**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010.

[  ] TRANSITION REPORT PURSUANT TO 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

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

 

 

**50 East River Center Blvd., Suite 820, Covington, KY**

 

**41011**

(Address of principal executive offices)

 

(Zip Code)

Issuer's telephone number: **(859) 581-5111**

Securities to be registered under Section 12(b) of the Act:   **None**

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

**Common Stock, Par Value $.001 Per Share**

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        [  ] Yes    [ X No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     [  ] Yes    [X] No

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.    [X] Yes    [  ] No

1

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  [  ]   No  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [X]

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 

 

 

 

 

 

 

Large accelerated filer [  ]

 

Accelerated filer [  ]

Non-accelerated filer [  ]

 

Smaller reporting company [X]

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

The number of shares outstanding of the issuer’s common stock as of March 31, 2010 was 59,152,116 shares.

2

**VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.**

**FORM 10-Q**

**FOR THE PERIOD ENDED MARCH 31, 2010**

 

**INDEX** 

  

**Page**

**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS**

3

  

 

**PART I. FINANCIAL INFORMATION**

4

  

 

Item 1.

Financial Statements

4

  

Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009

4

  

Condensed Consolidated Statements of Operations (Unaudited) for the three and  nine months ended March 30, 2010 and 2009

5

  

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 30, 2010 and 2009

6

  

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

  

 

**PART II. OTHER INFORMATION**

25

  

 

Item 1.

Legal Proceedings

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

[REMOVED AND RESERVED]

27

Item 5.

Other information

27

Item 6.

Exhibits

27

  

 

**SIGNATURES**

28

**Special Note Regarding Forward-Looking Statements**

 

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

 

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

3

**PART 1:  FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEET**

 

 

 

 

 

 

 

 

 

 

 

**March 31,**

 

**December 31,**

 

 

 

 

 

 

 

**2010**

 

**2009**

**ASSETS**

 

 

 

 

 

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash 

 

 

 

 

 

$

933,244 

$

1,492,135 

 

 

Accounts receivable

 

 

 

 

 

 

89,043 

 

99,120 

 

 

Inventory

 

 

 

 

 

 

158,247 

 

151,300 

 

 

Prepaid expenses

 

 

 

 

 

 

87,828 

 

104,285 

 

 

Deposits with vendors

 

 

 

 

 

 

201,880 

 

21,000 

 

 

 

Total current assets

 

 

 

 

 

 

1,470,242 

 

1,867,840 

 

Property and equipment, net

 

 

 

 

 

47,364 

 

40,958 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Security deposit

 

 

 

 

 

 

5,535 

 

5,535 

 

 

Capitalized R&D costs, net of amortization of $85,431 and $73,227 at March 31, 2010 and December 31, 2009 

158,659 

 

170,863 

 

 

Loan fees, net of amortization of $234,685 and  $26,614 at March 31, 2010 and December 31, 2009

- 

 

129,843 

 

 

 

Total other assets

 

 

 

 

 

 

164,194 

 

306,241 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

 

 

$

1,681,800 

 

2,215,039 

 

 

 

 

 

 

 

 

 

 

 

 

 

**LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)**

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

$

628,561 

$

1,217,603 

 

 

Deferred revenue

 

 

 

 

 

 

651,383 

 

858,400 

 

 

Convertible debenture 

 

 

 

 

 

 

42,000 

 

42,000 

 

 

Due to shareholder

 

 

 

 

 

 

216,558 

 

216,558 

 

 

 

Total current liabilities

 

 

 

 

 

 

1,538,502 

 

2,334,561 

 

Long-term debt, net of debt discount of $1,00,000 and $541,893

 

 

 

 

 

at March 31, 2010 and December 31, 2009

 

 

 

 

 

- 

 

458,107 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized;

 

 

 

 

 

 

59,152,116 and 54,688,920 issued and   outstanding at March 31, 2010 and 

 

 

 

 

 

 

 

 

December 31, 2009

 

59,152 

 

54,689 

 

 

Additional paid-in capital

 

 

 

 

 

8,883,726 

 

7,673,903 

 

 

Accumulated deficit

 

 

 

 

 

 

(8,799,580)

 

(8,306,221)

 

 

 

Total shareholders' equity (deficit)

 

 

 

 

 

 

143,298  

 

(577,629)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity (Deficit)

 

 

$

1,681,800 

$

2,215,039 

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

4

**VALLEY FORGE COMPOSITE TECHNOLOGIES, INC**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)**

 

 

 

 

 

 

 

 

 

 

 

 

 

**For the three months ended**

 

 

 

 

 

 

**March 31,**

 

 

 

 

 

 

**2010**

 

**2009**

 

 

 

 

 

 

 

 

 

 Sales 

 

 

 

$

4,511,570 

$

- 

 Cost of sales 

 

 

 

3,924,376 

 

- 

 

 

 

 

 

 

 

 

 

 Gross Profit 

 

 

 

587,194 

 

- 

 

