UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM 10-QSB




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




For
      the
      quarterly period ended **June 30, 2007**




OR




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




For
      the
      transition period from ___________ to ___________




Commission
      file number 0-51420




**VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.**


(Exact
      name of small business issuer as specified in its charter)




**Florida**
            **20-3061892**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                EmployerIdentification
                Number)




**50
                East River Center Boulevard, Suite 820**
              **Covington,
                Kentucky**
            **41011**(Address
                of principal executive offices)
            (Zip
                Code)




**(859)
      581-5111**


(Issuer’s
      telephone number, including area code)




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




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




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




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




Class
            Outstanding
                at August 8, 2007Common
                Stock, $.001 par value per share
            46,449,000
                shares




-1-




**TABLE
      OF CONTENTS**




**PAGE****PartPart
                I Financial Information**
            
            3Item     1.
                Consolidated Financial Statements (unaudited)
            
            3Balance
                Sheet
            
            3Statements
                of
                Operations
            
            4Statements
                of Cash
                Flows
            
            5Notes
                to
                Consolidated Financial Statements
            
            6Item     2.
                Management’s Discussion and Analysis or Plan of Operation
            
            18Item     3.
                Controls and Procedures
            
            21**PartPart II
                Other Information**
            
            22Item     6.
                Exhibits
            
            22**Signatures**
            
            23







-2-




PART
      I FINANCIAL INFORMATION


Item
      1.
      Financial Statements




**VALLEY
      FORGE COMPOSITE TECHNOLOGIES,
      INC.**


**CONSOLIDATED
      BALANCE SHEET**


**JUNE
      30, 2007**


**(UNAUDITED)**


ASSETSCurrent
                    assets:Cash
                
                $
                116,227Inventory
                
                
                75,606Prepaid
                    expenses
                
                
                20,400Deposits
                    with
                    vendors
                
                
                18,323Total
                    current assets
                
                
                230,556Property
                    and equipment, net
                
                
                61,304Other
                    assets:Security
                    deposit
                
                
                5,535Total
                    Assets
                
                $
                297,395LIABILITIES
                  AND SHAREHOLDERS' DEFICIENCYCurrent
                    liabilities:Accounts
                    payable and accrued expenses
                
                $
                110,832Convertible
                    debenture
                
                
                42,000Due
                    to
                    shareholders
                
                
                216,558Total
                    current liabilities
                
                
                369,390Shareholders'
                    Deficiency:Common
                    stock, $.001 par value, 100,000,000shares
                    authorized; 46,296,500 sharesissued
                    and outstanding
                
                
                46,296Additional
                    paid-in capital
                
                
                3,340,104Accumulated
                    deficit
                
                
                (3,458,395
                )Total
                    shareholders' deficiency
                
                
                (71,995
                )Total
                    Liabilities and Shareholders' Deficiency
                
                $
                297,395
 See
        the accompanying notes to the unaudited
        consolidated financial statements.
 -3-
 
  **VALLEY
                      FORGE COMPOSITE TECHNOLOGIES, INC.****CONSOLIDATED
                      STATEMENTS OF OPERATIONS****(UNAUDITED)**
 **For
                        the three months ending**
                    
                    
                    **For
                        the six months ending****June
                        30,**
                    
                    
                    **June
                        30,****2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006**(Restated)
                    
                    
                    
                    
                    
                    (Restated)Sales
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    417,592Costs
                        and expensesCost
                        of
                        sales
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    152,615Loss
                        on shipped
                        inventory
                    
                    
                    481,414
                    
                    
                    
                    -
                    
                    
                    
                    481,414
                    
                    
                    
                    -Research
                        and
                        development
                    
                    
                    -
                    
                    
                    
                    150,000
                    
                    
                    
                    -
                    
                    
                    
                    300,000Selling
                        and
                        administrative expenses
                    
                    
                    199,029
                    
                    
                    
                    62,278
                    
                    
                    
                    425,495
                    
                    
                    
                    389,214Stock
                        based
                        consulting
                    
                    
                    71,225
                    
                    
                    
                    -
                    
                    
                    
                    142,250
                    
                    
                    
                    -751,668
                    
                    
                    
                    212,278
                    
                    
                    
                    1,049,159
                    
                    
                    
                    841,829Loss
                        from operations
                    
                    
                    (751,668
                    )
                    
                    
                    (212,278
                    )
                    
