UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




þ QUARTERLY REPORT
UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
quarterly period ended March 31, 2008




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




Commission
file number 000-29587




VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)




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




50
East River Center Blvd., Suite 820


Covington, KY
41011


(Address
of principal executive offices) (Zip Code)




859.581.5111


(Registrant's
telephone number, including area code)




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer o
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o
            
            Smaller
      reporting company þ(Do
      not check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo þ




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




Class
            
            Outstanding
      at March 31, 2008Common
      Stock, $.001 par value per share
            
            47,230,349


-1-




VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


FORM
10-Q


FOR THE PERIOD
ENDED MARCH 31,2008




INDEX




PageSPECIAL NOTE REGARDING
      FORWARD-LOOKING STATEMENTS
            
            3PART I. FINANCIAL
      INFORMATION
            
            4Item
      1.
            Financial
      Statements
            
            4Consolidated
      Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
      2007
            
            4Consolidated
      Statements of Operations (Unaudited) for three months ended March 31, 2008
      and 2007
            
            5Consolidated
      Statements of Cash Flows (Unaudited) for the three months ended March 31,
      2008 and 2007
            
            6Notes
      to the Consolidated Financial Statements as of March 31,
    2008
            
            7Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            20Item
      3.
            Qualitative
      and Quantitative Disclosures About Market Risk
            
            26Item
      4.
            Controls
      and Procedures
            
            26PART II. OTHER
      INFORMATION
            
            27Item
      1.
            Legal
      Proceedings
            
            27Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            27Item
      3.
            Defaults
      Upon Senior SecuritiesItem
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            27Item
      5.
            Other
      information
            
            27Item
      6.
            Exhibits
            
            27SIGNATURES
            
            28




-2-










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




In
this report references to “Valley Forge,” “the Company,” “we,” “us,” and “our”
refer to Valley Forge Composite Technologies, Inc. and its
subsidiaries.


-3-




PART I: FINANCIALINFORMATION




ITEM
1. FINANCIAL STATEMENTS






VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED  BALANCE
      SHEETS
  March
      31,
              
              
              December
      31,2008
              
              
              2007(Unaudited)
              
              
              (1)ASSETSCurrent
      assets:Cash
              
              $
              130,484
              
              
              $
              88,656Inventory
              
              
              474,855
              
              
              
              460,114Prepaid
      expenses
              
              
              35,348
              
              
              
              42,659Deposits
      with vendors
              
              
              266,180
              
              
              
              222,735Total
      current assets
              
              
              906,867
              
              
              
              814,164Property
      and equipment, net
              
              
              58,799
              
              
              
              59,747Other
      assets:Security
      deposit
              
              
              5,535
              
              
              
              5,535Total
      Assets
              
              $
              971,201
              
              
              $
              879,446LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
              
              $
              181,990
              
              
              $
              128,381Note
      payable
              
              
              159,975
              
              
              
              160,000Deferred
      revenue
              
              
              66,000
              
              
              
              66,000Convertible
      debenture
              
              
              42,000
              
              
              
              42,000Due
      to shareholder
              
              
              216,558
              
              
              
              216,558Total
      current liabilities
              
              
              666,523
              
              
              
              612,939Shareholders'
      Equity:Common
      stock, $.001 par value, 100,000,000shares
      authorized; 47,230,349  and 46,955,833shares
      issued and outstanding at March 31, 2008 andDecember
      31, 2007.
              
              
              47,230
              
              
              
              46,956Additional
      paid-in capital
              
              
              5,033,614
              
              
              
              4,638,394Accumulated
      deficit
              
              
              (4,776,166
              )
              
              
              (4,418,843
              )Total
      shareholders' equity
              
              
              304,678
              
              
              
              266,507Total
      Liabilities and Shareholders' Equity
              
              $
              971,201
              
              
              $
              879,446
    See
the accompanying notes to the unaudited consolidated financial
statements.