 

 

 

 

 

 

 

 

 Costs and expenses 

 

 

 

 

 

 

 Selling and administrative expenses 

 

535,597 

 

334,103 

 

 

 

 

 

 

 

 

 

 Profit (loss) from operations 

 

 

51,597

 

(334,103)

 

 

 

 

 

 

 

 

 

 Other income (expense)

 

 

 

 

 

 

 

 Interest expense 

 

 

 

(544,972)

 

(124,710)

 

 Investment income 

 

 

16 

 

57 

 

 

 

 

 

 

 

 

 

 Net loss 

 

 

 

$

(493,359)

$

(458,756)

 

 

 

 

 

 

 

 

 

 Loss per common share 

 

 

 

 

 

 

 Basic and Diluted 

 

$

(0.01)

$

(0.01)

 

 

 

 

 

 

 

 

 

 Weighted Average Common Shares Outstanding 

 

 

 

 

 Basic and Diluted 

 

 

55,419,371 

 

51,415,349 

 

 

 

 

 

 

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

5

**VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**

 

 

 

 

 

 

 

 

 

For the three months ending March 31,

 

 

 

 

 

 

2010

 

2009

**CASH FLOWS FROM OPERATING ACTIVITIES**

 

 

 

 

Net loss

 

 

$

(493,359)

$

(458,756)

 

Adjustments to reconcile net loss

 

 

 

 

to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation  and amortization expense

145,843 

 

34,663 

 

 

Amortization of debt discount

541,893 

 

94,521 

 

 

Change in operating assets and liabilities

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

Accounts receivable

 

10,077  

 

9,492  

 

 

 

Inventory

 

 

(6,947)

 

- 

 

 

 

Prepaid expenses

 

16,457 

 

72,990  

 

 

 

Vendor deposits

 

(180,880)

 

- 

 

 

 

Increase (decrease) in:

 

 

 

 

 

 

Accounts payable and accrued expenses

(589,042)

 

(4,517)

 

 

 

Deferred revenue

 

(207,017)

 

103,950  

 

      Net Cash Used In Operating Activities

(762,975)

 

(147,657)

**CASH FLOWS FROM INVESTING ACTIVITIES**

 

 

 

 

Purchases of equipment

 

(10,202)

 

(2,472) 

 

        Net Cash Used In Investing Activities

(10,202)

 

(2,472)

**CASH FLOWS FROM FINANCING ACTIVITIES**

 

 

 

 

Gross proceeds from exercise of warrants

214,286 

 

- 

 

      Net Cash Provided From Financing Activities

214,286 

 

- 

NET DECREASE IN CASH

(558,891)

 

(147,657)

CASH AT BEGINNING OF PERIOD

 

1,492,135 

 

305,179 

CASH AT END OF PERIOD

$

933,244 

 

157,522 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Income taxes

 

$

- 

$

- 

 

Interest 

 

 

$

- 

$

42,259 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements**.**

6

**VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**MARCH 31, 2010**

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 personnel screening devices known as ODIN and ULDRIS (Ultra Low Dose Radiographic Imaging System).  On April 30, 2007, the Company signed an agreement to become a re-seller of ULDRIS, a product manufactured in Russia. 

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

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

Between 1996 and 2003 and in 2009, through VFDS, the Company won numerous contracts to produce momentum wheels and various other 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.”

 

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.

7

Basis of Presentation

 
The accompanying interim condensed financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at March 31, 2010, the results of operations for the three months ended March 31, 2010 and 2009, and cash flows for the three months ended March 31, 2010 and 2009.  The balance sheet as of December 31, 2009 is derived from the Company's audited financial statements.

 

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omittedpursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to makethe information presented therein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal yearended December 31, 2009, as filed with the Securities and Exchange Commission.

 

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

 

The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2010

Going Concern

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

Use of Estimates

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

Comprehensive Income

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

Fair Value of Financial Instruments

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

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. The Company maintains its cash investments in high credit quality financial institutions. At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts. At March 31, 2010, the Company’s cash deposits exceeded the FDIC insured limits by $1,525,225.

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, 2010, the Company held no cash equivalent securities.

8

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 31**

 

 

 

**2010**

 

 

**2009**

 

Raw materials   

 

$

-0- 

 

 

$

-0- 

 

Work in process 

 

 

158,247 

 

 

 

-0- 

 

Finished goods 

 

 

-0- 

 

 

 

151,300 

 

 

 

$

158,247 

 

 

$

151,300 

 

 

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 years

Furniture 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.

Loan Fees

Loan fees are stated at cost.  Amortization on loan fees is calculated using the straight-line method over the term of the loans.

 

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

Income taxes are accounted for in accordance with ACS 740, Accounting for Income Taxes. ACS 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits 

9

indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized. 

