UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





xQUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended June 30,
2009





 ̈TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
transition period from  to





Commission
File Number:333-124304




FORGEHOUSE,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
              20-1904354(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)








4625 Alexander Dr., Suite 150, Alpharetta,
      Georgia
                  30005(Address
      of principal executive offices)
                  (Zip
      Code)





(404) 495-3910(Registrant’s
      telephone number, including area
code)





Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing 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  ̈
            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 Exchange Act).


Yes  ̈  No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date:


28,289,834
shares of common stock issued and outstanding at August 13, 2009.











FORGEHOUSE,
INC.


FORM
10-Q


QUARTERLY
PERIOD ENDED JUNE 30, 2009





INDEX





A
      Note About Forward Looking Statements
                  
                  1PART
      I – FINANCIAL INFORMATIONItem
      1 – Unaudited Financial Statements of ForgeHouse, Inc. (a Nevada
      corporation)
                  
                  4Balance
      Sheets - as of June 30, 2009 and December 31, 2008
    (Unaudited)
                  
                  F-2Statements
      of Operations - for the Each of the Three and Six Month Periods ended June
      30, 2009 and 2008 (Unaudited)
                  
                  F-3Statements
      of Cash Flows - For the Each of the Six Month Periods ended June 30, 2009
      and 2008 (Unaudited)
                  
                  F-4Notes
      to the Unaudited Financial Statements
                  
                  F-6Item
      2 – Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                  
                  5Item
      4T – Controls and Procedures
                  
                  9PART
      II – OTHER INFORMATIONItem
      6 – Exhibits
                  
                  10Signatures
                  
                  12





2





A
Note About Forward-Looking Statements




This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 that are based
on management’s current expectations.  These statements may be
identified by their use of words like “plans,” “expect,” “aim,” “believe,”
“projects,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and
other expressions that indicate future events and trends.  All
statements that address expectations or projections about the future, including
statements about our business strategy, expenditures, and financial results, are
forward-looking statements.  We believe that the expectations
reflected in such forward-looking statements are accurate.  However,
we cannot assure you that such expectations will occur.




The
following discussion of the financial condition and results of operation of
ForgeHouse, Inc. (“ForgeHouse,” the “Company,” “we,” and “us”) should be read in
conjunction with the financial statements and the notes to those statements
included herein.  Actual results could differ materially from those in
the forward looking statements due to a number of uncertainties including, but
not limited to, those discussed in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.  Factors that could
cause future results to differ from these expectations include general economic
conditions; further changes in our business direction or strategy; competitive
factors; market uncertainties; a continuing inability to obtain sufficient
financing to effectuate our business plan; and an inability to attract, develop,
or retain consulting or managerial agents or independent
contractors.  As a result, the identification and interpretation of
data and other information and their use in developing and selecting assumptions
from and among reasonable alternatives requires the exercise of
judgment.  To the extent that the assumed events do not occur, the
outcome may vary substantially from anticipated or projected results, and
accordingly, no opinion is expressed on the achievability of those
forward-looking statements.  No assurance can be given that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate, and we assume no obligation to update any
such forward-looking statements.  You should not unduly rely on these
forward-looking statements, which speak only as of the date of this Quarterly
Report.  Except as required by law, we are not obligated to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.




3





PART
I.  FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS.


ForgeHouse,
Inc.
 (a
Nevada Corporation)
 (Unaudited)
 
 As
of June 30, 2009 and December 31, 2008 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
  4
  ForgeHouse,
Inc.
  Index
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and December 31, 2008 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
 
 Unaudited
      Financial Statements of ForgeHouse, Inc. (a Nevada
      Corporation):Balance
      Sheets as of June 30, 2009 and December 31, 2008
    (unaudited)
                
                F-2Statements
      of Operations for Each of the Three and Six Month Periods Ended June 30,
      2009 and 2008 (unaudited)
                
                F-3Statements
      of Cash Flows for Each of the Six Month Periods Ended June 30, 2009 and
      2008 (unaudited)
                
                F-4Notes
      to the Unaudited Financial Statements
                
                F-6
  
  ForgeHouse,
Inc.
  Balance
Sheets
  (Unaudited)
 June
30, 2009 and December 31, 2008
 
  As
      of
                          
                          
                          As
      ofJune 30, 2009
                          
                          
                          December 31, 2008ASSETSCurrent
      assets:Cash
                          
                          $
                          1,361
                          
                          
                          $
                          1,705Accounts
      receivable - trade
                          
                          
                          20,690
                          
                          
                          
                          80,168Inventory
                          
                          
                          24,580
                          
                          
                          
                          -Prepaid
      insurance
                          
                          
                          4,701
                          
                          
                          
                          8,178Total
      current assets
                          
                          
                          51,332
                          
                          
                          
                          90,051Equipment,
      net of accumulated depreciation of $42,780 and $28,142,
      respectively
                          
                          
                          20,391
                          
                          
                          
                          24,711Software
      development costs, net of accumulated amortization of $147,333 and
      $95,333
                          
                          
                          26,000
                          
                          
                          
                          43,333Deposit
                          
                          
                          3,623
                          
                          
                          
                          3,623Total
      assets
                          
                          $
                          101,346
                          
                          
                          $
                          161,718LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Notes
      payable in default
                          
                          $
                          1,400,000
                          
                          
                          $
                          1,400,000Accounts
      payable - trade
                          
                          
                          902,404
                          
                          
                          
                          908,121Related
      party payable
                          
                          
                          52,067
                          
                          
                          
                          29,067Dividend
      payable
                          
                          
                          113,315
                          
                          
                          
                          73,425Accrued
      payroll and related expenses
                          
                          
                          522,327
                          
                          
                          
                          255,611Accrued
      expenses
                          
                          
                          12,064
                          
                          
                          
                          6,005Accrued
      interest on notes payable
                          
                          
                          89,621
                          
                          
                          
                          22,635Current
      portion of obligations under capital leases
                          
                          
                          2,061
                          
                          
                          
                          4,398Deferred
      revenue
                          
                          
                          108,503
                          
                          
                          
                          49,621Notes
      payable - current
                          
                          
                          50,000
                          
                          
                          
                          50,000Total
      current liabilities
                          
                          $
                          3,252,362
                          
                          
                          $
                          2,798,883Commitments
      and contingenciesStockholders’
      deficit:Preferred
      stock, par value $0.001 with 10,000,000 shares authorized and 2,000,000
      shares issued as Series A Convertible preferred stock
                          
                          
                          -
                          
                          
                          
                          -Series
      A Convertible Preferred stock, par value $0.001, 2,000,000 shares
      authorized, 2,000,000 shares issued and outstanding.  Senior as
      to all other equity instruments, voting and with a dividend rate of 4% of
      the stated liquidation preference amount of $2,000,000
                          
                          $
                          2,000
                          
                          
                          $
                          2,000Common
      stock, $.001 par value, 100,000,000 shares authorized, 28,289,834 shares
      issued and outstanding
                          
                          
                          28,290
                          
                          
                          
                          28,290Additional
      paid in capital
                          
                          
                          4,743,889
                          
                          
                          
                          4,573,722Accumulated
      deficit
                          
                          
                          (7,925,195
                          )
                          
                          
                          (7,241,177
                          )Total
      stockholders’ deficit
                          
                          $
                          (3,151,016
                          )
                          
                          $
                          (2,637,165
                          )Total
      liabilities and stockholders’ deficit
                          
                          $
                          101,346
                          
                          
                          $
                          161,718
  The
accompanying notes are an integral part of the financial
statements.
  F-2
  ForgeHouse,
Inc.
  Statements
of Operations
  (Unaudited)
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  For
      the Six Month
                  
                  
                  For
      the Three MonthPeriod Ended June 30,
                  
                  
                  Period Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      contract revenue
                  
                  $
                  110,144
                  
                  
                  $
                  86,616
                  
                  
                  $
                  58,226
                  
                  
                  $
                  40,488Product
      revenue
                  
                  
                  86,448
                  
                  
                  
                  32,344
                  
                  
                  
                  12,190
                  
                  
                  
                  9,658Net
      revenues
                  
                  
                  196,592
                  
                  
                  
                  118,960
                  
                  
                  
                  70,416
                  
                  
                  
                  50,146Operating
      expenses:Costs
      of revenues
                  
                  
                  125,381
                  
                  
                  
                  45,185
                  
                  
                  
                  24,941
                  
                  
                  
                  22,289Software
      development costs
                  
                  
                  5,815
                  
                  
                  
                  92,464
                  
                  
                  
                  3,274
                  
                  
                  
                  45,607Payroll
      related expenses
                  
                  
                  344,454
                  
                  
                  
                  489,424
                  
                  
                  
                  172,787
                  
                  
                  
                  257,144Professional
      fees
                  
                  
                  17,331
                  
                  
                  
                  326,699
                  
                  
                  
                  11,990
                  
                  
                  
                  86,478Depreciation
      and amortization
                  
                  
                  22,375
                  
                  
                  
                  20,738
                  
                  
                  
                  11,188
                  
                  
                  
                  11,297Stock
      based charges
                  
                  
                  170,164
                  
                  
                  
                  1,014,111
                  
                  
                  
                  85,082
                  
                  
                  
                  106,826General
      and administrative
                  
                  
                  87,496
                  
                  
                  
                  172,602
                  
                  
                  
                  46,721
                  
                  
                  
                  70,938Total
      operating expenses
                  
                  
                  773,016
                  
                  
                  
                  2,161,223
                  
                  
                  
                  355,983
                  
                  
                  
                  600,579Loss
      from operations
                  
                  
                  (576,424
                  )
                  
                  
                  (2,042,263
                  )
                  