-4-




VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS(UNAUDITED)




For
      the three months endingMarch
      31,2008
              
              
              2007Sales
              
              $
              -
              
              
              $
              -Costs
      and expensesSelling
      and administrative expenses
              
              
              277,328
              
              
              
              226,256Stock
      based consulting
              
              
              71,225
              
              
              
              71,225348,553
              
              
              
              297,481Loss
      from operations
              
              
              (348,553
              )
              
              
              (297,481
              )Other
      incomeInterest
      expense
              
              
              (8,920
              )
              
              
              (3,985
              )Investment
      income
              
              
              150
              
              
              
              4,990Net
      loss
              
              $
              (357,323
              )
              
              $
              (296,476
              )Loss
      per common shareBasic
              
              $
              (0.01
              )
              
              $
              (0.01
              )Diluted
              
              $
              (0.01
              )
              
              $
              (0.01
              )Weighted
      Average Common Shares OutstandingBasic
      and Diluted
              
              
              47,093,807
              
              
              
              46,296,500


See
the accompanying notes to the unaudited consolidated financial
statements.


-5-




VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(UNAUDITED)For
      the three months endedMarch
      31,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (357,323
            )
            
            $
            (296,476
            )Adjustments
      to reconcile net lossto
      net cash provided by (used in)operating
      activities:Depreciation
      expense
            
            
            3,420
            
            
            
            3,358Common
      stock issued for services
            
            
            31,269
            
            
            
            -Fair
      value of warrants issued for consulting services
            
            
            71,225
            
            
            
            71,225Change
      in operating assets and liabilities(Increase)
      Decrease in:Inventory
            
            
            (14,741
            )
            
            
            (67,894
            )Prepaid
      expenses
            
            
            7,311
            
            
            
            962Vendor
      deposits
            
            
            (43,445
            )
            
            
            (18,323
            )Increase (decrease) in:Accounts payable and accrued expenses
            
            
            53,609
            
            
            
            (4,748
            )NET
      CASH USED INOPERATING ACTIVITIES
            
            
            (248,675
            )
            
            
            (311,896
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of equipment
            
            
            (2,472
            )
            
            
            (3,811
            )NET
      CASH USED ININVESTING ACTIVITIES
            
            
            (2,472
            )
            
            
            (3,811
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds from exercise of warrants
            
            
            200,000
            
            
            
            -Proceeds from issuance of common stock per standby equity
      agreement
            
            
            93,000
            
            
            
            -Repayments of notes payable
            
            
            (25
            )
            
            
            -Repayments to shareholder
            
            
            -
            
            
            
            (657
            )NET
      CASH PROVIDED BY(USED IN) FINANCING
      ACTIVITIES
            
            
            292,975
            
            
            
            (657
            )NET
      INCREASE (DECREASE) IN CASH
            
            
            41,828
            
            
            
            (316,364
            )CASH
      AT BEGINNING OF PERIOD
            
            
            88,656
            
            
            
            683,997CASH
      AT END OF PERIOD
            
            $
            130,484
            
            
            $
            367,633SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the period for:Income
      taxes
            
            $
            -
            
            
            $
            -Interest
            
            $
            5,271
            
            
            $
            2,110See
      the accompanying notes to the unaudited consolidated financial
      statements.




-6-


VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31,
2008




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




Nature of the
Business




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




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




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




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




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




On July
6, 2006, Quetzal Capital 1, Inc., a Florida corporation (“QC1”) entered into a
share exchange agreement with VFDS’ predecessor Pennsylvania corporation. Under
the share exchange agreement, QC1 issued 40,000,000 shares of its common stock
to VFDS shareholders for the acquisition of all of the outstanding capital stock
of VFDS. For financial accounting purposes, the exchange of stock was treated as
a recapitalization of VFDS with the former shareholders of QC1 retaining
5,000,000 shares (or approximately 11%) of the public company. Prior to the
merger, QC1 was a reporting shell corporation with no operations. The share
exchange was approved by QC1 and its sole shareholder, Quetzal Capital Funding
I, Inc. (“QCF1”), and by VFDS’ board of directors and a majority of its
shareholders. QC1 changed its name to Valley Forge Composite Technologies, Inc.,
a Florida corporation, and is referred to throughout this report as the
“Company.” -7-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