Loss per common 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 Ended**

 

**  **

 

**March 31,**

 

**  **

 

**2010**

 

 

**2009**

 

Net Loss                                                                          

 

$

(493,359)

 

 

$ 

(458,756)

 

Weighted average shares outstanding                               

 

 

55,419,371 

 

 

 

51,415,349 

 

Loss per share - basic and diluted                   

 

$

(  .01)

 

 

$ 

(  .01)

 

The Company’s common stock equivalents include the following:

 

 

 

 

 

 

 

 

 

 

 

 

**March 31,**

 

 

**March 31,**

 

 

 

**2010**

 

 

**2009**

 

Class A Warrants                                                            

 

 

– (1)

 

 

 

2,800,000

 

Class B Warrants

 

 

(2)

 

 

 

958,500

 

Class C Warrants

 

 

1,000,000

 

 

 

1,000,000

 

Class D Warrants                                                      

 

 

1,585,717

 

 

 

1,857,146

 

Class F Warrants                                                            

 

 

1,300,000

 

 

 

-

 

Total common stock equivalents          

 

 

3,885,717

 

 

 

6,615,646 

 

 

(1)  The Class A Warrants expired on May 14, 2009

(2)  The Class B Warrants expired on April 4, 2009

Share Based Payments

Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights, are measured at their fair value on the awards’ grant date, and based on the estimated number of awards that are ultimately expected to vest. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded as a component of general and administrative expense.

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 

10

closes at or above $2.00 for up to two years from the effective date of the registration statement registering the underlying shares.  All of the Class A warrants expired on May 14, 2009.  

Warranties

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

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

Recent accounting pronouncements

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, *Generally "Accepted Accounting Principles – Overall"* (“ASC 105-10”). ASC 105-10 establishes the *FASB Accounting Standards Codification *(the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

Effective June 30, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, ascodified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have a material impact on the Company’s financial statements.

Effective June 30, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have a material impact on the Company’s financial statements.

Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized 

11

intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cashflows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company’s financial statements.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, *Fair Value Measurements and Disclosures (Topic 820)* (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, *Fair Value Measurements and Disclosures – Overall,* for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

Effective January 1, 2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s financial statements.

 Research and Development Costs

Research and development costs, which relate primarily to the development, design and testing of products, are expensed as incurred, until such time as management determines the research and development will have a future use and at that time, such expense are capitalized and amortized over their useful life.  Research and development expense, which are included in selling, general and administrative expenses, were $382 in 2010 and $30 for 2009.  

 NOTE 2 - GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $8,799,580 at March 31, 2010, net losses in the period ended March 31, 2010 of $493,359and cash used in operations during the period ended March 31, 2010 of $762,975. 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. 

12

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

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

NOTE 3 – INCOME TAXES****

There was no income tax expense for the periods ended March 31, 2010 and 2009 due to the Company’s net losses.

Income taxes are accounted for in accordance with ACS 740, Accounting for Income Taxes. ACS 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized.  Utilization of the Company's net operating loss carryforwards may be 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, 2010.

NOTE 4 - RELATED PARTY TRANSACTIONS

At March 31, 2010 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, 2010 earns 6% annual interest quarterly, and is due on demand. 

On August 11, 2006, Coast to Coast Equity Group, Inc., 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 is 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 is 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, 2010 and 2009 was $23,950 and $30,032.

13

The following is a schedule of future minimum lease payments required under the lease as of March 31, 2010:

**Period Ending**

 

 

 

**March 31**

 

** Amount**

 

2010

 

$

 67,765 

 

2011

 

 

  22,387 

 

  

 

$

90,152 

 

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 July 2, 2008, the Company and CTCEG agreed to extend the agreement until August 11, 2010.  The stated interest rate is 4% per annum. 

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 Class A warrants expired on May 14, 2009.

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 Class B warrants’ contractual expiration date of November 13, 2007 has been extended several times by the board of directors, with the most recent extension occurring on December 23, 2008. The Class B warrants expired on April 4, 2009.

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 year from the effective date of the Registration Statement for common stock issued and six months from the effective date of the Registration Statement for warrants issued. The Company did not offer any additional securities that would have caused this provision to become effective prior to the applicable time limitations of the provisions, which expired in May 2008. 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.), were previously 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, expired on May 14, 2009.  Language in prior filings inadvertently and mistakenly implied that these non-dilution rights had been extended until May 13, 2010, but no such extension was ever effected. 

14

Common Stock Warrants

On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LTD ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on July 3, 2011. On September 29, 2008, the Company reduced the conversion price to $0.35 per share.  In connection with the financing, MKM was also issued Class C Warrants (the "Warrants") to purchase up to 1,000,000 shares of the Company's common stock. The warrants were exercisable at an exercise price of $1.61 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $250,685 to interest expense during the the months ended March 31, 2010.  Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share. 

On March 22, 2010, MKM converted the note into 1,428,572 shares of common stock at a conversion price of $0.35 per share.

