000 shares of common stock (the “Vortex One
Shares”), a common stock purchase warrant purchasing 200,000 shares of common
stock at an exercise price of $1.50 per share (the “Vortex One Warrant”) and the
initial well that the Company intends to drill. However, the Vortex One warrants
may only be converted to shares of common stock if the Company issues 25,000,000
or more of its common stock so that there is at least 30,000,000 authorized
shares at the time of any conversion term.  As of September 30, 2008
there are 86,626,919 common shares issued and 82,126,919 shares outstanding. Mr.
Ibgui contributed $525,000. The Vortex One warrants were immediately transferred
to Ibgui. Eighty percent (80%) of all available cash flow shall be initially
contributed to Ibgui until the full $525,000 has been repaid and the Company
shall receive the balance. Following the payment of $525,000 to Ibgui, the cash
flow shall be split equally.





In July
2008, the Company issued 16,032 shares of its common stock, $0.001 par value per
share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On July
28, 2008, the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the “2008
Incentive Plan”) authorized the board to issue up to 5,000,000 shares of Common
Stock under the plan.





On August
23, 2008, the Company issued 100,000 shares of its common stock 0.001 par value
per share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration





On August
8, 2008, assigned holders of the Undes Note gave notices to the Company of their
intention to convert their original note dated June 5, 2007 into 25 million
common shares of the Company. The portion of the accrued interest from inception
of the note in the amount of $171,565 was not converted into
shares.  The Company accepted these notices and issued the said
shares.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company about
converting said 100,000 preferred stock into 50 million common shares of the
Company. The conversion of preferred shares to common shares marks the
completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 50 million common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




Based
upon a swap agreement dated August 19, 2008, which was executed between C.
Properties Ltd. (“C. Properties”) and KSD Pacific, LLC (“KSD”), which is
controlled by Mr. Yossi Attia Family Trust, where KSD will sell to C.
Properties, and C. Properties will purchase from KSD, all its holdings of the
Company which amount to 1,505,644 shares of common stock of the Company for a
purchase price of 734,060,505 shares of common stock of AGL.




In
connection of selling a convertible note to Trafalgar (see further disclosures
in this report ), the Company issued on September 25, 2008 the amount of 54,706
common shares at $0.001 par value per share to Trafalgar as a fee. As part of
collateral to said note, the Company issued to Trafalgar 4,500,000 common stock
0.001 par values per shares, as security for the Note.




On
November 4, 2008, the Company issued 254,000 shares of its common stock 0.001
par value per share, to one consultant (200,000 shares) and two employees
(54,000 shares), in accordance with the instructions provided by the Company
pursuant to the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On
December 5, 2008 the Company cancelled 15,000,000 of its common shares held by
certain shareholder, per comprehensive agreement detailed in this report under
Preferred Stock section. Said 15,000,000 shares were surrounded to the Company
for cancellation.




27




On
December 26, 2008, the Company closed agreements with the Penalty Holders (See
Item 3 of this report) pursuant to which the Penalty Holders agreed to cancel
any rights to the Penalty in consideration of the issuance 6,666,667 shares of
common stock to each of the Penalty Holders, totaling in issuing 20,000,000 of
the Company common shares. The shares of common stock were issued in connection
with this transaction in a private placement transaction made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933 and Rule 506 promulgated there under. Each of the Penalty Holders is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




On
January 23, 2009, the Company completed the sale of 5,000,000 shares of the
Company’s common stock to one accredited investor for net proceeds of $75,000
(or $0.015 per common share). The shares of common stock were issued in
connection with this transaction in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The investor is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




On March
2009, the Company and Yasheng entered into an amendment of the Term Sheet (the
“Amendment”), pursuant to which the parties agreed to explore various areas
including an alliance with third parties, a joint venture with various Russian
agencies floating nuclear power plants and the lease of an existing logistics
center in Inland Empire, California; in accordance with the Amendment, the
Company, as an advance issuance, has agreed to issue 50,000,000 shares to
Yasheng and 38,461,538 shares to Capitol in consideration for exploring the
above matters; The shares of common stock were issued based on the Board consent
on March 9, 2009, in connection with this transaction in a private transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and/or Rule 506 promulgated thereunder. Yasheng
and Capitol are accredited investors as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933.




As
reported by the Company on its Form 10-Q filed on November 14, 2008, Star Equity
Investments, LLC (“Star”) entered, on September 1, 2008, into that certain
Irrevocable Assignment of Promissory Note, which resulted in Star being a
creditor of the Company with a loan payable by the Company in the amount of
$1,000,000 (the “Debt”). No relationship exists between Star and the Company
and/or its affiliates, directors, officers or any associate of an officer or
director. On March 11, 2009, the Company entered and closed an agreement with
Star pursuant to which Star agreed to convert all principal and interest
associated with the Debt into 8,500,000 shares of common stock and released the
Company from any further claims. The shares of common stock were issued in
connection with this transaction in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and/or Rule 506 promulgated thereunder. Each of the
parties are accredited investors as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933.




Preferred
Stock:




Series
A  - As disclosed in Form 8-Ks filed on May 7, 2008 and May 9, 2008,
on May 1, 2008, the Company entered into an Agreement and Plan of Exchange (the
“DCG Agreement”) with Davy Crockett Gas Company, LLC (“DCG”) and the members of
Davy Crockett Gas Company, LLC (“DCG Members”). Pursuant to the DCG Agreement,
the Company acquired and, the DCG Members sold, 100% of the outstanding
securities in DCG. DCG is a limited liability company organized under the laws
of the State of Nevada and headquartered in Bel Air; California is a newly
formed designated LLC which holds certain development rights for gas drilling in
Crockett County, Texas.  In consideration for 100% of the outstanding
securities in DCG, the Company issued the DCG Members promissory notes in the
aggregate amount of $25,000,000 payable together with interest in May 2010 (the
“DCG Notes”). Additional amounts of $5,000,000 in DCG Notes are issuable upon
each of the first through fifth wells going into production. Further, the DCG
Members may be entitled to receive additional DCG Notes up to an additional
amount of $200,000,000 (the “Additional DCG Notes”) subject to the revenue
generated from the land rights held by DCG located in Crockett County, Texas
less concession fees and taxes.  On June 11, 2008, the Company, the
DCG Members and DCG entered into an amendment to the DCG Agreement, pursuant to
which the DCG Members agreed to replace all notes that they received as
consideration for transferring their interest in DCG to the Company for an
aggregate of 100,000 shares of Series A Preferred Stock (the “Series A Stock”)
with the rights and preferences set forth below. The shares of Series A Stock is
convertible, at any time at the option of the Company subject to increasing the
authorized shares of the Company from 35 million to 400 million, into shares of
common stock of the Company determined by dividing the stated value by the
conversion price. The initial aggregate stated value is $50,000,000 and the
initial conversion price is $1.00 per share. In the event that the net operating
income for the Crockett County, Texas property for any year is zero or negative,
then the stated value shall be reduced by 10%. Holders of the Series A Stock are
entitled to receive, without any further action from the Company’s Board of
Directors but only if such funds are legally available, non-cumulative dividends
equal to 25% of the net operating income derived from oil and gas production on
the Crockett County, Texas property on an annual audited basis. In the event of
any liquidation, winding up, change in control or fundamental transaction of the
Company, the holders of Series A Preferred will be entitled to receive, in
preference to holders of common stock, an amount equal to the outstanding stated
value and any accrued but unpaid dividends.




28




We
granted the DCG Members piggyback registration rights. The Series A Stock is
non-voting. The Company has the right, at anytime; to redeem the Series A
Preferred Stock by paying the holders the outstanding stated value as well as
accrued dividends.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company of
their intention to convert said 100,000 preferred stock into 50 million common
shares of the Company. The conversion of preferred shares to common shares marks
the completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 50 million common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




Series B
- On December 5, 2008 the Company entered into and closed an
Agreement  with T.A.S. Holdings Limited (“TAS”) (the “TAS Agreement”)
pursuant to which TAS agreed to cancel the debt payable by the Company to TAS in
the amount of approximately $1,065,000 and its 15,000,000 shares of common stock
it presently holds in consideration of the Company issuing TAS 1,000,000 shares
of Series B Convertible Preferred Stock, which such shares carry a stated value
equal to $1.20 per share (the “Series B Stock”).




The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company’s board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30,
2009.




In the
event of any liquidation or winding up of the Company, the holders of Series B
Stock will be entitled to receive, in preference to holders of common stock, an
amount equal to the stated value plus interest of 15% per year.




The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock.




The
Series B Stock was offered and sold to TAS in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and Rule 506 promulgated there under. TAS is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933. The Company filed its Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock with the State
of Delaware





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. A licensed Stock Broker Firm is
acting as agent for our stock repurchase program. 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 (February 2,
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 canceled the common stock acquired during the disposition
in the amount of $834,192. All, the Company 660,362 treasury shares were retired
and canceled during August and September 2008.




On
November 20, 2008, the Company issued a press release announcing that its Board
of Directors has approved a share repurchase program. Under the program the
Company is authorized to purchase up to ten million of its shares of common
stock in open market transactions at the discretion of management. All stock
repurchases will be subject to the requirements of Rule 10b-18 under the
Exchange Act and other rules that govern such purchases.




As of
April 15, 2009 the Company has 100,000 treasury shares in its possession
scheduled to be cancelled.





29




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




This
discussion should be read together with all prior filings of the Company (along
with all items of this report), in order to get a comprehensive understanding of
the Company strategy, which can be consider as modify substantially, and was
approved as final under all covenants via a special shareholders’ meeting on
July 28, 2008.





Recent
Developments





On
January 20, 2009, we entered into a Term Sheet (the “Term Sheet”) with Yasheng
Group (“Yasheng”) a group of companies engaged in the agriculture, chemicals and
biotechnology businesses in the Peoples Republic of China and the export of such
products to the United States, Canada, Australia, Pakistan and various European
Union countries.  Yasheng is also developing a logistics centre and
eco-trade cooperation zone in California (the “Project”). Yasheng purchased 80
acres of property located in Victorville, California (the “Project Site”) to be
utilized for the Project.  It is intended that the Project will be
implemented in two phases, first, the logistic centre, and then the development
of an eco-trade cooperation zone. The preliminary budget for the development of
the Project is estimated to be approximately $400M.




As set
forth in the Term Sheet, Yasheng has received an option to merge all or part of
its assets as well as the Project into the Company.  As an initial
stage, Yasheng will contribute the Project Site to the Company which will be
accomplished through either the transferring title to the Project Site directly
to the Company or the acquisition of the entity holding the Project Site by the
Company.  As consideration for the Project, the Company will issue
Yasheng 130,000,000 shares of common stock (on a post reverse split
basis). On March 5, 2009, the Company and Yasheng implemented an amendment
to the Term Sheet pursuant to which the parties agreed to explore further
business opportunities including the potential lease of an existing logistics
center located in Inland Empire, California, and/or alliance with other major
groups complimenting and/or synergetic to the Vortex/Yasheng JV as approved by
the board of directors on March 9, 2009. Further, in accordance with the
amendment, the Company has agreed to issue 50,000,000 shares to Yasheng and
38,461,538 shares to Capitol in consideration for exploring the business
opportunities, based on the pro-ration set in the January Term
Sheet.





As of
December 31, 2008, the Company and its subsidiaries’ major assets were in the
industry of Resources and Energy – oil and gas segment.





Operating
Assets:





The
Company is independent emerging resources company which focus is on the
acquisition, exploration, and development of undervalued assets. The Company’s
objective is to find, acquire and develop resources at the lowest cost possible
and recycle its cash flows into new projects yielding the highest returns with
controlled risk. The company competencies include financial services, mergers
and acquisitions, accounting, real estate development, and natural resources
explorations. As a result of the completion of the acquisition of DCG, the
Company is independent oil and gas developer based in Beverly Hills (Corporate
Offices), California. DCG is engaged in the development, production and
marketing of natural gas and oil. Our operations are focused in West Texas where
it intends to be a producer of oil and natural gas with competitive finding and
development costs. The Company acquired DC Gas as part of its strategic
acquisition plan and strategy as an emerging company that focuses on innovative
transactions and structures. DCG has obtained a reserve evaluation report from
an independent engineering firm, which classifies the gas reserves as “proven
undeveloped”.  According to the independent well evaluation, each well
contains approximately 355 MMCF (355 thousand cubic feet) of recoverable natural
gas, which may be increased with advanced recovery techniques.




On June
30, 2008, the Company formed a limited liability company with Ibgui, Vortex One.
The Company and Ibgui each own a fifty percent (50%) membership interest in
Vortex One. The Company is the Manager of the Vortex One. Vortex One has been
formed and organized to raise the funds necessary for the drilling of the first
well being undertaken by the Company’s wholly owned subsidiary DCG (as reported
on the Company’s Form 8-Ks filed on May 7, 2008 and May 9, 2008 and amended on
June 16, 2008). The Company and Ibgui entered into a Limited Liability Company
Operating Agreement which sets forth the description of the membership
interests, capital contributions, allocations and distributions, as well as
other matters relating to Vortex One. The relations between the Company, Ibgui
and Vortex one described in details in prior items of this report.




With
regard to potential expansion of the Company business, as well as potential full
or partial reverse merger with the Yasheng Group as disclosed by the Company on
Form 8-K on January 26, 2009, please refer to Plan of operation discussion in
this report.




30




Assets
Sold – Real Estate:




Year
2008




Crescent
Heights project - The 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 was completed and sold on August 15, 2008, as the
LLC entered into a Sale and Escrow Instruction Agreements with third parties for
$1,990,000 in gross proceeds, which was closed on September 30,
2008.




Dickens
project - The 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 an
unrelated third party (“Seller”), 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 construction. The Company reversed the
transaction on August 19, 2008 with its partner to be released from the project
at no cost or liability to the Company.





Disposal
of AGL shares: On August 19, 2008 the Company entered into final fee agreement
with Consultant, where the Company had to pay Consultant certain fees in
accordance with the agreement entered with the Consultant, the Consultant had
agreed that, in lieu of cash payment, it would receive an aggregate of up to
734,060,505 shares of stock of the AGL, which represent disposal of all the
Company holdings with AGFL and its subsidiaries. Said transaction is detailed in
Item 1 of this report, under the sub-title: “History of Acquisitions and
Dispositions - Financial Investment and Real Estate Industry”.





As of
December 31, 2008 the Company does not have any interests in real estate
development.





Year
2007





As of
December 31, 2007, the Company and its subsidiaries had four projects in
development as follows (detailed description of said projects can be found on
the Company’s 10-KSB for the year 2007):




Verge
project via Verge - an asset company developing the Verge Property, consisting
of real property in downtown Las Vegas, Nevada, where it intended to build up to
296 condominiums (number of units subject to changed due to realignment and
redesign) plus commercial space. Verge obtained entitlements to the Verge
Property. As of December 31, 2007, Verge was a wholly owned subsidiary of the
Company’s majority owned subsidiary.  The Company owned 58.3% of the
outstanding stock of AGL.





Sitnica
d.o.o. - 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.





Crescent Heights
Project -
The Company formed and organized CH LLC as wholly owned subsidiary to
purchase and develop the CH Property.




Dickens
project - The Company, formed and organized the Dickens LLC to purchase and
develop Dickens Property.





Plan
of operation





The
Company operates in financial investment and investments in resources and energy
developments (Gas & Oil) for subsequent sales, Investment and Financing
Activities, directly or through its subsidiaries currently in the USA. The
Company’s plan of operation for the next 12 months will include the following
components:





31




We plan
to cease finance and invest in development of existing operating projects DCG
and Vortex One in lieu of the financial crisis that the US economy (as well as
the world) is facing, which lead to material decline in gas prices. Our plan is
to freeze financial investments in energy (Gas & Oil) and resources, until
we can obtain a better understanding of the direction of the
economy.  Due to current issues in the development of the oil and gas
project in Crockett County, Texas, the board obtained a current reserve report
for the Company’s interest in DCG and Vortex One, which report indicated that
the DCG properties as being negative in value. As a result of such report, the
world and US recessions and the depressed oil and gas prices, the board of
directors elected to dispose of the DCG property and/or desert the project in
its entirely





While
re-evaluating our future operations, future development of our business model
will include the following elements:





Attempting
to raise bond or debt financing if possible. Any cash receipt from financing
will be utilized partly by the Company’s financial investment in gas and oil in
the US and overseas, based on available opportunities, In connection with DCG
financing, the Company anticipates spending approximately $200,000 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.





The
Company anticipates spending approximately $250,000 on professional fees over
the next 12 months in order to satisfy its reporting obligations.





The
Company wills pursue the pending merger with the Yasheng Group, as disclosed
prior in this report. Subject to obtaining adequate financing on acceptable
terms, the Company anticipates that it will be spending approximately $2,000,000
over the next 12 month period pursuing its stated plan of investment operation.
The Company’s present cash reserves are not sufficient 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.   However, there is no guarantee that we will be able
to close such financing transaction or, if financing is available, that the
terms will be acceptable to the Company.





Gas and
Oil – Market, competition and Environmental Matters:




Market
Overview




We
believe the current market conditions for the energy sectors are not adequate
from the demand on top of major decline in gas prices. These current trends are
creating major damages that DCG hopes to overcome. Some of these difficulties
include the consolidation and rationalization of global energy assets. The
emergence of unconventional resources i.e. tight gas sands, shale gas, oil sands
and coal bed methane to name a few.




Competition




We
operate in the highly competitive oil and gas areas of acquisition and
exploration, areas in which other competing companies have substantially larger
financial resources, operations, staffs and facilities. Such companies may be
able to pay more for prospective oil and gas properties or prospects and to
evaluate, bid for and purchase a greater number of properties and prospects than
our financial or human resources permit.




Environmental
Matters




Operations
on properties in which we have an interest are subject to extensive federal,
state and local environmental laws that regulate the discharge or disposal of
materials or substances into the environment and otherwise are intended to
protect the environment. Numerous governmental agencies issue rules and
regulations to implement and enforce such laws, which are often difficult and
costly to comply with and which carry substantial administrative, civil and
criminal penalties and in some cases injunctive relief for failure to
comply.




Some
laws, rules and regulations relating to the protection of the environment may,
in certain circumstances, impose ‘‘strict liability’’ for environmental
contamination. These laws render a person or company liable for environmental
and natural resource damages, cleanup costs and, in the case of oil spills in
certain states, consequential damages without regard to negligence or fault.
Other laws, rules and regulations may require the rate of oil and gas production
to be below the economically optimal rate or may even prohibit exploration or
production activities in environmentally sensitive areas. In addition, state
laws often require some form of remedial action, such as closure of inactive
pits and plugging of abandoned wells, to prevent pollution from former or
suspended operations.




32




Legislation
has been proposed in the past and continues to be evaluated in Congress from
time to time that would reclassify certain oil and gas exploration and
production wastes as ‘‘hazardous wastes.’’ This reclassification would make
these wastes subject to much more stringent storage, treatment, disposal and
clean-up requirements, which could have a significant adverse impact on
operating costs. Initiatives to further regulate the disposal of oil and gas
wastes are also proposed in certain states from time to time and may include
initiatives at the county, municipal and local government levels. These various
initiatives could have a similar adverse impact on operating costs.




The
regulatory burden of environmental laws and regulations increases our cost and
risk of doing business and consequently affects our profitability. The federal
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
also known as the ‘‘Superfund’’ law, imposes liability, without regard to fault,
on certain classes of persons with respect to the release of a ‘‘hazardous
substance’’ into the environment. These persons include the current or prior
owner or operator of the disposal site or sites where the release occurred and
companies that transported disposed or arranged for the transport or disposal of
the hazardous substances found at the site. Persons who are or were responsible
for releases of hazardous substances under CERCLA may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment and for damages to natural resources,
and it is not uncommon for the federal or state government to pursue such
claims.




It is
also not uncommon for neighboring landowners and other third parties to file
claims for personal injury or property or natural resource damages allegedly
caused by the hazardous substances released into the environment. Under CERCLA,
certain oil and gas materials and products are, by definition, excluded from the
term ‘‘hazardous substances.’’




At least
two federal courts have held that certain wastes associated with the production
of crude oil may be classified as hazardous substances under CERCLA. Similarly,
under the federal Resource, Conservation and Recovery Act, or RCRA, which
governs the generation, treatment, storage and disposal of ‘‘solid wastes’’ and
‘‘hazardous wastes,’’ certain oil and gas materials and wastes are exempt from
the definition of ‘‘hazardous wastes.’’ This exemption continues to be subject
to judicial interpretation and increasingly stringent state interpretation.
During the normal course of operations on properties in which we have an
interest, exempt and non-exempt wastes, including hazardous wastes, that are
subject to RCRA and comparable state statutes and implementing regulations are
generated or have been generated in the past. The federal Environmental
Protection Agency and various state agencies continue to promulgate regulations
that limit the disposal and permitting options for certain hazardous and
non-hazardous wastes.




We
believe that the operator of the properties in which we have an interest is in
substantial compliance with applicable laws, rules and regulations relating to
the control of air emissions at all facilities on those properties. Although we
maintain insurance against some, but not all, of the risks described above,
including insuring the costs of clean-up operations, public liability and
physical damage, there is no assurance that our insurance will be adequate to
cover all such costs, that the insurance will continue to be available in the
future or that the insurance will be available at premium levels that justify
our purchase. The occurrence of a significant event not fully insured or
indemnified against could have a material adverse effect on our financial
condition and operations. Compliance with environmental requirements, including
financial assurance requirements and the costs associated with the cleanup of
any spill, could have a material adverse effect on our capital expenditures,
earnings or competitive position. We do believe, however, that our operators are
in substantial compliance with current applicable environmental laws and
regulations. Nevertheless, changes in environmental laws have the potential to
adversely affect operations. At this time, we have no plans to make any material
capital expenditures for environmental control facilities.