                  
                  (285,567
                  )
                  
                  
                  (550,433
                  )Other
      income (expense):Interest
      expense
                  
                  
                  (68,517
                  )
                  
                  
                  (135,345
                  )
                  
                  
                  (34,691
                  )
                  
                  
                  (33,559
                  )Other
      income (expense)
                  
                  
                  813
                  
                  
                  
                  (77
                  )
                  
                  
                  813
                  
                  
                  
                  (77
                  )Total
      other expense
                  
                  
                  (67,704
                  )
                  
                  
                  (135,422
                  )
                  
                  
                  (33,878
                  )
                  
                  
                  (33,636
                  )Loss
      before extraordinary item
                  
                  
                  (644,128
                  )
                  
                  
                  (2,177,685
                  )
                  
                  
                  (319,445
                  )
                  
                  
                  (584,069
                  )Gain
      on restructuring of debt
                  
                  
                  -
                  
                  
                  
                  365,834
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss before income taxes
                  
                  
                  (644,128
                  )
                  
                  
                  (1,811,851
                  )
                  
                  
                  (319,445
                  )
                  
                  
                  (584,069
                  )State
      income taxes
                  
                  
                  -
                  
                  
                  
                  800
                  
                  
                  
                  -
                  
                  
                  
                  800Net
      loss after taxes
                  
                  $
                  (644,128
                  )
                  
                  $
                  (1,812,651
                  )
                  
                  $
                  (319,445
                  )
                  
                  $
                  (584,869
                  )Loss
      per share - basic and dilutedLoss
      per share, before extraordinary item
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )Net
      loss per share
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )Weighted
      average shares outstanding
                  
                  
                  28,289,834
                  
                  
                  
                  25,814,732
                  
                  
                  
                  28,289,834
                  
                  
                  
                  28,058,035
  The
accompanying notes are an integral part of the financial
statements.
  F-3
  ForgeHouse,
Inc.
  Statements
of Cash Flows
  (Unaudited)
 For
Each of the Six Month Periods Ended June 30, 2009 and 2008
 
  For the Six Month Period Ended June
      30,2009
                    
                    
                    2008Cash
      flows used in operating activities:Net
      loss
                    
                    $
                    (644,128
                    )
                    
                    $
                    (1,812,651
                    )Adjustments
      to reconcile net loss to net cash (used in) operating
      activities:Depreciation
                    
                    
                    5,041
                    
                    
                    
                    3,405Amortization
      of software development costs
                    
                    
                    17,333
                    
                    
                    
                    17,333Gain
      on restructure of debt
                    
                    
                    -
                    
                    
                    
                    (365,834
                    )Amortization
      of stock based charges
                    
                    
                    170,167
                    
                    
                    
                    1,014,110Decrease
      (increase) in assets:Escrowed
      funds
                    
                    
                    -
                    
                    
                    
                    (49,148
                    )Accounts
      receivable - trade
                    
                    
                    59,478
                    
                    
                    
                    (741
                    )Prepaid
      expenses and other current assets
                    
                    
                    3,477
                    
                    
                    
                    (3,379
                    )Inventory
                    
                    
                    (24,580
                    )
                    
                    
                    (12,105
                    )Deposit
                    
                    
                    -
                    
                    
                    
                    (3,623
                    )Increase
      (decrease) in liabilities:Accounts
      payable - trade
                    
                    
                    (5,717
                    )
                    
                    
                    168,095Accrued
      interest on debt
                    
                    
                    66,986
                    
                    
                    
                    (259,575
                    )Accrued
      expenses
                    
                    
                    6,059
                    
                    
                    
                    (172,285
                    )Accrued
      payroll
                    
                    
                    266,716
                    
                    
                    
                    82,831Deferred
      revenue
                    
                    
                    58,882
                    
                    
                    
                    5,340Related
      party payable
                    
                    
                    23,000
                    
                    
                    
                    (91,792
                    )Cash
      used in operating activities
                    
                    
                    2,714
                    
                    
                    
                    (1,480,019
                    )Cash
      flows used in investing activities:30%
      purchase of ForgeHouse LLC
                    
                    
                    -
                    
                    
                    
                    (171,430
                    )Recapitalization
      of Milk Bottle Cards Inc. - reverse merger
                    
                    
                    -
                    
                    
                    
                    (8,860
                    )Payment
      of capital lease
                    
                    
                    (2,337
                    )
                    
                    
                    -Acquisition
      of equipment
                    
                    
                    (721
                    )
                    
                    
                    (21,110
                    )Cash
      used in investing activities
                    
                    
                    (3,058
                    )
                    
                    
                    (201,400
                    )Cash
      flows provided by financing activities:Payments
      of related party notes payable
                    
                    
                    -
                    
                    
                    
                    (300,000
                    )Payments
      on related party debt
                    
                    
                    -
                    
                    
                    
                    (206,591
                    )Proceeds
      from the sale of preferred A stock
                    
                    
                    -
                    
                    
                    
                    2,100,000Issuance
      of common shares for cash
                    
                    
                    -
                    
                    
                    
                    290,388Purchase
      and retirement of stock
                    
                    
                    -
                    
                    
                    
                    (50,000
                    )Payment
      on capital lease
                    
                    
                    -
                    
                    
                    
                    (2,065
                    )Dissolution
      of variable interest entity
                    
                    
                    -
                    
                    
                    
                    (3,944
                    )Net
      increase (decrease) in bank overdrafts
                    
                    
                    -
                    
                    
                    
                    (9,712
                    )Cash
      provided by financing activities
                    
                    
                    -
                    
                    
                    
                    1,818,076Net
      increase (decrease) in cash
                    
                    
                    (344
                    )
                    
                    
                    136,657Cash
      at beginning of period
                    
                    
                    1,705
                    
                    
                    
                    -Cash
      at end of period
                    
                    $
                    1,361
                    
                    
                    $
                    136,657
  The
accompanying notes are an integral part of the financial
statements.
  F-4
  ForgeHouse,
Inc.
  Statements
of Cash Flows
  (Unaudited)
 For
Each of the Six Month Periods Ended June 30, 2009 and 2008
 
  Supplemental
Disclosure of Cash Flow Information
 
 For the Six Month Period
                    Ended June 30,2009
                  
                  
                  2008Cash
      paid during the fiscal years for:Interest
                  
                  $
                  -
                  
                  
                  $
                  383,462Income
      taxes
                  
                  $
                  -
                  
                  
                  $
                  800
 
 Non-Cash
Transactions
  Issuance
      of shares in satisfaction of accounts payable:Accounts
      payable
                            
                            $
                            -
                            
                            
                            $
                            45,800Common
      stock
                            
                            $
                            -
                            
                            
                            $
                            (46
                            )Additional
      paid in capital
                            
