UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-K
  (Mark
One)
  x ANNUAL REPORT UNDER
SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT
 OF
l934
  For the
fiscal year ended December 31, 2008
   ̈ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 OF
1934
  For the
transition period from
  _____________to____________
  Commission
file number 000-23901
  GSV,
INC.
 (Exact
name of registrant as specified in its charter)
  Delaware
                (State
      or other jurisdiction of incorporation or
                organization)
              13-3979226
                (I.R.S.
      Employer Identification No.)191
      Post Road West
                Westport,
      Connecticut
                (Address
      of principal executive offices)
              06880
                (Zip
      Code)
  Registrant
's telephone number, including area code: (203) 221-2690
  Securities
registered pursuant to Section 12(b) of the Act: None
  Securities
registered pursuant to Section 12(g) of the Act:
  Common Stock, par value
$.001 per share
 (Title of
Class)
  Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes  ̈   No
x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈   No
x
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x   No
 ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.  x
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
  
 
 Large
      accelerated filer  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈
                
                Smaller
      reporting company x
 (Do not
check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈   No
x
  The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of the last business day of the second fiscal quarter, June 30,
2008, was $538,175.75 (based on the last reported sales price on the OTC
Bulletin Board on that date).  As of March 24, 2009, 7,502,703 shares
of the registrant’s Common Stock, $.01 par value per share, were outstanding,
excluding 168,592 shares held in treasury.
  DOCUMENTS
INCORPORATED BY REFERENCE
  Not
applicable.
  2
 
 Statement
Regarding Forward-Looking Statements
  Some of
the statements in this report are forward-looking statements that involve risks
and uncertainties. These forward-looking statements include statements about our
plans, objectives, expectations, intentions and assumptions that are not
statements of historical fact. You can identify these statements by the
following words:
  -
"may"
 -
"will"
 -
"should"
 -
"estimates"
 -
"plans"
 -
"expects"
 -
"believes"
 -
"intends"
  and
similar expressions. We cannot guarantee our future results, performance or
achievements. Our actual results and the timing of corporate events may differ
significantly from the expectations discussed in the forward-looking statements.
You are cautioned not to place undue reliance on any forward-looking statements.
Potential risks and uncertainties that could affect our future operating results
include, but are not limited to, our limited operating history, history of
losses, need to raise additional capital, the high risk nature of our business
and the other risks described in Item 1A of this report.
  3
 
 PART I
  Item
1. Description of Business.
  We were
formed as a Delaware corporation on October 29, 1997.
  Since
July 2003, our business operations have been focused on managing our existing
investments in oil and gas assets and looking for additional opportunities in
this field. From June 2001 to July 2003, our business operations included
managing our existing investments and entering into new business operations
through acquisitions or mergers.
  Prior to
June 2001, we had sought to identify and develop attractive early stage Internet
companies in exchange for equity positions in such companies. We have since
written these investments down to $0 to more accurately reflect current market
valuations.
  Louisiana
Interests
  We hold
working interests in two oil and gas wells in the state of Louisiana. An
independent reserve study, effective January 2009, estimated that the remaining
reserve in the wells, including PDP and PDNP, net of expenses and discounted at
10%, was $69,050. In June 2008 the well that had been producing oil and gas
started to produce some water, and by the fourth quarter of 2008 the rising
water level had caused production to decrease significantly. In any
event, we fully expect to recover the carrying value of this
asset.
  Texas
Interests
  Through
our subsidiary Cybershop, L.L.C., a New Jersey limited liability company
("Cybershop"), we own interests in certain oil and gas properties in Texas and
an undivided one-third interest in Century Royalty LLC ("Century Royalty"), a
Texas limited liability company that manages the oil and gas properties in
Texas. Through Cybershop we also own an additional interest in the two Louisiana
oil and gas wells. Century Royalty also holds the rights to certain geological
studies. Century Royalty was a member of a working interest partnership that had
identified several prospects derived from the geological studies and was working
towards drilling those prospects. Century Royalty had a carried interest with
this partnership of 20% for the first well drilled in the first 5 prospects or
$1.25 million of investment, whichever came first. Century Royalty continues to
have a 20% participation interest in all subsequent wells drilled in the first 5
prospects. As these joint interest partnership agreements have expired, they
relate only to prospects for which leases were already taken and not expired at
the time the agreements expired.
  On June
28, 2006, the working interest partnership commenced drilling on one of the
prospects and planned to drill a second prospect once the first was completed.
The costs of drilling these prospects were expected to exceed Century Royalty's
carried interest in the working interest partnership. On June 20, 2006, we
agreed to contribute a maximum of $100,000 towards the drilling of these two
prospects and decrease our working interest in these two prospects to
11.918%.
 
 On
October 5, 2006, we announced the successful completion of drilling in the first
prospect, located in Liberty County, Texas. The pipeline tie-in of the
"Friendswood No. 2 RE" gas well was completed successfully in June 2007. On or
about September 14, 2007, efforts to increase the pressure of the flow of gas
from the well were successful and the sale of gas through the pipeline
commenced. On February 4, 2008, we successfully completed fracing of the well.
On February 21, 2008, the well was put back on line full-time. It is currently
producing around 150-200 million cubic feet ("Mcf") per day, up from about 60
Mcf per day prior to fracing. The well continues to produce a small amount of
water, up to about 10 barrels per day.
  In June
2008, the working interest partnership started to drill a re-entry into an
existing well, targeting some oil sands in the area covered in the East Wilcox
prospect. However after encountering some old drill bits and other debris in the
hole, it was decided to secure additional financing and then drill a new well.
We invested about $21,000 in this re-entry and approximately $69,600 in
continuing development of this prospect in 2008, including the cost of acquiring
additional leases.
 
 Cybershop
entered into an agreement dated as of June 30, 2008, with B & L Oil Company,
Inc. (“B & L”) and Randall Petroleum Corp. to amend the terms of an
acquisition agreement dated April 7, 1999, by and among B & L, Randall and
Polystick U.S. Corp. (“Polystick”). B & L, Randall and Polystick had formed
Century Royalty pursuant to the acquisition agreement and Cybershop succeeded to
Polystick’s interests under the acquisition agreement and in Century Royalty in
2003. In the amendment, the parties agreed to terminate the back-in after
payout due B & L and Randall under Article VI of the acquisition agreement.
The parties also agreed that each will have the right to participate in any
prospect generated and proposed in the HLM Project in Liberty and Montgomery
Counties, Texas (except the East Wilcox Prospect, the “Friendswood No. 2 RE”
well, the Nickel Prospect and the “Shirley Gay No. 1” well), as follows: B &
L - an undivided 1/3rd interest; Randall - an undivided 1/3rd interest; and
GSV - an undivided 1/3rd interest.
  4
  In July
2008 we received an independent engineering report for the East Wilcox prospect.
According to the report the total reserves in the prospect were approximately
7.9 billion cubic feet (“bcf”) gross and approximately 660 Mcf net for our
adjusted revenue interest in this prospect. The prospect also had a nominal
amount of oil. According to the report it might take up to 5 additional wells to
tap the reserves. Century Royalty and its partners have been preparing to
commence drilling a second well near “Friendswood No. 2 RE” in the near future.
Based on this report, an asset previously classified as “geological studies” on
the balance sheet was reclassified as “oil and gas wells, net of accumulated
depletion.”  Depletion commenced on the reclassified asset of
$2,316,721.  An updated report effective as of January 1, 2009 gave
the well significantly lower reserves of 1.42 thousand barrels ("mbbl") of oil
and 114.53 Mcf of gas gross and 0.12 mbbl of oil and 9.55 Mcf of gas net for our
interest. The report estimated that the reserves, net of expenses and discounted
at 10%, were worth $19,420. The reason for the significant reduction was the
lack of success in fracing the well and increasing the flow of gas.
  In
October 2006, we granted one of the members of the Texas working interest
partnership the right to drill a well based on the geological seismic data that
Century Royalty holds. In return, we received a 2% carried interest in the
proposed well until completion, and a 2% working interest thereafter. The
“Shirley Gay No. 1” well was completed in the beginning of March 2007. Pipeline
tie-in was completed in February 2008 and sales began shortly thereafter. We
started to receive proceeds from these sales in April 2008.  According
to an independent engineering report effective as of January 1, 2009, the
reserves in the well are 13.88 mbbl of oil and 438.5 Mcf of gas gross and 0.21
mbbl of oil and 6.58 Mcf of gas net for our adjusted revenue interest in the
prospect. The report estimated that the reserves, net of expenses and discounted
at 10%, were worth $36,350.
  Another
well, “Strong No. 1”, was commenced in June 2008 in the SE Cleveland Prospect in
Liberty County, Texas. Our working interest share through Century Royalty is
2.00%. After several attempts to perforate the well at different depths the
operator decided not to complete the well and to plug it. We invested $150,511
in this well in 2008.
  As a
result of the January 1, 2009 independent engineering report we have
taken an impairment of our investment in oil and gas wells.
  Our
management has little practical experience in the oil and gas industry. Our
management relies to a great extent on the employees of Century Royalty to
monitor and implement strategy with respect to our oil and gas assets. Our
management's inexperience may detrimentally affect our operations and results
because, for example, it could prevent us from taking advantage of opportunities
that arise on a timely basis or cause us to take actions that a more experienced
management team might determine are not in our best interests. We are currently
seeking to engage additional professional managers to assist in extracting value
from the properties
  We own
less than 100% of the working interest in our oil and gas holdings. We do not
conduct any operations. Operations are conducted by operating companies that
follow the instructions of the working interest owners. Because of this
structure, drilling and operating decisions are not entirely within our control.
If we disagree with the decision of a majority of working interest owners, we
may be required, among other things, to decline to participate in a particular
activity. If we decline to participate, we might be required to relinquish our
interest. Under most operating agreements, the operator is given direct and full
control over all operations on the property and is obligated to conduct
operations in a workman-like manner; however the operator is usually not liable
to the working interest owners for losses sustained or for liabilities incurred,
except those resulting from its own gross negligence or willful
misconduct.
  Each
working interest owner is generally liable for its share of the costs of
developing and operating jointly owned properties. The operator is required to
pay the expenses of developing and operating the property and will invoice
working interest owners for their proportionate share of such
costs.
  We face
intense competition for good exploratory prospects or existing developmental
prospects from entities possessing substantially larger financial resources and
staffs. The demand for domestically produced gas remains substantial and should
remain substantial in the foreseeable future especially in light of the turmoil
in the Middle East.
  As of
December 31, 2008, we had one full-time employee (including management). Our
employee is not represented by any collective bargaining
organization.
  Item
1A.  Risk Factors
  We
may need additional capital to fund our operations, and we may not be able to
obtain it on terms acceptable to us or at all.
  We
believe that our existing capital resources will enable us to maintain our
current operations only through July 2009, assuming that we can extend the
maturities of certain outstanding promissory notes having an aggregate principal
amount of approximately $521,551. Our cash flow has decreased significantly in
recent months and we will require additional funds to continue operating at our
current level. We will have to curtail our current operations if we are unable
to obtain additional funds and do not achieve improved results of operations. We
cannot assure you that we will achieve improved results of operations and we
cannot assure you that additional financing will be available to us on
acceptable terms, or at all. Further, if we raise additional funds through the
issuance of additional equity securities, the percentage ownership of our
shareholders will be diluted. Any new equity securities may have rights,
preferences, or privileges senior to those of our common stock.
  5
 
 We
have a history of operating losses.
  We
incurred an operating profit of $179,777 in 2008 and an operating profit of
$212,587 in 2007, but we incurred an operating loss of $108,684 in 2006. Our
ability to achieve sustained profitability depends primarily upon our ability to
manage our existing oil and gas interests successfully. In view of the rapidly
evolving nature of our business and our limited operating history, we believe
that period-to-period comparisons of our operating results are not necessarily
meaningful and you should not rely upon them as an indication of our future
performance.
 
 Our
management has little practical experience in the oil and gas
industry.
  Our
management relies to a great extent on the employees of Century Royalty to
monitor and implement strategy with respect to our oil and gas assets. Our
management's inexperience may detrimentally affect our operations and results
because, for example, it could prevent us from taking advantage of opportunities
that arise on a timely basis or cause us to take actions that a more experienced
management team might determine are not in our best interests.
  We
do not control operations at the oil & gas properties in which we hold
interests.
  We own
less than 100% of the working interest in our gas holdings. We do not conduct
any operations. Operations are conducted by operating companies that follow the
instructions of the working interest owners. Because of this structure, drilling
and operating decisions are not entirely within our control. If we disagree with
the decision of a majority of working interest owners, we may be required, among
other things, to decline to participate in a particular activity. If we decline
to participate, we might be required to relinquish our interest or may be
subject to certain non-consent penalties, as provided in the applicable
operating agreement. Such penalties typically allow participating working
interest owners to recover from the proceeds of production. Under most operating
agreements, the operator is given direct and full control over all operations on
the property and is obligated to conduct operations in a workman-like manner;
however the operator is usually not liable to the working interest owners for
losses sustained or for liabilities incurred, except those resulting from its
own gross negligence or willful misconduct. Each working interest owner is
generally liable for its share of the costs of developing and operating jointly
owned properties. The operator is required to pay the expenses of developing and
operating the property and will invoice working interest owners for their
proportionate share of such costs. We may have a limited ability to exercise
control over operations and the associated costs of such operations. The success
of our investment in these activities may, therefore, be dependent upon a number
of facts that are outside of our control.
 
 Trading
in our common stock on the OTC Bulletin Board may be limited.
  Our
common stock is traded on the OTC Bulletin Board. The OTC Bulletin Board is not
an exchange and, because trading of securities on the OTC Bulletin Board is
often more sporadic than the trading of securities listed on an exchange or
NASDAQ, you may have difficulty reselling your securities.
  Our
common stock is subject to penny stock regulation.
  Our
common stock is subject to regulations of the Securities and Exchange Commission
relating to the market for penny stocks. These regulations generally require
that a disclosure schedule explaining the penny stock market and the risks
associated with the penny stock market be delivered to purchasers of penny
stocks and impose various sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors. The regulations applicable to penny stocks may severely limit the
market liquidity for our securities and could reduce your ability to sell your
securities in the market.
 
 Item
1B.  Unresolved Staff Comments.
 
 Not
applicable.
  Item 2. Description of
Property.
  Our
corporate headquarters are located at 191 Post Road West, Westport, Connecticut
06880. We lease approximately 150 square feet of office space at these
facilities at a cost of $1,590 per month. We have a revolving six-month lease.
We believe that our existing facilities are adequate for our current
requirements and that additional space can be obtained to meet our requirements
for the foreseeable future.
  6
  Wells
and acreage
  At March
18, 2009, we owned non-operated working interests in 2 producing wells on 746
gross (62 net) acres covered by state leases in Assumption Parish, Louisiana.
The properties are operated by Chroma Operating Inc. The wells are producing oil
and gas. For the year ended December 31, 2008, the wells produced 32,305 gross,
1,940 net barrels of oil at an average price of $131 per barrel, and
956,168 Mcf gross, 57,420 Mcf net natural gas at an average price of $8.94
per Mcf. For the year ended December 31, 2007, the wells produced 52,146 gross,
3,131 net barrels of oil at an average price of $74.95 per barrel, and 1,569,278
Mcf gross, 94,239 Mcf net natural gas at an average price of $6.4 per Mcf. For
the year ended December 31, 2006, the wells produced 20,134 gross, 1,209 net
barrels of oil at an average price of $60.28 per barrel, and 553,069 Mcf gross,
33,213 Mcf net natural gas at an average price of $5.75 per Mcf. We pay Chroma
Operating Inc. a monthly fee to support production costs.
  At March
18, 2009, we owned non-operating working interests in one producing well on 1243
gross (148 net) acres covered by the leases in Liberty County, Texas. The
property is operated by Century 2000 LLC, a Texas limited liability company that
is partially owned by other members of Century Royalty. For the year ended
December 31, 2008, the well produced 711 gross, 62 net barrels of oil at an
average price of $110 per barrel and 58,612 Mcf gross, 5,111 Mcf net natural gas
at an average price of $7.3 per Mcf. For the year ended December 31, 2007, the
well produced 41.3 gross, 3.4 net barrels of oil at an average price of $84.10
per barrel and 5,952 Mcf gross, 496 Mcf net natural gas at an average price of
$6.70 per Mcf. There was no production in previous years.
 
