UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF TH E SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal Year Ended December 31, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida |
| 20-3061892 |
(State or other jurisdiction of |
| (IRS Employer |
incorporation or organization) |
| Identification No.) |
|
|
|
50 East River Center Blvd., Suite 820, Covington, KY |
| 41011 |
(Address of principal executive offices) |
| (Zip Code) |
Issuer's telephone number: (859) 581-5111
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ X No
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 [X] No
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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ; Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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 checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
|
|
|
Large accelerated filer [ ] |
| Accelerated filer [ ] |
Non-accelerated filer [ ] |
| Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2009 was $3,727,284, computed by reference to the price at which the common equity was sold as of such date.
The number of shares outstanding of the issuer’s common stock as of March 31, 2010 was 59,152,117 shares.
EXPLANATORY NOTE
Valley Forge Composite Technologies, Inc. (the “Company,” “we,” “us,” and “our”) is filing this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, originally filed with the Securities and Exchange Commission on April 14, 2010 (the “Filing Date”), to address the following events that occurred after the end of the fiscal year covered by the report but prior to the Filing Date:
·
On February 16, 2010, the Company issued 271,429 shares of common stock pursuant to the exercise of 271,429 Class D Warrants.
·
On March 22, 2010, the Company issued 2,857,144 shares of common stock pursuant to the conversion of $1,000,000 principal amount of convertible notes at a conversion price of $0.35 per share.
·
On March 29, 2010, the Company issued 800,000 shares of common stock pursuant to the exercise of 800,000 Class G Wa rrants.
In the original 10-K as submitted on the Filing Date (the “Original Form 10-K”), these events were not identified as “Subsequent Events” in Part II, Item 8 (Financial Statements and Supplementary Data) or reflected in Part III, Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters).
2
This Amendment No. 1 amends Part II, Item 8 and Part III, Item 12 of the Original Form 10-K solely to reflect the subsequent events listed above. Additionally, this Amendment No . 1 amends Part II, Item 8 by removing the disclosure in Note 18 to the Financial Statements ("Subsequent Events") regarding sales between January 1, 2010 and April 8, 2010. While the underlying facts relating to that disclosure have not changed, we have determined that information of this nature should not be included in a subsequent event footnote.
In accordance with Rule 12b-15 under the Exchange Act, Items 8 and 12 from the Original Form 10-K have been amended and restated in their entirety in this Amendment No. 1, solely to reflect the changes discussed above. All other items and exhibits contained in the Original Form 10-K remain unchanged. This Amendment No. 1 does not reflect facts or events occurring after the Filing Date or modify (except as set forth above) or update the disclosures from the Original Form 10-K in any way. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Form 10-K.
In accordance with Exchange Act Rule 12b-15, new certifications of the Company’s Chief Executive Officer and Chief Financial Officer are also being filed.
3
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
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| PAGE |
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|
Report of Independent Registered Public Accounting Firm | 5 |
Consolidated Balance Sheet as of December 31, 2009 | 6 |
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 | 7 |
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2009 and 2008 | 8 |
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 | 9 |
Notes to Consolidated Financial Statements | 10 |
4
R.R. Hawkins & Associates International, a Professional Service Corporation
&nb sp; DOMESTIC & INTERNATIONAL BUSINESS CONSULTING
A superior method to building big business…”
To the Board of Directors and Shareholders
Valley Forge Composite Technologies, Inc
Covington, Kentucky
Report of Indepen dent Registered Public Accounting Firm
We have audited the consolidated balance sheet of Valley Forge Composite Technologies, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ending December 31, 2009 and 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedule of accounts receivable is free of material misstatement. &nbs p;An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the schedule of accounts receivable. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Valley Forge Composite Technologies, Inc. as of December 31, 2009 and 2008, the results of operations, stockholders’ equity and its cash flows for the years ending December 31, 2009 and 2008 in conformity with generally accepted accounting principles in the United States of America.
The accompanyi ng financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred net losses since inception, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ R.R. Hawkins & Associates International, PSC
April 13, 2010
Los Angeles, CA
Corporate Headquarters
5777 W. Century Blvd. , Suite No. 1500
Los Angele s, CA 90045
T: 310.553.5707 F: 310.553.5337
www.rrhawkins.com
5
VALLEY F ORGE COMPOSITE TECHNOLOGIES, INC. | ||||||||||||
CONSOLIDATED BALANCE SHEET | ||||||||||||
| ||||||||||||
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|
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|
|
|
|
|
|
| December 31, | ||
ASSETS |
|
|
|
|
|
| 2009 |
| 2008 | |||
| Current assets: |
|
|
|
|
|
|
|
|
| ||
|
| Cash |
|
|
|
|
| $ | 1,492,135 | $ | 305,179 | |
|
| Accounts receivable |
|
|
|
|
|
| 99,120 |
| 9,492 | |
|
| Inventory |
|
|
|
|
|
| 151,300 |
| 225,000 | |
|
| Prepaid expenses |
|
|
|
|
|
| 104,285 |
| 203,002 | |
|
| Deposits with vendors |
|
|
|
|
|
| 21,000 |
| 21,000 | |
|
|
| Total current assets |
|
|
|
|
|
| 1,867,840 |
| 763,673 |
| Property and equipment, net |
|
|
|
|
| 40,958 |
| 51,623 | |||
| Other assets: |
|
|
|
|
|
|
|
|
| ||
|
| Security deposit |
|
|
|
|
|
| 5,535 |
| 5,535 | |
|
| Capitalized R&D costs, net of amortization of $73,227 and $24,409 at December 31, 2009 and 2008 | 170,863 |
| 219,681 | |||||||
|
| Loan fees, net of amortization of $104,842- and $26,614 at December 31, 2009 and 2008 | 129,843 |
| 208,071 | |||||||
|
|
| Total other assets |
|
|
|
|
|
| 306,2 41 |
| 433,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Total Assets |
|
|
|
|
| $ | 2,215,039 | $ | 1,248,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
|
|
| |||||||||
| Current liabilities: |
|
|
|
|
|
|
|
|
| ||
|
| Accounts payable and accrued expenses |
|
| $ | 1,217,603 | $ | 246,857 | ||||
|
| Deferred revenue |
|
|
|
|
|
| 858,400 |
| - | |
|
| Convertible debenture |
|
| ; |
|
|
| 42,000 |
| 42,000 | |