                            $
                            -
                            
                            
                            $
                            (45,754
                            )
  The
accompanying notes are an integral part of the financial
statements.
  F-5
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  1. Description of the Company’s
Business
  Nature
of Operations
  ForgeHouse,
Inc. (the Company) (formerly Milk Bottle Cards, Inc) is currently engaged in the
sale of and development of ongoing enhancement to OneVision®, its proprietary
software system.  The Company’s OneVision® system is a web based
application that offers a virtual command and control system for certain
compliance, physical security and maintenance applications.
  Basis
of Presentation
  The
Company was incorporated under the laws of the state of Nevada in November 2004
for the purpose of producing, distributing and marketing a collection of
greeting cards.  ForgeHouse, LLC (ForgeHouse) (a Georgia LLC) was
formed in the state of Georgia in June 2002 for the purpose of developing and
selling physical security industry applications and
software.  ForgeHouse operated through April 2007 as a company in the
development stage.  The Company is currently engaged in the
development and sale of OneVision®, its proprietary software
product.
  In July
2007, the members (the “Members”) of Forgehouse, LLC, a Georgia limited
liability company (the “Operating Company”), entered into a Nonbinding Letter of
Intent with Milk Bottle Cards, Inc. (“Milk Bottle”) (a non-operating public
shell corporation), whereby the Members were to exchange their membership
interests for Milk Bottle common stock and cash.  On January 31, 2008,
Milk Bottle and the Members entered certain agreements (the “Exchange
Agreement”) that resulted in, among other items, the exchange of all of their
membership interests in the Operating Company for 10,500,000 shares of common
stock of Milk Bottle (approximately 37.5% of all outstanding common stock of the
Company as of the closing of the exchange transaction).  As a result
of the exchange, the Operating Company became a wholly-owned subsidiary of Milk
Bottle, which changed its name to ForgeHouse, Inc. (sometimes referred to as the
“Resulting Company”).  For accounting purposes, the transaction is
considered a “reverse merger” under which ForgeHouse is considered the acquirer
of the Company.  Accordingly, the purchase price was allocated among
the fair values of the assets and liabilities of the Company while the
historical results are those of ForgeHouse, but they were retroactively restated
(a recapitalization) for the equivalent number of shares received by the Company
in the exchange transaction.  Earnings per share for the periods prior
to the exchange transaction have been restated to reflect the number of
equivalent shares received by the ForgeHouse members.  The ForgeHouse
members as a result of the merger transaction own approximately 35% of the
Company.
  F-6
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  2.
              Summary of Significant
      Accounting Policies
  Transition
from Development Stage Operations and the Start of Ongoing
Operations
  In April
2007, ForgeHouse entered into a licensing agreement with a national physical
security industry provider (the “Licensee”).  In this licensing
agreement, ForgeHouse granted an exclusive license to the Licensee for the use,
marketing and distribution rights to OneVision® software for use by the Licensee
in its own physical security service operations and the right to sub-lease
OneVision® to all non-governmental physical security service entities in the
United States.  The execution of this agreement marked ForgeHouse’s
transition from the development stage to ongoing
operations.  Accordingly, the Company’s operations in 2007 do not
reflect inception-to-date information nor was it treated as an entity in the
development stage.
  Revenue
Recognition
  The
Company recognizes revenue only when all of the following criteria have been
met:
  ·
              Persuasive
      evidence of an arrangement exists;
 ·
              Delivery
      has occurred or services have been
rendered;
 ·
              The
      fee for the arrangement is fixed or determinable;
  and
 ·
              Collectability
      is reasonably assured.
  The
Company recognizes revenue from monthly access fees charged to customers for
access to the Company’s OneVision® software as well as certain related licensee
hardware sales, technical support fees, applications programming and training
services.
  Service
Contract Revenue
  The
Company recognizes revenue on service contracts ratably over applicable contract
periods or as services are performed.  Amounts billed and collected
before the services are performed are included in deferred
revenues.
  The
agreement with the Licensee provides for payments to the Company at a base
service fee of $10,000 per month along with an annual per user service fee
payable at the beginning of each service year that Licensee utilizes the
OneVision® service.  The annual user service fees are a minimum of
$1,140 per year, with additional optional services and hardware
available.  The Company’s per user service fee rates are subject to an
upward rate adjustment if the Licensee does not meet certain agreed upon user
participation levels.  Further, in order for the Licensee to maintain
the exclusivity rights in the United States, the Licensee must meet minimum user
participation levels and have paid all fees due under the
agreement.
  F-7
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  Product
Revenue
  Sales are
recorded when products are shipped to customers.  Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are
recorded.  In instances where products are configured to customer
requirements, revenue is recorded upon the successful completion of the
Company’s final test procedures and the customer’s acceptance.
  Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent obligations in the financial
statements and accompanying notes.  Our most significant assumptions
relate to recording net revenue, collectability of accounts receivable, useful
lives and impairment of tangible and intangible assets, accruals, income taxes,
stock-based compensation expense and other factors.  The estimation
process requires assumptions to be made about future events and conditions, and
as such, is inherently subjective and uncertain.  Actual results could
differ materially from our estimates.
  Concentration
of Credit Risk
  At June
30, 2009, the Company had $0 on deposit that exceeded United States (FDIC)
federally insurance limit of $250,000 per bank.
  Software
Development Costs
  The
Company accounts for development costs related to software products to be sold,
leased, or otherwise marketed in accordance with FASB SFAS No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed.  Software development costs are expensed as incurred
until technological feasibility has been established, at which time such costs
are capitalized until the product is available for general release to
customers.  The Company’s software was available July 1, 2003, for
general release approximately seven months after the establishment of
technological feasibility and, accordingly, the Company capitalized certain
software development costs incurred during that period.  SFAS No. 2,
Accounting
for Research and Development Costs, establishes accounting and reporting
standards for research and development.  During the three month
periods ended June 30, 2009 and  2008, the Company did not capitalize
any software development costs.  The Company capitalized $173,333 in
software development costs as of June 30, 2009.  The Company
expensed $3,274, $5,815, $45,607 and $92,464 as research and
development expense during the three  and six month periods ended June 30,
2009 and 2008, respectively.
  F-8
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  In
accordance with SFAS No. 2, the costs the Company incurs to enhance its existing
products are expensed in the period they are incurred and included in software
development costs in the statements of operations.
  Amortization
of capitalized software development costs begins when the product is available
for general release.  Amortization is provided on a product-by-product
basis on the straight-line method over the software product’s economic useful
life.  Unamortized capitalized software development costs determined
to be in excess of net realizable values of the product are expensed
immediately.  During the three and six month periods ended June
30, 2009 and 2008, amortization of software development costs totaled $8,166,
$17,333, $8,166 and $17,333, respectively.
  Management
has concluded that the software development costs have no residual value and a
five-year period of amortization, with the amortization period starting with the
first general sale of the product after the beta site.  This occurred
in April 2005.
  The
Company includes in software development expense those costs related to the
following software development activities:
  ·
              Conceptual
      formulation and design of possible product or process
      alternatives;
 ·
              Testing
      in search for, or evaluation of, product or process
      alternatives;
 ·
              Modification
      of the formulation or design of a product or process;
  and
 ·
              Engineering
      activity required to advance the design of a product to the point that it
      meets specific functional and economic requirements and is ready for
      production.
  Future
amortization of the software development costs is as follows for the years
ended:
  2009
      (remainder of year)
                    
                    $
                    17,3342010
                    
                    
                    8,666$
                    26,000
  Fair
Value of Financial Instruments
  As of
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements,” (FAS 157).  In February 2008, the
Financial Accounting Standards Board, or FASB, issued FASB Staff Position No.
FAS 157-2, Effective Date of
FASB Statement No.157, which provides a one year deferral of the
effective date of FAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. Therefore, we adopted the provisions
of FAS 157 with respect to our financial assets and liabilities only. FAS 157
defines fair value, establishes a framework for measuring fair value under GAAP
and enhances disclosures about fair value measurements. Fair value is defined
under FAS 157 as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair
value under FAS 157 must maximize the use of observable inputs and minimize the
use of unobservable inputs.
  F-9
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  We
utilize the market approach to measure fair value for our financial assets and
liabilities. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or
liabilities. The standard describes a fair value hierarchy based on three levels
of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the
following:
  Level 1:
Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
  Level
2:   Observable prices that are based on inputs not quoted on
active markets, but corroborated by market data.
  Level 3:
Unobservable inputs are used when little or no market data is available. The
fair value hierarchy gives the lowest priority to Level 3 inputs.
  In
determining fair value, we utilize valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent
possible as well as the consideration of counterparty credit risk in its
assessment of fair value.
  The
adoption of this statement did not have a material impact on our results of
operations and financial condition. The carrying values of our cash, cash
equivalents and marketable securities, carried at fair value as of June 30,
2009, are classified in the table below in one of the three categories described
above:
  Fair
Value Measurements at June 30, 2009
 Level
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3
                      
                      
                      TotalCash
      & Equivalents
                      
                      $
                      1,361
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      1,361Escrowed Funds
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Cash,
      Cash Equivalents and Escrowed Funds
                      
                      $
                      1,361
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      1,361
  F-10
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  Basic
and Diluted Loss Per Share
  In
accordance with FASB Statement No. 128, Earnings per Share, the
Company calculates basic and diluted net loss per share using the weighted
average number of common shares outstanding during the periods presented and
adjusts the amount of net loss used in this calculation for preferred stock
dividends declared during the period, if any. We incurred a net loss in each
period presented, and as such, did not include the effect of potentially
dilutive common stock equivalents in the diluted net loss per share calculation,
as their effect would be anti-dilutive for all periods. Dilutive common stock
equivalents would include the common stock issuable upon the conversion of
preferred stock and the exercise of warrants and stock options that have
conversion or exercise prices below the market value of our common stock at the
measurement date.
  As of
June 30, 2009, the Company had issued and outstanding common stock equivalents
comprised of common stock options, warrants and convertible preferred stock that
can be converted into 5,652,000 shares of common stock.
  Cash
and Cash Equivalents
  The
Company considers deposits that can be redeemed on demand and investments that
have original maturities of less than three months, when purchased, to be cash
equivalents. As of June 30, 2009, the Company had cash of $1,361.
  Accounts
Receivable - Trade and Allowance for Doubtful Accounts
  Trade
accounts receivable are stated at the amount the Company expects to collect. The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company’s estimate is based on its historical
collection experience and a review of the current status of trade accounts
receivable. It is reasonably possible that the Company’s estimate of the
allowance for doubtful accounts will change. Based on the Company’s status as a
development stage company until 2007 and past level of sales, the Company has
not experienced any accounts receivable that could not be collected, and as
such, the allowance for doubtful accounts is zero at June 30, 2009. As the
Company expands, it fully expects the allowance for doubtful accounts to
increase from zero.
  Inventory
  Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost
basis that approximates the first-in, first-out (FIFO) method. Market is
determined based on net realizable value. Appropriate consideration is given to
obsolescence, excessive levels, deterioration, and other factors in evaluating
net realizable value. The Company buys and resells hardware as necessary, but
does not perpetually carry inventory on-hand.  At June 30, 2009, there
was PDA’s for resale on-hand of $24,580.
  F-11
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and 2008
 
  Prepaid
Expenses
  The
Company’s prepaid expenses consist mainly of amounts paid for annual insurance
contracts. The amounts are expensed ratably over the term of the
contract.
  Equipment
  Equipment
is recorded at cost. Depreciation is provided over the estimated useful lives of
the related assets using the straight-line method for financial statement
purposes. The Company uses other depreciation methods (generally, accelerated
depreciation methods) for tax purposes where appropriate. Repairs and
maintenance are expensed as incurred. When equipment is retired, sold, or
otherwise disposed of, the asset’s carrying amount and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations. During the three and six month periods ended June 30, 2009 and 2008,
the Company did not dispose of any equipment. The estimated useful lives of
computer and office equipment are as follows:
  EstimatedUsefulLivesComputer
      equipment
                    
