U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549











(Mark
One)


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


For the
fiscal year ended December 31,
2007


OR


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


For the
transition period from ___________________ to
______________________





Commission
file number 000-29587




VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


(Name of
small business issuer in its charter)





Florida
            20-3061892(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)




50
East River Center Blvd., Suite 820


Covington, KY
41011


(Address
of principal executive offices) (Zip Code)




859.581.5111


(Registrant's
telephone number, including area code)




Securities
registered under Section 12(b) of the Exchange Act:





None




Securities
registered under Section 12(g) of the Exchange Act:




Common Stock, $0.001 par value per
share


(Title of
Class)





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o





Check
whether the issuer: (i) 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 (ii) has been
subject to such filing requirements for the past 90 days. Yes xNo o




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x





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





The
issuer's revenues for the fiscal year ended December 31, 2007 were
$0.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold as of March 21, 2007 was $29,201,599.





The
number of shares outstanding of the issuer's common stock as of March 28,
2008 was 47,030,349 shares.




Transitional
Small Business Disclosure Format (Check one): Yes o No x


-1-





TABLE OF CONTENTS




PART
      IItem 1. Description of Business
            3Item 2. Description of Property
            14Item 3. Legal Proceedings
            15Item 4. Submission of Matters to a Vote of Security
      Holders
            15PART
      IIItem 5. Market for Common Equity and Related Stockholder
      Matters
            16Item 6. Management’s Discussion and Analysis or Plan of
      Operation
            18Item 7. Financial Statements
            23Item 8. Changes In and Disagreements With Accountants
      on Accounting and Financial Disclosures
            23Item 8A. Controls and Procedures
            24PART
      IIIItem 9. Directors, Executive Officers, Promoters,
      Control Persons and Corporate Governance; Compliance With Section 16(a) of
      the Exchange Act
            25Item 10. Executive Compensation
            27Item 11. Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
            29Item 12. Certain Relationships and Related Transactions,
      and Director Independence
            30Item 13. Exhibits
            31Item 14. Principal Accountant Fees and
      Services
            31SIGNATURES






-2-




Safe
Harbor Statement under the Private Securities Litigation Reform Act of
1995





Information
included in this Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (“Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(“Exchange Act”). This information may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Valley Forge Composite Technologies, Inc. (the “Company”), to
be materially different from future results, performance or achievements
expressed or implied by any forward-looking statements. Forward-looking
statements, which involve assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
“may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend,” or “project” or the negative of these words or other variations on
these words or comparable terminology. These forward-looking statements are
based on assumptions that may be incorrect, and there can be no assurance that
these projections included in these forward-looking statements will come to
pass. Actual results of the Company could differ materially from those expressed
or implied by the forward-looking statements as a result of various factors.
Except as required by applicable laws, the Company has no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.





PART I





Item 1.  Description of
Business.





Former
Shell Company




During
fiscal year 2006, Quetzal Capital 1, Inc. (“Quetzal”), a shell company domiciled
in Florida, executed a share exchange agreement with the shareholders of Valley
Forge Composite Technologies, Inc., a Pennsylvania corporation, whereby the
shareholders of the Pennsylvania corporation took control of Quetzal, and the
Pennsylvania corporation became a wholly-owned subsidiary of Quetzal. The share
exchange transaction occurred on July 6, 2006. Quetzal’s common stock was
registered pursuant to section 12(g) of the Exchange Act, on or about August 1,
2005.





As a
result of the share exchange, Quetzal’s status as a shell corporation ceased,
and the consolidated company’s business was that of the Pennsylvania subsidiary.
Simultaneously with the share exchange, the sole director of Quetzal resigned,
and the Pennsylvania corporation’s management assumed control of Quetzal. Also
on July 6, 2006, Quetzal changed its name to Valley Forge Composite
Technologies, Inc., a Florida corporation. (Hereafter, in this Form 10-KSB, the
consolidated operations of the parent and subsidiary will be referred to as the
“Company” or “VLYF”). The Company has not materially reclassified, merged,
consolidated, purchased or sold any significant amount of assets other than in
the ordinary course of business, and the Company has not been the subject of any
bankruptcy, receivership or similar proceedings.





On August
7, 2007, our subsidiary Valley Forge Composite Technologies, Inc., a
Pennsylvania corporation, was re-domiciled as a Florida corporation and changed
its name to Valley Forge Detection Systems, Inc.
(“VFDS”).  Simultaneously, the business segments of the former
Pennsylvania company were split into new Florida corporations, with VFDS’
aerospace segment assigned to Valley Forge Aerospace, Inc. (“VFA”); VFDS’
personnel screening technologies assigned to Valley Forge Imaging, Inc. (“VFI”),
and VFDS’ development and commercialization of potential new product lines
assigned to Valley Forge Emerging Technologies, Inc. (“VFET”).  The
Company is the 100% shareholder of its four subsidiaries.


-3-





General
Lines of Business





Since its
inception in November 1996, VLYF has positioned itself to develop and acquire
advanced technologies. Between 1996 and approximately 2003, the Company won
numerous contracts to produce various mechanical devices for special aerospace
projects. Historically, all of the Company’s revenues have been derived from
such projects, and this continues to be true through the filing date of this
Form 10-KSB.





Since
September 11, 2001 the Company has focused much of its energy on the development
and commercialization of its counter-terrorism products. Such products include
an advanced detection capability for illicit narcotics, explosives, and
bio-chemical weapons hidden in cargo containers, the THOR LVX photonuclear
detection system (“THOR”).  The Company also has a distributor
agreement to sell a passenger weapons scanning device, the ODIN-ULDRIS
(Ultra-Low Dose Resonance Imaging System), and has contributed to the commercial
development and testing of ODIN.





VLYF is
also actively engaged in the electronic components business. We manufacture
prototype mechanical devices to customer specifications and also obtain and
re-sell electronic parts primarily in foreign markets.  The Company
has been engaged in this business in excess of seven years. Our recent
manufacturing activities have involved the development of bearings and star
cameras for aerospace applications.  Our parts resale business
consists of the sale to customers of electronic components, primarily
transistors, which are classified as uncontrolled. Uncontrolled parts are parts
which are not subject to special licensing and regulation by the U.S. Department
of Commerce Bureau of Export Administration prior to export from the United
States. The Company generally obtains the components from third party
manufacturers and ships the products to customers primarily located in Japan.
All of VLYF’s revenues generated in 2006 are from the sale of such components to
one of its Japanese customers. Although this is an established business segment,
the Company’s primary focus remains with the development of counter-terrorism
products.





THOR





At
present, and for the last five years, the Company has focused on the acquisition
of the rights to manufacture and distribute THOR in the United States and to
certain other countries and to develop THOR. THOR is based on a high energy
miniature particle accelerator. THOR creates photo nuclear reactions in carbon
and nitrogen isotopes present in modern explosive devices as well as in oxygen
present in narcotics. The reactions follow a predictable determined pattern or
chemical signature that can be used to identify the substance. THOR can also be
enhanced with a fast neutron detector in order to detect fissile
material.





To the
best of the Company’s knowledge, no existing device can effectively screen for
explosives, drugs, micro organisms and nuclear materials, such as plutonium and
weapons grade uranium. The Company’s partners for the development of next
generation Explosives Detection Systems (“EDS”) are the Lawrence Livermore
National Lab, which has recently been designated the “Center of Excellence” for
EDS technologies, and the P. N. Lebedev Physical Institute (LPI), the premiere
physics laboratory in the Russian Federation, which has developed THOR, a device
that clearly exceeds current requirements for screening of explosives and is the
only system of its kind.





Because
of its small size and demonstrated effectiveness at detecting explosive,
narcotic and bio weapon substances concealed in attempted concealment barriers,
the THOR technology can be applied in many security contexts including the
external scanning of an entire cargo container or truck container, and can be
outfitted to scan airport bags, land mines, and for protection of high value
targets. The data produced can be instantly transmitted to the U.S. Department
of Homeland Security and other agencies for accurate threat detection,
assessment, and knowledge dissemination.


-4-




Technology
Protection





The
Company holds the exclusive worldwide rights to THOR until 2014, but not the
rights to manufacture or sell THOR in the former Soviet Union. The Company has
an option to indefinitely extend its rights to THOR. The Company estimates that
is has at least five year’s advantage over any competition who may attempt to
build and bring to market a particle accelerator of similar size and function.
This is because THOR has ten years of research and development behind its
prototype. Each THOR unit is estimated to have an operational life of ten years.
Thus, once THOR is introduced to the market and implemented in the field, the
Company believes that THOR owners for several years are more likely than not to
not purchase a competitive product. In the meantime, the Company will be taking
steps to improve THOR and to customize it for new applications.





Research
and Development





The
Company was previously awarded a $1.8 million grant from U.S. Department of
Energy (DOE) for continued research, design, and production of the first THOR
unit. The grant funds were allocated to the Lawrence Livermore National
Laboratories and have been reflected in the Company's financial statements as
research and development costs. The Company has contributed research and
development expenses to facilitate the commercialization of THOR. These expenses
are set forth in the Company’s financial statements in this Form
10-KSB.





The
technology used to manufacture the THOR units is made possible through an
exclusive rights agreement with the P.N. Lebedev Physical Institute of the
Russian Academy of Sciences. Production equipment for initial accelerator
detector complex (ADC) units, the heart of our detection systems, is in place
and operational, and a prototype unit has been designed.





The THOR
technology continues to be tested by the DOE, and the Company will need final
DOE approval and possibly Transportation Safety Administration approval before
THOR can be commercially developed for use at airports in the United States of
America. However, such approvals are not required for the Company to build and
sell THOR units to other U.S. customers or foreign buyers, but U.S. State
Department approval will be required to sell a unit to a foreign
buyer.





Raw
Material Sources and Availability





THOR
materials and parts are available on an as needed basis from a variety of
sources in the United States of America. Accordingly, the Company does not
expect to encounter problems in acquiring the commercial quantities of
components required to build THOR.




Homeland
Security





The
Company expects that design and manufacture of homeland security and
anti-terrorism systems will grow to become the major component of the Company’s
business over the next five years as the U. S. Department of Homeland Security
and the United States Military launch and ramp up efforts to protect ports,
rail, truck, and airline cargo, high value assets, and ships from terrorists.
The THOR technology is designed to detect all typical chemical, nuclear, and bio
weapon threats to the strategic interests.


-5-





The
THOR Market





Each year
more than 16 million cargo containers arrive in the United States by ship,
truck, and rail with no effective EDS machines currently available to inspect
them. Demand for accurate inspection units is increasing monthly. Ensuring the
security of the maritime trade system is essential, given that approximately 90
percent of the world's cargo moves by container. The United States Government
will increase technology spending 8.5% through FY08. That is $68.2 billion in
five years, up from $45.5 billion. Most important, the Administration's funding
priorities dovetail well with the critical mission areas established in the
national homeland security strategy.




The
likely market for THOR includes:





·  Ports, cargo hubs, and rail
      yards·  World-wide express cargo
      facilities·  United States postal
      facilities·  United States border
      crossings


·  United States military field
      applications·  World-wide markets;
      and·  Technology licensing
      opportunities.




Major
Customer Dependency and Competition





The
Company’s successful production and sales of THOR will initially depend to a
great extent on the United States Government’s interest in THOR. The Company
will seek other buyers worldwide both to increase market share and to reduce its
dependence on the United States Government and of any branch or agency of the
United States Government. The Company believes that it will have a competitive
advantage over every known product available on the market today. The Company’s
THOR is more powerful than any known competitor’s products, is portable, and is
less expensive to operate. There is no way to estimate customer dependency at
this time.





Traditional
detection systems are based on X-rays of various energy levels, including
Nuclear Magnetic Resonance (NMR) and Quadropole Magnetic Resonance (QMR).
However, it has been determined that X-rays lack sufficient strength to
penetrate all barriers and are often absorbed or deflected before they can
properly penetrate a container. Utilizing high-energy gamma rays overcomes this
problem and as a result the Company’s device can penetrate any container. To
generate these high-energy gamma rays, a particle accelerator is
required.





Typical
high energy particle accelerators are generally the size of a warehouse. Russian
scientists, through decades of dedicated research, have developed a miniature
particle accelerator the size of a small table top. The special performance of
this machine cannot be stressed enough. It takes focused energy to penetrate 8
feet through a cargo container and to return a discernable signal. Only the
Company’s EDS system can generate the necessary power levels and generate the
necessary return signals to accurately determine the amount and composition of
explosives, drugs or other illicit material. Rather than using weak X-ray
sources or low level gamma energies created by radioactive isotopes, the Company
utilizes its miniature particle acceleratorto create high energy
gamma rays capable of penetrating any barrier and detecting explosives, unlike
any other available device. As a comparison, typical EDS machines operate at 0.5
to 1.5 million electron volts (MeV). The Company’s THOR generates 55
MeV.


-6-




Equally
important, the Company’s device, via photo-nuclear reactions, can also determine
the exact chemical nature and quantity of any explosives within the sealed
container. The system accurately penetrates concealment media and performs to
99.6% accuracy.




THOR can
be fully automated including the scanning and analysis of the nature and volume
of explosive materials, devices or their components, meaning that no human
operator is required, and it can be operated from a remote location. This
reduces the operation costs of THOR compared to any other product. Also, THOR’s
energy consumption is approximately 30 kilowatts vs. 50 kilowatts consumed by
other detection systems.




Distribution
of THOR





The
Company intends to sell THOR through direct sales means in the United States,
Canada, and Europe. The Company anticipates that it will sell THOR units through
unaffiliated dealers in the Middle East and Far East. The Company does not have
any written distribution agreements.





Effect
of Existing or Probable Government Regulations





There is
no effect on the Company's potential sales arising from government regulations,
and the Company does not anticipate any change to this in the
future.





Research
and Development Cost Estimate





The
Company estimates that during 2007 and 2006 it incurred $0 and $600,000,
respectively, on research and development activities.





Costs
and Effects of Compliance with Environmental Laws





The
Company has incurred no costs nor suffered any effects to maintain compliance
with any environmental laws.





Environmental
Impact





Food and
other objects scanned with the THOR prototype have returned to below background
radiation levels within approximately fifteen minutes. No long term effects were
evidenced.




ODIN-ULDRIS





ODIN-ULDRIS
is a Russian technology that is used as the airport passenger weapons scanning
system in several airports in Russia.  The Company believes the
technology is more accurate than any system in use in the United States
(articles hidden inside or on the backside of a passenger are detected in a
single scan with near medical quality imaging), is faster (each passenger is
scanned in five seconds), and is less inconvenient (passengers do not need to
remove clothing or shoes).  The Company has a three-year distributor
agreement for ODIN, which was executed on April 30, 2007. The Agreement may be
renewed for up to three additional one-year terms. (The Company is in the
process of renegotiating certain terms of the agreement.) Between approximately
April 2007 and February 2008, the Company developed a prototype of ODIN for
employment at U.S. airports and passenger terminals.  ODIN has passed
independent radiation examination by the Radiation Safety Academy. After the
2007 year end, the VLYF prototype was certified as being compliant with
ANSI/NIST standards.  All results for operator, cabinet leakage,
bystander exposure, and person being examined were well below U.S. Government
guidelines and standards.