|
| Due to shareholder |
|
|
|
|
|
| 216,558 |
| 326,558 | |
|
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| Total current liabilities |
|
|
|
|
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| 2,334,561 |
| 615,415 |
| Long-term debt, net of debt discount of $541,893 and $1,011,553 |
|
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| ||||||||
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| at December 31, 2009 and 2008 |
|
|
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| 458,107 |
| 138,447 | ||
| Shareholders' Equity: |
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|
|
|
|
|
|
|
| ||
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| Common stock, $.001 par value, 100,000,000 shares authorized; |
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| |||||||
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| 54,668,920- and 51,415,349 issued - and outstanding at |
|
|
|
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| ||||
|
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| December 31, 2009, and 2008 |
| 54,689 |
| 51,415 | |||||
|
| Additional paid-in capital |
|
|
|
|
| 7,673,903 |
| 6,710,904 | ||
|
| Accumulated deficit |
|
|
|
|
|
| (8,306,221) |
| (6,267,598) | |
|
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| Total shareholders' equity (deficit) |
|
|
|
|
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| (577,629) |
| 494,721 |
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|
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| Total Liabilities and Shareholders' Equity (Deficit) |
|
| $ | 2,215,039 | $ | 1,248,583 | |||
The accompanying notes should be read in conjunction with the audited consolidated financial statements. |
6
VALLEY FORGE COMPOSITE TECHNOLOGIES, INC | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
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| For the years ended | ||
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| December 31, | ||
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| 2009 |
| 2008 |
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Sales |
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| $ | 3,202,815 | $ | 132,000 | |
Cost of sales |
|
|
| 2,943,065 |
| 72,068 | ||
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Gross Profit |
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|
| 259,750 |
| 59,932 | ||
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Costs and expenses |
|
|
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|
| |||
| Selling and administrative expenses |
| 1,279,420 |
| 1,560,984 | |||
| Warrant expense | 44 6,223 |
| 0 | ||||
| Stock based consulting |
|
| - |
| 142,450 | ||
|
|
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|
|
| 1,725,643 |
| 1,703,434 |
|
|
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Loss from operations |
|
| (1,465,893) |
| (1,643,502) | |||
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Other income |
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| ||
| Interest expense |
|
|
| (568,561) |
| (208,567) | |
| Legal settlement |
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|
| 13,750 |
| - | |
| Investment income |
|
| 81 |
| 3,314 | ||
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Net loss | &nbs p; |
|
| $ | (2,038,623) | $ | (1,848,755) | |
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Loss per common share |
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| |||
| Basic and Diluted |
| $ | (0.04) | $ | (0.04) | ||
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Weighted Average Common Shares Outstanding |
|
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| |||||
| Basic and Diluted |
|
| 53,011,122 |
| 49,362,903 |
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|
The accompanying notes should be read in conjunction with the audited consolidated financial statements
7
VALLEY FORGE COMPOSITE TECHNOLOGIES, INC. | ||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | ||||||||||
YEARS ENDED DECEMBER 31, 2009 AND 2008 | ||||||||||
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| & nbsp; |
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| Common Stock |
| Number of Shares |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Total |
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BALANCE AT JANUARY 1, 2008 |
| 46,956 | $ | 46,955,833 | $ | 4,638,394 | $ | (4,418,843) | $ | 266,507 |
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Stock based consulting - warrants |
| - |
| - |
| 142,450 |
| - |
| 142,450 |
|
|
|
|
|
| ; |
|
|
|
|
Proceeds from exercise of warrants |
| 200 |
| 200,000 |
| 199,800 |
| - |
| 200,000 |
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Stock issued for services |
| 412 |
| 412,516 |
| 414,857 |
| - |
| 415,269 |
| &n bsp; |
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Stock based compensation |
| 25 | 25,000 |
| 26,225 |
| - |
| 26,250 | |
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Stock issued for money raisers |
| 2,200 |
| 2,200,000 |
| (2,200) |
| - |
| - |
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Proceeds from sale of common stock |
| 1,560 |
| 1,560,000 |
| 48,440 |
| - |
| 50,000 |
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Debt Discount |
| - |
| - |
| 1,150,000 |
| - |
| 1,150,000 |
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Proceeds from standby equity agreement |
| 62 |
| 62,000 |
| 92,938 |
| - |
| 93,000 |
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|
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| Net loss for the year ended December 31, 2008 |
| - |
| - |
| - |
| (1,848,755) |
| (1,848,755) |
|
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BALANCE AT DECEMBER 31, 2008 |
| 51,415 |
| 51,415,349 |
| 6,710,904 |
| (6,267,598) |
| 494,721 |
|
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|
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|
|
|
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Proceeds from exercise of warrants |
| - |
| 200,000 |
| 446,223 |
| - |
| 446,223 |
|
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|
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|
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Stock issued for services |
| 120 |
| 120,000 |
| 28,680 |
| - |
| 28,880 |
| &nbs p; |
|
|
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|
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|
Stock based compensation |
| 25 |
| 25,000 |
| 3,725 |
| - |
| 3,750 |
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Proceeds from sale of common stock |
| 2,700 |
| 2,700,000 |
| 334,800 |
| - |
| 337,500 |
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|
Net loss for the year ended December 31, 2009 |
| - |
| - |
| - |
| (2,038,623) |
| (2,038,623) |
|
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|
|
|
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|
BALANCE AT DECEMBER 31, 2009 |
| 54,689 | $ | 54,688,920 | $ | 7,673,903 | $ | (8,306,221) | $ | (577,629) |