                    3
      yearsOffice
      equipment
                    
                    5
      yearsOffice
      furniture
                    
                    7
      years
  Leases
  The
Company reviews all leases for capital or operating classification at their
inception under the guidance of the Financial Accounting Standards Board’s
(FASB) Statement of Financial Accounting Standards (SFAS) No. 13, Accounting
for Leases, as amended. The Company uses its incremental borrowing rate
in the assessment of lease classification and defines the initial lease term to
exclude lease extension periods.
  The
Company has entered into an operating lease agreement for its corporate office
which contains provisions for future rent increases or periods in which rent
payments are reduced (abated). In accordance with generally accepted accounting
principles, the Company records monthly rent expense equal to the total of the
payments due over the lease term, divided by the number of months of the lease
term. The difference between rent expense recorded and the amount paid is
credited or charged to “Deferred rent.” Deferred rent was not material at June
30, 2009.
  F-12
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
 Impairment
of Long-Lived Assets
  In
accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, long-lived assets,
such as property and equipment, and intangible assets subject to amortization
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset exceeds the fair value of the asset. Fair value
is determined based on the estimated discounted future cash flows expected to be
generated by the asset. The factors considered by management in performing this
assessment include current operating results and trends and prospects, as well
as the effects of obsolescence and economic factors.
  Deferred
Revenue - Amounts Billed in Advance
  The
Company recognizes revenue as earned. Amounts billed in advance of the period in
which service is rendered will be recorded as a liability under “Deferred
revenue.” The Company had $108,503 of deferred revenue at June 30,
2009.
  General
and Administrative Expense
  General
and administrative expense includes the cost of maintaining the infrastructure
of the Company that is not directly related to delivery services. Also included
in this category would be the provision for doubtful accounts
receivable.
  Income
Taxes
  Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets, including tax loss and credit carryforwards, and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax assets and liabilities are individually classified as current and
non-current based on their characteristics. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized.
  Reclassification
of Accounts
  Certain
reclassifications have been made to prior-year comparative financial statements
to conform to the current year presentation. These reclassifications had no
effect on previously reported results of operations or financial
position.
  F-13
 ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and 2008
 
  Recent
Accounting Pronouncements
  In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), Business
Combinations, (FAS 141(R)) and No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160).
FAS 141(R) will change how business acquisitions are accounted for and FAS 160
will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity.  The Company will adopt both FAS 141(R) and FAS 160 as of
January 1, 2009 and neither pronouncement is expected to have a material impact
on the Company’s financial statements.
  In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments.”  This FSP requires the fair
value disclosures required by FAS 107 regarding the fair value of financial
instruments to be included in interim financial statements. This FSP is
effective for interim periods ending after June 15, 2009, and requires
additional disclosure from that required currently.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events. This statement
establishes general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. In particular, this statement sets forth (1) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. This statement is effective for interim or annual periods
ending after June 15, 2009 and we adopted it on April 1, 2009. This statement is
not expected to have any impact on our financial positions or results of
operations.
  In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140, which amends the derecognition guidance
in SFAS No. 140 and eliminates the exemption from consolidation for qualifying
special-purpose entities. This statement is effective for financial asset
transfers occurring after the beginning of an entity’s first fiscal year that
begins after November 15, 2009. This statement is not expected to have any
impact on our financial position or results of operations.
    F-14
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  In June
2009, the FASB approved its Accounting Standards Codification, or Codification,
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative U.S. GAAP for SEC registrants. The Codification, which changes
the referencing of financial standards, is effective for interim or annual
financial periods ending after September 15, 2009. Therefore, in the third
quarter of 2009, all references made to U.S. GAAP will use the new Codification
numbering system prescribed by the FASB. As the Codification is not intended to
change or alter existing U.S. GAAP, it is not expected to have any impact on our
financial position or results of operations.
  3.
                Variable Interest
      Entity
  ForgeHouse
determined its debt servicing of the GS Security’s SBA loan required GS Security
to be recognized as a variable interest entity as defined in FIN 46R. ForgeHouse
concluded that it was the primary beneficiary and, as a result, combined its
financial operating results with those of GS Security from January 1, 2005
through January 31, 2008. The combination of GS Security with ForgeHouse did not
materially affect its operating results or its financial
condition.  As of January 31, 2008, GS Security is no longer combined
with the Company. as a result of the satisfaction of the SBA Loan in February
2008 (Note 7 - Debt).  For consistency, the balance sheets as of June
30, 2009 and December 31, 2008 and the statement of operations for the three and
six month periods ended June 30, 2009 and 2008 do not include the operations of
the variable interest entity.
  4.
                Accounts Receivable -
      Trade
  Accounts
receivable - trade is comprised of the following at June 30, 2009:
  Accounts
      receivable - trade
                            
                            $
                            20,690Allowance
      for doubtful accounts receivable
                            
                            
                            -Accounts
      receivable - trade, net
                            
                            $
                            20,690
  The
Company did not provide for an allowance for doubtful accounts as of June 30,
2009 as all open account balances were determined to be
collectible.  The accounts receivable - trade account as of June 30,
2009 (and also those that arise from future operations) are pledged as security
as part of the Company’s loans with the private and commercial lenders (Note 7 -
Debt).
  F-15
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and 2008
 
  5.
                Equipment
  Equipment,
net is comprised of the following at June 30, 2009:
  Computer
      equipment
                            
                            $
                            43,022Office
      furniture
                            
                            
                            2,397Office
      equipment
                            
                            
                            8,667Equipment
      under capital lease
                            
                            
                            9,085Total
      equipment
                            
                            
                            63,171Less:
      accumulated depreciation
                            
                            
                            (42,780
                            )Equipment,
      net
                            
                            $
                            20,391
  Depreciation
expense amounted to $2,520, $5,041, $2,631 and $3,405 for the three and six
month periods ended June 30, 2009 and 2008, respectively. All of the equipment,
with a net book value of $20,391, was pledged as security for the Company’s
loans two loans with the private lender (Note 7 - Debt).
  6.
                Obligations under
      Capital Lease
  The
Company leases certain equipment under a capital lease. The equipment under such
capital lease is recorded at the lower of the present value of the minimum lease
payments or the fair value of the equipment.  Equipment held under
capital leases is included in the Balance Sheet as equipment, net was $9,085 at
June 30, 2009. Accumulated depreciation of the leased equipment at June 30, 2009
was $4,725. Depreciation of assets under such capital lease is included in
depreciation expense.
  The
future minimum lease payments required under the capital leases and the present
value of the net minimum lease payments as of June 30, 2009, are as
follows:
  Amount2009
                            
                            $
                            2,125Total
      minimum lease payments
                            
                            
                            2,125Less:
      amount representing interest
                            
                            
                            (64
                            )Present
      value of net minimum lease payments
                            
                            
                            2,061Less:
      current maturities of capital lease obligations
                            
                            
                            (2,061
                            )Long-term
      capital lease obligations
                            
                            $
                            -
  F-16
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  7.
                Debt
  Debt is
comprised of the following:
  Debt
in Default
  June
      30,
                                
                                
                                December
      31,2009
                                
                                
                                2008Unsecured
      debt that was restructured and re-written as of January 31, 2008 with
      principal amount of $200,000 that accrues interest at a rate of 6% per
      annum until maturity and 8% after maturity, with payments of $40,000 due
      every six months beginning December 31, 2008 until and including December
      31, 2010.  This note must be prepaid in whole or in part as part
      of the closing of any equity or debt financing of the Company in the
      amount equal to 20% of the net funding received or the remaining loan
      balance, whichever is less.  The payment due December 31, 2008
      was not made and a notice of default was received in February
      2009.
                                
                                $
                                200,000
                                
                                
                                
                                200,000Secured
      debt that was restructured and re-written as of January 31, 2008 with a
      principal amount of $1,200,000 that accrues interest at a rate of 6% per
      annum and is secured by substantially all of the assets of the
      Company.  The promissory note calls for principal payments of
      $240,000 commencing on December 31, 2008 and continuing every six months
      until and including December 31, 2010.  This note must be
      prepaid in whole or in part of the closing of any equity or debt financing
      of the Company in the amount equal to 20% of the net funding received or
      the remaining loan balance, whichever is less.  The payment due
      December 31, 2008 was not made and a notice of default was received in
      January 2009.
                                
                                
                                1,200,000
                                
                                
                                