                    
                    (1,049,159
                    )
                    
                    
                    (424,237
                    )Other
                        incomeInvestment
                        income
                    
                    
                    4,979
                    
                    
                    
                    9
                    
                    
                    
                    9,969
                    
                    
                    
                    56Interest
                        expense
                    
                    
                    (7,507
                    )
                    
                    
                    (3,681
                    )
                    
                    
                    (11,482
                    )
                    
                    
                    (3,695
                    )Net
                        loss
                    
                    $
                    (754,196
                    )
                    
                    $
                    (215,950
                    )
                    
                    $
                    (1,050,672
                    )
                    
                    $
                    (427,876
                    )Loss
                        per common shareBasic
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.01
                    )Diluted
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.01
                    )Weighted
                        Average Common Shares OutstandingBasic
                    
                    
                    46,296,500
                    
                    
                    
                    45,000,000
                    
                    
                    
                    46,296,500
                    
                    
                    
                    45,000,000Diluted
                    
                    
                    46,296,500
                    
                    
                    
                    45,000,000
                    
                    
                    
                    46,296,500
                    
                    
                    
                    45,000,000
  **See
            the accompanying notes to the unaudited consolidated financial
            statements.**
 -4-
  **VALLEY
                      FORGE COMPOSITE TECHNOLOGIES, INC.****CONSOLIDATED
                      STATEMENT OF CASH FLOW****(UNAUDITED)**
 **For
                    the six months ended****June
                    30,****2007**
                
                
                **2006**(Restated)CASH
                    FLOWS FROM OPERATING ACTIVITIESNet
                    loss
                
                $
                (1,050,672
                )
                
                $
                (427,876
                )Adjustments
                    to reconcile net lossto
                    net cash provided by (used in)operating
                    activities:Depreciation
                    expense
                
                
                6,757
                
                
                
                2,017Loss
                    on shipped
                    inventory
                
                
                481,414
                
                
                
                -Contributed
                    capital
                    for services
                
                
                -
                
                
                
                300,000Fair
                    value of
                    warrants issued for consulting services
                
                
                142,450Change
                    in operating
                    assets and liabilities(Increase)
                    Decrease in:Inventory
                
                
                (89,282
                )
                
                
                (435,585
                )Prepaid
                    expenses
                
                
                (11,438
                )
                
                
                -Vendor
                    deposits
                
                
                (18,323
                )
                
                
                -Increase
                    (decrease) in:Accounts
                    Payable
                    and Accrued Expenses
                
                
                (143,191
                )
                
                
                526,831NET
                    CASH USED IN OPERATING ACTIVITIES
                
                
                (682,285
                )
                
                
                (34,613
                )CASH
                    FLOWS FROM INVESTING ACTIVITIESPurchases
                    of
                    equipment
                
                
                (4,657
                )
                
                
                (4,131
                )NET
                    CASH USED IN INVESTING ACTIVITIES
                
                
                (4,657
                )
                
                
                (4,131
                )CASH
                    FLOWS FROM FINANCING ACTIVITIESRepayments
                    to
                    shareholder
                
                
                (657
                )
                
                
                -Loans
                    from
                    shareholder
                
                
                119,829
                
                
                
                61,371NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                119,172
                
                
                
                61,371NET
                    (DECREASE) INCREASE IN CASH
                
                
                (567,770
                )
                
                
                22,627CASH
                    AT BEGINNING OF PERIOD
                
                
                683,997
                
                
                
                14,850CASH
                    AT END OF PERIOD
                
                $
                116,227
                
                
                $
                37,477SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATIONCash
                    paid during the period for:Income
                    taxes
                
                $
                -
                
                
                $
                -Interest
                
                $
                4,222
                
                
                $
                3,695
  See
          the accompanying notes to the unaudited
          consolidated financial statements.
 -5-
 
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
   NOTE
                1
                -NATURE
                OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                POLICIES
 The
              accompanying consolidated financial statements have been prepared by
              Valley
              Forge Composite Technologies, Inc., a Florida corporation (the “Company”). The
              Company’s financial statements are consolidated with the results of its
              subsidiary, Valley Forge Composite Technologies, Inc., a Pennsylvania
              corporation (“VFCT”).
 