 As of
March 18, 2009, we owned a non-operating working interest in another producing
well in Liberty County, Texas, operated by Ballard Petroleum. For the year ended
December 31, 2008, the well, the Shirley Gay No. 1 well, produced 5,862 gross,
88 net barrels of oil and 172,478 gross, 2,587 Mcf net natural gas. There was no
production in previous years.
 
 We have
not reported to, nor filed with, any other Federal authority or agency any
estimates of total, proved net oil or gas reserves since the beginning of our
last fiscal year.
  Undeveloped
Acreage
  Century
Royalty has identified  three additional prospects in Texas derived
from geological studies that Century Royalty holds. During 2008, Century
acquired leases covering 3,009 acres (1,003 net for GSV) for future development
of these prospects.
  Drilling
Activity
  On June
28, 2006, the working interest partnership commenced drilling on one of the
prospects and planned to drill a second prospect once the first was completed.
The costs of drilling these prospects were expected to exceed Century Royalty's
carried interest in the working interest partnership. On June 20, 2006, we
agreed to contribute a maximum of $100,000 towards the drilling of these two
prospects and decrease our working interest in these two prospects to
11.918%.
  On
October 5, 2006, we announced the successful completion of drilling in the first
prospect, located in Liberty County, Texas. The pipeline tie-in of the
"Friendswood No. 2 RE" gas well was completed successfully in June 2007. On or
about September 14, 2007, efforts to increase the pressure of the flow of gas
from the well were successful and the sale of gas through the pipeline
commenced. On February 4, 2008, we successfully completed fracing of the well.
On February 21, 2008, the well was put back on line full-time. It is currently
producing around 150-200 Mcf per day, up from about 60 Mcf per day prior to
fracing. The well continues to produce a small amount of water, up to about 10
barrels per day.
 
 In June
2008, the working interest partnership started to drill a re-entry into an
existing well, targeting some oil sands in the area covered in the East Wilcox
prospect. However after encountering some old drill bits and other debris in the
hole, it was decided to secure additional financing and then drill a new well.
We invested about $21,000 in this re-entry and approximately $69,600 in
continuing development of this prospect in 2008, including the cost of acquiring
additional leases.
 
 Our
wholly-owned subsidiary Cybershop entered into an agreement dated as of June 30,
2008, with B & L Oil Company, Inc. and Randall Petroleum Corp. to amend the
terms of an acquisition agreement dated April 7, 1999, by and among B & L,
Randall and Polystick. B & L, Randall and Polystick had formed Century
Royalty pursuant to the acquisition agreement and Cybershop succeeded to
Polystick’s interests under the acquisition agreement and in Century Royalty in
2003. In the amendment, the parties agreed to terminate the back-in after
payout due B & L and Randall under Article VI of the acquisition agreement.
The parties also agreed that each will have the right to participate in any
prospect generated and proposed in the HLM Project in Liberty and Montgomery
Counties, Texas (except the East Wilcox Prospect, the “Friendswood No. 2 RE”
well, the Nickel Prospect and the “Shirley Gay No. 1” well), as follows: B &
L - an undivided 1/3rd interest; Randall - an undivided 1/3rd interest; and
GSV - an undivided 1/3rd interest.
  7
 
 In July
2008 we received an independent engineering report for the East Wilcox prospect.
According to the report the total reserves in the prospect were approximately
7.9 bcf gross and approximately 660 Mcf net for our adjusted revenue interest in
this prospect. The prospect also had a nominal amount of oil. According to the
report it might take up to 5 additional wells to tap the reserves. Century
Royalty and its partners have been preparing to commence drilling a second well
near “Friendswood No. 2 RE” in the near future. Based on this report, an asset
previously classified as “geological studies” on the balance sheet was
reclassified as “oil and gas wells, net of accumulated
depletion.”  Depletion has commenced on the reclassified asset of
$2,316,721.  An
updated report effective as of January 1, 2009 gave the well significantly lower
reserves of 1.42 mbbl of oil and 114.53 Mcf of gas gross and 0.12 mbbl of oil
and 9.55 Mcf of gas net for our interest. The report estimated that the
reserves, net of expenses and discounted at 10%, were worth $19,420. The reason
for the significant reduction was the lack of success in fracing the well and
increasing the flow of gas.
 
 In
October 2006, we granted one of the members of the Texas working interest
partnership the right to drill a well based on the geological seismic data that
Century Royalty holds. In return, we received a 2% carried interest in the
proposed well until completion, and a 2% working interest thereafter. The
“Shirley Gay No. 1” well was completed in the beginning of March 2007. Pipeline
tie-in was completed in February 2008 and sales began shortly thereafter. We
started to receive proceeds from these sales in April 2008. According
to an independent engineering report effective as of January 1, 2009, the
reserves in the well are 13.88 mbbl of oil and 438.5 Mcf of gas gross and 0.21
mbbl of oil and 6.58 Mcf of gas net for our adjusted revenue interest in the
prospect. The report estimated that the reserves, net of expenses and discounted
at 10%, were worth $36,350.
 
 Item
3. Legal Proceedings.
  None
 
 Item
4. Submission of Matters to a Vote of Security Holders.
  None.
  8
 
 PART II
  Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
  Market
Information
  Our
common stock is currently trading on the OTC Bulletin Board under the symbol
"GSVI."
  The
following table sets forth the range of quarterly high and low sales prices for
shares of our common stock for the periods indicated, as reported on the OTC
Bulletin Board.
 
 2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007High
                                    
                                    
                                    Low
                                    
                                    
                                    High
                                    
                                    
                                    Low
                                    
                                    
                                    High
                                    
                                    
                                    LowQuarter
      ended March 31
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.25
                                    
                                    
                                    $
                                    0.06
                                    
                                    
                                    $
                                    0.20
                                    
                                    
                                    $
                                    0.11Quarter
      ended June 30
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.38
                                    
                                    
                                    $
                                    0.07
                                    
                                    
                                    $
                                    0.45
                                    
                                    
                                    $
                                    0.12Quarter
      ended September 30
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.35
                                    
                                    
                                    $
                                    0.10
                                    
                                    
                                    $
                                    0.45
                                    
                                    
                                    $
                                    0.20Quarter
      ended December 31
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.25
                                    
                                    
                                    $
                                    0.07
                                    
                                    
                                    $
                                    0.38
                                    
                                    
                                    $
                                    0.17January
      1 through March 24
                                    
                                    $
                                    0.10
                                    
                                    
                                    $
                                    0.05
  Our
common stock trades only sporadically. The public market for our common stock is
limited and you should not assume that these quotations reflect prices that you
might be able to obtain in actual market transactions or in transactions
involving substantial numbers of shares.
  As of
March 24, 2009, there were 110 holders of record of our common
stock.
  Dividends
  We did
not pay dividends in 2008 and 2007 and we do not anticipate paying cash
dividends in the foreseeable future. We presently intend to reinvest our cash
back into the company rather than pay dividends to our common
stockholders.
  Recent
Sales of Unregistered Securities
  None.
  Item
6. Selected Financial Data.
  Not
applicable.
  Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation.
  Overview
  Since
July 2003 our business operations have been focused on managing our existing
investments in oil and gas assets and entering into new investments in this
industry. From June 2001 to July 2003, our business operations included managing
our existing investments and entering into new business operations through
acquisitions or mergers.
  Prior to
June 2001, we had sought to identify and develop attractive early stage Internet
companies in exchange for equity positions in such companies. We have since
written  these investments down to $0 to more accurately reflect
current market valuations.
  We hold
working interests in two oil and gas wells in the state of Louisiana. An
independent reserve study, effective January 2009, estimated that the remaining
reserve in the wells, including PDP and PDNP, net of expenses and discounted at
10%, was $69,050. In June 2008 the well that had been producing oil and gas
started to produce some water, and by the fourth quarter of 2008 the rising
water level had caused production to decrease significantly. In any
event, we fully expect to recover the carrying value of this
asset.
  9
 
 Through
our subsidiary Cybershop, a New Jersey limited liability company ("Cybershop")
we own interests in certain oil and gas properties in Texas and an interest in
Century Royalty LLC ("Century Royalty"), a Texas limited liability company that
manages the oil and gas properties in Texas. Through Cybershop we also own an
additional interest in the Louisiana properties in which we already held an
interest. Century Royalty also holds the rights to certain geologic studies.
Century Royalty was a member of a working interest partnership that had
identified several prospects derived from the geological studies and was working
towards drilling those prospects. Century Royalty had a carried interest with
this partnership of 20% for the first well drilled in the first 5 prospects or
$1.25 million of investment, whichever came first. Century Royalty continues to
have a 20% participation interest in all subsequent wells drilled in the first 5
prospects. As these joint interest partnership agreements have expired, they
relate only to prospects for which leases were already taken and not expired at
the time the agreements expired.. Due to the existence of these revenue
overrides, the operations of Century Royalty are included in the accompanying
statements of operations.
  On June
28, 2006, the working interest partnership of which Century Royalty is a member
commenced drilling on one of the prospects and planned to drill on a second
prospect once the first was completed. The costs of drilling these prospects
were expected to exceed Century Royalty's carried interest in the working
interest partnership. On June 20, 2006, we agreed to contribute a maximum of
$100,000 towards the drilling of these two prospects and decrease our working
interest in these two prospects to 11.918%.
  On
October 5, 2006, we announced the successful completion of drilling in the first
prospect, located in Liberty County, Texas. The pipeline tie-in of the
"Friendswood No. 2 RE" gas well was completed successfully in June 2007. On or
about September 14, 2007, efforts to increase the pressure of the flow of gas
from the well were successful and the sale of gas through the pipeline
commenced. On February 4, 2008, we successfully completed fracing of the well.
On February 21, 2008, the well was put back on line full-time. It is currently
producing around 150-200 Mcf of gas per day, up from about 60 Mcf per day prior
to fracing. The well continues to produce a small amount of water, up to about
10 barrels per day.
  In June
2008, the working interest partnership started to drill a re-entry into an
existing well, targeting some oil sands in the area covered in the East Wilcox
prospect. However after encountering some old drill bits and other debris in the
hole, it was decided to secure additional financing and then drill a new well.
We invested about $21,000 in this re-entry and approximately $69,600 in
continuing development of this prospect in 2008, including the cost of acquiring
additional leases.
 
 Cybershop
entered into an agreement dated as of June 30, 2008, with B & L Oil Company,
Inc. and Randall Petroleum Corp. to amend the terms of an acquisition agreement
dated April 7, 1999, by and among B & L, Randall and Polystick U.S. Corp.
(“Polystick”). (B & L, Randall and Polystick had formed Century Royalty
pursuant to the acquisition agreement and Cybershop succeeded to Polystick’s
interests under the acquisition agreement and in Century Royalty in
2003.) In the amendment, the parties agreed to terminate the back-in after
payout due B & L and Randall under Article VI of the acquisition agreement.
The parties also agreed that each will have the right to participate in any
prospect generated and proposed in the HLM Project in Liberty and Montgomery
Counties, Texas (except the East Wilcox Prospect, the “Friendswood No. 2 RE”
well, the Nickel Prospect and the “Shirley Gay No. 1” well), as follows: B &
L - an undivided 1/3rd interest; Randall - an undivided 1/3rd interest; and
GSV - an undivided 1/3rd interest.
 
 In July
2008 we received an independent engineering report for the East Wilcox prospect.
According to the report the total reserves in the prospect were approximately
7.9 bcf gross and approximately 660 Mcf net for our adjusted revenue interest in
this prospect. The prospect also had a nominal amount of oil. According to the
report it might take up to 5 additional wells to tap the reserves. Century
Royalty and its partners have been preparing to commence drilling a second well
near “Friendswood No. 2 RE” in the near future. Based on this report, an asset
previously classified as “geological studies” on the balance sheet was
reclassified as “oil and gas wells, net of accumulated depletion.” Depletion has
commenced on the reclassified asset of $2,316,721 An updated report effective as
of January 1, 2009 gave the well significantly lower reserves of 1.42 mbbl of
oil and 114.53 Mcf of gas gross and 0.12 mbbl of oil and 9.55 Mcf of gas net for
our interest. The report estimated that the reserves, net of expenses and
discounted at 10%, were worth $19,420. The reason for the significant reduction
was the lack of success in fracing the well and increasing the flow of
gas.
 
 In
October 2006, we granted one of the members of the Texas working interest
partnership the right to drill a well based on the geological seismic data that
Century Royalty holds. In return, we received a 2% carried interest in the
proposed well until completion, and a 2% working interest thereafter. The
“Shirley Gay No. 1” well was completed in the beginning of March 2007. Pipeline
tie-in was completed in February 2008 and sales began shortly thereafter. We
started to receive proceeds from these sales in April 2008.  According
to an independent engineering report effective as of January 1, 2009, the
reserves in the well are 13.88 mbbl of oil and 438.5 Mcf of gas gross and 0.21
mbbl of oil and 6.58 Mcf of gas net for our adjusted revenue interest in the
prospect. The report estimated that the reserves, net of expenses and discounted
at 10%, were worth $36,350.
 
 Another
well, “Strong No. 1”, was commenced in June 2008 in the SE Cleveland Prospect in
Liberty County, Texas. Our working interest share through Century Royalty is
2.00%. After several attempts to perforate the well at different depths the
operator decided not to complete the well and to plug it. We invested $150,511
in this well in 2008.
  Our
management has little practical experience in the oil and gas industry. Our
management relies to a great extent on the employees of Century Royalty to
monitor and implement strategy with respect to our oil and gas assets. Our
management's inexperience may detrimentally affect our operations and results
because, for example, it could prevent us from taking advantage of opportunities
that arise on a timely basis or cause us to take actions that a more experienced
management team might determine are not in our best interests. We are currently
seeking to engage additional professional managers to assist in extracting value
from the properties
    10
 
 The sole
shareholder of Polystick is RT Sagi Holding Ltd., an Israeli corporation. The
sole stockholder of RT Sagi and indirect owner of Polystick is Mr. Sagi Matza.
Mr. Matza sits on our board of directors as the designee of Polystick. Polystick
has the right to elect two additional persons to our board of directors but has
not yet done so.
 