 

On September 29, 2008, the Company secured a financing arrangement with MKM and several securities purchasers unrelated toMKM. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were also issued Class D Warrants (the "Warrants") to purchase up to 1,857,146 shares of the Company's common stock. The warrants are exercisable at****an exercise price of $0.75 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $291,209 to interest expense during the three months ended March 31, 2010.  Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class D warrants to $0.20 per share from $0.75 per share.  

On September 29, 2009, the unrelated individual investors converted 428,571 shares of stock at a conversion price of $0.35 per share.

On February 16, 2010, the Company issued 271,429 shares of common stock following the exercise of 271,429 Class D Warrants and received $54,286 in cash.

On March 22, 2010, MKM converted the remaining $500,000 note into 1,428,572 shares of common stock at a conversion price of $.35 per share.

On May 27, 2009 the Company issued 1,900,000 shares of common stock to MKM Capital Advisors and individual investors for $237,500 in cash.  In connection with the common stock purchase, MKM Capital Advisors and the individual investors were issued Class F Warrants to purchase up to 1,900,000 shares of the Company’s common stock.  A total of $302,600 was expensed to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.16; Strike price of $0.20 per share; Time to expiration (days) of 1,826; Expected volatility of 254.69%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 2.72%.  In addition, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share and the series D warrants to $0.20 per share from $0.75 per share.  During the first quarter of 2010, the Company issued 534,624 shares of common stock following the exercise of 600,000 Class F Warrants in a cashless exercise.

On January 29, 2010, the Company issued 534,624 shares of common stock following the cashless exercise of 600,000 Class F Warrants.

On August 10, 2009 the Company issued 800,000 shares of common stock to individual investors for $100,000 in cash ($92,000 net of expenses).  In connection with the common stock purchase, the individual investors were issued Class G Warrants to purchase up to 800,000 shares of the Company’s common stock.  A total of $143,623 was expensed to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.18; Strike price of $0.20 per share; Time to expiration (days) of 1,826; Expected volatility of 

15

270.54%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 0.19%. In addition, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share and the series D warrants to $0.20 per share from $0.75 per share.  

On March 29, 2010, the Company issued 800,000 shares of common stock following the exercise of 800,000 Class G Warrants and received $160,000 in cash.

 

Stock warrant activity for the period ended March 31, 2010 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

**Weighted**

 

 

 

 

 

**average**

 

 

**Number**

 

 

**exercise**

 

 

**of shares**

 

 

** price**

    Outstanding at December 31, 2009

 

5,557,146 

 

$

1.32

    Granted 

 

- 

 

 

-

    Forfeited        

 

- 

 

 

-

    Exercised    

 

(1,671,429)

 

 

0.20

    Outstanding at March 31, 2009

 

3,885,717 

 

$

0.20

The following table summarizes the Company's Class C, D, and F stock warrants outstanding at March 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Weighted**

 

 

**Weighted**

 

 

**Range of**

 

 

 

 

 

**Average**

 

 

**Average**

**Warrant**

 

**Exercise**

 

 

 

 

 

**Remaining**

 

 

**Exercise**

**Class**

 

**Price**

 

 

**Number**

 

 

**Life**

 

 

**Price**

C

$

0.20

 

 

1,000,000

 

 

5.25

 

$

0.20

D

$

0.20

 

 

1,585,717

 

 

5.50

 

$

0.20

F

$

0.20

 

 

1,300,000

 

 

4.25

 

$

0.20

NOTE 8 – PROPERTY AND EQUIPMENT

The major classifications of equipment are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

**March 31,**

 

 

**December 31,**

 

                                                                     **Estimated Life    **

 

**2010**

 

 

**2009**

 

     Office equipment                                              5 years

 

$

66,073 

 

 

$

55,871 

 

     Furniture and fixtures                                        7 years

 

 

49,564 

 

 

 

49,564 

 

                                         

 

 

115,637 

 

 

 

105,435 

 

     Less accumulated depreciation

 

 

(68,273)

   

 

 

(64,477)

 

 

 

$

47,364 

 

 

$

40,958 

 

 

Depreciation expense for the years ending March 31, 2010 and 2009 was $3,796 and $3,411. 

16

NOTE 9 – CAPITALIZED R&D COSTS

The major classifications are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

**March 31,**

 

 

**December 31,**

 

                                   

 

**2010**

 

 

**2009**

 

     Capitalized R&D costs     

 

$

244,090 

 

 

$

244,090 

 

     Less accumulated amortization    

 

 

(85,431)

   

 

 

(73,227)

 

                                  

 

$

158,659 

 

 

$

170,863 

 

Amortization expense for the years ending March 31, 2010 and 2009 was $12,204 and $11,695. 

Capitalized R&D costs are being amortized over 5 years.

 

NOTE 10 – LOAN FEES

The major classifications are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

**March 31,**

 

 

**December 31,**

 

                                   

 

**2010**

 

 

**2009**

 

     Loan fees     

 

$

234,685 

 

 

$

234,685 

 

     Less accumulated amortization    

 

 

(234,685)

   

 

 

(104,842)

 

                                  

 

$

- 

 

 

$

129,843 

 

Amortization expense for the years ending March 31, 2010 and 2009 was $129,843 and $19,557. 

