U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB


                Quarterly Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                  For the Quarterly Period Ended March 31, 2003

                        Commission File Number 000-25725


                                V-FORMATION, INC.
                                -----------------
          (Exact name of small business issuer as specified in charter)

                                   New Jersey
                                   ----------
         (State of either jurisdiction of incorporation or organization)

                                   22-3345169
                                   ----------
                        (IRS Employer Identification No.)

                         99 Wood Avenue South, Suite 805
                            Iselin, New Jersey 08830
                            ------------------------
                    (Address of principal executive offices)

                                  732-321-4040
                                  ------------
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes  X   No    .
                                                              ---     ---

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest  practicable  date: As of December 15, 2003,  there were
18,950,011 common shares outstanding.




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                                     PART I

ITEM 1. FINANCIAL STATEMENTS.

     Our unaudited  condensed  financial  statements  for the three months ended
March 31, 2003, are attached hereto.

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following  discussion  should be read in conjunction with our unaudited
condensed financial  statements and notes thereto included herein. In connection
with, and because we desire to take advantage of the "safe harbor" provisions of
the  Private  Securities  Litigation  Reform  Act of 1995,  we  caution  readers
regarding  certain  forward looking  statements in the following  discussion and
elsewhere in this report and in any other  statement  made by, or on our behalf,
whether or not in future filings with the  Securities  and Exchange  Commission.
Forward  looking  statements are statements not based on historical  information
and which relate to future  operations,  strategies,  financial results or other
developments.  Forward looking  statements are necessarily  based upon estimates
and assumptions that are inherently  subject to significant  business,  economic
and competitive  uncertainties and  contingencies,  many of which are beyond our
control  and many of which,  with  respect  to future  business  decisions,  are
subject to change.  These  uncertainties  and  contingencies  can affect  actual
results and could cause actual results to differ materially from those expressed
in any forward looking  statements made by us, or on our behalf. We disclaim any
obligation to update forward-looking statements.

Overview

     V-Formation,  Inc. ("we", "us", "our" or the "Company") is a multi-faceted,
innovative,  sports technologies  company that has made significant  advances in
the development and marketing of the first major evolution in inline skates. Our
objective is to become the premier sports and related  technologies  firm in the
sports product and  entertainment  industry.  We  manufacture  and sell patented
V-configuration  roller skates, as well as "cutting edge" extreme sports apparel
under the Nexed brand name, to sporting goods retailers  located  throughout the
United States and Canada.

     While we can provide no assurances,  we believe that, with suitable capital
funding,  we will be well positioned to make substantial market penetration with
respect to our product lines and capture market share, substantially fueling our
growth. Additionally, through the use and acquisition of intellectual properties
which  are  either  owned or  licensed  exclusively  by us, we  believe  we have
effectively  established  the  broad  foundation  we  have  used to  attain  the
accomplishments  we have  experienced to date. We intend to use our intellectual
properties  as a  springboard  for  future  growth.  Presently,  all our  sports
products   incorporate   next   generation   technology   in  their  design  and
implementation.   Importantly,   all  our  key   technologies  are  proprietary,
licensable and transferable.


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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     We have  identified  critical  accounting  policies  that,  as a result  of
judgements,  uncertainties,   uniqueness  and  complexities  of  the  underlying
accounting standards and operation involved, could result in material changes to
our financial  position or results of operations  under different  conditions or
using different assumptions. The most critical accounting policies and estimates
are:

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

     >    Fair value of instruments. The Company's financial instruments consist
          of accounts receivable,  accounts payable and long term debt. The fair
          value of financial instruments approximate their recorded values. Fair
          value of loans payable to  stockholders  and balances of bank lines of
          credit, in the circumstances, are not reasonably determinable.

     >    Patents and trademarks. The costs associated with the acquisition of a
          patent and the costs of  registering  the patents and  trademarks  are
          capitalized  and  amortized  on  the  straight-line   basis  over  the
          remaining  lives of 15 to 17 years.  The periods of  amortization  are
          periodically  evaluated to  determine  whether  circumstances  warrant
          revised estimates of useful lives.

     >    Impairment of long-lived assets.  Long-lived assets, including patents
          and  trademarks,  to be held  and  used are  reviewed  for  impairment
          whenever events or changes in circumstances  indicate that the related
          carrying  amounts  may  not  be  recoverable   using  expected  future
          undiscounted cash flows. When required, impairment losses on assets to
          be held and used are  recognized  based on the  excess of the  asset's
          carrying  amount over its fair value as determined  by selling  prices
          for  similar  assets or  application  of other  appropriate  valuation
          techniques.

     The  following  information  is intended to highlight  developments  in our
operations  to  present  our  results  of  operations,  to  identify  key trends
affecting our businesses and to identify other factors  affecting our results of
operations for the three-month periods ended March 31, 2003 and 2002.



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Results of Operations

     Comparison  of Results of  Operations  for the Three Months Ended March 31,
2003 and 2002.

     Our sales  revenues  increased  slightly  to $337,189  for the  three-month
period ended March 31, 2003,  from  $329,194 for the similar  period in 2002, an
increase of $7,995 (2.4%).  The increase in revenues was mainly  attributable to
sales of paintball products, which totaled $68,273 during the three months ended
March 31, 2003,  but none were sold during the similar period in the prior year.
There  was also a slight  increase  in the  sales of  roller  hockey  skates  to
$105,370 as compared to $90,516 in the prior period, an increase of $14,854. The
increase in sales was offset by a decrease in sales of our other hockey products
(pants,  jerseys,  gloves,  girdles)  totaling  $163,546  in 2003,  compared  to
$237,122 in 2002, a decrease of $73,576 (31%). We believe the decrease is due to
the general downturn in the economy.

     In the three  months  ended March 31,  2003,  costs of sales  increased  to
$266,267  compared to $245,174  for the similar  period in 2002,  an increase of
$21,093  (8.6%).  Gross margins were lower in 2003 because of inventory  sold at
lower prices in conjunction with our ongoing business  relationship  with Sports
Giant LLC of California which commenced in the first quarter of 2003, wherein we
entered into an agreement  establishing  Sports Giant as our  distributor of our
Nexed brand name roller hockey product line. For a more detailed  description of
our activities with Sports Giant, see the amendment to our annual report on Form
10-KSB/A1 for our fiscal year ended December 31, 2002.

     While no assurances can be provided,  we anticipate a future revenue stream
from  infringement  litigation  which is  discussed  in "Part II,  Item 1, Legal
Proceedings,"  below  herein,  provided  that we are either  successful  in this
litigation or an acceptable settlement is reached. During the three-month period
ended March 31, 2003, we did not receive any royalty payments applicable to such
infringement litigation.

     During the three-month period ended March 31, 2003, selling and promotional
costs  decreased by $120,779 from $217,009 to $96,230  (55.7%).  The decrease is
due to our being more selective in the  scheduling of promotional  events which,
when combined  with the  associated  travel  costs,  accounted for a decrease of
approximately  $40,600. In addition,  we eliminated the majority of our salaried
sales force in favor of outside commissioned  representatives.  During the first
three months of 2003,  this change in the sales force accounted for a savings of
approximately $57,100 in wages and employee benefits.

     General and  administrative  expenses  were  $496,138  for the three months
ended March 31,  2003,  compared to $682,564  for the similar  period in 2002, a
decrease  of  $186,426  (27.3%).  This  decrease  was  due  primarily  to  lower
professional  fees in the  current  year of  approximately  $159,000.  The prior
year's fees included legal and expert witness  charges in relation to the patent
infringement litigation activity in 2002. Also, a payment of $30,000 was made to
an  outside  financial  consultant  in the prior  year,  for which no costs were
incurred in the first three months of 2003.  Insurance  costs also  decreased in
the current year by approximately $39,000.

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Lastly,  during the three  months  ended  March 31,  2002,  there was $48,825 of
employee  stock  compensation,  while $93,750 of equity based  compensation  was
recorded during the three months ended March 31, 2003.

     Research and development  costs during the  three-month  period ended March
31, 2003 were $128,085, as compared to $75,323 for the prior period, an increase
of $52,762 (70%), which is primarily due to costs associated with the production
of numerous samples in conjunction with a possible future joint venture.

     During the three months ended March 31, 2003, depreciation and amortization
expense  increased from $34,976 to $39,108.  Amortization  and  depreciation  is
associated with patents, trademarks and equipment.

