SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended September 30, 2003.

                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ____________________ to ________________

                        Commission File Number: 001-10382

                          VALLEY FORGE SCIENTIFIC CORP.
             (Exact name of registrant as specified in its charter)

            PENNSYLVANIA                                    23-2131580
   (State or other jurisdiction of                       (I.R.S. employer
    incorporation or organization)                       identification no.)

                  136 Green Tree Road, Oaks, Pennsylvania 19456
              (Address of principal executive offices and zip code)
                            Telephone: (610) 666-7500
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange
       Title of Each Class                             on which Registered
       -------------------                             -------------------

       Common Stock, no par value                      Boston Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

                                 Yes [ ] No [X]

The aggregate market value of voting stock held by non-affiliates of the
Registrant, computed by reference to the closing bid and ask prices as reported
by The Nasdaq Stock Market on December 11, 2003 was $10,830,388.

At December 9, 2003 there were 7,913,712 shares of the Registrant's Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K
is incorporated by reference from the Definitive Proxy Statement for the Annual
Meeting of Stockholders of the Registrant, or an Amendment to this Annual Report
on Form 10-K, to be filed within 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K.

<PAGE>

                          VALLEY FORGE SCIENTIFIC CORP.
                                    FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003
                                TABLE OF CONTENTS

                                     PART I

                                                                            PAGE
                                                                            ----

Item 1.  Business                                                             1

Item 2.  Properties                                                          16

Item 3.  Legal Proceedings                                                   16

Item 4.  Submission of Matters to a Vote of Security Holders                 17

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters                                                             17

Item 6.  Selected Financial Data                                             17

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operation                                                18

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk         27

Item 8.  Financial Statements and Supplementary Data                         27

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                            27

Item 9A. Controls and Procedures                                             27

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                 28

Item 11.  Executive Compensation                                             28

Item 12.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                    28

Item 13.  Certain Relationships and Related Transactions                     28

Item 14.   Principal Accountant Fees and Services                            28

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K    29

         Bident(R) is our registered trademark and DualWave(TM) is our trade
name. MALIS(R) is the trademark of Dr. Leonard I. Malis. All other trademarks or
trade names referred to in this Report are the property of their respective
owners.

                                       (i)

<PAGE>

                          VALLEY FORGE SCIENTIFIC CORP.

                                     PART I
                                     ------

Item 1.           BUSINESS
------            --------

         This report on Form 10-K contains certain forward looking statements
regarding future events with respect to Valley Forge Scientific Corp. ("Valley
Forge Scientific", "we", "us" and "our" refer to Valley Forge Scientific Corp.,
a Pennsylvania corporation, unless the context otherwise requires). Actual
events or results could differ materially due to a number of factors, including,
those described herein and in the documents incorporated herein by reference and
those factors described under the heading "Forward Looking Statements" in this
Item 1 and under the heading "Additional Cautionary Statements" in Item 7.

Nature of Our Business

         Valley Forge Scientific, which was incorporated on March 27, 1980,
designs, develops, manufactures and sells medical devices. Our core business is
in our bipolar electrosurgical generators and related instrumentation, based on
our DualWave(TM) technology. Our DualWave(TM) technology involves the use of two
waveforms, one to perform bipolar cutting of tissue and the other to perform
bipolar coagulation, or sealing, of blood vessels. Our bipolar systems are
designed to replace other surgical tools, such as monopolar systems, lasers and
conventional scalpels used in soft tissue surgery, and for other applications.

         All electrosurgical units utilize handheld instruments to deliver the
current from the generator to the patient's tissue. Traditional monopolar
instruments have a single, monopolar, electrode tip that advances a spark
between the electrode tip and the tissue. The electrical current generated is
attracted to a grounding pad attached to the patient's thigh or buttock and
electrical current and heat are diffused to tissues between the surgical site
and the site of the grounding pad. This can result in heat damage, charring and
unpredictable/prolonged healing in the surgical area, as well as collateral
damage to tissues along the electrical pathway to the grounding pad. The
monopolar method of cutting and coagulation is also rendered obsolete in
delicate areas of the human body, specifically the brain and spine, due to the
inability to control current and heat spread.