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The accompanying notes should be read in conjunction with the audited consolidated financial statements. |
8
VALLEY FORGE COMPOSITE TECHNOLOGIES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the year ending December 31, | ||
|
|
|
|
|
| 2009 |
| 2008 |
CASH FLOWS FROM OPERATING ACTIVITIES |
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|
| |||||
| Net loss |
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| $ | (2,038,623) | $ | (1,848,755) | |
| Adjustments to reconcile net loss |
|
|
| ||||
| to net cash used in operating activities: |
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|
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|
| ||
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| Depreciation and amortization expense | 140,907 |
| 64,948 | |||
|
| Amortization of debt discount | 469,660 |
| 138,447 | |||
|
| Common stock issued for services | 28,800 |
| 415,269 | |||
|
| Fair value of warrants issued | 446,223 |
| 142,450 | |||
|
| Stock based compensation | 3,750 |
| 26,250 | |||
|
| Change in operating assets and liabilities |
|
|
| |||
|
|
| (Increase) decrease in: |
|
|
| ||
|
|
| Accounts receivable |
| (89,628) |
| (9,492) | |
|
|
| Inventory |
|
| 73,700 |
| 235,114 |
|
|
| Prepaid expenses |
| 98,717 |
| (160,343) | |
|
|
| Vendor deposits |
| - |
| 201,735 | |
|
|
| Increase (decrease) in: |
|
|
| ||
|
|
| Accounts payable and accrued expenses | 970,746 |
| 118,476 | ||
|
|
| Deferred revenue |
| 858,400 |
| (66,000) | |
| Net Cash Provided By (Used In) Operating Activities | 962,652 |
| (741,901) | CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
| Capitalized R&D Costs |
| - |
| (244,090) | |||
| Loan fees |
|
|
| - |
| (234,685) | |
| Purchases of equipment |
| (3,196) |
| (5,801) | |||
| Net Cash Used In Investing Activities | (3,196) |
| (484,576) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
| |||||
| Gross proceeds from exercise of warrants | - |
| 200,000 | ||||
| Proceeds from issuance of common stock per standby equity agreement | - |
| 93,000 | ||||
| Proceeds from issuance of common stock | 337,500 |
| 50,000 | ||||
| Proceeds from long-term debt |
| - |
| 1,150,000 | |||
| Repayments of notes payable |
| - |
| (160,000) | |||
| Repayments to shareholder |
| (110,000) |
| - | |||
| Proceeds from shareholder loans |
| - |
| 110,000 | |||
| Net Cash Provided From Financing Activities | 227,500 |
| 1,443,000 | ||||
NET INCREASE IN CASH | 1,224,956 |
| 216,523 | |||||
CASH AT BEGINNING OF PERIOD |
| 305,179 |
| 88,656 | ||||
CASH AT END OF PERIOD | $ | 1,492,135 |
| 305,179 | ||||
|
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|
|
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|
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|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
| ||||
Cash paid during the period for: |
|
|
|
| ||||
| Income taxes |
| $ | - | $ | - | ||
| Interest |
|
| $ | 113,204 | $ | 28,992 | |
The accompanying notes should be read in conjunction with the audited consolidated financial statements. |
9
VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 – NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
The Company’s primary operating subsidiary has been Valley Forge Composite Technologies, Inc., a Pennsylvania corporation, which was incorporated in Pennsylvania on November 21, 1996. On August 7, 2007, Valley Forge Composite Technologies, Inc., a Pennsylvania corporation, was re-domiciled as a Florida corporation and changed its name to Valley Forge Detection Systems, Inc. (“VFDS”). Simultaneously, the business segments of the former Pennsylvania company were split into new Florida corporations, with VFDS’ aerospace segment assigned to Valley Forge Aerospace, Inc. (“VFA”); VFDS’ personnel screening technologies assigned to Valley Forge Imaging, Inc. (“VFI”), and VFDS’ development and commercialization of potential new product lines assigned to Valley Forge Emerging Technologies, Inc. (“VFET”). The Company is the 100% shareholder of its four sub sidiaries.
The primary activity of VFI is to market and sell personnel screening devices known as ODIN and ULDRIS (Ultra Low Dose Radiographic Imaging System). On April 30, 2007, the Company signed an agreement to become a re-seller of ULDRIS, a product manufactured in Russia.
VFA is actively engaged in the design and manufacture of attitude control instruments for small satellites, in particular, mini momentum reaction wheels based on VFA’s propriety composite and bearing technology.
VFET evaluates miscellaneous scientific technologies not matching the Company’s aerospace and anti-terrorism business segments for potential commercialization.
Between 1996 and 2003 and in 2009, through VFDS, the Company won numerous contracts to produce momentum wheels and various other mechanical devices for special projects. Since September 11, 2001 the Company has focused much of its energy on the development and commercialization of its counter-terrorism products. Such products include an advanced detection capability for illicit narcotics, explosives, and bio-chemical weapons using photo-nuclear reactions to initiate secondary gamma quanta the result of which is a unique and distinguishable signal identifying each component of a substance. This product is known as the THOR LVX photonuclear detection system (“THOR”). The development and commercialization of THOR is the present focus of VFDS.
On July 6, 2006, Quetzal Capital 1, Inc., a Florida co rporation (“QC1”) entered into a share exchange agreement with VFDS’ predecessor Pennsylvania corporation. Under the share exchange agreement, QC1 issued 40,000,000 shares of its common stock to VFDS shareholders for the acquisition of all of the outstanding capital stock of VFDS. For financial accounting purposes, the exchange of stock was treated as a recapitalization of VFDS with the former shareholders of QC1 retaining 5,000,000 shares (or approximately 11%) of the public company. Prior to the merger, QC1 was a reporting shell corporation with no operations. The share exchange was approved by QC1 and its sole shareholder, Quetzal Capital Funding I, Inc. (“QCF1”), and by VFDS’ board of directors and a majority of its shareholders. QC1 changed its name to Valley Forge Composite Technologies, Inc., a Florida corporation, and is referred to throughout this report as the “Company.”
10
Several related agreements were also made with parties associated or affiliated with QC1 in connection with the approval of the share exchange. These agreements involved the approval of a consulting agreement and a warrant agreement with Coast To Coast Equity Group, Inc. (“CTCEG”), a company owned by the same shareholders who owned QC1’s sole corporate shareholder, QCF1, and a registration rights agreement for QCF1, CTCEG and private placement unit holders. On March 14, 2007, QCF1 was dissolved by unanimous decision of its three shareholders, Charles J. Scimeca, George Frudakis, and Tony N. Frudakis. This resulted in the Company gaining two additional shareholders due to the splitting of QCF1's share of the Company ’s common stock between the three individual shareholders of QCF1.
