UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-Q
  þ QUARTERLY REPORT
UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
quarterly period ended June 30, 2008
  o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission
file number 000-29587
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 (Exact
name of registrant as specified 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)
  Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large
      accelerated filer o
              
              Accelerated
      filer o
              
              Non-accelerated
      filer o
              
              Smaller
      reporting company þ(Do
      not check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo þ
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
  Class
              
              Outstanding
      at August 14, 2008Common
      Stock, $.001 par value per share
              
              51,157,016
 -1-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 FORM
10-Q
 FOR THE PERIOD
ENDED JUNE 30, 2008
  INDEX
  PageSPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
              
              3PART I. FINANCIAL
      INFORMATION
              
              4Item
      1.
              Financial Statements
              
              4Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and
      December 31, 2007
              
              4Consolidated Statements of Operations (Unaudited) for three
      months and six months ended June 30, 2008 and 2007
              
              5Consolidated Statements of Cash Flows (Unaudited) for
      the six months ended June 30, 2008 and 2007
              
              6Notes to the Consolidated Financial
      Statements
              
              7Item
      2.
              Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              
              19Item
      3.
              Qualitative and Quantitative Disclosures About Market
      Risk
              
              22Item
      4.
              Controls and Procedures
              
              22PART II. OTHER
      INFORMATION
              
              23Item
      1.
              Legal Proceedings
              
              23Item
      2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              
              23Item
      3.
              Defaults Upon Senior Securities
              
              23Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              
              23Item
      5.
              Other information
              
              23Item
      6.
              Exhibits
              
              23SIGNATURES
              
              25
  -2-
   Looking
Statements
  Information
included in this Form 10-Q 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.
  In
this report references to “Valley Forge,” “the Company,” “we,” “us,” and “our”
refer to Valley Forge Composite Technologies, Inc. and its
subsidiaries.
 -3-
  PART I: FINANCIALINFORMATION
  ITEM
1. FINANCIAL STATEMENTS






VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED  BALANCESHEETSJune
      30,
            
            
            December
      31,2008
            
            
            2007(Unaudited)
            
            
            
            (1)ASSETSCurrent
      assets:Cash
            
            $
            3,329
            
            
            $
            88,656Accounts
      receivable
            
            
            11,300
            
            
            
            -Inventory
            
            
            447,710
            
            
            
            460,114Prepaid
      expenses
            
            
            9,064
            
            
            
            42,659Deposits
      with vendors
            
            
            246,000
            
            
            
            222,735Total
      current assets
            
            
            717,403
            
            
            
            814,164Property
      and equipment, net
            
            
            56,664
            
            
            
            59,747Other
      assets:Security
      deposit
            
            
            5,535
            
            
            
            5,535Total
      Assets
            
            $
            779,602
            
            
            $
            879,446LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            $
            222,705
            
            
            $
            128,381Note
      payable
            
            
            579
            
            
            
            160,000Deferred
      revenue
            
            
            -
            
            
            
            66,000Convertible
      debenture
            
            
            42,000
            
            
            
            42,000Due
      to shareholder
            
            
            326,558
            
            
            
            216,558Total
      current liabilities
            
            
            591,842
            
            
            
            612,939Shareholders'
      Equity:Common
      stock, $.001 par value, 100,000,000shares
      authorized; 48,790,349  and 46,955,833shares
      issued and outstanding at June 30, 2008 and December 31,
    2007
            
            
            48,790
            
            
            
            46,956Additional
      paid-in capital
            
            
            5,153,279
            
            
            
            4,638,394Accumulated
      deficit
            
            
            (5,014,309
            )
            
            
            (4,418,843
            )Total
      shareholders' equity
            
            
            187,760
            
            
            
            266,507Total
      Liabilities and Shareholders' Equity
            
            $
            779,602
            
            
            $
            879,446




(1)
            
            Derived
      from Audited Financial StatementsSee
      the accompanying notes to the unaudited consolidated financial
      statements.