     Interest income and expense  increased from a net expense of $14,788 in the
three months ended March 31, 2002, to a net expense of $1,344,685  for the three
months ended March 31, 2003, an increase of $1,329,897. This increase was due to
the amortization of $1,239,585 of deferred  financing costs recorded at December
31, 2002,  including  $68,400 of current year deferred  financing  costs for the
issuance  of  85,800  shares of our  Common  Stock to one of our  directors  for
providing collateral for our bank lines of credit.

     During the  three-month  period ended March 31, 2002, we were notified that
other  co-  defendants  in a  litigation  matter  that was  settled  in 1998 had
satisfied  $85,598  of a  note  payable  obligation,  which  we  had  originally
recorded. As a result, we recognized income from elimination of this obligation.
During the three-month period ended March 31, 2003, we settled two legal matters
by agreeing to issue payments of $47,500.

     During the three  months ended March 31, 2003,  dividends  attributable  to
preferred stock totaled $56,148.

     As a result, we generated a net loss attributable to common stockholders of
$(2,136,972) for the three months ended March 31, 2003 ($.12 per share) compared
to a net loss  attributable  to common  stockholders of $(820,042) for the three
months ended March 31, 2002 ($.05 per share).

Liquidity and Capital Resources

     At March 31, 2003, we had $180,420 in cash and cash equivalents, a decrease
of $280,779 from December 31, 2002.  This decrease in cash was  attributable  to
net cash used in operating  activities  of $633,888,  net cash used in investing
activities of $7,427 offset by $360,536 provided by financing activities.

     At March 31, 2003,  our working  capital  deficiency was  $3,297,959.  This
working  capital  deficiency  is  primarily  due to the fact we had made various
short-term  financing  arrangements  to  continue  operations,  such  as  having
$2,500,000  outstanding at March 31, 2003, in borrowings from the $2,000,000 and
$500,000  lines of credit.  As of March 31, 2003,  the

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$2,000,000 and $500,000 lines of credit have  expiration  dates of June 30, 2003
and July 1, 2003, respectively. Since March 31, 2003, we arranged to extend both
lines of credit to December 31,2003. In addition, we have financed operations by
borrowing from various  stockholders and directors and have $418,508 outstanding
at March 31, 2003 from such arrangements.

     Net cash used in operating  activities during the three-month  period ended
March 31, 2003, was $633,888,  versus  $372,150 for the same period in 2002. Net
loss for the  three-month  period ended March 31, 2003, of $2,080,824 was higher
than the net loss of $820,042  for the same  period in the prior  year.  For the
three months ended March 31, 2002 and 2001, the difference between net cash used
in  operating  activities  and the net loss was  $1,406,936  and  $447,892.  The
significant  differences between the net cash used from operating activities and
the net loss is primarily due to the Company's non-cash transactions,  which are
included to reconcile net loss to net cash used in operating activities, such as
the  amortization  of deferred  compensation  of $93,750 during the three months
ended March 31, 2003, the amortization of deferred financing costs of $1,307,985
during the three months ended March 31, 2003, and the employee compensation paid
in stock of $48,825  during the three months ended March 31,  2002.  Also,  from
December  31, 2002 to March 31,  2003,  net  accounts  receivable  increased  by
$161,687 to $383,732, and inventory decreased by $128,395 to $301,876,  which is
attributable to the recent relationship entered into with Sports Giant LLC.

     Net cash used for financing activities totaled $360,536 for the three-month
period ended March 31, 2003. This was mainly attributable to $375,000 in capital
contributions by stockholders,  $34,786 received from an officer, offset by cash
used for principal  payments under a loan agreement of $35,000,  and $15,000 for
the repayment of a loan from one of our directors.

     In August 2002, we entered into a new $2,000,000  line of credit  agreement
with a bank.  The line of credit is available  through  July 30,  2003.  Amounts
drawn on the line bear  interest at the prime rate,  plus 1%, but not to be less
than  6% at any  time  (6% at  March  31,  2003)  and is  payable  monthly.  The
obligation is collateralized by the personal  guarantees and second mortgages on
specific  real estate assets of one of our officers and one of our directors and
by assignments of patents and settlement  proceeds from our patent  infringement
litigation. At March 31, 2003, this line was fully utilized. This line of credit
agreement  contains  certain  financial  covenants,  including the submission of
timely financial statements. At March 31, 2003, we became noncompliant with such
covenants; however, we received a waiver from the lender for such noncompliance.
We have since provided the financial statements to the bank.

     In addition, in June 2002, we obtained a new $500,000 line of credit with a
bank through July 1, 2003. Amounts drawn on this line of credit bear interest at
the prime rate, plus 3% (7.25% at March 31, 2003) and is payable  monthly.  This
obligation is collateralized by certificates of deposit and personal  guarantees
of one of our directors. At March 31, 2003, this line was fully utilized.

     In connection  with our lines of credit for  $2,000,000  and  $500,000,  we
issued  1,100,000  shares of our Common  Stock  valued at $3.00 per share for an
aggregate  value  of  $3,300,000  to  certain   stockholders  and  directors  in
consideration for their providing  collateral of assets and
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<PAGE>

personal guarantees. Of such amounts,  $1,287,500 is recorded as finance charges
during  the year ended  December  31,  2002.  Accordingly,  $2,012,500  has been
recorded as deferred  financing  costs as of December 31,  2002.  Such amount is
being  amortized as interest  expense over the remaining life of the loans.  For
the three months ended March 31, 2003, $1,006,250 has been expensed. As of March
31, 2003, $1,006,250 has been deferred.

     In connection  with the lines of credit for  $2,000,000  and  $500,000,  we
issued  85,800  shares of our Common  Stock,  valued at $3.00 per share,  for an
aggregate value of  approximately  $257,000 to a director in  consideration  for
extending  collateral for our bank lines of credit beyond the original  maturity
date. Such amount is being amortized as interest expense over the remaining life
of the loan.  For the  three  months  ended  March 31,  2003,  $68,400  has been
expensed. As of March 31, 2003, $189,000 has been deferred.

     In addition,  we have an  outstanding  note  payable  which had a principal
balance of $70,000 at March 31, 2003.  This note is  unsecured,  payable in five
annual installments of $35,000 without interest,  which payments commenced March
31, 2001,  and is related to a settlement  agreement to resolve a legal  dispute
which arose from a 1996  transaction in which the plaintiffs acted as brokers by
introducing various parties that subsequently invested in our Series B Preferred
Stock.  The unpaid balance of the note is payable in full in the event of a sale
or merger of our Company, or in the event we receive net funding of $1.5 million
or more from an equity offering.

     In May 2002, a  stockholder/director  granted us an unsecured  loan,  which
loan is due on or before  December 31, 2003, and bears interest at 6% per annum.
At March 31, 2003, the principal loan balance to the stockholder was $119,508.

     During 2002, we borrowed  various  unsecured loans from other  stockholders
and a  director,  which  bear  interest  at 6% per  annum,  leaving a balance of
$314,000 at December 31, 2002,  payable on or before  December 31, 2003.  During
the quarter  ended March 31,  2003,  $15,000 was repaid by us to this  director,
leaving a remaining balance of $299,000.

     These  two  aforementioned   transactions  resulted  in  loans  payable  to
stockholders/directors of $418,508 at March 31, 2003.

     In connection with these borrowings from the stockholders and directors, we
issued  642,585  shares of our Common Stock,  valued at $3.00 per share,  for an
aggregate value of approximately  $1,928,000,  to the stockholders and directors
in consideration of them providing such funds. Such amount is being amortized as
interest  expensed  over the  remaining  life of the  loans.  For the year ended
December 31, 2002,  approximately  $1,461,000 has been expensed.  As of December
31, 2002,  approximately  $467,000 has been deferred. For the three months ended
March 31, 2003,  $233,335 has been expensed.  As of March 31, 2003, $233,335 has
been deferred.

     We have  extended  the lines of credit for  $2,000,000  and $500,000 to the
maturity  dates  of June  30,  2003,  and  July 1,  2003,  as  presented  in the
accompanying  condensed  unaudited

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financial  statements  for the quarter  ended March 31, 2003. If either of these
lines of credit or the borrowings from shareholders and directors were to become
due, it is unlikely that the Company would be able to meet these  obligations or
other  obligations that occur in the normal course of business.  We are pursuing
long-term financing arrangements and have taken several strategic initiatives to
improve our working cash  position,  including an expansion of product lines and
various legal  proceedings to defend the Company's  patents.  We also have taken
severe cost cutting  measures,  including a reduction of staff. At this time, we
are unable to predict  whether we will be successful  in our efforts.  If the we
are unable to continually  extend  current lines of credit and  borrowings  from
shareholders  as  they  become  due,  raise   additional   long-term   financing
arrangements and receive market acceptance of our new business  strategies,  the
Company  will not be able to  continue  as a going  concern.  The  report of our
independent  auditors on the  consolidated  financial  statements  for the years
ended December 31, 2002 and 2001 include an explanatory  paragraph  which stated
that the  Company has  incurred  substantial  net losses  during the years ended
December 31, 2002 and 2001, has an accumulated  deficit, and has working capital
deficiency,  which  raise  substantial  doubt  about the  Company's  ability  to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments that might result from the uncertainty.