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




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




Basis of
Presentation




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




Going
Concern




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




Use of
Estimates




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




Comprehensive
Income




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




Fair Value of Financial
Instruments




The
Company’s financial instruments consist of cash, security deposits, due to
shareholders, accounts payables, accrued expenses, a note payable, and a
convertible debenture. The carrying values of these financial instruments
approximate the fair value due to their short term maturities. -8-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




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




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 March 31, 2008, the Company’s cash deposits exceeded the FDIC
insured limits by $35,753.




Cash
Equivalents




The
Company considers all short-term securities purchased with a maturity of three
months or less to be cash equivalents. At March 31, 2008, 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:




March
      31
              
              
              December
      312008
              
              
              2007Raw materials
              
              $
              -0-
              
              
              $
              -0-Work in process
              
              
              236,930
              
              
              
              460,114Finished goods
              
              
              237,925
              
              
              
              -0-$
              474,855
              
              
              $
              460,114




Property and
Equipment




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




Computers
      and Equipment
              5
      yearsFurniture
      and
      fixtures
              7
      years




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




Revenue
Recognition




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




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




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


-9-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008


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




Income
Taxes




Under the
asset and liability method of FASB Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance, when in the Company's opinion
it is likely that some portion or the entire deferred tax asset will not be
realized.




Loss per common
share




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




The
following sets forth the computation of earnings per share.




For
      the Period EndedMarch
      31,2008
              
              
              2007Net
      loss
              
              $
              (
      357,323
              )
              
              $
              (
      296,476
              )Weighted
      average shares
      outstanding
              
              
              47,093,807
              
              
              
              46,296,500Loss
      per share - basic and
      diluted
              
              $
              (.01
              )
              
              $
              (.01
              )


-10-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




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




The
Company’s common stock equivalents include the following:




March
      31,
              
              
              December
      31,2008
              
              
              2007Class
      A
      Warrants
              
              
              2,800,000
              
              
              
              3,000,000Class
      B
      Warrants
              
              
              958,500
              
              
              
              958,500Total
      common stock
      equivalents
              
              
              3,758,500
              
              
              
              3,958,500




Share Based
Payments




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




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




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


-11-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




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%. Three months consulting expense in the
amount of $71,225 was attributed to the grant of these warrants during the
period ended March 31, 2008. A reconciliation of these related warrants issued
and outstanding at March 31, 2008 is as follows:




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




Warranties




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




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








-12-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




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




Recent accounting
pronouncements




The Fair Value Option for Financial
Assets and Financial Liabilities – including an Amendment of SFAS No.
115


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The adoption of SFAS No. 160 is not expected to have a material
effect on its financial position, results of operations or cash
flows.








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.


-13-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




NOTE 2 -
GOING
CONCERN




As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $4,776,166 at March 31, 2008, net losses in the period
ended March 31, 2008 of $357,323 and cash used in operations during the period
ended March 31, 2008 of $248,675. The accompanying financial statements have
been prepared assuming that the Company will continue as a going
concern.




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




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




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




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




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


-14-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




NOTE 3 –
INCOMETAXES




There was
no income tax expense for the periods ended March 31, 2008 and 2007 due to the
Company’s net losses.




Under the
asset and liability method of FASB Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance, when in the Company's opinion
it is likely that some portion or the entire deferred tax asset will not be
realized. After consideration of all the evidence, both positive and negative,
management has recorded a full valuation allowance due to the uncertainty of
realizing the deferred tax assets. Utilization of the Company's net operating
loss carryforwards are limited based on changes in ownership as defined in
Internal Revenue Code Section 382. Due to ongoing losses and the establishment
of a valuation allowance to offset deferred tax assets, the Company did not
record a tax provision for the period ended March 31, 2008.