-4-




VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTSOF OPERATIONS(UNAUDITED)For
      the three months ending
              
              
              For
      the six months endingJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Sales
              
              $
              132,000
              
              
              $
              -
              
              
              $
              132,000
              
              
              $
              -Cost
      of sales
              
              
              69,368
              
              
              
              -
              
              
              
              69,368
              
              
              
              -Gross
      Profit
              
              
              62,632
              
              
              
              -
              
              
              
              62,632
              
              
              
              -Costs
      and expensesLoss
      on shipped inventory
              
              
              -
              
              
              
              481,414
              
              
              
              -
              
              
              
              481,414Selling
      and administrative expenses
              
              
              220,706
              
              
              
              199,029
              
              
              
              498,035
              
              
              
              425,295Stock
      based consulting
              
              
              71,225
              
              
              
              71,225
              
              
              
              142,450
              
              
              
              142,450291,931
              
              
              
              751,668
              
              
              
              640,485
              
              
              
              1,049,159Loss
      from operations
              
              
              (229,299
              )
              
              
              (751,668
              )
              
              
              (577,853
              )
              
              
              (1,049,159
              )Other
      incomeInterest
      expense
              
              
              (8,930
              )
              
              
              (7,507
              )
              
              
              (17,849
              )
              
              
              (11,482
              )Investment
      income
              
              
              86
              
              
              
              4,979
              
              
              
              236
              
              
              
              9,969Net
      loss
              
              $
              (238,143
              )
              
              $
              (754,196
              )
              
              $
              (595,466
              )
              
              $
              (1,050,672
              )Loss
      per common shareBasic
      and Diluted
              
              $
              (0.00
              )
              
              $
              (0.02
              )
              
              $
              (0.01
              )
              
              $
              (0.02
              )Weighted
      Average Common Shares OutstandingBasic
      and Diluted
              
              
              48,173,206
              
              
              
              46,296,500
              
              
              
              47,633,507
              
              
              
              46,296,500




See
the accompanying notes to the unaudited consolidated financial
statements.
 -5-


VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(UNAUDITED)For
      the six months endedJune
      30,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (595,466
            )
            
            $
            (1,050,672
            )Adjustments
      to reconcile net lossto
      net cash used inoperating
      activities:Depreciation expense
            
            
            6,914
            
            
            
            6,757Loss on shipped inventory
            
            
            -
            
            
            
            481,414Common
      stock issued for services
            
            
            31,269
            
            
            
            -Fair
      value of warrants issued for consulting services
            
            
            142,450
            
            
            
            142,450Change
      in operating assets and liabilities(Increase)
      Decrease in:Accounts
      receivable
            
            
            (11,300
            )
            
            
            -Inventory
            
            
            12,404
            
            
            
            (89,282
            )Prepaid
      expenses
            
            
            33,595
            
            
            
            (11,438
            )Vendor
      deposits
            
            
            (23,265
            )
            
            
            (18,323
            )Increase
      (decrease) in:Accounts
      payable and accrued expenses
            
            
            94,324
            
            
            
            (143,191
            )Deferred
      revenue
            
            
            (66,000
            )
            
            
            -NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (375,075
            )
            
            
            (682,285
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of equipment
            
            
            (3,831
            )
            
            
            (4,657
            )NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (3,831
            )
            
            
            (4,657
            )CASH
      FLOWS FROM FINANCING ACTIVITIESGross
      proceeds from exercise of warrants
            
            
            200,000
            
            
            
            -Proceeds
      from issuance of common stock
            
            
            143,000
            
            
            
            -Repayments
      of notes payable
            
            
            (159,421
            )
            
            
            -Repayments to shareholder
            
            
            -
            
            
            
            (657
            )Proceeds from shareholder loans
            
            
            110,000
            
            
            
            119,829NET
      CASH PROVIDED FROM FINANCING ACTIVITIES
            
            
            293,579
            
            
            
            119,172NET
      DECREASE IN CASH
            
            
            (85,327
            )
            
            
            (567,770
            )CASH
      AT BEGINNING OF PERIOD
            
            
            88,656
            
            
            
            683,997CASH
      AT END OF PERIOD
            
            $
            3,329
            
            
            $
            116,227SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for:Income
      taxes
            
            $
            -
            
            
            $
            -Interest
            
            $
            10,553
            
            
            $
            4,222See
      the accompanying notes to the unaudited consolidated financial
      statements.