Basis of Presentation
The accompanying consolidated financial statements have been prepared by Valley Forge Composite Technologies, Inc., a Florida corporation (the “Company”). The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The attainment of sustainable profitability and positive cash flow from operations is dependent on certain future events. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty (See Note 2).
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabi lities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Comprehensive Income
The Company follows the Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income.” Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. Since the Company has no items of other comprehensive income, comprehensive income (loss) is equal to net income (loss).
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, security deposits, due to shareholders, accounts payables, accrued expenses and a convertible debenture. The carrying values of these financial instruments approximate the fair value due to their short term maturities.
11
Concentration of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of ca sh. The Company maintains its cash investments in high credit quality financial institutions. At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts. At December 31, 2009, the Company’s cash deposits exceeded the FDIC insured limits by $1,942,375.
Cash Equivalents
The Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. At December 31, 2009, the Company held no cash equivalent securities.
Inventories
The Company’s accounts for finished goods inventory by applying the lower of cost or market method, on a first-in, first-out (FIFO) basis. Inventories consist of the following:
|
| December 31 |
|
| December 31 |
| ||
|
| 2009 |
|
| 2008 |
| ||
Raw materials |
| $ | -0- |
|
| $ | -0- |
|
Work in process |
|
| -0- |
|
|
| -0- |
|
Finished goods |
|
| 151,300 |
|
|
| 225,000 |
|
|
| $ | 151,300 |
|
| $ | 225,000 |
|
Property and Equipment
Property and equipment is stated at cost. Depreciatio n on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets.
Computers and Equipment 5 years
Furniture and fixtures 7 years
Expenditures for major renewals and betterments that extend the useful lives of the assets are capitalized. Expenditures for maintenance and repairs of the assets are charged to expense as incurred.
Loan Fees
Loan fees are stated at cost. Amortization on loan fees is calculated using the straight-line method over the term of the loans.
Revenue Recognition
The Company only recognizes revenue when persuasive evidence of a customer or distributor arrangement exists, receipt of goods by the customer occurs, the price is fixed or determinable, collection is reasonably assured and upon the customer acceptance of the goods.
Persuasive evidence of a customer or distributor arrangement exists upon the Company’s receipt of a signed purchase order from the customer, the Company’s shipment of the goods as specified in the purchase order and the customer’s receipt of the goods ordered.
12
A sales agreement is initiated when the customer submits a signed purchase order which states the product(s) ordered, price, quantity and the terms and conditions of sale. Acceptance occurs upon the earlier of: (1) the Company’s receipt of a written acceptance of the goods from the customer; or (2) expiration of the time period stated in each purchase order for final payment which may vary with each order. The customer has a right of return from the date that the shipment occurs until the final payment date stated in the purch ase order. Revenue is only recognized upon completion of product testing by the customer, but not later than 180 days after product shipment occurs.
Income Taxes
Income taxes are accounted for in accordance with ACS 740, Accounting for Income Taxes. ACS 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized.
Loss per common share
Basic earnings per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the periods below the Company excludes potentially dilutive securities such as convertible warrants and the convertible debenture from the loss per share calculations as their effect would have been anti-dilutive.
The following sets forth the computation of earnings per share.
|
| For the Period Ended |
| |||||
|
| December 31, |
| |||||
|
| 2009 |
|
| 2008 |
| ||
Net loss |
| $ | (2,038,623) |
|
| $ | (1,848,755) |
|
Weighted average shares outstanding |
|
| 53,011,122 |
|
|
| 49,362,9 03 |
|
Loss per share - basic and diluted |
| $ | ( .04) |
|
| $ | ( .04) |
|
The Company’s common stock equivalents include the following:
|
| December 31, |
|
| December 31, |
| ||
|
| 2009 |
|
| 2008 |
| ||
Class A Warrants &nbs p; |
|
| – (1) |
|
|
| 2,800,000 |
|
Class B Warrants |
|
| (2) |
|
|
| 958,500 |
|
Class C Warrants |
|
| 1,000,000 |
|
|
| 1,000,000 |
|
Class D Warrants &nbs p; |
|
| 1,857,146 |
|
|
| 1,857,146 |
|
Class E Warrants |
|
| - |
|
|
| 2,500,000 |
|
Class F Warrants & nbsp; |
|
| 1,900,000 |
|
|
| - |
|
Class G Warrants ; |
|
| 800,000 |
|
|
| - |
|
Total common stock equivalents |
|
| 5,557,146 |
|
|
| 9,115,646 |
|
(1)
The Class A Warrants expired on May 14, 2009
(2)
The Class B Warrants expired on April 4, 2009
13
On January 29, 2010 individual investors exercised 600,000 Class F Warrants and received 534,624 shares of common stock.
On February 16, 2010 individual investors exercised 271,429 Class D Warrants and received 271,429 shares of common stock.
On March 29, 2010 individual investors exercised 800,000 Class G Warrants and received 800,000 shares of common stock.
Share Based Payments
Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights, are measured at their fa ir value on the awards’ grant date, and based on the estimated number of awards that are ultimately expected to vest. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded as a component of general and administrative expense.
On July 6, 2006 the Company granted 3,000,000 Class A warrants in connection with a two-year consulting agreement beginning July 6, 2006 to CTCEG. These warrants granted in connection with the consulting agreement include the following provisions: 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.00 per share when the per share market value closes at or above $1.00 for up to two years from the effective date of the registration statement registering the underlying shar es; 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.50 per share when the per share market value closes at or above $1.50 for up to two years from the effective date of the registration statement registering the underlying shares; and, 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $2.00 per share when the per share market value closes at or above $2.00 for up to two years from the effective date of the registration statement registering the underlying shares. All of the Class A warrants expired on May 14, 2009.