-7-





The
Company has exclusive rights to distribute of ODIN in the United States, Canada,
and in specified countries in the Middle East.  The Company may
distribute ODIN on a non-exclusive basis in other countries.  ODIN is
manufactured in Russia.  Because the Company has succeeded in
commissioning and certifying a prototype ODIN unit for deployment in the United
States, ODIN is ready to be marketed for sale worldwide.





Raw
Material Sources and Availability





ODIN
materials and parts are available on an as needed basis from a variety of
sources in the United States of America and Western Europe Accordingly, the
Company does not expect to encounter problems in acquiring the commercial
quantities of components required to maintain ODIN.





The
ODIN Market





Because
ODIN has both anti-terrorism and anti-crime applications, the potential ODIN
market extends to include potentially every civilian application where quick,
accurate, full-body non-intrusive personnel scanning is
necessary.  Applications could include use at schools, government
offices, sports complexes, passenger cruise liners, airports, rail and bus
terminals, corporate offices, and any number of other circumstances where
security screening is important. However, a single ODIN unit requires ample
floor and ceiling space and can be utilized only in suitable
locations.  ODIN units are competitively priced but are not
inexpensive and therefore are suitable primarily for institutional and large
enterprise applications.





Major
Customer Dependency and Competition





The
Company believes that the ODIN is the best available personnel screening device.
The Company’s THOR is more accurate and more efficient than any known
competitor’s product. However, the Company has not made its first sale; so there
is no way to estimate customer dependency at this time.  Also we
compete with many established systems for which the owners may not be willing or
may be unable to justify incurring the significant per unit expense to replace
their existing screening technology.  Further, our competition is
often from large or well-financed domestic manufacturers able to spend large
amounts of funds on advertising, and having established sales forces with
existing clientele. Therefore, we expect to have significant domestic
competition.  We have, however, focused our marketing efforts abroad
where domestic U.S. manufacturers are not as well accepted and where European
manufactured systems such as ODIN may have easier acceptance.





Effect
of Existing or Probable Government Regulations





There is
no effect on the Company's potential sales arising from government regulations,
and the Company does not anticipate any change to this in the
future.





Research
and Development Cost Estimate





The
Company estimates that during 2007 it incurred $0 on research and
development activities.


-8-





Costs
and Effects of Compliance with Environmental Laws





The
Company has incurred no costs nor suffered any effects to maintain compliance
with any environmental laws.





Environmental
Impact





No
environmental impact has been identified.





Employees





At the
end of the reporting period, the Company had five employees. The Company
currently has three direct employees, of which two are executive managers and
one is an administrator. Louis J. Brothers is the Company’s only full-time
managerial employee.  Larry K. Wilhide, an officer and a director, is
a part-time employee. Rosemary A. Brothers, the wife of Louis J. Brothers, is
currently the Company’s only administrative employee.





Risks
Relating to an Investment in the Company





Investment
in our securities involves a high degree of risk. Investors should carefully
consider the possibility that he or she may lose his or her entire investment.
Given this possibility, we encourage investors to evaluate the following risk
factors and all other information contained in this report and its attachments
factors, in addition to other publicly available information in our reports
filed with the Securities and Exchange Commission (SEC), before engaging in
transactions in our securities. Any of the following risks, alone or together,
could adversely affect our business, our financial condition, or the results of
our operations, and therefore the value of your Company securities.





·
            Because
      the Company had a net loss from operations of $1,998,412 and $1,171,976
      for the years ended December 31, 2007 and December 31, 2006, respectively,
      we face a risk of insolvency.


·
            The
      Company has never earned substantial operating revenue. We have been
      dependent on equity financing to pay operating costs and to cover
      operating losses.


·
            Because
      we have no significant sales history and are substantially dependent on a
      major contractor to generate future sales, our future is uncertain if our
      relationship with that major contractor
fails.


·
            The
      auditors’ reports for our December 31, 2007 and December 31, 2006
      financial statements include additional paragraphs that identify
      conditions which raise substantial doubt about our ability to continue as
      a going concern, which means that we may not be able to continue
      operations unless we obtain additional funding. The financial statements
      do not include any adjustments that might result from the outcome of this
      uncertainty.


·
            The
      Company had no sales revenues in 2005 and
2007.




-9-


Risks
Related to the Company’s Business





There
is substantial doubt about the Company’s ability to continue as a going concern
due to insufficient revenues to cover our operating costs.




Our
independent auditors included a going concern paragraph in their
reports issued in connection with their audits of our December 31, 2007 and 2006
financial statements. The auditors noted in their reports that the Company has
suffered recurring losses from operations. The Company had accumulated
deficits of $4,418,843 and $2,407,723 as of December 31, 2007 and December 31,
2006, respectively. The Company had working capital of $ 201,225 and $767,288 at
December 31, 2007 and December 31, 2006, respectively, largely due to proceeds
received from a private offering of its securities. These factors raise
substantial doubt about our ability to continue as a going
concern.





We
incurred a net loss for the year end results for December 31, 2007. To the
extent that we do not generate revenue from the sale of THOR or ODIN units, then
the Company may not have the ability to continue as a going concern. The
financial statements which accompany this report do not include any adjustments
that might result from the outcome of this uncertainty.





We
expect to experience significant growth in the future and may not be able to
adapt our management and operational systems to adequately handle the potential
demand for the THOR system without unanticipated significant disruption or
expense.





We
anticipate a very positive reception from potential customers to the
introduction of our THOR units into the security marketplace. It is possible
that the demand for our product will outpace our ability to meet timely the
market demand. Since we currently have a few full time employees, our management
and labor capacity could experience a disruption in our ability to service our
customer demands, and we may not be able to resolve this situation without
significant disruption or expense. This in turn could negatively impact our
image and the value of our common stock.





We are dependent on key personnel,
specifically Louis J. Brothers and Larry K. Wilhide, and have no employment
agreements with them.





We are a
small company with a few employees and are dependent on the services of Louis J.
Brothers, our president, and Larry K. Wilhide, our vice-president. Messrs.
Brothers and Wilhide are equal shareholders and their combined voting rights are
equal to 75.6% of our outstanding common stock. We do not have employment
agreements with them, and losing either of their services would likely have an
adverse effect on our ability to conduct business. Messrs. Brothers and Wilhide
serve as Officers and Directors of the Company. Messrs. Brothers and Wilhide are
our founders. Both men have contributed to the survival and growth of the
Company for ten years. Mr. Brothers’ government and scientific contacts are
essential to the Company’s ability to diversify its product line, including our
ability to license, develop, and market future additional products unrelated to
the THOR technology. Mr. Wilhide’s engineering and drafting capabilities are
essential to our ability to manufacture the technology that we license.
Therefore, there is a risk that if either Mr. Brothers or Mr. Wilhide left the
Company, there is no guarantee that we could survive.





We cannot predict our future capital
needs and may not be able to secure additional funding.





We may
need to raise additional funds within the next twelve months in order to fund
our installation of manufacturing facilities and dealer network. We expect that
the majority of these funds will come from the sale of our common shares to
public or private investors, which could result in a significant dilution of
ownership interests by the holders of our common stock. Also, we cannot assure
you that we will be able to obtain the funding we deem necessary to sustain our
operations.


-10-





Failure on our
part to anticipate, identify, and respond effectively to changing marketplace
demands for the THOR technology may open doors for competitors to manufacture a
similar technology or to manufacture peripheral items used to implement the THOR
in various situations.





If we are
unable to obtain raw materials, or find manufacturing facilities, or respond to
our customers’ intended uses for their THOR units, our financial condition may
be harmed. Presently, we do not own any manufacturing facilities and are
searching for suitable sites. The materials used to build THOR units could
become scarce as supply issues may develop from time to time. We do not have
long term contracts with any suppliers, and even if we did, there is no
guarantee that any particular supplier would not have its own supply or
financial difficulties making it hard for them to perform their contracts.
Similarly, our customers’ intended applications for their THOR units may require
the manufacture and delivery of peripheral items that we are unable to produce
or deliver timely. Any of these situations could be detrimental to our overall
business and could encourage competitors to attempt to service our customer base
and reduce our market share. Any of these situations could negatively impact our
stock price.





Our
success depends on our ability to attract and retain key employees in order to
support our existing business and future expansion.





We are
actively recruiting qualified candidates to fill key executive positions within
the Company. There is substantial competition for experienced personnel, which
we expect to continue. We will compete for experienced personnel with companies
who have substantially greater financial resources than we do. If we fail to
attract, motivate and retain qualified personnel, it could harm our business and
limit our ability to be successful.





If we are not able to successfully
protect our intellectual property, our ability to capitalize on the value of the
THOR technology may be impaired.





Even
though we believe that there is no competitor currently close to being able to
introduce a security technology with the portability and accuracy of the THOR
technology, it is certain that imitators will appear who may create adaptive
technologies that achieve similar results to THOR. We have tried to minimize the
deconstruction and adaptation of the THOR technology by potential competitors by
deliberately not patenting the core technology because we do not want to make a
public record available that will allow anyone to easily see our methods.
However, it is certain that new technologies will appear in the marketplace
eventually, and we cannot know for certain how long our lead time will be over
potential competition. If we are not successful at protecting our intellectual
property, our ability to capitalize on the value of the THOR technology may be
impaired.




Our
products and technologies may not qualify for protection under the SAFETY
Act.




Under the
“SAFETY Act” provisions of The Homeland Security Act of 2002, the federal
government provides liability limitations and the “government contractor”
defense applies if the Department of Homeland Security “designates” or
“certifies” technologies or products as “qualified anti-terrorism technologies,”
and if certain other conditions apply. We may seek to qualify some or all of our
products and technologies under the SAFETY Act’s provisions in order to obtain
such liability protections, but there is no guarantee that the U.S. Department
of Homeland Security will designate or certify our products and technologies as
a qualified anti-terrorism technology. Our Fido Portable Explosives Detector has
been designated as a qualified anti-terrorism technology, but our other products
have been sold without such qualification, and we may continue to sell our
products and technologies without such qualification. To the extent we do so, we
will not be entitled to the benefit of the SAFETY Act’s cap on tort liability or
U.S. government indemnification. Any indemnification that the U.S. government
may provide may not cover certain potential claims.


-11-




Risks
Related to Investment





We
expect the price of our common stock to be volatile. As a result, investors
could suffer greater market losses in a down market than they might experience
with a more stable stock. Volatility in our stock may also increase the risk of
having to defend a securities class action suit, which could be expensive and
divert management’s attention from managing our business.




The stock markets generally, and the Over-The-Counter (“OTC”) Bulletin Board in
particular, have experienced extreme price and volume fluctuations that are
often unrelated and disproportionate to the operating performance of a
particular company. These market fluctuations, as well as general economic,
political and market conditions such as recessions or interest rate or
international currency fluctuations, may adversely affect the market for the
common stock of the company. In the past, class action litigation has often been
brought against companies after periods of volatility in the market price of
their securities. If such a class action suit is brought against the Company it
could result in substantial costs and a diversion of management’s attention and
resources, which would hurt business operations.





Our
stock value is dependent on our ability to generate net cash flows.





A large
portion of any potential return on our common stock will be dependent on our
ability to generate net cash flows. If we can not operate our business at a net
profit, there will be no return on shareholders’ equity, and this could result
in a loss of share value. No assurance can be given that we will be able to
operate at a net profit now or in the future.





Our
common stock value may decline after the exercise of warrants or from the
Company’s future capital raising events.





On May
14, 2007, the SEC declared effective our re-sale registration of common stock,
units, warrants, and the shares underlying the warrants.  However, all
3,000,000 Class A warrants and approximately 958,500 Class B warrants
remain unexercised.    It is our belief that warrant holders
will begin to exercise their warrants and sell their underlying shares when the
Company begins selling its ODIN units or when the Company obtains its final
approval and certification from the U.S. Department of State to manufacture and
sell the THOR LVX in the United States and abroad, or when the Company receives
its first contract to purchase THOR LVX units, or other factors may trigger
warrant exercises. Regardless of the conditions or events that trigger the
exercise of the warrants, if a large warrant exercise event occurs, there will
certainly be an increase in supply of our common stock available and a
corresponding downward pressure on our stock price.  The sales may
also make it more difficult for the Company or its investors to sell current
securities in the future at a time and price that the Company or its current
investors deem acceptable or even to sell such securities at all. The risk
factors discussed in this “Risk Factors” section may significantly affect the
market price of our stock. A low price of our stock may result in many brokerage
firms declining to deal in our stock. Even if a buyer finds a broker willing to
effect a transaction in our common stock, the combination of brokerage
commissions, state transfer taxes, if any, and other selling costs may exceed
the selling price. Further, many lending institutions will not permit the use of
this stock as collateral for loans. Thus, investors may be unable to sell or
otherwise realize the value of their investments in our securities.





We may
also enter the capital markets to raise money by selling securities. The number
of shares that could be issued for our immediate capital requirements could lead
to a large number of shares being placed on the market which could exert a
downward trend on the price per share. If the supply created by these events
exceeds the demand for purchase of the shares the market price for the shares of
common stock will decline.


-12-





The
number of shares to be made available in the registered offering could encourage
short sales by third parties, which could contribute to a future decline in the
price of our stock.





In our
circumstances, the provision of a large number of common shares to be issued
upon the exercise of warrants or sold outright by existing shareholders has the
potential to cause a significant downward pressure on the price of common stock,
such as ours, when a market develops for our common stock. This would be
especially true if the shares being placed into the market exceeds the market’s
ability to take up the increased number of shares or if the Company has not
performed in such a manner to encourage additional investment in the market
place. Such events could place further downward pressure on the price of the
common stock. As a result of the number of shares that could be made available
on the market, an opportunity exists for short sellers and others to contribute
to the future decline of our stock price. Persons engaged in short-sales first
sell shares that they do not own and, thereafter, purchase shares to cover their
previous sales. To the extent the stock price declines between the time the
person sells the shares and subsequently purchases the shares, the person
engaging in short-sales will profit from the transaction, and the greater the
decline in the stock price the greater the profit to the person engaging in such
short-sales. If there are significant short-sales of our stock, the price
decline that would result from this activity will cause our share price to
decline even further, which could cause any existing shareholders of our stock
to sell their shares creating additional downward pressure on the price of the
shares. It is not possible to predict how much the share price may decline
should a short sale occur. In the case of some companies that have been
subjected to short-sales the stock price has dropped to near zero. This could
happen to our securities.