The
Company believes that its liquidity will not be enough for implementing its
plan, if actual fund raising will not be adequate, the Company will not continue
spending its existing cash, and therefore it can avoid liquidity
problems. 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.





Based on
current reserve reports it seems as the goodwill associated with DCG
acquisition, should be impair entirely. The investment in DCG presented by the
Company is included separately on the profit and loss statement as discontinued
operations, net of tax




The
Yasheng Group Potential Merger - On January 20, 2009, the Company entered into a
Term Sheet (the “Term Sheet”) with Yasheng Group (“Yasheng”) a group of
companies engaged in the agriculture, chemicals and biotechnology businesses in
the Peoples Republic of China and the export of such products to the United
States, Canada, Australia, Pakistan and various European Union countries.
Yasheng is also developing a logistics centre and eco-trade cooperation zone in
California (the “Project”). Yasheng purchased 80 acres of property located in
Victorville, California (the “Project Site”) to be utilized for the Project. It
is intended that the Project will be implemented in two phases, first, the
logistic centre, and then the development of an eco-trade cooperation zone. The
preliminary budget for the development of the Project is estimated to be
approximately $400M.




As set
forth in the Term Sheet, Yasheng has received an option to merge all or part of
its assets as well as the Project into the Company. As an initial stage, Yasheng
will contribute the Project Site to the Company which will be accomplished
through either the transferring title to the Project Site directly to the
Company or the acquisition of the entity holding the Project Site by the
Company.




33




As
consideration for the Project, the Company will issue Yasheng 130,000,000 shares
of common stock (on a post reverse split basis). In addition, the Company will
be required to issue Capitol Properties, an advisor, 100,000,000 shares of
common stock (on a post reverse split basis).




At the
second stage, if Yasheng exercises its option within its sole discretion, it may
merge additional assets that it owns into the Company in consideration for
shares of common stock of the Company. In the event that Yasheng exercises this
option, the number of shares to be delivered by the Company will be calculated
by dividing the value of the assets by the volume weighted average price for the
ten days preceding the closing date. The value of the assets contributed by
Yasheng will be based upon the asset value set forth in its audited financial
statements.




The
Company and the YaSheng announced on February 19, 2009 that the Companies have
engaged Gregory Sichenzia of Sichenzia Ross Friedman Ference LLP to represent
the companies for the reverse merger of the two companies, more commonly known
as Super 8K.




The above
transaction is subject to the drafting and negotiation of a final definitive
agreement, performing due diligence as well as board approval of the Company. As
such, there is no guarantee that the Company will be able to successfully close
the above transaction.




On March
2009, the Company and Yasheng entered into an amendment of the Term Sheet (the
“Amendment”), pursuant to which the parties agreed to explore various areas
including an alliance with third parties, a joint venture with various Russian
agencies floating nuclear power plants and the lease of an existing logistics
center in Inland Empire, California; in accordance with the Amendment, the
Company, as an advance issuance, has agreed to issue 50,000,000 shares to
Yasheng and 38,461,538 shares to Capitol in consideration for exploring the
above matters;





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 Company’s primary source of liquidity came 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.





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
details in Note 2 to the 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. Based on said GAAP, the Company
      made a provision to doubtful debts, on all ERC and Verge
      balances.





34




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




a) The
economic condition of the US and Worldwide markets – especially during these
current times of worldwide financial crisis.





b) The
performance of the underline assets in the markets where our properties are
located;




c) Our
financial condition, which may influence our ability to develop our properties;
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.





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.




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.





The
disclosed information presents the Company’s natural gas producing activities as
required by Statement of Financial Accounting Standards No.  69,
“Disclosures about Oil and Gas Producing Activities.”.





Commitments
and contingencies





Our
Commitments and contingencies are stated in details in Notes to the Consolidated
Financial Statements, which include as mandatory required supplemental
information about gas and oil.  On this section management give a more
detailed disclosures to specific commitments and contingencies that were in
place (for disposed properties) prior of completion of the DCG acquisition which
changed the Company strategic substantially.





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.





35




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.




Based
upon a swap agreement dated August 19, 2008, which was executed between C.
Properties Ltd. (“C. Properties”) and KSD Pacific, LLC (“KSD”), which is
controlled by Mr. Yossi Attia Family Trust, where KSD will sell to C.
Properties, and C. Properties will purchase from KSD, all its holdings of the
Company which amount to 1,505,644 shares of common stock of the Company for a
purchase price of 734,060,505 shares of common stock of AGL.




On
September 1, 2008 Star Equity Investment LLC a third party acquired from Mr.
Attia, a $1 million note due by the Company since January 1, 2008. Said note is
bearing 12% interest commencing October 1st, 2008 and can be converted
(including interest) into common shares of the Company at a fixed price of $0.75
per share.  Equity Investment LLC noticed the Company that due to the
Company default on said note, it willing to enter negotiations to modify its
instrument. The parties agreed to settle by converting the note including
interest into 8.5 million common shares of the Company. Said agreements are
being drafted by the Company attorney.





As of the
date of closing this filing, the Company via its sub, completed the drilling of
all 4 wells at the estimated cost of $2,100,000 for 4 wells (not including
option payments). The Company also exercised its fifth well option (by paying
per the master agreement $50,000 option fee on November 5, 2008).  In
lieu of the world financial markets crisis, the Company approached the land
owners on DCG mineral rights, requesting an amendment to allow DCG an additional
six (6) months before it is required to exercise another option to secure a Term
Assignment of Oil and Gas Lease pursuant to the terms of the original Agreement
dated March 5, 2008. The land owner’s representative has answered the Company’s
request with discrepancies about the date as effective date.





The
Company refers the reader to its Notes to the Consolidated Financial Statements
which include material disclosing of all the Company’s Commitments and
contingencies, as well as prior items which disclose Legal
Proceeding.




Off
Balance Sheet Arrangements





There are
no materials off balance sheet arrangements.





Results
of Operations





Year
Ended December 31, 2008 compared to Year Ended December 31, 2007




Due to
the new financial investment in Gas and Oil activity, which commenced in May
2008, the consolidated statements of operations for the years ended December 31,
2008 and 2007 are not comparable. The financial figures for 2007 only include
the corporate expenses of the Company’s legal entity registered in the State of
Delaware. This section of the report, should be read together with Notes of the
Company consolidated financials especially - Change in the Reporting Entity:In accordance with Financial Accounting Standards, FAS 154, Accounting Changes and Error
Corrections, when an accounting change results in financial statements
that are, in effect, the statements of a different reporting entity, the change
shall be retrospectively applied to the financial statements of all prior
periods presented to show financial information for the new reporting entity for
those periods. Previously issued interim financial information shall be
presented on a retrospective basis.





36




The
consolidated statements of operations for the years ended December 31, 2008 and
2007 are compared (subject to the above description) in the sections
below:





Revenues





The
following table summarizes our revenues for the year ended December 31, 2008 and
2007:





Year
      ended December 31,
            
            2008
            
            
            2007Total
      revenues
            
            $
            —
            
            
            $
            —




There was
a sale of a property in 2008 compared to three real estate properties in
2007.  There was no revenue from the majority owned subsidiary, AGL,
for the period November 2, 2007 through December 31, 2007.  Since the board
resolved to discontinue real estate operations during 2008, revenues of
$1,990,000 and $6,950,000 from the real estate properties are included as
part of discontinued operations for years ended December 31, 2008 and 2007,
respectively.  (Note 10)





Cost
of revenues





The
following table summarizes our cost of revenues for the year ended December 31,
2008 and 2007:





Year ended December 31,
            
            2008
            
            
            2007Total
      cost of revenues
            
            $
            —
            
            
            $
            —




The cost
of revenue decrease reflects the sales of one property compare to three real
estate properties in 2007.  There was no cost of revenues from the
majority owned subsidiary, AGL, for the period November 2, 2007 through December
31, 2007.  Since the board resolved to discontinue real estate operations
during 2008, cost of sales of $2,221,929 and $6,505,506 for the real estate
properties are included as part of discontinued operations for the years ended
December 31, 2008 and 2007, respectively.  (Note 10)





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





Compensation
and related costs





The
following table summarizes our compensation and related costs for the year ended
December 31, 2008 and 2007:





Year
      ended December 31,
            
            2008
            
            
            2007Compensation
      and related costs
            
            $
            558,074
            
            
            $
            762,787




Overall
compensation and related costs decreased by about 27%, or $204,713 primarily as
the result of reduction of employees





Consulting,
professional and director fees





The
following table summarizes our consulting, professional and director fees for
the year ended December 31, 2008 and 2007:





Year
      ended December 31
            
            2008
            
            
            2007Consulting,
      professional and director fees
            
            $
            13,049,759
            
            
            $
            1,195,922




Overall
consulting, professional and director fees increased by about 991%, or
$11,853,837, primarily as the result of a fee charge of $9,782,768 to C.
Properties as a fee associated with the DCG transaction and a $2,108,161 charge
to stock compensation expense for various grants of shares and warrants in
relation to the cost of several consultants, investment bankers, advisors,
accounting and lawyers fee over last period.





37




Other
selling, general and administrative expenses





The
following table summarizes our other selling, general and administrative
expenses for the year ended December 31, 2008 and 2007:





Year
      ended December 31
            
            2008
            
            
            2007Other
      selling, general and administrative expenses
            
            $
            442,822
            
            
            $
            —






Since the
board resolved to discontinue real estate operations during 2008, other selling,
general and administrative expenses of $0 and $469,942 for the real estate
properties are included as part of discontinued operations for the years ended
December 31, 2008 and 2007, respectively.  (Note 10)





Goodwill
impairment





The
following table summarizes our goodwill impairment fees for the year ended
December 31, 2008 and 2007:





Year
      ended December 31
            
            2008
            
            
            2007Goodwill
      impairment
            
            $
            34,990,000
            
            
            $
            10,245,377




For the
year ended December 31, 2008, an analysis was performed on the goodwill
associated with the investment in DCG that occurred during the year (which was
booked against Equity), and an impairment expense was charged against the
P&L for approximately $35 million.  (Note





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.





Software
development expense





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





Year
      ended December 31
            
            2008
            
            
            2007Software
      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, 2008.





Depreciation
and amortization





The
following table summarizes our depreciation and amortization for the year ended
December 31, 2008 and 2007:





Year
      ended December 31,
            
            2008
            
            
            2007Depreciation
            
            $
            —
            
            
            $
            —




There is
no depreciation expense in the years ended December 31, 2008 and 2007 due to the
capitalization of depreciation into the Investment in Land Development accounts
for the majority owned subsidiary.





38




Net
interest income (expense)





The
following table summarizes our net interest income for the year ended December
31, 2008 and 2007:





Year
      ended December 31,
            
            2008
            
            
            2007Interest
      income
            
            $
            729,097
            
            
            $
            1,665,379Interest
      expense
            
            $
            (1,950,268
            )
            
            $
            —Net
      interest income (expense)
            
            $
            (1,221,171
            )
            
            $
            1,665,379





The
decrease in interest income is attributable to the Company investing strategy
pending establishment of the real estate development business, as well as loans
Verge, together with capitalized 10 million dollars into Verge equity as part of
the AGL transaction, which reduced materially the amounts entitled to interest
income. Since the board resolved to discontinue real estate operations during
2008, interest expense of $0 and $386,108 for the real estate properties
are included as part of discontinued operations for the years ended December 31,
2008 and 2007, respectively.  (Note 10)





Additionally,
the increase in interest expense is primarily due to interest expense recognized
for a debt discounts relating to a convertible notes payable in the amount of
$966,261. The remaining increase is due to the interest accrued due to former
DCG members as well as the increase line of credits and short time borrowing
outstanding during the year.





Liquidity
and Capital Resources





The
Company currently anticipates that its available cash resources will be
sufficient to meet its presently anticipated working capital requirements for at
least the next 12 months, based on the management decision pending and/or
vacating the Company drilling program, in lieu of the world financial
crisis.





As of
December 31, 2008, our cash, cash equivalents and marketable securities were
$123,903, a decrease of approximately $245,000 from the end of fiscal year 2007.
The decrease in our cash, cash equivalents and marketable securities is
primarily the result of pay-off bank loans and conversion of notes
payable.





Cash flow
provided from operating activities for the year ended December 31, 2008 was
$1,919,018 and cash flow used in operating activities was $87,636 for the year
ended December 31, 2007, the change is primarily due to the sale of the 610
Crescent Heights property on September 30, 2008, whereby the restricted cash was
released from escrow and amounts due were not paid until October
2008.





Cash flow
used in investing activities for the year ended December 31, 2008 and 2007 was
$1,822,898 and $3,882,323, respectively. The change was primarily due to the
significant reduction in loan advances to ERC and Verge of approximately
$8,600,000 offset slightly by the cash received from the sale of discontinued
operations of Navigator of $3,200,000 in 2007.





Cash used
in financing activities was approximately $341,792 for the year ended December
31, 2008 and cash provided by financing activities was $1,261,643 for the year
ended December 30 2007. This change is due to the repayment of a bank loan in
2008, which was provided in 2007.





The
Company held restricted Certificate of Deposits (CD) with the Bank to access a
revolving line of credit. These deposits are interest bearing and approximated
$4.196 million as of September 30, 2008. On November 8, 2007, the lines of
credits were increased and extended as the following: $4,180,000 until October
16, 2008 and $4,229,000 until September 1, 2008. Both lines bear interest of
5.87% and are secured by restricted cash deposited in CD’s with the bank.
 On August 2008, the company notified the bank, not to extend the deposits,
and pay it off from the CD.





In the
event the Company makes future acquisitions or investments, additional bank
loans or fund raising may be used to finance such future acquisitions. The
Company may consider the sale of non-strategic assets. The Company currently
anticipates that its available cash resources will not be sufficient to meet its
prior anticipated working capital requirements, though it will be sufficient
manage the existing business of the Company without further
development.





39




Inflation
and Foreign Currency





The
Company maintains its books in local currency: on sold assets - Kuna for
Sitnica, N.I.S for AGL and US Dollars for the Parent Company registered in the
State of Delaware. The Company’s operations are primarily in the United States
through its wholly owned subsidiaries. Some of the Company’s customers were in
Croatia. As a result, fluctuations in currency exchange rates may significantly
affect the Company’s sales, profitability and financial position when the
foreign currencies, primarily the Croatian Kuna, of its international operations
are translated into U.S. dollars for financial reporting. In additional, we are
also subject to currency fluctuation risk with respect to certain foreign
currency denominated receivables and payables. Although the Company cannot
predict the extent to which currency fluctuations may, or will, affect the
Company’s business and financial position, there is a risk that such
fluctuations will have an adverse impact on the Company’s sales, profits and
financial position. Because differing portions of our revenues and costs are
denominated in foreign currency, movements could impact our margins by, for
example, decreasing our foreign revenues when the dollar strengthens and not
correspondingly decreasing our expenses. The Company does not currently hedge
its currency exposure. In the future, we may engage in hedging transactions to
mitigate foreign exchange risk.





Effect of Recent Accounting
Pronouncements




In
December 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 110 (“SAB 110”). SAB 110 amends and replaces
Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff
Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the
views of the staff regarding the use of the “simplified” method in developing an
estimate of the expected term of “plain vanilla” share options and allows usage
of the “simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically sufficient
experience to provide a reasonable estimate to continue to use the “simplified”
method for estimating the expected term of “plain vanilla” share option grants
after December 31, 2007. The Company will continue to use the “simplified”
method until it has enough historical experience to provide a reasonable
estimate of expected term in accordance with SAB 110.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) 141-R, “Business Combinations.” SFAS 141-R retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (referred to
as the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. It also establishes
principles and requirements for how the acquirer: (a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree;
(b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141-R will
apply prospectively to business combinations for which the acquisition date is
on or after the Company’s fiscal year beginning October 1, 2009. While the
Company has not yet evaluated the impact, if any, that SFAS 141-R will have on
its consolidated financial statements, the Company will be required to expense
costs related to any acquisitions after September 30, 2009.





In
December 2007, the FASB issued SFAS 160, “Non-controlling Interests in
Consolidated Financial Statements.” This Statement amends Accounting Research
Bulletin 51 to establish accounting and reporting standards for the
non-controlling (minority) interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The Company has not yet
determined the impact, if any, that SFAS 160 will have on its consolidated
financial statements. SFAS 160 is effective for the Company’s fiscal year
beginning October 1, 2009.





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. In February 2008, the FASB issued FASB Staff Position
No. FAS 157–2, “Effective Date of FASB Statement No. 157”, which provides a
one year deferral of the effective date of SFAS 157 for non–financial assets and
non–financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. Therefore, effective
January 1, 2008, we adopted the provisions of SFAS No. 157 with respect to
our financial assets and liabilities only. Since the Company has no investments
available for sale, the adoption of this pronouncement has no material impact to
the financial statements.





40




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. Effective January 1, 2008, we adopted SFAS No. 159 and have
chosen not to elect the fair value option for any items that are not already
required to be measured at fair value in accordance with accounting principles
generally accepted in the United States.





Forward-Looking
Statements




When used
in this Form, 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.





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, 2008 and for the year ended December 31 2007, beginning with the
index hereto on page F-1.





41




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.




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.





42





ITEM 8A.
            CONTROLS AND
      PROCEDURES





The term
disclosure controls and procedures means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Exchange Act (15
U.S.C. 78a, et seq.) is
recorded, processed, summarized and reported, within the time periods specified
in the 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 an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.





The term
internal control over financial reporting is defined as a process designed by,
or under the supervision of, the issuer’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
issuer’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:





·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      issuer;





·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the issuer
      are being made only in accordance with authorizations of management and
      directors of the issuer; and




·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the issuer’s assets that
      could have a material effect on the financial
  statements.





Our
management, including our chief executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls over financial reporting will prevent all error 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
inherent limitations in all control systems, internal control over financial
reporting may not prevent or detect misstatements, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the registrant have been detected.  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 or procedures may
deteriorate.





Evaluation of Disclosure and
Controls and Procedures.  Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rule 13a-15(f) under the Exchange Act.  Our internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.  We carried out an
evaluation, under the supervision and with the participation of our management,
including our chief executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report.  The
evaluation was undertaken in consultation with our accounting
personnel.  Based on that evaluation, our chief executive officer and
principal financial officer concluded that our disclosure controls and
procedures are currently effective 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 SEC’s rules and forms.  As we develop new business or if we
engage in an extraordinary transaction, we will review our disclosure controls
and procedures and make sure that they remain adequate.




43




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, 2008 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations . Based on this evaluation, because of the Company’s
limited resources and limited number of employees, management concluded that, as
of December 31, 2008, 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.





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, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





44




ITEM
      8B.
              OTHER
      INFORMATION


Trafalgar:




The
Company entered into a Securities Purchase Agreement (the “Agreement”) with
Trafalgar Capital Specialized Investment Fund, Luxembourg (“Buyer”) on September
25, 2008 for the sale of up to $2,750,000 in convertible notes (the “Notes”).
Pursuant to the terms of the Agreement, the Company and the Buyer closed on the
sale and purchase of $1,600,000 in Notes on September 25, 2008, with escrow
instruction to be closed on October 1, 2008. The Buyer, at its sole discretion,
has the option to close on a second financing for $400,000 in Notes (which has
been exercised as discussed below) and a third financing for $750,000 in Notes.
Pursuant to the terms of the Agreement, the Company agreed to pay to the Buyer a
commitment fee of 4% of the commitment amount, a structuring fee of $15,000, a
facility draw down fee of 4%, issue the Buyer 150,000 shares of common stock,
pay a due diligence fee to the Buyer of $15,000 and pay an advisory fee of
$100,000 to TAS Holdings Limited. The Notes bear interest at 8.5% with such
interest payable on a monthly basis with the first two payments due at closing.
The Notes are due in full in September 2010. In the event of default, the Buyer
may elect to convert the interest payable in cash or in shares of common stock
at a conversion price using the closing bid price of when the interest is due or
paid. The Notes are convertible into  common stock, at the Buyer’s
option, at a conversion price equal to 85% of the volume weighted average price
for the ten days immediately preceding the conversion but in no event below a
price of $2.00 per share. If on the conversion or redemption of the Notes, the
Euro to US dollar spot exchange rate (the “Exchange Rate”) is higher that the
Exchange Rate on the closing date, then the number of shares shall be increased
by the same percentage determined by dividing the Exchange Rate on the date of
conversion or redemption by the Exchange Rate on the closing date. The Company
is required to redeem the Notes starting on the fourth month in equal
installments of $56,000 with a final payment of $480,000 with respect to the
initial funding of $1,600,000. We are also required to pay a redemption premium
of 7% on the first redemption payment, which will increase 1% per month. The
Company may prepay the Notes in advance, which such prepayment will include a
redemption premium of 15%. In the event the Company closes on a funding in
excess of $4,000,000, the Buyer, in its sole election, may require that the
Company redeem the Notes in full. On any principal or interest repayment date,
in the event that the Euro to US dollar spot exchange rate is lower than the
Euro to US dollar spot exchange rate at closing, then we will be required to pay
additional funds to compensate for such adjustment.