 Each
share of Series B convertible preferred stock is convertible at any time at the
holder's option into a number of shares of common stock equal to $1.00 divided
by the conversion price then in effect. The terms upon which the Series B
convertible preferred stock may be converted into common stock are set forth in
the Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock filed by the Company with the Secretary of State of the State of
Delaware on July 18, 2003 ("Series B Certificate of Designations"). As of
November 11, 2005, the Series B convertible preferred stock owned by Polystick
was convertible into 1,500,000 shares of common stock.
  No
dividends are payable on the Series B convertible preferred stock, except that
in the event dividends are declared with respect to the common stock each holder
of shares of Series B convertible preferred stock will be entitled to receive an
amount equal to the amount of dividends that would have been paid on the shares
of common stock issuable upon conversion of such shares of Series B convertible
preferred stock had such shares of Series B convertible preferred stock been
converted into common stock immediately before the dividend was
declared.
  Upon any
Liquidation Event, as defined in the Series B Certificate of Designations, the
holders of the outstanding Series B convertible preferred stock will be
entitled, before any distribution or payment is made to any holder of common
stock or any other Junior Stock (as defined in the Series B Certificate of
Designations), to be paid an amount equal to $1.00 per share plus the amount of
any declared and unpaid dividends thereon. If upon any Liquidation Event our net
assets distributable among the holders of the Series B convertible preferred
stock are insufficient to permit the payment in full of such preferential amount
to the holders of the Series B convertible preferred stock, then our net assets
will be distributed ratably among the holders of the Series B convertible
preferred stock in proportion to the amounts they otherwise would have been
entitled to receive.
  The
Series B Certificate of Designations provides that so long as any shares of
Series B convertible preferred stock are outstanding, we will not, without the
written approval of the holders of at least a majority of the then-outstanding
Series B convertible preferred stock, increase the maximum number of directors
constituting our board of directors to more than seven. The Series B Certificate
of Designations also provides that, so long as any shares of Series B
convertible preferred stock are outstanding, the holders of the Series B
convertible preferred stock, voting separately as a class, will be entitled to
designate and elect three of the members of our board of directors. Also, a
vacancy in any directorship elected by the holders of the Series B convertible
preferred stock may be filled only by vote or written consent of the holders of
at least a majority of the then outstanding shares of Series B convertible
preferred stock. The Series B convertible preferred stock has no other voting
rights except as provided by applicable law.
  In June
2001, we sublet to Nekema.com our former offices in Jersey City, New Jersey
through December 31, 2008. The rent on the sublease was guaranteed by Lumbermens
Mutual Casualty Company, d/b/a Kemper Insurance Company, until May 2003. In
September 2002 Nekema ceased business operations and defaulted on the sublease.
Kemper Insurance Company made all payments of rent due under the sublease
through May 2003. We ceased paying rent under the lease for this space in July
2003. On May 5, 2004 we filed a proof of claim against Nekema's estate in the
United States Bankruptcy Court for the Southern District of New York. The proof
of claim was for the total sum of $421,455.15 as permitted by law and the court
approved a settlement of $363,048.88. On November 15, 2005, the trustee in the
bankruptcy filed a notice of filing of final accounts. On February 15, 2006, we
received $22,300.77 in settlement of our claim.
  On
January 3, 2006, we entered into a Termination, Settlement and Release Agreement
with 116 Newark Avenue Corporation ("116 Newark"), dated as of November 30,
2005, pursuant to which we agreed to terminate the lease for our former offices
in Jersey City, New Jersey. Under the terms of the agreement, we paid 116 Newark
$70,000 in cash, issued a promissory note in the principal amount of $356,249.04
and 200,000 shares of Series C preferred stock to 116 Newark and reimbursed 116
Newark for $10,000 of its legal fees. The promissory note bore interest at a
rate of 7% per annum and was secured by a pledge agreement between Polystick and
116 Newark pursuant to which Polystick pledged 356,249 shares of our Series B
Preferred Stock that it holds to 116 Newark. On January 9, 2008, we entered into
an agreement, dated as of January 3, 2008, with 116 Newark to amend and restate
the terms of the promissory note. Pursuant to the agreement, we paid all accrued
and unpaid interest on the promissory note through the date of the agreement,
and the original note was amended and restated in a substitute note with a
maturity date of December 20, 2009. We agreed to pay the substitute note’s
outstanding principal balance of $356,249.04 in 24 consecutive monthly
installments of $14,843.71, each payable on or before the 20th day of the month,
beginning in January 2008. The substitute note will not accrue interest, except
that if any monthly installment is not received by 116 Newark within ten days of
its applicable monthly installment date (the "Trigger Date") then (i) interest
at the rate of 7% per annum shall be deemed to have begun to accrue from the
date of the agreement on the then unpaid principal balance of the substitute
note, and shall continue to accrue until all principal and accrued interest on
the substitute note is paid in full; (ii) all interest that is accrued and
unpaid as of the Trigger Date shall be immediately due and payable on the
Trigger Date; and (iii) with each monthly installment following the Trigger
Date, we will pay all then accrued and unpaid interest on the unpaid principal
balance of the substitute note through the relevant monthly installment date.
Payment and performance under the substitute note has been guaranteed by
Polystick and secured by a pledge agreement between Polystick and 116 Newark
pursuant to which Polystick has pledged 356,249 shares of our Series B Preferred
Stock to 116 Newark. We have not made any installment payments on the substitute
note following the installment payment that was due on or before January 20,
2009.  We are negotiating with 116 Newark to restructure this
obligation.
  11
 
 Each
share of Series C preferred stock is convertible at any time into a number of
shares of common stock equal to $1.00 divided by the conversion rate then in
effect. The terms upon which the Series C convertible preferred stock may be
converted into common stock are set forth in the Certificate of Designations,
Preferences and Rights of Series C Convertible Preferred Stock filed by the
Company with the Secretary of State of the State of Delaware on January 3, 2006
("Series C Certificate of Designations"). As of March 23, 2009, the Series C
convertible preferred stock owned by 116 Newark was convertible into 200,000
shares of common stock.
  No
dividends are payable on the Series C convertible preferred stock.
  Upon any
Liquidation Event, as defined in the Series C Certificate of Designations, the
holders of the outstanding Series C convertible preferred stock will be
entitled, before any distribution or payment is made to any holder of common
stock or any other Junior Stock (as defined in the Series C Certificate of
Designations), to be paid an amount equal to $1.00 per share. If upon any
Liquidation Event our net assets distributable among the holders of the Series C
convertible preferred stock are insufficient to permit the payment in full of
such preferential amount to the holders of the Series C convertible preferred
stock, then our net assets will be distributed ratably among the holders of the
Series C convertible preferred stock in proportion to the amounts they otherwise
would have been entitled to receive.
  The
Series C Certificate of Designations provides that so long as any shares of
Series C convertible preferred stock are outstanding, we will not, without the
written approval of the holders of at least a majority of the then-outstanding
Series C convertible preferred stock, (i) issue any additional shares of Series
C convertible preferred stock, or (ii) issue any Senior Stock or Parity Stock
(as such terms are defined in the Series C Certificate of Designations), unless
such Senior Stock or Parity Stock is to be issued in exchange for (A) cash or
services rendered or to be rendered by parties who are not Affiliates (as
defined in the Series C Certificate of Designations) of the Company, in either
case having a value greater than the aggregate liquidation preference of such
Senior Stock or Parity Stock, or (B) equity securities or assets of one or more
businesses that are not Affiliates of the Company, in either case having a value
that is equal to or greater than the aggregate liquidation preference of such
Senior Stock or Parity Stock. The Series C convertible preferred stock has no
other voting rights except as provided by applicable law.
  Results
of Operations
 
 Year
Ended December 31, 2008 compared to Year Ended December 31, 2007.
  Revenue:
Revenue in 2008 consisted of royalty payments from our working interests in two
oil and gas wells in the state of Louisiana, the Friendswood No. 2 RE gas well
in Liberty County, Texas and the Shirley Gay gas well in Liberty County, Texas.
Revenues increased by 2.2%, or $18,175, to $855,935 in 2008 from $837,760 in
2007. The increase in revenues for 2008 is primarily a result of the increase in
production in Louisiana in the first part of the year and the addition of
production from the Friendswood No. 2 RE well.
 
 General
and administrative: General and administrative expenses consisted primarily of
payroll and payroll-related expenses for administrative, information technology,
accounting, and management personnel, recruiting, legal fees, depreciation,
depletion, finance expenses and general corporate expenses. General and
administrative expenses increased by 8.2%, or $50,987, to $676,159 in the year
ended December 31, 2008, from $625,172 in the prior year. The increase in 2008
was primarily the result of additional legal and consulting fees.
  Net
Income: Net loss available to common stockholders in the year ended
December 31, 2008, was ($2,299,943), or ($0.31) per basic and diluted common
share, as compared to net income of $156,051, or $0.02 per basic and diluted
common share, in the prior year. The primary reason for the decrease in net
income was the impairment of our investment in oil and gas wells.
  Year
Ended December 31, 2007 compared to Year Ended December 31, 2006.
  Revenue:
Revenue in 2007 consisted primarily of royalty payments from our working
interests in two oil and gas wells in the state of Louisiana. Revenues increased
by 217.5%, or $573,893, to $837,760 in 2007 from $263,867 in 2006. The increase
in revenues for 2007 is primarily a result of the increase in oil prices and the
increase in production. On February 9, 2006, we were advised by the operator of
the oil and gas wells in Louisiana that production from the wells would be
suspended temporarily because the water level had risen in one of the wells. On
or about May 8, 2006 work to recomplete the wells in a different sand zone was
completed and production was restarted. Our share of the costs of recompletion,
which was about $70,300, was deducted from the royalty payments we received from
the operator.
  12
 
 General
and administrative: General and administrative expenses consisted primarily of
payroll and payroll-related expenses for administrative, information technology,
accounting, and management personnel, recruiting, legal fees, depreciation,
depletion, finance expenses and general corporate expenses. General and
administrative expenses increased by 67.8%, or $252,621, to $625,172 in the year
ended December 31, 2007, from $372,551 in the prior year. The increase in 2007
was primarily the result of the increase in depletion.
  Net
Income: Net income available to common stockholders in the year ended December
31, 2007, was $156,050, or $0.02 per basic and diluted common share, as compared
to a net loss of $165,621 or ($0.02) per basic and diluted common share, in the
prior year. The increase in net income is in line with the increase in revenues
from oil and gas wells.
  Liquidity
and Capital Resources
  Net cash
provided by operations decreased by 28.9%, or $142,156, from $491,208 in the
year ended December 31, 2007, to $349,052 in the year ended December 31, 2008.
The decrease was due primarily to a decrease in cash from revenues of the
Louisiana wells, partially offset by the addition of cash from revenues from the
Friendswood No. 2 RE well in Liberty County, Texas.
  Net cash
used by investing activities during the year ended December 31, 2008, was
$320,076, as compared to $111,206 in the prior year.  The increase was
caused by the investments made in the Texas wells, the drilling of new prospects
and the acquisition of additional leases.
  Net cash
used by financing activities during the year ended December 31, 2008, was
$190,835, as compared to $20,000 used by financing activities in the prior year.
The cash used in 2008 and 2007 was attributable to the repayment of
principal on notes payable. Cash used in 2008 increased due to the restructuring
of the 116 Newark note as described below.
  On
October 17, 2008, we entered into an agreement (the “Waiver and Extension
Agreement”) with Brooks Station Holdings, Inc. (“Brooks Station”), pursuant to
which we and Brooks Station agreed to amend and restate the terms of an 8%
promissory note in the principal amount of $160,000 in the form of a substitute
note dated as of September 1, 2008. Pursuant to the Waiver and Extension
Agreement, Brooks Station agreed to extend the maturity date of the original
note from September 1, 2008, to March 1, 2009, and to waive any claim against us
or our assets arising from our failure to repay the original note on the
maturity date. The original note was issued on July 21, 2003, and had previously
been amended several times between 2004 and March 2008 by agreements between the
parties. Also, pursuant to the Waiver and Extension Agreement, we and Brooks
Station agreed to amend a security agreement between us to provide that Brooks
Station’s security interest in our assets would continue to support our
obligations under the substitute note. We are presently negotiating with Brooks
Station towards an extension of the maturity of the substitute
note.
 
 Contemporaneously
with the execution of the Waiver and Extension Agreement, we paid Brooks Station
$10,000 of the principal balance of the original note, thus reducing the
outstanding principal balance of the substitute note to $150,000. As of March
15, 2009, the accrued and unpaid interest on the substitute note was $15,878.
The substitute note provides that upon the occurrence of an event of default,
all amounts remaining unpaid on the substitute note shall become immediately due
and payable. Events of default include our application for appointment of a
receiver, our admission in writing of our inability to pay our debts as they
become due, our making of a general assignment for the benefit of creditors, the
filing against us of an involuntary petition in bankruptcy or other insolvency
proceeding, or a petition or an answer seeking reorganization or an arrangement
with creditors, the filing by us of an application for judicial dissolution or
the entry of an order, judgment or decree by any court of competent
jurisdiction, approving a petition seeking reorganization of us or all or a
substantial part of our properties or assets or appointing a receiver, trustee
or liquidator for us.
 
 On May
11, 2004, we sold a convertible promissory note in the principal amount of
$200,000 and a warrant to purchase up to 1,142,857 shares of our common stock at
a price of $.70 per share to D. Emerald Investments Ltd., a private investment
corporation ("Emerald"). The note bears interest at the rate of 8% per annum and
is convertible into shares of our common stock at a price of $.70 per share. The
aggregate purchase price of these securities was $200,000. In connection with
the sale of these securities we agreed that if Emerald exercises the warrant in
full and converts the convertible note in full, then, at Emerald's request, we
will appoint a person designated by Emerald to our Board of Directors and, in
addition, for so long as Emerald holds at least eighty-five percent (85%) of the
common stock issued upon such exercise and conversion, we will nominate such
person (or a different person designated by Emerald) to be reelected to the
Board of Directors in connection with any meeting of our stockholders at which
directors are to be elected. We also agreed that within 120 days of the exercise
of the warrant and/or conversion of the note for an aggregate of at least
428,572 shares of common stock (subject to adjustment for dilutive events as set
forth in the warrant and the note) we will register all of the shares issuable
upon conversion of the note and exercise of the warrant under the Securities Act
of 1933. Additionally, we granted Emerald rights to have the shares included in
other registration statements we may file for the public offering of our
securities for cash proceeds.
  13
  Our
principal stockholder, Polystick, entered into a guaranty and a pledge agreement
with Emerald under which Polystick pledged 200,000 shares of our Series B
convertible preferred stock as collateral security for the note. Polystick also
entered into a voting agreement with Emerald under which Polystick agreed that
if we fail to fully and timely fulfill our obligations to appoint or nominate a
representative for election to our board of directors, then, at Emerald's
request, Polystick will vote its shares of Series B convertible preferred stock
in favor of a nominee designated by Emerald in any election of directors
occurring during such time and for so long as Emerald holds at least 85% of the
common stock issued upon exercise of the warrant and conversion of the note.
Polystick also agreed that, provided that Polystick continues to have the right
to designate and elect three directors to the Company's board of directors under
the terms of the Series B convertible preferred stock, any such nominee will
count as one of such directors. Additionally, Polystick agreed to use all its
power and authority as provided by our by-laws and the Series B convertible
preferred stock to convene, at Emerald's request, meetings of stockholders as
may be necessary to elect Emerald's nominee to the board of
directors.
  Since the
date we originally issued the note and warrant to Emerald, we entered into a
series of agreements with Emerald extending the maturity date of the note and
the expiration date of the warrant. Most recently, on July 1, 2008, we entered
into an agreement dated as of May 10, 2008 pursuant to which we and Emerald
agreed to further extend and renew the note and warrant. Under the terms of the
agreement, the original note has been amended and restated in a substitute note
with a maturity date of July 10, 2009 and the original warrant has been amended
and restated in a substitute warrant with an expiration date of May 10, 2009.
The substitute note bears interest at the rate of 8% per annum, payable
quarterly in arrears. On March 10, 2009, there was $77,333 of interest accrued
on the substitute note. Principal and accrued interest on the substitute note is
convertible at a price of $.70 per share at any time prior to July 10, 2009. The
substitute note provides that if the principal and interest due on the maturity
date is not paid, the substitute note will bear interest at a default rate of
12% per annum. Upon the occurrence of an event of default, Emerald may, at its
sole option, declare the entire principal amount of the substitute note and any
interest due thereon immediately due and payable. Events of default include
failure to pay the principal amount on the maturity date or any interest when
due, commencement by us or against us of any proceeding or other action relating
to bankruptcy or reorganization, our breach or failure to perform or observe any
obligation contained in the substitute note, the purchase agreement or
substitute warrant or our failure to ensure that any conversion of the
substitute note is effected upon request. Payment and performance under the
substitute note continues to be guaranteed by Polystick and secured by a pledge
agreement between Polystick and Emerald pursuant to which Polystick has pledged
200,000 shares of our Series B convertible preferred stock to
Emerald.
  On
January 3, 2006, we entered into a Termination, Settlement and Release Agreement
with 116 Newark, dated as of November 30, 2005, pursuant to which we agreed to
terminate the lease for our former offices in Jersey City, New Jersey. Under the
terms of the agreement, we paid 116 Newark $70,000 in cash, issued a promissory
note in the principal amount of $356,249.04 and 200,000 shares of Series C
preferred stock to 116 Newark and reimbursed 116 Newark for $10,000 of its legal
fees. The promissory note matured on November 29, 2007 and bore interest at a
rate of 7% per annum. Payment and performance under the promissory note was
guaranteed by Polystick and secured by a pledge agreement between Polystick and
116 Newark pursuant to which Polystick pledged 356,249 shares of our Series B
Preferred Stock that it holds to 116 Newark. 116 Newark has the right to include
any shares of common stock received upon conversion of the Series C preferred
stock and upon conversion of the pledged shares as part of any registration
statement that we may file in connection with any public offering of our
securities (excluding registration statements on Forms S-4 and S-8). On January
9, 2008, we entered into an agreement, dated as of January 3, 2008, with 116
Newark to amend and restate the terms of the promissory note. Pursuant to the
agreement, we paid all accrued and unpaid interest on the promissory note
through the date of the agreement, and the original note was amended and
restated in a substitute note with a maturity date of December 20, 2009. We
agreed to pay the substitute note’s outstanding principal balance of $356,249.04
in 24 consecutive monthly installments of $14,843.71, each payable on or before
the 20th day of the month, beginning in January 2008. The substitute note will
not accrue interest, except that if any monthly installment is not received by
116 Newark within ten days of its applicable monthly installment date (the
"Trigger Date") then (i) interest at the rate of 7% per annum shall be deemed to
have begun to accrue from the date of the agreement on the then unpaid principal
balance of the substitute note, and shall continue to accrue until all principal
and accrued interest on the substitute note is paid in full; and (ii) all
interest that is accrued and unpaid as of the Trigger Date shall be immediately
due and payable on the Trigger Date; and (iii) with each monthly installment
following the Trigger Date, we will pay all then accrued and unpaid interest on
the unpaid principal balance of the substitute note through the relevant monthly
installment date. Payment and performance under the substitute note has been
guaranteed by Polystick and secured by a pledge agreement between Polystick and
116 Newark pursuant to which Polystick has pledged 356,249 shares of our Series
B Preferred Stock to 116 Newark. We have not made any installment payments on
the substitute note following the installment payment that was due on or before
January 20, 2009.  We are negotiating with 116 Newark to restructure
this obligation.
  We
believe that our existing capital resources will enable us to maintain our
operations at existing levels for at least the next 12 months, assuming that we
can extend the maturities of some or all of the notes we issued to Brooks
Station, Emerald and 116 Newark beyond the next 12 months. However, it is
difficult to project our capital needs. We cannot assure you that any additional
financing or other sources of capital will be available to us upon acceptable
terms, if at all. The inability to obtain additional financing, when needed,
would have a material adverse effect on our business, financial condition and
operating results.
 