Our
stock may be subject to significant restrictions on resale due to federal penny
stock regulations.





Our
common stock differs from many stocks because it is a “penny stock.” The SEC has
adopted a number of rules to regulate penny stocks. These rules require that a
broker or dealer, prior to entering into a transaction with a customer, must
furnish certain information related to the penny stock. The information that
must be disclosed includes quotes on the bid and offer, any form of compensation
to be received by the broker in connection with the transaction and information
related to any cash compensation paid to any person associated with the broker
or dealer.





These
rules may affect your ability to sell our shares in any market that may develop
for our stock. Should a market for our stock develop among dealers, it may be
inactive. Investors in penny stocks are often unable to sell stock back to the
dealer that sold it to them. The mark-ups or commissions charged by
broker-dealers may be greater than any profit a seller can make. Because of
large dealer spreads, investors may be unable to sell the stock immediately back
to the dealer at the same price the dealer sold it to them. In some cases, the
stock value may fall quickly. Investors may be unable to gain any profit from
any sale of the stock, if they can sell it at all.





Potential
investors should be aware that, according to the SEC Release No. 34-29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include:





·
            control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or
issuer;


·
            manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;


·
            “boiler
      room” practices involving high pressure sales tactics and unrealistic
      price projections by inexperienced sales
  persons;


·
            excessive
      and undisclosed bid-ask differentials and markups by selling
      broker-dealers; and


·
            the
      wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, along with the
      inevitable collapse of those prices with consequent investor
      losses.


-13-





Investors
must contact a broker-dealer to trade Over-the-Counter Bulletin Board or Pink
Sheet securities. As a result, investors may not be able to buy or sell our
securities at the times they may wish.





Even
though our common stock is presently quoted on the OTC Bulletin Board, our
investors may not be able to sell securities when and in the manner that they
wish. Because there are no automated systems for negotiating trades on the OTC
Bulletin Board, they are often conducted via telephone. In times of heavy market
volume, the limitations of this process may result in a significant increase in
the time it takes to execute investor orders. When investors place market orders
to buy or sell a specific number of shares at the current market price it is
possible for the price of a stock to go up or down significantly during the
lapse of time between placing a market order and its execution.





Our
warrants may not develop a trading market before their time of
expiration.





Only our
common stock is traded in the over-the-counter market.  We are not
aware of any over-the-counter market for our warrants, although a private sale
of our warrants has occurred.  Purchasers of a Class A or Class B
warrant may not be able to resell the warrant before it expires. The six-month
lifetime of our Class B warrants has been extended by the Company to April 20,
2008, and Class A warrants have a lifetime of two (2) years from May 3, 2007,
the date that the Form SB-2 registration statement in which they were registered
was declared effective by the SEC.  There is no guarantee that the
Company will extend the expiration of either the Class A or Class B
warrants.  In the event a warrant is acquired by a new purchaser, that
purchaser may not be able to resell the warrant, and, if the purchaser does not
exercise the warrant before the expiration date then in effect, the purchaser
will suffer a complete capital loss of his or her entire investment in the
warrant.





If
we fail to remain current on the reporting requirements that apply to us, we
could be removed from the OTC Bulletin Board, which would limit the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities.





Companies
with securities quoted on the OTC Bulletin Board must be reporting issuers under
Section 12 of the Exchange Act, and must be current in their reports under
Section 13 of the Exchange Act, in order to maintain price quotation privileges
on the OTC Bulletin Board. If we fail to remain current on our reporting
requirements, shares of our common stock could be removed from quotation on the
OTC Bulletin Board. As a result of that removal, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell
their securities in the secondary market.





Item 2.  Descriptionof
Property.





The
Company does not own or lease a manufacturing facility for production of THOR.
The Company intends to build at least one assembly facility in the United
States. The Company is in the process of evaluating locations and obtaining
estimates for the preparation of a suitable site.




The
Company’s projection for the timing of production is dependent on receiving
necessary government approvals to commence production, the Company’s ability to
build or obtain at least one suitable production facility, and the ability to
obtain additional capital if necessary to meet then current production goals. In
the coming months, the Company will sharpen its estimates of its capital
requirements based on the quantities of THOR units ordered and will then be able
to better project the timing of production. Initial market demand for THOR will
determine the Company’s labor and physical plant requirements.


-14-





The
Company’s headquarters office operates from leased space. On September 1, 2006,
the Company entered into a lease of 2,985 square feet of office space located at
50 E. River Center Boulevard, Suite 820, Covington, Kentucky. The space is built
without need of alteration. The minimum annual lease payments are $2,039
for 2007; $18,540 for 2008; $19,080 for 2009, and $19,575 for 2010. The
term of the lease is for five years beginning on the first day of September,
2006 and ending on the last day of August, 2011. The annual base rent increases
every 12 months starting at approximately $40,484 and ending at approximately
$53,730. Under the terms of the lease, additional rent for operating expenses of
the building shall also be payable by the Company at a pro rata share deemed to
be 0.928%. These expenses are anticipated to increase at a rate of 3% per year.
Minimum annual lease payments are: $43,387 for 2007; $49,680 for 2008; $51,163
for 2009; $52,695 for 2010; and $35,820 for 2011. Therefore, the Company’s
minimum cumulative lease obligation is $232,745 for the full five year lease
period.





On
December 1, 2007, the Company entered into a lease of 2,700 square feet of
rentable warehouse space located at 1895 Airport Exchange Blvd, Building A,
Erlanger, Kentucky. The space is built without
need for alteration. The purpose of the lease is to enable the Company
to house and permit viewings of its ODIN prototype unit.  The term of
the lease is for 37 months beginning on the first day of December, 2007 and
ending on the last day of December, 2010. Minimum annual lease payments are:
$2,039 for 2007; $18,540 for 2008; $19,080 for 2009, and $19,575 for
2010.





In the
opinion of Management, the Company’s property and equipment are adequately
insured under its existing liability policy.





Item 3.  Legal
Proceedings.





Subsequent
to the reporting period, on March 18, 2008, the Company filed suit in the U.S.
District Court for the Eastern District of Kentucky against National Concept
Licensing, Inc., Marvin Moore, Cindy L. Seide, and Richard S. Gold, jointly and
severally, seeking the recovery of $105,000 in funds paid to the defendants to
produce a television commercial and to obtain suitable time slots for a national
television advertising campaign. The services promised by the defendants were
not delivered. The Company seeks, in addition to the $105,000 paid to the
defendants, special or consequential damages, costs, pre-judgment interest,
attorneys’ fees, and such other and further relief that the court deems just and
proper.





Item 4.  Submission of Matters to a Vote ofSecurity Holders.





No
matters were submitted to a vote of securities holders during the fourth quarter
of fiscal year 2007.


-15-





PART II





Item 5.  Market for Common Equity and Related
Stockholder Matters.





Registration
Statement and Use of Proceeds





On May 14, 2007, the SEC declared
effective our registration statement on Form SB-2 (the “Registration Statement”)
which registered for re-sale 1,296,500 units (comprised of one share of common
stock and one Class B warrant), 1,296,500 shares of common stock underlying the
warrants, 1,296,500 common shares and Class B warrants, respectively, contained
in the units, all of which were owned by various investors; 5,000,000 shares of
common stock owned by promoters; and 3,000,000 Class A warrants and 3,000,000
shares underlying the Class A warrants, owned by Coast To Coast Equity Group,
Inc. (“CTCEG”), a Company consultant.  Pertaining to the units
registered in the Registration Statement, the unit offering investment
agreements contained use of proceeds restrictions.





The Company received $1,296,500 in
proceeds between August 2006 and November 2006 from the exempt offering of
units. The unit offering agreements contained use of proceeds restrictions, with
a minimum of 80% being mandated for working capital and up to 20% being
allowable for salary expense. The Company used the proceeds during 2006 and 2007
as required by the limitations contained in the unit purchase agreements. As of
March 21, 2008, 338,000 Class B warrants have been exercised netting $507,000 in
proceeds to the Company, which were applied with the same 80/20 working
capital/salary expense limitation provided in the investor
agreements.





Common
Stock





On July
20, 2007, the Company's common stock began trading on the OTC Bulletin Board
under the symbol "VLYF".





We have
75 shareholders of record. The Company has one class of common stock, $0.001 par
value per share, and has 100,000,000 authorized shares. There were 46,955,833
shares of common stock issued and outstanding at December 31, 2007. The common
stock holds voting rights of one vote per share, is entitled to dividends when
and if declared out of funds legally available therefor, but has no preemptive
rights. We did not issue or declare any dividends, and we did not issue any
securities under an equity compensation plan.





During 2007, in each quarterly period
the high and low price per share * transacted on the OTC Bulletin Board of our
common stock was:





FOURTH
      QUARTER 2007Date
            BID
            
            HIGH/LOW12/27/07
            $2.41
            
            LOW
      BID11/13/07
            5.95
            
            HIGH
      BID


-16-




THIRD
      QUARTER 2007Date
            BID
            
            HIGH/LOW07/30/07
            $13.50
            
            HIGH
      BID07/20/07
            2.00
            
            LOW
      BID





Quotations
reflect inter-dealer prices, without retail mark-up, mark-down, or commissions
and may not represent actual transactions.





*Source:
Track Data Corporation, Level II





Recent
Sales of Unregistered Securities





On
August 15, 2007, the Board of Directors of the Company issued 50,000 shares of
restricted common stock to an independent contractor of the
Company.  The Company is incurring a $242,500 expense based on the
closing price of the stock on August 15, 2007.  The independent
contractor will also receive an additional 25,000 restricted shares on August 1,
2008 and 2009, respectively, provided that the contractor is performing services
for the Company on the given dates.





On August
22, 2007, the Company entered into a “Standby Equity Agreement” with CTCEG to
sell 333,333 shares of common stock at $1.50 per share on demand of the
Company.  The Company established a price protection provision
relating to the selling price of common stock per the agreement. The provision
states that parties to the agreement are entitled to receive additional stock if
the Company sells shares of stock for less than $1.50 per share of common stock
to an investor prior to the time limitations specified which is one (1) year
from the effective date of the agreement. As of December 31, 2007, the Company
had sold 271,333 shares for $407,000.  The Company has the right to
sell an additional 62,000 shares with a value of $93,000 to CTCEG by August 21,
2008.





Subsequent
to December 31, 2007, the Company issued 12,516 common shares to third parties
as a retainer for investment banking and advertising services and sold 62,000
shares of common stock for $93,000 in cash to CTCEG pursuant to the Standby
Equity Agreement.





The
Company has certain additional obligations with respect to the rights of unit
holders. For example, the unit purchasers are protected in the event that there
is a buyout resulting in a change of control of Company management. The unit
purchasers’ purchase agreements contain a provision to the effect that: (1) if a
change of control of the Company occurs within one year after the effective date
of the registration statement; and (2) if, in the change of control transaction,
the price per share of Company common stock that will be paid to the unit holder
is less than $1.50, or, if the per share value of the unit holder’s common stock
assigned by the Company’s Board of Directors in any share exchange transaction
is less than $1.50, then the Company shall pay to the unit holder the amount in
cash equal to 1.5 times the dollar amount of the unit holder’s unit purchase
price. The Company does not anticipate a change in control event in which the
early Company investors’ returns on investment would be minimized or
extinguished such that this provision would become effective. This conditional
provision does not provide a warranty against the traditional market and
business risks of making an investment in a high-risk enterprise like our
Company.  The buyout protection provision expires on May 14,
2008.





On August
11, 2006, the Company issued a convertible debenture to Coast To Coast Equity
Group, Inc. in the amount of $42,000 in exchange for cash received. The interest
rate is 4% per annum and runs from August 11, 2006. The amounts due may be paid
in cash or cash equivalents, including but not limited to payment in the form of
the Company’s common stock valued at $1.00 per share, or Coast To Coast Equity
Group, Inc. may apply amounts due toward the cash exercise of its Class A
Warrants. The sale was conducted in a private transaction exempt from
registration pursuant to pursuant to Sections 4(2) or 4(6) of the Securities
Act.


-17-





Other
Securities





Our Class
A warrants are held by a consultant, CTCEG. There are 3,000,000 Class A warrants
with each warrant being exercisable for one share of common stock. One million
Class A warrants are exercisable when the market price per share of our common
stock reaches $1.00; one million Class A warrants are exercisable when the
market price per share of our common stock reaches $1.50, and one million Class
A warrants are exercisable when the market price per share of our common stock
reaches $2.00. The Class A warrants expire two years after the registration
statement registering these warrants for sale becomes effective, which is May
14, 2009. CTCEG is not required to pay cash to exercise in-the-money warrants.
The full text of the Consulting Agreement and the Warrant Agreement that
describes the Class A warrants in detail are incorporated by reference as
Exhibits (see List of Exhibits).





The
Company issued 1,296,500 Class B warrants as part of a unit offering in
2006. A unit contains one share of restricted common stock and one
restricted Class B warrant. These Class B warrants are exercisable at $1.50 per
share and do not contain the cashless exercise rights provided to CTCEG. The
Class B warrants, if not exercised, expire on April 20, 2008. The full text of
the Securities Purchase Agreement that describes the Class B warrants in detail
is incorporated by reference as an Exhibit (see List of Exhibits). The units had
price protection rights for a period of six (6) months from May 14, 2007, while
the common stock contained in the units have price protection rights until May
14, 2008. The price protection mechanism enables the holder of the common stock
and/or warrant to receive additional shares and/or warrants if during the
operative time period the price at which future common stock or warrants are
sold is less than the price per unit paid for his or her unit. The price
protection mechanism has not been triggered.





Neither
the warrants nor the units have a market at the present time. The Class A and
Class B warrants are freely assignable.





The
Company may offer additional securities during fiscal year 2008 as our capital
requirements dictate or as suitable funding opportunities present
themselves.




Item 6.  Management’s Discussionand Analysis or Plan of Operation.





This
Management's Discussion and Analysis or Plan of Operation (MD&A) contains
forward-looking statements that involve known and unknown risks, significant
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed, or implied,
by those forward-looking statements. You can identify forward-looking statements
by the use of the words may, will, should, could, expects, plans, anticipates,
believes, estimates, predicts, intends, potential, proposed, or continue or the
negative of those terms. These statements are only predictions. In evaluating
these statements, you should specifically consider various factors, including
the risk factors outlined below. These factors may cause our actual results to
differ materially from any forward-looking statements. Although we believe that
the exceptions reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Therefore, actual results may differ materially and adversely from
those expressed in any forward-looking statements. We undertake no obligation to
revise or update publicly any forward-looking statements for any
reason.