Pursuant
to the terms of the Notes, the Company shall default if (i) the Company fails to
pay amounts due within 15 days of maturity, (ii) failure of the Company to
comply with any provision of the Notes upon ten days written notice; (iii)
bankruptcy or insolvency or (iv) any breach of the Agreement and such breach is
not cured upon ten days written notice. Upon default by the Company, the Buyer
may accelerate full repayment of all Notes outstanding and all accrued interest
thereon, or may convert all Notes outstanding (and accrued interest thereon)
into shares of common stock (notwithstanding any limitations contained in the
Agreement and the Notes). The Buyer has a secured lien on three of our wells and
would be entitled to foreclose on such wells in the event an event of default is
entered. In the event that the foregoing was to occur, significant adverse
consequences to the Company would be reasonably anticipated.




So long
as any of the principal or interest on the Notes remains unpaid and unconverted,
the Company shall not, without the prior written consent of the Buyer, (i) issue
or sell any common stock or preferred stock, (ii) issue or sell any Company
preferred stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock, (iii)
incur debt or enter into any security instrument granting the holder a security
interest in any of the assets of the Company or (iv) file any registration
statement on Form S-8.




The Buyer
has contractually agreed to restrict their ability to convert the Notes and
receive shares of our common stock such that the number of shares of the Company
common stock held by a Buyer and its affiliates after such conversion or
exercise does not exceed 9.9% of the Company’s then issued and outstanding
shares of common stock.




The Buyer
exercised its option to close on a second financing for $400,000 in Notes on
October 28, 2008 and still holds an option to close on additional financing for
$750,000 in Notes.  The terms of the second financing for $400,000 are
identical to the terms of the $1,600,000 Note, as disclosed in detail on the
Company filing on October 2, 2008 on Form 8-K - Unregistered Sale of Equity
Securities, Financial Statements and Exhibits. The Notes are convertible into
our common stock, at the Buyer’s option, at a conversion price equal to 85% of
the volume weighed average price for the ten days immediately preceding the
conversion but in no event below a price of $2.00 per share. As of the date
hereof, the Company is obligated on the Notes issued to the Buyer in connection
with this offering. The Notes are a debt obligation arising other than in the
ordinary course of business, which constitute a direct financial obligation of
the Company.




The Notes
were offered and sold to the Buyer in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The Buyer is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




45




The
Company recorded an intangible asset related to the discount on the issuance of
debt. The estimated value of the conversion feature was approximately $1,525,776
and will be reported as interest expense over the anticipated repayment period
of the debt.





As
reported under Legal proceedings, the Company notified Trafalgar that Trafalgar
is in breech with regard to the services to be performed in accordance with the
$2,000,000 loan agreement. Pursuant to FASB 5, the $2,000,000 is recorded as a
liability on the balance sheet since the outcome of the legal actions is
undeterminable at this time. On April 14, 2009 the Company filled a complaint
against Trafalgar and its affiliates.





Star




On
September 1, 2008, the Company entered into a note payable with Star Equity
Investments LLC (“STAR”), a third party, for $1 million was effective January 1,
2008. The proceeds from this note were used to pay off the Company’s debt to Mr.
Attia, a related party.  The note bears 12% interest commencing
October 1st, 2008 and can be converted (including interest) into common shares
of the Company at an established conversion price of $0.75 per
share.  Per Star’s position the Company is default under said note,
and the parties in negotiation to resolve adversaries’ procedure among them,
based on issuing 8.5 million common shares of the Company for conversion the
note and interest into equity. On March 11, 2009, the Company entered and closed
an agreement with Star pursuant to which Star agreed to convert all principal
and interest associated with the Debt into 8,500,000 shares of common stock and
released the Company from any further claims. The shares of common stock were
issued in connection with this transaction in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and/or Rule 506 promulgated thereunder. Each of
the parties are accredited investors as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933.




Barnnet
Shale




Barnett
Shale, Fort Worth area of Texas Project - On September 2, 2008, the Company
entered into a Memorandum of Understanding (the “MOU”) to enter into a
definitive asset purchase agreement with Blackhawk Investments Limited, a Turks
& Caicos company (“Blackhawk”) based in London, England. Blackhawk exercised
its exclusive option to acquire all of the issued and allotted share capital in
Sandhaven Securities Limited (“SSL”), and its underlying oil and gas assets in
NT Energy. SSL owns approximately 62% of the outstanding securities of NT
Energy, Inc., a Delaware company (“NT Energy”). NT energy holds rights to
mineral leases covering approximately 12,972 acres in the Barnett Shale, Fort
Worth area of Texas containing proved and probable undeveloped natural gas
reserves. SSL was a wholly owned subsidiary of Sandhaven Resources plc
(“Sandhaven”), a public company registered in Ireland, and listed on the Plus
exchange in London. In consideration of Blackhawk exercising its option to
acquire the leases and transferring such leases to the Company, the Company will
pay $180,000,000 by issuing Blackhawk or its designees shares of common stock of
the Company, based upon the average share price of the Company on the Over the
Counter Bulletin Board during the 30 days preceding the execution of the MOU,
which was $1.50 per share, representing 120,000,000 shares as the total
consideration, under said MOU. However, the number of shares to be delivered
shall be adjusted on the six month anniversary of the closing of the asset
acquisition (the “Closing”), using the volume weighted average price for the six
months following the Closing. Blackhawk, SSL, NT Energy, Sandhaven and the
advisors described below as well as each of the officers, directors and
affiliates of the aforementioned will agree to not engage in any activities in
the stock of the Company. In addition, the Company will be required to pay fees
to two advisors of $6,000,000 payable with the Company shares, and, therefore,
issue an additional 3,947,368 of the Company shares of common stock, along with
300% warrant coverage, representing warrants to purchase an aggregate of
11,842,106 shares of common stock on a cashless basis for a period of two years
with an exercise price of $2.00 per share, if the transaction closes. Although
both parties have agreed to obtain shareholder approval prior to the Closing,
the Company is not required by any statute to do so.




The MOU
was amended on October 28, 2008 to reflect the terms below:




In
consideration of Blackhawk exercising its option to acquire the leases and
transferring such leases to the Company, the Company will pay $130,000,000 by
issuing Blackhawk or its designee’s shares of common stock of the Company using
a price per share of $1.50 resulting in the issuance of 86,666,667 shares of
common stock. However, the number of shares to be delivered shall be adjusted on
the six month anniversary of the closing of the asset acquisition (the
“Closing”), using the volume weighted average price for the six months following
the Closing. Blackhawk, SSL, NT Energy, Sandhaven and the advisors described
below as well as each of the officers, directors and affiliates of the
aforementioned will agree to not engage in any activities in the stock of the
Company.




46




In
addition, the Company will be required to pay fees to two advisors of $4,400,000
payable with the Company shares, and, therefore, issue an additional 2,933,333
of the Company shares of common stock, along with 300% warrant coverage,
representing warrants to purchase an aggregate of 8,799,999 shares of common
stock on a cashless basis for a period of two years with an exercise price of
$2.00 per share, if the transaction closes. Although both parties have agreed to
obtain shareholder approval prior to the Closing, the Company is not required by
any statute to do so.




The above
transaction was subject to the drafting and negotiation of a final definitive
agreement, performing due diligence as well as board approval of the Company.
During the  due diligence period the Blackhawk did not cooperate with
the Company, and in lieu of involvement of Trafalgar as well as the adversaries
procedure the parties has, the Company still evaluate its position in regard to
said transaction which is void and null, yet causes or expose the company to
unjustified risks.





Short
Term Loan – by Investor





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contest said
warrants entitlements to the investor, based on a cause.





47





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 December 31, 2008:





Name
            
            Age
            
            Position with
      CompanyYossi
      Attia
            
            47
            
            Director,
      Chief Executive Officer, Principal Financial Officer,
      PresidentStewart
      Reich
            
            65
            
            Director,
      , Audit and Compensation Committees ChairmanRobin
      Ann Gorelick
            
            51
            
            Secretary
      & Company CounselMace
      Miller
            
            41
            
            Director,
      Audit and Compensation Committee’s memberGerald
      Schaffer
            
            85
            
            Director,
      Audit and Compensation Committee’s memberDarren
      C Dunckel*)
            
            40
            
            Director,
      Verge PresidentGregory
      Rubin
            
            49
            
            Director,
      Board Chairman




*    
Resigned effective April 1, 2009





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 through 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 chairmen of the board of AGL.





Stewart Reich, was Chairman of
the Board since June 2004 until August 2008, 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 head of the Audit and
the Compensation Committees.





Gerald Schaffer was
unanimously appointed to the Board of Directors of the Company on June 22, 2006,
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.




48




Darren C. Dunckelwas
appointedon
September 17, 2007 by the Board of Directors 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 ERC as wells as Verge. a
Nevada corporations and former subsidiaries of the Company . 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. 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. On October 2008 a Group associated
with Mr. Dunckel acquired from AGL all its holding in Verge. Verge was
subsidiary of the company, and per disposal of AGL, the Company is not
affiliated to Verge any longer.





Mace Miller was appointedon July 28, 2008 as a
director of the Company, received his BBA in Accounting and an MBA with
International Concentration from the University of Texas at El Paso in 1989 and
1992, respectively. Further, Mr. Mace received his law degree from the
University of Texas at El Paso in 1992. From 2001 to 2006, Mr. Miller has been a
principal with Raymond James Financial Services. Mr. Miller, since 2006, has
been a partner with Coronado Capital Advisers, where he has been responsible for
the administration and creation of proprietary hedge fund. He has been a
frequent speaker at various international venues, including the Raymond James
National Conference, on tax mitigation and anti-money laundering issues related
to hedge funds. Recognized as an expert in international finance, Mr. Miller has
consulted on numerous bond offerings in the United States and the Dominican
Republic on behalf of institutions and investors alike. Mr. Miller is a licensed
Attorney with the State of Texas.




Gregory Rubin, On August 19,
2008, the Company entered into that certain Employment Agreement with Mike
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed to
serve as the Chairman of the Board of Directors of the Company for a period of
five years. On December 24, 2008, Mike Mustafoglu resigned as Chairman of the
Board of Directors of the Company to pursue other business
interest.  To fill the vacancy resulting from Mr. Mustafoglu’s
resignation, the Board of Directors has appointed Dr. Gregory Rubin, as a
director of the Company. Dr. Rubin will serve as the Chairman of the Board of
Directors of the Company. Dr. Rubin has been a self employed dentist for the
last 25 years. During the last 25 years, Dr. Rubin also has served various
companies in industries ranging from health care management to oil and gas in
various consulting roles. Dr. Rubin serves as the director for Central Asia
Franchise Holdings, Ltd., Central Asia Construction and Development, Ltd., Nadir
Energy & Mining Corporation, Grand Pacarama Gold Corporation and ADR OTC
Markets, LLC. Based on agreements that the company is not side too, Dr. Rubin is
partial owner of T.A.S – which is preferred shareholder of the Company, which
has super power voting rights.





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 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.





49




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.





2008
BOARD MEETINGS





In 2008,
the Board had three (3) meetings telephonically and twenty (20) meetings through
unanimous 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 2008.





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. The Audit Committee consists of Gerald Schaffer, Stewart Reich and
Mace Miller is independent members of the Board. The Audit Committee held two
meetings in 2008. 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. The Compensation Committee consisted of Messrs Reich,
Schaffer and Miller. 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 met one (1)
time.





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 than 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, 2008, there was no failure to
comply with Section 16(a) filing requirements applicable to its officers,
Directors and ten percent stockholders.




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 2008, 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.





50





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, 2008 to
the Company’s CEO and our most highly compensated officers other than the CEO at
December 31, 2008 whose total compensation exceeded $100,000.





SUMMARY
COMPENSATION TABLE


Name
      & Principal Position
              
              Year
              
              Salary
      ($)
              
              
              Bonus
      ($)
              
              
              Stock
      Awards($)
              
              
              Option
      Awards ($)
              
              
              Total
      ($)Yossi
      Attia
              
              2008
              
              $
              240,000
              
              
              $
              120,000
              
              
              $
              —
              
              
              $
              —
              
              
              $
              360,000Robin
      Gorelick
              
              2008
              
              
              168,000
              
              
              
              —
              
              
              
              24,048
              
              
              
              —
              
              
              $
              192,048Totals
              
              
              
              $
              408,000
              
              
              $
              120,000
              
              
              $
              24,048
              
              
              $
              —
              
              
              $
              552,048




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.





51




(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, 2008.


Name
              
              
              Fees
      Earned or Paid in Cash
              
              
              Fees
      Earned or Accrued but not Paid in CashStewart
      Reich
              
              $
              
              
              $
              57,504Ilan
      Kenig (Resigned during 2008)
              
              
              
              
              
              25,002Darren
      C Dunckel*)
              
              
              120,000Gerald
      Schaffer
              
              
              
              
              
              
              50,004Total
              
              $
              120,000
              
              
              $
              132,510




*) – As
salary via Verge




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/
      UnexercisableYossi
      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 OTC as of December 31, 2008, which was about $0.02 per share. None of Mr.
Attia’s options are presently in the money.





52




EMPLOYMENT
AND MANAGEMENT AGREEMENTS




Effective
July 1, 2006, the Company entered into a five-year employment agreement with
Yossi Attia as the President 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. 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
$250,000 to be paid in the form of Company shares of common stock. The number of
shares to be received by Mr. Attia is calculated based on the average closing
price 10 days prior to the commencement of each employment year. The board of
directors of AGL approved the employment agreement between AGL and Mr. Yossi
Attia, the controlling shareholder and CEO of the Company.  The
agreement goes into effect on the date that the aforementioned allotments are
consummated and stipulates that Mr. Attia will serve as the CEO of AGL in return
for a salary that costs AGL an amount of US$ 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 agreement was ratified by the general shareholders meeting of AGL
on 30 October 2007





On
August 19, 2008, the Company entered into that certain Employment Agreement with
Mike Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed
to serve as the Chairman of the Board of Directors of the Company for a period
of five years. Mr. Mustafoglu will receive (i) a salary of $240,000; (ii) a
performance bonus of 10% of net income before taxes, which will be allocated by
Mr. Mustafoglu and other key executives at the sole discretion of Mr.
Mustafoglu; and (iii) a warrant to purchase 10 million shares of common stock of
the Company at an exercise price equal to  the lesser of $.50 or 50%
of the average market price of the Company’s common stock during the 20 day
period prior to exercise on a cashless basis (the “Mustafoglu Warrant”). The
Mustafoglu Warrant shall be released from escrow on an equal basis over the
employment period of five years. As a result, 2,000,000 shares of the Mustafoglu
Warrant will vest per year.  Effective July 16, 2008, the Board of
Directors of the Company approved that certain Mergers and Acquisitions
Consulting Agreement (the “M&A Agreement”) between the Company and
TransGlobal Financial LLC, a California limited liability company
(“TransGlobal”). Pursuant to the M&A Agreement, TransGlobal agreed to assist
the Company in the identification, evaluation, structuring, negotiation and
closing of business acquisitions for a term of five years. As compensation for
entering into the M&A Agreement, TransGlobal shall receive a 20% carried
interest in any transaction introduced by TransGlobal to the Company that is
closed by the Company. At TransGlobal’s election, such compensation may be paid
in restricted shares of common stock of the Company equal to 20% of the
transaction value. Mike Mustafoglu, who is the Chairman of TransGlobal
Financial, was elected on July 28, 2008 at a special shareholder meeting as the
Company’s Chairman of the Board of Directors.  On December 24, 2008,
Mr. Mustafoglu resigned as Chairman of the Board of Directors of Company to
pursue other business interests. Further, that certain Mergers and Acquisitions
Consulting Agreement between the Company and TransGlobal was terminated. Mr.
Mustafoglu is the Chairman of TransGlobal




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 agreement
was 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 each
year ended December 31, 2008 and 2007.





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.




53




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.





During
2008 the Board modified its member’s compensation to include only compensation
only to committee’s member that was appointed by the prior board, as following:
each member: $4,167 per month and chairman $4,792 per month.





STOCK
OPTION PLAN




2004
Incentive Plan





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.





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.





54




On June
2, 2005, the Company granted 100,000 options to a director of the Company, which
vests 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.





As of
December 31, 2008, there were 330,000 options outstanding with a weighted
average exercise price of $3.77.





No
options were exercised during the year ended December 31, 2008 and the year
ended December 31, 2007.




The
following table summarizes information about shares subject to outstanding
options as of December 31, 2008, which was issued to current or former
employees, consultants or directors pursuant to the 2004 Incentive Plan and
grants to Directors:




Options
      Outstanding
            
            Options
      ExercisableNumber
              Outstanding
            
            Range
      of
              Exercise Prices
            
            Weighted-
              Average
              Exercise Price
            
            Weighted-
              Average
      Remaining
              Life in Years
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise Price100,000
            
            $
            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.





As part
of some Private Placement Memorandums the Company issued warrants that can be
summarized in the following table:





Name
            
            Date
            
            Terms
            
            No.
      of Warrants
            
            Exercise
      PriceParty
      1
            
            3/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $1.50Party
      1
            
            3/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $2.00Party
      2
            
            6/05/2008
            
            2
      years from Issuing
            
            300,000
            
            $1.50Party
      3
            
            6/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $1,50Party
      4
            
            9/5/2008
            
            2
      years from Issuing
            
            200,000
            
            $1.50





55




Cashless
Warrants:





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes a third party, for a short term loan (“bridge”) of up to $275,000 to
bridge the drilling program of the Company. As a consideration for said
facility, the Company grants the investor with 100% cashless warrants coverage
for two years at exercise price of 1.50 per share. The investor made a loan of
$220,000 to the company on September 15, 2008 (where said funds were wired to
the company drilling contractor), that was paid in full on October 8, 2008.
Accordingly the investor is entitled to 200,000 cashless warrants as from
September 15, 2008 at exercise price of $1.50 for a period of 2 years. The
Company contests the validity of said warrants.





(d)
Shares





On May 6,
2008 the Company issued 500,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the “Undes Services Agreement”) pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide us services
related to the identification, evaluation, structuring, negotiating and closing
of business acquisitions, identification of strategic partners as well as the
provision of legal services. The term of the agreement is for five years and the
Company has agreed to issue Mr. Undes 525,000 shares of common stock that shall
be registered on a Form S8 no later than July 1, 2008.





On August
13, 2008, the Company issued 16,032 shares of its common stock, $0.001 par value
per share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration





Following
the above securities issuance, the 2004 Plan was closed, and no more securities
can be issued under this plan.





2008
Stock Incentive Plan:





On July
28, 2008 - the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the “2008
Incentive Plan”) authorized the board to issue up to 5,000,000 shares of Common
Stock under the plan.





On August
23 the Company issued 100,000 shares of its common stock 0.001 par value per
share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration





On
November 4, 2008, the Company issued 254,000 shares of its common stock 0.001
par value per share, to one consultant (200,000 shares) and two employees
(54,000 shares), in accordance with the instructions provided by the Company
pursuant to the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.





56





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 15, 2009.
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. Please note that on
February 24, 2009 the Company effected reverse split of 1:100. Therefore all
amounts of shares in the following chart were converted
accordingly.


Name of Beneficial Owner (1)
              
              Common Stock
                Beneficially Owned
              
              
              Percentage of
                Common StockYossi
      Attia (2)
              
              
              9,204
              
              
              
              *Robin
      Ann Gorelick (3)
              
              
              0
              
              
              
              *Stewart
      Reich (4) (5)
              
              
              1,000
              
              
              
              *Darren
      C. Dunckel (4)
              
              
              0
              
              
              
              *Mace
      K. Miller (4)
              
              
              0
              
              
              
              *Gerald
      Schaffer (4)
              
              
              0
              
              
              
              *Corporate
      Group Services Ltd.
              
              
              150,000
              
              
              
              17.19%Sully
      LLC
              
              
              95,500
              
              
              
              10.94%Beacon
      Financial Corp.
              
              
              95,000
              
              
              
              10.88%Atia
      Family Trust
              
              
              8,204
              
              
              
              *All
      executive officers and directors as a group (consisting of 7
      individuals)
              
              
              10,204
              
              
              
              1.17%


*
              less
      than 1.00%
  **
              Executive
      officer and/or director of the
Company.





(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 15, 2009. For
purposes of computing the percentage of outstanding shares held by each person
or group of persons named above on March 15, 2009, any security which such
person or group of persons has the right to acquire within 60 days after such
date is deemed to be outstanding for the purpose of computing the percentage
ownership for such person or persons, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other
person.




(2)
Pursuant to a Stock Purchase Agreement dated as of January 28, 2005, by and
between KPN Telecom B.V. (“KPN Telecom”) - KPN Telecom B.V. is a subsidiary of
Royal KPN N.V, 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.





57




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 owned 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.





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 (8,204 posts the reverse
split) are in certain dispute. In our calculations above, we did not give effect
to the dispute.





Mr. Attia
was entitled to additional 111,458 shares of the Company per his employment
agreement with the Company.





Effective
March 22, 2005 the Board of Directors granted the two directors, Mr. Attia and
Mr. Kenig (which resigned during 2008), 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.




(3) An
officer of the Company.




(4) A
director of the Company.




(5)
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




The
foregoing table is based upon 87,280,919 shares of common stock outstanding as
of December 31, 2008.





58




ITEM 12.
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS




During
2007 The Company via ERC rented its office premises in Las Vegas from Yossi
Attia for a monthly fee.