  14
 
 Critical
Accounting Policies and Use of Estimates
  The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of our consolidated financial statements requires us to
make estimates and assumptions that affect our reported results of operations
and the amount of reported assets, liabilities and proved oil and natural gas
reserves. Some accounting policies involve judgments and uncertainties to such
an extent that there is reasonable likelihood that materially different amounts
could have been reported under different conditions, or if different assumptions
had been used. Actual results may differ from the estimates and assumptions used
in the preparation of our consolidated financial statements. Described below are
the most significant policies we apply in preparing our consolidated financial
statements. We also describe the most significant estimates and assumptions we
make in applying these policies.
  Oil
and Natural Gas Activities
  Accounting
for oil and natural gas activities is subject to special, unique rules. Two
generally accepted methods of accounting for oil and natural gas activities are
available - successful efforts and full cost. The most significant differences
between these two methods are the treatment of unsuccessful exploration costs
and the manner in which the carrying value of oil and natural gas properties are
amortized and evaluated for impairment. The successful efforts method requires
unsuccessful exploration costs to be expensed as they are incurred upon a
determination that the well is uneconomical while the full cost method provides
for the capitalization of these costs. Both methods generally provide for the
periodic amortization of capitalized costs based on proved reserve quantities.
Impairment of oil and natural gas properties under the successful efforts method
is based on an evaluation of the carrying value of individual oil and natural
gas properties against their estimated fair value, while impairment under the
full cost method requires an evaluation of the carrying value of oil and natural
gas properties included in a cost center against the net present value of future
cash flows from the related proved reserves, using period-end prices and costs
and a 10% discount rate.
 
 Full
Cost Method
  We use
the full cost method of accounting for our oil and natural gas activities. Under
this method, all costs incurred in the acquisition, exploration and development
of oil and natural gas properties are capitalized into a cost center (the
amortization base). Such amounts include the cost of drilling and equipping
productive wells, dry hole costs, lease acquisition costs and delay rentals. All
general and administrative costs unrelated to drilling activities are expensed
as incurred. The capitalized costs of our oil and natural gas properties, plus
an estimate of our future development and abandonment costs, are amortized on a
unit-of-production method based on our estimate of total proved reserves. Our
financial position and results of operations could have been significantly
different had we used the successful efforts method of accounting for our oil
and natural gas activities.
  Proved
Oil and Natural Gas Reserves
  Estimates
of our proved reserves included in this report are prepared in accordance with
accounting principles generally accepted in the United States of America and SEC
guidelines. Our engineering estimates of proved oil and natural gas reserves
directly impact financial accounting estimates, including depreciation,
depletion and amortization expense and the full cost ceiling limitation. Proved
oil and natural gas reserves are the estimated quantities of oil and natural gas
reserves that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
period-end economic and operating conditions. The process of estimating
quantities of proved reserves is very complex, requiring significant subjective
decisions in the evaluation of all geological, engineering and economic data for
each reservoir. The accuracy of a reserve estimate is a function of: (i) the
quality and quantity of available data; (ii) the interpretation of that data;
(iii) the accuracy of various mandated economic assumptions and (iv) the
judgment of the persons preparing the estimate. The data for a given reservoir
may change substantially over time as a result of numerous factors, including
additional development activity, evolving production history and continual
reassessment of the viability of production under varying economic conditions.
Changes in oil and natural gas prices, operating costs and expected performance
from a given reservoir also will result in revisions to the amount of our
estimated proved reserves. Our estimated proved reserves for the years ended
December 31, 2008, 2007 and 2006 were prepared by Pressler Petroleum
Consultants Inc., an independent oil and natural gas reservoir engineering
consulting firm.
  Depreciation,
Depletion and Amortization
  Our rate
of recording depreciation, depletion and amortization expense (DD&A) is
dependent upon our estimate of proved reserves, which is utilized in our
unit-of-production method calculation. If the estimates of proved reserves were
to be reduced, the rate at which we record DD&A expense would increase,
reducing net income. Such a reduction in reserves may result from lower market
prices, which may make it non-economic to drill for and produce higher cost
reserves. A five percent positive or negative revision to proved reserves would
decrease or increase the DD&A rate by approximately $0.15 to $0.17 per Mcfe,
respectively.
  15
 
 Future
Development and Abandonment Costs
  Future
development costs include costs incurred to obtain access to proved reserves
such as drilling costs and the installation of production equipment. Future
abandonment costs include costs to dismantle and relocate or dispose of our
production facilities, gathering systems and related structures and restoration
costs. We develop estimates of these costs for each of our properties based upon
their geographic location, type of production structure, well depth, currently
available procedures and ongoing consultations with construction and engineering
consultants. Because these costs typically extend many years into the future,
estimating these future costs is difficult and requires management to make
judgments that are subject to future revisions based upon numerous factors,
including changing technology and the political and regulatory environment. We
review our assumptions and estimates of future development and future
abandonment costs on an annual basis. A five percent positive or negative change
in future development and abandonment costs would decrease or increase the
DD&A rate by approximately $0.05 per Mcfe.
 
 Asset
Retirement Obligations
  We have
obligations to remove tangible equipment and facilities and to restore land at
the end of oil and gas production operations. Our removal and restoration
obligations are associated with plugging and abandoning wells. Estimating the
future restoration and removal costs is difficult and requires us to make
estimates and judgments because most of the removal obligations are many years
in the future and contracts and regulations often have vague descriptions of
what constitutes removal. Asset removal technologies and costs are constantly
changing, as are regulatory, political, environmental, safety and public
relations considerations. Inherent in the present value calculations are
numerous assumptions and judgments including the ultimate settlement amounts,
inflation factors, credit adjusted discount rates, timing of settlements and
changes in the legal, regulatory, environmental and political
environments.
  Stock-based
Compensation
  Determining
the amount of stock-based compensation for awards granted includes selecting an
appropriate model to calculate fair value. We have used the Black-Scholes option
valuation model to value employee stock option awards. Certain inputs to this
valuation model require considerable judgment. These inputs include estimating
the volatility of our stock, the expected life of the option awarded and the
forfeiture rate. We have estimated volatility, the expected life and the
forfeiture rate based on historical data. Volatility is estimated over a term
that approximates the expected life of the option awarded.
  Valuation
of Investments in Non-Publicly Traded Companies
  In the
past, we have been making strategic equity investments in non-publicly traded
internet-related companies. Depending on our level of ownership and whether or
not we have the ability to exercise significant influence, we account for these
investments on either the cost or equity method, and review such investments
periodically for impairment. The appropriate reductions in carrying values are
recorded when, and if, necessary. The process of assessing whether a particular
investment's net realizable value is less than its carrying cost requires a
significant amount of judgment. In making this judgment, we carefully consider
the investee's cash position, projected cash flows (both short and long-term),
financing needs, most recent valuation data, the current investing environment,
management / ownership changes, and competition. This evaluation process is
based on information that we request from these privately held companies. This
information is not subject to the same disclosure and audit requirements as the
reports required of U.S. public companies, and as such, the reliability and
accuracy of the data may vary. Based on our evaluations, we  recorded
impairment charges related to our investments in non-publicly traded companies
during December 31, 2008,. We did not record any impairment in 2007 and 2006,
respectively. The total investment in non-public companies was $0 as of December
31, 2008, and $50,000 as of December 31, 2007.
  Effects
of Inflation and Pricing
  Indirectly,
through the operators of the wells in which we have interests and through third
parties who perform exploratory services for Century Royalty, we experienced
increased costs during 2008, 2007 and 2006 due to increased demand for oil field
products and services. The oil and gas industry is cyclical and the demand
for goods and services of oil field companies, suppliers and others associated
with the industry put significant pressure on the economic stability and pricing
structure within the industry. Typically, as prices for oil and natural gas
increase, so do all associated costs. Conversely, in a period of declining
prices, associated cost declines are likely to lag and may not adjust downward
in proportion. Material changes in prices also impact the current revenue
stream, estimates of future reserves, borrowing base calculations of bank loans,
impairment assessments of oil and gas properties, and values of properties in
purchase and sale transactions. Material changes in prices can impact the
value of oil and gas companies and their ability to raise capital, borrow money
and retain personnel. While we do not currently expect business costs to
increase materially, higher prices for oil and natural gas could result in
increases in the costs of materials, services and personnel.
  Off-Balance
Sheet Arrangements
  We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
  Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
  Not
applicable.
  Item
8. Financial Statements and Supplementary Data.
  The
financial statements required by Item 7 are included in this report beginning on
page F-1.
  Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
  There
have been no changes in or disagreements with our principal independent
accountants on accounting and financial disclosure during the registrant’s two
most recent fiscal years and through the date of this report.
  16
  Item
9A(T). Controls and Procedures.
  (a) Evaluation of Disclosure Controls
and Procedures. Our management, including our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report. Based on that
evaluation, our management, including our chief executive officer and chief
financial officer, concluded that our disclosure controls and procedures as of
the end of the period covered by this report were effective such that the
information required to be disclosed by us in reports filed under the Securities
Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii)
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding disclosure. A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
  Management’s Annual Report on
Internal Control over Financial Reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended). 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.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.
  In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework. Based on this evaluation, our management, including our
chief executive officer and chief financial officer, concluded that, as of
December 31, 2008, our internal control over financial reporting was
effective.
    (b) Changes in Internal Control over
Financial Reporting. There has been no change in our internal control
over financial reporting, 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.
  Item
9B. Other Information.
  Not
applicable.
  17
 
 PART
III
  Item 10. Directors, Executive
Officers and Corporate Governance.
  Our
directors and executive officers are as follows:
 
 Name
                  
                  Age
                  
                  TitleSagi
      Matza
                  
                  40
                  
                  Chairman
      of the BoardGilad
      Gat
                  
                  45
                  
                  Chief
      Executive Officer, Chief Financial Officer, President and
      DirectorYoav
      Bitter
                  
                  41
                  
                  Director
  Sagi Matza has served as
Chairman of the Board of GSV, Inc. since July 28, 2003 and as a director since
July 21, 2003. He has been the Chief Executive Officer of Polystick U.S. Corp.,
a New York corporation engaged in the business of investing in oil and gas
assets, since April 1999. From October 1999 to July 2003, he was also the chief
operating officer of Century Royalty. From 1989 until April 1999 he was the
Chief Executive Officer of Polystick Ltd., an Israeli corporation engaged in
chemical manufacturing, petrochemical trading and manufacturing and adhesives
manufacturing and distribution. Mr. Sagi founded Polystick U.S.
Corp.
  Gilad Gat has served as Chief
Executive Officer and President of GSV, Inc. since May 2001 and as Chief
Financial Officer since September 30, 2002. He served as Chairman of the Board
from May 2001 until July 28, 2003. Mr. Gat was the President and a director of
Brooks Station Holdings, Inc., a private investment corporation, from February
2001 to December 2002. From 1996 until May 2001, Mr. Gat was a self-employed
entrepreneur. Prior to 1996, Mr. Gat held various positions in the banking
industry in Israel. Mr. Gat holds a BA in economics and an MBA from the Hebrew
University in Jerusalem.
  Yoav Bitter has served as a
director of GSV, Inc. since May 2001. Since December 1999, Mr. Bitter has been
President of TIG Ventures, a company engaged in strategic consulting and
implementation. From August 1999 until May 2002, he was Executive Vice President
of Strategic Business Development of ElephantX Online Securities LLC, an
internet financial services company, which he co-founded. From 1997 until August
1999, Mr. Bitter was a partner and Director, Marketing/Sales at Hambro America
Securities, Inc., a private equity investment corporation. Mr. Bitter holds a
B.A. in economics from Queens College and an M.B.A. with honors (Beta Gamma
Sigma) from Zicklin School of Business, Baruch College.
  Audit
Committee
  Currently,
our entire board acts as our audit committee. Our board presently does not
include any member who qualifies as an "audit committee financial expert" (as
defined in Item 407(d)(5)(ii) of Regulation S-K). Given our limited financial
resources and operations at present the board does not believe that it is
necessary at this time to establish a separate audit committee or appoint an
"audit committee financial expert" to the board.
  Compliance
with Section 16(a) of the Exchange Act
  Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires our officers and directors and holders of more than 10% of our common
stock (collectively "Reporting Persons") to file reports of initial ownership,
ownership and changes in ownership of the common stock with the Securities and
Exchange Commission within certain time periods and to furnish the Company with
copies of all such reports. Based solely on our review of copies of such reports
furnished to us by such Reporting Persons or on the written representations of
such Reporting Persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 2008, all of the
Reporting Persons complied with their Section 16(a) filing
requirements.
 
 Code
of Ethics
  We
adopted a code of ethics for our officers, directors and employees in April
2004. We filed a copy of the code of ethics as Exhibit 14.1 to our annual report
for the year ended December 31, 2003.
  18
 
 Item
11. Executive Compensation.
  The
following table sets forth all compensation awarded to, earned by, or paid for
all services rendered to us during the fiscal year ended December 31, 2008, by
our chief executive officer.
 