Loan fees are being amortized over the terms of the loans which are 36 months.

NOTE 11 – ACCOUNTS PAYABLE

The Company’s current accounts payable and accrued expenses include $13,468 borrowed on revolving credit lines utilizing corporate credit cards which bear interest at an average rate of 11.39% per annum and call for total minimum monthly installment payments of $184 as of March 31, 2010. However, since amounts may be due on demand and it is the Company’s intent to pay such balances in their entirety during 2010, 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 and include $558,442 of trade accounts and accrued interest of $56,651.

NOTE 12 – NOTES PAYABLE

On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on July 3, 2011. On September 29, 2008, the Company reduced the conversion price to $0.35 per share.  In connection with the financing, MKM was also issued Class C Warrants to purchase up to 1,000,000 shares of the Company's common stock. The warrants were exercisable at an exercise price of $1.61 per share, but on May 27, 2009 the Company reduced the Class C Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $250,685 to interest expense during the three months ended March 31, 2010.  

On March 22, 2010, MKM converted the entire amount of the note into 1,428,572 shares of common stock at a conversion price of $0.35 per share.

17

On September 29, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC an unaffiliated accredited institutional investor and other unrelated individuals. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were also issued Class D Warrants to purchase up to 1,857,146 shares of the Company's common stock. The warrants were exercisable at an exercise price of $0.75 per share, but on May 27, 2009 the Company reduced the Class D Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $291,209 to interest expense during the three months ended March 31, 2010.

On September 29, 2009, the unrelated individual investors converted 428,571 shares of common stock at a conversion price of $0.35 per share. 

On March 22, 2010, MKM converted the remaining $500,000 note into 1,428,572 shares of common stock at a conversion price of $0.35 per share.

The promissory notes are as follows:

 

 

 

 

 

 

 

**March 31,**

 

**December 31,**

                                   

**2010**

 

**2009**

Notes payable     

$

1,000,000

 

$

1,150,000 

Less:  principal payments    

 

1,000,000

 

 

150,000 

Notes payable outstanding at March 31, 2010 and December 31, 2009 

 

-

 

 

1,000,000 

     Less: unamortized discount on notes payable     

 

-

 

 

(541,893)

        Notes payable, net

 

-

 

 

458,107 

     Less current portion

 

-

 

 

- 

        Notes payable, net of discount of $-0- and $1,011,553, 

less current portion  

$

-

 

$

458,107 

NOTE 13 – DEFERRED REVENUE

The Company has received $651,383 in cash for orders it will ship in the next six months.  Per the Company’s revenue recognition policy (see note 1), the revenue will be recognized when goods have been received by the customer. 

NOTE 14 – ADVERTISING

Advertising costs are expensed as incurred. As of March 31, 2010 and 2009 advertising expense was $20,256 and $85,331.

NOTE 15 – 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 year from the effective date of the agreement.

As of March 31, 2010, the Company had sold 333,333 shares for $500,000.

18

NOTE 16 – STOCK COMPENSATION

On August 15, 2007, the Board of Directors of the Company issued 50,000 shares of restricted common stock to an employee of the Company.  The Company incurred a $242,500 expense based on the closing price of the stock on August 15, 2007.  

On August 1, 2008, the Board of Directors of the Company issued 25,000 shares of restricted common stock to an employee of the Company.  The Company incurred a $26,250 expense based on the closing price of the stock on August 1, 2008.  

On August 1, 2009, the Board of Directors of the Company issued 25,000 shares of restricted common stock to an employee of the Company.  The Company incurred a $3,750 expense based on the closing price of the stock on August 1, 2009.  

NOTE 17 – COMMON STOCK RESCISSION

On November 12, 2008, the Company's Board of Directors authorized the rescission of transactions involving 866,667 shares of common stock issued to Coast to Coast Equity Group, Inc. Coast to Coast Equity Group, Inc. approved the rescission following subsequent review of the price protection mechanism that triggered the issuances in July 2008. This rescission has no impact on the Statement of Operations or Shareholders’ Equity. 

NOTE 18 – SUBSEQUENT EVENTS

The Company performed a review of subsequent events between the balance sheet date of March 31, 2010, through May 14, 2010, the date the financial statements were issued, and concluded that events or transactions occurring during that period requiring recognition or disclosure were made.

Legal Proceedings

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Elenson’s motion to dismiss Elenson case against the Company with prejudice.  Elenson sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Elenson pay the Company and Brothers the sum of $25,000.  The Company has received payment in full from Elenson pursuant to the settlement agreement. 

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Heiken’s motion to dismiss the above referenced case against the Company with prejudice.  Heiken sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Heiken pay the Company and Brothers the sum of $10,000.  The Company has received payment in full from Heiken pursuant to the settlement agreement.  

19

**Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.**

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.

We believe that the impact of inflation and changing prices on our net sales and revenues and on income from continuing operations has been inconsequential.