Mr.
Dunckel a member of the Board serves as President of ERC as wells as Verge.,
Nevada corporations and former subsidiaries of the Company. As President, he
oversees management of real estate acquisitions, development and sales in the
United States and Croatia where ERC holds properties. 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. 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. 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 each year ended December 31, 2008 and 2007. 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. Based on agreements between
company controlled by Mr. Dunckel and AGL, Mr. Dunckel acquired Verge from AGL.
The Company is not side to these agreements.





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





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 agreement
was ratified by the general shareholders meeting of AGL on 30 October
2007.




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.




On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contest said
warrants entitlements to the investor, based on a cause.




On
December 5, 2008 the Company entered into and closed an
Agreement  with T.A.S. Holdings Limited (“TAS”) (the “TAS Agreement”)
pursuant to which TAS agreed to cancel the debt payable by the Company to TAS in
the amount of approximately $1,065,000 and its 15,000,000 shares of common stock
it presently holds in consideration of the Company issuing TAS 1,000,000 shares
of Series B Convertible Preferred Stock, which such shares carry a stated value
equal to $1.20 per share (the “Series B Stock”).




59




The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company’s board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30,
2009.




In the
event of any liquidation or winding up of the Company, the holders of Series B
Stock will be entitled to receive, in preference to holders of common stock, an
amount equal to the stated value plus interest of 15% per year.




The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock.




The
Series B Stock was offered and sold to TAS in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and Rule 506 promulgated there under. TAS is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933. The Company filed its Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock with the State
of Delaware




Based on
agreements that the company is not side too, Dr. Rubin is partial owner of
T.A.S.




60





ITEM 13.
            EXHIBITS




Exhibits
required to be attached by Item 601 of Regulation S-B are listed in the Index to
Exhibits on page 64 of
this Form 10-KSB, and are incorporated herein by this reference





61




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, 2008 and 2007,
respectively, and fees billed for other services rendered.




2008
            
            
            2007Audit
      Fees
            
            $
            41,800
            
            
            $
            213,400Audit-Related
      Fees
            
            
            
            
            
            
            38,000Tax
      Fees
            
            
            
            
            
            
            20,570Total
            
            $
            41,800
            
            
            $
            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:




2007Hours
            
            
            NIS’000
            
            
            $US
      ‘000Auditing
      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:




2007Hours
            
            
            NIS
      ‘000
            
            
            $US
      ‘000Auditing
      services
            
            
            18
            
            
            
            15
            
            
            
            4





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.





62





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.




VORTEX
      RESOURCES CORP.By
              /s/
      Yossi AttiaYossi
      AttiaChief
      Executive Officer and Director(Principal
      Financial Officer)
                Dated:
      April 15, 2009




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
              
              DATEBy:
      /s/ Yossi Attia
              
              Chief
      Executive Officer and Director
              
              April
      15, 2009Yossi
      Attia
              
              (Principal
      Executive Officer, Principal Financial and Accounting
    Officer)By:
      /s/ Stewart Reich
              
              Director
              
              April
      15, 2009Stewart
      ReichBy:
      /s/ Robin Ann Gorelick
              
              Secretary,
      & Corporate Counsel
              
              April
      15, 2009Robin
      Ann GorelickBy:
      /s/ Gerald Schaffer
              
              Director
              
              April
      15, 2009Gerald
      SchafferBy:
      /s/ Mace Miller
              
              Director
              
              April
      15, 2009Mace
      MillerBy:
      /s/ Darren C Dunckel
              
              Director
              
              April
      15, 2009Darren
      C DunckelBy:
      /s/ Gregory Rubin
              
              Chairman
      of the Board and Director
              
              April
      15, 2009Gregory
      Rubin




63




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)3.4
              
              Certificate
      of Designation of Preferences, Rights, and Limitations of Series A
      Preferred Stock of Emvelco Corp.  (19)3.5
              
              Certificate
      of Amendment to the Restated Certificate of Incorporation
    (22)3.6
              
              Certificate
      of Ownership of Emvelco Corp. and Vortex Resources
    Corp.(23)3.7
              
              Certificate
      of Designation of Preferences, Rights and Limitations of Series B
      Preferred Stock of Vortex Resources Corp. (26)3.8
              
              Certificate
      of Amendment to the Certificate of Incorporation (28)4.1
              
              Form
      of Common Stock Certificate(1)4.2
              
              Form
      of Subscription Agreement (3)4.3
              
              Securities
      Purchase Agreement entered by and between Vortex Resources Corp. and
      Trafalgar Capital Specialized Investment Fund, Luxembourg dated September
      25, 2008 (24)4.4
              
              Convertible
      Note issued to Trafalgar Capital Specialized Investment Fund, Luxembourg
      (24)4.5
              
              Security
      Agreement entered by and between Vortex Resources Corp. and Trafalgar
      Capital Specialized Investment Fund, Luxembourg dated September 25, 2008
      (24)4.6
              
              Pledge
      Agreement entered by and between Vortex Resources Corp. and Trafalgar
      Capital Specialized Investment Fund, Luxembourg dated September 25, 2008
      (24)10.1
              
              Investment
      Agreement, dated as of June 19, 2006, by and between EWEB RE Corp. and AO
      Bonanza Las Vegas, Inc. (4)10.2
              
              Sale
      and Purchase Agreement, dated as of February 16, 2007, by and between
      Emvelco Corp. and Marivaux Investments Limited (5)10.3
              
              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 (6)10.4
              
              Agreement,
      dated as of June 5, 2007, among Emvelco Corp., Yossi Attia, Darren
      Dunckel, and Upswing, Ltd.(7)10.5
              
              Agreement(8)10.6
              
              All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Edinburgh Avenue
      (8)10.7
              
              All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Harper Avenue
      (8)10.8
              
              All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Laurel Avenue
      (8)10.9
              
              Notice
      of Exercise of Options(9)10.10
              
              Appswing
      Agreement (10)10.11
              
              Kidron
      Agreement (10)10.12
              
              Indemnification
      Agreement (11)10.13
              
              Notice
      of Exercise of Options(12)10.14
              
              Settlement
      and Release Agreement and Amendment No. 1. (13)10.15
              
              All
      Inclusive Deed of Trust (14)10.16
              
              All
      Inclusive Promissory Note (14)10.17
              
              Share
      Exchange Agreement - Amendment No. 1 (15)10.18
              
              Agreement
      and Plan of Exchange with Davy Crockett Gas Company, LLC and the members
      of Davy Crockett Gas Company, LLC dated May 1, 2008
  (16)





64





Exhibit
      No.
                
                Description10.19
                
                Form
      of Convertible Note dated May 1, 2008 (16)10.20
                
                Services
      Agreement dated June 11, 2008 by and between EMVELCO Corp. and Mehmet
      Haluk Undes (18)10.21
                
                Amendment
      No. 1 to the Agreement and Plan of Exchange with Davy Crockett Gas
      Company, LLC and the members of Davy Crockett Gas Company, LLC dated June
      11, 2008 (19)10.22
                
                Limited
      Liability Company Operating Agreement of Vortex Ocean One, LLC, a
      Nevada limited liability company (20)10.23
                
                Form
      of Subscription Agreement (20)10.24
                
                Form
      of Common Stock Purchase Agreement (20)10.25
                
                Drilling
      Agreement (20)10.26
                
                Mergers
      and Acquisitions Consulting Agreement between the Company and TransGlobal
      Financial LLC (21)10.26
                
                Agreement
      dated December 3, 2008 and is made by and between Vortex Resource Corp.
      (the “Company”) and T.A.S. Holdings Limited (26)10.27
                
                Form
      of Agreement entered into by and between Vortex Resources Corp. and the
      Penalty Holders (27)10.28
                
                Agreement
      by and between Vortex Resources Corp. and Star Equity Investments, LLC
      (29)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 2002.99.1
                
                Press
      Release dated June 6, 2008 (17)99.2
                
                Press
      Release dated June 10, 2008 (17)99.3
                
                Press
      Release (25)
  (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 May 16, 2007
  (7) Filed
as an exhibit to Form 8-K on June 11, 2007
  (8) Filed
as an exhibit to Form 8-K on July 12, 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 26, 2007
  (11)
Filed as an exhibit to Form 8-K on September 26, 2007
  (12)
Filed as an exhibit to Form 8-K on October 19, 2007
  (13)
Filed as an exhibit to Form 8-K on November 19, 2007
  (14)
Filed as an exhibit to Form 8-K on December 21, 2007
  (15)  Filed
as an exhibit to Form 8-K on  May 5, 2008
  (16)
Filed as an exhibit to Form 8-K on  May 7, 2008
  (17)
Filed as an exhibit to Form 8-K on  June 10, 2008
  (18)
Filed as an exhibit to Form 8-K on  June 13, 2008
  (19)
Filed as an exhibit to Form 8-K on  June 17, 2008
  (20)
Filed as an exhibit to Form 8-K on  July 9, 2008
  (21)
Filed as an exhibit to Form 8-K on  July 17, 2008
  (22)
Filed as an exhibit to Form 8-K on  August 1, 2008
  65





(23)
Filed as an exhibit to Form 8-K on  September 4, 2008




(24)
Filed as an exhibit to Form 8-K on  October 2, 2008




(25)
Filed as an exhibit to Form 8-K on  November 20, 2008




(26)
Filed as an exhibit to Form 8-K on  December 5, 2008




(27)
Filed as an exhibit to Form 8-K on  December 31, 2008




(28)
Filed as an exhibit to Form 8-K on  February 25, 2009




(29)
Filed as an exhibit to Form 8-K on  March 19, 2009





66




VORTEX
RESOURCES CORP.





Consolidated
Financial Statements





As of
December 31, 2008 and As of December 31, 2007 and for the Years Ended December
31, 2008 and 2007




TABLE OF
CONTENTS





PageReport
      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









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS





To the
Board of Directors and Shareholders


Vortex
Resources Corp. and Subsidiaries





We have audited the accompanying
consolidated balance sheets of Vortex Resources Corp., (f/k/a Emvelco Corp.) and
Subsidiaries as of December 31, 2008 and 2007 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
$11,748,000 as of December 31, 2007 and total revenues of $-0- for the period
from November 2, 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
Vortex Resources Corp., and Subsidiaries as of December 31, 2008 and 2007 and
the results of its operations and its cash flows for the years ended December
31, 2008 and 2007 in conformity with accounting principles generally accepted in
the United States of America.





The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 13 to the financial statements, the financing of
the Company’s projects is dependent on the future effect of the so called
sub-prime mortgage crisis on financial institutions.  This sub-prime
crisis may affect the availability and terms of financing of the completion of
the projects as well as the availability and terms of financing may affect the
Company’s ability to obtain relevant financing, if required.  The
sub-prime mortgage crisis has raised substantial doubt about the Company’s
ability to continue as a going concern.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.




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




Salt Lake
City, Utah


April 13,
2009





F-2




Vortex Resources
Corp.


Consolidated
Balance Sheet


As
of December 31, 2008 and 2007


Amounts in US
dollars




2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            123,903
            
            
            $
            369,576Accounts
      receivable
            
            
            —
            
            
            
            218,418Intangible,
      debt discount on Notes with conversion option, current (Note
      7)
            
            
            953,610
            
            
            
            195,266Total
      current assets from continued operations
            
            
            1,077,513
            
            
            
            783,260Total
      current assets from discontinued operations (Note 10)
            
            
            2,600,000
            
            
            
            17,547,196Total
      current assets
            
            
            3,677,513
            
            
            
            18,330,456Fixed
      assets, net
            
            
            —
            
            
            
            32,425Intangible,
      debt discount on Notes with conversion option, net of current portion
      (Note 7)
            
            
            731,101
            
            
            
            —Total
      Non Current assets from discontinued operations (Note 10,
      Note19)
            
            
            
            
            
            
            37,145,713Total
      assets
            
            $
            4,408,614
            
            
            $
            55,508,594LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            
            813,064
            
            
            
            —Convertible
      notes payable to third party – current portion (Note 7)
            
            
            1,165,900
            
            
            
            —Other
      current liabilities
            
            
            89,400
            
            
            
            305,520Total
      current liabilities from continued operations
            
            
            2,068,364
            
            
            
            305,520Total
      current liabilities from discontinued operations (Note 10)
            
            
            —
            
            
            
            24,297,443Total
      current liabilities
            
            
            2,068,364
            
            
            
            24,602,963Convertible
      Notes Payable to Third Party (Note 7)
            
            
            2,474,000
            
            
            
            2,277,633Total
      Non Current  liabilities from discontinued operations (Note
      10)
            
            
            —
            
            
            
            9,606,086Total
      non Current  liabilities
            
            
            4,542,364
            
            
            
            36,486,682Commitments
      and contingencies (Note 13)
            
            
            —
            
            
            
            —Minority
      interest in subsidiary’s net assets
            
            
            525,000
            
            
            
            6,145,474Stockholders’
      equityPreferred
      stock, 1,000,000 series B convertible, $1.20 stated value - Authorized andoutstanding
      1,200,000 and 0 shares, respectively
            
            
            1,200,000
            
            
            
            —Common
      stock, $.001 par value - Authorized 400,000,000 shares;91,780,
      919 and 4,609,181 shares issued; 87,280,919 and 4,609,181 shares
      outstanding, respectively
            
            
            87,281
            
            
            
            4,609Additional
      paid-in capital
            
            
            93,038,051
            
            
            
            53,281,396Accumulated
      deficit
            
            
            (94,957,047
            )
            
            
            (38,289,630
            )Accumulated
      other comprehensive loss
            
            
            (2,226
            )
            
            
            (2,226Treasury
      stock – 100,000 and 1,279,893 common shares at cost, respectively (Note
      16)
            
            
            (24,809
            )
            
            
            (2,117,711
            )Total
      stockholders’ equity
            
            
            (658,750
            )
            
            
            12,876,438Total
      liabilities and stockholders’ equity
            
            $
            4,408,614
            
            
            $
            55,508,594





See
accompanying notes to consolidated financial statements.





F-3




Vortex Resources
Corp.


Consolidated
Statements of Operations and Comprehensive Income


Years
Ended December 31, 2008 and 2007


Amounts
in US dollars





2008
            
            
            2007Revenues
      from Sales
            
            $
            —
            
            
            $
            —Cost
      of revenues
            
            
            —
            
            
            
            —Operating
      expensesCompensation
      and related costs
            
            
            558,073
            
            
            
            762,787Consulting,
      professional and directors fees
            
            
            13.049,759
            
            
            
            1,195,922Other
      selling, general and administrative expenses
            
            
            413,576
            
            
            
            —Software
      development expense
            
            
            —
            
            
            
            136,236Depreciation
      and amortization
            
            
            —
            
            
            
            —Total
      operating expenses
            
            
            14,021,409
            
            
            
            2,094,945Operating
      loss
            
            
            (14,021,409
            )
            
            
            (2,094,945
            )Interest
      income
            
            
            729,097
            
            
            
            1,665,379Interest
      expense
            
            
            (1,922,983
            )
            
            
            —Net
      interest income (expense)
            
            
            (1,193,886
            )
            
            
            1,665,379
      (386,108Other
      income
            
            
            —
            
            
            
            13,899Bad
      debt expense
            
            
            (5,959,956
            )
            
            
            —Loss
      before income taxes
            
            
            (21,175,251
            )
            
            
            (415,667
            )Income
      tax expense
            
            
            —
            
            
            
            —Loss
      from continuing operations
            
            
            (21,175,251
            )
            
            
            (415,667
            )Loss
      from discontinued operations & Goodwill impairment, net of tax (Note
      10)
            
            
            (35,435,635
            )
            
            
            (10,656,933
            )Net
      Loss before minority interest in loss of consolidated
      subsidiary
            
            
            (56,610,886
            )
            
            
            (11,072,600
            )Less
      minority interest in loss of consolidated subsidiary
            
            
            (56,531
            )
            
            
            172,810Net
      loss
            
            
            (56,667,417
            )
            
            
            (10,899,790
            )Other
      comprehensive loss
            
            
            —
            
            
            
            (7,765
            )Comprehensive
      (loss)
            
            $
            (56,667,417
            )
            
            $
            (10,907,555
            )Loss
      per share from continuing operations, basic
            
            
            (108.90
            )
            
            
            (5.00
            )Loss
      per share from discontinued operations, basic
            
            
            (181.75
            )
            
            
            (225.00
            )Net
      Loss per share, basic
            
            
            (290.65
            )
            
            
            (230.00
            )Loss
      per share from continuing operations, diluted
            
            
            (106.07
            )
            
            
            (5.00
            )Loss
      per share from discontinued operations, diluted
            
            
            (177.02
            )
            
            
            (225.00
            )Net
      Loss per share, diluted
            
            
            (283.09
            )
            
            
            (230.00
            )Weighted
      average number of shares outstanding, basic
            
            
            194,967
            
            
            
            47,343Weighted
      average number of shares outstanding, diluted
            
            
            200,175
            
            
            
            47,343





See
accompanying notes to consolidated financial statements.




F-4





VORTEX
RESOURCES CORP.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


YEARS
ENDED DECEMBER 31, 2008 and 2007


Amounts
in US dollars




Preferred
      Stock
              
              
              Common
      Stock
              
              
              
              
              
              
              
              
              OtherNumber
      of
                shares
              
              Amount
              
              
              Number
      of
                shares
              
              
              Amount
              
              
              Additional
                Paid-in
                Capital
              
              
              Accumulated
                Deficit
              
              
              Comprehensive
                Income
                (Loss)
              
              
              Treasury
                Stock
              
              
              Total
                Stockholders’
                EquityBalances,  January
      1, 2007
              
              
              
              $
              
              
              
              5,412,270
              
              $
              5,413
              
              $
              52,224,829
              
              $
              (27,389,840
              )
              $
              5,539
              
              $
              (994,884
              )
              $
              23,851,057Foreign
      currency translation loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (7,765
              )
              
              
              
              
              (7,765
              )Compensation
      charge on share options and warrants issued to 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 Note Payable
              
              
              
              
              
              
              
              
              
              
              
              
              
              976,334
              
              
              
              
              
              
              
              
              
              
              
              976,334Net
      loss for the period
              
              
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              (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
              )
              $
              12,876,438Compensation
      charge on shares, options and warrants issued to
    consultants
              
              
              
              
              
              
              
              254,000
              
              
              254
              
              
              2,018,161
              
              
              
              
              
              
              
              
              
              
              
              2,018,415Treasury
      stock - Open Market
              
              
              
              
              
              
              
              (103,000
              )
              
              (103
              )
              
              
              
              
              
              
              
              
              
              
              (28,400
              )
              
              (28,503
              )Issuance
      of preferred shares and subsequent conversion into common
      shares
              
              
              
              
              
              
              
              50,000,000
              
              
              50,000
              
              
              49,950,000
              
              
              
              
              
              
              
              
              
              
              
              50,000,000Issuance
      of shares - common
              
              
              
              
              
              
              
              2,520,738
              
              
              2,521
              
              
              1,014,993
              
              
              
              
              
              
              
              
              
              
              
              1,017,514Conversion
      of notes payable into common shares
              
              
              
              
              
              
              
              45,000,000
              
              
              45,000
              
              
              2,105,000
              
              
              
              
              
              
              
              
              
              
              
              2,150,000Cancellation
      of treasury shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,121,302
              )
              
              
              
              
              
              
              
              2,121,302
              
              
              —Discount
      on Note Payable
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,907,220
              
              
              
              
              
              
              
              
              
              
              
              1,907,220Surrendered
      15M shares
              
              
              
              
              
              
              
              (15,000,000
              )
              
              (15,000)
              
              
              (14,985,000)
              
              
              
              
              
              
              
              
              
              
              
              (1,500,000)Conversion
      of note to Series B preferred
              
              1,000,000
              
              
              1,200,000
              
              
              
              
              
              
              
              
              (132,417)
              
              
              
              
              
              
              
              
              
              
              
              1,067,583Net
      loss for the period
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (56,667,417
              )
              
              
              
              
              
              
              
              (56,667,417
              )Balances,  December
      31, 2008
              
              1,000,000
              
              $
              1,200,000
              
              
              87,280,919
              
              $
              87,281
              
              $
              93,038,051
              
              $
              (94,957,047
              )
              $
              (2,226
              )
              $
              (24,809
              )
              $
              (658,750)


See
accompanying notes to consolidated financial statements.





F-5




Vortex Resources
Corp.