-18-




Plan
of Operation




Background




Subsidiaries





The
Company’s primary operating subsidiary has been Valley Forge Composite
Technologies, Inc., a Pennsylvania corporation, which was incorporated on
November 21, 1996. On August 7, 2007, Valley Forge Composite Technologies, Inc.,
a Pennsylvania corporation, was re-domiciled as a Florida corporation and
changed its name to Valley Forge Detection Systems, Inc.
(“VFDS”).  Simultaneously, the business segments of the former
Pennsylvania company were split into new Florida corporations, with VFDS’
aerospace segment assigned to Valley Forge Aerospace, Inc. (“VFA”); VFDS’
personnel screening technologies assigned to Valley Forge Imaging, Inc. (“VFI”),
and VFDS’ development and commercialization of potential new product lines
assigned to Valley Forge Emerging Technologies, Inc. (“VFET”).  The
Company is the 100% shareholder of its four subsidiaries.




Between
1996 and 2003, through VFDS, the Company won numerous contracts to produce
various mechanical devices for special projects. Since September 11, 2001,
through VFDS, the Company has focused much of its energy on the development
and commercialization of its counter-terrorism products. Such products include
an advanced detection capability for illicit narcotics, explosives, and
bio-chemical weapons using photo-nuclear reactions to initiate secondary gamma
quanta the result of which is a unique and distinguishable signal identifying
each component of a substance. This product is known as the THOR LVX
photonuclear detection system (“THOR”).  The development and
commercialization of THOR is the present focus of VFDS.




The
primary activity of VFI is to market and sell a personnel screening device known
as ODIN-ULDRIS (Ultra Low Dose Radiographic Imaging System).  On April
30, 2007, the Company signed an agreement to become a re-seller of the
ODIN-ULDRIS.





VFA is
actively engaged in the design and manufacture of attitude control instruments
for small satellites, in particular, mini momentum reaction wheels based on
VFA’s propriety composite and bearing technology. On April 20, 2007, the Company
signed a contract with NASA to manufacture a momentum/reaction wheel for
$132,000. On October 2, 2007, VFA entered into a contract with a third party to
manufacture star cameras and other aerospace components for
$678,000.





VFET
evaluates miscellaneous scientific technologies not matching the Company’s
aerospace and anti-terrorism business segments for potential
commercialization.




Merger
and Liquidity Events





On July
6, 2006, Quetzal Capital 1, Inc., a Florida corporation (“QC1”) entered into a
share exchange agreement with VFDS' predecessor corporation. Under the share
exchange agreement, QC1 issued 40,000,000 shares of its common stock to VFDS
shareholders for the acquisition of all of the outstanding capital stock of
VFDS.  For financial accounting purposes, the exchange of stock was
treated as a recapitalization of VFDS with the former shareholders of QC1
retaining 5,000,000 shares (or approximately 11%) of the public
company.  Prior to the merger, QC1 was a reporting shell corporation
with no operations. The share exchange was approved by QC1 and its sole
shareholder, Quetzal Capital Funding I, Inc. (“QCF1”), and by VFDS' board of
directors and a majority of its shareholders.   QC1 changed its
name to Valley Forge Composite Technologies, Inc., a Florida corporation, and is
referred to throughout this report as the “Company.”


-19-





Several
related agreements were also made with parties associated or affiliated with QC1
in connection with the approval of the share exchange. These agreements involved
the approval of a consulting agreement and a warrant agreement with Coast To
Coast Equity Group, Inc. (“CTCEG”), a company owned by the same shareholders who
owned QC1’s sole corporate shareholder, QCF1, and a registration rights
agreement for QCF1, CTCEG and private placement unit holders. On March 14, 2007,
QCF1 was dissolved by unanimous decision of its three shareholders, Charles J.
Scimeca, George Frudakis, and Tony N. Frudakis. This resulted in the Company
gaining two additional shareholders due to the splitting of QCF1's share of the
Company’s common stock between the three individual shareholders of
QCF1.





On August
11, 2006, the Company issued a convertible debenture to Coast To Coast Equity
Group, Inc. in the amount of $42,000 in exchange for cash received. The interest
rate is 4% per annum and runs from August 11, 2006. The amounts due may be paid
in cash or cash equivalents, including but not limited to payment in the form of
the Company’s common stock valued at $1.00 per share, or Coast To Coast Equity
Group, Inc. may apply amounts due toward the cash exercise of its Class A
Warrants. The sale was conducted in a private transaction exempt from
registration pursuant to pursuant to Sections 4(2) or 4(6) of the Securities
Act.




On July
20, 2007, the Company's common stock began trading on the OTC Bulletin Board
under the symbol "VLYF".




On August
15, 2007, the Board of Directors of the Company issued 50,000 shares of
restricted common stock to an independent contractor of the
Company.  The Company is incurring a $242,500 expense based on the
closing price of the stock on August 15, 2007.  The independent
contractor will also receive an additional 25,000 restricted shares on August 1,
2008 and 2009, respectively, provided that the contractor is performing services
for the Company on the given dates.





On August
22, 2007, the Company entered into an agreement with CTCEG to sell 333,333
shares of common stock at $1.50 per share on demand of the
Company.  The Company established a price protection provision
relating to the selling price of common stock per the agreement. The provision
states that parties to the agreement are entitled to receive additional stock if
the Company sells shares of stock for less than $1.50 per share of common stock
to an investor prior to the time limitations specified which is one (1) year
from the effective date of the agreement. As of December 31, 2007, the Company
had sold 271,333 shares for $407,000.  The Company has the right to
sell an additional 62,000 shares with a value of $93,000 to CTCEG by August 21,
2008.





Subsequent
to December 31, 2007, the Company issued 12,516 common shares to third parties
as a retainer for investment banking and advertising services, and issued 62,000
shares of common stock to CTCEG pursuant to the Standby Equity Agreement in
exchange for $93,000 in cash.





Discussion




In the
three years preceding July 2006, the month when we engaged in the Share Exchange
Agreement, the Company’s cash flow needs had been met through capital
investments from its founders. Between August 2006 and November 2006, we raised
$1,296,500 from an offering of units (the “Unit Offering”), and we received a
loan in the amount of $42,000 from Coast To Coast Equity Group, Inc. In June
2007, Mr. Brothers loaned the Company an additional $112,475, which was applied
directly to our payroll expense. Between August and December 2007, a number of
shareholders exercised 338,000 Class B warrants from which the Company realized
$507,000 in proceeds.





In December 2007, we leased warehouse
space in Erlanger, Kentucky to display our ODIN unit.


-20-





In
September 2006 we leased a new headquarters office in Covington, Kentucky, and
expended $1,230,244 on selling and administrative expenses during the year ended
December 31, 2007. Our average monthly cost of operations from January 2007
through December 2007 was $166,534. This amount includes a one time charge for a
loss on shipped inventory of $483,268. Excluding the one time charge, a non-cash
charge for stock-based consulting of $284,900 and a non-cash charge of $242,500
for stock based compensation, the monthly cost of operations from January 2007
through December 2007 was $82,312.




As of
December 31, 2007, we have approximately $88,656 in cash remaining. Of this
amount, $88,656 is available for use as payroll expense pursuant to the terms of
the investment agreements entered into with purchasers of units in the Unit
Offering.




We had
958,500 Class B warrants outstanding as of December 31, 2007, which, if all are
exercised, will infuse an additional $1,437,000 in funds to the Company. As of
March 21, 2008, 338,000 Class B warrants have been exercised netting $507,000 in
proceeds to the Company. The Class B warrants' contractual expiration date of
November 13, 2007 has been extended to April 20, 2008 by decision of the Board
of Directors. We also have 3,000,000 Class A warrants outstanding, but at the
current market price for our common stock, all of the Class A warrants can be
exercised on a cashless exercise basis for which no funds will be received by
the Company. The Class A warrants expire on May 14, 2009. Of course, the Company
does not control whether any warrants will be exercised.




At this
rate, and barring any material changes to our capital requirements, we
anticipate being able to sustain our operations for another month, at which
time we will have to obtain additional capital funding. Thus, our ability to
sustain ourselves on our current cash position depends almost entirely on: (1)
how long the government approval process may take and how high the initial
market demand is for the THOR system, and (2) how long it takes to realize
revenue from sales of the ODIN ULDRIS unit; and (3) whether additional cash
infusions are obtained via the exercise of outstanding warrants or from other
sources. While the receipt of purchase orders for the THOR will dictate our
initial production needs, the timing of the government approval process is
largely out of our control. Likewise, we have just begun to market the ODIN
ULDRIS system and do not have a forecast of how long it may take to realize
revenues from any sales of such units.




Other
than for general operational and payroll expenses, which may also include the
payment of additional research and development and marketing expenses, the
Company’s day-to-day operations are not expected to change materially until such
time as we obtain the necessary government approvals to commence production and
then the delivery of the first commercial THOR devices. We do not anticipate
having significant additional research and development expenses during the next
twelve months, but such expenses may be necessary to facilitate the obtaining of
U.S. Government approvals before we can commence production of the THOR system
or may be necessary to facilitate the execution of our recent contract with
NASA.




In the
coming months, the Company will sharpen its estimates of its capital
requirements based on the quantities of THOR and ODIN ULDRIS units ordered and
based on reliable information enabling us to better predict when government
approvals might be obtained for the THOR system.





Critical Accounting Policies and
Estimates




The
accompanying consolidated financial statements have been prepared by the
Company. The Company’s financial statements are consolidated with the results of
its subsidiaries. All material inter-company balances and transactions have been
eliminated.


-21-




Our
financial statements have been prepared according to accounting principles
generally accepted in the United States of America. In preparing these financial
statements, we are required to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities. We evaluate these estimates on
an on-going basis. We base these estimates on historical experiences and on
various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions. Our Management has
discussed these estimates and assumptions with our finance and audit committee.
At this point in our operations, subjective judgments do not have a material
impact on our financial statements except as discussed in the next
paragraph.




This
section of our Form 10-KSB contains a description of our critical accounting
policies as they pertain to: the Company’s business as a going concern, our use
of estimates, our fair valuation of financial instruments, our revenue
recognition policy, and to the effect on our financial statements of recent
accounting pronouncements. A more comprehensive discussion of our critical
accounting policies, and certain additional accounting policies, can be found in
Note 1 to the financial statements.




Going
Concern




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The attainment of sustainable profitability
and positive cash flow from operations is dependent on certain future events.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.




Use of
Estimates




In
preparing financial statements in conformity with generally accepted accounting
principles, Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from those
estimates.




Fair Value of Financial
Instruments




The
Company’s financial instruments consist of cash, security deposits, due to
shareholders, accounts payables, accrued expenses and a convertible debenture.
The carrying values of these financial instruments approximate the fair value
due to their short term maturities.




Revenue
Recognition




The
Company only recognizes revenue when persuasive evidence of a customer or
distributor arrangement exists, receipt of goods by the customer occurs, the
price is fixed or determinable, collection is reasonably assured and upon the
customer acceptance of the goods.




Persuasive
evidence of a customer or distributor arrangement exists upon the Company’s
receipt of a signed purchase order from the customer, the Company’s shipment of
the goods as specified in the purchase order and the customer’s receipt of the
goods ordered.


-22-




A sales
agreement is initiated when the customer submits a signed purchase order which
states the product(s) ordered, price, quantity and the terms and conditions of
sale. Acceptance occurs upon the earlier of; (1) the Company’s receipt of a
written acceptance of the goods from the customer; or (2) expiration of the time
period stated in each purchase order for final payment which may vary with each
order. The customer has a right of return from the date that the shipment occurs
until the final payment date stated in the purchase order. Revenue is only
recognized upon completion of product testing by the customer, but not later
than 180 days after product shipment occurs.




Recent Accounting
Pronouncements




The
Company does not believe that recent accounting pronouncements will have a
material affect on the content or presentation of its financial
statements.




The
Company does not believe that any other recently issued, but not yet effective
accounting standards will have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.




Off-Balance Sheet
Arrangements




The
Company has not had any off-balance sheet arrangements.





Item 7. FinancialStatements.





See index
to Consolidated Financial Statements beginning on page F-1 of this Form
10-KSB.





Item
8.   Changes In and Disagreements With Accountants on Accounting
and Financial Disclosures.





During
2005 and up to July 6, 2006. VLYF's independent auditing firm was Morison Cogen,
LLP. During 2005 and 2006, the holding company's independent auditing firm was
Sherb & Co., LLP. On July 6, 2006, following the Share Exchange transaction,
the company elected to continue to use Sherb & Co., LLP as its independent
auditing firm. There were no disagreements with Morison Cogen, LLP.


-23-




Item
8A. Controls and Procedures.





Disclosure Controls and
Procedures












Management's Report on Internal
Control over Financial Reporting
  Our management is responsible for establishing and
maintaining adequate control over financial reporting (as defined in Rules
13a-15(f) promulgated under the Exchange Act.  Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2007.  In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway
Commission  ("COSO") in Internal
Control-Integrated Framework. Our management has concluded that, as of
December 31, 2007, our internal control over financial reporting is effective
based on these criteria.
  Changes in Internal Control over
Financial Reporting
 Our management has also evaluated our internal
control over financial reporting, and there have been no significant changes in
our internal controls or in other factors that could significantly affect those
controls subsequent to the date of our last evaluation.


-24-




PART III





Item 9.  Directors, Executive Officers,
Promoters, Control Persons and Corporate Governance; Compliance with Section
16(a) of the Exchange Act.





As of
March 2007, the Company has a board of directors composed of two individuals,
Louis J. Brothers and Larry Wilhide. The current board members, who are also the
majority shareholders of the Company and are the Company’s only officers, will
hold office indefinitely.





Information
about the current directors and executive officers of the Company is as
follows:




Name
            Age
            PositionLouis
      J. Brothers
            55
            Chairman
      of the Board ofDirectors,
      Chief Executive Officer, and PresidentLarry
      K. Wilhide
            59
            Vice-President,
      Engineering, and Director





Louis
J. Brothers





A
founding shareholder of VLYF, since 1997 Louis J. Brothers has been the
president and chairman of the board of directors of VLYF, and he became Chairman
of the Board of Directors upon execution of the July 6, 2006 Share Exchange
Agreement. Mr. Brothers has more than 20 years of experience in marketing,
marketing support, product management and logistics in industrial products. Mr.
Brothers has extensive international business experience having worked in
Europe, Russia, China and Japan. In China, he was part of the management team
that supervised the construction of three large industrial plants. Mr. Brothers
was responsible for increasing his products’ market share in the bearing
industry from 2% to 95%, in the process making valuable contacts, building
business relationships with private manufacturers and the research communities
and gaining important knowledge in the manufacturing and technology market
segments.