-6-




VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30,
2008





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 proprietary 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.” -7-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





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





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.




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. -8-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008








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





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 June 30, 2008, the Company’s cash deposits did not exceed the FDIC
insured limits.





Cash
Equivalents





The
Company considers all short-term securities purchased with a maturity of three
months or less to be cash equivalents. At June 30, 2008, the Company held no
cash equivalent securities.





Inventories





The
Company 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:




June
      30
            
            
            December
      312008
            
            
            2007Raw
      materials
            
            $
            -0-
            
            
            $
            -0-Work
      in process
            
            
            203,620
            
            
            
            460,114Finished
      goods
            
            
            244,090
            
            
            
            -0-$
            447,710
            
            
            $
            460,114




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.


-9-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008


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.




Income
Taxes





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 Period EndedJune
      30,2008
            
            
            2007Net
      loss
            
            $
            (
      595,466
            )
            
            $
            (1,050,672
            )Weighted
      average shares
      outstanding
            
            
            47,633,507
            
            
            
            46,296,500Loss
      per share - basic and
      diluted
            
            $
            ( 
      .01
            )
            
            $
            ( 
      .02
            )


-10-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 1 –
NATURE OF BUSINESS,
BASIS OF PRESENTATION AND SUMMARY OF SIGNFICANT ACCOUNTING
POLICIES








The
Company’s common stock equivalents include the following:




June
      30,
            
            
            December
      31,2008
            
            
            2007Class
      A Warrants
            
            
            2,800,000
            
            
            
            3,000,000Class
      B Warrants
            
            
            958,500
            
            
            
            958,500Total
      common stock equivalents
            
            
            3,758,500
            
            
            
            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.  On February 8, 2008, the Board of Directors
extended the consulting and warrant agreement until May 13, 2010. -11-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 1 –
NATURE OF BUSINESS,
BASIS OF PRESENTATION AND SUMMARY OF SIGNFICANT ACCOUNTING
POLICIES





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%. Six months consulting expense
in the amount of $142,450 was attributed to the grant of these warrants during
the period ended June 30, 2008. A reconciliation of these related warrants
issued and outstanding at June 30, 2008 is as follows:





Warrants
      outstanding at December 31,
      2007
            
            
            3,000,000Granted
            
            
            -Exercised/forfeited
            
            200,000Warrants
      outstanding at June 30,
      2008
            
            
            2,800,000




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
collectability of the related receivable is probable.




Recent accounting
pronouncements




In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"
which replaces SFAS No. 141, " Business Combinations," which, among
other things, establishes principles and requirements for how an acquirer entity
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed (including intangibles) and any noncontrolling
interests in the acquired entity. SFAS No. 141(R) applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. We are currently evaluating what impact our adoption of SFAS No.
141(R) will have on our financial statements.
  In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51." SFAS No.
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
It also amends certain of ARB 51's consolidation procedures
for consistency
with the requirements of SFAS No. 141(R). SFAS No. 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of SFAS No.
160 will have on our financial statements.
  On
January 1, 2008, the Company adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”).
SFAS 157 defines fair value as used in numerous accounting pronouncements,
establishes a framework for measuring fair value and expands disclosure of fair
value measurements. In February 2008, the Financial Accounting Standards Board
(“FASB”) issued FASB Staff Position, “FSP FAS 157-2—Effective Date of FASB
Statement No. 157” (“FSP 157-2”), which delays the effective date of SFAS 157
for one year for certain nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Excluded from the scope of
SFAS 157 are certain leasing transactions accounted for under SFAS No. 13,
“Accounting for Leases.” The exclusion does not apply to fair value measurements
of assets and liabilities recorded as a result of a lease transaction but
measured pursuant to other pronouncements within the scope of SFAS 157. The
Company does not expect that the adoption of the provisions of FSP 157-2 will
have a material impact on its financial position, cash flows or results of
operations.
  In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”). This statement requires
companies to provide enhanced disclosures about (a) how and why they use
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect a company’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt the new disclosure requirements on or
before the required effective date and thus will provide additional disclosures
in its financial statements when adopted.
  In April
2008, FASB Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3) was issued. This standard amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
Company has not determined the impact on its financial statements of this
accounting standard.
  Other
accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future
date are not expected to have a material impact on the consolidated financial
statements upon adoption.