                                1,200,000Debt
      in default
                                
                                $
                                1,400,000
                                
                                
                                $
                                1,400,000
  F-17
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  Short
Term Notes Payable
  North Atlanta National Bank
- Small Business Administration Guaranteed Loan
  On August
19, 2002, the ForgeHouse variable interest entity entered into a loan agreement
with North Atlanta National Bank (the “Lender”) which was guaranteed by the
Small Business Administration (the “SBA Loan”). The SBA Loan had a face value of
$456,000 with a variable interest rate based on the Wall Street Journal prime
rate plus 2.75% per annum. The SBA Loan required monthly payments of $6,331 and
originated in August 2002 with all unpaid principal and interest due at maturity
in August 2010. The amount of the monthly SBA Loan payment was subject to annual
payment adjustment each August to provide for the ratable amortization over the
remaining term of the loan. The interest rate at December 31, 2007 was 11.0% and
at February 5, 2008 (the date the note was satisfied - see Note 1.) was
10.0%.  The weighted average interest rate for the nine-month period
ended December 31, 2007 and period from January 1, 2008 to February 5, 2008 was
11.0% and 10.0%, respectively. The SBA Loan was secured by substantially all of
the assets (both tangible and intangible) of ForgeHouse and GS Security (Note 3
- Variable Interest Entity).  The loan had an outstanding balance of
$149,657 at December 31, 2007 and was fully satisfied in February
2008.
  Short Term Bridge
Financing
  In the
October 2008, the Company obtained short term financing from an investor group
in the form of two $25,000 demand notes.  The loans were necessary to
sustain the ongoing operations of the Company.  The loans are
unsecured and interest is payable upon demand of payment of the
principal.  The loans are still outstanding at June 30, 2009 and bear
interest at a rate of 10% per annum.
  In the
fourth quarter of 2007, ForgeHouse completed a short term bridge financing (the
bridge loan) with an investor group for $300,000, which came in four tranches
during the quarter ended December 31, 2007.  The bridge loan was
necessary to sustain the ongoing operations of ForgeHouse until the Exchange
Agreement and the related equity financing was complete (Note 1.- Description of
Company’s Business).  The loan was guaranteed personally by the CEO
and COO of ForgeHouse (Note 9 - Related Party Transactions).  The loan
was satisfied in February 2008, and while outstanding, bore an interest rate of
6% per annum.
  F-18
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  Debt
in Default
  After All
Group
  In August
2006, ForgeHouse borrowed $200,000 from a group (“After All”) that consisted of
some of the same owners (who were members of ForgeHouse) of Arngrove Group
Holdings, Ltd. The loan was unsecured and interest accrues at a rate of 20% per
annum, which is calculated monthly and rolled into the principal balance of the
loan. The loan term was six months from the issuance date and has been extended
on a month-to-month basis at the discretion of After All.  This note
payable was restructured on January 31, 2008 and all accrued interest was
forgiven, which is included in the gain on the restructuring of debt in the
statement of operations.  The restructured note is at an interest rate
of 6% per annum, with scheduled principal payments of $40,000 to be made
starting December 31, 2008, and every six months thereafter, up to and including
December 31, 2010.  The payment due December 31, 2008 was not made and
a notice of default was received in February 2009. The balance at June 30, 2009
is shown as in default and is $200,000. Accrued interest on this balance is
$19,385 at June 30, 2009.  The default interest rate is
8%.  The Company incurred interest expense during the three and six
month periods ended June 30, 2009 and 2008 of $4,151, $8,371, $3,004, and
$5,006, all of which was charged to operations. This note must be prepaid in
whole or in part upon the closing of any equity or debt financing of the Company
in the amount of 20% of the net funding received.
  Arngrove Group Holdings
Ltd.
  In May
2005, ForgeHouse entered into a combination debt, sale of Members’ equity and
services agreement transaction (the “Agreement”) with Arngrove Group Holdings
Ltd (a United Kingdom entity) (“Arngrove”). The Agreement provided ForgeHouse
with a line-of-credit facility (the “Loan Agreement”) that called for Arngrove
to advance ForgeHouse as requested up to $100,000 per month, with a maximum
aggregate principal amount not to exceed $1,200,000 over the twelve month period
ending May 2006. The Loan Agreement was evidenced by a note payable with a
not-to-exceed face amount of $1,200,000 with a fixed interest rate of 10.0% per
annum.  The Loan Agreement for financial reporting purposes was
discounted at inception to reflect an effective interest rate yield of 29.7% (as
of the date the Loan Agreement promissory note was created); its initial
discount recognized was $114,622. The discount was being accreted ratably over
the initial life of the Loan Agreement promissory note. The required annual
interest only payments were to commence as of June 1, 2006, but were not
made.  As such, in 2006, the Loan Agreement’s restrictive covenants
went into default and all of the unaccreted discount was expensed.
  The
Agreement also included a services contract that provided for Arngrove to
provide certain consulting services and to receive a fee (the “Fee”) of
approximately $120,000 each year, payable monthly within 7 days of each
month-end. The Fee was a required portion of the Agreement. It is being treated
by ForgeHouse as additional interest. ForgeHouse determined that the nature of
the consultancy services called for in the Agreement were investor’s due
diligence procedures or were not provided to ForgeHouse at
all.  ForgeHouse did not make any Fee payments to Arngrove as provided
for in the service contract until the agreement was restructured at January 31,
2008, at which time payments totaling $368,571 were made to satisfy all accrued
interest and management fees on the Arngrove and After All
notes.  This resulted in a 2008 first quarter gain on the
restructuring of debt of $365,834.
  F-19
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  The
Agreement included the sale of Members equity to four individuals related to
Arngrove for $300,000 and a 30% interest in ForgeHouse (Note 10). This was a
necessary provision to obtain the loan, which was why ForgeHouse accepted the
investment at a discounted price. ForgeHouse, based on prior equity investments,
estimated the fair value of the 30% equity interest at $600,000. ForgeHouse
trifurcated the values of the loan, equity interest, and service contract based
on the net cash received from the agreement, resulting in the recording of the
equity investment at a value of $414,622 and a discount on the underlying loan
of $114,622, to be amortized over the life of the loan.  However, as
mentioned above, the loan discount was accelerated when the note became in
default in 2006.  This 30% interest was purchased by the Company at
January 31, 2008 for $171,430.
  ForgeHouse
restructured the debt in January 2008 as part of the exchange transaction (Note
10 - Equity), and, as such, the debt is classified as a long term Note Payable
on the face of the balance sheet.  This note payable was restructured
on January 31, 2008 at an interest rate of 6% per annum, with scheduled
principal payments of $240,000 to be made starting December 31, 2008 and every
six months thereafter, up to and including December 31,
2010.  Interest accrues at 8% beyond maturity.  The amount
of stated interest related to the Loan Agreement was included in accrued
interest and was $55,944 at June 30, 2009.  This note must be prepaid
in whole or in part upon the closing of any equity or debt financing of the
Company in the amount of 20% of the net funding received.
  The
payment due December 31, 2008 was not made and a notice of default was received
in February 2009. The balance at June 30, 2009 of $1,200,000 is shown as in
default. The Company incurred interest expense during the three and six month
periods ended June 30, 2009 and 2008 of $23,763, $47,923, $18,022, and $30,037,
all of which was charged to operations.
  All debt,
totaling $1,450,000 is due during the year ended June 30, 2010.
  8.
                Commitments and
      Contingencies
  Financial
Results, Liquidity and Management’s Plan
  The
Company’s success will depend in part on its ability to obtain patents (one is
now pending in 36 countries) and to expand its OneVision® product license
holders and related revenue, to maintain its trade secrets, and to operate
without infringing on the proprietary rights of others, both in the United
States and other countries. There can be no assurance that patents issued to or
licensed by the Company will not be challenged, invalidated, or circumvented, or
that the rights granted there under will provide proprietary protection or
competitive advantages to the Company.
  F-20
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
 The
accompanying financial statements as of June 30, 2009 have been prepared
assuming the Company will continue as a going concern. The Company, over time,
has experienced recurring losses and negative cash flows from operations, and as
of June 30, 2009, the Company’s current liabilities exceeded its current assets
by $3,201,030 and its total liabilities exceeded its total assets by $3,151,016.
The Company also has substantial debt that was restructured in January 2008
(Note 7 - Debt).  These factors raise substantial doubt about the
Company’s ability to continue as a going concern. During 2009, management
intends to raise additional debt and/or equity financing to fund future
operations, ongoing software development costs and debt retirement needs. The
Company’s marketing plan is to assist its licensees and to promote the expand
acceptance and use of its OneVision® product, and to develop additional
applications in industries where there is significant anticipated demand
requirements. Management believes that its plans will contribute towards
achieving profitability but there is no assurance that they can be implemented;
or that the results will be of a sufficient level necessary to meet the
Company’s ongoing cash needs.  No assurances can be given that the
Company can obtain sufficient working capital through borrowings from a related
party or lending institutions or that the continued implementation of its
business plan will generate sufficient revenues in the future to sustain ongoing
operations.
  The
accompanying financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.  As discussed
in Note 10 - Equity Transactions, the Company was able to obtain additional
working capital in connection with the reverse acquisition in January
2008.
  Legal
Actions
  Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to the Company, but which will only be resolved when one or
more future events occur or fail to occur. The Company’s management and its
legal counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein.
  If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If
the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be
disclosed.
  Loss
contingencies considered remote are generally not disclosed unless they involve
guarantees, in which case the guarantees would be disclosed.
  F-21
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  Operating
Leases
  The
Company recognized rental expense of $12,443, $24,075, $8,740 and $17,569 for
the three and six month periods ended June 30, 2009 and 2008, respectively. The
Company occupied its Norcross, Georgia facility under a rental agreement that
had a lease term that expired in March 2007. The Company began subleasing space
from a third party for $1,500 per month in October 2007 on a month-to-month
basis until they entered their current lease agreement starting on June 1,
2008.  The 39 month lease calls for initial monthly payments of $3,623
and does not have any renewal options.
  Concentration
of Credit Risk
  Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of the accounts receivable - trade. The Company operates
in a market segment that is highly competitive and rapidly changing. Significant
technological changes, shifting customer requirements, the emergence of
competitive products with new capabilities and other factors could negatively
impact the Company’s operating results.
  The
Company had two customers that individually comprised more than 10% of the
accounts receivable - trade balance, for a total of 94% of the accounts
receivable - trade balance at June 30, 2009.
  Two
customers were individually responsible for more than 10% of the revenue for the
six month period ended June 30, 2009 totaling 87%, and two customers for the
period ending June 30, 2008 totaling and 84%, respectively, of the Company’s
sales during the period.
  The
Company made 100% of its hardware purchases for resale from one vendor in the
six month periods ended June 30, 2009 and 2008.  The Company feels
that other vendors with similar products could be used.
  If the
Company were to lose any of these customers or vendors, the impact on its
financial statements would be unknown, but could be significant. The Company has
not experienced any such loss of customers or vendors as of June 30,
2009.
  9.
                Related Party
      Transactions
  Personal
Guarantees
  VIE’s SBA
Loan
  TWE
Members provided personal guarantees for the VIE’s SBA loan (Note 7 - Debt) that
was fully satisfied in February 2008. Each of the personal guarantees was for an
amount not to exceed the SBA Loan principal balance plus costs and unpaid
accrued interest.
  Short Term Bridge
Financing
  TWE
Members provided personal guarantees for the Short Term Bridge Financing (Note 7
- Debt). Each of the personal guarantees was for an amount not to exceed the
loan principal balance plus costs and unpaid accrued interest.
  F-22
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  10.
                Equity
      Transactions
  Sale
of Units
  On
January 31, 2008, the Company sold 2,000,000 units, each unit consisted of one
share of the Company’s Series A Convertible Preferred stock and one warrant to
purchase a share of the Company’s common stock.  The total proceeds
from this transaction was $2,100,000.  Each of the Series A Preferred
shares is convertible into the Company’s common stock on a one-to-one
basis.  The Series A Preferred Shares are senior as to all other
equity instruments, voting, and have a dividend rate of 4% of the stated
liquidation preference amount of $2,000,000.  The warrants have an
exercise price of $1.00 and expire 2 years from the grant date.
  Dividend
Payable
  The
Company declared a dividend on the Series A Preferred Shares of $20,164 for the
three month period ended June 30, 2009.  A dividend of $19,726 was
declared for the three month period ended March 31, 2009.  The
dividend can not be satisfied while the Company has an accumulated
deficit.
  Shares
Issued for Cash
  In June
2008, the Company issued 244,022 shares of the Company’s common stock to eight
individuals for cash proceeds of $290,388, which is $1.19 per
share.  The share price represented a 30% discount to the
10-trading-day volume weighted average closing price of the common stock, with
May 29, 2008, as the 10th trading day.  As stipulated in the
restructured Arngrove note payable agreement, the Company is required to remit
20% of all funds raised to Arngrove to be applied first to the then outstanding
principal balance of the note payable and second to any interest accrued
thereon.
  Shares
Issued in Satisfaction of Accounts Payable – Trade
  In June
2008, the Company issued 45,812 shares of the Company’s common stock to two
individuals for satisfaction of $45,800 of accounts payable – trade at $1.00 per
share.
  Options
Activity
  A summary
of the option activity as of June 30, 2009, and changes during the period then
ended is presented below:
  F-23
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  AverageWeighted
                          