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2008 and 2007


Amounts
in US dollars




2008
            
            
            2007Net
      cash provided by operating activities
            
            $
            1,919,018
            
            
            $
            87,636Cash
      flows from investing activities:Investment
      in certificate of deposit and restricted cash
            
            
            —
            
            
            
            (559,765
            )Investment
      in gas rights on real property
            
            
            (2,150,000
            )
            
            
            —Transaction
      fees paid in AGL transaction
            
            
            —
            
            
            
            (569,753
            )Proceeds
      from sale of Emvelco RE Corp
            
            
            —
            
            
            
            500,000Investment
      in affiliates, at cost
            
            
            —
            
            
            
            50,000Cash
      proceeds in AGL transaction
            
            
            —
            
            
            
            2,120,797Cash
      proceeds received from Vortex Ocean One member
            
            
            525,000
            
            
            
            —Cash
      proceeds received from former DCG members
            
            
            10,000
            
            
            
            —Loan
      advances to Emvelco RE Corp
            
            
            (294,361
            )
            
            
            (8,573,602
            )Loan
      advances to Verge Loan advances to Verge
            
            
            (241,837
            )
            
            
            —Proceeds
      received from sale of Navigator
            
            
            —
            
            
            
            3,200,000Repayments
      from Verge, net
            
            
            328,300
            
            
            
            —Net
      cash  used in investing activities
            
            
            (1,822,898
            )
            
            
            (3,832,323
            )Cash
      flows from financing activities:Payments
      to acquire treasury stock
            
            
            (28,503
            )
            
            
            (289,439
            )Proceeds
      from notes payable
            
            
            4,009,900
            
            
            
            5,401,155Payment
      on notes payable
            
            
            (591,565
            )
            
            
            (1,972,367
            )Proceeds
      from secured bank loans
            
            
            17,993
            
            
            
            —Repayments
      of bank loans
            
            
            (4,249,590
            )
            
            
            —Proceeds
      from related party
            
            
            482,205
            
            
            
            —Repayment
      to related party
            
            
            (1,000,000
            )
            
            
            —Payment
      to AP Holdings in AGL transaction
            
            
            —
            
            
            
            (1,877,706
            )Proceeds
      from the issuance of stock
            
            
            1,017,768
            
            
            
            —Net
      cash (used in) provided by financing activities
            
            
            (341,792
            )
            
            
            1,261,643Net
      increase (decrease) in cash and cash equivalents
            
            
            (245,673
            )
            
            
            (2,483,044
            )Cash
      and cash equivalents, beginning of year
            
            
            369,576
            
            
            
            2,852,620Cash
      and cash equivalents, end of year
            
            $
            123,903
            
            
            $
            369,576Supplemental
      disclosure:Cash
      paid for interest expense
            
            $
            4,822
            
            
            $
            24,751Cash
      received for interest income
            
            $
            394,281
            
            
            $
            411,064Summary
      of non-cash transactionsLoan
      to ERC reduced for consideration in AGL transaction
            
            
            —
            
            
            $
            15,000,000Note
      payable for consideration in AGL transaction
            
            
            —
            
            
            $
            4,250,000Note
      payable converted to 25,000,000 shares
            
            $
            2,000,000
            
            
            
            —Treasury
      shares acquired in sale of subsidiary
            
            
            —
            
            
            $
            834,191Acquisition
      of subsidiary Preferred shares converted into 50,000,000 common
      shares
            
            $
            50,000,000
            
            
            
            —Note
      payable converted into 20,000,000 common shares
            
            $
            150,000
            
            
            
            —Note
      payable converted into 1,000,000 convertible preferred
    shares
            
            $
            1,200,000
            
            
            
            —and
      surrendered 15,000,000 common shares
            
            $
            15,000,000
            
            
            
            —





See
accompanying notes to consolidated financial statements.




F-6




Vortex Resources
Corp.


Notes
to Audited Consolidated Financial Statements




1.
Organization and Business




Vortex
Resources Corp, formerly known as (“f/k/a”) Euroweb International Corp. and
Emvelco Corp., is a Delaware corporation and was organized on November 9, 1992.
It was a development stage company through December 1993. Effective August 19,
2008, the Company changed its name to Vortex Resources Corp. which was
accomplished by merger of a wholly owned subsidiary into the Company with the
Company being the survivor entity. Vortex Resources Corp. and its consolidated
subsidiaries are collectively referred to herein as “Vortex” or the “Company”.
Vortex’s business that was first implemented in 1997 was identifying, developing
and operating companies within emerging industries for the purpose of
consolidation and sale if favorable market conditions exist. Through December
31, 2007, the Company invested in the real estate development, and in the
financing business through Emvelco RE Corp. (“ERC”) and its subsidiaries in the
United States of America (“USA”) and in Europe. 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 Beverly
Hills, California, and its operational offices located in West Hollywood,
California.




Through
its subsidiaries and series of agreements with ERC, the Company developed and
sold in 2007 three properties in the Los Angeles vicinity. The balance of the
Company real estate interests were sold during 2008. The Company does not have
currently any further properties in the real estate industry.





In 2008,
the Company changed or amended its business model to focus on the mineral
resources industry, commencing gas and oil sub-industry, which was approved by
its shareholders. Based on series of agreements commonly known as “reverse
merger” which were formalized on May 1, 2008, the Company entered into an
Agreement and Plan of Exchange (the “DCG Agreement”) with Davy Crockett Gas
Company, LLC (“DCG”) and its members (“DCG Members”). Pursuant to the DCG
Agreement, the Company acquired and the DCG Members sold, 100% of the
outstanding membership in DCG. DCG is a limited liability company organized
under the laws of the State of Nevada and headquartered in Bel Air,
California.  As a newly formed designated LLC, DCG holds certain
development rights for gas drilling in Crockett County, Texas. DCG has entered
into the final DCG Agreement with the Company, which provided that the members
sold all of their membership units to the Company in exchange for 50 million
preferred shares of the Company. The sales price was $50 million, as calculated
by the 50 million shares at an agreed price of $1.00




The
Company elected to move from The NASDAQ Stock Market to the OTCBB to reduce, and
more effectively manage, its regulatory and administrative costs, and to enable
Company’s management to better focus on its business of developing the natural
gas drilling rights recently acquired in connection with the acquisition of
DCG.





DCG, a
wholly owned subsidiary is a limited liability company and was organized in
Nevada on February 22, 2008. The Company’s members’ capital accounts consist of
10,000 units. As of December 31, 2008, 10,000 member’s units are issued and
outstanding.  DCG has obtained drilling rights from a third party in
Wolfcamp Canyon Sandstone Field in West Texas and entering the natural gas
production & exploration, drilling, and extraction business.  DCG
has the option to purchase rights on up to 180 in-fill drilling locations on
about specific 3,600 acres, based on a 20 acres spacing.  The field
was first developed in the 1970s on a 160 acre well spacing and was later
reduced based on a small radius of the wells drainage. The spacing has
subsequently been reduced to 40 acres, 20 acres, and 10 acres accordingly. DCG’s
drilling program is based on 20 acres spacing.





DCG has
obtained a reserve evaluation report from an independent engineering firm, which
classifies the gas reserves as “proven undeveloped”.  According to the
independent well evaluation, each well contains approximately 355 MMCF (355,000
cubic feet) of recoverable natural gas.




Due to
current issues in the development of the oil and gas project in Crockett County,
Texas, the board obtained a current reserve report for the Company’s interest in
DCG and Vortex One, which report indicated that
the DCG properties as being negative in value. As a result of such report, the
world and US recessions and the depressed oil and gas prices, the board of
directors elected to dispose of the DCG property and/or desert the project in
its entirely




F-7




As a
result of the series of these reverse merger transactions described above, the
Company’s ownership structure at December 31, 2008 is as follows (designated for
sale – see subsequent events):


100% of
DCG – discontinued operations
 50% of
Vortex Ocean One, LLC
 7% of
Micrologic, (Via EA Emerging Ventures Corp)
 100% of
610 N. Crescent Heights, LLC and 50% of 13059 Dickens, LLC – both properties
divested





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.





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 owned 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
accompanying financial statements have been prepared on the basis of accounting
principles applicable to a “going concern”, which assumes that the Company will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of
operations.





F-8




In
January 2009, the company entered a material term sheet with the Yasheng Group –
see subsequent events.





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 the Company, 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. Control is determined based on
ownership rights or, when applicable, whether the Company is considered the
primary beneficiary of a variable interest entity.





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 transactions, which were closed on November 2, 2007, the Company owned 58.3%
of Atia Group Limited (AGL) as of December 31, 2007.  This interest
was divested as of effective January 1st, 2008
upon completion of the DCG reverse merger transaction. Since the company is the
primary beneficiary through December 31, 2007, the financial statements of AGL
are consolidated into these 2007 financial statements.  However, as of
January 1, 2008, the balance sheet and results of operations of AGL are not
consolidated into these financial statements.  The Company previously
issued interim financial statements dated as of March 31, 2008 and for the three
month period ending March 31, 2008.  Those financial statements
included the consolidation of the AGL.In accordance with
Financial Accounting Standards, FAS 154, Accounting Changes and Error
Corrections, the Company disclosed the accounting change results in
financial statements that are, in effect, the statements of a different
reporting entity.  The change shall be retrospectively applied to the
financial statements of all prior periods presented to show financial
information for the new reporting entity for those periods (see Note 17). As of
and for the year ending December 31, 2008, the balance sheets and results of
operations of DCG, 610 Crescent Heights, LLC, Dickens LLC and Vortex Ocean One,
LLC 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.





F-9




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.





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.





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 the Company and its subsidiaries, the prior owned
subsidiary, AGL, which reports its financial statements in New Israeli Shekel.
(“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. For non-US subsidiaries that do
not utilize the US Dollar as its functional currency, assets and liabilities are
translated to US Dollars at period-end exchange rates, and income and expense
items are translated at weighted-average rates of exchange prevailing during the
period. 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.





F-10




The
Company did not have any marketable securities within continuing operations for
the year ended December 31, 2008 (other than Treasury Stocks as
disclosed).





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
year ended December 31, 2008 and the year ended December 31, 2007, the Company
did not enter into any capital leases.





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, 2008 and 2007 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 $1.2 million as
of December 31, 2007.  Since this subsidiary was divested as of
January 1, 2008 in compliance with the C Properties Agreement, this goodwill was
impaired during the first quarter of 2008 and presented as a consulting,
director and professional fees in the P&L. As a result of the acquisition of
DCG, the Company recorded Goodwill for a total of $49,990,000 as the former
members of DCG were given conversion rights under the preferred stock
arrangement for 50,000,000 common shares at a $1.00 price per share less the
contribution of $10,000.





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,
2008, an analysis was performed on the goodwill associated with the investment
in DCG, and impairment was charged against the P&L for approximately $35.0
million.





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 third party, 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.  Said note was converted during August
2008 – as such all value of the conversion feature is approximately $976,334 was
recorded as interest expense.




The
Company entered into a Securities Purchase Agreement (the “Agreement”) with
Trafalgar Capital Specialized Investment Fund, Luxembourg (“Buyer”) on September
25, 2008 for the sale of up to $2,750,000 in convertible notes (the “Notes”).
Pursuant to the terms of the Agreement, the Company and the Buyer closed on the
sale and purchase of $1,600,000 in Notes on September 25, 2008, with escrow
instruction to be closed on October 1, 2008.




F-11




The
Buyer, at its sole discretion, has the option to close on a second financing for
$400,000 in Notes (which has been exercised as discussed below) and a third
financing for $750,000 in Notes. Pursuant to the terms of the Agreement, the
Company agreed to pay to the Buyer a commitment fee of 4% of the commitment
amount, a structuring fee of $15,000, a facility draw down fee of 4%, issue the
Buyer 150,000 shares of common stock, pay a due diligence fee to the Buyer of
$15,000 and pay an advisory fee of $100,000 to TAS Holdings Limited. The Company
recorded an intangible asset related to the discount on the issuance of debt.
The estimated value of the conversion feature was approximately $1,907,221 and
will be reported as interest expense over the anticipated repayment period of
the debt.





Earnings
(loss) per share





Basic
earnings (loss) per share are 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 reflect the effect of dilutive
potential common shares issuable upon exercise of stock options and warrants and
convertible preferred stock.





Comprehensive
income (loss)





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





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.





The
Company estimates the fair value of each option award on the date of the grant
using the Black-Schulz 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.





F-12




The
following table shows total non-cash stock-based employee compensation expense
included in the consolidated statement of operations for the year ended December
31, 2008 and the year ended December 31, 2007:




Year  ended
              December
      31, 2008
            
            
            Year
      ended
              December
      31, 2007Compensation
      and related costs
            
            $
            —
            
            
            $
            36,817Consulting,
      professional and directors fees
            
            
            2,018,161
            
            
            
            43,416Total
      stock-based compensation expense
            
            $
            2,018,161
            
            
            $
            80,233





Recently Issued but Not Yet Adopted
Accounting Standards





In
December 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 110 (“SAB 110”). SAB 110 amends and replaces
Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff
Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the
views of the staff regarding the use of the “simplified” method in developing an
estimate of the expected term of “plain vanilla” share options and allows usage
of the “simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically sufficient
experience to provide a reasonable estimate to continue to use the “simplified”
method for estimating the expected term of “plain vanilla” share option grants
after December 31, 2007. The Company will continue to use the “simplified”
method until it has enough historical experience to provide a reasonable
estimate of expected term in accordance with SAB 110.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) 141-R, “Business Combinations.” SFAS 141-R retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (referred to
as the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. It also establishes
principles and requirements for how the acquirer: (a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree;
(b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141-R will
apply prospectively to business combinations for which the acquisition date is
on or after the Company’s fiscal year beginning October 1, 2009. While the
Company has not yet evaluated the impact, if any, that SFAS 141-R will have on
its consolidated financial statements, the Company will be required to expense
costs related to any acquisitions after September 30, 2009.





In
December 2007, the FASB issued SFAS 160, “Non-controlling Interests in
Consolidated Financial Statements.” This Statement amends Accounting Research
Bulletin 51 to establish accounting and reporting standards for the
non-controlling (minority) interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The Company has not yet
determined the impact, if any, that SFAS 160 will have on its consolidated
financial statements. SFAS 160 is effective for the Company’s fiscal year
beginning October 1, 2009.





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. In February 2008, the FASB issued FASB Staff Position
No. FAS 157–2, “Effective Date of FASB Statement No. 157”, which provides a
one year deferral of the effective date of SFAS 157 for non–financial assets and
non–financial liabilities, except those that are recognized or disclosed in the
financial statements at fair value at least annually. Therefore, effective
January 1, 2008, we adopted the provisions of SFAS No. 157 with respect to
our financial assets and liabilities only. Since the Company has no investments
available for sale, the adoption of this pronouncement has no material impact to
the financial statements.





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. Effective January 1, 2008, we adopted SFAS No. 159 and have
chosen not to elect the fair value option for any items that are not already
required to be measured at fair value in accordance with accounting principles
generally accepted in the United States.




F-13




Gas
Rights on Real Property, plant, and equipment




Depreciation,
depletion and amortization, based on cost less estimated salvage value of the
asset, are primarily determined under either the unit-of-production method or
the straight-line method, which is based on estimated asset service life taking
obsolescence into consideration. Maintenance and repairs, including planned
major maintenance, are expensed as incurred. Major renewals and improvements are
capitalized and the assets replaced are retired. Interest costs incurred to
finance expenditures during the construction phase of multiyear projects are
capitalized as part of the historical cost of acquiring the constructed assets.
The project construction phase commences with the development of the detailed
engineering design and ends when the constructed assets are ready for their
intended use. Capitalized interest costs are included in property, plant and
equipment and are depreciated over the service life of the related
assets.




The
Company uses the “successful efforts” method to account for its exploration and
production activities. Under this method, costs are accumulated on a
field-by-field basis with certain exploratory expenditures and exploratory dry
holes being expensed as incurred. Costs of productive wells and development dry
holes are capitalized and amortized on the unit-of-production method. The
Company records an asset for exploratory well costs when the well has found a
sufficient quantity of reserves to justify its completion as a producing well
and where the Company is making sufficient progress assessing the reserves and
the economic and operating viability of the project. Exploratory well costs not
meeting these criteria are charged to expense.




Acquisition
costs of proved properties are amortized using a unit-of-production method,
computed on the basis of total proved natural gas reserves. Significant unproved
properties are assessed for impairment individually and valuation allowances
against the capitalized costs are recorded based on the estimated economic
chance of success and the length of time that the Company expects to hold the
properties. The valuation allowances are reviewed at least annually. Other
exploratory expenditures, including geophysical costs, other dry hole costs and
annual lease rentals, are expensed as incurred.




Unit-of-production
depreciation is applied to property, plant and equipment, including capitalized
exploratory drilling and development costs, associated with productive
depletable extractive properties.  Unit-of-production rates are based
on the amount of proved developed reserves of natural gas and other minerals
that are estimated to be recoverable from existing facilities using current
operating methods. Under the unit-of-production method, natural gas volumes are
considered produced once they have been measured through meters at custody
transfer or sales transaction points at the outlet valve on the lease or field
storage tank.




Gains on
sales of proved and unproved properties are only recognized when there is no
uncertainty about the recovery of costs applicable to any interest retained or
where there is no substantial obligation for future performance by the
Company’s. Losses on properties sold are recognized when incurred or when the
properties are held for sale and the fair value of the properties is less than
the carrying value. Proved oil and gas properties held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. Assets are grouped at the
lowest levels for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets.  The Company
estimates the future undiscounted cash flows of the affected properties to judge
the recoverability of carrying amounts. Cash flows used in impairment
evaluations are developed using annually updated corporate plan investment
evaluation assumptions for natural gas commodity prices. Annual volumes are
based on individual field production profiles, which are also updated annually.
Cash flow estimates for impairment testing exclude derivative instruments.
Impairment analyses are generally based on proved reserves. Where probable
reserves exist, an appropriately risk-adjusted amount of these reserves may be
included in the impairment evaluation. Impairments are measured by the amount
the carrying value exceeds the fair value.





Restoration,
Removal and Environmental Liabilities





The
Company is subject to extensive federal, state and local environmental laws and
regulations.  These laws regulate the discharge of materials into the
environment and may require the Company to remove or mitigate the environmental
effects of the disposal or release of natural gas substances at various
sites.  Environmental expenditures are expensed or capitalized
depending on their future economic benefit.  Expenditures that relate
to an existing condition caused by past operations and that have no future
economic benefit are expensed. Liabilities for expenditures of a noncapital
nature are recorded when environmental assessments and/or remediation is
probable, and the costs can be reasonably estimated. Such liabilities are
generally undiscounted unless the timing of cash payments for the liability or
component is fixed or reliably determinable.





The
Company accounts for asset retirement obligations in accordance with SFAS No.
143, “Accounting for Asset
Retirement Obligations”(SFAS 143). SFAS 143 addresses accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs.  SFAS 143 requires
that the fair value of a liability for an asset’s retirement obligation be
recorded in the period in which it is incurred and the
corresponding  cost capitalized by increasing the carrying amount of
the related long-lived asset.  The liability is accreted to its then
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset.  The Company will include estimated
future costs of abandonment and dismantlement in the full cost amortization base
and amortize these costs as a component of our depletion expense in the
accompanying financial statements.





F-14




Business
segment reporting





Though
the company had minor holdings of real estate properties which have been sold as
of December 31, 2008, the Company manages its operations in one business
segment, the Resources and Mineral - natural gas production, exploration,
drilling, and extraction business.





3.
Line of Credit and Restricted Cash





The
Company’s real estate investment operations required substantial
up-front expenditures for land development contracts and construction.
Accordingly, the Company required 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 had 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 matured 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.





As of
December 31, 2008, the Company paid off the lines of credit in full – See
Breakdown in Note 10.




4. Investment (and loans) in Affiliates,
at equity





On June
14, 2006, Emvelco issued a $10 million line of credit to ERC. Outstanding
balances bore interest at an annual rate of 12% and the line of credit had 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 to purchase a multi-use
condominium and commercial property in Las Vegas, Nevada, thereby reducing the
amount outstanding by $10 million.  Additionally, the Verge option
required that the Company pays The Internatioanl Holdings Group (TIHG), the then
parent of ERC, and another $5 million when construction began on the Verge
Project.  As of December 31, 2008, the Company has accrued and
recorded that payment as a reduction to this loan receivable
balance.  As of December 31, 2008, the outstanding loan receivable
balances by ERC and Verge were charged to bad debt expense on the statement of
operations, due to the Company change of strategy, turmoil in the real estate
industry including the sub-prime crisis and world financial crisis, which among
other factor lead Verge to file for Bankruptcy protection.





2007
- Investment in Atia Group Limited (AGL)





As of
December 31, 2007, the Company owns approximately 58.3% of the outstanding stock
of the AGL.  AGL owned and managed two real estate development
companies, 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
year 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
            )





See
Breakdown in Note 10





F-15





5.
Investment in Land development





As of
December 31, 2007, the Company’s subsidiary, AGL, owned 100% of the shares of
Verge.  Verge holds title to 11 adjacent lots in Las Vegas, Nevada and
intended 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.




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





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





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
            
            $
            2,800,000Land
      development investments
            
            
            11,125,795Accrued
      interest
            
            
            1,229,680Total
      Investment in Land Development
            
            $
            15,551,475





As of
December 31, 2007, the Company’s subsidiary, AGL, owned 100% of the shares of
Sitnica.  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.





F-16




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





See
Breakdown in Note 10




6.
Real Estate Investments for Sale





The
Company owned 100% of subsidiary 610 N. Crescent Heights, LLC, which is located
in Los Angeles, CA.  On April 2008, the Company obtained Certificate
of Occupancy from the City of Los Angles, and listed the property for sale at
selling price of $2,000,000. At December 31, 2008, the Company sold the property
for the gross sale price of $1,990,000 and recorded costs of sales totaling
$2,221,929, which were previously capitalized construction costs.  The
board resolved to discontinue real estate operations during 2008 and these
amounts are presented as part of discontinued operations.  (Note
10)





The
Company owned 50% of 13059 Dickens, LLC, as reported by the Company on Form 8-K
on December 21, 2007, through a joint venture with a third party at no cost to
the Company. As all balances due under this venture is via All Inclusive Trust
Deed, and in lieu of the Company new strategy, the Company entered advanced
negotiations with regards to selling its interest to the other party, as no cost
to the Company, or liability, by conveying back title of said property, and
releasing the Company from any associated liability. As of September 30, 2008,
the project was sold back to the third party, by reversing the transaction, at
no cost to the Company.