From 1995
to 1999, Mr. Brothers was in charge of mid-Atlantic sales for Novamax. From 1994
to 1995, Mr. Brothers was the national sales manager of Process Research,
located in Ewing, New Jersey. From 1978 to 1994 Mr. Brothers was an assistant
product manager and then the product manager of two to four product lines at
Quaker Chemical, located in Conshohosken, Pennsylvania. Mr. Brothers holds a
Bachelor of Science Degree in Interdisciplinary Sciences from the University of
Cincinnati.




Larry
K. Wilhide





Larry K.
Wilhide is a founder of VLYF, and since its inception in 1997 has been a
director and the vice-president of engineering. On July 6, 2006, Mr. Wilhide
became a director of the Company upon the execution of the Share Exchange
Agreement. Mr. Wilhide is a part-time employee of VLYF and since 2000 continues
to work for SKF Bearing, Inc. in Hanover, Pennsylvania as a sub-contractor where
he performs general engineering and design services.


-25-




Mr.
Wilhide has worked as a design engineer on projects for aerospace bearings for
over 25 years including cage, retainer design and spherical bearing
refurbishing. He has supported general machining and grinding operations. He was
team leader for computer aided design and computer numerical control
programming. Additionally, Mr. Wilhide served in the U.S. Army in Korea where he
held primary responsibility for arming nuclear warheads. Mr. Wilhide holds a
Bachelors Degree in Mechanical Engineering.





Corporate
Governance





The Board
of Directors does not hold formal meetings. Because we have only two officers
and directors, meetings of the board are usually conducted informally by
telephone and on an as-needed basis.  We have never held an annual
meeting of shareholders because all actions requiring shareholder approval have
been conducted by the written consent of our majority shareholders, Messrs.
Brothers and Wilhide.  We anticipate that we will begin to hold annual
shareholder meetings when we enter into the operational phase of our core
business plan.  Likewise, until we appoint additional directors to the
Board of Directors, which is not likely to occur until enter into the
operational phase of our core business plan, we do not anticipate holding
regularly scheduled board meetings.





Audit
Committee and Audit Committee Financial Expert





Our
two-member board of directors does not have an audit committee or an audit
committee financial expert sitting on the board.  Due to our stagnant
growth during 2007, we did not expand our board of directors as expected to
include an audit committee or an audit committee financial expert. It is not
likely that we will expand the board in 2008 to include an audit committee or an
audit committee financial expert unless and until we enter into the operational
phase of our core business plan.





Board
of Directors Nominating Committee





We do not
have a standing board of directors nominating committee or a committee
performing similar functions. Messrs. Brothers and Wilhide at all times from the
inception of VLYF to the present time have been the directors of this Company.
It is Management’s expectation that the initial additions to membership on our
board of directors will be by appointment by Messrs. Brothers and Wilhide, and
there will not be a need to have a nominating committee at least until we have
first expanded the membership on our board.




Compliance
with Section 16(a) of the Exchange Act





Section
16(a) of the Exchange Act requires that the Company’s directors and executive
officers and persons who beneficially own more than ten percent (10%) of a
registered class of its equity securities file with the SEC reports of ownership
and changes in ownership of its common stock and other equity securities.
Executive officers, directors, and greater than ten percent (10%) beneficial
owners are required by SEC regulation to furnish the Company with copies of all
Section 16(a) reports that they file. Based solely upon a review of the copies
of such reports furnished to us or written representations that no other reports
were required, the Company believes that, during 2007 all filing requirements
applicable to its executive officers, directors, and greater than ten percent
(10%) beneficial owners were met.


-26-





Code
of Ethics





In August
2006, the Company adopted a Code of Ethics. The Code of Ethics applies to the
Company’s officers, director level employees and certain other designated
employees and independent contractors. A copy of the Code of Ethics, our Code of
Conduct, and our Insider Trading Policy are available on our website at
www.VLYF.com under the “Investor Relations” tab.





Item 10. ExecutiveCompensation.





The
Company paid compensation to each of the directors and executive officers in the
following amounts during fiscal year 2007:


Name
            
            Salary
            
            PositionLouis
      J. Brothers
            
            $
            0
            
            Chairman
      of the Board, Director128,400
            
            PresidentLarry
      K. Wilhide
            
            
            98,400
            
            Vice-President0
            
            Director





Messrs.
Brothers and Wilhide each have the use of a Company car and each are protected
by the Company’s indemnification policy for directors and officers (set forth
below). No other fringe benefits for either of them have been awarded in fiscal
year 2007 or are contemplated at this time. No other form of compensation or
incentive compensation was paid or awarded to either of them in fiscal year
2007.




SUMMARY
COMPENSATION TABLE





Annual
      Compensation
            
            Long-Term
      CompensationAwards
            
            
            PayoutsName
      and
              Principal
      Position
            Year
            Salary
            
            
            Bonus
            
            
            Other
              Annual
              Compensation
            Restricted
              Stock
              Award(s)
            Securities
              Underlying
              Options/SARs
            
            
            LTIP
              Payouts
            All
      Other
              CompensationLouis J.
      Brothers
            
            
            2007
            
            
            $
            128,400
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -Chief Executive
      Officer,
            
            
            2006
            
            
            $
            57,000
            
            
            
            
            
            -
            
            
            
            
            $
            194,843
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -President and
      DirectorLarry K.
      Wilhide
            
            
            2007
            
            
            $
            98,400
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -Vice-President and
      Director
            
            
            2006
            
            
            $
            30,000
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            -




-27-




Payments
to Management





In the
future, Mr. Brothers and all other employees will receive commissions from their
individual efforts resulting in customer purchase orders for THOR and ODIN
units.





Indemnification
of Directors and Officers





Our
bylaws contain the broadest form of indemnification for our officers and
directors permitted under Florida law. Our bylaws generally provide as
follows:





The
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by, or in the right of the Company) by reason of the fact that he or she is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of any
other corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees), judgments, fines, amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, including any appeal thereof, if he or she acted in
good faith in a manner he reasonably believed to be in, or not opposed to the
best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of no contenders or its equivalent shall
not create, of itself, a presumption that the person did not act in good faith
or in a manner which he or she reasonably believed to be in, or not opposed to,
the best interests of the Company or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.





To the
extent that a director, officer, employee or agent of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in any defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses, including attorneys
fees, actually and reasonably incurred by him in connection
therewith.




Any
indemnification shall be made only if a determination is made that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth above. Such determination shall be made either (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) by the shareholders who were
not parties to such action, suit or proceeding. If neither of the above
determinations can occur because the Board of Directors consists of a sole
director or the Company is owned by a sole shareholder, which is controlled by
the sole officer and director, then the sole officer and director or sole
shareholder shall be allowed to make such determination.





Expenses
incurred in defending any action, suit or proceeding may be paid in advance of
the final disposition of such action, suit or proceeding as authorized in the
manner provided above upon receipt of any undertaking by or on behalf of the
director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that she is entitled to be indemnified by the
Company.





The
indemnification provided shall be in addition to the indemnification rights
provided pursuant to Chapter 607 of the Florida Statutes, and shall not be
deemed exclusive of any other rights to which any person seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent of the Company and shall inure to the benefit of the
heirs, executors and administrators of such a person.




-28-


Item 11. Security Ownership of Certain
Beneficial Ownersand Management and Related Stockholder
Matters.




The
Company has 46,955,833 shares of common stock issued and outstanding. The table
below assumes and projects the exercise of 3,000,000 Class A warrants by Coast
To Coast Equity Group, Inc., which raises the issued and outstanding shares to
49,955,833. Beneficial owners and management will have the following holdings of
the Company following the exercise of the Class A warrants:





TITLE
      OF
              CLASS
            NAME
      AND ADDRESS OF
              BENEFICIAL
      OWNER
            AMOUNT
      &
              NATURE
              OF
      BENEFICIAL
              OWNERSHIP
            PERCENT
      OF CLASSCommon
      Stock ($0.001 par value)
            Louis
      & Roe Brothers, TEN ENT
              50
      E. River Center Boulevard, Suite 820, Covington, KY 41011
            18,880,000
            37.8%Common
      Stock
              ($0.001
      par
              value)
            Larry
      & Pat Wilhide, TEN ENT
              50
      E. River Center Boulevard, Suite 820, Covington, KY 41011
            18,880,000
            37.8%Common
      Stock ($0.001 par value)
            Coast
      To Coast Equity Group, Inc. (1)
              9040
      Town Center Parkway
              Bradenton,
      FL 34202
            3,000,000
            6.0%Common
      Stock ($0.001 par value)
            Charles
      J. Scimeca (1)
              9040
      Town Center Parkway
              Bradenton,
      FL 34202
            1,666,666.6
            3.3%Common
      Stock ($0.001 par value)
            Tony
      N. Frudakis (1)
              1621
      West University Parkway
              Sarasota,
      FL 34243
            1,666,666.6
            3.3%Common
      Stock ($0.001 par value)
            George
      Frudakis (1)
              7935
      213th St E
              Bradenton,
      FL 34202-6301
            1,666,666.6
            3.3%Common
      Stock
              ($0.001)
      par
              Value
            Directors
      and Executive Officers as a Group
            37,760,000
            75.6%(1)
            The
      shareholders of Coast To Coast Equity Group, Inc. are Tony N. Frudakis,
      George Frudakis, and Charles J. Scimeca. Each of these individuals also
      directly owns 1,666,666.6 shares of the Company’s common stock. Coast To
      Coast Equity Group, Inc. is a party to a consulting agreement and warrant
      agreement with the Company which could enable its shareholders as a group,
      as beneficial owners, to acquire a total of 15.9% of the Company’s issued
      and outstanding common stock on a non-diluted basis.
              
              Coast
      To Coast Equity Group, Inc. also holds a debenture convertible into common
      stock, but the conversion, if exercised, would not materially change its
      percentage equity ownership of the
Company.





There are
no arrangements or agreements providing for the right to acquire additional
beneficial ownership by the Company’s management. There are no preconceived
arrangements providing for a specific change of control of management of the
Company upon the happening of certain future events.


-29-





Item 12. Certain Relationships
and Related Transactions, and Director Independence.





Director
Independence





Our two
directors are Messrs. Brothers and Wilhide. Neither director can be considered
independent.





Transactions
with Promoters





The
Company has a consulting contract with Coast To Coast Equity Group, Inc. The
contract is for a two-year period. The full text of the contract is attached to
the Company’s Form 8-K filed on July 11, 2006 and is incorporated herein by
reference. The terms of the contract generally provide that Coast To Coast
Equity Group, Inc. will not be paid cash but will be paid three million warrants
to purchase up to three million shares of Company common stock. The warrant
agreement also is attached to the Company’s Form 8-K filed on July 11, 2006 and
is incorporated herein by reference.





Coast To
Coast Equity Group, Inc., Charles, J. Scimeca, Tony N. Frudakis, and George
Frudakis are protected from dilution of their percentage ownership of the
Company. Non-dilution rights, as defined by the registration rights agreement
(the full text of the agreement is attached to the Company’s Form 8-K filed on
July 11, 2006 and is incorporated herein by reference), mean that these parties
shall continue to have the same percentage of ownership and the same percentage
of voting rights of the class of the Company’s common stock regardless whether
the Company or its successors or its assigns may thereafter increase or decrease
the authorized number of shares of the Company’s common stock or increase or
decrease the number of shares issued and outstanding. The non-dilution rights,
by the terms of the registration rights agreement, will continue in effect for a
period two years from May 14, 2007, the effective date of the Form SB-2
registration statement which registers their Company securities for
re-sale.





On August
11, 2006, the Company issued a convertible debenture to CTCEG in the amount of
$42,000 in exchange for cash received. The interest rate is 4% per annum and
runs from August 11, 2006. The amounts due may be paid in cash or cash
equivalents, including but not limited to payment in the form of the Company’s
common stock valued at $1.00 per share, or CTCEG may apply amounts due toward
the cash exercise of its Class A Warrants. The sale was conducted in a private
transaction exempt from registration pursuant to pursuant to Sections 4(2) or
4(6) of the Securities Act.





On August
22, 2007, the Company entered into an agreement with CTCEG to sell 333,333
shares of common stock at $1.50 per share on demand of the
Company.  The Company established a price protection provision
relating to the selling price of common stock per the agreement. The provision
states that parties to the agreement are entitled to receive additional stock if
the Company sells shares of stock for less than $1.50 per share of common stock
to an investor prior to the time limitations specified which is one (1) year
from the effective date of the agreement. As of December 31, 2007, the Company
had sold 271,333 shares for $407,000.  The Company has the right to
sell an additional 62,000 shares with a value of $93,000 to CTCEG by August 21,
2008.





Relationships
to Directors





At
December 31, 2007 the Company owed Louis J. Brothers, the Company’s president
and a major shareholder, $216,558 for advances made to the Company. Such amount,
which is included in the due-to-shareholders balance on the balance sheet at
December 31, 2007, earns 6% annual interest compounded quarterly and is due on
demand.


-30-




The
Company paid $24,000 for computer related services to Louis C.
Brothers, a son of director Louis J. Brothers.  Louis C. Brothers is not an
employee of the Company.





The
Company paid Rosemary A. Brothers, the wife of director Louis J. Brothers,
$27,000 for administrative services. Rosemary A. Brothers is, as of the filing
date of this report, the Company’s only administrative employee.





Item 13.Exhibits.





Exhibits
are listed in the Index of Exhibits on page 33.





Item 14. Principal Accountant Feesand Services.





The
following table sets forth the fees billed by our principal independent
accountants for each of our last two fiscal years for the categories of services
indicated.




Year
      Ended December 31,2007
            
            
            2006CategoryAudit
      Fees1
            
            $
            25,000
            
            
            $
            25,000Audit
      RelatedFees2
            
            
            15,000
            
            
            
            5,000All
      other fees3
            
            
            -
            
            
            
            -





1
            Consists
      of fees billed for the audit of our annual financial statements, review
      our Form 10-KSB and services that are normally provided by the accountant
      in connection with statutory and regulatory filings or
      engagements.





2
            Consists
      of fees billed for the review of our quarterly financial statements,
      review of our forms 10-QSB and 8-K and services that are normally provided
      by the accountant in connection with non year end statutory and regulatory
      filings on engagements.





3
            The
      services provided by our accountants within this category of advice and
      other services relating to SEC matters, registration statement review,
      accounting issues and client
conferences,





Morison
Cogen, LLP was retained to audit our consolidated financial statements for the
years ended December 31, 2005 and 2004. On July 6,2006, we dismissed Morison
Cogen, LLP as our independent accountant and Sherb & Co., LLP was engaged as
our new independent public accountants for the year ended December 31,
2006.