     Finally,  during  the  three  months  ended  March  31,  2003,  two  of our
officers/directors  sold 250,000 shares of their Common Stock in our Company and
contributed  $375,000 of the proceeds from such sale to the Company.  From April
1, 2003 to June 30, 2003,  the  officers/directors  sold an aggregate of 491,000
shares of their Common Stock in our Company and thereafter  contributed $439,203
of the  proceeds  from such sale to us.  During the three months ended March 31,
2003, in consideration for such proceeds, we issued these two people warrants to
purchase up to 236,000 shares of our Common Stock, each such warrant exercisable
at a price of $3.75 per  warrant.  These  warrants  were to expire  December 31,
2003; however, the two officers/directors decided to surrender the warrants back
to the  Company and the  warrants  were  terminated.  No  compensation  cost was
recorded  since the warrants  were  granted at an exercise  price above the fair
market value.

Trends

     Our strategy is to direct our current  efforts to increase sales and market
penetration  along with  developing  an income  stream from the licensing of our
patented technologies.  We believe the current economic downturn is the cause of
the decrease in sales this year.  However,  while no assurances can be provided,
we believe that our core business,  the wholesale  distribution and marketing of
"Nexed" branded roller skates, apparel and accessories,  will substantially grow
over the next 12 months.  In  support of this  contention,  the  Sporting  Goods
Manufacturing  Association activity report dated April 30, 2001, cites the sport
of inline skating as "the third most popular sports for youth, based on frequent
participation"  for ages 6-17. We remain  confident  that this growth trend will
continue and as a result,  our sales  revenues and market share will continue to
grow in a proportional manner.

     Also,  in  September  2002,  we  formally  launched  and  introduced  NEXED
Paintball.  During late 2001, we started receiving  unsolicited orders for NEXED
apparel in which its use
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<PAGE>

was specifically intended for Paintball.  Inadvertently,  our NEXED product line
began to  garner  the  attention  of many  "elite"  Paintball  participants  and
enthusiasts.  In  recognizing  the  opportunity,  we quickly  responded and with
relatively  little effort,  we coordinated a manufacturing and marketing effort.
We strategically  chose to launch NEXED Paintball at the ESPN sponsored National
Paintball League World Cup Tournament held at Disney's Epcot Center.  We plan on
attending similar events in the future.

     With  industry  revenues  in excess of $250  million  per year,  consistent
annual  growth and  existing  cross  marketing  opportunities,  it was a logical
expansion  for us.  According  to the  SGMA  "2001  Superstudy,"  the  sport  of
Paintball  was ranked the third most popular  extreme  sport,  having  surpassed
snowboarding participation.  Paintball participation is projected to continue to
grow and expand worldwide.

     Based upon the above  discussions,  we believe  the  acceptance  of our new
paintball  product  line  together  with the  expected  growth  of our  existing
business lines will enhance our growth.  If these factors occur, and if economic
conditions in the United States  improve,  we expect to reach  profitability  in
2004. However, there can be no assurances that our forecasts will be accurate.

Subsequent Event

     During the second  quarter of 2003,  we  established  Muscovy  Import Group
("MIG").  Through our past experience with international  trade transactions and
through the  development of foreign  strategic  alliances,  Muscovy Import Group
offers consulting services to American companies seeking to establish a business
presence in the Russian  Federation and other countries  within the Commonwealth
of Independent States and the Newly Independent States.

     Russian  markets are expanding  exponentially  and are  embracing  American
goods and American business partners.  Macroeconomic  factors such as a dramatic
increase in gross  domestic  product and a decrease in  inflation,  as well as a
change in social and lifestyle  factors are reasons why businesses are currently
eager to enter or expand their presence in the Russian marketplace. Further, the
political  stability  of the current  administration  and the  overall  positive
attitude of the  Russian  people  bolster the  decision  for  companies  to move
forward in this area.

     The services offered by MIG include  assistance in the development of sales
and  distribution  channels  in  Russia,  identifying  and  contacting  selected
accredited  business partners in Russia,  arranging for preferred tax and tariff
treatment when doing business in Russia and negotiating the financial aspects of
any foreign business/trade transactions.

     Though MIG has only recently begun offering its consulting services,  since
August 2003, we have generated and received  $275,000 in consulting  fees. While
no  assurances  can be  provided,  we believe  this  segment of our business has
tremendous potential.  The relevant consulting contracts include a front end fee
to MIG, plus a percentage of future sales in Russia by the respective client.



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Inflation

     Although our operations are influenced by general economic  conditions,  we
do not believe that inflation had a material effect on the results of operations
during the three months ended March 31, 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting  principals  generally accepted in the United States.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses, and related disclosure of contingent assets and liabilities. On an on-
going basis,  we evaluate our  estimates,  including  those  related to customer
programs and incentives, product returns, bad debts, inventories,  income taxes,
and contingencies and litigation. We base our estimates on historical experience
and on various other  assumptions  that are believed 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.

ITEM 4.  CONTROLS AND PROCEDURES

     Our Chief  Executive  Officer and Chief  Financial  Officer (our  principal
executive  officer  and  principal   financial  officer,   respectively),   have
concluded,  based on their  evaluation as of December 15, 2003, (the "Evaluation
Date"),  that  the  design  and  operation  of  our  "disclosure   controls  and
procedures"  (as defined in Rules  13a-14(c) and 15d-14(c)  under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act")), are effective to ensure
that  information  required  to be  disclosed  by us in  the  reports  filed  or
submitted  by us under the  Exchange Act is  accumulated,  recorded,  processed,
summarized  and reported to our  management,  including our principal  executive
officer and our principal  financial  officer,  as  appropriate  to allow timely
decisions regarding whether or not disclosure is required.

     There were no significant  changes in internal controls or in other factors
that could  significantly  affect internal controls subsequent to the Evaluation
Date, nor were there any significant  deficiencies or material weaknesses in our
internal  controls.  As  a  result,  no  corrective  actions  were  required  or
undertaken.



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                                     PART II

ITEM 1. LEGAL PROCEEDINGS

     As of the  date of this  report,  we are  party  to  various  judicial  and
administrative matters, including the following:

     In January  2001,  we filed a complaint  against  Benetton  Group,  SPA and
Roller Blade, Inc. in the United States District Court, Southern District of New
York,  Docket No. 01 CIV 510,  wherein we have alleged  willful  infringement of
certain of our patent  rights for  Toeplate  with Dual  Flanges for Inline Skate
Frames.  Upon  information  and belief,  the  defendants  are making,  using and
offering  to sell inline  skate  products  which  infringe  on our  patents.  In
November 2002, the Court entered an Order on the defendant's  Motion for Summary
Judgment,  dismissing  our  claims.  We have  filed a timely  notice  of  appeal
requesting  reversal of the trial court  decision  and this matter is now before
the US  Court  of  Appeals  for the 2nd  Circuit.  While  no  assurances  can be
provided, we are optimistic about the likelihood of success on appeal.

     In February 2001, we filed a complaint in the United States District Court,
Southern  District of New York,  Docket No. 01 CV 7179,  against adidas America,
Salomon North America,  Inc., Salomon S.A., adidas AG and adidas Salomon AG, The
Sports Authority,  Inc., Princeton Ski Outlet Corp., dba Princeton Ski Shops and
Paragon  Sporting Goods Co., Inc. for willful  infringement  of certain  patents
held by us, including  Toeplate with Dual Flanges for Inline Skate Frames.  Upon
information  and belief,  the defendants are making,  using and offering to sell
inline skate  products  which  infringe on certain of our  patents.  In November
2002, the Court entered an Order on the defendant's Motion for Summary Judgment,
dismissing our claims.  We intend to appeal,  but have not yet done so as of the
date of this Report, as no final judgment has been entered.  While no assurances
can be provided, we are optimistic about the likelihood of success on appeal.