 Name
      and Principal
                            Position
                          
                          Year
                          
                          Salary
                            ($)
                          
                          
                          Bonus
                            ($)
                          
                          
                          Total
                            ($)Gilad
      Gat, President
                          
                          2008
                          
                          $
                          120,000
                          
                          
                          $
                          30,000
                          
                          
                          $
                          150,0002007
                          
                          $
                          120,000
                          
                          
                          $
                          20,000
                          
                          
                          $
                          140,000
  Employment
and Consulting Agreements
  On
January 7, 2008, we entered into a consulting agreement with Sagi Matza. Under
the consulting agreement, Mr. Matza provides consulting and advisory services to
GSV, Inc. on a nonexclusive basis in exchange for a fee of $8,000 per month. We
suspended payment of this consulting fee in November 2008.
  On May 4,
2001, we entered into an employment agreement with Gilad Gat pursuant to which
Mr. Gat was hired to be our President and Chief Executive Officer. Mr. Gat's
salary is $120,000 per annum. Mr. Gat is an "at will" employee of GSV, Inc.,
provided however that, if he is terminated without cause, he is entitled to a
severance payment of $120,000.
  Director
Compensation
  All
directors are reimbursed for certain expenses in connection with attendance at
board of directors and committee meetings. Directors are eligible to be granted
options to purchase common stock under the GSV, Inc. 1998 Stock Option Plan. Our
non-employee directors did not receive any compensation for services as
directors of the Company in 2008.
  Equity
Compensation Plan Information
  The
following table sets forth certain information at December 31, 2008, with
respect to our equity compensation plans that provide for the issuance of
options, warrants or rights to purchase our securities.
  Plan Category
                      
                      Number of Securities to be
                        issued upon exercise of
                        outstanding options,
                        warrants and rights
                      
                      
                      Weighted average price of
                        outstanding options,
                        warrants, and rights
                      
                      
                      Number of securities
                        remaining available for
                        future issuance under
                        equity compensation plansEquity
      compensation plans
                        approved
      by security
                        holders
                      
                      
                      10,000
                      
                      
                      $
                      0.60 per share
                      
                      
                      
                      560,000Equity
      compensation plans
                        not
      approved by security
                        holders
                      
                      
                      0
                      
                      
                      $
                      0
                      
                      
                      
                      14,000Total
                      
                      
                      10,000
                      
                      
                      $
                      0.60 per
      share
                      
                      
                      
                      574,000
  In March
1998, the Board adopted the 1998 Directors' Stock Option Plan (the "Directors'
Plan"), pursuant to which each member of the Board of Directors who is not an
employee of the Company who is elected or continues as a member of the Board of
Directors is entitled to receive annually options to purchase 600 shares of
Common Stock at an exercise price equal to fair market value on the date of
grant. A Compensation Committee administers the Directors' Plan; however, it
cannot direct the number, timing or price of options granted to eligible
recipients thereunder.
  Each
option grant under the Directors' Plan vests after the first anniversary of the
date of grant and expires three years thereafter. The number of shares of common
stock related to awards that expire unexercised or are forfeited, surrendered,
terminated or canceled are available for future awards under the Directors'
Plan. If a director's service on the Board terminates for any reason other than
death, all vested options may be exercised by such director until the expiration
date of the option grant. In the event of a director's death, any options that
such director was entitled to exercise on the date immediately preceding his or
her death may be exercised by a transferee of such director for the six-month
period after the date of the director's death; provided that such options may
not be exercised after their expiration date. In the case of a director who
represents an institutional investor that is entitled to the compensation paid
by the Company to such director, option grants shall be made directly to the
institutional investor on whose behalf such director serves on the
Board.
  19
  The
maximum number of shares of Common Stock reserved for issuance under the
Directors' Plan is 14,000 shares. No options are currently outstanding under the
Directors' Plan.
  Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
  The
following table sets forth certain information as of March 24, 2009, regarding
the beneficial ownership of our common stock by (i) each person who is known to
us to be the beneficial owner of more than five percent (5%) of our common
stock; (ii) each director and each executive officer; and (iii) all current
directors and executive officers as a group. Information contained in this
report with regard to stock ownership was obtained from our stockholder list,
filings with governmental authorities, or from the named individual, directors
and officers. The persons identified in the following table disclaim beneficial
ownership of shares owned or held in trust for the benefit of members of their
families or entities with which they may be associated.
  Beneficial
ownership has been determined in accordance with the rules and regulations of
the SEC and includes voting or investment power with respect to the shares.
Unless otherwise indicated, the persons named in the table below have sole
voting and investment power with respect to the number of shares indicated as
beneficially owned by them.
  NAME AND ADDRESS OF
                                              BENEFICIAL OWNER (1)
                                            
                                            NUMBER OF SHARES
                                              BENEFICIALLY OWNED
                                            
                                            
                                            PERCENTAGE OF COMMON
                                              STOCKYoav
      Bitter
                                            
                                            
                                            0
                                            
                                            
                                            
                                            *Gilad
      Gat
                                            
                                            
                                            0
                                            
                                            
                                            
                                            *Sagi
      Matza
                                            
                                            
                                            6,850,000
                                            (2)
                                            
                                            
                                            76.1
                                            %Doron
      Ofer
                                              85
      Medinat Ha-Yehudim Street,
                                              Herzelya
      Pituach, 46140, Israel
                                            
                                            
                                            1,540,352
                                            (3)
                                            
                                            
                                            17.0
                                            %All
      executive officers and directors as a group (3 persons)
                                            
                                            
                                            6,850,000
                                            (2)
                                            
                                            
                                            76.1
                                            %
  * less
than 1 percent.
  (1)
              Unless
      otherwise indicated, the address of each beneficial owner identified is
      c/o GSV, Inc., 191 Post Road West, Westport, Connecticut
      06880.(2)
              Includes
      5,350,000 shares of common stock and 1,500,000 shares of common stock
      issuable upon conversion of an equal number of shares of Series B
      Preferred Stock held by Polystick U.S. Corp. Mr. Matza is the Chief
      Executive Officer of Polystick U.S. Corp. and is the indirect owner of all
      of its outstanding voting securities.(3)
              Includes
      397,495 shares of Common Stock issuable upon conversion of a promissory
      note held by D. Emerald Investments Ltd. ("Emerald") and 1,142,857 shares
      of Common Stock issuable upon exercise of a warrant owned by Emerald.
      Doron Ofer is the sole owner of
Emerald.
  Item
13. Certain Relationships and Related Transactions, and Director
Independence.
  Gilad
Gat, our President, and Chief Executive Officer, was the President and a
director of Brooks Station Holdings, Inc., (“Brooks Station”) a private
investment corporation, from February 2001 until December 2002. Brooks Station
acquired 363,637 shares of our Series A Convertible Preferred Stock in a private
placement offering consummated in March 2001.
  On
October 17, 2008, we entered into an agreement (the “Waiver and Extension
Agreement”) with Brooks Station pursuant to which we and Brooks Station agreed
to amend and restate the terms of an outstanding 8% promissory note of the
Company in favor of Brooks Station in the principal amount of $160,000 in the
form of a substitute note dated as of September 1, 2008. Pursuant to the Waiver
and Extension Agreement, Brooks Station agreed to extend the maturity date of
the original note from September 1, 2008, to March 1, 2009, and to waive any
claim against us or our assets arising from our failure to repay the original
note on the maturity date. The original note was issued on July 21, 2003, and
had previously been amended several times between 2004 and March 2008 by
agreements between the parties. Also, pursuant to the Waiver and Extension
Agreement, we and Brooks Station agreed to amend a security agreement between us
to provide that Brooks Station’s security interest in our assets would continue
to support our obligations under the substitute note. We are presently
negotiating with Brooks Station towards an extension of the maturity of the
substitute note.
  20
 
 Contemporaneously
with the execution of the Waiver and Extension Agreement, we paid Brooks Station
$10,000 of the principal balance of the original note, thus reducing the
outstanding principal balance of the substitute note to $150,000. As of March
15, 2009, the accrued and unpaid interest on the substitute note was $35,433.33.
The substitute note provides that upon the occurrence of an event of default,
all amounts remaining unpaid on the substitute note shall become immediately due
and payable. Events of default include our application for appointment of a
receiver, our admission in writing of our inability to pay our debts as they
become due, our making of a general assignment for the benefit of creditors, the
filing against us of an involuntary petition in bankruptcy or other insolvency
proceeding, or a petition or an answer seeking reorganization or an arrangement
with creditors, the filing by us of an application for judicial dissolution or
the entry of an order, judgment or decree by any court of competent
jurisdiction, approving a petition seeking reorganization of us or all or a
substantial part of our properties or assets or appointing a receiver, trustee
or liquidator for us.
 
 On
January 7, 2008, we entered into a consulting agreement with Sagi Matza, our
Chairman of the Board. Under the consulting agreement, Mr. Matza provides
consulting and advisory services to us on a nonexclusive basis in exchange for a
fee of $8,000 per month.  We suspended payment of this consulting fee
in November 2008 but it continues to accrue.
  We have
determined that Messrs Sagi Matza and Yoav Bitter are independent. In
determining which directors are independent, we use the definition set forth in
NASDAQ Marketplace Rule 4200.  However, only Mr. Bitter meets the more
stringent independence requirements for audit committee members set forth in
NASDAQ Marketplace Rule 4350(d).
  Item
14. Principal Accountant Fees and Services.
  2008
                      
                      
                      2007Audit
      fees (1)
                      
                      $
                      45,000
                      
                      
                      $
                      44,500Audit
      related (2)
                      
                      
                      —
                      
                      
                      
                      8,500Total
                      
                      $
                      45,000
                      
                      
                      $
                      53,000
 
 
 (1)
              Represents
      the aggregate fees billed for professional services rendered by our
      principal accountants, UHY LLP, for the audit of our annual financial
      statements for the years ended December 31, 2008, and December 31, 2007,
      and review of financial statements included in our quarterly reports on
      Forms 10-Q and 10-QSB or services that are normally provided by the
      accountant in connection with statutory and regulatory filings or
      engagements for those periods. There were no additional fees billed by our
      principal accountant during the years ended December 31, 2008 and
      2007.
  (2)
                Represents
      review of management's documentation of internal control over financial
      reporting and entity level
controls.
 Our
entire board of directors acts as our audit committee. In accordance with
Section 10A(i) of the Securities Exchange Act of 1934, before we engage our
independent accountant to render audit or non-audit services, the engagement is
approved by our full board of directors. Our entire board of directors approved
all of the fees referred to in the sections entitled "Audit Fees,"
"Audit-Related Fees," "Tax Fees" and "All Other Fees" above.
 
 Item
15. Exhibits and Financial Statement Schedules.
  (a)
              1.
              Financial
      Statements.
 
 Our
consolidated financial statements, including the notes thereto and independent
auditor’s report thereon, are set forth beginning on page F-1 of this
report.
 
 2.
              Financial
      Statement Schedules.
 
 Not
applicable.
 
 3.
              Exhibit
      Index.
 
 Exhibit
      No.
                    
                    Description2.1
                    
                    Asset
      Purchase Agreement, dated as of June 1, 2002, by and between GSV, Inc.,
      Cybershop LLC and Polystick U.S. Corp. (incorporated by reference to
      Exhibit 2.1 of the Company's report on Form 8-K filed June 5,
      2002).2.2
                    
                    Agreement
      and Plan of Merger dated as of July 21, 2003, by and among GSV, Inc.,
      Cybershop L.L.C., Polystick Oil & Gas, Inc. and Polystick U.S. Corp.
      (incorporated by reference to Exhibit 2.2 of the Company's report on Form
      8-K, filed July 21, 2003).3.1
                    
                    Certificate
      of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to
      the Company's Registration Statement on Form S-1, File No.
      333-42707).3.2
                    
                    Certificate
      of Amendment of the Certificate of Incorporation of Cybershop
      International, Inc. (incorporated by reference to Exhibit 3.2 of the
      Company's report on Form 10-QSB for the fiscal quarter ended June 30,
      1999, File No.
000-23901).
  21
 
 3.3
                
                Certificate
      of Merger of GSV, Inc into Cybershop.com, Inc. (incorporated by reference
      to Exhibit 3.5 of the Company's report on Form 10-KSB for the year ended
      December 31, 1999, File No. 000-23901).3.4
                
                Certificate
      of designations, preferences and rights of Series A Convertible Preferred
      Stock of GSV, Inc. (incorporated by reference to Exhibit 3.1 of the
      Company's report on Form 8-K, filed March 6, 2001).3.5
                
                Certificate
      of designations, preferences and rights of Series B Convertible Preferred
      Stock of GSV, Inc. (incorporated by reference to Exhibit 4.1 of the
      Company's report on Form 8-K, filed July 21, 2003).3.6
                
                Certificate
      of designations, preferences and rights of Series C Convertible Preferred
      Stock of GSV, Inc. (incorporated by reference to Exhibit 3.1 of the
      Company's report on Form 8-K, filed January 5, 2006).3.7
                
                By-Laws
      (incorporated by reference to Exhibit 3.5 of the Company's report on Form
      10-KSB for the year ended December 31, 2003, File No.
      000-23901).4.1
                
                Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
      Company's Registration Statement on Form S-1, File No.
      333-42707).4.2
                
                Convertible
      Stock Purchase Agreement, dated March 1, 2001, by and between GSV, Inc.
      and Brooks Station Holding, Inc. (incorporated by reference to Exhibit 4.1
      of the Company's report on Form 8-K filed March 6,
  2001).10.1
                
                Form
      of Officer and Director Indemnification Agreement (incorporated by
      reference to Exhibit 10.4 to the Company's Registration Statement on Form
      S-1, File No. 333-42707).10.2
                
                1998
      Stock Option Plan of the Company (incorporated by reference to Exhibit
      10.5 to the Company's Registration Statement on Form S-1, File No.
      333-42707).10.3
                
                1998
      Directors' Stock Option Plan (incorporated by reference to Exhibit 10.6 to
      the Company's Registration Statement on Form S-1, File No.
      333-42707).10.4
                
                Employment
      Agreement dated May 4, 2001, by and between GSV, Inc. and Gilad Gat
      (incorporated by reference to Exhibit 10.1 of the Company's report on Form
      8-K, filed May 11, 2001).10.5
                
                Form
      of promissory note issued to Brooks Station Holdings, Inc. (incorporated
      by reference to Exhibit 4.3 of the Company's report on Form 8-K, filed
      July 21, 2003).10.6
                
                Security
      Agreement dated as of July 21, 2003, by and between the Company and Brooks
      Station Holdings, Inc. (incorporated by reference to Exhibit 4.4 of the
      Company's report on Form 8-K, filed July 21, 2003).10.7
                
                Purchase
      Agreement dated as of May 11, 2004, by and between GSV, Inc. and D.
      Emerald Investments Ltd. (incorporated by reference to Exhibit 10.1 of the
      Company's report on Form 8-K, filed May 14, 2004).10.8
                
                Guaranty
      dated as of May 11, 2004, by Polystick U.S. Corporation in favor of D.
      Emerald Investments Ltd. (incorporated by reference to Exhibit 10.2 to the
      Company's report on form 8-K filed May 14, 2004).10.9
                
                Pledge
      Agreement dated as of May 11, 2004, by and between Polystick U.S.
      Corporation and D. Emerald Investments Ltd. (incorporated by reference to
      Exhibit 10.3 to the Company's report on Form 8-K filed May 14,
      2004).10.10
                
                Voting
      Agreement dated May 11, 2004, by and between Polystick U.S. Corporation
      and D. Emerald Investments Ltd. (incorporated by reference to Exhibit 10.4
      to the Company's report on Form 8-K filed May 14,
2004).10.11
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated
      September 20, 2004 (incorporated by reference to Exhibit 10.1 of the
      Company's report on Form 10-QSB for the fiscal quarter ended September 30,
      2004, File No. 000-23901).10.12
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated March
      10, 2005 (incorporated by reference to Exhibit 10.16 of the Company's
      report on Form 10-KSB for the year ended December 31, 2004, File No.
      000-23901).10.13
                