 Nature
              of the Business
 The
              Company’s operating subsidiary has been VFCT.  VFCT was incorporated
              in Pennsylvania on November 21, 1996. Through VFCT, the Company has
              been
              continuously engaged in the development and sales of scientific
              technologies.VFCT is
              actively engaged in an established electronic components business.
              The Company
              has been engaged in this business in excess of six years. This activity
              consists
              of the sale of electronic components, primarily transistors, which
              are
              classified as uncontrolled parts. 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.
 
 Between
              1996 and 2003, 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”).  On April 30, 2007, the Company signed an agreement to
              become a re-seller of a personnel inspection device called ODIN-ULDRIS
              (Ultra
              Low Dose Radiographic Imaging System).  No sales have been made by the
              Company of the ODIN-ULDRIS product, and the Company does not maintain
              any units
              in inventory.
 
 On
              July
              6, 2006, Quetzal Capital 1, Inc., a Florida corporation (“QC1”) entered into a
              share exchange agreement with VFCT. Under the share exchange agreement,
              QC1
              issued 40,000,000 shares of its common stock to VFCT shareholders for
              the
              acquisition of all of the outstanding capital stock of VFCT.  For
              financial accounting purposes, the exchange of stock was treated as
              a
              recapitalization of VFCT 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 VFCT’s 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.”
 
 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
              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
              subsidiary, VFCT. 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).
  -6-
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
  NOTE
              1 -NATURE
              OF
              BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
              POLICIES
              (continued)
 
 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 June 30, 2007, the Company’s cash deposits exceeded the FDIC
              insured limits by $10,859.
 
 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, 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 June 30, 2007:
 
 Raw
                          materials
                      $
                      -0-Work
                          in process
                      
                      75,606Finished
                          goods
                      
                      -0-Total
                          inventory
                      $
                      75,606
 
 See
              Note
              11 - 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.
  -7-
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 NOTE
              1 -NATURE
              OF
              BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
              POLICIES
              (continued)
 
 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
 Historically,
              VFCT 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, VFCT 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 VFCT’s taxable income.
 
 Effective
              July 6, 2006 (date of the share exchange agreement explained previously
              in Note
              1), VFCT ceased to be a Subchapter S corporation and became 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.
 
 -8-
   VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 NOTE
              1 -NATURE
              OF
              BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
              POLICIES
              (continued)
 
 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 Six Months Ended****June
                            30,****2007**
                        
                        
                        **2006**Net
                            loss
                        
                        $
                        (1,050,672
                        )
                        
                        $
                        (427,876
                        )Weighted
                            average shares outstanding
                        
                        
                        46,296,500
                        
                        
                        
                        45,000,000Loss
                            per share - basic & dilutive
                        
                        $
                        (.02
                        )
                        
                        $
                        (.01
                        )
 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 VFCT 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.  The Class A warrants were registered on a Form
              SB-2 registration statement, which, in its amended form, was declared
              effective
              by the SEC on May 14, 2007.  Therefore, the Class A warrants expire on
              May 14, 2009.
  -9-
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 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%. Six months consulting expense
                in the amount of $142,450 was attributed to the grant of these warrants
                during
                the period ended June 30, 2007. A reconciliation of these related
                warrants
                issued and outstanding at June 30, 2007 is as follows:
 Warrants
                          outstanding at June 30, 2006
                      
                      
                      -Granted
                          at July 6,
                          2006
                      
                      
                      3,000,000Exercised/forfeited
                      
                      -Warrants
                          outstanding at June 30,
                          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.
 
 -10-
 
 VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
  NOTE
              1 -NATURE
              OF
              BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
              POLICIES
              (continued)
 
 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.
  In
              May
              2006, the SEC announced that the compliance date for non-accelerated
              filers
              pursuant to Section 404 of the Sarbanes-Oxley Act had been
              extended.  Under the latest extension, a company that is not required
              to file its annual and quarterly reports on an accelerated basis must
              begin to
              comply with the internal control over financial reporting requirements
              for its
              first fiscal year ending on or after July 15, 2008, which, for the
              Company, is
              effective for fiscal 2008 beginning January 1, 2008.  This is a
              one-year extension from the previously established July 15, 2007 compliance
              date
              established in September 2005.  The SEC similarly extended the
              compliance date for these companies relating to requirements regarding
              evaluation of internal control over financial reporting and management
              certification requirements.  The Company is currently evaluating the
              impact of Section 404 of the Sarbanes-Oxley Act on its results of operations,
              cash flows and financial condition.
  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
              does not expect FIN 48 will have a material effect on its consolidated
              financial
              condition or results of operations.
  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.
 