         Bipolar electrosurgery is descriptive of the means of current delivery
to the patient. Bipolar electrosurgery employs a unique delivery system to
overcome the safety hazards associated with the grounding pad in monopolar
electrosurgery. In bipolar electrosurgery a handheld instrument with two
electrodes is used to deliver the current to soft tissue and blood vessels. The
electrodes are closely juxtaposed, so that current flows only between the
electrodes, affecting only the tissue or blood vessel between the electrodes.
Current is confined to the immediate surgical site so that no grounding pad is
required and peripheral tissue damage is virtually eliminated.

         Our bipolar electrosurgery system, provides the surgeon one waveform to
safely and precisely cut, core and divide tissue and another waveform to provide
a gentle and precise coagulation. Our cutting waveform uses molecular resonance
to cut, instead of heat through an advancing spark, which is used in monopolar
systems. With the virtual elimination of heat and current spread, our technology

                                       1
<PAGE>

can be used anywhere in the human body safely, specifically in the most
sensitive areas, the brain and spine. Our unique coagulation waveform uses a
totally aperiodic and non-rhythmic waveform, eliminating the molecular resonance
and the possibility of inadvertently cutting tissue when the surgeon intends to
coagulate. These precise and differentiated waveforms allow surgeons to work in
direct contact with nerves, blood vessels, bone and metal implants without the
inherent dangers associated with other methods of electrosurgery.

         Our bipolar systems consist of a solid state microprocessor controlled
generator, utilizing our DualWave(TM) bipolar circuitry technology, an array of
disposable hand-held instruments to perform a variety of surgical procedures,
single-use disposable cords which attach the hand-held bipolar instrument to the
generator and other modules and accessories.

         We have chosen not to market or sell our products directly to the
end-users. Our neurosurgery bipolar systems, which are used by neurosurgeons
worldwide, are marketed and sold by Codman & Shurtleff, Inc., a subsidiary of
Johnson & Johnson, Inc. to end-users. We sell our Bident(R) bipolar dental
system to national dental product dealers who then sell our products to
end-users.

          Our strategy is to increase our sales in neurosurgery with expanded
product offerings, increase sales in the dental market by expanding the base of
national dental product dealers for our Bident(R) Bipolar Tissue Management
System for dental applications and expand into other clinical and surgical
markets that have a need for bipolar electrosurgery through alliances and
agreements with other medical device companies. Our strategy also includes using
our DualWave(TM) technology and sales of our bipolar generators to drive sales
of complementary disposable hand-held instruments, tubing sets and other
products.

         Our neurosurgery bipolar systems, which were first introduced into the
market by Codman & Shurtleff in 1983, account for a significant amount of our
sales.

         We have 510(k) clearance to market our bipolar electrosurgical
generators and disposable instrumentation, based on our DualWave(TM) technology,
from the United States Food and Drug Administration, the FDA. Our Bident(R)
bipolar dental system has also been granted 510(k) clearance to market by the
FDA. Our neurosurgery bipolar system is CE marked, which is a requirement to
sell the product in most of Western Europe.

         To complement the sales of our bipolar systems, we also manufacture for
sale titanium surgical mesh for repair of the skull and a natural dental
preparation for use in healing and lessening post surgical discomfort. As
markets for our bipolar systems expand, we may manufacture and sell other
complementary products.

Our Business Strategy

         Our objective is to expand upon the success of our DualWave(TM)
technology in neurosurgery and to broaden the market for our bipolar systems in
the dental market and other clinical and surgical markets. Our strategies to
achieve this goal are as follows:

                                       2
<PAGE>

         Expansion of Our Product Base. We plan to continue to aggressively
proceed in the development of additional products based on our DualWave(TM)
technology and develop new technologies to satisfy the needs of the medical
community. By working with distributors of medical devices and leading
practitioners in their fields, we plan to refine existing features and develop
new features, enhancements and new instrumentation to provide surgeons with more
functionality.

         Expansion of the Use of Our Bipolar Systems Based on Our DualWave(TM)
Technology. Building upon our DualWave(TM) technology and its use in
neurosurgery, we continue to pursue product refinement opportunities for
additional clinical applications. Potential fields include: general surgery,
minimally invasive applications in various clinical fields, maxillofacial
surgery, ENT, plastic surgery and other applications.