***Liquidity and Capital Resources***

Between January 1, 2010 and March 31, 2010, our capital requirements have largely been met through sales of securities and sales of products other than THOR or ODIN. We recorded sales of $4,511,570 from the sale of various products in the first quarter of 2010.  We anticipate that income from sales of such products will be sufficient to finance our ongoing capital requirements in 2010. To the extent we make sales of ODIN or THOR systems in 2010, we expect to negotiate customer deposits sufficient to provide us with the working capital needed to build the related systems. The following liquidity events describe the amounts and sources of our capital resources and describe how we have paid our expenses.

We have incurred losses for the past two fiscal years and had a net loss of $493,359 for the three months ended March 31, 2010. 

 

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, 2010, we received cash proceeds of $4,511,750 from sales of various products, $334,653 from customer deposits, and $214,286 from amounts paid to exercise warrants resulting in the issuance of common stock.  For the year ended December 31, 2009 we received cash proceeds of $3,103,615 from revenues, $858,400 from deferred revenues and $337,500 from sales of our common stock. For the year ended December 31, 2008 we received cash proceeds of $123,400 from revenues, $343,000 from sales of our common stock and $1,260,000 in debt financing.  For the year ended December 31, 2007, we received cash proceeds from debt financing of $160,000 and sales of our common stock of $914,000.

 

For the three months ended March 31, 2010 we issued 4,463,197 shares of our common stock.  For the year ended December 31, 2009 we issued 3,273,571 shares of our common stock.  For the year ended December 31, 2008 we issued 4,459,516 shares of our common stock. For the year ended December 31, 2007 we issued 659,333 shares of our common stock as payment for services. Management anticipates that we may continue to issue shares for expansion of our business in the short term.

 Management intends to finance our 2010 operations primarily with the revenue from product sales. Any cash shortfalls will be addressed through equity or debt financing, if available. Management expects evenues will be realized to support operations in 2010. We may need to continue to raise additional capital, both internally and externally, to cover cash shortfalls and to compete in our markets. These operating costs include cost of sales, general and administrative expenses, salaries and benefits and 

20

professional fees. We have sufficient contracts in place to meet our expected cash requirements for 2010. We anticipate thatany capital raised in 2010 will be primarily for the purpose of expanding 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 $5,807 per month with an annual rent escalator of 3%. At December 31, 2009, future minimum payments for operating leases related to our office and manufacturing facilities were $90,152 through August 2011.

 

Our total current liabilities decreased to $1,538,502 at March 31, 2010 compared to $2,334,561 at December 31, 2009. Our total current liabilities at March 31, 2010 included accounts payable and accrued expenses of $628,561, deferred revenue of $651,383, convertible debentures of $42,000 and a loan from shareholder of $216,558.

***Results of Operations***

The following discussions are based on the unaudited condensed 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, 2010, and 2009, and should be read in conjunction with the financial statements, and notes thereto, included with the Company’s Form 10-Q for the three months ended March 31, 2010.

 

 

 

 

 

 **SUMMARY COMPARISON OPERATING RESULTS**

 

 

 

Three months ended March 31,

 

 

2010

 

2009

Gross Profit

$

587,194 

$

- 

Total operating expenses

 

535,597 

 

334,103 

Income (loss) from operations

 

51,597 

 

(334,103)

Total other income (expense)

 

(544,956)

 

(124,653)

Net income (loss)

$

(493,359)

$

(458,756)

Net income (loss) per share

$

(0.01)

$

(0.01)

Our operating expenses have generally increased for the three months ended March 31, 2010, compared with the three months ended March, 31, 2009.  The major component of our operating expenses consisted of selling and administrative expense.  For the three months ended March 31, 2010 and March 31, 2009, our selling and administrative expenses were $535,597 and $334,103, respectively. 

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.

21

 

The following chart provides a breakdown of our sales in 2010 and 2009. 

 

 

 

 

 

 

  

**March 31,**

 

**March 31,**

  

**2010**

 

**2009**

Valley Forge Detection Systems, Inc.

$

-

 

$

-

Valley Forge Aerospace, Inc.

 

4,511,570

 

 

-

Valley Forge Imaging, Inc.

 

-

 

 

-

Valley Forge Emerging Technologies, Inc.

 

-

 

 

-

Totals per financial statements:

$

4,511,570

 

$

-

 

Our total operating expense was $535,597 and $334,103 for the three months ended March 31, 2010 and 2009.

Our average monthly cost of operations from January 2010 through March 2010 was $178,532. Excluding aggregate non-cash charges of $145,843 for amortization and depreciation, our average monthly cost of operations from January 2010 through March 2010 was $129,918.

 

As of March 31, 2010, we had $933,244 in cash remaining. 