 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.
  -11-
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 NOTE
              2
              - GOING CONCERN
 
 
 As
              reflected in the accompanying consolidated financial statements, the
              Company has
              an accumulated deficit of $3,458,395 at June 30, 2007, net losses in the
              period ended June 30, 2007 of $1,050,672 and cash used in operations
              during the
              period ended June 30, 2007 of $682,285. 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 Accelerator-Detector Complex 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
 
 
 Effective
              July 6, 2006 (date of the share exchange agreement explained in Note
              1), VFCT
              ceased to be a Subchapter S corporation and became subject to corporate
              level
              taxes on its earnings beginning July 6, 2006.
 
 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, 2007.
  -12-
 
 VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 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
              June
              30, 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
              June 30,
              2007 earns 6% annual interest compounded quarterly, and is due on
              demand.
 
 On
              August
              11, 2006, CTCEG, a Company warrant holder, loaned the Company $42,000
              as
              described in Note 7.
 
 
 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.
 
 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%, which will total approximately
              $19,402 for
              the first 12 months. These expenses are anticipated to increase at
              a rate of 3%
              per year. Rent expense for the period ended June 30, 2007 and June
              30, 2006 was
              $33,491 and $ 0 respectively.
  -13-
   VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 NOTE
              6
              - DESCRIPTION OF LEASING ARRANGEMENTS (continued)
 
 
 The
              following is a schedule of future minimum lease payments required under
              the
              lease as of June 30, 2007:
  **Period
                        Ending**
                    ****
                    ******June
                        30**
                    **Amount**2008
                    $
                    48,9522009
                    
                    50,4082010
                    
                    51,9222011
                    
                    53,4762012
                    
                    8,956$
                    213,714
 
 
 NOTE
              7
              - CONVERTIBLE DEBENTURE
 
 
 On
              August
              11, 2006, the Company issued a convertible debenture to 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
              VFCT and
              CTCEG, which occurred on July 6, 2006, or upon the date of an “event of default”
which would include any proceedings by VFCT to seek protection due
              to
              insolvency. 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 $142,450 for the period
              ending June
              30, 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.
 
 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.
  -14-
  VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 NOTE
              8
– SHAREHOLDERS’ EQUITY (continued)
 
 
 CTCEG,
              and Charles J. Scimeca, George Frudakis, and Tony N. Frudakis (formerly
              the
              shareholders of QCF1), 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,
              i.e.
              May 14, 2009, 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.
 
 
 Common
              Stock Warrants
 Stock
              warrant activity for the period ended June 30, 2007 is summarized as
              follows:
 Number
                        
                        
                        Weighted
                            averageof
                            shares
                        
                        
                        exercise
                            priceOutstanding
                            at December 31, 2006
                        
                        
                        4,296,500
                        
                        
                        $
                        1.50Granted
                        
                        
                        -
                        
                        
                        
                        -Exercised
                        
                        
                        -
                        
                        
                        
                        -Outstanding
                            at June 30, 2007
                        
                        
                        4,296,500
                        
                        
                        $
                        1.50
 
 NOTE
                8
– SHAREHOLDERS’ EQUITY (continued)
 
 
 The
                following table summarizes the Company's stock warrants outstanding
                at June 30,
                2007:
 Weighted
                            Average
                        Weighted
                            AverageRange
                            of
                        Remaining
                        ExerciseExcercise
                            Price
                        Number
                        Life
                        Price$    1.00
                        1,000,000
                        1.00
                        $      1.00$    1.50
                        1,000,000
                        1.00
                        $      1.50$    2.00
                        1,000,000
                        1.00
                        $      2.00$    1.50
                        1,296,500
                        .50
                        $      1.50
 -15-
 
 
 VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 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
              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 – ACCOUNTS PAYABLE
 
 
 The
              Company’s current accounts payable and accrued expenses include $68,873 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 $1,666 as of June 30, 2007. However, since
              amounts may
              be due on demand and it is the Company’s intent to pay such balances in their
              entirety during 2007, 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 – LOSS ON SHIPPED INVENTORY
 
 
 On
              June
              30, 2007, 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 $481,414 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 the products will be returned
              or otherwise
              recovered.
  -16-
 
 VALLEY
              FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES
              TO
              UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
              30,
              2007
 
 
 NOTE
              12 – SUBSEQUENT EVENT
 
 
 Subsequent
              to June 30, 2007, the Company issued 152,500 common shares pursuant
              to the
              exercise of Class B warrants with an exercise price of $1.50 per common
              share
              for gross proceeds of $228,750.   The balance of Class B warrants
              outstanding and exercisable through January 20, 2007, is 1,144,000.
 