-12-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 2 -
GOING
CONCERN





As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $5,014,309 at June 30, 2008, net losses in the
period ended June 30, 2008 of $595,466 and cash used in operations during the
period ended June 30, 2008 of $375,075. 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. 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.




NOTE 3 –
INCOMETAXES





There was
no income tax expense for the periods ended June 30, 2008 and 2007 due to the
Company’s net losses.





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 June 30, 2008. -13-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008








NOTE 4 -
RELATED PARTY
TRANSACTIONS





At June
30, 2008 the Company owed Louis J. Brothers, the Company’s president and major
shareholder, $326,558 for advances made to the Company. Such amount, which is
included in the due to shareholders balance on the balance sheet at June 30,
2008 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 6.




NOTE 5 -
DESCRIPTION OF LEASING
ARRANGEMENTS





On
September 1, 2006, the Company entered into a lease of 2,985 square feet of
office space located at 50 E. River Center Boulevard, Suite 820, Covington,
Kentucky. The term of the lease 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 June 30, 2008 and 2007 was $43,937 and $33,491
respectively.








The
following is a schedule of future minimum lease payments required under the
lease as of June 30, 2008:




Period
      EndingJune
      30
            
            Amount2009
            
            $
            69,2222010
            
            
            71,2742011
            
            
            68,1522012
            
            
            8,955$
            217,603





-14-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 6 -
CONVERTIBLE
DEBENTURE





On August
11, 2006, the Company issued a convertible debenture to Coast To Coast Equity
Group, Inc. (“CTCEG”), in the amount of $42,000 in exchange for cash
received.  This debenture matures upon the earlier of twelve 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 7 –
SHAREHOLDERS’
EQUITY





On July
6, 2006, the Company issued 3,000,000 Class A warrants in exchange for
consulting services rendered. The Company valued these warrants at the fair
market value on the dates of the grant as referred to in Note 1. The Company
recorded stock based consulting expense of $142,450 for the period ending June
30, 2008.





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 October 3, 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.


-15-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008


Common Stock
Warrants




Stock
warrant activity for the period ended June 30, 2008 is summarized as
follows:





Number
      of
            
            
            Weighted
      averageshares
            
            
            exercise
      priceOutstanding at December 31,
      2007
            
            
            3,958,500
            
            
            $
            1.50Granted
            
            
            -
            
            
            
            -Exercised
            
            
            200,000
            
            
            
            1.50Outstanding at June 30, 2008
            
            
            3,758,500
            
            
            $
            1.50





The
following table summarizes the Company's Class A and B stock warrants
outstanding at June 30, 2008:





Weighted
      Average
            
            
            Weighted
      AverageRange
      of
            
            
            
            
            
            Remaining
            
            
            ExerciseExercise
      Price
            
            
            Number
            
            
            Life
            
            
            Price$
            1.00
            
            
            
            800,000
            
            
            
            1.90
            
            
            $
            1.00$
            1.50
            
            
            
            1,000,000
            
            
            
            1.90
            
            
            $
            1.50$
            2.00
            
            
            
            1,000,000
            
            
            
            1.90
            
            
            $
            2.00$
            1.50
            
            
            
            958,500
            
            
            
            .10
            
            
            $
            1.50




NOTE 8 -
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.


-16-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 9 –
PROPERTY AND
EQUIPMENT





The major
classifications of equipment are summarized below:




June
      30,
            
            
            December
      31,2008
            
            
            2007Office
      equipment
            
            $
            50,705
            
            
            $
            50,551Furniture and
      fixtures
            
            
            49,564
            
            
            
            45,887100,269
            
            
            
            96,438Less accumulated
depreciation
            
            
            (43,605
            )
            
            
            (36,691
            )$
            56,664
            
            
            $
            59,747Depreciation expense for period
            
            $
            6,914
            
            
            $
            13,594




NOTE 10 –
ACCOUNTS
PAYABLE





The
Company’s current accounts payable and accrued expenses include $82,606 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 $3,057 as of June 30, 2008. 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 11 –
NOTE
PAYABLE