                Agreement
      by and between GSV, Inc. and D. Emerald Investments Ltd. dated as of May
      10, 2005 (incorporated by reference to Exhibit 10.1 to the Company's
      Quarterly Report on Form 10-QSB for the quarter ended June 30,
      2005).10.14
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated August
      31, 2005 (incorporated by reference to Exhibit 10.2 to the Company's
      Quarterly Report on Form 10-QSB for the quarter ended September 30,
      2005).10.15
                
                Termination,
      Settlement and Release Agreement dated as of November 30, 2005 by and
      between GSV, Inc. and 116 Newark Avenue Corporation (incorporated by
      reference to Exhibit 10.1 of the Company's report on Form 8-K, filed
      January 5, 2006).10.16
                
                Promissory
      Note issued to 116 Newark Avenue Corporation dated as of November 30, 2005
      (incorporated by reference to Exhibit 10.2 of the Company's report on Form
      8-K, filed January 5, 2006).10.17
                
                Guaranty
      dated as of November 30, 2005, by Polystick U.S. Corporation in favor of
      116 Newark Avenue Corporation (incorporated by reference to Exhibit 10.3
      of the Company's report on Form 8-K, filed January 5,
    2006).10.18
                
                Pledge
      Agreement dated as of November 30, 2005, by and between Polystick U.S.
      Corporation and 116 Newark Avenue Corporation (incorporated by reference
      to Exhibit 10.4 of the Company's report on Form 8-K, filed January 5,
      2006).
  22
 
 10.19
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated March
      20, 2006 (incorporated by reference to Exhibit 10.19 of the Company's
      report on Form 10-KSB for the year ended December 31, 2005, File No.
      000-23901).10.20
                
                Agreement
      by and between GSV, Inc. and D. Emerald Investments Ltd. dated as of May
      10, 2006 (incorporated by reference to Exhibit 10.1 of the Company's
      report on Form 10-QSB for the quarter ended June 30,
  2006).10.21
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated
      September 20, 2006 (incorporated by reference to Exhibit 10.1 of the
      Company's report on Form 10-QSB for the quarter ended September 30,
      2006).10.22
                
                Letter
      agreement between GSV, Inc. and Brooks Station Holdings, Inc. dated March
      9, 2007 (incorporated by reference to Exhibit 10.22 of the Company’s
      report on Form 10-KSB for the year ended December 31,
    2006).10.23
                
                Agreement
      by and between GSV, Inc. and D. Emerald Investments Ltd. Dated as of May
      7, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s report
      on Form 10-QSB for the quarter ended March 31, 2007).10.24
                
                Form
      of agreement between GSV, Inc. and 116 Newark Avenue Corporation dated as
      of January 3, 2008 (incorporated by reference to Exhibit 10.1 of the
      Company’s report on Form 8-K, filed January 11, 2008).10.25
                
                Form
      of substitute promissory note issued to 116 Newark Avenue Corporation
      dated as of January 3, 2008 (incorporated by reference to Exhibit 10.2 of
      the Company’s report on Form 8-K, filed January 11,
  2008).10.26
                
                Form
      of Guarantor’s Consent by Polystick U.S. Corporation in favor of 116
      Newark Avenue Corporation (incorporated by reference to Exhibit 10.3 of
      the Company’s report on Form 8-K, filed January 11,
  2008).10.27
                
                Form
      of Consulting Agreement dated January 7, 2008, by and between GSV and Sagi
      Matza (incorporated by reference to Exhibit 10.4 of the Company’s report
      on Form 8-K, filed January 11, 2008).10.28
                
                Form
      of letter agreement between GSV, Inc. and Brooks Station Holdings, Inc.
      dated August 31, 2007 (incorporated by reference to Exhibit 10.28 of the
      Company’s report on Form 10-KSB for the year ended December 31, 2008, File
      No. 000-23901).10.29
                
                Form
      of letter agreement between GSV, Inc. and Brooks Station Holdings, Inc.
      dated March 31, 2008 (incorporated by reference to Exhibit 10.1 of the
      Company’s report on Form 10-Q for the quarter ended March 31, 2008, File
      No. 000-23901).10.30
                
                Form
      of Amended and Restated Promissory Note issued to Brooks Station Holdings,
      Inc. (incorporated by reference to Exhibit 10.2 of the Company’s report on
      Form 10-Q for the quarter ended March 31, 2008, File No.
      000-23901).10.31
                
                Agreement
      dated as of May 30, 2008, by and between GSV, Inc. and D. Emerald
      Investments Ltd. (incorporated by reference to Exhibit 10.1 of the
      Company’s report on Form 8-K, filed July 2, 2008).10.32
                
                Amended
      and Restated Convertible Promissory Note issued to D. Emerald Investments
      Ltd. (incorporated by reference to Exhibit 10.2 of the Company’s report on
      Form 8-K, filed July 2, 2008).10.33
                
                Amended
      and Restated Warrant issued to D. Emerald Investments Ltd. (incorporated
      by reference to Exhibit 10.3 of the Company’s report on Form 8-K, filed
      July 2, 2008).10.34
                
                Guarantor’s
      waiver and consent by Polystick U.S. Corp. in favor of D. Emerald
      Investments Ltd. (incorporated by reference to Exhibit 10.4 of the
      Company’s report on Form 8-K, filed July 2, 2008).10.35
                
                Amendment
      No. 1 to Acquisition Agreement dated as of July 1, 2008 by and between
      Cybershop, LLC, B & L Oil Company, Inc. and Randall Petroleum Corp.
      (incorporated by reference to Exhibit 10.5 of the Company’s report on Form
      8-K, filed July 2, 2008).10.36
                
                Agreement
      dated October 17, 2008, between GSV, Inc. and Brooks Station Holdings,
      Inc. (incorporated by reference to Exhibit 10.1 of the Company’s report on
      Form 8-K, filed October 20, 2008).10.37
                
                Second
      Amended and Restated Promissory Note, dated as of September 1, 2008,
      between GSV, Inc. and Brooks Station Holdings, Inc. (incorporated by
      reference to Exhibit 10.2 of the Company’s report on Form 8-K, filed
      October 20, 2008).14.1
                
                Code
      of Ethics (incorporated by reference to Exhibit 14.1 of the Company's
      report on Form 10-KSB for the year ended December 31, 2003, File No.
      000-23901).21.1
                
                List
      of Subsidiaries (incorporated by reference to Exhibit 21.1 of the
      Company's report on Form 10-KSB for the year ended December 31, 2005, File
      No. 000-23901).23.1
                
                Consent
      of UHY LLP*31.1
                
                Section
      302 Certification*32.1
                
                Section
      906 Certification*
 *
Filed herewith
  23
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 GSV,
      INC.By:
                          /s/
      Gilad GatGilad
      GatChief
      Executive Officer, President and Chief Financial
OfficerDate:
      March 31 ,
2009
  Pursuant
to the requirements of the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated below.
 
 Signature
                            
                            Title
                            
                            Date/s/
      Gilad Gat
                            
                            Chief
      Executive Officer, President and Chief Financial Officer
                            
                            March
      31, 2009Gilad
      Gat
                            
                            (Principal
      Executive Officer, Principal Financial and
                              Accounting
      Officer)/s/
      Yoav Bitter
                            
                            Director
                            
                            March
      31, 2009Yoav
      Bitter/s/
      Sagi Matza
                            
                            Director
                            
                            March
      31, 2009Sagi
      Matza
  24
 
 INDEX
TO FINANCIAL STATEMENTS
  GSV,
INC.
  Report
      of Independent Registered Public Accounting Firm
                  
                  F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  
                  F-3Consolidated
      Statements of Operations for the years ended December 31, 2008 and
      2007
                  
                  F-4Consolidated
      Statements of Changes in Stockholders' Equity (Deficiency in
      Assets) for the years ended December 31, 2008 and
2007
                  
                  F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and
      2007
                  
                  F-6Notes
      to Consolidated Financial Statements
                  
                  F-7 - F-16
  F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Stockholders and Board of Directors
 GSV,
Inc.
 
 We have
audited the accompanying consolidated balance sheets of GSV, Inc. (the
“Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in stockholders’ equity (deficiency in
assets), and cash flows for the years then ended. The Company’s management is
responsible for these consolidated financial statements. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2008 and 2007, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
  The
accompanying consolidated financial statements are prepared assuming that the
Company will continue as a going concern. As more fully described in note 1, the
Company has incurred recurring operating losses. As a result it has an
accumulated deficit as of December 31, 2008 as well as deficiencies in assets
and working capital. The Company's expected future sources of revenue will be
derived from its investments in oil and gas wells. However, the attainment of
profitability from these investments is not assured. The Company will be
required to obtain financing to fund drilling and development to recover its
remaining investment in oil and gas wells and to pay certain
indebtedness as it becomes due. In addition, the discovery of proved reserves in
properties under evaluation is not assured. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans to overcome this uncertainty are also described in note 1. The
accompanying consolidated financial statements do not include any adjustments
which may be necessary if the Company is unable to continue as a going
concern.
 
 
 
 /s/ UHY
LLP
 New
Haven, Connecticut
 March 30,
2009


F-2




PART I.
FINANCIAL INFORMATION





Item 1. -
Financial Statements




GSV,
Inc.


CONSOLIDATED
BALANCE SHEETS




December
      31,2008
                  
                  
                  2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  236,402
                  
                  
                  $
                  398,261Accounts
      receivable and other current assets
                  
                  
                  29,172
                  
                  
                  
                  170,094Total
      current assets
                  
                  
                  265,574
                  
                  
                  
                  568,355Investments:Internet
      related
                  
                  
                  —
                  
                  
                  
                  50,000Geologic
      studies
                  
                  
                  —
                  
                  
                  
                  2,316,721Oil
      and gas wells, net of accumulated depletion of $3,159,890 in 2008 and
      $977,225 in 2007
                  
                  
                  124,800
                  
                  
                  
                  45,578124,800
                  
                  
                  
                  2,412,299Total
      assets
                  
                  $
                  390,375
                  
                  
                  $
                  2,980,654LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  129,148
                  
                  
                  $
                  98,030Current
      portion of long-term debt
                  
                  
                  521,551
                  
                  
                  
                  558,125Accrued
      interest
                  
                  
                  90,682
                  
                  
                  
                  106,351Other
      current liabilities
                  
                  
                  30,813
                  
                  
                  
                  121,899Total
      current liabilities
                  
                  
                  772,194
                  
                  
                  
                  884,405LONG-TERM
      DEBT, LESS CURRENT PORTION
                  
                  
                  —
                  
                  
                  
                  178,125Total
      liabilities
                  
                  
                  772,194
                  
                  
                  
                  1,062,530STOCKHOLDERS'
      EQUITY (DEFICIENCY IN ASSETS)Series
      B preferred stock, $0.001 par value; 1,500,000 shares authorized, issued,
      and outstanding
                  
                  
                  1,500
                  
                  
                  
                  1,500Series
      C preferred stock, $ 0.001 par value; 200,000 shares authorized, issued
      and oustanding
                  
                  
                  200
                  
                  
                  
                  200Common
      stock, $0.001 par value; 75,000,000 shares authorized; 7,671,303 shares
      issued
                  
                  
                  7,671
                  
                  
                  
                  7,671Additional
      paid-in capital
                  
                  
                  41,048,955
                  
                  
                  
                  41,048,955Treasury
      stock (168,600 shares) - at cost
                  
                  
                  (558,998
                  )
                  
                  
                  (558,998
                  )Accumulated
      deficit
                  
                  
                  (40,881,147
                  )
                  
                  
                  (38,581,204
                  )Total
      stockholders' equity (deficiency in assets)
                  
                  
                  (381,819
                  )
                  
                  
                  1,918,124Total
      liabilities and stockholders' equity (deficiency in
assets)
                  
                  $
                  390,375
                  
                  
                  $
                  2,980,654





The
accompanying notes are an integral part of the financial
statements.


F-3


GSV,
Inc.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Years
      ended December 31,2008
                        
                        
                        2007Revenues
      from oil and gas investments
                        
                        $
                        855,935
                        
                        
                        $
                        837,760General
      and administrative expenses
                        
                        
                        (676,159
                        )
                        
                        
                        (625,172
                        )Interest
      expense
                        
                        
                        (46,289
                        )
                        
                        
                        (56,537
                        )Impairment
      of internet related investment
                        
                        
                        (50,000
                        )
                        
                        
                        —Impairment
      of investment in oil and gas wells
                        
                        
                        (2,407,294
                        )
                        
                        
                        —Gain
      on settlement of indebtedness
                        
                        
                        23,863
                        
                        
                        
                        —NET
      (LOSS) INCOME
                        
                        $
                        (2,299,943
                        )
                        
                        $
                        156,051Net (loss)
      income per common share:Basic
                        
                        $
                        (0.31
                        )
                        
                        $
                        0.02Diluted
                        
                        $
                        (0.31
                        )
                        
                        $
                        0.02Weighted
      average common shares:Basic
                        
                        
                        7,502,703
                        
                        
                        
                        7,502,703Diluted
                        
                        
                        7,502,703
                        
                        
                        
                        10,485,560
 
 The
accompanying notes are an integral part of the financial
statements.
  F-4
  GSV, Inc.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY IN
ASSETS)
 
 Preferred
      stock,
                      
                      
                      Preferred
      stock,Series B
                      
                      
                      Series C
                      
                      
                      Common Stock
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      
                      
                      
                      TotalShares
                      
                      
                      Par Value
                      
                      
                      Shares
                      
                      
                      Par Value
                      
                      
                      Shares
                      
                      
                      Par Value
                      
                      
                      Paid-In Capital
                      
                      
                      TreasuryStock
                      
                      
                      Accumulateddeficit
                      
                      
                      Stockholders'EquityJanuary
      1, 2007
                      
                      
                      1,500,000
                      
                      
                      $
                      1,500
                      
                      
                      
                      200,000
                      
                      
                      $
                      200
                      
                      
                      
                      7,671,295
                      
                      
                      $
                      7,671
                      
                      
                      $
                      41,048,955
                      
                      
                      $
                      (558,998
                      )
                      
                      $
                      (38,737,254
                      )
                      
                      $
                      1,762,074Net
      Income
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      156,050
                      
                      
                      
                      156,050December
      31, 2007
                      
                      
                      1,500,000
                      
                      
                      
                      1,500
                      
                      
                      
                      200,000
                      
                      
                      
                      200
                      
                      
                      
                      7,671,295
                      
                      
                      
                      7,671
                      
                      
                      
                      41,048,955
                      
                      
                      
                      (558,998
                      )
                      
                      
                      (38,581,204
                      )
                      
                      
                      1,918,124Net
      Loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (2,299,943
                      )
                      
                      
                      (2,299,943
                      )December
      31, 2008
                      
                      
                      1,500,000
                      
                      
                      $
                      1,500
                      
                      
                      
                      200,000
                      
                      
                      $
                      200
                      
                      
                      
                      7,671,295
                      
                      
                      $
                      7,671
                      
                      
                      $
                      41,048,955
                      
                      
                      $
                      (558,998
                      )
                      
                      $
                      (40,881,147
                      )
                      
                      $
                      (381,819
                      )
 
 The
accompanying notes are an integral part of the financial
statements.
  F-5
 
 GSV,
Inc.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Years ended December 31,2008
                            
                            
                            2007OPERATING
      ACTIVITIESNet
      (loss) income
                            
                            $
                            (2,299,944
                            )
                            
                            $
                            156,050Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activities:Depreciation and
      amortization
                            
                            
                            20,320
                            
                            
                            
                            2,424Gain
      on settlement of indebtedness
                            
                            
                            (23,863
                            )
                            
                            
                            —Impairment
      of internet related investment
                            
                            
                            50,000
                            
                            
                            