NOTE 4 -
RELATED PARTY
TRANSACTIONS




At March
31, 2008 and December 31, 2007, the Company owed Louis J. Brothers, the
Company’s president and major shareholder, $216,558 for advances made to the
Company. Such amount, which is included in the due to shareholders balance on
the balance sheet at March 31, 2008 and December 31, 2007, earns 6% annual
interest compounded quarterly, and is due on demand.




On August
11, 2006, Coast to Coast Equity Group, Inc., a Company warrant holder, loaned
the Company $42,000 as described in Note 6.




NOTE 5 -
DESCRIPTION OF LEASING
ARRANGEMENTS




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




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




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




Under the
terms of the lease, the Company shall pay additional rent to cover operating
expenses of the property of approximately $349 per month. Rent expense for the
period ended March 31, 2008 and March 31, 2007 was $22,942 and $16,707
respectively.




The
following is a schedule of future minimum lease payments required under the
lease as of March 31, 2008:




Period
      EndingMarch 31
              
              Amount2009
              
              $
              68,7212010
              
              
              70,7592011
              
              
              67,7652012
              
              
              22,387$
              229,632


-15-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008


NOTE 6 -
CONVERTIBLE
DEBENTURE




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




NOTE 7 –
SHAREHOLDERS’
EQUITY




On July
6, 2006, the Company issued 3,000,000 Class A warrants in exchange for
consulting services rendered. The Company valued these warrants at the fair
market value on the dates of the grant as referred to in Note 1. The Company
recorded stock based consulting expense of $71,225 for the period ending March
31, 2008.




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




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




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


-16-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008


Common Stock
Warrants




Stock
warrant activity for the period ended March 31, 2008 is summarized as
follows:


Number
      of
              
              
              Weighted
      averageshares
              
              
              exercise
      priceOutstanding at December 31,
      2007
              
              
              3,958,500
              
              
              $
              1.50Granted
              
              
              -
              
              
              
              -Exercised
              
              
              200,000
              
              
              
              1.50Outstanding at March 31, 2008
              
              
              3,758,500
              
              
              $
              1.50
 
 The
following table summarizes the Company's Class A and B stock warrants
outstanding at March 31, 2008:
 
 Weighted
      Average
              
              
              Weighted
      AverageRange
      of
              
              
              
              
              
              Remaining
              
              
              ExerciseExcercise
      Price
              
              
              Number
              
              
              Life
              
              
              Price$
              1.00
              
              
              
              800,000
              
              
              
              .25
              
              
              $
              1.00$
              1.50
              
              
              
              1,000,000
              
              
              
              .25
              
              
              $
              1.50$
              2.00
              
              
              
              1,000,000
              
              
              
              .25
              
              
              $
              2.00$
              1.50
              
              
              
              958,500
              
              
              
              .25
              
              
              $
              1.50


NOTE 8 -
REGISTRATION RIGHTS
AGREEMENT




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




Pursuant
to the terms of the August-November 2006 private placement agreement, the
Company agreed to obtain a trading symbol from the NASD within three (3) months
after the effective date of the Company’s registration statement registering the
private placement securities, and, if it failed to do so, the Company agreed
that it would undertake to locate and merge with a company having a public quote
for its common stock within the seven (7) month period following the effective
date of the Company’s Registration Statement, and, failing the ability to merge
timely with a trading company, the Company had agreed to rescind the Purchaser’s
investment. The Company obtained a trading symbol for its common stock on July
9, 2007. Accordingly, damages have not been accrued as of the balance sheet
date. -17-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




NOTE 9 –
PROPERTY AND
EQUIPMENT




The major
classifications of equipment are summarized below:




March
      31,
              
              
              December
      31,2008
              
              
              2007Office
      equipment
              
              $
              50,705
              
              
              $
              50,551Furniture and
      fixtures
              
              
              48,205
              
              
              
              45,88798,910
              
              
              
              96,438Less accumulated
depreciation
              
              
              (40,111
              )
              
              
              (36,691
              )$
              58,799
              
              
              $
              59,747Depreciation expense for period
              
              $
              3,420
              
              
              $
              13,594




NOTE 10 –
ACCOUNTS
PAYABLE




The
Company’s current accounts payable and accrued expenses include $76,937 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 $1,671 as of March 31, 2008. However, since amounts may
be due on demand and it is the Company’s intent to pay such balances in their
entirety during 2008, such amounts have been classified as current.