 

At this rate, and barring any material changes to our capital requirements, we anticipate being able to sustain our operations for seven months, at which time we will have to obtain additional capital funding in the absence of obtaining additional cash from other sourcs. 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 any sales of ODIN units; and (3) whether additional cash infusions are obtained via the exercise of outstanding warrants or from other sources or continued sales of our standard products. While the receipt of purchase orders for THOR units will dictate our major production needs, the timing of the government approval process is largely out of our control. Likewise, in the fourth quarter of 2009, we placed a unit with ODIN components in a foreign country for the purpose of demonstration and sales. We 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 or sales orders for any ODIN units. 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 to facilitate the execution of new contracts.

 

In the coming months, the Company will sharpen its estimates of its capital requirements based on any quantities of THOR and ODIN units ordered, reliable information enabling us to better predict when LLNL will issue the Final Report of the CRADA, and the terms of any license the Company is able to negotiate following the issuance of that Final Report. 

***Subsequent Events***

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Elenson’s motion to dismiss Elenson case against the Company with prejudice.  Elenson sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Elenson pay the Company and Brothers the sum of $25,000.  The Company has received payment in full from Elenson pursuant to the settlement agreement. 

22

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Heiken’s motion to dismiss the above referenced case against the Company with prejudice.  Heiken sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Heiken pay the Company and Brothers the sum of $10,000.  The Company has received payment in full from Heiken pursuant to the settlement agreement.  

***Description of Critical Accounting Policies and Estimates, Going Concern, and Fair Value of Financial Instruments***

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

**Critical Accounting Policies and Estimates** 

 

The accompanying consolidated financial statements have been prepared by the Company. The Company’s financial statements are consolidated with the results of its subsidiaries.  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.  At this point in our operations, subjective judgments do not have a material impact on our financial statements except as discussed in the next paragraph.

  

**Going Concern** 

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The attainment of sustainable profitability and positive cash flow from operations is dependent on certain future events.  

**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, amounts 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.

 

23

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 pronouncementswill have a material affect on the content or presentation of its financial statements.

 

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

 

**Off-Balance Sheet Arrangements** 

 

The Company 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, 2010 (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, 

24

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, 2010. 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, 2010, 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.

**PART II – OTHER INFORMATION**

**Item 1. Legal Proceedings**

*Debra Elenson vs. Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers*, Civil Action No. 09-45262 CA 20 (Fla. 11 th Jud. Cir.)

 

On June 19, 2009, the Company and its president and director Louis J. Brothers were served with a civil complaint naming both of them as defendants. The three-count complaint was filed on June 15, 2009 in circuit court in Miami-Dade County, Florida by shareholder Debra Elenson. The complaint, as subsequently amended, alleges that the defendants committed fraud, violated the Florida Securities and Investor Protection Act (Fla. Stat. §517.301), and made negligent misrepresentations and seeks damages of $330,000 and attorney’s fees.  The amended complaint alleges that Mr. Brothers misrepresented to Ms. Elenson’s “significant other” the timetable in which the Company’s THOR LVX technology would receive government approvals and thereby induced Ms. Elenson to invest in the Company’s securities on two occasions commencing in 2006.  The Company and Mr. Brothers denied ally the allegations.  

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Elenson’s motion to dismiss Elenson case against the Company with prejudice.  Elenson sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Elenson pay the Company and Brothers the sum of $25,000.  The Company has received payment in full from Elenson pursuant to the settlement agreement. 

*William A. Rothstein vs.* *Valley Forge Composite Technologies, Inc., a Florida corporation, and Louis J. Brothers*, Civil Action No. 09-0918071 Toomey (UT 3d Jud. Dist.)

On October 30, 2009, the Company and its president and director Louis J. Brothers were both named as defendants in a civil complaint filed on that date in the Third Judicial District Court in and for Salt Lake County, Utah by shareholder William A. Rothstein. The complaint has been served on Mr. Brothers and the Company. The five-count complaint alleges that the defendants committed fraud, violated the Utah Uniform Securities Act (Ut. Code Ann. §61-1-1, et seq.), made negligent misrepresentations, breached a fiduciary duty to shareholders, and breached a settlement agreement and seeks unspecified compensatory 

25

and punitive damages and attorney’s fees.  The complaint alleges that Mr. Brothers misrepresented the timetable in which the Company’s THOR LVX technology would receive government approvals and the number of Department of Energy employees working on the THOR project and thereby induced plaintiffs to invest in the Company’s securities in 2006.  The Company and Mr. Brothers are preparing and intend to file a motion to dismiss the complaint based upon the Utah court’s lack of personal jurisdiction over the Company and Brothers.  

*Scott Heiken and Lori Heiken vs.* *Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers*, Civil Action No. 09-79081 CA 15 (Fla. 11 th Jud. Cir.)