F-17




7.
Convertible Notes Payable and Debt Discount





Trafalgar:




The
Company entered into a Securities Purchase Agreement (the “Agreement”) with
Trafalgar Capital Specialized Investment Fund, Luxembourg (“Buyer”) on September
25, 2008 for the sale of up to $2,750,000 in convertible notes (the “Notes”).
Pursuant to the terms of the Agreement, the Company and the Buyer closed on the
sale and purchase of $1,600,000 in Notes on September 25, 2008, with escrow
instruction to be closed on October 1, 2008. The Buyer, at its sole discretion,
has the option to close on a second financing for $400,000 in Notes (which has
been exercised as discussed below) and a third financing for $750,000 in Notes.
Pursuant to the terms of the Agreement, the Company agreed to pay to the Buyer a
commitment fee of 4% of the commitment amount, a structuring fee of $15,000, a
facility draw down fee of 4%, issue the Buyer 150,000 shares of common stock,
pay a due diligence fee to the Buyer of $15,000 and pay an advisory fee of
$100,000 to TAS Holdings Limited.




The Notes
bear interest at 8.5% with such interest payable on a monthly basis with the
first two payments due at closing. The Notes are due in full in September 2010.
In the event of default, the Buyer may elect to convert the interest payable in
cash or in shares of common stock at a conversion price using the closing bid
price of when the interest is due or paid. The Notes are convertible
into  common stock, at the Buyer’s option, at a conversion price equal
to 85% of the volume weighted average price for the ten days immediately
preceding the conversion but in no event below a price of $2.00 per share. If on
the conversion or redemption of the Notes, the Euro to US dollar spot exchange
rate (the “Exchange Rate”) is higher that the Exchange Rate on the closing date,
then the number of shares shall be increased by the same percentage determined
by dividing the Exchange Rate on the date of conversion or redemption by the
Exchange Rate on the closing date. The Company is required to redeem the Notes
starting on the fourth month in equal installments of $56,000 with a final
payment of $480,000 with respect to the initial funding of $1,600,000. We are
also required to pay a redemption premium of 7% on the first redemption payment,
which will increase 1% per month. The Company may prepay the Notes in advance,
which such prepayment will include a redemption premium of 15%. In the event the
Company closes on a funding in excess of $4,000,000, the Buyer, in its sole
election, may require that the Company redeem the Notes in full. On any
principal or interest repayment date, in the event that the Euro to US dollar
spot exchange rate is lower than the Euro to US dollar spot exchange rate at
closing, then we will be required to pay additional funds to compensate for such
adjustment.




Pursuant
to the terms of the Notes, the Company shall default if (i) the Company fails to
pay amounts due within 15 days of maturity, (ii) failure of the Company to
comply with any provision of the Notes upon ten days written notice; (iii)
bankruptcy or insolvency or (iv) any breach of the Agreement and such breach is
not cured upon ten days written notice. Upon default by the Company, the Buyer
may accelerate full repayment of all Notes outstanding and all accrued interest
thereon, or may convert all Notes outstanding (and accrued interest thereon)
into shares of common stock (notwithstanding any limitations contained in the
Agreement and the Notes). The Buyer has a secured lien on three of our wells and
would be entitled to foreclose on such wells in the event an event of default is
entered. In the event that the foregoing was to occur, significant adverse
consequences to the Company would be reasonably anticipated.




So long
as any of the principal or interest on the Notes remains unpaid and unconverted,
the Company shall not, without the prior written consent of the Buyer, (i) issue
or sell any common stock or preferred stock, (ii) issue or sell any Company
preferred stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock, (iii)
incur debt or enter into any security instrument granting the holder a security
interest in any of the assets of the Company or (iv) file any registration
statement on Form S-8.




The Buyer
has contractually agreed to restrict their ability to convert the Notes and
receive shares of our common stock such that the number of shares of the Company
common stock held by a Buyer and its affiliates after such conversion or
exercise does not exceed 9.9% of the Company’s then issued and outstanding
shares of common stock.




The Buyer
exercised its option to close on a second financing for $400,000 in Notes on
October 28, 2008 and still holds an option to close on additional financing for
$750,000 in Notes.  The terms of the second financing for $400,000 are
identical to the terms of the $1,600,000 Note, as disclosed in detail on the
Company filing on October 2, 2008 on Form 8-K - Unregistered Sale of Equity
Securities, Financial Statements and Exhibits. The Notes are convertible into
our common stock, at the Buyer’s option, at a conversion price equal to 85% of
the volume weighed average price for the ten days immediately preceding the
conversion but in no event below a price of $2.00 per share.




As of the
date hereof, the Company is obligated on the Notes issued to the Buyer in
connection with this offering. The Notes are a debt obligation arising other
than in the ordinary course of business, which constitute a direct financial
obligation of the Company.




F-18




The Notes
were offered and sold to the Buyer in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The Buyer is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.





The
Company recorded an intangible asset related to the discount on the issuance of
debt. The estimated value of the conversion feature was approximately $1,907,221
and will be reported as interest expense over the anticipated repayment period
of the debt.





As
reported under Legal
proceedings, the Company notified Trafalgar that Trafalgar is in breech
with regard to the services to be performed in accordance with the $2,000,000
loan agreement.  Pursuant to FASB 5, the $2,000,000 is recorded as a
liability on the balance sheet since the outcome of the legal actions is
undeterminable at this time.





Star:





On
September 1, 2008, the Company entered into a note payable with Star Equity
Investments LLC (STAR), a third party, for $1 million was effective January 1,
2008. The proceeds from this note were used to pay off the Company’s debt to Mr.
Attia, a related party.  The note bears 12% interest commencing
October 1st, 2008 and can be converted (including interest) into common shares
of the Company at an established conversion price of $0.75 per share. Per STAR
notice, it found the Company as on default, and having negotiations with the
Company to resolve said issues. On March 2009, the parties agreed on conversion
of said note plus interest accrued for December 31, 2008 into 8.5 million common
shares of the company.





AP
Holdings Limited (AP):





On
October 1, 2008, the Company entered into a short term note payable (6 month
maturity) with AP – a foreign Company controlled by Shalom Atia (the brother of
Yossi Attia, the Company CEO), a third party, for $330,000. The note bears 12%
interest commencing October 1st, 2008 and can be converted (including interest)
into common shares of the Company at an established conversion price of $0.015
per share.





Convertible
Note (Year 2007):





The
Company recorded an intangible asset related to the discount on the issuance of
debt. The estimated value of the conversion feature was approximately $976,334,
and would have been reported as interest expense over the anticipated repayment
period of the debt.  The $2,000,000 note was converted into common
stock on August 13, 2008.  Accordingly, the Company recognized
amortization of the discount in the aggregate amount of $232,581 from inception
to interest expense and the remaining $743,752 of the intangible asset related
to the discount on the issuance of debt was expensed.





8.
Payable to Land Sellers





Amounts
payable to the sellers of the Sitnica land are included in accounts payable and
accrued expense.  AP, a related party (in year 2007) - paid 10% of the
agreed amount of the land. The Company paid AP the amount due, however Sitnica
still owed 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.





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





9.
Acquisition –





Davy
Crockett Gas Company, LLC (DCG)




Based on
series of agreements commonly known as a “reverse merger” which was formalized
on May 1, 2008, the Company entered into an Agreement and Plan of Exchange with
DCG.  (See Notes 1, 2)




F-19




Vortex Ocean
One, LLC




On June
30, 2008, the Company formed a limited liability company with Tiran Ibgui, an
individual (“Ibgui”), named Vortex Ocean One, LLC (the “Vortex One”). The
Company and Ibgui each own a fifty percent (50%) membership interest in Vortex
One. The Company is the Manager of the Vortex One. Vortex One has been formed
and organized to raise the funds necessary for the drilling of the first well
being undertaken by the Company’s wholly owned subsidiary DCG (as reported on
the Company’s Form 8-Ks filed on May 7, 2008 and May 9, 2008 and amended on June
16, 2008). The Company and Ibgui entered into a Limited Liability Company
Operating Agreement which sets forth the description of the membership
interests, capital contributions, allocations and distributions, as well as
other matters relating to Vortex One.  Mr. Ibgui paid $525,000 as
consideration for his 50% ownership in Vortex One and the Company issued 525,000
common shares at an establish $1.00 per share price for its 50% ownership in
Vortex One. On October and November 2008, the Company entered into settlement
arrangements with Mr. Ibgui, whereby the Company agree to transfer the 525,000
common shares previously owned by Vortex One to Mr. Ibgui in exchange for
settlement of all disputes between the two parties, as well as pledge and
assigned the DCG 4 term assignments. On March 2009, Vortex One via exercise its
pledge entered into a sale agreement with third party with regards to the 4 term
assignments – See Subsequent events.





Atia
Group Limited (AGL)





On
November 2, 2007, the Company acquired approximately 58.3% of the outstanding
stock of AGL.  AGL owned and managed two real estate development
companies, Verge, which was 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:





2007Conversion
      of loan receivable from ERC
            
            $
            10,000,000Amount
      due to TIHG, parent of ERC
            
            
            5,000,000Convertible
      note payable
            
            
            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





See
Breakdown in Note 10





10.
Dispositions





Completed
divesture of AGL shares





On August
19, 2008, the Company entered into a Final Fee Agreement (the “Consultant
Agreement”) with a third party, C. Properties Ltd. (“Consultant”). Pursuant to
the Consultant Agreement, the Company agreed with the Consultant to exchange the
Company’s interest in AGL as a final fee in connection with its DCG
acquisition.  The Company had to pay Consultant certain fees in
accordance with the Consultant Agreement and the Consultant had agreed that, in
lieu of cash payment, it would receive an aggregate of up to 734,060,505 shares
of stock of the AGL.





F-20




The
Consultant was not advised about the restructuring of the acquisition of DCG by
the Company and in order to compensate the Consultant and avoid any potential
litigation, the Company has agreed to waive the above production requirements
set forth in the Consultant Agreement and to transfer all of the Company
interest in AGL immediately where such transfer shall be considered effective
January 1, 2008.





On August
16, 2008 610 N. Crescent Heights, LLC, entered into a sale and escrow agreement
with third parties, for the sale of the real property located at 610 North
Crescent Heights, Los Angeles, for $1,990,000. Said escrow was closed as of
September 30, 2008.





On August
19, 2008, the Dickens LLC conveyed title and its AITD to third party, reversing
the Company’s joint venture with said third party, at no cost or liability to
the Company.





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 its common stock acquired during
the disposition.





On March
2009 the board of directors of the company decided to vacate the DCG project.
Goodwill was impaired by approximately $35.0M in association with this segment –
See subsequent events.




2008
            
            
            2007Discontinued
      Operations (Profit & Loss):Sale
      of real estate
            
            $
            (1,990,000
            )
            
            $
            (6,950,000
            )Cost
      of sale of real estate
            
            
            2,221,929
            
            
            
            6,505,506Loss
      on Hamel
            
            
            213,706
            
            
            
            —Other
      selling, general and administrative expenses – real estate
            
            
            —
            
            
            
            469,942Interest
      expense – real estate
            
            
            —
            
            
            
            386,108Goodwill
      Impairment – DCG  project
            
            
            34,990,000
            
            
            
            —Goodwill
      Impairment – AGL  project
            
            
            —
            
            
            
            10,245,377Total
            
            $
            35,435,635
            
            
            $
            10,656,933




2008
            
            
            2007Discontinued
      Operations – Current Assets:Gas
      Rights on Real property
            
            $
            2,600,000
            
            
            
            —Restricted
      Cash – Certificate of  Deposit
            
            
            —
            
            
            
            13,008,220Loan
      to Affiliated Party
            
            
            —
            
            
            
            4,538,976Total
            
            $
            2,600,000
            
            
            
            17,547,196








2008
            
            
            2007Discontinued
      Operations Non Current Assets:Construction
      In Progress
            
            
            —
            
            
            
            2,215,725Intangible,
      Debt Discount On Notes with Conversion Option
            
            
            —
            
            
            
            694,936Investment
      in Land Development
            
            
            —
            
            
            
            33,050,052Goodwill
            
            
            —
            
            
            
            1,185,000Total
            
            $
            —
            
            
            $
            37,145,713





2008
            
            
            2007Discontinued
      Operations Current Liabilities:Account
      payable and Accrued Expenses
            
            
            —
            
            
            
            15,380,205Due
      to related Party
            
            
            —
            
            
            
            516,084Secured
      Bank Loans
            
            
            —
            
            
            
            8,401,154Total
            
            $
            —
            
            
            $
            24,297,443




F-21




2008
            
            
            2007Discontinued
      Operations Non Current Liabilities:Liability
      for Escrow Refunds
            
            
            —
            
            
            
            4,489,235Fees
      Due On Closing
            
            
            —
            
            
            
            2,384,176Deferred
      Taxes
            
            
            —
            
            
            
            812,711Other
      Long Term Liabilities
            
            
            —
            
            
            
            1,919,964Total
            
            $
            —
            
            
            $
            9,606,086




11.
Income taxes





The net
income before income taxes by tax jurisdiction for the years ended December 31,
2008 and 2007 was as follows:





2008
            
            2007Net
      income before income taxes:Domestic
            
            $
            (56,667,417
            )
            
            $
            (10,658,187
            )Foreign
            
            
            —
            
            
            
            (241,603
            )Total
            
            $
            (56,667,417
            )
            
            $
            (10,899,790
            )




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, 2008 and 2007 is summarized as follows:





2008
            
            2007Amount
            
            
            %
            
            Amount
            
            
            %Computed
      expected taxExpense/(Benefit)
            
            $
            (19,833,596
            )
            
            
            (35.00
            )
            
            $
            (3,814,926
            )
            
            
            (35.00
            )Change
      in Valuation Allowance
            
            
            19,833,596
            
            
            
            (35.00
            )
            
            
            3,814,926
            
            
            
            (35.00
            )Total
      expense/(benefit)
            
            $
            0
            
            
            
            0
            %
            
            $
            0
            
            
            
            0
            %




For U.S.
Federal income tax purposes, the Company had unused net operating loss carry
forwards at December 31, 2007 of approximately $16 million available to offset
future taxable income.  From the $16 million of losses, $1 million expire
in various years from 2008-2010, $2 million expires in 2011, and the remaining
$13 million expire in various years from 2017 through 2027. The Company has no
capital loss carryover for US income tax purposes.





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. 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.





F-22




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, 2008. 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 (AGL-Year 2007):





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%.




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.


Taxation
in Croatia (Sitnica –Year 2007)





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-23





12.
Stockholders’ Equity




Common
Stock:




On
February 14, 2008, the Company raised Three Hundred Thousand Dollars ($300,000)
from private offerings pursuant to 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.




On March
30, 2008, the Company raised $200,000 from a private offering 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 Company common stock), and additional 200,000
warrants to be exercised at $2.00 for four years (for 200,000 shares of Company
common stock). Said Warrants may be exercised to common shares of the Company
only if the Company issues subsequent to the date of the 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 was 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.





On May 6,
2008 the Company issued 500,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration.




On June
6, 2008, the Company raised $300,000 from the private offering 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 money raised from the private placement of the Company’s shares was
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.
Based on information presented to the Company, and in lieu of the Company
position which was sent to the investor on June 18, 2008 the investor is in
default for not complying with his commitment to invest an additional $225,000
and the Company vested said 300,000 shares under a trustee.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the “Undes Services Agreement”) pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide the Company
services related to the identification, evaluation, structuring, negotiating and
closing of business acquisitions, identification of strategic partners as well
as the provision of legal services. The term of the agreement is for five years
and the Company has agreed to issue Mr. Undes 525,000 shares of common stock
that was issued on August 15, 2008.




On June
30, 2008 and concurrent with the formation and organization of Vortex One,
whereby the Company contributed 525,000 shares of common stock (the “Vortex One
Shares”), a common stock purchase warrant purchasing 200,000 shares of common
stock at an exercise price of $1.50 per share (the “Vortex One Warrant”) and the
initial well that the Company intends to drill. However, the Vortex One warrants
may only be converted to shares of common stock if the Company issues 25,000,000
or more of its common stock so that there is at least 30,000,000 authorized
shares at the time of any conversion term.  As of September 30, 2008
there are 86,626,919 common shares issued and 82,126,919 shares outstanding. Mr.
Ibgui contributed $525,000. The Vortex One warrants were immediately transferred
to Ibgui. Eighty percent (80%) of all available cash flow shall be initially
contributed to Ibgui until the full $525,000 has been repaid and the Company
shall receive the balance. Following the payment of $525,000 to Ibgui, the cash
flow shall be split equally.





In July
2008, the Company issued 16,032 shares of its common stock, $0.001 par value per
share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





F-24




On July
28, 2008, the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the “2008
Incentive Plan”) authorized the board to issue up to 5,000,000 shares of Common
Stock under the plan.





On August
23, 2008, the Company issued 100,000 shares of its common stock 0.001 par value
per share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration





On August
8, 2008, assigned holders of the Undes Note gave notices to the Company of their
intention to convert their original note dated June 5, 2007 into 25 million
common shares of the Company. The portion of the accrued interest from inception
of the note in the amount of $171,565 was not converted into
shares.  The Company accepted these notices and issued the said
shares.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company about
converting said 100,000 preferred stock into 50 million common shares of the
Company. The conversion of preferred shares to common shares marks the
completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 50 million common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




Based
upon a swap agreement dated August 19, 2008, which was executed between C.
Properties Ltd. (“C. Properties”) and KSD Pacific, LLC (“KSD”), which is
controlled by Mr. Yossi Attia Family Trust, where KSD will sell to C.
Properties, and C. Properties will purchase from KSD, all its holdings of the
Company which amount to 1,505,644 shares of common stock of the Company for a
purchase price of 734,060,505 shares of common stock of AGL.




In
connection of selling a convertible note to Trafalgar (see further disclosures
in this report ), the Company issued on September 25, 2008 the amount of 54,706
common shares at $0.001 par value per share to Trafalgar as a fee. As part of
collateral to said note, the Company issued to Trafalgar 4,500,000 common stock
0.001 par values per shares, as security for the Note. Said shares consider
being escrow shares, and accordingly are not included in the outstanding common
shares of the company.




On
November 4, 2008, the Company issued 254,000 shares of its common stock 0.001
par value per share, to one consultant (200,000 shares) and two employees
(54,000 shares), in accordance with the instructions provided by the Company
pursuant to the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On
December 5, 2008 the Company cancelled 15,000,000 of its common shares held by
certain shareholder, per comprehensive agreement detailed in this report under
Preferred Stock section. Said 15,000,000 shares were surrendered to the Company
for cancellation.




On
December 26, 2008, the Company closed agreements with the Penalty Holders (See
Item 3 of this report) pursuant to which the Penalty Holders agreed to cancel
any rights to the Penalty in consideration of the issuance 6,666,667 shares of
common stock to each of the Penalty Holders, totaling in issuing 20,000,000 of
the Company common shares. The shares of common stock were issued in connection
with this transaction in a private placement transaction made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933 and Rule 506 promulgated there under. Each of the Penalty Holders is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




Preferred
Stock:




Series
A  - As disclosed in Form 8-Ks filed on May 7, 2008 and May 9, 2008,
on May 1, 2008, the Company entered into an Agreement and Plan of Exchange (the
“DCG Agreement”) with Davy Crockett Gas Company, LLC (“DCG”) and the members of
Davy Crockett Gas Company, LLC (“DCG Members”). Pursuant to the DCG Agreement,
the Company acquired and, the DCG Members sold, 100% of the outstanding
securities in DCG. DCG is a limited liability company organized under the laws
of the State of Nevada and headquartered in Bel Air; California is a newly
formed designated LLC which holds certain development rights for gas drilling in
Crockett County, Texas.  In consideration for 100% of the outstanding
securities in DCG, the Company issued the DCG Members promissory notes in the
aggregate amount of $25,000,000 payable together with interest in May 2010 (the
“DCG Notes”). Additional amounts of $5,000,000 in DCG Notes are issuable upon
each of the first through fifth wells going into production. Further, the DCG
Members may be entitled to receive additional DCG Notes up to an additional
amount of $200,000,000 (the “Additional DCG Notes”) subject to the revenue
generated from the land rights held by DCG located in Crockett County, Texas
less concession fees and taxes.  On June 11, 2008, the Company, the
DCG Members and DCG entered into an amendment to the DCG Agreement, pursuant to
which the DCG Members agreed to replace all notes that they received as
consideration for transferring their interest in DCG to the Company for an
aggregate of 100,000 shares of Series A Preferred Stock (the “Series A Stock”)
with the rights and preferences set forth below. The shares of Series A Stock is
convertible, at any time at the option of the Company subject to increasing the
authorized shares of the Company from 35 million to 400 million, into shares of
common stock of the Company determined by dividing the stated value by the
conversion price. The initial aggregate stated value is $50,000,000 and the
initial conversion price is $1.00 per share.




F-25




In the
event that the net operating income for the Crockett County, Texas property for
any year is zero or negative, then the stated value shall be reduced by 10%.
Holders of the Series A Stock are entitled to receive, without any further
action from the Company’s Board of Directors but only if such funds are legally
available, non-cumulative dividends equal to 25% of the net operating income
derived from oil and gas production on the Crockett County, Texas property on an
annual audited basis. In the event of any liquidation, winding up, change in
control or fundamental transaction of the Company, the holders of Series A
Preferred will be entitled to receive, in preference to holders of common stock,
an amount equal to the outstanding stated value and any accrued but unpaid
dividends. We granted the DCG Members piggyback registration rights. The Series
A Stock is non-voting. The Company has the right, at anytime; to redeem the
Series A Preferred Stock by paying the holders the outstanding stated value as
well as accrued dividends.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company of
their intention to convert said 100,000 preferred stock into 50 million common
shares of the Company. The conversion of preferred shares to common shares marks
the completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 50 million common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




Series B
- On December 5, 2008 the Company entered into and closed an
Agreement  with T.A.S. Holdings Limited (“TAS”) (the “TAS Agreement”)
pursuant to which TAS agreed to cancel the debt payable by the Company to TAS in
the amount of approximately $1,065,000 and its 15,000,000 shares of common stock
it presently holds in consideration of the Company issuing TAS 1,000,000 shares
of Series B Convertible Preferred Stock, which such shares carry a stated value
equal to $1.20 per share (the “Series B Stock”).