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




NOTE 11 –
NOTE
PAYABLE




On
December 19, 2007, the Company borrowed $160,000 from a financial institution at
a rate of 6.25% with a maturity date of June 15, 2008. The note is secured by a
personal guarantee of an officer and employee of the Company.




NOTE 12 –
DEFERRED
REVENUE




On April
20, 2007, VFA entered into an agreement with NASA to manufacture certain
satellite components for $132,000. As of March 31, 2008, the Company had
received $66,000 and in accordance with the Company’s revenue recognition policy
(see note 1), no revenue has been recognized because goods have not been
received by the customer as of March 31, 2008. -18-
 VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31,
2008




NOTE 13 –
ADVERTISING




Advertising
costs are expensed as incurred. Advertising expense was $47,399 and $-0- as of
March 31, 2008 and 2007, respectively.




NOTE 14 –
STANDBY EQUITY
AGREEMENT




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




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




As of
March 31, 2008, the Company had sold 333,333 shares for $500,000.




NOTE 15 –
STOCK
COMPENSATION




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




-19-




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




EXECUTIVE
OVERVIEW




The
following analysis of our consolidated financial condition and results of
operations for the three months ended March 31, 2008 and 2007 should be read in
conjunction with the Consolidated Financial Statements and other information
presented elsewhere in this quarterly report.




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




Plan
of Operation




Background




Subsidiaries




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




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




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




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


-20-




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




Merger
and Liquidity Events






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




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




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




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




On August
22, 2007, the Company entered into an agreement with CTCEG to sell 333,333
shares of common stock at $1.50 per share on demand of the Company. The Company
established a price protection provision relating to the selling price of common
stock per the agreement. The provision states that parties to the agreement are
entitled to receive additional stock if the Company sells shares of stock for
less than $1.50 per share of common stock to an investor prior to the time
limitations specified which is one (1) year from the effective date of the
agreement. As of March 31, 2008, the Company had sold 333,333 shares for
$500,000.




Discussion




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




In
September 2006 we leased a new headquarters office in Covington, Kentucky, and
expended $357,323 on selling and administrative expenses during the period ended
March 31, 2008. Our average monthly cost of operations from January 2008 through
March 2008 was $119,108. Excluding, a non-cash charge of $71,225 for stock based
consulting, the monthly cost of operations from January 2008 through December
2008 was $95,366.




-21-


As of
March 31, 2008, we have approximately $130,484 in cash remaining. Of this
amount, $130,484 is available for use as payroll expense pursuant to the terms
of the investment agreements entered into with purchasers of units in the Unit
Offering.




We had
958,000 Class B warrants outstanding as of March 31, 2008, which, if all are
exercised, will infuse an additional $1,437,000 in funds to the Company. As of
March 31, 2008, 338,000 Class B warrants have been exercised netting $507,000 in
proceeds to the Company. The Class B warrants' contractual expiration date of
November 13, 2007 has been extended to July 20, 2008 by decision of the board of
directors. We also have 2,800,000 Class A warrants outstanding, but at the
current market price for our common stock, all of the Class A warrants can be
exercised on a cashless exercise basis for which no funds will be received by
the Company. The Class A warrants expire on May 14, 2009. Of course, the Company
does not control whether any warrants will be exercised.