                          
                          Remaining
                          
                          
                          AggregateNumber
      of
                          
                          
                          Average
                          
                          
                          Contractual
                          
                          
                          IntrinsicOptions
                          
                          
                          Exercise Price
                          
                          
                          Term (Years)
                          
                          
                          ValueOutstanding
      at December 31, 2008
                          
                          
                          1,652,000
                          
                          
                          $
                          1.00
                          
                          
                          
                          -
                          
                          
                          
                          -Granted
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Forfeited
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Expired
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at June 30, 2009
                          
                          
                          1,652,000
                          
                          
                          $
                          1.00
                          
                          
                          
                          5.5
                          
                          
                          $
                          -Exercisable
      at June 30, 2009
                          
                          
                          1,110,333
                          
                          
                          $
                          1.00
                          
                          
                          
                          5.3
                          
                          
                          $
                          -
  On
January 31, 2008, the Company granted options to purchase 251,000 shares of its
common stock to the Company’s Chief Executive Officer immediately following the
Exchange Agreement as a condition for entering his employment
agreement.  The options have an exercise price of $1.00, vest
immediately and expire 10 years from the grant date.   The
Company also granted options to purchase 90,000 shares of its common stock to
the Company’s Chief Operating Officer immediately following the Exchange
Agreement as a condition for entering his employment agreement.  The
options have an exercise price of $1.10, vest immediately and expire 5 years
from the grant date.
  On
January 31, 2008, the Company granted options to purchase 186,000 shares of its
common stock to the Company’s Chief Operating Officer immediately following the
Exchange Agreement as a condition for entering his employment
agreement.  The options have an exercise price of $1.00, vest
immediately and expire 10 years from the grant date.
  On
January 31, 2008, the Company granted options to purchase 75,000 shares of its
common stock to both the Company’s Chief Strategy Officer and the Chief
Technology Officer immediately following the Exchange Agreement for entering
their employment agreements.  The options have an exercise price of
$1.00, vest immediately and expire in 5 years from the grant date.
  On
January 31, 2008, the Company granted options to purchase 225,000 shares of its
common stock to each of two employees for past services immediately following
Exchange Agreement.  The options have an exercise price of $1.00, vest
evenly on each of the first three anniversaries of the grant date and expire 5
years from the grant date.
  F-24
  ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  On
February 15, 2008, the Company granted options to purchase 350,000 shares of its
common stock to the Company’s Chief Financial Officer for entering his
employment agreement.  The options have an exercise price of $1.00,
50,000 vest immediately, and the remaining 300,000 vest evenly on each of the
first three anniversaries of the grant date and expire 5 years from the grant
date.  The Company also granted options to purchase 400,000 shares of
its common stock to the Company’s Chief Financial Officer for entering his
employment agreement.  The options have an exercise price of $1.00 and
vest evenly on each of the first three anniversaries of the grant date and
expire 10 years from the grant date.
  The
assumptions used in the Black-Scholes option pricing model for the stock options
granted during the year ended December 31, 2008 were as follows:
  Risk-free
      interest rate
                        
                        2.78
      to 3.83
                        %Expected
      volatility of common stock
                        
                        
                        92
                        %Dividend
      yield
                        
                        $
                        0.00Expected
      life of options
                        
                        5-10
      yearsWeighted
      average fair market value of options granted
                        
                        $
                        1.13
  Warrant
Activity
  A summary
of the warrant activity as of June 30, 2009, and changes during the period then
ended is presented below:
 WeightedAverageNumber
      of
                        
                        
                        ExerciseWarrants
                        
                        
                        PriceOutstanding,
      December 31, 2008
                        
                        
                        2,000,000
                        
                        
                        $
                        1.00Issued
                        
                        
                        -
                        
                        
                        
                        -Exercised
                        
                        
                        -
                        
                        
                        
                        -Outstanding,
      June 30, 2009
                        
                        
                        2,000,000
                        
                        
                        $
                        1.00Exercisable,
      June 30, 2009
                        
                        
                        2,000,000
                        
                        
                        $
                        1.00
  On
January 31, 2008, the Company sold 2,000,000 units, with each unit consisting of
one share of the Company’s Series A Convertible Preferred stock and one warrant
to purchase a share of the Company’s common stock.  The warrants have
an exercise price of $1.00 and expire 2 years from the grant date.
  Shares
Reserved for Future Issuance
  The
Company has reserved shares for future issuance upon exercise of outstanding
options and warrants as follows:
  Options
                      
                      
                      1,652,000Warrants
                      
                      
                      2,000,000Reserved
      shares at June 30, 2009
                      
                      
                      3,652,000
  F-25
 
 ForgeHouse,
Inc.
  Notes
to the Financial Statements
  (Unaudited)
 As
of June 30, 2009 and
 For
Each of the Three and Six Month Periods Ended June 30, 2009 and
2008
 
  11.
                Earnings Per
      Share
  In
accordance with FASB Statement No. 128, Earnings Per Share, the Company
calculates basic and diluted net loss per share using the weighted average
number of common shares outstanding during the periods presented and adjust the
amount of net loss, used in this calculation, for preferred stock dividends
declared during the period.
  The
Company incurred a net loss in each period presented, and as such, did not
include the effect of potentially dilutive common stock equivalents in the
diluted net loss per share calculation, as their effect would be anti-dilutive
for all periods. Potentially dilutive common stock equivalents would include the
common stock issuable upon the conversion of the convertible preferred stock and
the exercise of warrants and stock options that have conversion or exercise
prices below the market value of the Company’s common stock at the measurement
date. As of June 30, 2009, all potentially dilutive common stock equivalents
amounted to 5,652,000 shares.
  The
following table illustrates the computation of basic and diluted net loss per
share:
  For
      the Six Month
                            
                            
                            For
      the Three MonthPeriod Ended June 30,
                            
                            
                            Period Ended June 30,Numerator:Net
      loss
                            
                            $
                            (644,128
                            )
                            
                            $
                            (1,812,651
                            )
                            
                            $
                            (319,445
                            )
                            
                            $
                            (584,869
                            )Denominator:Denominator
      for basic and diluted net loss per share-weighted average number of common
      shares outstanding
                            
                            
                            28,289,834
                            
                            
                            
                            25,814,732
                            
                            
                            
                            28,289,834
                            
                            
                            
                            28,058,035Basic
      and diluted net loss per share
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.07
                            )
                            
                            $
                            (0.01
                            )
                            
                            $
                            (0.02
                            )
  The
following table sets forth potential shares of common stock that are not
included in the diluted net loss per share because to do so would be
antidilutive since the Company reported net losses in all the reporting
periods:
  As
      of June 30,2009
                        
                        
                        2008Options
      to purchase shares of common stock
                        
                        
                        1,652,000
                        
                        
                        
                        1,877,000Warrants
      to purchase shares of common stock
                        
                        
                        2,000,000
                        
                        
                        
                        -Convertible
      preferred stock
                        
                        
                        2,000,000
                        
                        
                        
                        -Total
                        
                        
                        5,652,000
                        
                        
                        
                        1,877,000
  F-26





ITEM
2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.





The
following discussion of the financial condition and results of operation of
ForgeHouse, Inc. (“ForgeHouse,” the “Company,” “we,” and “us”) should be read in
conjunction with the financial statements and the notes to those statements
included herein.  Actual results could differ materially from those in
the forward looking statements due to a number of uncertainties including, but
not limited to, those discussed in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.





Overview





ForgeHouse
is in the business-to-business arena and is focused on providing scalable,
Enterprise-class web-based solutions that increase productivity and
accountability by workflow optimization.  Our markets range from
Fortune 1000 companies to Government to Small and Medium Enterprises and
Businesses (SMEs and SMBs).  During the quarter ended June 30, 2009,
we continued to market our software solution to targeted prospects.