     In April 2001,  Vertex  Capital Corp.  filed a complaint  against us in the
United  States  District  Court for the Southern  District of New York,  seeking
damages for alleged breach of contract and unjust enrichment. In September 2002,
the Court entered summary  judgment in our favor,  dismissing all but one of the
plaintiff's claims. In January 2003, we entered into a verbal settlement of this
matter,  which provided for us to issue warrants.  However,  when the settlement
was being reduced to writing,  a dispute concerning the terms of the warrants to
be issued arose and no formal  settlement  was  reached.  As of the date of this
Report,  the Court has  dismissed  this action,  without  prejudice,  due to the
failure of the plaintiff to timely file various pleadings. No further action has
taken place.

     In October 2001,  we filed an action  against USCO  Distribution  Services,
Inc.,  d/b/a USCO  Logistics  ("USCO"),  which was removed to the United  States
District  Court for the  District of  Colorado,  asserting  claims  arising from
USCO's failure to perform according to its "order fulfillment"  contracts.  USCO
asserted counterclaims totaling approximately $103,000

                                                                              11

<PAGE>

based on its charges for services  under the contracts and asserted a possessory
lien on our inventory in their  possession.  USCO  subsequently  liquidated  the
inventory  pursuant to their  possessory  lien. In April 2003, we entered into a
confidential  settlement  agreement,  which  partially  reimbursed  USCO for UPS
shipping charges. At March 31, 2003, the settlement amount had been accrued.

     In January 2002, we filed a complaint in the United States  District Court,
Southern District of New York, Docket No. 010 CIV 1693,  against K2 Corporation,
where we alleged  willful  infringement of patent rights held by us for Toeplate
with Dual Flanges for Inline  Skate  Frames.  In August 2002,  we entered into a
settlement of this matter in which we received a compensatory award for previous
infringement,  as well as a future royalty on sales for roller skates  utilizing
our  patented  technology  and the  assignment  of two  patents.  As part of the
settlement, the Court ordered the settlement terms confidential.

     Thereafter,  we  learned  that,  immediately  prior  to  entering  into the
aforesaid settlement agreement,  K2 Corporation allegedly signed agreements with
both  Benetton  Group,  SPA and Roller Blade,  Inc., as well as adidas  America,
Salomon North  America,  Inc.,  Salomon S.A.,  adidas AG and adidas  Salomon AG,
which  agreements  included  covenants  not to sue for any  patent  infringement
relating  to the  patents  subsequently  assigned  to us.  We  maintain  that K2
Corporation never advised us of these agreements.  Applicable  thereto, in March
2003, we commenced an action against K2 Corporation  and its General  Counsel in
the United States  District  Court,  District of Colorado,  alleging  fraudulent
concealment,  misrepresentation  and  breach of  contract,  with  damages  to be
established at trial.

     This matter was  subsequently  remanded to the United States District Court
for the Western District of Seattle,  Washington. As of the date of this Report,
this Court has  issued  scheduling  orders  and the  matter is in the  discovery
phase. Trial on this matter has been scheduled for September 2004.

     Relevant  thereto,  in January 2003, we also commenced patent  infringement
suits against both Benetton Group, SPA and Roller Blade, Inc., as well as adidas
America,  Salomon North America, Inc., Salmon S.A., adidas AG and adidas Salomon
AG, The Sports  Authority,  Inc.,  Princeton Ski Outlet Corp., dba Princeton Ski
Shops and Paragon  Sporting  Goods Co.,  Inc. in separate  actions  filed in the
United  States  District  Court,  District of  Colorado,  where we have  alleged
infringement  by  the  defendants  of  those  patents   assigned  to  us  by  K2
Corporation. Discovery has commenced in these matters.

     In December 2002, we filed an action in the United States  District  Court,
District of New Jersey,  against KPMG Corporate Finance LLC.,  ("KPMG") alleging
breach  of  contract  and  conflict  of  interest.  We had  previously  signed a
consulting agreement with KPMG for it to provide investment banking services. We
alleged that KPMG failed to disclose that they also  represented  certain of our
competitors. This matter was resolved by the parties entering into a

                                                                              12

<PAGE>

confidential  settlement  agreement  in October  2003.  At March 31,  2003,  the
settlement amount has not been accrued.

     In December 1997, we entered into a Confidential  Settlement  Agreement and
Release  in  conjunction  with  a  Product  and  License  Agreement  to  resolve
outstanding litigation in the matter of The Brandner Corporation v. Jeannette L.
Brandner,  et al.,  Docket No. 96CV 3163 (JRS) then pending in the United States
District Court for the Southern  District of New York. The settlement  sought to
resolve all  outstanding  issues  regarding  technology  embraced by  Brandner's
Patent No. 5,303,940 (the "940 Technology"). Pursuant to the Product and License
Agreement,  we made all  required  royalty  payments  for skates  utilizing  the
technology as set forth in the License  Agreement.  In February  2002,  Brandner
filed a request with the Court seeking  royalty  payments for skates not covered
by the 940 Technology. We filed an opposition to Brandner's request. In November
2002, the Court entered judgment against us. We have appealed this ruling to the
United  States  Court of Appeals for the 2nd  Circuit.  The Court of Appeals has
remanded  the case back to the District  Court to explore our position  that the
District Court lacked  jurisdiction over any alleged continuing disputes between
the  parties  relative  to the  product  and  licensing  contract.  Although  no
assurances  can be  provided,  we are  optimistic  about the  likelihood  of our
prevailing in this matter on appeal.

     Finally,  in December 2002, a complaint was filed against us by Primagency,
Inc. in the  Supreme  Court of the State of New York,  who alleged  that we owed
$200,000 in placement fees arising out of an agency compensation agreement which
we entered  into with the  plaintiff.  Judgment  was  entered  against us in the
principal amount of $200,000, which judgment was stayed by the court in November
2003. We have filed an appeal and the matter is currently pending.

     There  are no  other  material  legal  proceedings,  either  threatened  or
current, to which we are a party, or are otherwise aware.

ITEM 2. CHANGES IN SECURITIES

     In  March  2003,  our  Board  of  Directors  declared  a  dividend  on  our
outstanding  Series A, Series B, Series C and Series D Preferred  Stock pursuant
to the  designations  and preferences of each such series of preferred stock. At
December 31, 2002,  dividends on the Series A and Series B Cumulative  Preferred
Stock were in arrears by $30,000 and $24,000,  respectively.  If such  dividends
are in  arrears,  no  dividends  shall  be  declared,  nor  shall  there  be any
redemption  of shares  having a rank lower in priority to the Series A Preferred
Stock  with  respect  to  dividends.  Dividends  on the  Series  C and  Series D
preferred  stock were in arrears  by  $174,792  and  $7,320,  respectively.  All
dividends in arrears for 2002 were paid though the issuance of 78,944  shares of
our Common Stock during the first quarter of 2003.

     In connection  with the lines of credit for  $2,000,000  and  $500,000,  we
issued  85,800  shares  of our  common  stock  valued  at $3.00 per share for an
aggregate value of  approximately  $257,000 to a director in  consideration  for
extending collateral for our bank lines of credit

                                                                              13

<PAGE>

beyond the original  maturity date.  Such amount is being  amortized as interest
expense over the remaining  life of the loans.  For the three months ended March
31, 2003,  $68,400 has been  expensed.  As of March 31, 2003,  $189,000 has been
deferred.

     Also,  during the  three-month  period ended March 31, 2003, two holders of
our Series C Preferred  Stock  elected to convert an aggregate of 24,000 of such
shares into 24,000 shares of our Common Stock.  Holders of 200 of our issued and
outstanding  Common  Stock  Purchase  Warrants  also  elected to exercise  their
warrants and we issued 200 shares of our Common Stock  applicable  thereto.  The
exercise price of these warrants was $3.75 per warrant.

Subsequent Events

     During the three  months ended June 30, 2003,  two  employees  were granted
90,250  shares  of our  Common  Stock as part of an  employee  agreement,  or as
additional compensation.

     In connection  with our lines of credit for  $2,000,000  and  $500,000,  we
issued  85,800  shares  of our  Common  Stock  valued  at $3.00 per share for an
aggregate  value of  approximately  $257,00 to a director in  consideration  for
extending  collateral for our bank lines of credit beyond the original  maturity
date. Such amount is being amortized as interest expense over the remaining life
of the loans.  For the three  months  ended  March 31,  2003,  $68,400  has been
expensed. As of March 31, 2003, $189,000 has been deferred.