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




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




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




Critical Accounting Policies and
Estimates




The
accompanying consolidated financial statements have been prepared by the
Company. The Company’s financial statements are consolidated with the results of
its 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-Q contains a description of our critical accounting
policies as they pertain to: the Company’s business as a going concern, our use
of estimates, our fair valuation of financial instruments, our revenue
recognition policy, and to the effect on our financial statements of recent
accounting pronouncements. A more comprehensive discussion of our critical
accounting policies, and certain additional accounting policies, can be found in
Note 1 to the financial statements.


-22-




Going Concern




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




Use of Estimates




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




Fair Value of Financial
Instruments




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




RESULTS
OF OPERATIONS




The
following discussions are based on the unaudited consolidated financial
statements of Valley Forge Composite Technologies and its
subsidiaries. These charts and discussions summarize our financial statements
for the three months’ ended March 31, 2008, and 2007, and should be read in
conjunction with the financial statements, and notes thereto, included with this
report at Part II, Item 7, below.




SUMMARY COMPARISON OF OPERATING
      RESULTSThree
      months ended March 31,2008
            
            
            2007Revenues,
      net
            
            $
            -
            
            
            $
            -Total
      operating expenses
            
            
            348,553
            
            
            
            297,481Loss
      from operations
            
            
            (348,553
            )
            
            
            (297,481
            )Total
      other income (expense)
            
            
            (8,770
            )
            
            
            1,005Net
      income (loss)
            
            
            (357,323
            )
            
            
            (296,476
            )Net
      income (loss) per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )




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.


-23-




The
following chart provides a breakdown of our sales in 2008
and 2007.




March
      31,
            
            
            December
      31,2008
            
            
            2007Totals
      per financial statements
            
            
            -
            
            
            
            -Valley
      Forge Detection Systems, Inc.
            
            
            -
            
            
            
            -Valley
      Forge Aerospace, Inc.
            
            
            -
            
            
            
            -Valley
      Forge Imaging, Inc.
            
            
            -
            
            
            
            -Valley
      Forge Imaging Technologies, inc.
            
            
            -
            
            
            
            -Totals
      per financial statements:
            
            
            -
            
            
            
            -




Our total
operating expense was $348,553 for the three months ended March 31, 2008 and
$1,998,412 for the year ended December 31, 2007.




LIQUIDITY
AND CAPITAL RESOURCES




We have
incurred losses for the past two fiscal years and had a net loss of $357,323 for
the three months ended March 31, 2008. Our auditors have expressed substantial
doubt that we can continue as a going concern.




Historically,
we have relied on revenues, debt financing and sales of our common stock to
satisfy our cash requirements. For the three months ended March 31, 2008 we
received cash proceeds of $293,000 from sales of our common stock.




For the
year ended December 31, 2007, we received cash proceeds from debt financing of
$160,000 and sales of our common stock of $914,000.


-24-




For the
three months ended March 31, 2008 we issued 274,516 shares for investments.
For the year ended December 31, 2007 we issued 659,333 shares for investments.
Management anticipates that we will continue to issue shares for services in the
short term.




Management
intends to finance our 2008 operations primarily with the revenue from product
sales and any cash short falls will be addressed through equity financing, if
available. Management expects revenues will be realized but not to the point of
profitability in the short term. We will need to continue to raise additional
capital, both internally and externally, to cover cash shortfalls and to compete
in our markets. At our current revenue levels management believes we will
require an additional $1,000,000 during the next 12 months to satisfy our cash
requirements of approximately $95,000 per month. These operating costs include
cost of sales, general and administrative expenses, salaries and benefits and
professional fees. We have insufficient financing commitments in place to meet
our expected cash requirements for 2008 and we cannot assure you that we will be
able to obtain financing on favorable terms. If we cannot obtain financing to
fund our operations in 2008, then we may be required to reduce our expenses and
scale back our operations.