 
 NOTE
              13 – RESTATEMENT OF JUNE 30, 2006 UNAUDITED FINANCIAL
              STATEMENTS
 
 
 In
              connection with its March 2007 discussions with the SEC pertaining
              to the
              recognition of revenue from a sale to a Japanese customer for which
              payment had
              not been received, and  to make the comparison of results for the
              periods ending June 30, 2006 and June 30, 2007 more accurate, Management
              has
              restated the Company's unaudited June 30, 2006 financial statements to
              reflect a reduction in sales and accounts receivable in the amount
              of $921,919,
              cost of sales of $435,585, and selling and administrative expenses
              and amounts
              due to shareholders of $436,609 for commission expense relating to
              the
              sale.  The Company also increased inventories by $435,585.  All
              of the preceding changes directly relate to the Company’s change in revenue
              recognition following discussions with the SEC.  See footnote 1 regarding
              the Company’s revenue recognition policy.


-17-




Item
        2.Management’s
        Discussion and Analysis or Plan of Operation.
  CAUTIONARY
          NOTE REGARDINGFORWARD-LOOKING
          STATEMENTS
 
 The
          information presented in Item 2 contains forward-looking statements. You
          should
          understand that forward-looking statements are only predictions reflecting
          our
          current beliefs and are based on information currently available to us.
          Although
          we believe that the assumptions reflected in our forward-looking statements
          are
          reasonable, we cannot guarantee future results, levels of activity, performance
          or achievements.
 
 You
          can
          identify a forward-looking statement by our use of a word such as “may”, “will”,
“should”, “could”, “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“plan”, “predict”, “project”, “propose”, “potential” “continue” and similar
          terms and expressions, or the negative of these words or other variations
          on
          these words or comparable terminology.
 
 In
          evaluating a forward-looking statement, you should understand that a forward
          looking statement involves known and unknown risks, uncertainties,
          contingencies, and other factors that may cause our actual results, levels
          of
          activity, performance or achievements to be materially different from any
          future
          results, performance or achievements expressed or implied by such
          forward-looking statement. Known risks related to an investment in our
          Company,
          risks related to our business, and risks related to our securities are
          identified in pages six through eleven of our Form 10-KSB for fiscal year
          2006
          and are incorporated herein by reference. You should also understand that
          we
          have no obligation and do not undertake to update or revise forward-looking
          statements made in this Report to reflect events or circumstances occurring
          after the date of this Report.
  **Plan
            of Operation**
  Background
 
 The
              Company’s operating subsidiary has been VFCT.  VFCT was incorporated
              in Pennsylvania on November 21, 1996. Through VFCT, the Company has
              been
              continuously engaged in the development and sales of scientific
              technologies. VFCT is actively engaged in an established electronic
              components business. The Company has been engaged in this business
              in excess of
              six years. This activity consists of the sale of electronic components,
              primarily transistors, which are classified as uncontrolled parts.
              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.
 
 Between
              1996 and 2003, 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”).  On April 30, 2007, the Company signed an agreement to
              become a re-seller of a personnel inspection device called ODIN-ULDRIS
              (Ultra
              Low Dose Radiographic Imaging System).  No sales have been made by the
              Company of the ODIN-ULDRIS product, and the Company does not maintain
              any units
              in inventory.
 
 On
              July
              6, 2006, Quetzal Capital 1, Inc., a Florida corporation (“QC1”) entered into a
              share exchange agreement with VFCT. Under the share exchange agreement,
              QC1
              issued 40,000,000 shares of its common stock to VFCT shareholders for
              the
              acquisition of all of the outstanding capital stock of VFCT.  For
              financial accounting purposes, the exchange of stock was treated as
              a
              recapitalization of VFCT 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 VFCT’s 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.”
 
 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.
 
 -18-
  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.  In July and August 2007, a number of
            shareholders exercised 152,500 Class B warrants from which the Company
            realized
            $228,750 in proceeds.
 