         Use Our Generators to Drive Disposable Product Sales. The sales of our
disposable hand-held instruments and disposable tubing sets are influenced by
three factors: the increased installed base of our bipolar generators, the
increased product offerings of disposables and physician acceptance of our
products. As new types of disposable hand-held instruments are introduced into
the neurosurgery market and as more bipolar generators are sold in the dental
market and other clinical markets, we expect sales of complementary disposable
hand-held instruments and cord and tubing sets, which attach the hand-held
instrument to the bipolar generator, to increase.

         Continue to Improve Distribution of our Products to End-Users. To date,
we have used third parties to sell our products to end-users.

          o    In neurosurgery, since 1983 we have chosen to contract with
               Codman & Shurtleff, Inc., a subsidiary of Johnson & Johnson,
               Inc., to market and distribute our products. The term of our
               current distribution agreement with Codman & Shurtleff, Inc. was
               recently extended from December 31, 2003 to March 31, 2004 to
               allow the parties time to continue to discuss the terms of a new
               distribution agreement.

          o    In the dental market, we continue to expand on the number of
               dental product distributors that sell our Bident(R) Bipolar
               Tissue Management System for dental applications to end-users.

          o    In September 2002, we entered into a development agreement with
               Stryker Corporation for a new product for use in a field outside
               of the neurosurgery and the dental fields. The term of this
               development agreement was recently extended until February 28,
               2004.

         In neurosurgery, there are numerous published clinical reports and
follow-up studies on the use of our system, which support the marketing efforts
of our neurosurgery bipolar systems. In dentistry, leading practitioners have
written numerous articles and clinical reports supporting the use of our system.
We will need recommendations and endorsements by influential surgeons for market
acceptance of our disposable hand-held instruments and other new product
offerings in the field of neurosurgery and for market acceptance of our bipolar
systems in fields other than neurosurgery.

                                       3
<PAGE>

Electrosurgery

         Surgical procedures are performed using a variety of methods and
instruments, including electrosurgical generators. Electrosurgical generators
perform two specific functions, tissue cutting and coagulation (sealing) of
blood vessels.

         The application of hot cautery to seal blood vessels has been in
existence for more than 5,000 years. Early cauterization techniques employed
iron instruments heated in an open flame, then introduced into the wound. The
electrosurgical generator was first introduced in 1924, by noted neurosurgeon,
Dr. Harvey Cushing, who partnered with a Harvard University physicist, Dr.
William Bovie, to design a spark gap electrosurgical generator. The generator
worked by advancing a spark to tissue, to generate heat, providing
cauterization.

         Today's electrosurgical generators have become more sophisticated,
utilizing radiofrequency, or RF, waves to cut and coagulate tissue. Modern
electrosurgical generators are distinguished as either "monopolar" or "bipolar".
The classification refers to the method by which electricity is delivered to the
patient and returned to the generator. Fundamental electrical principles apply.
Electricity must complete a circle. It must have a beginning point, a return
path, and an ending point.

Monopolar Electrosurgical Systems

         In monopolar electrosurgery, a single RF sine wave is created in the
generator to provide cutting and coagulation. Connected to the generator is an
insulated, hand held instrument with only one tip. This is the "active
electrode". The return path of this applied electricity is through the patient's
body, to a grounding pad attached to the patient's body, usually the thigh or
buttocks, which returns the electricity to the generator, completing the
circuit. Traditional monopolar electrosurgical cutting uses high temperature
heat to burn away targeted tissue. This typically results in thermal (heat)
damage, charring and unpredictable/prolonged healing in the surgical area.
Monopolar cutting does not work well in a wet field due to short circuiting,
which exacerbates tissue damage due to heat and dryness.

       There are three significant safety hazards recognized with the monopolar
system:

          o    There is considerable heat buildup at the surgical site;
          o    The electricity must travel through the patient's body to reach
               the grounding pad, which can damage healthy blood vessels and
               tissue along its path; and
          o    The patient can be burned by the electricity leaving the body at
               the site of the grounding pad.

         Monopolar units do not provide a separate waveform or delivery system
for coagulation. The surgeon changes the angle of the instrument touching
tissue, using the heat buildup of the instrument itself to coagulate tissue.

                                       4
<PAGE>

Bipolar Electrosurgical Systems

         Bipolar electrosurgery is descriptive of the means of current delivery
to the patient. In bipolar systems, the RF sine wave is generated, and delivered
to the surgical site via a handheld instrument that provides the "active" and
"return" electrodes. The electricity generated is applied only to the tissue
between the two electrodes of the instrument. The electricity is returned to the
generator through the instrument, removing the patient from the electrical
circuit and eliminating not only the need for a grounding pad, but the inherent
safety hazards associated with monopolar electrosurgery.