                            —Impairment
      of investment in oil and gas wells
                            
                            
                            2,407,294Depletion
                            
                            
                            150,281
                            
                            
                            
                            259,864Changes
      in operating assets and liabilities:Account
      receivable and other current assets
                            
                            
                            140,922
                            
                            
                            
                            (66,119
                            )Accounts
      payable and other current liabilities
                            
                            
                            (95,958
                            )
                            
                            
                            138,989Net
      cash provided by operating activities
                            
                            
                            349,052
                            
                            
                            
                            491,208INVESTING
      ACTIVITIES:Investment
      in oil and gas wells
                            
                            
                            (320,076
                            )
                            
                            
                            (111,206
                            )Net
      cash used by investing activities
                            
                            
                            (320,076
                            )
                            
                            
                            (111,206
                            )FINANCING
      ACTIVITIESRepayment
      of long-term debt
                            
                            
                            (190,835
                            )
                            
                            
                            (20,000
                            )Net
      cash used by financing activities
                            
                            
                            (190,835
                            )
                            
                            
                            (20,000
                            )Net
      change in cash
                            
                            
                            (161,860
                            )
                            
                            
                            360,002CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                            
                            
                            398,261
                            
                            
                            
                            38,260CASH
      AND CASH EQUIVALENTS, END OF YEAR
                            
                            $
                            236,402
                            
                            
                            $
                            398,262SUPPLEMENTAL
      INFORMATIONCash
      paid for interest
                            
                            $
                            77,505
                            
                            
                            $
                            20,000
 
 The
accompanying notes are an integral part of the financial statements
 F-6




GSV,
Inc.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
1. Description of the Business





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




Note
2. Summary of Significant Accounting Policies





Presentation
as a Going Concern





The
Company has incurred substantial operating losses, resulting in an accumulated
deficit of $40,881,147 as of December 31, 2008 as well as deficiencies in assets
and working capital of $381,819 and $506,619. Its current investments are
limited to certain oil and gas producing properties in Louisiana and an interest
in Century Royalty L.L.C. Century Royalty’s primary assets consist of geologic
studies to exploit oil and gas properties that are not owned and interests in
four completed oil and gas wells, three of which are producing. In recent
periods cash flow from the Company’s oil and gas investments has been sufficient
to enable the Company to fund its operating, investing and financing needs.
However, in recent months cash flow has decreased significantly. The Company
will be required to obtain additional financing to fund existing activities, to
fund drilling and development to recover its remaining investment in oil
and gas wells and to pay certain indebtedness as it becomes due. There is
no assurance that the Company will obtain additional adequate financing nor is
there any assurance that proved reserves will be discovered. These conditions
raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that may result from the outcome of this uncertainty.




Use of
Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.




Principles
of Consolidation





The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The Company considers Century Royalty a variable interest
entity and, as such, consolidates the financial statements of Century Royalty
with those of the Company. The Company is responsible for all of Century
Royalty’s liabilities and is entitled to all of its net income for the existing
prospects. On June 30, 2008 the members of Century Royalty entered into a new
operating agreement. Should activities under the new agreement prove meaningful,
the Company will re-examine its consolidating policies.





Cash and
Cash Equivalents





The
Company considers all short-term highly liquid securities with a
maturity of three months or less when purchased to be cash equivalents.
From time-to-time, the Company maintains cash balances in excess of FDIC insured
limits.





Advertising





Advertising
costs are expensed as incurred. Advertising expense was insignificant in 2008
and 2007.




F-7








Internet-Related




The
Company had investments in internet related companies as of December 31,
2007 that are accounted for using the cost method. In connection
with its impairment review the Company wrote off the $50,000
carrying value of these investments.





Oil and Gas Wells and Geologic
Studies





The
Company follows the full cost method of accounting for oil and gas properties.
Under this method, all direct costs and certain indirect costs associated with
acquisition of properties and successful as well as unsuccessful exploration and
development activities are capitalized. Depletion of capitalized oil and gas
properties and estimated future development costs, excluding unproved
properties, is based on the units-of-production method based on proved reserves.
Net capitalized costs of crude oil and natural gas properties, as adjusted for
asset retirement obligations, less related deferred taxes (estimated with an
effective tax rate of zero), are limited to the lower of unamortized cost or the
cost ceiling, defined as the sum of the present value of estimated future net
revenues from proved reserves based on a 10 percent discount, plus the cost of
properties not being amortized, less related income taxes (estimated at an
effective tax rate of zero). No gain or loss is recognized upon sale or
disposition of oil and gas properties, except in unusual
circumstances.





Geologic
studies represent costs associated with properties on which the Company or its
subsidiaries or other agents are performing exploration activities or intend to
commence such activities. Geologic studies were reviewed annually for
impairment or reduction in value based on expected conditions in properties
under evaluation. The properties underlying the geologic studies were evaluated
in 2008. Based on an independent engineering report received in July 2008 the
Company reclassified the cost of geological studies of $2,316,721 to oil and gas
wells and commenced depletion of such costs. A second independent
engineering report as of January 1, 2009 substantially reduced the value of the
properties.  See note 3 below.





Asset
Retirement Obligations





The
Company has obligations to remove tangible equipment and facilities and to
restore land at the end of oil and gas production operations. These removal and
restoration obligations are associated with plugging and abandoning wells.
Estimating the future restoration and removal costs is difficult and requires
the Company to make estimates and judgments because most of the removal
obligations are many years in the future and contracts and regulations often
have vague descriptions of what constitutes removal. Asset removal
technologies and costs are constantly changing, as are regulatory, political,
environmental, safety and public relations considerations. Inherent in the
present value calculations are numerous assumptions and judgments including the
ultimate settlement amounts, inflation factors, credit adjusted discount rates,
timing of settlements and changes in the legal, regulatory, environmental and
political environments. The present value of the Company's portion of the asset
retirement obligation of the Louisiana wells was $7,092 and $6,492 at December
31, 2008 and 2007, respectively. The Company expects to incur the related
expense in 2009.  The
Company has concluded no asset retirement obligation is payable related to its
Texas properties.  These obligations are included in other current
liabilities on the accompanying balance sheets, and the change from 2007 to 2008
is included in operations and classified as amortization
expense.





Property
and Equipment





The
Company's property and equipment was fully depreciated as of December 31, 2007.
Depreciation expense was $2,424 for 2007 and was recognized by the
straight-line method over the lives of the assets, which ranged from three to
ten years.




Revenue
Recognition





Revenue
from oil and gas investments is recognized when produced by the
operator.




F-8




Income
Taxes


The
Company recognizes deferred income tax assets and liabilities on
differences between the financial reporting and income tax bases of assets
and liabilities and net operating loss and capital loss carry forwards. Deferred
income tax assets and liabilities are measured using enacted tax rates expected
to apply in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided to the extent that it is
more likely than not that the Company will not be able to utilize deferred
income tax assets in the future.





Fair
Value of Financial Instruments





In
general, the fair value (determined under SFAS No. 157) of all reported
financial assets and liabilities approximates their carrying
values.





Net
(Loss) Income Per Common Share





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





A summary
of the denominators used to compute basic and dilutive (loss) earnings per share
follow:





December
      312008
                            
                            
                            2007Weighted
      average shares outstanding - used to compute basic (loss) earnings per
      share
                            
                            
                            7,502,703
                            
                            
                            
                            7,502,703Dilution
      applicable to:Warrant
                            
                            
                            —
                            
                            
                            
                            1,142,857Convertible
      note payable
                            
                            
                            —
                            
                            
                            
                            140,000Series
      B Preferred Stock
                            
                            
                            —
                            
                            
                            
                            1,500,000Series
      C Preferred Stock
                            
                            
                            —
                            
                            
                            
                            200,000Weighted
      average shares outstanding - used to compute diluted earnings per
      share
                            
                            
                            7,502,703
                            
                            
                            
                            10,485,560




Recently
Issued Accounting Pronouncements





The
Company continually assesses any new accounting pronouncements to determine
their applicability to the Company. In the case where it is determined that a
new accounting pronouncement effects the Company’s financial reporting, the
Company undertakes a study to determine the consequence of the change to its
financial reporting, and assures that there are proper controls in place to
ascertain that the Company’s financials properly reflect the change. New
pronouncements assessed by the Company are discussed below:


F-9





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring the fair value of assets and liabilities,
and expands disclosure requirements regarding the fair value measurement. SFAS
157 does not expand the use of fair value measurements. SFAS 157 also specifies
a hierarchy of valuation techniques which requires an entity to maximize the use
of observable inputs that may be used to measure fair value:
 
 Level 1–
Quoted prices in active markets are available for identical assets and
liabilities.
 
 Level 2 –
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities or other inputs that are observable or can be corroborated
by observable market data.
 
 Level 3 –
Unobservable inputs that reflect a reporting entity’s own assumptions about the
assumptions that market participants would use in pricing an asset or
liability.
 
 This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. FASB Staff Position (FSP) FAS No. 157-2 was issued in February 2008 and
deferred the effective date of SFAS 157 for nonfinancial assets and liabilities
to fiscal years beginning after November 2008. As such, the Company adopted SFAS
157 as of January 1, 2008 for financial assets and liabilities only. There was
no significant effect on the Company’s consolidated financial statements. As of
December 31, 2007, the Company’s financial assets included investments in
non-publicly traded internet related companies. The
Company considers fair value for its investments in such companies for
purposes of determining asset impairment losses. The Company recorded an
impairment loss of $50,000 for the year ended December 31, 2008. As
such, the fair value of that asset was nil.
 
 The
Company does not believe that the adoption of SFAS 157 to non-financial assets
and liabilities will significantly affect its consolidated financial
statements.





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





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




In
April 2008, the FASB issued FASB Staff Position No. 142-3,
“Determination of the Useful Life of Intangible Assets” (“FSP
No. 142-3”) to improve the consistency between the useful life of a
recognized intangible asset (under SFAS No. 142) and the period of expected
cash flows used to measure the fair value of the intangible asset (under SFAS
No. 141(R)). FSP No. 142-3 amends the factors to be considered when
developing renewal or extension assumptions that are used to estimate an
intangible asset’s useful life under SFAS No. 142. The guidance in the new
staff position is to be applied prospectively to intangible assets acquired
after December 31, 2008. In addition, FSP No. 142-3 increases the
disclosure requirements related to renewal or extension assumptions. The Company
does not believe implementation of FSP No. 142-3 will have a material impact on
its financial statements.
 
 In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, “Determining whether Instruments granted in
Share-Based Payment Transactions are Participating Securities” (“FSP EITF No.
03-6-1”).  Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years.
It is not expected to have a significant impact on the Company’s financial
statements.
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The implementation of this standard will not have a
material impact on the Company’s financial statements.
 
 In June
2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for
Maintenance Deposits Under Lease Arrangements” (“EITF 08-3”). EITF 08-3 provides
guidance for accounting for nonrefundable maintenance deposits. It also provides
revenue recognition accounting guidance for the lessor. EITF 08-3 is effective
for fiscal years beginning after December 15, 2008. The implementation of this
standard will not have a material impact on the Company’s consolidated financial
position and results of operations.
 
 In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161” (“FSP 133-1 and FIN 45-4”). FSP 133-1 and FIN 45-4
amends and enhances disclosure requirements for sellers of credit derivatives
and financial guarantees. It also clarifies that the disclosure requirements of
SFAS No. 161 are effective for quarterly periods beginning after November 15,
2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is
effective for reporting periods (annual or interim) ending after November 15,
2008. The implementation of this standard will not have a material impact on the
Company’s consolidated financial position and results of
operations.
 
 In
September 2008, the FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (“EITF
08-5”). EITF 08-5 provides guidance for measuring liabilities issued with an
attached third-party credit enhancement (such as a guarantee). It clarifies that
the issuer of a liability with a third-party credit enhancement (such as a
guarantee) should not include the effect of the credit enhancement in the fair
value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-5 on its consolidated financial position and
results of operations.
 
 In
October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial
Asset in a Market That Is Not Active” (“FSP 157-3”). FSP 157-3 clarified the
application of SFAS No. 157 in an inactive market. It demonstrated how the fair
value of a financial asset is determined when the market for that financial
asset is inactive. FSP 157-3 was effective upon issuance, including prior
periods for which financial statements had not been issued. The implementation
of this standard did not have a material impact on the Company’s consolidated
financial position and results of operations.
 
 In
December 2008, the Securities and Exchange Commission announced that it had
approved revisions to its oil and gas company reporting requirements to help
investors evaluate the value of their investments in these companies. The new
disclosure requirements include provisions that permit the use of new
technologies to determine proved reserves if those technologies have been
demonstrated empirically to lead to reliable conclusions about reserves volumes.
The new requirements also will allow companies to disclose their probable and
possible reserves to investors. Currently, the Commission’s rules limit
disclosure to only proved reserves. The new disclosure requirements also require
companies to report the independence and qualifications of a reserves preparer
or auditor; file reports when a third party is relied upon to prepare reserves
estimates or conducts a reserves audit; and report oil and gas reserves using an
average price based upon the prior 12-month period rather than year-end prices.
The use of the average price will maximize the comparability of reserves
estimates among companies and mitigate the distortion of the estimates that
arises when using a single pricing date. The new oil and gas reporting
requirements will be effective for registration statements filed on or after
January 1, 2010, and for annual reports on Forms 10-K for fiscal years ending on
or after December 31, 2009. Early adoption is not permitted.  The
implementation of this standard will have a material impact on the Company’s
consolidated financial position and results of operations.




Note 3.
Investments in Oil and Gas Wells





The
Company has working interests in two oil and gas wells in Louisiana. Production
from the wells in Louisiana was suspended temporarily on or about February 9,
2006, because the water level had risen in one of the wells. On or about May 8,
2006, work to recomplete the wells in a different sand zone was completed and
production was restarted. The wells returned to full production at the beginning
of July 2006. The Company’s share of the costs of recompletion was $70,300. The
delay between sales of gas by the operator and the Company’s receipt of payments
from the operator reduced revenues in the second and third quarters of 2006. In
June 2008 the well that had been producing oil and gas started to produce some
water, and by the fourth quarter of 2008 the rising water level had caused
production to decrease significantly. An independent reserve study performed,
effective January 2009, estimated that the remaining reserve in the wells
including PDP and PDNP, net of expenses and discounted at 10%, was
$69,050.





The
Company has interests in certain oil and gas properties in Texas and an
undivided one-third interest in Century Royalty, which manages oil and gas
properties in Texas and Louisiana. Century Royalty also holds the rights to
certain geologic studies. On June 28, 2006, the working interest partnership of
which Century Royalty is a member commenced drilling on one of the prospects and
planned to commence drilling on a second prospect once the first was completed.
The costs of drilling these prospects were expected to exceed Century Royalty’s
carried interest in the working interest partnership. On June 20, 2006, the
Company agreed to contribute a maximum of $100,000 towards the drilling of the
first prospect and decrease its working interest in these two prospects to
11.918%.


F-10


On
October 5, 2006, the Company announced the successful completion of drilling in
the first prospect, located in Liberty County, Texas. The pipeline tie-in of the
"Friendswood No. 2 RE" gas well was completed successfully in June 2007. On or
about September 14, 2007, efforts to increase the pressure of the flow of gas
from the well were successful and the sale of gas through the pipeline
commenced. On February 4, 2008, fracturing of the well was completed
successfully. On February 21, 2008, the well was put back on line full-time. The
well is currently producing around 150-200 Mcf of gas a day. An independent
reserve study, effective January 1, 2009, estimated that the remaining reserve
in the well, including PDP and PDNP, net of expenses and discounted at 10%, was
$19,420.