On November 4, 2009, the Company and its president and director Louis J. Brothers were served with a civil complaint naming both of them as defendants. The complaint was filed on October 27, 2009 in circuit court in Miami-Dade County, Florida by shareholders Scott Heiken and Lori Heiken.  (“Heiken”)  The complaint alleges that the defendants committed fraud, violated the Florida Securities and Investor Protection Act (Fla. Stat. §517.301), made negligent misrepresentations, and breached a fiduciary duty to shareholders and seeks damages in excess of $15,000 and attorney’s fees.  The complaint alleges that Mr. Brothers misrepresented the timetable in which the Company’s THOR LVX technology would receive government approvals and the number of Department of Energy employees working on the THOR project and thereby induced plaintiffs to invest in the Company’s securities in 2006.   

On April 20, 2010, Circuit Court Judge Ronald C. Dresnich granted Heiken’s motion to dismiss the above referenced case against the Company with prejudice.  Heiken sought dismissal of the case with prejudice pursuant to a settlement agreement, which also provides that Heiken pay the Company and Brothers the sum of $10,000.  The Company has received payment in full from Heiken pursuant to the settlement agreement.  

*Coast To Coast Equity Group, Inc. vs.* *Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers*, Civil Action No. 090A-11229 (Fla. 12 th Jud. Cir.)

On November 11, 2009, the Company and its president and director Louis J. Brothers were served with a civil complaint naming both of them as defendants. The complaint was filed on or about October 28, 2009 in circuit court in Manatee County, Florida by shareholder and creditor Coast To Coast Equity Group, Inc.  (“CTCEG”) The complaint alleges that the defendants breached a consulting services agreement by not reimbursing plaintiff for $44,495.18 in expenses, committed fraud, pleaded for the rescission of a standby equity agreement in the amount of $500,000, violated the Florida Securities and Investor Protection Act (Fla. Stat. §517.301), made negligent misrepresentations, and breached a fiduciary duty to shareholders and seeks damages in excess of $15,000 and attorney’s fees.  As it pertains to non-contract claims, the complaint alleges that Mr. Brothers misrepresented the distribution rights that the Company had to its ODIN product and misused plaintiff’s proceeds which were to be allocated towards the purchase of an ODIN unit

On May 6, 2010, the Court granted CTCEG leave to file an amended complaint, which abandons the claims in the original complaint except for breach of contract based on allegations of failure to pay expenses under the above referenced consulting agreement.  The Amended Complaint alleges failure to pay a $42,000 promissory note payable to CTCEG.  The Amended Complaint also contains a claim for, breach of the 2006 Warrant Agreement in that the Company failed to issue stock  for warrants which the Company contends expired in May, 2009.  The Amended Complaint contains a claim for promissory estoppel, alleging that Mr. Brothers orally, and in SEC filings, agreed to extend the Warrant Agreement and is estopped to deny such promises.  A claim for non-dilution damages is also included, based on allegations that the 2006 Registration Rights Agreement was also extended to May 2010 and CTCEG is therefore entitled to have additional shares issued because the Company sold additional stock in 2008 and 2009.  The Amended Complaint contains a claim for promissory estoppel, alleging that Mr. Brothers orally, and in SEC filings, agreed to extend the Registration Right Agreement and is estopped to deny such promises.  The last claim is for tortious interference with a contractual relationship, alleging Mr. Brothers, presumably in his individual capacity, interfered with CTCEG’s contractual rights under the Warrant Agreement, Registration Rights Agreement and Consulting Agreement.  

26

The Company and Mr. Brothers deny all allegations and intend to file a motion to dismiss the Amended Complaint, but they cannot provide assurances as to the outcome of the matter.

**Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds**

 

During the first quarter of 2010, the Company issued shares of common stock, as listed below, pursuant to various exercises of outstanding warrants and conversion of outstanding convertible notes:

·

On January 29, 2010, the Company issued 534,624 shares of common stock pursuant to the cashless exercise of 600,000 Class F warrants.

·

On February 16, 2010, the Company issued 271,249 shares of common stock pursuant to the exercise of 271,249 Class D Warrants. 

·

On March 22, 2010, the Company issued 2,857,144 shares of common stock pursuant to the conversion of $1,000,000 principal amount of convertible notes at a conversion price of $0.35 per share.

·

On March 29, 2010, the Company issued 800,000 shares of common stock pursuant to the exercise of 800,000 Class G Warrants.

**Item 3. Defaults Upon Senior Securities**

 

None.

 

**Item 4. [REMOVED AND RESERVED]**

 

**Item 5. Other Information**

 

None. 

**Item 6. Exhibits**

 

The following exhibits are filed herewith:

 

(a) Exhibits

 

 

 

 **Exhibit No.**

  **Description**

31.1**

13a-14(a)-15d-14(a) Certification - Louis J. Brothers 

31.2**

13a-14(a)-15d-14(a) Certification - Louis J. Brothers 

32.1**

18 U.S.C. § 1350 Certification - Louis J. Brothers 

32.2**

18 U.S.C. § 1350 Certification - Louis J. Brothers

 

**  Filed herewith    

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 14, 2010

By: 

*/s/ Louis J. Brothers*

 

 

 

Louis J. Brothers

 

 

 

President, Secretary and Treasurer

(Principal Accounting Officer and Authorized Officer)

 

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