We will
need to obtain additional operating capital to fund continuing software
development and to increase our sales team to penetrate and gain traction in the
markets identified as critical to our business success.  Although we
are considering various debt or equity financings, there can be no assurance
that any financing will be available to us on terms acceptable to us or at the
time that we that we would require such financing, or at all.  Failure
to obtain any such financing will result in our inability to effectuate our
business plan.  As of the date of this Quarterly Report, we have not
entered into any agreements and have not received any commitments to obtain any
such financing.





For
the Quarter and Six Months Ended June 30, 2009 in Comparison to the Quarter and
Six Months Ended June 30, 2008.





Net
Revenues





Net
revenues for the quarter ended June 30, 2009, increased to $70,000 from $50,000
in the prior year, an increase of approximately 40%.  Revenues from
the ASP service increased by approximately 44%, while sales of hardware
increased by approximately 26%.  One customer accounted for 58% and
another customer accounted for 18% of total net revenues for the quarter ended
June 30, 2009.





Net
revenues for the six months ended June 30, 2009, increased to $197,000 from
$119,000 in the prior year, an increase of approximately
65%.  Revenues from the ASP service increased by approximately 27%,
while sales of hardware increased by approximately 167%.  One customer
accounted for 76% of total net revenues for the six months ended June 30,
2009.





Cost
of Revenues





Cost of
revenue primarily consists of Server Hosting Cost and Cost of Hardware purchased
for resale.  Cost of revenues for the quarter ended June 30, 2009,
increased to $25,000 from $22,000 in the prior year, primarily due to the
increased sales of hardware.  Cost of sales as a percentage of sales
is 35% for the period ending June 30, 2009, and 44% for the prior
period.





Cost of
revenue for the six months ended June 30, 2009, increased to $125,000 from
$45,000 in the prior year, primarily due to the increased sales of
hardware.  Cost of sales as a percentage of sales is 64% for the
period ending June 30, 2009, and 38% for the prior period.





Operating
Expenses





Total
operating expenses for the quarter ended June 30, 2009, decreased to $317,000
from $533,000 in the prior year.  For the six months ended June 30,
2009, operating expenses decreased to $642,000 from $1,659,000.  The
expense breakdown is as follows:




Three
      Months Ending June 30
                                            
                                            
                                            Six
      Months Ending June 302009
                                            
                                            
                                            2008
                                            
                                            
                                            Var
      B(W)
                                            
                                            
                                            Var
      B(W)
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            Var
      B(W)
                                            
                                            
                                            Var
      B(W)Operating
      Expenses
                                            
                                            $000
                                            
                                            
                                            $000
                                            
                                            
                                            $000
                                            
                                            
                                            %
                                            
                                            
                                            $000
                                            
                                            
                                            $000
                                            
                                            
                                            $000
                                            
                                            
                                            %Payroll
      related expenses
                                            
                                            
                                            173
                                            
                                            
                                            
                                            257
                                            
                                            
                                            
                                            84
                                            
                                            
                                            
                                            33
                                            %
                                            
                                            
                                            344
                                            
                                            
                                            
                                            489
                                            
                                            
                                            
                                            145
                                            
                                            
                                            
                                            30
                                            %Professional
      fees
                                            
                                            
                                            12
                                            
                                            
                                            
                                            86
                                            
                                            
                                            
                                            74
                                            
                                            
                                            
                                            86
                                            %
                                            
                                            
                                            17
                                            
                                            
                                            
                                            327
                                            
                                            
                                            
                                            309
                                            
                                            
                                            
                                            95
                                            %Depreciation
      and Amortization
                                            
                                            
                                            11
                                            
                                            
                                            
                                            11
                                            
                                            
                                            
                                            0
                                            
                                            
                                            
                                            1
                                            %
                                            
                                            
                                            22
                                            
                                            
                                            
                                            21
                                            
                                            
                                            
                                            (2
                                            )
                                            
                                            
                                            (8
                                            )%Stock-based
      charges
                                            
                                            
                                            85
                                            
                                            
                                            
                                            107
                                            
                                            
                                            
                                            22
                                            
                                            
                                            
                                            20
                                            %
                                            
                                            
                                            170
                                            
                                            
                                            
                                            1,014
                                            
                                            
                                            
                                            844
                                            
                                            
                                            
                                            83
                                            %General
      and Administrative
                                            
                                            
                                            47
                                            
                                            
                                            
                                            72
                                            
                                            
                                            
                                            25
                                            
                                            
                                            
                                            35
                                            %
                                            
                                            
                                            87
                                            
                                            
                                            
                                            (192
                                            )
                                            
                                            
                                            (280
                                            )
                                            
                                            
                                            145
                                            %Total
                                            
                                            
                                            328
                                            
                                            
                                            
                                            533
                                            
                                            
                                            
                                            206
                                            
                                            
                                            
                                            39
                                            %
                                            
                                            
                                            642
                                            
                                            
                                            
                                            1,659
                                            
                                            
                                            
                                            1,017
                                            
                                            
                                            
                                            61
                                            %




*
            Payroll
      expenseswere attributable to salaries, benefits, related taxes,
      and group health insurance to our officers and employees.  We
      anticipate that payroll expenses will increase during the remainder of our
      current fiscal year.  Our plan is to expand the sales and
      support staff in order to meet our growth targets, subject to our receipt
      of sufficient additional financing, for which we currently have no
      commitments.




5




*
            Professional
      feesrepresent both accounting and legal fees.  We
      anticipate that our professional fees will remain flat for the balance of
      the fiscal year.  A material amount of professional service fees
      in 2008 were incurred during the quarter ended March 31, 2008, in
      connection with the exchange transaction pursuant to which our business
      became affiliated with the public company and the related SEC
      filings.





*
            Depreciation
      and Amortization expensesrepresent depreciation of fixed assets
      over three years and amortization of software development over five
      years.  We expect depreciation expenses to increase for the
      balance of this fiscal year as we acquire additional fixed assets for the
      use of an expected increasing number of employees, subject to our receipt
      of sufficient additional financing, for which we currently have no
      commitments.





*
            Stock Based
      Chargesrepresent the amortization of stock options issued to
      management and certain of our other employees.  We anticipate
      that stock based charges will be flat for the balance of this fiscal
      year.





*
            General and
      Administrative expensesare primarily comprised of Occupancy &
      Equipment, Travel & Entertainment, Printing & Stationary, Postage
      & Delivery, Office Supplies, and Fees.  The increase in
      General and Administrative expenses compared to the same 6 months last
      year is due to a one-time $365K gain on restructuring of
    debt.





Other
Expense





For the
three months ended June 30, 2009, interest expense amounted to
$35,000.  For the six months ended June 30, 2009, interest expense
amounted to $69,000 and was attributable to two notes payable.





Net
Loss





For the
three months ended June 30, 2009, we reported a loss from operations of $319,000
(or a loss per share of $0.01), compared to $585,000 (or a loss per share of
$0.02) for the equivalent period in the prior year.





For the
six months ended June 30, 2009, we reported a loss from operations of $644,000
(or a loss per share of $0.02), compared to $1,813,000 (or a loss per share of
$0.07) for the equivalent period in the prior year.  The overall net
loss decreased in comparison with last year primarily due to the decreases in
Operating Expenses described above.





Liquidity
and Capital Resources





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations, and otherwise operate on an ongoing
basis.  At June 30, 2009, we had a cash balance of $1,361 and a
working capital deficit of $3,201,000.





Net cash
flows from operating activities for the quarter ended June 30, 2009 amounted to
$3,000.  Net cash flows used in investing activities for the quarter
ended June 30, 2009 amounted to $3,000 and were used primarily for capital lease
payments.  There was no financing activity for the quarter ended June
30, 2009.





At June
30, 2009, we had cash of $1,361, which was essentially equivalent to our cash
position at the beginning of the quarter.  We have no currently
planned material commitments for capital expenditures; however, other than our
current cash, we presently have no other alternative source of operating
capital, without which we may be unable to continue software development, to
increase our sales team to penetrate and gain traction in the markets identified
as critical to our business success, or to have the capital necessary to fund
our ongoing operations and obligations.  Although we are considering
various debt or equity financings, there can be no assurance that any financing
will be available to us on terms acceptable to us or at the time that we that we
would require such financing.  Failure to obtain any such financing
will result in our inability to effectuate our business plan.  As of
the date of this Quarterly Report, we have not entered into any agreements and
have not received any commitments to obtain any such financing.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements at June 30, 2009.





Critical
Accounting Policies and Estimates





Our
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America.  The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, and expenses.  On an ongoing basis, we evaluate our
estimates and judgments, including those related to accrued expenses, fair
valuation of stock related to stock-based compensation and income
taxes.  We based our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources.  Actual results may differ from these estimates under
different assumptions or conditions.




6




Use of
Estimates





In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the statements of financial condition, revenues, and expenses for the
period then ended. Actual results may differ significantly from those estimates.
Significant estimates made by management include, but are not limited to,
stock-based compensation, valuation of debt discounts, and useful life of
property and equipment.





Accounts
Receivable





We have a
policy of reserving for uncollectible accounts based on its best estimate of the
amount of probable credit losses in its existing accounts receivable. We
periodically review our accounts receivable to determine whether an allowance is
necessary based on an analysis of past due accounts and other factors that may
indicate that the realization of an account may be in doubt. Account balances
deemed to be uncollectible are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote.





Inventories





Inventories
are stated at the lower of cost or market utilizing the first-in, first-out
method and consist of raw materials related to our products. We intend to write
down inventory for estimated obsolescence or unmarketable inventory based upon
assumptions and estimates about future demand and market conditions. If actual
market conditions become less favorable than those projected by us, additional
inventory write-downs might be required.