In
October 2006, the Company granted one of the members of the Texas working
interest partnership the right to drill a well based on the geological seismic
data that Century Royalty holds. In return, the Company received a 2% carried
interest in the proposed well until completion, and a 2% working interest
thereafter. The "Shirley Gay No. 1" well was completed in March 2007. Pipeline
tie-in was completed in February 2008 and sales began shortly thereafter. The
Company started receiving proceeds from sales in April 2008. An independent
reserve study, effective January  1, 2009, estimated that the
remaining reserve in the wells including PDP and PDNP, net of expenses and
discounted at 10%, was $36,350.





The
working interest partnership began a drilling program for the subject properties
in 2006. Through Century Royalty the partnership is buying leases and has
started the process of raising additional funds. If the drilling program is not
successful, the Company will likely record an impairment loss of some or all of
the carrying value of its reserves.




As
required under the full cost pool method of accounting for oil and gas
properties, the Company subjected the net capitalized cost of its investment in
oil and gas wells to a cost ceiling test.  The test compares net
capitalized costs to the present value of future net revenues from proved
reserves.  Based on the test, the Company recorded an impairment loss
of $2,407,294 for the year ended December 31, 2008.




Note
4. Preferred Stock





Series B
Preferred Stock (the "Series B Stock") is convertible at any time at the
holder’s option into a number of shares of common stock equal to $1.00 divided
by the conversion price then in effect. The conversion price is initially $1.00.
No dividends are payable on the Series B Stock, except that in the event
dividends are declared with respect to common stock, each holder of a share of
the Series B shall be entitled to receive an amount equal to the amount of
dividends that would have been paid on the shares of common stock issuable upon
conversion of such shares of the Series B Stock had such shares been converted
into common stock immediately before such dividend was declared. Upon any
liquidation event, as defined, the holders of the outstanding Series B
Stock will be entitled to be paid an amount equal to $1.00 per share plus the
amount of any declared and unpaid dividends thereon. If upon any liquidation
event, the net assets of the Company are insufficient to permit payment in full
of such preferential amount to the holders of Series B Stock then the entire net
assets of the Company will be distributed ratably among the holders of the
Series B Stock.  The holder of 200,000 shares of Series B Stock has pledged
such shares as collateral for the note payable to D. Emerald Investments,
Ltd.




On
January 3, 2006, the Company issued 200,000 shares of Series C Preferred Stock
(the "Series C Stock") to 116 Newark Avenue Corporation. Each share of the
Series C Stock is convertible at any time into a number of shares of common
stock equal to $1.00 divided by the conversion rate then in effect. No dividends
are payable on the Series C Stock. On January 9, 2008, the Company entered
into an agreement with 116 Newark to amend and restate the terms of the
promissory note. Pursuant to the agreement, the Company paid all accrued and
unpaid interest on the promissory note through the date of the agreement, and
the original note was amended and restated in a substitute note with a maturity
date of December 20, 2009. The Company agreed to pay the substitute note’s
outstanding principal balance of $356,249 in monthly installments through
December 2009. Payment and performance under the substitute note has been
guaranteed by the holder of 356,249 shares of the Series B Stock. The Company
has not made any installment payments on the substitute note following the
installment payment that was due on or before January 20, 2009.  The
Company is negotiating with 116 Newark to restructure this
obligation.


F-11


Note
5. Stock Options and Warrant





The
Company has two stock option plans, the 1998 Stock Option Plan and the 1998
Directors’ Stock Option Plan. Under the 1998 Stock Option Plan, stock
options may be granted to directors, officers, employees, and consultants of the
Company. Under the 1998 Directors’ Stock Option Plan, each member of the Board
of Directors who is not an employee of the Company is entitled to receive an
annual grant of options for 600 shares of common stock.  However, no
awards have been granted under the 1998 Directors’ Stock Option Plan. As of
December 31, 2008, options for 574,000 shares of common stock are available for
issuance.





A summary
of stock option maturity follows:




Shares
                          
                          
                          Weighted Average
                            Exercise PriceOutstanding
      at January 1, 2007
                          
                          
                          370,000
                          
                          
                          $
                          0.60Granted
                          
                          
                          —
                          
                          
                          
                          —Cancelled
                          
                          
                          —
                          
                          
                          
                          —Exercised
                          
                          
                          —
                          
                          
                          
                          —Outstanding
      at December 31, 2007
                          
                          
                          370,000
                          
                          
                          $
                          0.60Granted
                          
                          
                          —
                          
                          
                          
                          —Cancelled
                          
                          
                          (360,000
                          )
                          
                          
                          —Exercised
                          
                          
                          —
                          
                          
                          
                          —Outstanding
      at December 31, 2008
                          
                          
                          10,000
                          
                          
                          $
                          0.60





All
options granted and outstanding as of January 1, 2006 were fully vested and
exercisable. As of December 31, 2008, the exercise price of the outstanding
options exceeded their fair market value.





As of
December 31, 2008 and 2007, a warrant issued prior to December 31, 2005 to
purchase 1,142,857 shares of common stock at $0.70 a share was outstanding. The
warrant expires, as amended in 2008, on July 10, 2009.





Note
6. Long-term debt





Long-term debt
consists of :





December
      312008
                                                  
                                                  
                                                  2007Note
      payable to Brooks Station Holdings, Inc. with interest at 8%, due
      March 1, 2009 (as amended in 2008)
                                                  
                                                  $
                                                  150,000
                                                  
                                                  
                                                  $
                                                  180,000Note
      payable to D. Emerald Investments Ltd., with interest at 8%, due July 10,
      2009 (as amended in 2008) (1)
                                                  
                                                  
                                                  200,000
                                                  
                                                  
                                                  
                                                  200,000Note
      payable to 116 Newark Avenue Corporation, due in monthly installments of
      $14,844, with interest at 7%, due December 20, 2009 (as amended in 2008),
      net of discount of $6,574 at December 31, 2008(2)
                                                  
                                                  
                                                  171,551
                                                  
                                                  
                                                  
                                                  356,250521,551
                                                  
                                                  
                                                  
                                                  736,250Less
      current portion
                                                  
                                                  
                                                  521,551
                                                  
                                                  
                                                  
                                                  558,125$
                                                  —
                                                  
                                                  
                                                  $
                                                  178,125





(1) Convertible
into 140,000 shares of common stock.










Note
7. Leases





The
Company leases office space under a revolving six-month operating lease.
Future minimum lease payments on this operating lease for 2009 are approximately
$9,540.


F-12


Rent
expense was $25,336 in 2008 and $ 24,264 in 2007.





Note
8. Income Taxes




Deferred
taxes are recognized on the differences between the financial reporting and
income tax basis of assets and liabilities using enacted tax
rates.  For federal income tax purposes, the Company's subsidiary
Century Royalty LLC files a partnership tax return and reports the Company's
share of profits and losses, which are taxed to the Company as pass-through
income from oil and gas activities. The Company files a consolidated federal
income tax return with its other subsidiaries.




There
were no material unrecognized income tax benefits as of December 31, 2008 or
2007. Further, no significant changes in the unrecognized income tax benefits
are expected to occur in 2009.




Historically
the Company has not accrued or paid significant interest and penalties for
underpayments of income taxes due to its net operating loss position. Interest
and penalties related to underpayment of income taxes would be classified as a
component of income tax expense in the consolidated statement of operations. No
interest and penalties for underpayments of income taxes were required to be
accrued through December 31, 2008.




The
Company has not extended the statute of limitations to assess additional taxes
and has effectively settled U.S. Federal tax positions taken through 2002 in
accordance with FSP FIN 48-1. However, the Company is subject to adjustment in
each of these periods to the extent of its net operating loss carry-forwards.
The open tax years are 1998 through 2008 for U.S. state and local
jurisdictions.





A
reconciliation of the U.S. federal statutory rate to the effective income tax
rate follows:




2008
                              
                              
                              2007U.S.
      federal statutory tax rate
                              
                              
                              34.0
                              %
                              
                              
                              34.0
                              %State
      taxes
                              
                              
                              (0.0
                              )
                              
                              
                              (0.0
                              )Expired
      capital loss carryover
                              
                              
                              (28.5
                              )
                              
                              
                              —Other
                              
                              
                              4.8
                              
                              
                              
                              —Valuation
      allowance
                              
                              
                              (10.3
                              )
                              
                              
                              (34.0
                              )Effective
      income tax rate
                              
                              
                              0.0
                              %
                              
                              
                              0.0
                              %


F-13


The tax
effects of temporary differences that give rise to deferred income taxes
follow:




2008
                                          
                                          
                                          2007Deferred
      income tax assets:Oil
      and gas properties
                                          
                                          $
                                          929,347
                                          
                                          
                                          $
                                          103,388Net
      operating loss carry-forwards
                                          
                                          
                                          8,259,205
                                          
                                          
                                          
                                          8,121,211Capital
      loss carryover
                                          
                                          
                                          —
                                          
                                          
                                          
                                          706,492Total
      gross deferred income tax assets
                                          
                                          
                                          9,188,552
                                          
                                          
                                          
                                          8,931,092Valuation
      allowance
                                          
                                          
                                          (9,188,552
                                          )
                                          
                                          
                                          (8,931,092
                                          )Net
      deferred income tax assets
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Deferred
      income tax liabilities:
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Net
      deferred income taxes
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          —




The
Company continually evaluates its deferred income tax assets to determine
whether it is more likely than not that such assets will be realized. In
assessing the realizability, management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies. Based on this assessment, management believes that significant
uncertainty exists concerning the recoverability of the deferred income tax
assets. As such, a valuation allowance has been provided for all net deferred
income tax assets as of December 31, 2008 and 2007.




At
December 31, 2008, the Company had available, for federal income tax
purposes, net operating loss (“NOL”) carry-forwards of approximately $22.5
million expiring in varying amounts from 2013 through 2027.




Certain
transactions involving the Company’s beneficial ownership have occurred in prior
years, which resulted in a stock ownership change for purposes of
Section 382 of the Internal Revenue Code of 1986, as amended. Consequently,
approximately $21.0 million of the NOL carry-forwards are subject to
limitation.   The Company has not determined if any of the NOL
generated through 2008 will be subject to limitation under Section
382.


F-14


Note 9 . Unaudited Oil and Gas Reserve
Quantities





This
section provides information required by Statement of Financial Accounting
Standards No. 69, “Disclosures about Oil and Gas Producing
Activities.”





The
following unaudited reserve estimates were prepared internally, based upon a
study conducted by Pressler Petroleum Consultants, Inc., an independent
engineering company, as of January, 2009, and adjusted by the Company for
production through Dec. 31, 2008. There are many uncertainties inherent in
estimated proved reserve quantities and in projecting future production rates
and the timing of development expenditures. In addition, reserve estimates of
new discoveries that have little production history are more imprecise than
those of properties with more production history. The Company communicates with
Chroma Operating Inc., the operator of the two wells in Louisiana since June
2008 , with Century 2000, the operator of Friendswood  No. 2 RE, and
with Ballard Petroleum, the operator of the Shirley Gay No. 1 well, on a regular
basis. The Company is obtaining daily production trends, the amount of water
produced in the wells, output pressures and choke position. The Company then
reviews the data from the operator with an independent engineering consultant
hired by the Company to obtain a reserve estimate, as none of the Company’s
employees have the engineering or geologic expertise to provide reserve
estimates. Finally, the Company compares the resulting data with the reports
produced by Pressler Petroleum Consultants. To date the differences have not
been material and the Company has adopted the Pressler reports. In the event
there are material differences in the future the Company intends to confer with
Pressler and the Company’s independent engineering consultant in order to
understand the reasons for the differences and come to a conclusion regarding
the appropriate reserve estimate.





Proved
oil and gas reserves are the estimated quantities of crude oil, condensate,
natural gas, and natural gas liquids that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions.





Proved
developed oil and gas reserves are those reserves expected to be recovered
through existing wells with existing equipment and operating
methods.





Unaudited
net quantities of proved and proved developed reserves of crude oil (including
condensate) and natural gas, all of which are located within the continental
United States, are summarized below:




Changes
in Proved Reserves:




(BBLS)
                  
                  
                  (MCF)Estimated
      quantity, December 31, 2006
                  
                  
                  3,544
                  
                  
                  
                  105,446Production
                  
                  
                  (3,131
                  )
                  
                  
                  (94,239
                  )Revisions
      of previous estimates
                  
                  
                  3,916
                  
                  
                  
                  116,139Estimated
      quantity, December 31, 2007
                  
                  
                  4,329
                  
                  
                  
                  127,346Production
                  
                  
                  (2,090
                  )
                  
                  
                  (65,118
                  )Acquisitions
                  
                  
                  —
                  
                  
                  
                  —Discoveries
                  
                  
                  —
                  
                  
                  
                  —Revisions
      of previous estimates
                  
                  
                  (1,829
                  )
                  
                  
                  (31,568
                  )Estimated
      quantity, December 31, 2008
                  
                  
                  410
                  
                  
                  
                  30,660





Proved
      developed reserves:Oil
      (BBLS)December
      31, 2007
                  
                  
                  4,329December
      31, 2008
                  
                  
                  410Gas
      (MCF)December
      31, 2007
                  
                  
                  127,346December
      31, 2008
                  
                  
                  30,660Proved
      undeveloped reserves:Oil
      (BBLS)December
      31, 2008
                  
                  
                  —December
      31, 2007
                  
                  
                  —





The
following table presents a standardized measure of the discounted future net
cash flows attributable to the Company’s proved oil and gas reserves. Future
cash inflows were computed by applying period-end prices of oil and gas to the
estimated future production of proved oil and gas reserves. The future
production and development costs represent the estimated future expenditures
(based on current costs) to be incurred in developing and producing the proved
reserves, assuming continuation of existing economic conditions. Future
unexpected costs or changes in production could affect discounted future net
cash flows.





A
discount factor of 10% was used to reflect the timing of future net cash flows.
The standardized measure of discounted future net cash flows is not intended to
represent the replacement cost or fair market value of the Company’s oil and gas
properties.




December 31,2008
                          
                          
                          2007Future
      cash inflows
                          
                          $
                          238,070
                          
                          
                          $
                          1,258,684Future
      development and production costs
                          
                          
                          (94,030
                          )
                          
                          
                          (168,108
                          )Future
      net cash flows
                          
                          
                          144,040
                          
                          
                          
                          1,090,57610%
      annual discount for Estimating timing of cash flows
                          
                          
                          (19,240
                          )
                          
                          
                          (104,747
                          )Standardized
      measure of discounted future net cash flows
                          
                          $
                          124,800
                          
                          
                          $
                          985,829


F-15






December
    31,2008
                                        
                                        
                                        2007Changes
      in Standardized Measure:Standardized
      measure of discounted future net cash flows, December 31, 2007 and
      2006
                                        
                                        $
                                        985,829
                                        
                                        
                                        $
                                        594,114Purchase
      of reserves in place
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Changes
      in price, net of future production costs
                                        
                                        
                                        (47,723
                                        )
                                        
                                        
                                        197,695Changes
      in estimated future development costs
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (57,500
                                        )(270,060
                                        )
                                        
                                        
                                        1,184,474Changes
      due to operations:Production
                                        
                                        
                                        (486,936
                                        )
                                        
                                        
                                        (956,463
                                        )Accretion
      of discount
                                        
                                        
                                        (85,507
                                        )
                                        
                                        
                                        15,801Other
                                        
                                        
                                        29,197
                                        
                                        
                                        
                                        7,728Standardized
      measure of discounted future net cash flows, December 31, 2008 and
      2007
                                        
                                        $
                                        124,800
                                        
                                        
                                        $
                                        985,829




As of
December, 31, 2007, the following capitalized costs by category have been
excluded from the amortization base:




Acquisition
                    
                    $
                    —Exploration
                    
                    
                    2,316,721Development
                    
                    
                    —Capitalized
      interest
                    
                    
                    —






The
Company incurred the costs as follows:




2007
                  
                  $
                  —2006
                  
                  
                  —2005
                  
                  
                  —2004
                  
                  
                  —2003
      and prior
                  
                  
                  2,316,721








Note 10. Related Party Transactions










F-16