 In
            September 2006 we leased a new headquarters office in Covington, Kentucky,
            and
            expended $199,029 on selling and administrative expenses during the second
            quarter of 2007. Our average monthly cost of operations from January 2007
            through June 2007 was $176,527.  This amount includes a one time
            charge for a loss on shipped inventory of $481,414.  Excluding the one
            time charge and a non-cash charge for stock-based consulting of $142,250,
            the
            monthly cost of operations from January 2007 through June 2007 was
            $70,916.
 
 As
            of
            June 30, 2007, we have approximately $116,227 in cash remaining.  Of
            this amount, $88,425 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
            1,296,500 Class B warrants outstanding as of June 30, 2007, which, if
            all are
            exercised, will infuse an additional $1,944,750 in funds to the
            Company.  As of August 8, 2007, 152,500 Class B warrants have been
            exercised netting $228,750 in proceeds to the Company.  The Class B
            warrants' contractual expiration date of November 13, 2007 has been
            extended to January 20, 2007 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 five months,
            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.
 -19-
 Restatement
          of VFCT's June 30, 2006 Unaudited Financial Statements
  In
          connection with its March 2007 discussions with the SEC pertaining to the
          recognition of revenue from a sale to a Japanese customer for which payment
          had
          not been received, and  to make the comparison of results for the
          periods ending June 30, 2006 and June 30, 2007 more accurate, Management
          has
          restated the Company's unaudited June 30, 2006 financial statements to
          reflect a reduction in sales and accounts receivable in the amount of $921,919,
          cost of sales of $435,585, and selling and administrative expenses and
          amounts
          due to shareholders of $436,609 for commission expense relating to the
          sale.  The Company also increased inventories by $435,585.  All
          of the preceding changes directly relate to the Company’s change in revenue
          recognition following discussions with the SEC.  See footnote 1 regarding
          the Company’s revenue recognition policy.
  **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.
  This
        section of our Form 10-QSB 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.
  -20-
  **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.
  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.
  In
        May
        2006, the SEC announced that the compliance date for non-accelerated filers
        pursuant to Section 404 of the Sarbanes-Oxley Act had been extended. Under
        the
        latest extension, a company that is not required to file its annual and
        quarterly reports on an accelerated basis must begin to comply with the internal
        control over financial reporting audit requirements for its first fiscal
        year ending on or after December 15, 2007, which, for the Company, is
        effective for fiscal 2008 beginning January 1, 2008. This is a six
        month extension from the previously established July 15, 2007 compliance
        date established in September 2005. The SEC similarly extended the compliance
        date for these companies relating to requirements regarding evaluation of
        internal control over financial reporting and management certification
        requirements. The Company is currently evaluating the impact of Section 404
        of
        the Sarbanes-Oxley Act on its results of operations, cash flows or financial
        condition.
  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
        3.** **Controls
        and Procedures.**
  Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in Company reports filed
        or
        submitted under the Exchange Act is recorded, processed, summarized and reported
        within the time periods specified in the SEC’s rules and forms. Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that information required to be disclosed in Company reports
        filed under the Exchange Act is accumulated and communicated to Management,
        including the Company's President, functioning as the Company’s principal
        executive and principal financial officer, to allow timely decisions regarding
        required disclosure.
  In
        anticipation of the effectiveness of Rule 13a-15 promulgated under the Exchange
        Act, the Company carried out an evaluation of the effectiveness of the
        design and operation of the Company's disclosure controls and procedures.
        This
        evaluation was carried out under the supervision and with the participation
        of
        the Company's Management, including the Company's President, functioning
        as the
        Company’s principal executive and financial officer. Based upon that evaluation,
        the President, functioning as the Company’s principal executive and financial
        officer, concluded that the Company's disclosure controls and procedures
        are
        effective.
  There
        were no changes in the Company's internal controls over financial reporting
        that
        occurred during the quarter ended June 30, 2007 that have materially
        affected, or are reasonably likely to materially affect, the internal control
        over financial reporting.
  -21-




**PART
        II OTHER INFORMATION**
  **Item
        6. Exhibits**
  (a)
              Exhibits
  **ExhibitNo.**
              
              **Description**2.1
              *
              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.
 
 -22-
  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
                  13, 2007
              By:
              /s/
                  Louis J. Brothers
                Louis
                  J. BrothersPresident,
                  Secretary and Treasurer
                (Principal
                  Accounting Officer and Authorized
                  Officer)