On
December 19, 2007, the Company borrowed $160,000 from a financial institution at
a rate of 5.00% with a maturity date of June 15, 2008.  The note is
secured by a personal guarantee of an officer and employee of the
Company.  As of June 30, 2008 the balance outstanding was $579. -17-
  VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008





NOTE 12 –
DEFERRED
REVENUE





On April
20, 2007, VFA entered into an agreement with NASA to manufacture certain
satellite components for $132,000.  As of June 30, 2008, the Company
had received $120,700 in cash and has shipped all product to the customer per
the agreement. In accordance with the Company’s revenue recognition policy (see
note 1), the revenue has been recognized in full.





NOTE 13 –
ADVERTISING





Advertising
costs are expensed as incurred. Advertising expense was $86,263 and $599 in 2008
and 2007, respectively.




NOTE 14 –
STANDBY EQUITY
AGREEMENT




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





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





As of
June 30, 2008, the Company had sold 333,333 shares for $500,000.





NOTE 15 –
STOCK
COMPENSATION




On August
15, 2007, 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 16 –
SUBSEQUENT
EVENTS





Note
Payable


On July
3, 2008, the Company entered into a Securities Purchase Agreement with MKM
Opportunity Master Fund, LLC, pursuant to which the Company agreed to sell an 8%
Senior Convertible Note with a principal amount of $500,000, which is
convertible into shares of the Company’s common stock, par value $.001 per
share, and a warrant to acquire up to an additional 1,000,000 shares of common
stock.




The note
matures on July 7, 2011, bears interest at a rate of 8% per annum and is
convertible into shares of common stock at a conversion price of $0.50 per
share, subject to adjustment.  The warrant is exercisable for shares
of common stock at an exercise price of $1.61 per share, subject to adjustment,
and contains a cashless exercise provision available if the shares of common
stock underlying the warrant are not covered by an effective registration
statement at any time following the six month anniversary of their issuance
date. The warrant is exercisable for a period of seven years from the date of
issuance of the warrant.  Additionally, the Company may pay interest
in additional shares of common stock if certain conditions are met.





Common Stock Issuance


On July
3, 2008 the Company issued 666,667 shares of common stock to CTCEG pursuant to
the price protection provision in the Standby Equity Agreement (see note 14).
The price protection provision was triggered by the agreement with MKM
Opportunity Master Fund, LLC (see note 16 - Note Payable).
  On July 3, 2008, the Company issued
200,000 shares of common stock to CTCEG. The Company is incurring an expense of
$330,000 as a consulting fee based on the closing price of the stock on July 3,
2008.
  On July
14, 2008, the Company issued 1,500,000 shares of common stock to a third party
for investment banking services. The Company is incurring an expense of
$1,275,000 based on the closing price of the stock on July 14,
2008.
  Warrant
extension
  On July
14, 2008 the Board of Directors of the Company extended the expiration of the
Class B warrants from July 20, 2008 to October 3, 2008.


-18-




Item 2.  Management’s Discussion and
AnalysisofFinancial Condition
and Results of Operation


The
following analysis of our consolidated financial condition and results of
operations for the three and six months ended June 30, 2008 and 2007 should be
read in conjunction with the Consolidated Financial Statements and other
information presented elsewhere in this quarterly report and in conjunction with
our Form 10-KSB for the fiscal year ended December 31, 2007, which was filed
with the SEC on March 28, 2008.
 
 This
Management's Discussion and Analysis of Financial Condition and Results 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.
  Liquidity
and Capital Resources
 
 Between
December 31, 2007 and June 30, 2008, our capital requirements have largely been
met through sales of securities. We recorded $132,000 from a sale of a momentum
wheel to NASA in May, 2008.  Until we are able to generate significant
revenues from our core homeland security-related detection technologies, we
anticipate being dependent on sales of securities to finance our ongoing capital
requirements. The following liquidity events describe the amounts and sources of
our capital resources and describe how we have paid our expenses.
 