-31-




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




Valley
      Forge Composite Technologies, Inc.Date: March
      30, 2008
              By:
              /s/ Louis J. BrothersLouis J. BrothersPresident,
      Chief Executive Officer, Chief Financial
                Officer,
      and Chairman of the Board
                (Principal
      Executive Officer, Principal Financial and Accounting
    Officer)






In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Date: March
      30, 2008
                By:
                /s/ Louis J. BrothersLouis J. BrothersPresident,
      Chief Executive Officer, Chief Financial
                  Officer,
      and Chairman of the Board Date: March
      30, 2008
                    By:
                    /s/ Larry K. WilhideLarry K. WilhideDirector







-32-


INDEX
      OF EXHIBITSExhibit
      No.
            Description2.1
      *
            Share
      Exchange Agreement Between Quetzal Capital 1, Inc. and the Shareholders of
      Valley Forge Composite Technologies, Inc., dated July 6,
    20063(i)(1
      * )
            Articles
      of Amendment by Quetzal Capital 1, Inc.4.3
      *
            Valley
      Forge Composite Technologies, Inc.’s Notice of Shareholder Action and
      Information Statement4.4
      *
            Articles
      and Plan of Share Exchange Between Quetzal Capital 1, Inc., a Florida
      corporation, and Valley Forge Composite Technologies, Inc., a Pennsylvania
      corporation, filed with the Florida Department of State, Division of
      Corporations, effective July 6, 20064.5
      *
            Articles
      and Plan of Share Exchange Between Quetzal Capital 1, Inc., a Florida
      corporation, and Valley Forge Composite Technologies, Inc., a Pennsylvania
      corporation, filed with the Pennsylvania Department of State, Corporation
      Bureau, effective July 6, 200610.1
      *
            Registration
      Rights Agreement, dated July 6, 200610.2
      *
            Consulting
      Agreement between Coast To Coast Equity Group, Inc. and Quetzal Capital 1,
      Inc., dated July 6, 200610.3
      *
            Warrant
      Agreement between Coast To Coast Equity Group, Inc. and Quetzal Capital 1,
      Inc., dated July 6, 200621.1
            List of Subsidiaries31.1
            13a-14(a)-15d-14(a) Certification - Louis J
      Brothers31.2
            13a-14(a)-15d-14(a) Certification - Louis J
      Brothers32.1
            18 U.S.C. § 1350 Certification - Louis J
      Brothers32.2
            18 U.S.C. § 1350 Certification - Louis J
      Brothers




* Incorporated by reference from Form 8-K
filed July 11, 2006.





-33-


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PAGEReport of Independent Registered Public Accounting
      Firm,
            F-2Consolidated Balance Sheet as of December 31,
      2007
            F-3Consolidated Statements of Operations for the years ended
      December 31, 2007 and 2006
            F-4Consolidated Statements of Changes in Stockholders' Equity
      (Deficit) for the years ended December 31, 2007 and
    2006
            F-5Consolidated Statements of Cash Flows for the years ended
      December 31, 2007 and 2006
            F-6Notes to Consolidated Financial Statements
            F-7






F-1


REPORT
OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM











To the
Board of Directors


Valley
Forge Composite Technologies, Inc.





We have
audited the accompanying consolidated balance sheet of Valley Forge Composite
Technologies, Inc. as of December 31, 2007 and the related consolidated
statements of operations, changes in shareholders’ equity (deficit) and cash
flows for the years ended December 31, 2007 and 2006. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Valley Forge Composite
Technologies, Inc. as of December 31, 2007 and 2006 and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management’s plan in regard to these matters is also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.







March
      27, 2008
              By:
              /s/ SHERB
      & CO., LLPSHERB
      & CO., LLPCertified
      Public AccountantsBoca
      Raton, Florida







F-2


VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 CONSOLIDATED
BALANCE SHEET
 DECEMBER
31, 2007
 ASSETSCurrent
      assets:Cash
                
                $
                88,656Inventory
                
                
                460,114Prepaid
      expenses
                
                
                42,659Deposits
      with vendors
                
                
                222,735Total
      current assets
                
                
                814,164Property
      and equipment, net
                
                
                59,747Other
      assetsSecurity
      deposit
                
                
                5,535Total
      Assets
                
                $
                879,446LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
                
                $
                128,381Note
      payable
                
                
                160,000Deferred
      revenue
                
                
                66,000Convertible
      debenture
                
                
                42,000Due
      to shareholder
                
                
                216,558Total
      current liabilities
                
                
                612,939Shareholders'
      equity:Common
      stock, $.001 par value, 100,000,000shares
      authorized; 46,955,833 sharesissued
      and outstanding
                
                
                46,956Additional
      paid-in capital
                
                
                4,638,394Accumulated
      deficit
                
                
                (4,418,843
                )Total
      shareholders' equity
                
                
                266,507Total
      Liabilities and Shareholders' Equity
                
                $
                879,446The
      accompanying notes should be read in conjunction with the consolidated
      financial statements
 F-3







VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the years ended December 31,2007
            
            
            2006Sales
            
            $
            -
            
            
            $
            417,592Costs
      and expensesCost
      of sales
            
            
            -
            
            
            
            152,615Loss
      on shipped inventory
            
            
            483,268
            
            
            
            -Research
      and development
            
            
            -
            
            
            
            600,000Selling
      and administrative expenses
            
            
            1,230,244
            
            
            
            694,503Stock
      based consulting
            
            
            284,900
            
            
            
            142,4501,998,412
            
            
            
            1,589,568Loss
      from operations
            
            
            (1,998,412
            )
            
            
            (1,171,976
            )Other
      incomeInvestment
      income
            
            
            11,186
            
            
            
            5,636Interest
      expense
            
            
            (23,894
            )
            
            
            (13,418
            )(12,708
            )
            
            
            (7,782
            )Net
      loss
            
            $
            (2,011,120
            )
            
            $
            (1,179,758
            )Loss
      per common shareBasic
            
            $
            (0.04
            )
            
            $
            (0.03
            )Diluted
            
            $
            (0.04
            )
            
            $
            (0.03
            )Weighted
      Average Common Shares OutstandingBasic
            
            
            46,482,853
            
            
            
            45,212,098Diluted
            
            
            46,482,853
            
            
            
            45,212,098The
      accompanying notes should be read in conjunction with the consolidated
      financial statements




F-4


VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)YEARS
      ENDED DECEMBER 31, 2007 AND 2006AdditionalCommon
            
            
            Number
            
            
            Paid-in
            
            
            AccumulatedStock
            
            
            of
      Shares
            
            
            Capital
            
            
            Deficit
            
            
            TotalBALANCE
      AT JANUARY 1, 2006
            
            $
            40,000
            
            
            
            40,000,000
            
            
            $
            1,165,000
            
            
            $
            (1,227,965
            )
            
            $
            (22,965
            )Effects
      of recapitalization due to merger
            
            
            5,000
            
            
            
            5,000,000
            
            
            
            (5,000
            )
            
            
            
            
            
            
            -Stock
      based consulting
            
            
            
            
            
            
            
            
            
            
            142,450
            
            
            
            
            
            
            
            142,450Proceeds
      from private offering of common stock
            
            
            1,296
            
            
            
            1,296,500
            
            
            
            1,295,204
            
            
            
            
            
            
            
            1,296,500Contributed
      capital related to research anddevelopment
      agreement
            
            
            
            
            
            
            
            
            
            
            600,000
            
            
            
            
            
            
            
            600,000Net
      loss for the year ended December 31, 2006
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,179,758
            )
            
            
            (1,179,758
            )BALANCE
      AT DECEMBER 31, 2006
            
            
            46,296
            
            
            
            46,296,500
            
            
            
            3,197,654
            
            
            
            (2,407,723
            )
            
            
            836,227Stock
      based consulting - warrants
            
            
            
            
            
            
            
            
            
            
            284,900
            
            
            
            
            
            
            
            284,900Proceeds
      from exercise of warrants
            
            
            338
            
            
            
            338,000
            
            
            
            506,662
            
            
            
            
            
            
            
            507,000Stock-based
      compensation
            
            
            50
            
            
            
            50,000
            
            
            
            242,450
            
            
            
            
            
            
            
            242,500Proceeds
      from standby equity agreement
            
            
            272
            
            
            
            271,333
            
            
            
            406,728
            
            
            
            
            
            
            
            407,000Net
      loss for the year ended December 31, 2007
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,011,120
            )
            
            
            (2,011,120
            )BALANCE
      AT DECEMBER 31, 2007
            
            $
            46,956
            
            
            
            46,955,833
            
            
            $
            4,638,394
            
            
            $
            (4,418,843
            )
            
            $
            266,507The
      accompanying notes should be read in conjunction with the consolidated
      financial statements







F-5


VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the year endedDecember
      31,2007
            
            
            2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (2,011,120
            )
            
            $
            (1,179,758
            )Adjustments
      to reconcile net lossto
      net cash used inoperating
      activities:Depreciation
      expense
            
            
            13,574
            
            
            
            7,627Loss
      on shipped inventory
            
            
            483,268
            
            
            
            -Contributed
      capital for services
            
            
            -
            
            
            
            600,000Fair
      value of warrants issued for consulting services
            
            
            284,900
            
            
            
            142,450Stock
      based compensation
            
            
            242,500
            
            
            
            -Change
      in operating assets and liabilities(Increase)
      decrease in:Inventory
            
            
            (475,644
            )
            
            
            (467,738
            )Prepaid
      expenses
            
            
            86,132
            
            
            
            (8,962
            )Vendor
      deposits
            
            
            (222,735
            )
            
            
            -Security
      deposit
            
            
            -
            
            
            
            (5,535
            )Increase
      (decrease) in:Accounts
      payable and accrued expenses
            
            
            (126,299
            )
            
            
            247,794Deferred
      revenue
            
            
            66,000
            
            
            
            -NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (1,659,424
            )
            
            
            (664,122
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of equipment
            
            
            (9,917
            )
            
            
            (62,295
            )NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (9,917
            )
            
            
            (62,295
            )CASH
      FLOWS FROM FINANCING ACTIVITIESGross
      proceeds from exercise of warrants
            
            
            507,000
            
            
            
            1,296,500Proceeds
      from issuance of common stock per standby equity
      agreement
            
            
            407,000
            
            
            
            -Proceeds
      from convertible debenture
            
            
            -
            
            
            
            42,000Proceeds
      from note payable
            
            
            160,000
            
            
            
            -Due
      from shareholder
            
            
            -
            
            
            
            1,678Repayments
      to shareholder
            
            
            -
            
            
            
            (439,833
            )Loans
      from shareholder
            
            
            -
            
            
            
            495,219NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            1,074,000
            
            
            
            1,395,564NET
      (DECREASE) INCREASE IN CASH
            
            
            (595,341
            )
            
            
            669,147CASH
      AT BEGINNING OF YEAR
            
            
            683,997
            
            
            
            14,850CASH
      AT END OF YEAR
            
            $
            88,656
            
            
            $
            683,997SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the year for:Income
      taxes
            
            $
            -
            
            
            $
            -Interest
            
            $
            9,192
            
            
            $
            12,688The
      accompanying notes should be read in conjunction with the consolidated
      financial statements




F-6




VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007





NOTE 1 -
NATURE OF BUSINESS,
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Nature of the
Business


The
Company’s primary operating subsidiary has been Valley Forge Composite
Technologies, Inc., a Pennsylvania corporation, which was incorporated in
Pennsylvania on November 21, 1996. On August 7, 2007, Valley Forge Composite
Technologies, Inc., a Pennsylvania corporation, was re-domiciled as a Florida
corporation and changed its name to Valley Forge Detection Systems, Inc.
(“VFDS”).  Simultaneously, the business segments of the former
Pennsylvania company were split into new Florida corporations, with VFDS’
aerospace segment assigned to Valley Forge Aerospace, Inc. (“VFA”); VFDS’
personnel screening technologies assigned to Valley Forge Imaging, Inc. (“VFI”),
and VFDS’ development and commercialization of potential new product lines
assigned to Valley Forge Emerging Technologies, Inc. (“VFET”).  The
Company is the 100% shareholder of its four subsidiaries.





The
primary activity of VFI is to market and sell a personnel screening device known
as ODIN-ULDRIS (Ultra Low Dose Radiographic Imaging System).  On April
30, 2007, the Company signed an agreement to become a re-seller of the
ODIN-ULDRIS.





VFA is
actively engaged in the design and manufacture of attitude control instruments
for small satellites, in particular, mini momentum reaction wheels based on
VFA’s propriety composite and bearing technology.





VFET
evaluates miscellaneous scientific technologies not matching the Company’s
aerospace and anti-terrorism business segments for potential
commercialization.





Between
1996 and 2003, through VFDS, the Company won numerous contracts to produce
various mechanical devices for special projects. Since September 11, 2001 the
Company has focused much of its energy on the development and commercialization
of its counter-terrorism products.  Such products include an advanced
detection capability for illicit narcotics, explosives, and bio-chemical weapons
using photo-nuclear reactions to initiate secondary gamma quanta the result of
which is a unique and distinguishable signal identifying each component of a
substance.  This product is known as the THOR LVX photonuclear
detection system (“THOR”).  The development and commercialization of
THOR is the present focus of VFDS.





On July
6, 2006, Quetzal Capital 1, Inc., a Florida corporation (“QC1”) entered into a
share exchange agreement with VFDS’ predecessor Pennsylvania corporation. Under
the share exchange agreement, QC1 issued 40,000,000 shares of its common stock
to VFDS shareholders for the acquisition of all of the outstanding capital stock
of VFDS.  For financial accounting purposes, the exchange of stock was
treated as a recapitalization of VFDS with the former shareholders of QC1
retaining 5,000,000 shares (or approximately 11%) of the public
company.  Prior to the merger, QC1 was a reporting shell corporation
with no operations. The share exchange was approved by QC1 and its sole
shareholder, Quetzal Capital Funding I, Inc. (“QCF1”), and by VFDS’ board of
directors and a majority of its shareholders.   QC1 changed its
name to Valley Forge Composite Technologies, Inc., a Florida corporation, and is
referred to throughout this report as the “Company.”


F-7





NOTE 1
-  NATURE OF
BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Several
related agreements were also made with parties associated or affiliated with QC1
in connection with the approval of the share exchange. These agreements involved
the approval of a consulting agreement and a warrant agreement with Coast To
Coast Equity Group, Inc. (“CTCEG”), a company owned by the same shareholders who
owned QC1’s sole corporate shareholder, QCF1, and a registration rights
agreement for QCF1, CTCEG and private placement unit holders. On March 14, 2007,
QCF1 was dissolved by unanimous decision of its three shareholders, Charles J.
Scimeca, George Frudakis, and Tony N. Frudakis. This resulted in the Company
gaining two additional shareholders due to the splitting of QCF1's share of the
Company’s common stock between the three individual shareholders of
QCF1.