Warranties
Some of the Company’s product lines will be covered by an annual renewable warranty effective only with the purchase of the Company’s annual maintenance contract agreement. The Company expects t he annual maintenance contract agreement fees will total 15% to 20% of the original purchase price of the products.
Revenue from periodic maintenance agreements shall be recognized ratably over the respective maintenance periods provided no significant obligations remain, and collectability of the related receivable is probable.
Recent accounting pronouncements
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally "Accepted Accounting Principles – Overall" (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the
14
Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
Effective June 30, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update , as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have a material impact on the Company’s financial statements.
Effective June 30, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have a material impact on the Company’s financial statements.
Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cashflows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company’s financial statements.
Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair V alue Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Lev el 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.
Effective January 1, 2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired,
15
liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date ; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s financial statements.
Research and Development Costs
Research and development costs, which relate primarily to the development, design and testing of products, are expensed as incurred, until such time as management determines the research and development will have a future use and at that time, such expense are capitalized and amortized over their useful life. Research and development expense, which are included in selling, general and administrative expenses, were $30 in 2009 and $226,769 for 2008. Capitalized research and development costs were $-0- in 2009 and $244,091 in 2008.
NOTE 2 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $8,306,221 at December 31, 2009, net losses in the period ended December 31, 2009 of $2,038,623 and cash provided by operations during the period ended December 31, 2009 of $962,652. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
The attainment of sustainable profitability and positive cash flow from operations is dependent on certain future events. These cond itions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management may attempt to raise additional funds by way of a public or private offering of its securities. While the Company believes in the viability of its strategy to improve sales volume and its ability to raise additional funds, there can be no assurances to that effect.
Since its inception in 1996, the Company was involved in the development and sales of advanced scientific technologies. Sales through the years were sporadic but had high margins. The Company’s limited financial resources have prevented the Company from aggressively advertising its products and services to achieve consumer recognition. The ability of the Company to continue as a going co ncern is dependent on the Company’s ability to further implement its business plan to generate increased revenues and to raise additional funds.
While the Company is attempting to increase sales in general, the growth has not been significant enough to support the Company’s daily operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company also seeks the acquisition, development, and commercialization of other advanced technologies. The ultimate success of the Company in attaining sustainable profitability and positive cash flow from operations is dependent upon the successful development and commercialization of these advanced technologies including the THOR and Odin sys tems together with obtaining sufficient capital or financing to support management plans. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues and to raise additional funds provide the opportunity for the Company to continue as a going concern.
NOTE 3 – INCOME TAXES
There was no income tax expense for the periods ended December 31, 2009 and 2008 due to the Company’s net losses.
16
Deferred income taxes reflect the net income tax effect of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income taxes. The Company’s deferred income tax assets and liabilities consist of the following at December 31, 2009:
|
|
|
|
|
Net operating loss carryforwards |
| $ | 2,250,000 |
|
Less: Valuation allowance |
|
| (2,250,000) |
|
Net deferred income tax assets |
| $ | -0- |
|
The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for fiscal years 2009 and 2008:
|
|
|
|
|
|
|
|
|
| 2009 |
|
| 2008 |
| |
Computed “expected” tax benefit |
|
| (33) | % |
| (33) | % |
State taxes net of “expected” tax benefit |
|
| (6) | % |
| (6) | % |
Permanent differences |
|
| - | % |
| - | % |
Change in valuation allowance |
|
| 39 | % |
| 39 | % |
Effective tax rate |
|
| 0 | % |
| 0 | % |
Net operating loss carryforwards totaled approximately $5,785,000 at December 31, 2009. The net operating loss carryforwards will begin to expire in the year 2028 if not utilized. After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2009 due to the uncertainty of realizing the deferred tax assets. The valuation allowance increased by approximately $793,000 for the year ended December 2009. Utilization of the Company’s net operating loss carryforwards may be limited based on changes in ownership as defined in Internal Revenue Code Section 382.
Income taxes are accounted for in accordance with ACS 740, Accounting for Income Taxes. ACS 740 requires the recognition of deferred tax assets an d liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized. Utilization of the Company's net operating loss carryforwards may be limited based on changes in ownership as defined in Internal Revenue Code Section 382. Due to ongoing losses and the establishment of a valuation allowance to offset deferred tax assets, the Company did not record a tax provision for the period ended December 31, 2009.
NOTE 4 - RELATED PARTY TRANSACTIONS
At December 31, 2009 the Company owed Louis J. Brothers, the Company’s president and major shareholder, $216,558 for advances made to the Company. Such amount, which is included in the due to shareholders balance on the balance sheet at December 31, 2009 earns 6% annual interest compounded quarterly, and is due on demand.
On August 11, 2006, Coast to Coast Equity Group, Inc., loaned the Company $42,000 as described in Note 6.
17
NOTE 5 - DESCRIPTION OF LEASING ARRANGEMENTS
On September 1, 2006, the Company entered into a lease of 2,985 square feet of office space located at 50 E. River Center Boulevard, Suite 820, Covington, Kentucky. The term of the lease is for five years beginning on the first day of September, 2006 and ending on the last day of August, 2011.
Under the terms of the lease, the Company shall pay additional rent to cover operating expenses of the property at a pro rata share deemed to be 0.928%, which will total approximately $19,40 2 for the initial twelve months. These expenses are anticipated to increase at a 3% rate annually for the remaining term of the agreement.
On December 1, 2007, the Company entered into a lease of 2,700 square feet of rentable space located at 1895 Airport Exchange Blvd, Building A, Erlanger, Kentucky. The term of the lease is for 37 months beginning on the first day of December, 2007 and ending on the last day of December, 2010.
Under the terms of the lease, the Company shall pay additional rent to cover operating expenses of the property of approximately $349 per month. Rent expense for the period ended December 31, 2009 and 2008 was $101,814 and $92,273.