 We have
incurred losses for the past two fiscal years and had a net loss of $595,466 for
the six months ended June 30, 2008. Our auditors have expressed substantial
doubt regarding our ability to continue as a going concern.
  Historically,
we have relied on revenues, debt financing and sales of our common stock to
satisfy our cash requirements. For the six months ended June 30, 2008, we
received cash of $120,700 from sales to customers and $343,000 from sales of our
common stock.
  For the
year ended December 31, 2007, we received cash proceeds from debt financing of
$160,000 and sales of our common stock of $914,000.
  For the
six months ended June 30, 2008, we issued 1,834,516 shares for investments.
For the year ended December 31, 2007 we issued 659,333 shares for investments.
Management anticipates that we will continue to issue shares for services in the
short term.
 
 We had
958,000 Class B warrants outstanding as of June 30, 2008, which, if all are
exercised, will infuse an additional $1,437,000 in funds to the Company. As of
June 30, 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 October 3, 2008 by decision of the board
of directors. We also have 2,800,000 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 will expire on May 13, 2010. The Company does
not control whether any warrants will be exercised.
 
 Management
intends to finance its 2008 operations primarily with the revenue from
product sales and any cash short falls will be addressed through equity
financing, if available. Management expects revenues will be realized but not to
the point of profitability in the short term. We will need to continue to raise
additional capital, both internally and externally, to cover cash shortfalls and
to compete in our markets. At our current revenue levels management believes we
will require an additional $1,000,000 during the next 12 months to satisfy our
cash requirements of approximately $83,333 per month. These operating costs
include cost of sales, general and administrative expenses, salaries and
benefits and professional fees. We have insufficient financing commitments in
place to meet our expected cash requirements for 2008 and we cannot assure you
that we will be able to obtain financing on favorable terms. If we cannot obtain
financing to fund our operations in 2008, then we may be required to reduce our
expenses and scale back our operations.
  Commitments
and Contingent Liabilities
  The
Company leases office and warehouse spaces in Covington, KY and Erlanger, KY
under a five-year and 37 month non-cancelable operating lease,
expiring August 2011 and December 2010, respectively. Base rent is $5,551
per month with an annual rent escalator of 3%. At December 31, 2007, future
minimum payments for operating leases related to our office and manufacturing
facilities were $217,603 through August 2011.
  Our total
current liabilities decreased to $591,842 at June 30, 2008 compared to $612,939
at December 31, 2007. Our total current liabilities at June 30, 2008 included
accounts payable and accrued expenses of $222,705, note payable of $579,
convertible debentures of $42,000 and a loan from shareholder of
$326,558.
 -19-







Results
of Operations





The
following discussions are based on the unaudited consolidated financial
statements of Valley Forge Composite Technologies and its
subsidiaries. These charts and discussions summarize our financial statements
for the three and six months’ ended June 30, 2008, and 2007, and should be read
in conjunction with the financial statements, and notes thereto, included with
this report at Part II, Item 7, below.




SUMMARY
      COMPARISON OF OPERATING RESULTSFor
      the three months ending
            
            
            For
      the six months endingJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Gross
      Profit
            
            $
            62,632
            
            
            $
            -
            
            
            $
            62,632
            
            
            $
            -Total
      operating expenses
            
            
            291,931
            
            
            
            751,668
            
            
            
            640,485
            
            
            
            1,049,159Loss
      from operations
            
            
            (229,299
            )
            
            
            (751,668
            )
            
            
            (557,853
            )
            
            
            (1,049,159
            )Total
      other income (expense)
            
            
            (8,844
            )
            
            
            (2,528
            )
            
            
            (17,613
            )
            
            
            (1,513
            )Net
      income (loss)
            
            
            (238,143
            )
            
            
            (754,196
            )
            
            
            (595,466
            )
            
            
            (1,050,672
            )Net
      income (loss) per share
            
            $
            0.00
            
            
            $
            (0.02
            )
            
            $
            (0.01
            )
            
            $
            (0.02
            )





Our
operating expenses have generally increased from the three and six months ended
June 30, 2007 compared with the three and six months ended June 30,
2008.  The major components of our operating expenses consist of
selling and administrative expense and stock based consulting for the comparable
reporting periods.  For the three months ended June 30, 2008 and June
30, 2007, our selling and administrative expenses were $220,706 and $199,029,
respectively, while our stock based consulting expenses remained unchanged in
both periods at $71,225.  For the six months ended June 30, 2008 and
June 30, 2007, our selling and administrative expenses were $498,035 and
$425,295, respectively, while our stock based consulting expenses remained
unchanged in both periods at $142,450.
 