     Finally,  during  the  three  months  ended  March  31,  2003,  two  of our
officers/directors  sold 250,000 shares of their Common Stock in our Company and
contributed  $375,000 of the  proceeds  from such sale to us. From April 1, 2003
through  September  30,  2003,  these  officers/directors  sold an  aggregate of
491,000 shares of their Common Stock in our Company and  thereafter  contributed
$439,203 of the  proceeds  from such sale to us.  During the three  months ended
March 31, 2003, in  consideration  of such proceeds,  we issued these two people
warrants to purchase up to 236,000 shares of our Common Stock, each such warrant
exercisable  at a price of $3.75  per  warrant.  These  warrants  were to expire
December 31, 2003; however, the two officers/directors  decided to surrender the
warrants back to us and the warrants were terminated. See "Liquidity and Capital
Resources," above.

     In  the  aforesaid   transactions,   we  relied  upon  the  exemption  from
registration  afforded by Section 4(2) and/or Regulation D promulgated under the
Securities Act of 1933, as amended, to issue the securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None

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

     None

ITEM 5. OTHER INFORMATION - None

                                                                              14

<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -

     (a) Exhibits

         31      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
                 of 2002.

         32      Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
                 of 2002.

     (b) Reports on Form 8-K.

     We did not file any reports on Form 8-K during the three-month period ended
March 31, 2003.


                                                                              15
<PAGE>

V-FORMATION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)

                                                                 March 31,
                                                                   2003
                                                               ------------
ASSETS
Current assets:
   Cash and cash equivalents                                   $    180,420
   Investments in marketable securities                                 937
   Accounts receivable, net of allowance
     for doubtful accounts of $40,000                               383,732
   Inventories                                                      301,876
   Prepaid expenses and other current assets                         33,865
                                                               ------------

        Total current assets                                        900,830

Property and equipment, net                                         231,253
Patents and trademarks, net of accumulated
   amortization of $245,374                                         673,999
Security deposits                                                    25,742
Deferred financing costs                                          1,428,585
                                                               ------------

                                                               $  3,260,409
                                                               ============
LIABILITIES
Current liabilities:
   Bank lines of credit                                        $  2,500,000
   Current maturities of long-term debt                              35,000
   Accounts payable and accrued expenses                          1,192,438
   Related party loans payable                                       52,393
   Due to stockholders/directors - loans                            418,508
                                                               ------------

        Total current liabilities                                 4,198,339
                                                               ------------

Long-term debt, net of current maturities                            35,000
                                                               ------------
Mandatory redeemable, Series A convertible 6%
   cumulative preferred stock, no par value,
   500,000 shares authorized, 500,000 shares
   issued and outstanding, aggregating liquidation
   preference of $30,000                                            500,000
                                                               ------------
STOCKHOLDERS' DEFICIT
   Preferred stock - no par value, 7,000,000
      shares authorized, 474,127 and 473,043 shares
      issued and outstanding, aggregate liquidation
      preference $303,709 (Series B $300,000,
      Series C $3,401, Series D, $305)                            2,438,857
   Common stock - no par value, 45,000,000 shares
      authorized, 19,339,843 and 18,683,094 shares
      issued and outstanding                                     40,722,553
   Additional paid-in capital                                    45,004,464
   Deferred compensation                                           (281,250)
   Accumulated deficit                                          (88,759,565)
   Treasury stock at cost, 657,833 shares                          (597,989)
                                                               ------------

        Total stockholders' deficit                              (1,472,930)
                                                               ------------

                                                               $  3,260,409
                                                               ============

See notes to condensed consolidated financial statements

                                       F-1

                                                                              16
<PAGE>

<TABLE>
V-FORMATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)

<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                        2003            2002
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
Net sales                                                           $    337,189    $    329,194
Cost of goods sold                                                       266,267         245,174
                                                                    ------------    ------------

Gross profit                                                              70,922          84,020
License/royalty income                                                        --          35,000
                                                                    ------------    ------------

                                                                          70,922         119,020
                                                                    ------------    ------------

Costs and operating expenses:
   Selling and promotional                                                96,230         217,009
   General and administrative (including stock-based compensation
      of $93,750 in 2003 and $48,825 in 2002)                            496,138         682,564
   Research and development                                              128,085          75,323
   Depreciation and amortization                                          39,108          34,976
                                                                    ------------    ------------

      Total operating expenses                                           759,561       1,009,872
                                                                    ------------    ------------

Loss from operations                                                    (688,639)       (890,852)
                                                                    ------------    ------------

Other income (expense):
   Interest income                                                           262           8,860
   Interest and financing expense                                     (1,344,947)        (16,148)
   Equity-based interest expense                                              --          (7,500)
   Settlement adjustment                                                 (47,500)         85,598
                                                                    ------------    ------------

      Total other income (expense), net                               (1,392,185)         70,810
                                                                    ------------    ------------

Net loss                                                            $ (2,080,824)   $   (820,042)
                                                                    ------------    ------------

Dividends attributable to preferred stock                                 56,148              --
                                                                    ------------    ------------

Net loss attributable to common stockholders                        $ (2,136,972)   $   (820,042)
                                                                    ============    ============

Net loss attributable to common stockholders
  per common share basic and diluted:                               $      (0.12)   $      (0.05)
                                                                    ============    ============

Weighted average shares basic and diluted                             18,547,946      15,921,149
                                                                    ============    ============
</TABLE>

See notes to condensed consolidated financial statements

                                       F-2

                                                                              17

<PAGE>

<TABLE>
V-FORMATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                        2003            2002
                                                                     -----------    -----------
<S>                                                                  <C>            <C>
Cash flows from operating activities:
   Net loss                                                          $(2,080,824)   $  (820,042)
   Adjustments to reconcile net loss to net cash used
   in operating activities:
      Depreciation and amortization                                       39,108         34,976
      Amortization of deferred compensation                               93,750             --
      Fees and commissions paid in stock and warrants                         --         48,825
      Amortization of deferred financing costs                         1,307,985             --
      Loss on factory closing and disposal of assets                          --          4,500
      Changes in:
        Accounts receivable                                             (161,687)       178,558
        Inventories                                                      128,396        160,383
        Prepaid expenses and other current assets                         13,589         (7,808)
        Security deposits                                                     --         20,188
        Accounts payable and accrued expenses                             25,795          8,270
                                                                     -----------    -----------

           Net cash used in operating activities                        (633,888)      (372,150)
                                                                     -----------    -----------

Cash flows from investing activities:
   Capital expenditures for equipment                                     (6,490)        (3,300)
   Purchase of marketable securities                                        (937)            --
                                                                     -----------    -----------

           Net cash used in investing activities                          (7,427)        (3,300)
                                                                     -----------    -----------

Cash flows from financing activities:
   Borrowings under bank lines of credit                                      --        635,000
   Advances from/(to) related parties - net                               34,786        (88,163)
   Loans from officers/directors - net                                   (15,000)        50,000
   Principal payments under long-term debts                              (35,000)      (193,301)
   Capital contribution by stockholders                                  375,000             --
   Proceeds from issuance of common stock and exercise of warrants           750        212,000
                                                                     -----------    -----------

           Net cash provided by financing activities                     360,536        615,536
                                                                     -----------    -----------

Net increase (decrease) in cash and cash equivalents                    (280,779)       240,086
Cash and cash equivalents, beginning of period                           461,199        214,736
                                                                     -----------    -----------

Cash and cash equivalents, end of period                             $   180,420    $   454,822
                                                                     ===========    ===========
</TABLE>

See notes to condensed consolidated financial statements

                                       F-3

                                                                              18
<PAGE>


V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1]  Basis of Presentation:

     The accompanying  condensed  consolidated  financial statements as of March
     31, 2003 and for the three month periods ended March 31, 2003 and March 31,
     2002, is unaudited,  but, in the opinion of the management of  V-Formation,
     Inc. (the "Company"),  contain all adjustments  which the Company considers
     necessary for the fair presentation of the Company's  financial position as
     of March 31, 2003, the results of its operations and its cash flows for the
     three month periods ended March 31, 2003 and March 31, 2002.  The condensed
     consolidated  financial  statements  included  herein have been prepared in
     accordance with the accounting  principles generally accepted in the United
     States of America for interim financial information and the instructions to
     Form 10-QSB.  Accordingly,  certain  information  and footnote  disclosures
     normally included in the financial  statements  prepared in accordance with
     generally accepted accounting principles have been omitted pursuant to such
     rules and regulations,  although  management  believes that the disclosures
     are  adequate  to make the  information  presented  not  misleading.  These
     financial  statements  should  be  read in  conjunction  with  the  audited
     financial  statements  for the year ended December 31, 2002 included in the
     Company's  Annual  Report on Form  10-KSB  filed  with the  Securities  and
     Exchange  Commission.  The results of operations for the three months ended
     March 31, 2003 and 2002 are not  necessarily  indicative  of the results of
     operations to be expected for the full year.