The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company’s board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30,
2009.




In the
event of any liquidation or winding up of the Company, the holders of Series B
Stock will be entitled to receive, in preference to holders of common stock, an
amount equal to the stated value plus interest of 15% per year.




The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock.




The
Series B Stock was offered and sold to TAS in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and Rule 506 promulgated there under. TAS is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933. The Company filed its Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock with the State
of Delaware





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. A licensed Stock Broker Firm is
acting as agent for our stock repurchase program. 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 (February 2,
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 canceled the common stock acquired during the disposition
in the amount of $834,192. All, the Company 660,362 treasury shares were retired
and canceled during August and September 2008.





F-26




On
November 20, 2008, the Company issued a press release announcing that its Board
of Directors has approved a share repurchase program. Under the program the
Company is authorized to purchase up to ten million of its shares of common
stock in open market transactions at the discretion of management. All stock
repurchases will be subject to the requirements of Rule 10b-18 under the
Exchange Act and other rules that govern such purchases.





As of
December 31, 2008 the Company had 100,000 treasury shares in its possession
scheduled to be cancelled.




13.
Commitments and Contingencies





(a)
Employment Agreements





Effective
July 1, 2006, the Company entered into a five-year employment agreement with
Yossi Attia as the President 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. 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.





On
August 19, 2008, the Company entered into that certain Employment Agreement with
Mike Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed
to serve as the Chairman of the Board of Directors of the Company for a period
of five years. Mr. Mustafoglu will receive (i) a salary of $240,000; (ii) a
performance bonus of 10% of net income before taxes, which will be allocated by
Mr. Mustafoglu and other key executives at the sole discretion of Mr.
Mustafoglu; and (iii) a warrant to purchase 10 million shares of common stock of
the Company at an exercise price equal to  the lesser of $.50 or 50%
of the average market price of the Company’s common stock during the 20 day
period prior to exercise on a cashless basis (the “Mustafoglu Warrant”). The
Mustafoglu Warrant shall be released from escrow on an equal basis over the
employment period of five years. As a result, 2,000,000 shares of the Mustafoglu
Warrant will vest per year.  On December 24, 2008, Mike Mustafoglu
resigned as Chairman of the Board of Directors of Vortex the Company to pursue
other business interests. Following the resignation of Mr. Mustafoglu and in
connection of his poor performance while engage by the Company, management is
considering its course of actions.





Effective
July 16, 2008, the Board of Directors of the Company approved that certain
Mergers and Acquisitions Consulting Agreement (the “M&A Agreement”) between
the Company and TransGlobal Financial LLC, a California limited liability
company (“TransGlobal”). Pursuant to the M&A Agreement, TransGlobal agreed
to assist the Company in the identification, evaluation, structuring,
negotiation and closing of business acquisitions for a term of five years. As
compensation for entering into the M&A Agreement, TransGlobal shall receive
a 20% carried interest in any transaction introduced by TransGlobal to the
Company that is closed by the Company. At TransGlobal’s election, such
compensation may be paid in restricted shares of common stock of the Company
equal to 20% of the transaction value. Mike Mustafoglu, who is the Chairman of
Transglobal Financial, was elected on July 28, 2008 at a special shareholder
meeting as the Company’s Chairman of the Board of Directors.  Further
to Mr. Mustafoglu resignation, that certain Mergers and Acquisitions Consulting
Agreement between the Company and TransGlobal Financial LLC, a California
limited liability company was terminated. Mr. Mustafoglu is the Chairman of said
LLC.





(b)
Construction Loans





During
2007, the Company entered into several loan agreements with different financial
institutions in connection with the financing of the different real estate
projects. All balances of said loan were paid-off during 2008.





(c) 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).  The actual Closing of the
transactions which are the subject matter of the Upswing Agreements known as the
Kidron Industrial Holdings, Ltd. Transaction (the “Kidron Transaction”) has
taken place.





F-27





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 Project 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 Project
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 Project to
Sitnica.




On April
29, 2008, the Company entered into Amendment No. 1 (“Amendment No. 1”) to that
certain Share Exchange Agreement between the Company and Trafalgar Capital
Specialized Investment Fund, (“Trafalgar”). Amendment No. 1 states that due to
the fact that the Israeli Securities Authority (“ISA”) delayed the issuance of
the Implementation Shares issuable from the Atia Group to Trafalgar, that the
Share Exchange Agreement shall not apply to 69,375,000 of the Implementation
Shares issuable under the CEF. All other terms of the Share Exchange Agreement
remain in full force and effect.




Disposal
of AGL: On August 19, 2008 the Company entered into final fee agreement with C.
Properties Ltd. (“Consultant”), where the Company had to pay Consultant certain
fees in accordance with the agreement entered with the Consultant, the
Consultant had agreed that, in lieu of cash payment, it would receive an
aggregate of up to 734,060,505 shares of stock of the AGL. The Consultant was
not advised on the restructuring of the acquisition of DCG by the Company and in
order to compensate the Consultant and avoid any potential litigation, the
Company has agreed to waive the production requirements set forth in the
Consultant Agreement and transfer all of the Atia Shares immediately which such
transfer shall be considered effective January 1, 2008.




Based on
the agreement, the Company disposed all its holdings in AGL effective January 1,
2008, and the company financials reflect such disposal.




(d)
Lease Agreements





Future
minimum payments of obligations under operating lease at December 31, 2008 are
as follows:





TheCompany head office is located at9107 Wilshire Blvd., Suite
450,Beverly Hills,CA90210, based on a month-to-month basis,
paying $219 per month. The Company’s operation office is located at1061 1⁄2 N Spaulding Ave,West Hollywood,CA90046, paying $2,500 per
month.





Future
minimum payments of obligations under operating lease at December 31, 2007 are
as follows:





2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            Thereafter$
            30,000
            
            
            $
            30,000
            
            
            $
            30,000
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —





Said
leases are not binding the company, as during the years 2007 and 2008 the
company disposed its subsidiaries holding said leases.





(e) Legal
Proceedings





Except as
set forth below, there are no known significant legal proceedings that have been
filed and are outstanding or pending 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




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 certain stockholder of the Company that beneficially owned 39.81%
of the Company’s outstanding common stock at the date of the lawsuit. 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
which was a wholly owned subsidiary of AGL, where AGL is a majority owned
subsidiary of the Company filed for bankruptcy in Chapter 11 proceedings during
the first quarter of 2009.  As of today, the Company does not believe
it will have a material liability in relation to these proceeding, yet the
Company advised that in lieu of its past holdings and current in-direct
involvement (via Ocean One, and/or Trafalgar – see below) it may be named as
defendants.





A
consultant that was terminated by an ex-affiliate of the Company, named the
Company as a defendant in litigation that the Company has neither any interest
nor liability. The Company position is that naming the Company in said
litigation is malicious. The Company filed an answer to said complaint
requesting dismissal. In lieu of Verge bankruptcy proceedings an automatic stay
was announced by Verge on the main complaint.





On
November 21, 2007 Construction Company 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.
A judgment was given against Verge in said procedure.




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 June 30, 2008 (effective March 31,
2008), the Company was in default of the Registration Rights Agreement and
therefore made a provision for compensation for $150,000 to represent agreed
final compensation (the “Penalty”). The holder of the Penalty subsequently
assigned the Penalty to three unaffiliated parties (the “Penalty Holders”). On
December 26, 2008, the Company closed agreements with the Penalty Holders
pursuant to which the Penalty Holders agreed to cancel any rights to the Penalty
in consideration of the issuance 6,666,667 shares of common stock to each of the
Penalty Holders. The shares of common stock were issued in connection with this
transaction in a private placement transaction made in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933 and
Rule 506 promulgated there under. Each of the Penalty Holders is an accredited
investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act of 1933.





The
Company via series of agreements (directly or via affiliates) with European
based alternative investment fund - Trafalgar Capital Specialized Investment
Fund, Luxembourg (“Trafalgar”) established financial relationship which should
create source of funding to the Company and its subsidiaries (see detailed
description of said series of agreements in this filling). The Company position
is that the DCG transactions (among others) would not have been closed by the
Company, unless Trafalgar will provide the needed financing needed for the
drilling program.





F-29




On
December 4, 2008 in lieu of the world economy crisis, the company addressed
Trafalgar formally to summarize amendment to exiting business practice and
modification of terms for existing As well as future financing. On January 16,
2009 based on Trafalgar default, the Company sent to Trafalgar notice of default
together with off-set existing alleged notes due to Trafalgar to mitigate the
Company losses.





Representative
of the parties having negotiations, trying to resolve said adversaries between
the parties, with the Company position that in any event the alleged notes to
Trafalgar should be null and void by the Company.





As
described in this report, the Company via Vortex One commended its DCG’s
drilling program, where Vortex One via its member Mr. Ibgui, was the first cash
investor. Since said cash investment was done in July 2008, the Company
defaulted on terms, period and presentations (based on third parties
presentations). Based on series of defaults of third parties, Vortex One entered
into a sale agreement with third parties regarding specific 4 wells assignments
– see subsequent events. As Mr. Ibgui via Vortex One entered into future
proceeds sale agreement with Verge, and since Verge is under Bankruptcy, the
company was advised verbally that a complaint to establish the rights of Verge
will be filled where the Company will be named as a party to said
lawsuit.




On July
1, 2008, DCG entered into a Drilling Contract (Model Turnkey Contract)
(“Drilling Contract”) with Ozona Natural Gas Company LLC (“Ozona”). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells scheduled for as
later phase, by Ozona and Mr. Mustafoglu, as well as the wells locations. Based
on Mr. Mustafoglu negligence and executed un-authorized agreements with third
parties, the Company become adversary to Ozona and others with regards to
surface rights, wells locations and further charges of Ozona which are not
acceptable to the Company.





On August
19, 2008, the Company entered into that certain Employment Agreement with Mike
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed to
serve as the Chairman of the Board of Directors of the Company for a period of
five years. On December 24, 2008, Mike Mustafoglu resigned as Chairman of the
Board of Directors of the Company to pursue other business interests. Further,
that certain Mergers and Acquisitions Consulting Agreement between the Company
and Tran Global Financial LLC, a California limited liability company (Mr.
Mustafoglu is the Chairman of Tran Global was terminated.  Via its
consultant the Company issued a notice to Mr. Mustafoglu that it hold him
responsible for all the damages the Company suffering and will suffer in lieu of
his presentations, negligence and co-conspire with others to damage the
Company.





During
the first quarter of 2009, Upswing filed a complaint in Israel against AGL,
Yossi Attia (the Company CEO) and Mr. shalom Atia (controlling shareholders of
AP and brother of Yossi Attia). The company was not named in said procedure, yet
as being the parent Company of AGL from November 2, 2007 until it had been
disposed, the Company may be involved in said litigation.





(f)
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.





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 the Company
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.





(g)
Sub-Prime Crisis and Financials Markets 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.




F-30




The
financing of the project on the Verge subsidiary is contingent upon the future
impact of the sub-prime crisis on the financial institutions operating in the
U.S.  Said crisis put ERC as well as Verge in a fragile none – cash
situation, which brought management to make provision for doubtful debts on all
monitories balances associated with real estate of ERC and Verge.




The
Sub-prime crisis has also lead the USA (and the world) economy into a
significant negative impact on the pricing of most commodities, in our case
natural gas and oil.  The Company anticipates that the drop in the
commodities prices will present difficulties in obtaining financing for the
drilling of wells and there is no assurance that the Company will be able to
implement its business plan in a timely manner, or at all.




In order
to reduce the Company risks and more effectively manage its business and to
enable Company management to better focus on its business on developing the
natural gas drilling rights, the board of directors had a discussion and
resolution vacating the DCG project entirely.




(h)
Voluntarily delisting from The NASDAQ Stock Market




On June
6, 2008, the Company provided NASDAQ with notice of its intent to voluntarily
delist from The NASDAQ Stock Market, which notice was amended on June 10, 2008.
The Company is voluntarily delisting to reduce and more effectively manage its
regulatory and administrative costs, and to enable Company management to better
focus on its business on developing the natural gas drilling rights recently
acquired in connection with the acquisition of Davy Crockett Gas Company, LLC,
which was announced on May 9, 2008. The Company requested that its shares be
suspended from trading on NASDAQ at the open of the market on June 16, 2008,
which was done. Following clearance by the Financial Industry Regulatory
Authority (“FINRA”) of a Form 211 application was filed by a market maker in the
Company’s stock.




(i)
Vortex Ocean One, LLC




On June
30, 2008, the “Company formed a limited liability company with Tiran Ibgui, an
individual (“Ibgui”), named Vortex Ocean One, LLC (the “Vortex One”). The
Company and Ibgui each own a fifty percent (50%) membership Interest in Vortex
One. The Company is the Manager of the Vortex One. Vortex One has been formed
and organized to raise the funds necessary for the drilling of the first well
being undertaken by the Company’s wholly owned subsidiary. To date there has
been no production of the Well by Vortex One or DCG and a dispute has arisen
between the Parties with regards to the Vortex One and other matters, so in
order to fulfill its obligations to Investor and avoid any potential litigation,
Vortex One has agreed to issue the Shares directly into the name of the Ibgui,
as well as pledging the 4 term assignments to secure Mr. Ibgui investment and
future proceeds per the LLC operating agreement (where Mr. Ibgui entitled to 80%
of any future cash flow proceeds, until he recover his investments in full, then
after the parties will share the cash flow equally). Vortex One hereby agreed to
cause the transfer of the Shares to Investor and direct the transfer agent to
issue 525,000 Shares in the name of the Ibgui effective as of the Effective
Date, which is November 4, 2008 (see also Subsequent events)


.


(j)
Potential exposure due to Pending Project under Due Diligence:




Barnett Shale, Fort Worth area of
Texas Project - On September 2, 2008, the Company entered into a
Memorandum of Understanding (the “MOU”) to enter into a definitive asset
purchase agreement with Blackhawk Investments Limited, a Turks & Caicos
company (“Blackhawk”) based in London, England. Blackhawk exercised its
exclusive option to acquire all of the issued and allotted share capital in
Sandhaven Securities Limited (“SSL”), and its underlying oil and gas assets in
NT Energy. SSL owns approximately 62% of the outstanding securities of NT
Energy, Inc., a Delaware company (“NT Energy”). NT energy holds rights to
mineral leases covering approximately 12,972 acres in the Barnett Shale, Fort
Worth area of Texas containing proved and probable undeveloped natural gas
reserves. SSL was a wholly owned subsidiary of Sandhaven Resources plc
(“Sandhaven”), a public company registered in Ireland, and listed on the Plus
exchange in London.




In
consideration of Blackhawk exercising its option to acquire the leases and
transferring such leases to the Company, the Company will pay $180,000,000 by
issuing Blackhawk or its designees shares of common stock of the Company, based
upon the average share price of the Company on the Over the Counter Bulletin
Board during the 30 days preceding the execution of the MOU, which was $1.50 per
share, representing 120,000,000 shares as the total consideration, under said
MOU. However, the number of shares to be delivered shall be adjusted on the six
month anniversary of the closing of the asset acquisition (the “Closing”), using
the volume weighted average price for the six months following the Closing.
Blackhawk, SSL, NT Energy, Sandhaven and the advisors described below as well as
each of the officers, directors and affiliates of the aforementioned will agree
to not engage in any activities in the stock of the Company.




F-31




In
addition, the Company will be required to pay fees to two advisors of $6,000,000
payable with the Company shares, and, therefore, issue an additional 3,947,368
of the Company shares of common stock, along with 300% warrant coverage,
representing warrants to purchase an aggregate of 11,842,106 shares of common
stock on a cashless basis for a period of two years with an exercise price of
$2.00 per share, if the transaction closes. Although both parties have agreed to
obtain shareholder approval prior to the Closing, the Company is not required by
any statute to do so.




The above
transaction was subject to the drafting and negotiation of a final definitive
agreement, performing due diligence as well as board approval of the Company.
The due diligence period is 21 days from the execution of the MOU. There is no
guarantee that the Company will be able to close the above transaction or that
the transaction will be closed on the above stated terms.




Upon
successful closing of the above transaction, the Company will grant TransGlobal
Financial LLC, a California limited liability company (“TransGlobal”), a 20%
carried interest in the transaction, as disclosed by the Company filing on Form
8-K on July 17, 2008. Mr. Mike Mustafoglu, the Chairman of the Board of
Directors of the Company, is an executive officer, director and shareholder of
TransGlobal.




The MOU
was amended on October 28, 2008 to reflect the terms below:




In
consideration of Blackhawk exercising its option to acquire the leases and
transferring such leases to the Company, the Company will pay $130,000,000 by
issuing Blackhawk or its designee’s shares of common stock of the Company using
a price per share of $1.50 resulting in the issuance of 86,666,667 shares of
common stock. However, the number of shares to be delivered shall be adjusted on
the six month anniversary of the closing of the asset acquisition (the
“Closing”), using the volume weighted average price for the six months following
the Closing. Blackhawk, SSL, NT Energy, Sandhaven and the advisors described
below as well as each of the officers, directors and affiliates of the
aforementioned will agree to not engage in any activities in the stock of the
Company.




In
addition, the Company will be required to pay fees to two advisors of $4,400,000
payable with the Company shares, and, therefore, issue an additional 2,933,333
of the Company shares of common stock, along with 300% warrant coverage,
representing warrants to purchase an aggregate of 8,799,999 shares of common
stock on a cashless basis for a period of two years with an exercise price of
$2.00 per share, if the transaction closes. Although both parties have agreed to
obtain shareholder approval prior to the Closing, the Company is not required by
any statute to do so.




In lieu
of hindering the due diligence process by Sandhaven officers, as well as
potential conspiracy of Trafalgar, the Company could not complete adequately its
due diligence, and said transaction was null and void.




(k)
Trafalgar Convertible Note:





In
connection with said note and as collateral for performance by the Company under
the terms of said note, the Company issued to Trafalgar 4,500,000 common shares
to be placed as security for said note. Said shares considered to be escrow
shares, and as such are not included in the Company outstanding common
shares.





(l) Short
Term Loan – by Investor:





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contests the
validity of said warrants for a cause.





(m)  DCG
Drilling Rights:





On
November 6, 2008, the Company exercised an option to drill its fifth well in the
Adams-Baggett field in West Texas. The Company has 120 days to drill the lease
to be assigned to it as a result of the option exercise. Pipeline construction
related to connecting wells 42-105-40868 and 42-105-40820 had been completed.
The Company is in the process of preparing these wells for conducting the flow
and chemical composition tests as required by the State of Texas. The deliveries
are subject to satisfactory inspection results by Millennium. Per the owners of
the land the assignment of the lease will terminate effective March 3, 2009 in
the event that the Company does not drill and complete a well that is producing
or capable of producing oil and/or gas in paying quantities.




F-32




(n)
Issuance of Preferred Stock:
  The
Company entered into and closed an Agreement (the “TAS Agreement”) with T.A.S.
Holdings Limited (“TAS”) pursuant to which TAS agreed to cancel the debt payable
by the Company to TAS in the amount of approximately $1,065,000 and its
15,000,000 shares of common stock it presently holds in consideration of the
Company issuing TAS 1,000,000 shares of Series B Convertible Preferred Stock,
which such shares carry a stated value equal to $1.20 per share (the “Series B
Stock”). The Series B Stock is convertible, at any time at the option of the
holder, into common shares of the Company based on a conversion price of $0.0016
per share. The Series B Stock shall have voting rights on an as converted basis
multiplied by 6.25. Holders of the Series B Stock are entitled to receive, when
declared by the Company’s board of directors, annual dividends of $0.06 per
share of Series B Stock paid semi-annually on June 30 and December 31 commencing
June 30, 2009. In the event of any liquidation or winding up of the Company, the
holders of Series B Stock will be entitled to receive, in preference to holders
of common stock, an amount equal to the stated value plus interest of 15% per
year.
  The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock.
  The
Series B Stock was offered and sold to TAS in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and Rule 506 promulgated there under. TAS is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933. The Company filed its Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock with the State
of Delaware.
  (o)
Status as Vendor with the Federal Government:
  The
Company updated its vendor status with the Central Contractor Registration which
is the primary registrant database for the US Federal government that collects,
validates, stores, and disseminates data in support of agency acquisition
missions, including Federal agency contract and assistance awards.
  (p)
Potential exposure due to AGL and Trafalgar Transaction:
  On
January 30, 2008, AGL of which the Company was 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 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.
  F-33
  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
  Despite
assurances from Trafalgar to both AGL and Verge that the Share Exchange
Agreement (“SEA”) was legally permitted in Israel, AGL and Trafalgar could not
implement the above transaction because of objections of the Israeli Securities
Authority to the SEA, and, therefore, AGL caused Verge to pay off the $500,000
loan transaction that AGL had entered into.
  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.
  14.
Stock Option Plan and Employee Options
 
 2004
Incentive Plan
 
 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.
 
 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.
 
 F-34
  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
vests 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.
 