Basis of
Presentation


The
accompanying consolidated financial statements have been prepared by Valley
Forge Composite Technologies, Inc., a Florida corporation (the “Company”). The
Company’s consolidated financial statements are prepared in accordance with
generally accepted accounting principals in the United States of America (“US
GAAP”). The consolidated financial statements of the Company include the Company
and its subsidiaries. All material inter-company balances and transactions have
been eliminated.





Going
Concern


The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The attainment of sustainable profitability
and positive cash flow from operations is dependent on certain future events.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty (See Note 2).





Use of
Estimates


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





Comprehensive
Income


The
Company follows the Statement of Financial Accounting Standards (“SFAS”) No.
130, “Reporting Comprehensive Income.” Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net
income. Since the Company has no items of other comprehensive income,
comprehensive income (loss) is equal to net income (loss).





Fair Value of Financial
Instruments


The
Company’s financial instruments consist of cash, security deposits, due to
shareholders, accounts payables, accrued expenses and a convertible debenture.
The carrying values of these financial instruments approximate the fair value
due to their short term maturities.





Concentration of Credit
Risk


Certain
financial instruments potentially subject the Company to concentrations of
credit risk. These financial instruments consist primarily of cash. The Company
maintains its cash investments in high credit quality financial institutions. At
various times, the Company has deposits in excess of the Federal Deposit
Insurance Corporation limit. The Company has not experienced any losses on these
accounts. At December 31, 2007, the Company’s cash deposits exceeded the FDIC
insured limits by $1,503.


F-8





NOTE
1:  NATURE
OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)




Cash
Equivalents


The
Company considers all short-term securities purchased with a maturity of three
months or less to be cash equivalents. At December 31, 2007, the Company held no
cash equivalent securities.





Inventories


The
Company’s accounts for finished goods inventory by applying the lower of cost or
market method, on a first-in, first-out (FIFO) basis. Inventories consist of the
following at December 31, 2007:




Raw
      materials
            
            $
            -0-Work
      in process
            
            
            460,114Finished
      goods
            
            
            -0-$
            460,114





See Note
12 – Loss on shipped inventory.





Property and
Equipment


Property
and equipment is stated at cost. Depreciation on property and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets.





Computers
      and Equipment
            5
      yearsFurniture
      and fixtures
            7
      years





Expenditures
for major renewals and betterments that extend the useful lives of the assets
are capitalized.  Expenditures for maintenance and repairs of the
assets are charged to expense as incurred.





Revenue
Recognition


The
Company only recognizes revenue when persuasive evidence of a customer or
distributor arrangement exists, receipt of goods by the customer occurs, the
price is fixed or determinable, collection is reasonably assured and upon the
customer acceptance of the goods.





Persuasive
evidence of a customer or distributor arrangement exists upon the Company’s
receipt of a signed purchase order from the customer, the Company’s shipment of
the goods as specified in the purchase order and the customer’s receipt of the
goods ordered.





A sales
agreement is initiated when the customer submits a signed purchase order which
states the product(s) ordered, price, quantity and the terms and conditions of
sale. Acceptance occurs upon the earlier of: (1) the Company’s receipt of a
written acceptance of the goods from the customer; or (2) expiration of the time
period stated in each purchase order for final payment which may vary with each
order. The customer has a right of return from the date that the shipment occurs
until the final payment date stated in the purchase order. Revenue is only
recognized upon completion of product testing by the customer, but not later
than 180 days after product shipment occurs.


F-9





NOTE 1 -
NATURE OF BUSINESS,
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





Income
Taxes


Historically,
the Pennsylvania Company, formally known as Valley Forge Composite Technologies,
Inc., has elected by unanimous consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code and the Commonwealth of
Pennsylvania. Under those provisions, VFDS did not pay federal and state
corporate income taxes on its taxable income. Instead, the stockholders were
liable for individual federal and state income taxes on their respective shares
of VFDS’s taxable income.





Effective
July 6, 2006 (date of the exchange agreement explained previously in Note 1),
VFDS is no longer a Subchapter S corporation and is now subject to corporate
level taxes on its earnings.





Under the
asset and liability method of FASB Statement 109, 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 and operating loss and tax
credit carryforwards.  Deferred tax assets 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. Deferred tax assets are reduced by a valuation allowance, when in the
Company's opinion it is likely that some portion or the entire deferred tax
asset will not be realized.





Loss per common
share


In
accordance with SFAS No 128 “Earnings Per Share,” Basic earnings per share is
computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per share is computed by
dividing net loss by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during
each period. For the periods below the Company excludes potentially dilutive
securities such as convertible warrants and the convertible debenture from the
loss per share calculations as their effect would have been
anti-dilutive.





The
following sets forth the computation of earnings per share.





For the Year Ended December
      31,2007
            
            
            2006Net
      loss
            
            $
            ( 2,011,120
            )
            
            $
            ( 1,179,758
            )Weighted
      average shares outstanding
            
            
            46,482,853
            
            
            
            45,212,098Loss
      per share - basic & dilutive
            
            $
            (.04
            )
            
            $
            (.03
            )





F-10





NOTE 1
- NATURE OF BUSINESS, BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




The
Company’s common stock equivalents at December 31 include the
following:





Class
      A Warrants
            
            
            3,000,000Class
      B Warrants
            
            
            958,500Total
      common stock equivalents at December 31, 2007
            
            
            3,958,500





Share Based
Payments


In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees or
independent contractors are required to provide services. Share-based
compensation arrangements include stock options and warrants, restricted share
plans, performance-based awards, share appreciation rights and employee share
purchase plans. In March 2005, the SEC issued Staff Accounting Bulletin No. 107,
or “SAB 107”. SAB 107 expresses views of the staff regarding the interaction
between SFAS No. 123(R) and certain SEC rules and regulations and provides the
staff's views regarding the valuation of share-based payment arrangements for
public companies. SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods. On April 14, 2005, the SEC adopted a new
rule amending the compliance dates for SFAS 123(R). Companies may elect to apply
this statement either prospectively, or on a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123.





Effective
January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123(R)
and related interpretations as provided by SAB 107. As such, compensation cost
is measured on the date of grant as the fair value of the share-based payments.
Such compensation amounts, if any, are amortized over the respective vesting
periods of the option grant. The Company applies this statement prospectively.
Prior to January 1, 2006, neither VFDS nor QC1 had any stock-based compensation
plans.





On July
6, 2006 the Company granted 3,000,000 Class A warrants in connection with a
two-year consulting agreement beginning July 6, 2006 to CTCEG. These
warrants granted in connection with the consulting agreement include the
following provisions: 1,000,000 warrants to purchase 1,000,000 shares at an
exercise price of $1.00 per share when the per share market value closes at or
above $1.00 for up to two years from the effective date of the registration
statement registering the underlying shares; 1,000,000 warrants to purchase
1,000,000 shares at an exercise price of $1.50 per share when the per share
market value closes at or above $1.50 for up to two years from the effective
date of the registration statement registering the underlying shares; and,
1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $2.00
per share when the per share market value closes at or above $2.00 for up to two
years from the effective date of the registration statement registering the
underlying shares.


F-11





NOTE 1
- NATURE OF BUSINESS, BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Share Based Payments
(continued)


A total
of $569,800 was allocated to these warrants using the Black-Scholes pricing
model with the following assumptions: share price of $1.00; Strike prices
ranging from $1.00 to $2.00 per share; Time to expiration (days) of 638;
Expected volatility of 52.86%; no dividends; and an annual interest rate based
on 3-month U.S. Treasury Bill of 4.81%. Twelve months' consulting
expense in the amount of $284,900 was attributed to the grant of these warrants
during the period ended December 31, 2007. A reconciliation of these related
warrants issued and outstanding at December 31, 2007 is as follows:





Warrants
      outstanding at December 31, 2006
            
            
            3,000,000Granted
            
            
            -Exercised/forfeited
            
            -Warrants
      outstanding at December 31, 2007
            
            
            3,000,000




Warranties


Some of
the Company’s product lines will be covered by an annual renewable warranty
effective only with the purchase of the Company’s annual maintenance contract
agreement. The Company expects the annual maintenance contract agreement fees
will total 15% to 20% of the original purchase price of the
products.





Revenue
from periodic maintenance agreements shall be recognized ratably over the
respective maintenance periods provided no significant obligations remain, and
collectibility of the related receivable is probable.




Recent accounting
pronouncements




In
February 2006, the Financial Accounting Standards Board issued Statement No. 155
(‘‘SFAS No 155’’), ‘‘Accounting for Certain Hybrid Instruments: An Amendment of
FASB Statements No. 133 and 140’’. Management does not believe that this
statement will have a significant impact as the Company does not use such
instruments.






F-12





NOTE 1
- NATURE OF BUSINESS, BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




In
September 2006, the FASB issued FASB Statement No. 157. This Statement defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the Board having previously concluded
in those accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this Statement does not require any new fair value
measurements. However, for some entities, the application of this Statement will
change current practices. This Statement is effective for financial statements
for fiscal years beginning after November 15, 2007. Earlier application is
permitted provided that the reporting entity has not yet issued financial
statements for that fiscal year. Management believes this Statement will have no
impact on the financial statements of the Company once adopted.




In
September 2006, the SEC issued Staff Accounting Bulletin ("SAB") 108 which
provides interpretive guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a current year
misstatement.  SAB 108 is effective for the first interim period
following the first fiscal year ending after November 15, 2006, which, for the
Company, is effective for fiscal 2007 beginning January 1, 2007.  The
Company does not believe that the adoption of SAB 108 will have a material
impact on the Company’s results of operations, cash flows or financial
condition.




In
February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities – including an Amendment of SFAS No.
115, (“SFAS 159”), which permits an entity to measure many financial
assets and financial liabilities at fair value that are not currently required
to be measured at fair value. Entities that elect the fair value option will
report unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an instrument-by-instrument basis,
with few exceptions. SFAS 159 amends previous guidance to extend the use of the
fair value option to available-for-sale and held-to-maturity securities. The
Statement also establishes presentation and disclosure requirements to help
financial statement users understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning after November
15, 2007. The Company is currently evaluating the impact of adopting SFAS
159.




In
December 2007, the FASB issued SFAS No. 160, "Noncontrolllng Interests in
Consolidated FinancialStatements—an amendment of ARB No. 51" ("SFAS160"). SFAS 160 requires companies with noncontrolling interests to
disclose such interests clearly as a portion of equity but separate from the
parent's equity. The noncontrolling interest's portion of net income must also
be clearly presented on the Income Statement. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008
and will be adopted by the Company in the first quarter of fiscal year 2009. The
Company does not believe that adoption of SFAS 160 will have any impact on the
Company.
  In
December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations (revised
2007)"("SFAS 141 (R)"). SFAS 141 (R) applies the acquisition method of
accounting for business combinations established in SFAS 141 to all acquisitions
where the acquirer gains a controlling interest, regardless of whether
consideration was exchanged. Consistent with SFAS 141, SFAS 141 (R) requires the
acquirer to fair value the assets and liabilities of the acquiree and record
goodwill on bargain purchases, with the application to all acquisitions where
control is achieved. SFAS 141 (R) is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and will be adopted by the
Company in the first quarter of fiscal year 2009. The Company does not believe
that adoption of SFAS 141 (R) will have any impact on the
Company.





The
Company does not believe that any other recently issued, but not yet effective
accounting standards will have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.


F-13




NOTE 1 -
NATURE OF BUSINESS,
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Reclassifications


Certain
amounts in the 2006 consolidated financial statements have been reclassified to
conform to the 2007 presentation.  Such reclassifications had no
effect on the reported net loss.




NOTE 2 -
GOING
CONCERN





As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $4,418,843 at December 31, 2007, net losses in
the period ended December 31, 2007 of $2,011,120 and cash used in operations
during the period ended December 31, 2007 of $1,659,424. The accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern.





The
attainment of sustainable profitability and positive cash flow from operations
is dependent on certain future events. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Management may attempt to raise additional funds by way of a
public or private offering of its securities. While the Company believes in the
viability of its strategy to improve sales volume and its ability to raise
additional funds, there can be no assurances to that effect.





Since its
inception in 1996, the Company was involved in the development and sales of
advanced scientific technologies. Sales through the years were sporadic but had
high margins. The Company’s limited financial resources have prevented the
Company from aggressively advertising its products and services to achieve
consumer recognition. The ability of the Company to continue as a going concern
is dependent on the Company’s ability to further implement its business plan to
generate increased revenues and to raise additional funds.





In 2003,
the Company entered into a Cooperative Research and Development Agreement for
the development and commercialization of the THOR system, which is more fully
described in Note 4.





While the
Company is attempting to increase sales in general, the growth has not been
significant enough to support the Company’s daily operations. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.





The
Company also seeks the acquisition, development, and commercialization of other
advanced technologies. The ultimate success of the Company in attaining
sustainable profitability and positive cash flow from operations is dependent
upon the successful development and commercialization of these advanced
technologies including the THOR and Odin systems together with obtaining
sufficient capital or financing to support management plans. Management believes
that the actions presently being taken to further implement its business plan
and generate additional revenues and to raise additional funds provide the
opportunity for the Company to continue as a going concern.


F-14




NOTE 3 –
INCOMETAXES





Effective
July 6, 2006 (date of the exchange agreement explained in Note 1), VFDS ceased
being a Subchapter S corporation and has been subject to corporate level taxes
on its earnings since July 6, 2006.





There was
no income tax expense for the years ended December 31, 2007 and 2006 due to the
Company’s net losses.





Deferred
income taxes reflect the net income tax effect of temporary differences between
the carrying amounts of the assets and liabilities for financial reporting
purposes and amounts used for income taxes.  The Company’s deferred
income tax assets and liabilities consist of the following at December 31,
2007:





Net
      operating loss carryforwards
            
            $
            738,000Less:  Valuation
      allowance
            
            
            (738,000
            )Net
      deferred income tax assets
            
            $
            -0-





The table
below summarizes the differences between the Company’s effective tax rate and
the statutory federal rate as follows for fiscal years 2007 and
2006:


2007
            
            
            2006Computed
      “expected” tax benefit
            
            
            (35
            )%
            
            (35
            )%State
      taxes net of “expected” tax benefit
            
            
            (6
            )%
            
            (6
            )%Permanent
      differences
            
            
            9
            %
            
            -Change
      in valuation allowance
            
            
            32
            %
            
            41
            %Effective
      tax rate
            
            
            0
            %
            
            0
            %





Net
operating loss carryforwards totaled approximately $1,800,000 at December 31,
2007.  The net operating loss carryforwards will begin to expire in
the year 2027 if not utilized.  After consideration of all the
evidence, both positive and negative, management has recorded a full valuation
allowance at December 31, 2007 due to the uncertainty of realizing the deferred
tax assets. The valuation allowance increased by approximately $611,000 in
2007. Utilization of the Company’s net operating loss carryforwards are
limited based on changes in ownership as defined in Internal Revenue Code
Section 382.