[2]  Business:

     V-Formation,  Inc.  manufactures through contractors and distributes inline
     skates,  roller  hockey and  paintball  sporting  goods items.  Relating to
     inline skates,  the Company  incorporates a proprietary,  patented  angular
     wheel  technology,  that  displaces  the  wheels at  alternating  16-degree
     angles.

     The   Company   was   organized   in  January   1995  and  sells   patented
     V-configuration  in-line roller skates to sporting goods retailers  located
     throughout  the United States and Canada.  The  Company's two  subsidiaries
     discontinued operations in 2001 and remain inactive.

[3]  Going Concern:

     At March 31, 2003, the Company has incurred  substantial net losses,  has a
     stockholders' deficit and has a working capital deficiency. The Company has
     been dependent upon capital raised through private placement of convertible
     debt and equity through the public  offering of the Company's  common stock
     to finance its operations.

     The Company's  viability is dependent upon its ability to raise  additional
     capital to continue as a going concern.  In June 2002, the Company obtained
     a  $500,000  line of  credit.  In  August  2002,  the  Company  obtained  a
     $2,000,000  line of credit.  At March 31, 2003, the $500,000 and $2,000,000
     lines of credit were both fully utilized and are both due December 31, 2003
     (see Note E). The Company  continues to be in discussions  with  investment
     bankers  and others to seek  extension  of due dates of lines of credit and
     additional  financing  for  operations.  The Company  believes it will have
     adequate financial  resources for at least the next 12 months.  However, no
     assurance  can be  given  that  the  Company  will  obtain  any  additional
     financing.

     In September 2002, the Company expanded its product  offerings to include a
     line of paintball products.  The Company believes that sales from paintball
     products will offset the declining sales from its existing  in-line skating
     products.  Unless the Company generates positive cash flows from operations
     in the near  future,  of which  there can be no  assurance,  the failure to
     infuse  additional  capital  into  the  Company  may  force  management  to
     significantly curtail expenditures,  which may affect the Company's ability
     to fully implement is business plan.

                                      F-4

                                                                              19
<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[3]  Going Concern (continued):

     These  issues  raise  substantial  doubt  about the  Company's  ability  to
     continue  as a  going  concern.  The  accompanying  consolidated  financial
     statements  have been  prepared on the basis that the Company will continue
     as  a  going  concern,   which  assumes  the   realization  of  assets  and
     satisfaction  of liabilities  in the normal course of business,  and do not
     include  any  adjustments   that  may  result  from  the  outcome  of  this
     uncertainty.

[4]  Inventories:

     Inventories  are  stated  at the  lower of cost or  market  on a  first-in,
     first-out basis.

[5]  Supplementary disclosures of cash flow information:

     During the three  months  ended March 31, 2003 and 2002,  the Company  paid
     interest expense of $30,189 and $19,659, respectively.

[6]  Supplementary schedules of noncash investing and financing activities:

                                                    Three Months Ended
                                                          March 31,
                                                     2003           2002
                                                 ------------   -----------
        Common stock issued as dividends
          to preferred holders                   $    236,833   $   236,154
                                                 ============   ===========

[7]  Concentration of credit risk:

     During  the three  months  ended  March 31,  2003 and  2002,  one  customer
     accounted for approximately 73% and 10% of net sales, respectively.

     At March 31, 2003, the Company had accounts receivable from one customer in
     the amount of  approximately  $354,000,  representing  90% of the  accounts
     receivable balance at that date.

     The Company uses outside manufacturers to produce its products.  During the
     three  months  ended  March 31,  2003 and 2002,  one vendor  accounted  for
     approximately 63% and 13% purchase of products, respectively.


[8]  Stock-based compensation:

     The Company accounts for stock-based employee compensation under Accounting
     Principles  Board ("APB")  Opinion No. 25,  "Accounting for Stock Issued to
     Employees",  and  related  interpretations.  The  Company  has  adopted the
     disclosure-only  provisions of Statement of Financial  Accounting Standards
     ("SFAS") No. 123,  "Accounting for Stock-Based  Compensation"  and SFAS No.
     148, "Accounting for Stock-Based Compensation - Transition and Disclosure",
     which was  released in December  2002 as an  amendment of SFAS No. 123. The
     following  table  illustrates  the effect on net loss and loss per share if
     the fair value-based method had been applied to all awards.

                                      F-5

                                                                              20

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[8]  Stock-based compensation (continued):

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                            March 31,
                                                                        2003          2002
                                                                    -----------   -----------

<S>                                                                 <C>           <C>
          Reported net loss attributable to common stockholders     $(2,136,972)  $  (820,042)
          Stock-based employee compensation expense included in
             reported net loss, net of related tax effects            1,307,985        48,825
          Stock-based employee compensation determined under the
             fair value-based method, net of related tax effects     (1,307,985)     (499,425)
                                                                    -----------   -----------

          Pro forma net loss attributable to common stockholders    $(2,136,972)  $(1,270,642)
                                                                    ===========   ===========

          Net Loss attributable to common stockholders
          per common share (basic and diluted):
             As reported                                              $(0.12)       $(0.05)
                                                                      =======       ======

             Pro forma                                                $(0.12)       $(0.08)
                                                                      =======       ======
</TABLE>

     The fair  value  of each  warrant  grant on the date of grant is  estimated
     using the Black-Scholes  option-pricing  model with no expected volatility,
     expected life of one year,  risk-free  interest rate of approximately 4% in
     2003 and 2002 and a dividend  yield of 0%. The weighted  average fair value
     of warrants granted during the three months ended March 31, 2002 was $0.11.
     There were no  warrants  granted  during the three  months  ended March 31,
     2003.

[9]  Loss per common share:

     Loss per common share is computed using SFAS No. 128, "Earnings per Share."
     SFAS No. 128 established standards for the computation,  presentation,  and
     disclosure of earnings per share. Basic loss per share amounts are computed
     by dividing the net loss by the weighted  average  number of common  shares
     outstanding  during the periods.  Treasury stock is subtracted  from shares
     issued to determine the weighted  average of shares  outstanding.  Dilutive
     earnings  per share  includes  the  potential  exercise  of stock  options,
     warrants and convertible securities. The effects of stock options, warrants
     and convertible securities have not been included in 2003 and 2002 loss per
     share computations as their effect would have been anti-dilutive. Potential
     common  shares   totaling   3,848,683  and  5,184,361,   which  consist  of
     outstanding warrants and convertible preferred shares, are considered to be
     anti-dilutive at March 31, 2003 and 2002, respectively.

[10] Reclassification:

     Certain  prior period  amounts have been  reclassified  to conform  current
     period presentation.

                                      F-6

                                                                              21

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[11] Newly Issued Accounting Pronouncements:

     In April 2002, the Financial  Accounting  Standards  Board ("FASB")  issued
     SFAS No. 145,  "Rescission of FASB Statements No. 4, 44, and 64,  Amendment
     of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds
     the requirement that all gains and losses from  extinguishments  of debt be
     classified as an extraordinary  item.  Additionally,  SFAS No. 145 requires
     that certain  lease  modifications  that have economic  effects  similar to
     sale-leaseback  transactions  be  accounted  for  in  the  same  manner  as
     sale-leaseback  transactions.  SFAS No. 145 is  effective  for the  Company
     beginning  in 2003,  and the  effect of  adoption  did not have a  material
     impact on the financial statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation - Transition and  Disclosure."  This statement amends SFAS No.
     123,  "Accounting for  Stock-Based  Compensation,"  to provide  alternative
     methods of  transition  for an entity that changes to the fair value method
     of accounting for stock-based employee compensation.  In addition, SFAS No.
     148 amends the  disclosure  provisions of SFAS No. 123 to require  expanded
     and more prominent  disclosures in annual  financial  statements  about the
     method of accounting for stock-based  compensation  and the proforma effect
     on reported results of applying the fair value method for entities that use
     intrinsic  value method.  The proforma  disclosures are also required to be
     displayed  prominently  in interim  financial  statements.  The Company did
     change  to the  fair  value  method  of  accounting  and has  included  the
     disclosure  requirements  of SFAS  No.  148 in the  accompanying  financial
     statements.