 As of
December 31, 2008, there were 330,000 options outstanding with a weighted
average exercise price of $3.77.
 
 No
options were exercised during the year ended December 31, 2008 and the year
ended December 31, 2007.
  The
following table summarizes information about shares subject to outstanding
options as of December 31, 2008, which was issued to current or former
employees, consultants or directors pursuant to the 2004 Incentive Plan and
grants to Directors:
  Options
      Outstanding
              
              
              Options
      ExercisableNumber
                Outstanding
              
              Range
      of
                Exercise Prices
              
              
              Weighted-
                Average
                Exercise Price
              
              
              Weighted-
                Average
      Remaining
                Life in Years
              
              
              Number
                Exercisable
              
              
              Weighted-
                Average
                Exercise Price100,000
              
              $
              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-35
  As part
of some Private Placement Memorandums the Company issued warrants that can be
summarized in the following table:
 
 Name
              
              Date
              
              Terms
              
              No.
      of Warrants
              
              
              Exercise
      PriceParty
      1
              
              3/30/2008
              
              2
      years from Issuing
              
              
              200,000
              
              
              $
              1.50Party
      1
              
              3/30/2008
              
              2
      years from Issuing
              
              
              200,000
              
              
              $
              2.00Party
      2
              
              6/05/2008
              
              2
      years from Issuing
              
              
              300,000
              
              
              $
              1.50Party
      3
              
              6/30/2008
              
              2
      years from Issuing
              
              
              200,000
              
              
              $
              1,50Party
      4
              
              9/5/2008
              
              2
      years from Issuing
              
              
              200,000
              
              
              $
              1.50
 
 Cashless
Warrants:
 
 On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes a third party, for a short term loan (“bridge”) of up to $275,000 to
bridge the drilling program of the Company. As a consideration for said
facility, the Company grants the investor with 100% cashless warrants coverage
for two years at exercise price of 1.50 per share. The investor made a loan of
$220,000 to the company on September 15, 2008 (where said funds were wired to
the company drilling contractor), that was paid in full on October 8, 2008.
Accordingly the investor is entitled to 200,000 cashless warrants as from
September 15, 2008 at exercise price of $1.50 for a period of 2 years. The
Company contests the validity of said warrants.
 
 (d)
Shares
 
 On May 6,
2008 the Company issued 500,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration
  On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the “Undes Services Agreement”) pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide us services
related to the identification, evaluation, structuring, negotiating and closing
of business acquisitions, identification of strategic partners as well as the
provision of legal services. The term of the agreement is for five years and the
Company has agreed to issue Mr. Undes 525,000 shares of common stock that shall
be registered on a Form S8 no later than July 1, 2008.
  On August
13, 2008, the Company issued 16,032 shares of its common stock, $0.001 par value
per share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration
 
 Following
the above securities issuance, the 2004 Plan was closed, and no more securities
can be issued under this plan.
  2008
Stock Incentive Plan:
 
 On July
28, 2008 - the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the “2008
Incentive Plan”) authorized the board to issue up to 5,000,000 shares of Common
Stock under the plan.
 
 On August
23 the Company issued 100,000 shares of its common stock 0.001 par value per
share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration
 
 On
November 4, 2008, the Company issued 254,000 shares of its common stock 0.001
par value per share, to one consultant (200,000 shares) and two employees
(54,000 shares), in accordance with the instructions provided by the Company
pursuant to the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.
 
 F-36
  The
balance of securities that can be issued under the 2008 Plan is 4,646,000 shares
of Common Stock.
 
 15.
Related party transactions
  Mr.
Dunckel a member of the Board serves as President of ERC as wells as Verge.,
Nevada corporations and former subsidiaries of the Company. As President, he
oversees management of real estate acquisitions, development and sales in the
United States and Croatia where ERC holds properties. 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. 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. 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 each year ended December 31, 2008 and 2007. 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 October 2008 a group of
investors associated with Mr. Dunckel acquired Verge from AGL in a transaction
that the Company is not side too.
 
 Upon
closing the acquisition of AGL Mr. Attia was appointed as the CEO of AGL. Mr.
Yossi Attia serves as chairmen of the board of AGL.
 
 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 agreement
was ratified by the general shareholders meeting of AGL on 30 October
2007.
  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.
  On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contest said
warrants entitlements to the investor, based on a cause.
  During
the years 2008 and 2007, Yossi Attia paid substantial expenses for the Company
and also deferred his salary. As of December 31, 2008, the Company owes Mr.,
Attia approximately 154 thousand dollars.
  The
Company via ERC rented its office premises in Las Vegas from Yossi Attia for a
monthly fee.
  F-37
 
 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.  All, the Company 660,362
treasury shares were retired and canceled during August and September
2008.
 
 On
November 20, 2008, the Company issued a press release announcing that its Board
of Directors has approved a share repurchase program. Under the program the
Company is authorized to purchase up to ten million of its shares of common
stock in open market transactions at the discretion of management. All stock
repurchases will be subject to the requirements of Rule 10b-18 under the
Exchange Act and other rules that govern such purchases.
 
 As of
December 31, 2008 the Company has 100,000 treasury shares in its possession
designated for cancellation.
  17.
Change in the Reporting Entity
 
 In
accordance with Financial Accounting Standards, FAS 154, Accounting Changes and Error
Corrections, when an accounting change results in financial statements
that are, in effect, the statements of a different reporting entity, the change
shall be retrospectively applied to the financial statements of all prior
periods presented to show financial information for the new reporting entity for
those periods. Previously issued interim financial information shall be
presented on a retrospective basis.
 
 On August 19, 2008 the Company entered
into final fee agreement with C. Properties (“Consultant”), where the Company
had to pay Consultant certain fees in accordance with the agreement entered with
the Consultant, the Consultant has agreed that, in lieu of cash payment, it will
receive an aggregate of up to 734,060,505 shares of stock of the AGL, and the
Consultant was not advised on the restructuring of the acquisition of DCG by the
Corporation, and in order to compensate the Consultant and avoid any potential
litigation, the Company has agreed to waive the above production requirements
and convey all its holdings with AGL immediately, with such transfer considered
effective January 1, 2008.Based on the agreement, the Company disposed
all its holdings in AGL effective January 1, 2008, and these financials reflect
such disposal.  Further, the Company previously issued interim
financial statements dated as of March 31, 2008 and for the three month period
ending March 31, 2008.  Those financial statements included the
consolidation of the AGL.  Since the agreement with Consultant was
retroactively applied to January 1, 2008, the following tables explain the
effect of the change of the Company’s financial balances without consolidating
AGL:
  F-38
  —
              Three
      Months Ended
                March
      31, 2008Previously
      issued interim Q1 financial statements (Unaudited)
              
              
              Effect
      of change of reporting entity (Unaudited)
              
              
              Revised
      Balances (Audited)Revenues
              
              $
              —
              
              
              $
              —
              
              
              $
              —Cost
      of revenues
              
              
              —
              
              
              
              —
              
              
              
              —Total
      operating expenses
              
              
              3,003,060
              
              
              
              7,307,247
              
              
              
              10,310,307Operating
      loss
              
              
              (3,003,060
              )
              
              
              (7,307,247
              )
              
              
              (10,310,307
              )Net
      (loss) before minority interest
              
              
              (2,911,208
              )
              
              
              (7,363,366
              )
              
              
              (10,274,573
              )Less
      minority interest in loss of consolidated subsidiary
              
              
              69,419
              
              
              
              (69,419
              )
              
              
              —Net
      (loss)
              
              
              (2,841,789
              )
              
              
              (7,432,785
              )
              
              
              (10,274,573
              )Other
      comprehensive income (loss)
              
              
              427,022
              
              
              
              (427,022
              )
              
              
              —Comprehensive
      (loss)
              
              $
              (2,414,767
              )
              
              $
              (7,859,807
              )
              
              $
              (10,274,573
              )Net
      (loss) per share, basic and diluted
              
              $
              (0.59
              
              
              $
              
              
              
              $
              (2.14
              )Weighted
      average number of shares outstanding, basic and diluted
              
              
              4,797,055
              
              
              
              
              
              
              
              4,797,055
  18.
Subsequent events
  On
January 13, 2009, the Company entered into a Non Binding Term Sheet (the “Term
Sheet”) to enter into a definitive asset purchase agreement with Grand Pacaraima
Gold Corp. (“Grand”), which owns 80% of the issued and outstanding securities of
International Treasure Finders Incorporated to acquire certain oil and gas
rights on approximately 481 acres located in Woodward County, Texas (the
“Woodward County Rights”). In consideration for the Woodward County Rights, the
Company will pay Grand an amount equal to 50% of the current reserves. The
consideration shall be paid half in shares of common stock of the Company and
half in the form of a note. The number of shares to be delivered by the Company
will be calculated based upon the volume weighted average price (“VWAP”) for the
ten days preceding the closing date. The note will mature on December 31, 2009
and carry interest of 9% per annum payable monthly. In addition, the note will
be convertible into shares of common stock of the Company at a 10% discount to
the VWAP for the ten days preceding conversion. At the Company election, the
Company may enter into this transaction utilizing a subsidiary to be traded on
the Swiss Stock Exchange. On February 3, 2009the Company announced it has
expanded negotiations to purchase all of the outstanding shares of International
Treasure Finders Incorporated. The above transaction is subject to the receipt
of a reserve report, drafting and negotiation of a final definitive agreement,
performing due diligence as well as board approval of the Company. As such,
there is no guarantee that the Company will be able to successfully close the
above transaction. Dr. Gregory Rubin, a director of the Company, is an affiliate
of ITFI and, as a result, voided himself from any discussions regarding this
matter.
  On
January 20, 2009, the Company entered into a Term Sheet (the “Term Sheet”) with
Yasheng Group (“Yasheng”) a group of companies engaged in the agriculture,
chemicals and biotechnology businesses in the Peoples Republic of China and the
export of such products to the United States, Canada, Australia, Pakistan and
various European Union countries. Yasheng is also developing a logistics centre
and eco-trade cooperation zone in California (the “Project”). Yasheng purchased
80 acres of property located in Victorville, California (the “Project Site”) to
be utilized for the Project. It is intended that the Project will be implemented
in two phases, first, the logistic centre, and then the development of an
eco-trade cooperation zone. The preliminary budget for the development of the
Project is estimated to be approximately $400M. As set forth in the Term Sheet,
Yasheng has received an option to merge all or part of its assets as well as the
Project into the Company. As an initial stage, Yasheng will contribute the
Project Site to the Company which will be accomplished through either the
transferring title to the Project Site directly to the Company or the
acquisition of the entity holding the Project Site by the Company. As
consideration for the Project, the Company will issue Yasheng 130,000,000 shares
of common stock (on a post reverse split basis). In addition, the Company will
be required to issue Capitol Properties, an advisor, 100,000,000 shares of
common stock (on a post reverse split basis).
  F-39
  At the
second stage, if Yasheng exercises its option within its sole discretion, it may
merge additional assets that it owns into the Company in consideration for
shares of common stock of the Company. In the event that Yasheng exercises this
option, the number of shares to be delivered by the Company will be calculated
by dividing the value of the assets by the volume weighted average price for the
ten days preceding the closing date. The value of the assets contributed by
Yasheng will be based upon the asset value set forth in its audited financial
statements. The Company and the YaSheng announced that the Companies have
engaged Gregory Sichenzia of Sichenzia Ross Friedman Ference LLP to represent
the companies for the reverse merger of the two companies, more commonly known
as Super 8K. On March 2009, the Company and Yasheng entered into an amendment of
the Term Sheet (the “Amendment”), pursuant to which the parties agreed to
explore various areas including an alliance with third parties, a joint venture
with various Russian agencies floating nuclear power plants and the lease of an
existing logistics center in Inland Empire, California; in accordance with the
Amendment, the Company, as an advance issuance, has agreed to issue 50,000,000
shares to Yasheng and 38,461,538 shares to Capitol in consideration for
exploring the above matters; On March 5, 2009, the Company and Yasheng
implemented an amendment to the Term Sheet pursuant to which the parties agreed
to explore further business opportunities including the potential lease of an
existing logistics center located in Inland Empire, California, and/or alliance
with other major groups complimenting and/or synergetic to the Vortex/Yasheng JV
as approved by the board of directors on March 9, 2009. Further, in accordance
with the amendment, the Company has agreed to issue 50,000,000 shares to Yasheng
and 38,461,538 shares to Capitol in consideration for exploring the business
opportunities, based on the pro-ration set in the January Term Sheet. The shares
of common stock were issued based on the Board consent on March 9, 2009, in
connection with this transaction in a private transaction made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933 and/or Rule 506 promulgated thereunder. Yasheng and Capitol are
accredited investors as defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933.
  The above
transaction is subject to the drafting and negotiation of a final definitive
agreement, performing due diligence as well as board approval of the Company. As
such, there is no guarantee that the Company will be able to successfully close
the above transaction. The issuing of the shares to both Yasheng and Capitol
include legend which allows the Company to cancel said shares if the transaction
is not completed.
  On
January 23, 2009, the Company completed the sale of 5,000,000 shares of the
Company’s common stock to one accredited investor for net proceeds of $75,000
(or $0.015 per common share). The shares of common stock were issued in
connection with this transaction in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The investor is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.
  Effective
February 24, 2009, the Company affected a reverse split of its issued and
outstanding shares of common stock on a 100 for one basis.    As a
result of the reverse split, the issued and outstanding shares of common stock
will be reduced from 92,280,919 to 922,809.  The authorized shares of
common stock will remain as 400,000,000.  The shareholders holding a
majority of the issued and outstanding shares of common stock and the board of
directors approved the reverse split on November 24, 2008.  In
addition,
 a new
CUSIP was issued for the Company’s common stock which is 92905M
203.  The symbol of the Company was changed from VTEX into
VXRC.
  As
reported by Company on its Form 10-Q filed on November 14, 2008, Star entered,
on September 1, 2008, into that certain Irrevocable Assignment of Promissory
Note, which resulted in Star being a creditor of the Company with a loan payable
by the Company in the amount of $1,000,000 (the “Debt”). No relationship exists
between Star and the Company and/or its affiliates, directors, officers or any
associate of an officer or director. On March 11, 2009, the Company entered and
closed an agreement with Star pursuant to which Star agreed to convert all
principal and interest associated with the Debt into 8,500,000 shares of common
stock and released the Company from any further claims. The shares of common
stock were issued in connection with this transaction in a private placement
transaction made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and/or Rule 506 promulgated
thereunder. Each of the parties are accredited investors as defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933.
  Due to
current issues in the development of the oil and gas project in Crockett County,
Texas, the board obtained a current reserve report for the Company’s interest in
DCG and Vortex One, which report indicated that the DCG properties as being
negative in value. As a result of such report, the world and US recessions and
the depressed oil and gas prices, the board of directors elected to dispose of
the DCG property and/or desert the project in its entirely. On June 30, 2008,
the Company formed Vortex One, a limited liability company, with Tiran Ibgui, an
individual (“Ibgui”) as reported on the Company’s 8-K. Said agreements, in
addition, included the assignment of its four leases in Crockett County, Texas
to Vortex One. As a condition precedent to Ibgui contributing the required
funding, Vortex One pledged all of its assets to Ibgui including the leases. On
October 29, 2008, the Company entered into a settlement arrangement with Mr.
Ibgui, whereby the Company agreed to transfer the 525,000 common shares
previously owned by Vortex One to Mr. Ibgui. Further, in February 28, 2009,
Ibgui, as the secured lender to Vortex One, directed Vortex One to assign the
term assignments with 80% of the proceeds being delivered to Ibgui, as secured
lender, and 20% of the proceeds being delivered to the Company - as per the
original agreement.
  F-40
  The
transaction closed on February 28, 2009 in consideration of a cash payment in
the amount of $225,000, a 12 month promissory note in the amount of $600,000 and
a 60 month promissory note in the amount of $1,500,000. Mr. Ibgui paid $25,000
fee, and from the net consideration of $200,000 Mr. Ibgui paid the Company its
20% portion of $40,000 on March 3, 2009. No relationship exists between Ibgui,
the assignee of the leases and the Company and/or its affiliates, directors,
officers or any associate of an officer or director.
  During
the first quarter of 2009, Upswing filled a complaint in Israel against AGL, Mr.
Yossi Attia and Mr. Shalom Atia with regards to certain stock certificates of
which the Company was the beneficiary owner at the relevant times. The company
was not named as a party to said litigation.
 
 Effective
April 1, 2009 Mr. Dunckel resigned as the Company director in order to pursue
other opportunities.
 
 On April
2009, the Company filled a complaint against Trafalgar and its affiliates, for
breaching of agreement and damages.
 
 19.  Supplemental
Oil and Gas Disclosures
 
 The
accompanying table presents information concerning the Company’s natural gas
producing activities as required by Statement of Financial
Accounting   Standards No.  69, “Disclosures about Oil
and Gas Producing Activities.” Capitalized costs relating to oil and gas
producing activities from continuing operations are as follows:
 
 As
      of December 31, 2008Proved
      undeveloped natural properties – Direct investment
              
              $
              2,300,000Unproved
      properties – option exercised
              
              
              50,000Total
              
              
              2,350,000Accumulated
      depreciation, depletion, amortization , and impairment
              
              
              —Net
      capitalized costs
              
              $
              2,350,000
 
 All of
these reserves are located in DCG field located in the USA.
  Estimated
Quantities of Proved Oil and Gas Reserves
 
 The
following table presents the Company’s estimate of its net proved crude oil and
natural gas reserves as of September 30, 2008 elated to
continuing   operations.   The  Company’s  management  emphasizes  that  reserve
estimates are  inherently  imprecise and that estimates of
new  discoveries  are more imprecise than those of producing
oil and gas properties.  Accordingly, the estimates are expected to
change as future information becomes available.  The estimates have
been prepared by independent natural gas reserve engineers.
 
  MMCF
                (thousand
      cubic feet)Proved
      undeveloped natural gas reserves at February 22, 2008
              
              
              —Purchases
      of drilling rights for minerals in place for period February 22, 2008
      (inception of DCG) to December 31, 2008 – 4 wells at 355 MCF
      each
              
              
              1,420Revisions
      of previous estimates *)
              
              
              (180
              )Extensions
      and discoveries**)
              
              
              —Sales
      of minerals in place
              
              
              —Proved
      undeveloped natural gas reserves at December 31, 2008
              
              
              1,420
  *) the
current reserve report revised to include revision by decreasing the MMCF from
1,600 to 1,420 based on 355 MCF compare to 400 MCF in prior report.
 
 *) – the
4 wells that the Company drilled were not connected to the main pipe yet, so its
potential reserves were included above.
 
 Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves
  F-41
 
 The
following disclosures concerning the standardized measure of future cash flows
from proved crude oil and natural gas are presented in accordance with SFAS No.
69. The standardized measure does not purport to represent the fair market value
of the Company’s proved crude oil and natural gas reserves. An estimate of fair
market value would also take into account, among other factors, the recovery of
reserves not classified as proved, anticipated future changes in prices and
costs, and a discount factor more representative of the time value of money and
the risks inherent in reserve estimates.
 
 Under
the  standardized  measure,  future
cash  inflows  were  estimated by
applying  period-end  prices  at  December  31,  2008  adjusted  for  fixed  and
determinable escalations,  to the estimated future production of
year-end proved reserves.  Future cash inflows were reduced by
estimated future production and development costs based on year-end costs to
determine pre-tax cash inflows. Future income taxes were computed by applying
the statutory tax rate to the excess of pre-tax cash inflows over the tax basis
of the properties.  Operating loss  carry
forwards,  tax  credits,  and  permanent  differences  to
the  extent estimated  to
be  available  in the future  were
also  considered  in the future income tax calculations,
thereby reducing the expected tax expense. Future net cash inflows after income
taxes were discounted using a 10% annual discount rate to arrive at the
Standardized Measure.
 
 Set forth
below is the Standardized Measure relating to proved undeveloped natural gas
reserves for the period ending December 31, 2008:
  Period
      ending
                December
      31, 2008
                (in
      thousands of $)
              
              
              Period
      ending
                March
      30, 2008
                (in
      thousands of $)Future
      cash inflows, net of royalties
              
              
              109,890
              
              
              
              231,230Future
      production costs
              
              
              (32,964
              )
              
              
              (38,702
              )Future
      development costs
              
              
              (43,050
              )
              
              
              (25,800
              )Future
      income tax expense
              
              
              
              
              
              
              —Net
      future cash flows
              
              
              33,876
              
              
              
              166,728Discount
              
              
              (33,296
              )
              
              
              (117,475
              )Standardized
      Measure of discounted future net cash relating to proved
      reserves
              
              
              580
              
              
              
              49,253
 
 Changes
in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Natural Gas Reserves. The table above shows the second standardized measure of
discounted future net cash flows for the Company since
inception.  Accordingly, there are material changes to disclose, which
in essence were contributed by substantial decline in gas prices in lieu of the
financial turmoil that the USA (and the world) is facing.
  Drilling
Contract:
  On July
1, 2008, DC Gas entered into a Drilling Contract (Model Turnkey Contract)
(“Drilling Contract”) with Ozona Natural Gas Company LLC (“Ozona”). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells shall take place in
secession. The drilling operations on the first well are due to funding provided
by Vortex One. Such drilling took place, and the Vortex One well has
successfully hit natural gas at a depth of 4,783 feet.  Due to this
success with the first well, the Company commenced drilling on its second well
on August 18, 2008, and it’s remaining 2 other locations parallel.  As
disclosed on this report Vortex one entered into sale agreements of said four
assignments.
  F-42