Under the
asset and liability method of FASB Statement 109, 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 and operating loss and tax
credit carryforwards. Deferred tax assets 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. Deferred
tax assets are reduced by a valuation allowance, when in the Company's opinion
it is likely that some portion or the entire deferred tax asset will not be
realized. After consideration of all the evidence, both positive and negative,
management has recorded a full valuation allowance due to the uncertainty of
realizing the deferred tax assets. Utilization of the Company's net operating
loss carryforwards are limited based on changes in ownership as defined in
Internal Revenue Code Section 382. Due to ongoing losses and the establishment
of a valuation allowance to offset deferred tax assets, the Company did not
record a tax provision for the period ended December 31, 2007.




In
July 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’), which provides
criteria for the recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain position may be
recognized only if it is ‘‘more likely than not’’ that the position is
sustainable based on its technical merits. The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006. The Company
has evaluated its tax positions taken through December 31, 2007 and determined
that no uncertain tax positions existed as of December 31, 2007 requiring
recognition in accordance with FIN 48.


F-15





NOTE 4 -
COOPERATIVE RESEARCH
AND DEVELOPMENT AGREEMENT





On July 14, 2003, a
Cooperative Research and Development Agreement (“CRADA”) was executed between
the Company and the Regents of the University of California’s Lawrence Livermore
National Laboratory (“LLNL”), a laboratory funded by the U.S. Department of
Energy (“DOE”). The New Independent State of the former Soviet Union, by the
P.N. Lebedev Physical Institute of the Russian Academy of Sciences, is also
participating in the CRADA.





The
Company is responsible for the coordination of activities in Russia and the
U.S., the demonstration of detection technologies with LLNL, and the development
of market survey data and business commercialization plans for introducing the
successful Accelerator-Detector Complex (also referred to as “THOR”) into the
international transportation security market. The Company’s portion of total
cost estimate for this 48 month CRADA project is $1,800,000, of which $600,000,
$500,000, $400,000 and $300,000 were incurred during the years ended December
31, 2006, 2005, 2004 and 2003 respectively. The Company accounted for the CRADA
project in accordance with Staff Accounting Bulletin Topic 5-T by recording a
research and development cost through contributions by the
shareholders.





NOTE 5 -
RELATED PARTY
TRANSACTIONS





At
December 31, 2007 the Company owed Louis J. Brothers, the Company’s president
and major shareholder, $216,558 for advances made to the Company. Such amount,
which is included in the due to shareholders balance on the balance sheet at
December 31, 2007 earns 6% annual interest compounded quarterly, and is due on
demand.





On August
11, 2006, Coast to Coast Equity Group, Inc., a Company warrant holder, loaned
the Company $42,000 as described in Note 7.




The
Company paid $24,000 for computer related services to a
relative of the president and major shareholder.





NOTE 6 -
DESCRIPTION OF LEASING
ARRANGEMENTS





On
September 1, 2006, the Company entered into a lease of 2,985 square feet of
office space located at 50 E. River Center Boulevard, Suite 820, Covington,
Kentucky. The term of the lease shall be for five years beginning on the
first day of September, 2006 and ending on the last day of August,
2011.





Under the
terms of the lease, the Company shall pay additional rent to cover operating
expenses of the property at a pro rata share deemed to be 0.928%, which will
total approximately $19,402 for the initial twelve months.  These
expenses are anticipated to increase at a 3% rate annually for the remaining
term of the agreement.





On
December 1, 2007, the Company entered into a lease of 2,700 square feet of
rentable space located at 1895 Airport Exchange Blvd, Building A, Erlanger,
Kentucky. The term of the lease shall be for 37 months beginning on the
first day of December, 2007 and ending on the last day of December,
2010.





Under the
terms of the lease, the Company shall pay additional rent to cover operating
expenses of the property of approximately $349 per month.  Rent
expense for the period ended December 31, 2007 and December 31, 2006 was $70,034
and $10,199 respectively.





The
following is a schedule of future minimum lease payments required under the
lease as of December 31, 2007:





Period
      EndingDecember 31
            
            Amount2008
            
            $
            68,2202009
            
            
            70,2432010
            
            
            72,2702011
            
            
            35,820$
            246,553





F-16





NOTE 7 -
CONVERTIBLE
DEBENTURE





On August
11, 2006, the Company issued a convertible debenture to Coast To Coast Equity
Group, Inc. (“CTCEG”), in the amount of $42,000 in exchange for cash
received.  This debenture matures upon the earlier of twelve months
from the date of the closing of the merger between VFDS and CTCEG, which
occurred on July 6, 2006, or upon the date of an “event of default” which would
include any proceedings by VFDS to seek protection due to insolvency. On August
10, 2007, the Company and CTCEG agreed to extend the agreement for an additional
twelve months ending July 6, 2008.  The stated interest rate is 4% per
annum. The amounts due may be paid in cash or, upon mutual agreement of the
parties, cash equivalents including but not limited to payment in the form of
the Company’s common stock valued at $1.00 per share; or upon mutual agreement
of the parties, CTCEG may apply amounts due toward the cash exercise of the
3,000,000 Class A warrants granted to CTCEG as stated in detail within the
Consulting agreement as Share Based Payments which is described in Note
1.





NOTE 8 –
SHAREHOLDERS’
EQUITY





On July
6, 2006, the Company issued 3,000,000 Class A warrants in exchange for
consulting services rendered. The Company valued these warrants at the fair
market value on the dates of the grant as referred to in Note 1. The Company
recorded stock based consulting expense of $284,900 for the period ending
December 31, 2007.





During
the period August 2006 through November 2006, the Company sold in private
placement transactions 1,296,500 units at $1.00 per unit which consist of 1
share of common stock and 1 Class B warrant which can be exercised at $1.50 per
share within 6 months from the effective date of a registration statement
registering the units and the underlying shares reserved for the exercise of the
warrants. A registration statement was required to be filed within 30 days from
the date that the Company attains a shareholder base of 35 shareholders. This
filing occurred on November 14, 2006 and was declared effective on May 14,
2007.  On July, 18 2007, the Class B warrants’ contractual expiration
date of November 13, 2007 has been extended to April 20, 2008 by decision of the
Board of Directors.





The
Company established a price protection provision relating to the selling unit
holders of the private placement securities named in the registration statement.
The provision states that parties to the agreement are entitled to receive
additional stock or warrants if the Company sells shares of stock or warrants
for less than $1.00 per share of common stock and $1.50 per warrant prior to the
time limitations specified which are one (1) year from the effective date of the
Registration Statement for common stock issued and six (6) months from the
effective date of the Registration Statement for warrants issued. The Company
does not anticipate that it will offer any additional securities which would
cause this provision to become effective prior to the applicable time
limitations of the provisions. Accordingly, the Company believes that the price
protection provision will have no accounting impact.





Coast To
Coast Equity Group, Inc., and Charles J. Scimeca, George Frudakis, and Tony N.
Frudakis (formerly the shareholders of Quetzal Capital Funding 1, Inc.), are
protected from dilution of their percentage ownership of the Company.
Non-dilution rights, as defined by the registration rights agreement
(incorporated by reference herein), mean that these parties shall continue to
have the same percentage of ownership and the same percentage of voting rights
of the class of the Company’s common stock regardless of whether the Company or
its successors or its assigns may thereafter increase or decrease the authorized
number of shares of the Company’s common stock or increase or decrease the
number of shares issued and outstanding. The non-dilution rights, by the terms
of the registration rights agreement, will continue in effect for a period of
two years from the effective date of this registration statement and are
assignable in private transactions, provided that the shares are not sold in
market transactions. The Company does not anticipate that it will offer any
additional securities which would cause this provision to become effective prior
to the applicable time limitations of the provisions. Accordingly, the Company
believes that the non-dilution provision will have no accounting
impact.


F-17





Common Stock
Warrants


Stock
warrant activity for the period ended December 31, 2007 is summarized as
follows:


Number
      of
            
            
            Weighted
      averageshares
            
            
            exercise
      priceOutstanding
      at December 31, 2006
            
            
            4,296,500
            
            
            $
            1.50Granted
            
            
            -
            
            
            
            -Exercised
            
            
            338,000
            
            
            
            1.50Outstanding
      at December 31, 2007
            
            
            3,958,500
            
            
            $
            1.50





The
following table summarizes the Company's Class A and B stock warrants
outstanding at December 31, 2007:








Weighted
      Average
            
            
            Weighted
      AverageRange
      of
            
            
            
            
            
            Remaining
            
            
            ExerciseExcercise
      Price
            
            
            Number
            
            
            Life
            
            
            Price$
            1.00
            
            
            
            1,000,000
            
            
            
            .50
            
            
            $
            1.00$
            1.50
            
            
            
            1,000,000
            
            
            
            .50
            
            
            $
            1.50$
            2.00
            
            
            
            1,000,000
            
            
            
            .50
            
            
            $
            2.00$
            1.50
            
            
            
            958,500
            
            
            
            .25
            
            
            $
            1.50


F-18





NOTE 9 -
REGISTRATION RIGHTS
AGREEMENT





Pursuant
to the terms of a registration rights agreement entered into on July 6, 2006,
the Company agreed to file a registration statement covering the shares of
common stock underlying the securities issued to CTCEG and to private securities
purchasers (the unit purchasers), and to register for resale the 5,000,000
shares owned by Charles J. Scimeca, George Frudakis, and Tony N. Frudakis
(formerly QCF1), no later than 30 days after the Company obtains a shareholder
base of 35 shareholders, and to use its best efforts to have the registration
statement declared effective with the SEC within 180 days of the filing date. If
the Company did not meet the scheduled filing date, it had agreed to pay
liquidated damages as required in the registration rights agreement. Similar
registration rights applied to the Company’s sales of securities in a private
placement transaction occurring between August 2006 and November 2006.
Management timely filed the Form SB-2 registration agreement with the Securities
and Exchange Commission (SEC) on November 14, 2006, and the SEC declared
the registration effective on May 14, 2007, which was the first business day
after the 180-day period expired. Accordingly, liquidated damages have not been
accrued as of the balance sheet date.





Pursuant
to the terms of the August-November 2006 private placement agreement, the
Company agreed to obtain a trading symbol from the NASD within three (3) months
after the effective date of the Company’s registration statement
registering the private placement securities, and, if it failed to do
so, the Company agreed that it would undertake to locate and merge with a
company having a public quote for its common stock within the seven (7) month
period following the effective date of the Company’s Registration Statement,
and, failing the ability to merge timely with a trading company, the
Company had agreed to rescind the Purchaser’s investment. The Company
obtained a trading symbol for its common stock on July 9, 2007. 
Accordingly, damages have not been accrued as of the balance sheet
date.





NOTE 10 –
PROPERTY AND
EQUIPMENT





The major
classifications of equipment are summarized below:





2007
            
            
            2006Office
      equipment
            
            $
            50,551
            
            
            $
            42,720Furniture
      and fixtures
            
            
            45,887
            
            
            
            43,80196,438
            
            
            
            86,521Less
      accumulated depreciation
            
            
            (36,691
            )
            
            
            (23,117
            )$
            59,747
            
            
            $
            63,404Depreciation
      expense for period
            
            $
            13,574
            
            
            $
            7,627


F-19





NOTE 11 –
ACCOUNTS
PAYABLE





The
Company’s current accounts payable and accrued expenses include $63,847 borrowed
on revolving credit lines utilizing corporate credit cards which bear interest
at an average rate of 13.24% per annum and call for total minimum monthly
installment payments of $1,483 as of December 31, 2007. However, since amounts
may be due on demand and it is the Company’s intent to pay such balances in
their entirety during 2008, such amounts have been classified as
current.





The
remaining accounts payable and accrued liabilities consist of ordinary
administrative expenses which were incurred in the operations of the
Company.




NOTE 12 –
NOTE
PAYABLE





On
December 19, 2007, the Company borrowed $160,000 from a financial institution at
a rate of 7.25% with a maturity date of March 15, 2008.  The note
is secured by a personal guarantee of an officer and employee of the
Company.





NOTE 13 –
DEFERRED
REVENUE





On April
20, 2007, VFA entered into an agreement with NASA to manufacture certain
satellite components for $132,000.  As of December 31, 2007, the
Company had received $66,000 and in accordance with the Company’s revenue
recognition policy (see note 1), no revenue has been recognized because goods
have not been received by the customer as of December 31, 2007.





NOTE 14 –
ADVERTISING





Advertising
costs are expensed as incurred. Advertising expense was $128,618 and $-0- in
2007 and 2006, respectively.





NOTE 15 –
LOSS ON SHIPPED
INVENTORY





The
Company, after review and discussion by its Board of Directors and its President
and Principal Financial and Accounting Officer, concluded that inventory, valued
at $483,268 which was shipped to a Japanese customer should be written off, to
be consistent with the company’s revenue recognition policies stated in Note
1.  The inventory has been in the possession of the customer for a
period greater than 180 days with no assurances that payment for the products
will be received or that it will be returned or otherwise
recovered.





NOTE 16 –
STANDBY EQUITY
AGREEMENT





On August
22, 2007, the Company entered into an agreement with CTCEG to sell 333,333
shares of common stock at $1.50 per share on demand of the Company (the “Standby
Equity Agreement”).





The
Company established a price protection provision relating to the selling price
of common stock per the Standby Equity Agreement. The provision states that
parties to the agreement are entitled to receive additional stock if the Company
sells shares of stock for less than $1.50 per share of common stock to an
investor prior to the time limitations specified which is one (1) year from the
effective date of the agreement.





As of
December 31, 2007, the Company had sold 271,333 shares for
$407,000.  The Company has the right to sell an additional 62,000
shares with a value of $93,000 to CTCEG by August 21, 2008.


F-20





NOTE 17 –
STOCK
COMPENSATION





On August
15, 2007, the Board of Directors of the Company issued 50,000 shares of
restricted common stock to an independent contractor of the
Company.  The Company is incurring a $242,500 expense based on the
closing price of the stock on August 15, 2007.  The independent
contractor will also receive an additional 25,000 restricted shares on August 1,
2008 and 2009, respectively, provided that the contractor is performing services
for the Company on the given dates.





NOTE 18 –
SUBSEQUENT
EVENTS





Issuance of Common
Stock





On
January 10, 2008, the Company issued 62,000 shares of common stock to CTCEG
pursuant to the Standby Equity Agreement in exchange for $93,000 in
cash.





On
January 28, 2008, the Company issued 10,000 shares of common stock as a retainer
to a third party for investment banking services.





On March
20, 2008, the Company issued 2,516 shares of common stock in exchange for
advertising services.





Note
Payable





The
Company has received an additional 90 day extension on the maturity date of the
note payable described in note 12.


F-21