Property and
Equipment





Property
and equipment are carried at cost. Depreciation and amortization are provided
using the straight-line method over the estimated economic lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of
disposition.





Revenue
Recognition





We follow
the guidance of the SEC’s Staff Accounting Bulletin No. 104, “Revenue
Recognition in Financial Statements.” In general, we record revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured.





The
following policies reflect our specific criteria for our revenue stream: We
generate revenue from the sale of our beverage products. Revenues from the sale
of these items are recognized upon delivery of the product to the customer.
Consideration given by us to a customer (including a reseller of our products)
such as slotting fees is accounted for as a reduction of revenue when recognized
in our income statement.





Stock Based
Compensation





We
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share Based Payment(“SFAS No. 123R”). SFAS No. 123R establishes the financial accounting and
reporting standards for stock-based compensation plans. As required by SFAS No.
123R, we recognized the cost resulting from all stock-based payment transactions
including shares issued under our stock option plans in the financial
statements.





Non-Employee Stock-Based
Compensation





The cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services” (“EITF 96-18”).




7




Recent Accounting
Pronouncements





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“FAS 157”).  This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements.  The Statement is to be effective for the Company’s
financial statements issued in 2008; however, earlier application is
encouraged.  The adoption of this interpretation did not have an
impact on the Company’s financial position, results of operations, or cash
flows.





In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, considering the Effects of Prior
Year Misstatements when quantifying Misstatements in Current Year Financial
Statements(“SAB 108”).  SAB 108 requires companies to evaluate
the materiality of identified unadjusted errors on each financial statement and
related financial statement disclosure using both the rollover approach and the
iron curtain approach, as those terms are defined in SAB 108.  The
rollover approach quantifies misstatements based on the amount of the error in
the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement’s year(s) of origin.  Financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material.  Correcting prior year financial statements for
immaterial errors would not require previously filed reports to be
amended.  If a company determines that an adjustment to prior year
financial statements is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must recognize the cumulative
effect of applying SAB 108 in fiscal 2006 beginning balances of the affected
assets and liabilities with a corresponding adjustment to the fiscal 2006
opening balance in retained earnings.  SAB 108 is effective for
interim periods of the first fiscal year ending after November 15,
2006.  The adoption of SAB 108 did not have an impact on the Company’s
financial statements.





In
December 2006, FASB Staff Position No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements,”was issued.  The FSP specifies that the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with SFAS
No. 5, “Accounting for
Contingencies.”The Company believes that its current
accounting is consistent with the FSP.





In
February 2008, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No.
115”, under which entities will now be permitted to measure many
financial instruments and certain other assets and liabilities at fair value on
an instrument-by-instrument basis.  This Statement is effective as of
the beginning of an entity’s first fiscal year that begins after November 15,
2008.  Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2008, provided the entity also elects
to apply the provisions of SFAS 157.  The Company is currently
assessing the impact, if any, that the adoption of SFAS 159 will have on its
financial statements.





In May
2008, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48(“the FSP”).  The FSP provides guidance
about how an enterprise should determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax
benefits.  Under the FSP, a tax position could be effectively settled
on completion of examination by a taxing authority if the entity does not intend
to appeal or litigate the result and it is remote that the taxing authority
would examine or re-examine the tax position.  The Company does not
expect that this interpretation will have a material impact on its financial
position, results of operations, or cash flows.





In
December 2008, the FASB issued SFAS No. 141(R), “Business Combinations,”which replaces SFAS No. 141, “ Business Combinations,”which, among other things, establishes principles and requirements for
how an acquirer entity recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed (including intangibles)
and any noncontrolling interests in the acquired entity.  SFAS No.
141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008.  We are currently evaluating what
impact our adoption of SFAS No. 141(R) will have on our financial
statements.





In
December 2008, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No.
51.”  SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  It also amends certain of ARB 51’s
consolidation procedures for consistency with the requirements of SFAS No.
141(R).  SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  We are currently evaluating what impact our adoption of SFAS
No. 160 will have on our financial statements.





Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.




8




ITEM 4T.  CONTROLS
AND PROCEDURES.




The
Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the design and operation of the Company’s “disclosure
controls and procedures” (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report.  Based on that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of June 30, 2009.  There has been no
change in the Company’s internal control over financial reporting during the
quarter ended June 30, 2009, that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





9





PART
II – OTHER INFORMATION




ITEM
6.  EXHIBITS




2.1
            Agreement and Plan of Exchange by
      and among Milk Bottle Cards, Inc., and certain members of ForgeHouse, LLC,
      dated January 31, 2008 (incorporated by reference to Exhibit 2.1 of the
      Company’s Current Report on Form 8-K, filed February 7,
      2008).




|2.2
            Capital Interest Purchase
      Agreement, by and among the Company and Paul Grootendorst, Bryan Irving,
      Brooks Mileson, and Ian Morl, dated January 31, 2008 (incorporated by
      reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K,
      filed February 7, 2008).




2.3
            Repurchase Agreement, by and
      between the Company and Nicole Milkovich, dated January 31, 2008
      (incorporated by reference to Exhibit 2.3 of the Company’s Current Report
      on Form 8-K, filed February 7,
2008).




3.1
            Amended and Restated Articles of
      Incorporation, as filed with the Secretary of State of the State of
      Nevada, effective January 31, 2008 (incorporated by reference to Exhibit
      3.1 of the Company’s Current Report on Form 8-K, filed February 7,
      2008).




3.2
            Bylaws (incorporated by reference
      to Exhibit 3(ii) of the Company’s Registration Statement on Form SB-2,
      filed on April 15, 2005).




3.3
            Certificate of Designation of
      Series A Convertible Preferred Stock, as filed with the Secretary of State
      of the State of Nevada, effective January 31, 2008 (incorporated by
      reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K,
      filed February 7, 2008).




3.4
            Articles of Exchange, as filed
      with the Secretary of State of the State of Nevada, effective January 31,
      2008 (incorporated by reference to Exhibit 3.4 of the Company’s Current
      Report on Form 8-K, filed February 7,
  2008).




10.1
            2008 Incentive Plan (incorporated
      by reference to Exhibit B of the Company’s definitive Information
      Statement on Schedule 14-C, filed January 2,
  2008).




10.2
            Form on Incentive Stock Option
      Award Agreement under the 2008 Incentive Plan (incorporated by reference
      to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed
      February 7, 2008).




10.3
            Form of Nonqualified Stock Option
      Award Agreement under the 2008 Incentive Plan (incorporated by reference
      to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed
      February 7, 2008).




10.4
            Employment Agreement with John
      Britchford-Steel, dated as of January 31, 2008 (incorporated by reference
      to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed
      February 7, 2008).




10.5
            Employment Agreement with Jose
      Alonso, dated as of January 31, 2008 (incorporated by reference to Exhibit
      10.5 of the Company’s Current Report on Form 8-K, filed February 7,
      2008).




10.6
            Mutual Release, by and among the
      Company, ForgeHouse, and Paul Grootendorst, Bryan Irving, Brooks Mileson,
      and Ian Morl, dated as of January 31, 2008 (incorporated by reference to
      Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed February
      7, 2008).




10.7
            Form of Lock-Up Agreement, dated
      as of December 12, 2007, by and between the Company and each of certain
      beneficial stockholders (incorporated by reference to Exhibit 10.7 of the
      Company’s Current Report on Form 8-K, filed February 7,
      2008).




10.8
            Form of Subscription Agreement,
      dated as of January 31, 2008, by and between the Company and each of
      certain preferred stockholders (incorporated by reference to Exhibit 10.8
      of the Company’s Current Report on Form 8-K, filed February 7,
      2008).




10.9
            Form of Common Stock Purchase
      Warrant, dated as of January 31, 2008, by and between the Company and each
      of certain preferred stockholders (incorporated by reference to Exhibit
      10.9 of the Company’s Current Report on Form 8-K, filed February 7,
      2008).




10




10.10
            Promissory Note, in favor of
      Arngrove Group Holdings Ltd., dated as of January 31, 2008 (incorporated
      by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K,
      filed February 7, 2008).




10.11
            Promissory Note, in favor of
      After All Limited, dates as of January 31, 2008  (incorporated
      by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K,
      filed February 7, 2008).




10.12
            Subordination
      and Intercreditor Agreement, by and among the Company, ForgeHouse, and
      Paul Grootendorst, Bryan Irving, Brooks Mileson, and Ian Morl, dated as of
      January 31, 2008 (incorporated by reference to Exhibit 10.12 of the
      Company’s Current Report on Form 8-K, filed February 7,
    2008).




10.13
            Employment
      Agreement with Jorge Vargas, dated as of February 15, 2008 (incorporated
      by reference to Exhibit 10.13 of the Company’s Quarterly Report on Form
      10-QSB, filed May 20, 2008).




10.14
            Service
      and Software License Agreement, dated April 15, 2007, by and between the
      Company and Securitas Security Services USA, Inc. (incorporated by
      reference to Exhibit 10.14 of the Company’s Quarterly Report on Form
      10-QSB, filed May 20, 2008).




10.15
            Office
      Lease Agreement, by and between the Company and Wolff Atlanta Portfolio,
      LLC (incorporated by reference to Exhibit 10.15 of the Company’s Quarterly
      Report on Form 10-QSB, filed May 20,
2008).




21.1
            ForgeHouse,
      LLC.




31.1*
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.




31.2*
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.




32.1*
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.




32.2*
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.







*      Filed
herewith.




11





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.





FORGEHOUSE,
      INC.By:
      /s/ John
      Britchford-SteelAugust
      14, 2009
                John
      Britchford-SteelChief
      Executive Officer




12