 In the
three months ended June 30, 2007, we took a loss on shipped inventory of
$481,414 and had no revenues, while we had no shipped inventory loss and had
revenue of $132,000 in the three months ended June 30, 2008.  We had
no advertising expense in the six months ended June 30, 2007, while we had
$86,000 in advertising expense in the six months ended June 30,
2008.  The advertising expense reflects the Company’s push to market
its anti-terrorism products and its attempt to create brand recognition for its
Company name.




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.









June
      30,
            
            
            December
      31,2008
            
            
            2007Valley
      Forge Detection Systems, Inc.
            
            $
            -
            
            
            $
            -Valley
      Forge Aerospace, Inc.
            
            
            132,000
            
            
            
            -Valley
      Forge Imaging, Inc.
            
            
            -
            
            
            
            -Valley
      Forge Imaging Technologies, Inc.
            
            
            -
            
            
            
            -Totals
      per financial statements:
            
            $
            132,000
            
            
            $
            -




Our total
operating expense was $640,485 for the six months ended June 30, 2008 and
$1,998,412 for the year ended December 31, 2007.




Our
average monthly cost of operations from January 2008 through June 2008 was
$106,748. Excluding, a non-cash charge of $142,450 for stock based consulting,
the monthly cost of operations from January 2008 through June 2008 was
$83,006.




As of
June 30, 2008, we have approximately $3,329 in cash remaining. Of this amount,
$3,329 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.




-20-


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.
 
 Description
of Critical Accounting Policies and Estimates, Going Concern, and Fair Value of
Financial Instruments
 
 This
section of our Form 10-Q 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.
 
 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 subsidiary. All material inter-company balances and transactions have been
eliminated.
  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.
  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.
  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.


-21-




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET
RISK




As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.




ITEM
4T. CONTROLS AND PROCEDURES




Disclosure
Controls and Procedures




Under the
supervision and with the participation of our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rule 13a-15(e) promulgated under the Exchange Act, as of June 30, 2008 (the
"Evaluation Date"). Based on this evaluation, our principal executive officer
and principal financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the information
relating to the Company, including our consolidated subsidiaries, required to be
disclosed in our SEC reports (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and (ii) is accumulated
and communicated to management, including our principal executive
officer/principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.




Our
management, including our chief executive officer and chief financial officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.




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 Rule 13a-15(f) promulgated under the Exchange
Act. Our management assessed the effectiveness of our internal control over
financial reporting as of June 30, 2008. 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 June 30, 2008, 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.




The
Company is not required by current SEC rules to include, and does not include,
an auditor's attestation report. The Company's registered public accounting firm
has not attested to Management's reports on the Company's internal control over
financial reporting.


-22-




PART II: OTHERINFORMATION






ITEM
1. LEGAL PROCEEDINGS




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
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




We issued
12,516 common shares to third parties as a retainer for investment banking and
advertising services, sold 62,000 shares of common stock for $93,000 in cash to
CTCEG pursuant to the Standby Equity Agreement and 1,560,000 shares of common
stock for $50,000 in cash to CTCEG.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.




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




None




ITEM
5. OTHER INFORMATION




None


-23-




ITEM
6. EXHIBITS




The
following exhibits are filed herewith:




(a)
            Exhibits




Exhibit
    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, 200610.4**
            Form
      of Investment Letter31.1
            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 on July 11, 2006.


**
Incorporated by reference from Form SB-2/A filed on May 3, 2007.


-24-




SIGNATURES




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




VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.Date:
      August 14, 2008
            By:
            /s/ Louis J. Brothers
              Louis
      J. BrothersPresident,
      Secretary and Treasurer
              (Principal
      Accounting Officer and Authorized
Officer)







-25-