     In  January  2003,  the FASB  issued  FASB  Interpretation  46 ("FIN  46"),
     "Consolidation  of  Variable  Interest  Entities."  FIN  46  clarifies  the
     application of Accounting  Research  Bulletin 51,  "Consolidated  Financial
     Statements,"  for certain  entities that do not have  sufficient  equity at
     risk  for  the  entity  to  finance  its  activities   without   additional
     subordinated  financial  support  from  other  parties  or in which  equity
     investors  do not  have  the  characteristics  of a  controlling  financial
     interest ("variable interest entities").  Variable interest entities within
     the scope of FIN 46 will be required to be  consolidated  by their  primary
     beneficiary.  The  primary  beneficiary  of a variable  interest  entity is
     determined to be the party that absorbs a majority of the entity's expected
     losses,  receives a  majority  of its  expected  returns,  or both.  FIN 46
     applies immediately to variable interest entities created after January 31,
     2003, and to variable interest  entities in which an enterprise  obtains an
     interest  after that date.  It applies in the first  fiscal year or interim
     period  beginning  after June 15, 2003,  to variable  interest  entities in
     which an  enterprise  holds a variable  interest  that is  acquired  before
     February 1, 2003. The Company is in the process of determining what impact,
     if any,  the  adoption  of the  provisions  of FIN 46 will  have  upon  its
     financial condition or results of operations.

     In May 2003, FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
     Instruments with  Characteristics of both Liabilities and Equity." SFAS No.
     150 establishes  standards for how an issuer classifies and measures in its
     statement  of  financial   position  certain  financial   instruments  with
     characteristics of both liabilities and equity.  SFAS No. 150 requires that
     an issuer  classify a financial  instrument  that is within SFAS No.  150's
     scope  as a  liability  (or an  asset in some  circumstances)  because  the
     financial  instrument  embodies an obligation of the issuer.  Many of those
     instruments were previously  classified as equity. SFAS No. 150 requires an
     issuer to classify the following  instruments as liabilities  (or assets in
     some  circumstances):   mandatorily   redeemable   financial   instruments;
     obligations  to  repurchase  the  issuer's  equity  shares by  transferring
     assets;  and certain  obligations to issue a variable  number of its equity
     shares.  SFAS No. 150 is effective  for all financial  instruments  entered
     into or modified after May 31, 2003, and otherwise  became effective at the
     beginning of the first interim  period  beginning  after June 15, 2003. The
     Company does not anticipate the adoption of SFAS No. 150 to have a material
     effect on its consolidated financial statements.

                                      F-7

                                                                              22

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE B - BANK LINES OF CREDIT

     In August 2002, the Company  entered into a new  $2,000,000  line of credit
     agreement with the bank.  The line of credit is available  through July 30,
     2003. Amounts drawn on the line bear interest at the prime rate plus 1% but
     not to be less  than 6% at any time (6% at March 31,  2003) and is  payable
     monthly.  The obligation is collateralized  by the personal  guarantees and
     second  mortgages on specific  real estate  assets of one of the  Company's
     officers  and  one of its  directors  and by  assignments  of  patents  and
     settlement proceeds from patent infringements.  At March 31, 2003, the line
     was fully utilized. The line of credit agreement contains certain financial
     covenants,  including the  submission of timely  financial  statements.  At
     March 31,  2003,  the  Company  become  noncompliant  with such  covenants;
     however,   the  Company   received  a  waiver  from  the  lender  for  such
     noncompliance.  The Company has since provided the financial  statements to
     the bank.

     In addition,  in June 2002,  the Company  obtained a new  $500,000  line of
     credit  agreement  with a bank through July 1, 2003.  Amounts  drawn on the
     line of  credit  bear  interest  at prime  rate plus 3% (7.25% at March 31,
     2003)  and  is  payable  monthly.   The  obligation  is  collateralized  by
     certificates  of deposit and personal  guarantees  of one of the  Company's
     directors. At March 31, 2003, the line was fully utilized.

     In connection  with the lines of credit for  $2,000,000  and $500,000,  the
     Company issued  1,100,000  shares of common stock valued at $3.00 per share
     for an aggregate value of $3,300,000, to certain stockholders and directors
     in  consideration  of them  providing  collateral  of assets  and  personal
     guarantees.  Of such  amount,  $1,287,500  is recorded  as finance  charges
     during the year ended December 31, 2002.  Accordingly,  $2,012,500 has been
     recorded as deferred  financing  costs as of December 31, 2002. Such amount
     is being  amortized  as interest  expense  over the  remaining  life of the
     loans.  For the three  months  ended March 31,  2003,  $1,006,250  has been
     expensed. As of March 31, 2003, $1,006,250 has been deferred.

     In connection  with the lines of credit for  $2,000,000  and $500,000 being
     extended to December 31, 2003,  the Company  issued 85,800 shares of common
     stock  valued at $3.00 per share for an  aggregate  value of  approximately
     $257,000 to a director in  consideration  for extending  collateral for our
     bank lines of credit  beyond the original  maturity  dates.  Such amount is
     being  amortized as interest  expense over the remaining  life of the loan.
     For the three months ended March 31, 2003, $68,400 has been expensed. As of
     March 31, 2003, $189,000 has been deferred.

NOTE C - COMMITMENTS AND CONTINGENCIES

[1]  Related party transactions:

     At  December  2002,  a balance was due to an  officer/director  of $17,607.
     During the quarter ended March 31, 2003,  the  officer/director  loaned the
     Company an  additional  $70,000  of which  $35,214  was  repaid  during the
     period.  At March 31, 2003,  the net balance of $52,393 is shown as related
     party loans payable in the accompanying condensed financial statements.

     In May  2002,  a  stockholder/director  granted  an  unsecured  loan to the
     Company,  which  loan is due on or  before  December  31,  2003  and  bears
     interest at 6% per annum.  At March 31, 2003, the principal loan balance to
     the stockholder/director was $119,508.

     During  2002,  the  Company  borrowed  various  unsecured  loans from other
     stockholders  and a director  bearing  interest at 6% per annum,  leaving a
     balance of $314,000 at December 31, 2002 payable on or before  December 31,
     2003.  During the quarter  ended March 31, 2003,  $15,000 was repaid by the
     Company to a director leaving a remaining balance of $299,000.

                                      F-8

                                                                              23

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE C - COMMITMENTS AND CONTINGENCIES (CONTINUED)

[1]  Related party transactions (continued):

     These two transactions resulted in loans payable to  stockholders/directors
     of $418,508 at March 31, 2003.

     In connection with these  borrowings from the  stockholders  and directors,
     the Company issued 642,585 shares of common stock valued at $3.00 per share
     for an aggregate value of approximately  $1,928,000 to the stockholders and
     directors in  consideration  of them providing  such funds.  Such amount is
     being amortized as interest  expensed over the remaining life of the loans.
     For the year ended  December 31, 2002,  approximately  $1,461,000  has been
     expensed.  As  of  December  31,  2002,  approximately  $467,000  has  been
     deferred.  For the three  months  ended March 31,  2003,  $233,335 has been
     expensed. As of March 31, 2003, $233,335 has been deferred.

     During the three months ended March 31, 2003, two officers/directors of the
     Company sold an  aggregate  of 250,000  shares of their Common Stock in the
     Company and thereafter contributed $375,000 of the proceeds from such sales
     to the Company.  During the nine months ended September 30, 2003, the sales
     of stock by these two officers/directors aggregated 741,000 shares of their
     Common Stock. In total, they contributed $814,203 of the proceeds from such
     sales to the Company.  In consideration  thereof,  the Company issued these
     two people warrants to purchase up to 236,000 shares of Common Stock,  each
     warrant exercisable at a price of $3.75 per warrant. These warrants were to
     expire December 31, 2003. However,  the two  officers/directors  decided to
     surrender   the  warrants  back  to  the  Company  and  the  warrants  were
     terminated.  Therefore,  no compensation costs were recorded as a result of
     the issuance of grants above the fair market value at the time of grant.

[2]  Legal proceedings:

     In January 2001, the Company filed a complaint  against Benetton Group, SPA
     and Roller  Blade,  Inc.  in the United  States  District  Court,  Southern
     District of New York,  Docket No. 01 CIV 510,  wherein the Company  alleged
     willful infringement of certain of its patent rights for Toeplate with Dual
     Flanges  for  Inline  Skate  Frames.   Upon  information  and  belief,  the
     defendants  are making,  using and offering to sell inline  skate  products
     which  infringe upon the Company's  patents.  In November  2002,  the Court
     entered an Order on the defendant's Motion for Summary Judgment, dismissing
     the  Company's  claims.  The  Company  has filed a timely  notice of appeal
     requesting  reversal  of the trial  court  decision  and this matter is now
     before the US Court of Appeals for the 2nd Circuit. While no assurances can
     be provided,  the Company is optimistic  about the likelihood of success on
     appeal.

