GSVI GSV Inc (CE)

GSV, INC.

(Exact name of registrant as specified in its charter)

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

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

(203) 221-2690

(Registrant’s telephone number, including area code)

N/A

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

 

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

 

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

 

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

(Do not check if a smaller reporting company)

 

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

 

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

 

1. Description of the Business

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

2. Basis of Presentation

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

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

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

3. Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Liquidity and Capital Resources

 

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

  

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

 

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

 

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

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

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

 

Off-Balance Sheet Arrangements

 

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