The followin g is a schedule of future minimum lease payments required under the lease as of December 31, 2009:
|
|
|
|
|
Period Ending |
|
|
| |
December 31 |
| ;Amount |
| |
|
|
|
| |
2010 |
| $ | 72,270 |
|
2011 |
|
| 35,820 |
|
|
| $ | 108,090 |
|
NOTE 6 - CONVERTIBLE DEBENTURE
On August 11, 2006, the Company issued a convertible debenture to Coast To Coast Equity Group, Inc. (“CTCEG”), in the amount of $42,000 in exchange for cash received. This debenture matures upon the earlier of twelve mont hs from the date of the closing of the merger between VFDS and CTCEG, which occurred on July 6, 2006, or upon the date of an “event of default” which would include any proceedings by VFDS to seek protection due to insolvency. On July 2, 2008, the Company and CTCEG agreed to extend the agreement until August 11, 2010. The stated interest rate is 4% per annum.
NOTE 7 – SHAREHOLDERS’ EQUITY
On July 6, 2006, the Company issued 3,000,000 Class A warrants in exchange for consulting services rendered. The Company valued these warrants at the fair market value on the dates of the grant as referred to in Note 1. The Class A warrants expired on May 14, 2009.
During the period August 2006 throug h November 2006, the Company sold in private placement transactions 1,296,500 units at $1.00 per unit which consist of 1 share of common stock and 1 Class B warrant which can be exercised at $1.50 per share within 6 months from the effective date of a registration statement registering the units and the underlying shares reserved for the exercise of the warrants. A registration statement was required to be filed within 30 days from the date that the Company attains a shareholder base of 35 shareholders. This filing occurred on November 14, 2006 and was declared effective on May 14, 2007. The Class B warrants’ contractual expiration date of November 13, 2007 has been extended several times by the board of directors, with the most recent extension occurring on December 23, 2008. The Class B warrants expired on April 4, 2009.
18
The Company established a price protection provision relating to the selling unit holders of the private placement securities named in the registration statement. The provision states that parties to the agreement are entitled to receive additional stock or warrants if the Company sells shares of stock or warrants for less than $1.00 per share of common stock and $1.50 per warrant prior to the time limitations specified which are one year from the effective date of the Registration Statement for common stock issued and six months from the effective date of the Registration Statement for warrants issued. The Company did not offer any additional securities that would have caused this provision to become effective prior to the applicable time limitations of the provisions, which expired in May 2008. Accordingly, the Company believes that the price protectio n provision will have no accounting impact.
Coast To Coast Equity Group, Inc., and Charles J. Scimeca, George Frudakis, and Tony N. Frudakis (formerly the shareholders of Quetzal Capital Funding 1, Inc.), were previously protected from dilution of their percentage ownership of the Company. Non-dilution rights, as defined by the registration rights agreement (incorporated by reference herein), mean that these parties shall continue to have the same percentage of ownership and the same percentage of voting rights of the class of the Company’s common stock regardless of whether the Company or its successors or its assigns may thereafter increase or decrease the authorized number of shares of the Company’s common stock or increase or decrease the number of shares issued and outstanding. The non-dilution rights, by the terms of the registration rights agreement, expired on May 14, 2009. Lan guage in prior filings inadvertently and mistakenly implied that these non-dilution rights had been extended until May 13, 2010, but no such extension was ever effected.
Common Stock Warrants
On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on July 3, 2011. In connection with the financing, MKM was also issued Class C Warrants (the "Warrants") to purchase up to 1,000,000 shares of the Company's common stock. The warrants are exercisable at an exercise price of $1.61 per s hare. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $166,667 to interest expense during the year ended December 31, 2009. Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share.
On March 22, 2010, MKM converted the note into 1,428,572 shares of common stock.
On September 29, 2008, the Company secured a financing arrangement with MKM and several securities purchasers unrelated to MKM. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were also issued Class D Warrants (the "Warrants") to purchase up to 1,857,146 shares of the Company's common stock. The warrants are exercisable at an exercise price of $0.75 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $302,992 to interest expense during the year ended December 31, 2009. Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class D warrants to $0.20 per share from $0.75 per share.
On September 29, 2009, the unrelated individual investors converted 428,571 shares of common stock at a conversion price of $0.35 per share.
On February 16, 2010, the Company issued 271,429 shares of common stock following the exercise of 271,429 Class D Warrants and received $54,286 in cash.
19
On March 22, 2010, MKM converted the $500,00 note into 1,428,572 shares of common stock.
On May 27, 2009 the Company issued 1,900,000 shares of common stock to MKM Capital Advisors and individual investors for $237,500 in cash. In connection with the common stock purchase, MKM Capital Advisors and the individual investors were issued Class F Warrants to pu rchase up to 1,900,000 shares of the Company’s common stock. A total of $302,600 was expensed to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.16; Strike price of $0.20 per share; Time to expiration (days) of 1,826; Expected volatility of 254.69%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 2.72%. In addition, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share and the series D warrants to $0.20 per share from $0.75 per share. On
January 29, 2010, the Company issued 534,624 shares of common stock following the cashless exercise of 600,000 Class F Warrants.
On August 10, 2009 the Company issued 800,000 shares of common stock to individual investors for $100,000 in cash ($92,000 net of expenses). In connection with the common stock purchase, the individual investors were issued Class G Warrants to purchase up to 800,000 shares of the Company’s common stock. A total of $143,623 was expensed to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.18; Strike price of $0.20 per share; Time to expiration (days) of 1,826; Expected volatility of 270.54%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 0.19%. In addition, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share and the series D warrants to $0.20 per share from $0.75 per share.
On March 29, 2010, the Company issued 800,000 shares of common stock following the exercise of 800,00 0 Class G Warrants and received $160,000 in cash.