     In February  2001,  the  Company  filed a  complaint  in the United  States
     District  Court,  Southern  District  of New York,  Docket  No. 01 CV 7179,
     against adidas America, Salomon North America, Inc., Salmon S.A., adidas AG
     and adidas  Salomon AG, The Sports  Authority,  Inc.,  Princeton Ski Outlet
     Corp.,  dba  Princeton Ski Shops and Paragon  Sporting  Goods Co., Inc. for
     willful infringement of certain patents held by it, including Toeplate with
     Dual Flanges for Inline Skate  Frames.  Upon  information  and belief,  the
     defendants  are making,  using and offering to sell inline  skate  products
     which infringe on certain of the Company's  patents.  In November 2002, the
     Court  entered an Order on the  defendant's  Motion for  Summary  Judgment,
     dismissing the Company's claims. The Company intends to appeal, but has not
     yet done so as of the date of this  Report,  as no final  judgment has been
     entered.  While no  assurances  can be provided,  the Company is optimistic
     about the likelihood of success on appeal.

                                      F-9

                                                                              24

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE C - COMMITMENTS AND CONTINGENCIES (CONTINUED)

[2]  Legal Proceedings (continued):

     In April 2001,  Vertex Capital Corp. filed a complaint  against the Company
     in the United States District Court for the Southern  District of New York,
     seeking  damages for alleged breach of contract and unjust  enrichment.  In
     September 2002, the Court entered summary  judgment in the Company's favor,
     dismissing  all but one of the  plaintiff's  claims.  In January 2003,  the
     Company entered into a verbal settlement of this matter, which provided for
     the  Company to issue  warrants.  However,  when the  settlement  was being
     reduced to writing,  a dispute  concerning  the terms of the warrants to be
     issued arose and no formal settlement was reached.  The Court has dismissed
     this  action,  without  prejudice,  due to the failure of the  plaintiff to
     timely file various pleadings. No further action has taken place.

     In October  2001,  the Company  filed an action  against USCO  Distribution
     Services,  Inc.,  d/b/a USCO Logistics  ("USCO"),  which was removed to the
     United States District Court for the District of Colorado, asserting claims
     arising from USCO's failure to perform according to its "order fulfillment"
     contracts.  USCO asserted  counterclaims  totaling  approximately  $103,000
     based on its  charges  for  services  under the  contracts  and  asserted a
     possessory  lien on the  Company's  inventory  in  their  possession.  USCO
     subsequently liquidated the inventory pursuant to their possessory lien. In
     April 2003, the Company entered into a confidential  settlement  agreement,
     which partially reimbursed USCO for UPS shipping charges.

     In January  2002,  the  Company  filed a  complaint  in the  United  States
     District  Court,  Southern  District of New York,  Docket No. 010 CIV 1693,
     against K2 Corporation, wherein the Company alleged willful infringement of
     patent  rights held by it for  Toeplate  with Dual Flanges for Inline Skate
     Frames.  In August 2002,  the Company  entered  into a  settlement  of this
     matter in which the  Company  received a  compensatory  award for  previous
     infringement,  as well as a future  royalty  on  sales  for  roller  skates
     utilizing its patented  technology  and the  assignment of two patents.  As
     part  of  the   settlement,   the  Court  ordered  the   settlement   terms
     confidential.

     Thereafter,  the Company learned that,  immediately  prior to entering into
     the  aforesaid  settlement  agreement,   K2  Corporation  allegedly  signed
     agreements with both Benetton Group, SPA and Roller Blade, Inc., as well as
     adidas America,  Salomon North America,  Inc.,  Salmon S.A.,  adidas AG and
     adidas Salomon AG, which agreements  included  covenants not to sue for any
     patent infringement  relating to the patents  subsequently  assigned to the
     Company.  The Company  maintains  that K2  Corporation  never advised it of
     these agreements.  Applicable thereto, in March 2003, the Company commenced
     an action  against K2  Corporation  and its  General  Counsel in the United
     States  District   Court,   District  of  Colorado,   alleging   fraudulent
     concealment,  misrepresentation and breach of contract,  with damages to be
     established at trial.

     This matter was  subsequently  remanded to the United States District Court
     for the Western  District of  Seattle,  Washington.  As of the date of this
     Report,  this Court has issued  scheduling  orders and the matter is in the
     discovery  phase.  Trial on this matter has been  scheduled  for  September
     2004.

     Relevant  thereto,  in January  2003,  the Company  also  commenced  patent
     infringement suits against both Benetton Group, SPA and Roller Blade, Inc.,
     as well as adidas America, Salomon North America, Inc., Salmon S.A., adidas
     AG and adidas Salomon AG, The Sports Authority,  Inc., Princeton Ski Outlet
     Corp.,  dba  Princeton  Ski Shops and Paragon  Sporting  Goods Co., Inc. in
     separate  actions filed in the United States  District  Court,  District of
     Colorado, wherein the Company has alleged infringement by the defendants of
     those  patents  assigned to the Company by K2  Corporation.  Discovery  has
     commenced in these matters.

                                      F-10

                                                                              25

<PAGE>
V-FORMATION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


NOTE C - COMMITMENTS AND CONTINGENCIES (CONTINUED)

[2]  Legal Proceedings (continued):

     In December 2002, the Company filed an action in the United States District
     Court,  District  of New  Jersey,  against  KPMG  Corporate  Finance  LLC.,
     ("KPMG") alleging breach of contract and conflict of interest.  The Company
     had  previously  signed a consulting  agreement with KPMG for it to provide
     investment  banking  services.  The  Company  alleged  that KPMG  failed to
     disclose that they also represented  certain of the Company's  competitors.
     This  matter was  resolved  by the  parties  entering  into a  confidential
     settlement agreement in October 2003.

     In  December  1997,  the Company  entered  into a  Confidential  Settlement
     Agreement and Release in conjunction  with a Product and License  Agreement
     to resolve outstanding litigation in the matter of The Brandner Corporation
     v. Jeannette L. Brandner,  et al.,  Docket No. 96CV 3163 (JRS) then pending
     in the United States District Court for the Southern  District of New York.
     The  settlement   sought  to  resolve  all  outstanding   issues  regarding
     technology   embraced  by  Brandner's   Patent  No.   5,303,940  (the  "940
     Technology").  Pursuant to the Product and License  Agreement,  the Company
     made all required  royalty  payments for skates utilizing the technology as
     set forth in the License  Agreement.  In February  2002,  Brandner  filed a
     request with the Court seeking  royalty  payments for skates not covered by
     the 940 Technology.  The Company filed an opposition to Brandner's request.
     In November  2002,  the Court  entered  judgment  against the Company.  The
     Company has appealed  this ruling to the United States Court of Appeals for
     the 2nd  Circuit.  The Court of Appeals has  remanded  the case back to the
     District  Court to explore the Company's  position that the District  Court
     lacked  jurisdiction  over any  alleged  continuing  disputes  between  the
     parties  relative  to the  product  and  licensing  contract.  Although  no
     assurances can be provided,  the Company is optimistic about the likelihood
     of prevailing in this matter on appeal.

     Finally,  in December  2002, a complaint  was filed  against the Company by
     Primagency, Inc. in the Supreme Court of the State of New York, who alleged
     that the Company owed  $200,000 in placement  fees arising out of an agency
     compensation  agreement  which the Company entered into with the plaintiff.
     Judgment  was  entered  against  the  Company  in the  principal  amount of
     $200,000,  which  judgment  was stayed by the court in November  2003.  The
     Company has filed an appeal and the matter is currently pending.

     The  Company  has been  named as a  defendant  in one other  lawsuit in the
     normal course of business.  In the opinion of management,  after consulting
     with legal counsel,  the  liabilities,  if any,  resulting from this matter
     will not have a material effect on the Company's financial statements.

                                      F-11

                                                                              26

<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of Section 12 of the Securities and Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    V-FORMATION, INC.
                                    (Registrant)

                                    Dated: December 15, 2003


                                    By: s/Richard Stelnick
                                       -----------------------------------------
                                       Richard Stelnick, Chief Executive Officer


                                                                              27