COMMITMENTS
AND CONTINGENT LIABILITIES




The
Company leases office and warehouse spaces in Covington, KY and Erlanger, KY
under a five-year and 37 month non-cancelable operating lease,
expiring August 2011 and December 2010, respectively. Base rent is $5,551
per month with an annual rent escalator of 3%. At December 31, 2007, future
minimum payments for operating leases related to our office and manufacturing
facilities were $246,533 through August 2011.




Our total
current liabilities increased to $666,523 at March 31, 2008 compared to $612,939
at December 31, 2007. Our total current liabilities at March 31, 2008 included
accounts payable and accrued expenses of $181,990, notes payable of
$159,975, deferred revenue of $66,000, convertible debentures of $42,000 and a
loan from shareholder of $216,558.


-25-


Off-Balance
Sheet Arrangements




The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company’s financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.




Contractual
Obligations




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




ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




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




ITEM
4T. CONTROLS AND PROCEDURES




Disclosure
Controls and Procedures




Under the
supervision and with the participation of our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rule 13a-15(e) promulgated under the Exchange Act, as of March 31, 2008 (the
"Evaluation Date"). Based on this evaluation, our principal executive officer
and principal financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the information
relating to the Company, including our consolidated subsidiaries, required to be
disclosed in our SEC reports (i) is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and (ii) is accumulated
and communicated to management, including our principal executive
officer/principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.




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




Management's
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate control over
financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange
Act. Our management assessed the effectiveness of our internal control over
financial reporting as of March 31, 2008. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated
Framework. Our management has concluded that, as of March 31, 2008, our
internal control over financial reporting is effective based on these
criteria.




Changes
in Internal Control over Financial Reporting




Our
management has also evaluated our internal control over financial reporting, and
there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date of
our last evaluation.




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


-26-




PART II: OTHER
INFORMATION






ITEM
1. LEGAL PROCEEDINGS




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




ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




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




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.




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




None




ITEM
5. OTHER INFORMATION




None




ITEM
6. EXHIBITS




The
following exhibits are filed herewith:




(a)
            Exhibits




Exhibit
      No.
              Description2.1*
              Share
      Exchange Agreement Between Quetzal Capital 1, Inc. and the Shareholders of
      Valley Forge Composite Technologies, Inc., dated July 6,
    20063(i)(1)*
              Articles
      of Amendment by Quetzal Capital 1, Inc.4.3*
              Valley
      Forge Composite Technologies, Inc.’s Notice of Shareholder Action and
      Information Statement4.4*
              Articles
      and Plan of Share Exchange Between Quetzal Capital 1, Inc., a Florida
      corporation, and Valley Forge Composite Technologies, Inc., a Pennsylvania
      corporation, filed with the Florida Department of State, Division of
      Corporations, effective July 6, 20064.5*
              Articles
      and Plan of Share Exchange Between Quetzal Capital 1, Inc., a Florida
      corporation, and Valley Forge Composite Technologies, Inc., a Pennsylvania
      corporation, filed with the Pennsylvania Department of State, Corporation
      Bureau, effective July 6, 200610.1*
              Registration
      Rights Agreement, dated July 6, 200610.2*
              Consulting
      Agreement between Coast To Coast Equity Group, Inc. and Quetzal Capital 1,
      Inc., dated July 6, 200610.3*
              Warrant
      Agreement between Coast To Coast Equity Group, Inc. and Quetzal Capital 1,
      Inc., dated July 6, 200610.4**
              Form
      of Investment Letter31.1
              13a-14(a)-15d-14(a) Certification - Louis J.
      Brothers31.2
              13a-14(a)-15d-14(a) Certification - Louis J.
      Brothers32.1
              18 U.S.C. §
      1350 Certification - Louis J. Brothers32.2
              18 U.S.C. §
      1350 Certification - Louis J.
  Brothers




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


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


-27-






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:
      May 15, 2008
            By:
            /s/
      Louis J. Brothers
              Louis
      J. BrothersPresident,
      Secretary and Treasurer
              (Principal
      Accounting Officer and Authorized
Officer)







-28-