Stock warrant activity for the period ended December 31, 2009 is summarized as follows:
|
|
|
|
| Weighted |
|
|
|
|
| average |
|
| Number |
|
| exercise |
|
| of shares |
|
| price |
Outstanding at December 31, 2008 |
| 6,615,646 |
| $ | 1.32 |
Granted |
| 2,700,000 |
|
| 0.20 |
Forfeited |
| (3,758,500) |
|
| 1.50 |
Exercised |
| - |
|
| - |
&n bsp; Outstanding at December 31, 2009 |
| 5,557,146 |
| $ | 0.20 |
The following table summarizes the Company's Class C, D, F, and G stock warrants outstanding at December 31, 2009:
|
|
|
|
|
|
|
| Weighted |
|
| Weighted |
|
| Range of |
|
|
|
|
| Average |
|
| Average |
|
| Exercise |
|
|
|
|
| Remaining |
|
| Exercise |
Class |
| Price |
|
| Number |
|
| Life |
|
| Price |
C | $ | 0.20 |
|
| 1,000,000 |
|
| 5.50 |
| $ | 0.20 |
D | $ | 0.20 |
|
| 1,857,146 |
|
| 5.75 |
| $ | 0.20 |
F | $ | 0.20 |
|
| 1,900,000 |
|
| 4.50 |
| $ | 0.20 |
G | $ | 0.20 |
|
| 800,000 |
|
| 4.60 |
| $ | 0.20 |
20
On January 29, 2010 individual investors exercised 600,000 Class F Warrants and received 534,624 shares of common stock.
On Fe bruary 16, 2010 individual investors exercised 271,429 Class D Warrants and received 271,429 shares of common stock.
On March 29, 2010 individual investors exercised 800,000 Class G Warrants and received 800,000 shares of common stock.
NOTE 8 – PROPERTY AND EQUIPMENT
The major classifications of equipment are summarized below:
|
| December 31, |
|
| December 31, |
| ||
&nb sp; Estimated Life |
| 2009 |
|
| 2008 |
| ||
Office equipment 5 years |
| $ | 55,871 |
|
| $ | 52,675 |
|
Furniture and fixtures 7 years |
|
| 49,564 |
|
|
| 49,564 |
|
& nbsp; |
|
| 105,435 |
|
|
| 102,239 |
|
Less accumulated depreciation |
|
| (64,477) |
|
|
| (50,616) |
|
|
| $ | 40,958 |
|
| $ | 51,623 |
|
Depreciation expense for the years ending December 31, 2009 and 2008 was $13,861 and $13,925.
NOTE 9 – CAPITALIZED R&D COSTS
The major classifica tions of equipment are summarized below:
|
| December 31, |
|
| December 31, |
| ||
|
| 2009 |
|
| 2008 |
| ||
Capitalized R&D costs |
| $ | 244,090 |
|
| $ | 244,090 |
|
Less accumulated amortization |
|
|
|
|
| (24,409) |
| |
|
| $ | 170,863 |
|
| $ | 219,681 |
|
Amortization expense for the years ending December 31, 2009 and 2008 was $48,818 and $24,409.
Capitalized R&D costs are being amortized over 5 years.
NOTE 10 – LOAN FEES
The major classifications of equipment are summarized below:
|
| December 31, |
|
| December 31, |
| ||
|
| 2009 |
|
| 2008 |
| ||
Loan fees |
| $ | 234,685 |
|
| $ | 234,685 |
|
Less accumulated amortization |
|
| (104,842) |
|
|
| (26,614) |
|
|
| $ | 129,843 |
|
| $ | 208,071 |
|
Amortization expense for the years ending December 31, 2009 and 2008 was $78,228 and $26,614.
Loan fees are being amortized over the terms of the loans which are 36 months.
21
NOTE 11 – ACCOUNTS PAYABLE
The Company’s current accounts payable and accrued expenses include $5,393 borrowed on revolving credit lines utilizing corporate credit cards which bear interest at an average rate of 16.78% per annum and call for total minimum monthly installment payments of $80 a s of December 31, 2009. However, since amounts may be due on demand and it is the Company’s intent to pay such balances in their entirety during 2010, such amounts have been classified as current.
The remaining accounts payable and accrued liabilities consist of ordinary administrative expenses which were incurred in the operations of the Company.
NOTE 12 – NOTES PAYABLE
On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% p er year, payable on a quarterly basis and has a term of three years due on July 3, 2011. In connection with the financing, MKM was also issued Class C Warrants to purchase up to 1,000,000 shares of the Company's common stock. The warrants were exercisable at an exercise price of $1.61 per share, but on May 27, 2009 the Company reduced the Class C Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $166,667 to interest expense during the year ended December 31, 2009.
On March 22, 2010, MKM converted the entire amount of the note into 1,428,572 shares of common stock at a conversion price of $0.35 per share.
On September 29, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC an unaffiliated accredited institutional investor and other unrelated individuals. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were also issued Class D Warrants to purchase up to 1,857,146 shares of the Company's common stock. The warrants were exercisable at an exercise price of $0.75 per share, but on May 27, 2009 the Company reduced the Class D Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $302,992 to interest expense during the year ended December 31, 2009.
On September 29, 2009, the unrelated individual investors converted 428,571 shares of common stock at a conversion price of $0.35 per share.
On March 22, 2010, MKM converted the remaining $500,000 note into 1,428,572 shares of common stock at a conversion price of $0.35 per share.
22
The promissory notes are as follows:
| December 31, |
| December 31, | ||
| 2009 |
| 2008 | ||
Notes payable | $ | 1,150,000 |
| $ | 1,150,000 |
Less: principal payments |
| 150,000 |
|
| - |
Notes payable outstanding at December 31, 2009 and December 31, 2007 |
| 1,000,000 |
|
| 1,150,000 |
Less: unamortized discount on notes payable |
| (541,893) |
|
| (1,011,553) |
Notes payable, net |
| 458,107 |
|
| 138,447 |
Less current portion |
| - |
|
| - |
Notes payable, net of discount of $541,893 and $1,011,553, less current portion | $ | 458,107 |
| $ | 138,447 |
NOTE 13 – DEFERRED REVENUE
The Company has received $858,400 in cash for orders it will ship in the next six months. Per the Company’s revenue recognition policy (see note 1), the revenue will be recognized when goods have been received by the customer.
NOTE 14 – ADVERTISING
Advertising costs are expensed as incurred. As of December 31, 2009 and 2008 advertising expense was $ 143,815 and $124,256.
NOTE 15 – STANDBY EQUITY AGREEMENT
On August 22, 2007, the Company entered into an agreement with CTCEG to sell 333,333 shares of common stock at $1.50 per share on demand of the Company.
The Company established a price protection provision relating to the selling price of common stock per the agreement. The provision states that parties to the agreement are entitled to receive additional stock if the Company sells shares of stock for less than $1.50 per share of common stock to an investor prior to the time limitations specified which is one year from the effective date of the agreement.
As of December 31, 2008, the Company had sold 333,333 shares for $500,000.
NOTE 16 – STOCK COMPENSATION
On August 15, 2007, the Board of Directors of the Company issued 50,000 shares of restricted common stock to an employee of the Company. The Company incurred a $242,500 expense based on the closing price of the stock on August 15, 2007.
On August 1, 2008, the Board of Directors of the Company issued 25,000 shares of restricted common stock to an employee of the Company. The Company incurred a $26,250 expense based on the closing price of the stock on August 1, 2008.
On August 1, 2009, the Board of Directors of the Company issued 25,000 shares of restricted common stock to an employee of the Company. The Company incurred a $3,750 expense based on the closing price of the stock on August 1, 2009.
23
NOTE 17 – COMMON STOCK RESCISSION
On November 12, 2008, the Company's Board of Directors authorized the rescission of transactions involving 866,667 shares of common stock issued to Coast to Coast Equity Group, Inc. Coast to Coast Equity Group, I nc. approved the rescission following subsequent review of the price protection mechanism that triggered the issuances in July 2008. This rescission has no impact on the Statement of Operations or Shareholders’ Equity.
NOTE 18 – SUBSEQUENT EVENTS
The Company performed a review of subsequent events between the balance sheet date of December 31, 2009, through February 11, 2010, the date the financial statements were issued, and concluded that events or transactions occurring during that period requiring recognition or disclosure were made.
On January 29, 2010, the Company issued 534,624 shares of common stock to two investors, and in connection therewith canceled 600 ,000 warrants in a cashless exercise.
On February 16, 2010, the Company issued 271,429 shares of common stock following the exercise of 271,429 Class D Warrants and received $54,286 in cash.
On March 22, 2010, MKM converted $1,000,000 in notes payable into 2,857,144 shares of common stock at a conversion price of $0.35 per share.
On March 29, 2010, the Company issued 800,000 shares of common stock following the exercise of 800,000 Class G Warrants and received $160,000 in cash.
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The Company has 59,152,116 shares of common stock issued and outstanding as of March 31, 2010. The table below provides current ownership figures, and also figures that assume and project the exercise of all Class C, D, F and G warrants, which would raise the issued and outstanding shares upon such exercise to 63,037,834 shares. There are no arrangements or agreements providing for the right to acquire additional beneficial ownership by the Company’s management. There are no preconceived arrangements providing for a specific change of control of management of the Company upon the happening of certain future events.
All figures as of March 31, 2010
|
|
|
|
|
|
|
| &nb sp; |
|
|
|
Name |
| Common Shares Beneficially Owned |
| Common Shares Issuable Upon Exercise Of Warrants |
Total |
|
% of currently outstanding shares(1) | % of outstanding shares fully diluted (2) | |||
|
|
| |||||||||
|
|
| |||||||||
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
| ||
Directors and Executive Officers |
|
|
|
|
|
|
|
|
| ||
Louis J. Brothers & Roe Brothers, Ten Ent |
|
| 18,880,000 |
|
|
| 18,880,000 |
|
| 31.9 | 30.0 |
Larry K. Wilhide & Pat Wilhide, Ten Ent |
|
| 18,880,000 |
|
|
| 18,880,000 |
|
| 31.9 | 30.0 |
Dr. Victor E. Alessi |
|
| 24,000 |
|
|
| 24,000 |
|
| * | * |
Raul A. Fernandez |
|
| 24,000 |
|
|
| 24,000 |
|
| * | * |
Richard S. Relac |
|
| 29,000 |
|
| 5,000 | 34,000 |
|
| * | * |
Andrew T. Gilinsky |
|
| 44,000 |
|
|
| 44,000 |
|
| * | * |
Eugene Breyer |
|
| 24,000 |
|
|
| 24,000 |
|
| * | * |
|
|
|
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
MKM Opportunity Master Fund, Ltd. (3) |
|
| 3,457,144 |
|
| 3,034,572 | 6,491,716 |
|
| 9.99 (4) | 9.99 (4) |
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (7 persons) |
|
| 37,905,000 |
|
| 5,0000 | 37,910,000 |
|
| 64.1 | 60.1 |
* Denotes beneficial ownership less than 1% of the Company’s Common Stock.
(1)
Calculated with respect to each beneficial owner in accordance with Exchange Act Rule 13d-3.
(2)
Calculated assuming the exercise of all warrants held by all beneficial owners.
(3)
MKM Opportunity Master Fund, Ltd.’s ( “MKM”) address is c/o MKM Capital Advisors, LLC, 644 Broadway, 4th Floor, New York, NY 10012.
(4)
All warrants held by MKM include a limitation on exercise, which provides that at no time will MKM be entitled to exercise any number of Warrants that would result in the beneficial ownership by MKM of more than 9.99% of the outstanding shares of the Company’s Common Stock. Without this limitation, MKM would be deemed to beneficially own 10.4% of the Company’s Common Stock (assuming exercise of MKM’s warrants) and 10.3% of the Company’s Common Stock if all outstanding warrants were exercised by MKM and all other warrant holders.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Valley Forge Composite Technologies, Inc. |
| |
|
|
|
|
Date: May 14, 2010 | By: | /s/ Louis J. Brothers |
|
|
| Louis J. Brothers |
|
|
| President, Chief Executive Office r, Chief Financial Officer, and Chairman of the Board (Principal Executive Officer, Principal Financial and Accounting Officer) |
|
26
INDEX OF EXHIBITS | ||
Exhibit No. |
Description |
|
31.1** | 13a-14(a)-15d-14(a) Certification - Louis J Brothers |
|
31.2** | 13a-14(a)-15d-14(a) Certification - Louis J Brothers |
|
32.1** | 18 U.S.C. § 1350 Certification - Louis J Brothers |
|
32.2** | 18 U.S.C. § 1350 Certification - Louis J Brothers |
|
**
Filed herewith.
27