         Our DualWave(TM) bipolar electrosurgical generators, which use two
waveforms to perform the two separate and distinct functions of cutting and
coagulation are distinguished from other electrosurgical systems. We believe
that the use of two separate waveforms is much safer than using a single
waveform to perform the distinct functions of cutting and coagulation. With the
use of one waveform, there is the potential that a surgeon may cut or perforate
a blood vessel inadvertently while he is trying to coagulate a blood vessel. By
contrast, in our bipolar systems, a surgeon can not cut a blood vessel while he
is using the system in the coagulation mode.

Valley Forge Scientific Technology

         The foundation of our bipolar electrosurgical systems lies in our
DualWave(TM) technology. Using our DualWave(TM) technology, our bipolar
generators are able to deliver two separate waveforms to perform the two
separate and distinct functions of cutting and coagulation.

          We do not believe that it is either safe or effective to use the same
waveform for coagulation that is used for cutting. With the virtual elimination
of heat and current spread, our technology can be used in direct contact with
nerves, bones, blood vessels and metal implants, and can be used anywhere in the
human body safely, specifically the brain and spine.

         Our bipolar systems consist of a solid state microprocessor controlled
generator, utilizing our DualWave(TM) technology, an array of disposable
hand-held bipolar instruments, which perform a variety of surgical and dental
procedures, and single-use disposable cords, which attach the hand-held bipolar
instrument to the generator. We also develop, manufacture and sell modules and
other accessories to handle specific functions required by a particular surgical
discipline. For example, in neurosurgery we sell an irrigation module, which
allows the neurosurgeon to pump a saline solution into the surgical field while
cutting tissue or coagulating blood vessels, and a specially designed single-use
plastic tube set, which connects the electrical current from the generator and
fluid from the irrigation module to the hand-held instrument.

         Our cutting waveform uses molecular resonance to cut, rather than heat
through an advancing spark. Our generator contains a rigidly stabilized voltage
control to provide an extremely gentle cut, using about one fifth the power of
other generators. The cutting current, which is delivered only to the tissue
between the two electrodes of the instrument, offers safety advantages by the
absence of current spread and markedly reduced heating of adjacent tissues. This
makes our product safe to use in all areas of the human body, specifically in
the most sensitive areas, the brain and the spine.

                                       5
<PAGE>

         Our coagulation waveform is unique in that it is totally aperiodic and
nonrhythmic. The timing of electrical bursts within the waveform are randomly
spaced, and the waveform itself is random in timing so that it is truly
aperiodic. Regardless of how high the voltage setting of the unit, or how long
the surgeon applies the current, the coagulation waveform simply will not cut.
Our strictly regulated constant voltage supply allows for precise, gentle and
progressive coagulation in either totally dry or fully irrigated fields,
including fields totally submerged in saline. These effects are produced in our
generators through the lowest possible output impedance.

         Our bipolar electrosurgical generators deliver both cutting and
coagulation through bipolar handheld instruments, providing both the active
electrode and the return path through the handheld instrument back to the
generator. The performance of our bipolar disposable handheld instruments is
also enhanced by an irrigated field, further minimizing the risk of heat buildup
and correlating tissue damage. Our bipolar systems are designed to replace other
surgical tools, such as monopolar electrosurgical systems, lasers and
conventional instruments, such as scalpels, used in soft tissue surgery.

         We believe that our bipolar systems, using our DualWave(TM) technology,
can be used in all procedures involving cutting tissue or coagulating blood
vessels throughout the human body.

         Our neurosurgery bipolar systems, which were first introduced into the
market by Codman & Shurtleff in 1983, accounted for almost all of our sales in
2003. To date, a total of seven neurosurgical disposable hand-held instruments
utilizing our DualWave(TM) technology have been developed. We are discussing
with Codman & Shurtleff, Inc. refining and expanding our disposable instrument
product offering for re-introduction in 2004.

         Our Bident(R) Bipolar Tissue Management System for dental applications
was introduced into the dental market in 1999. In the second quarter of fiscal
2003, we implemented a new marketing plan for our Bident(R) Bipolar Tissue
Management System focusing on direct marketing and sales to national dental
product dealers. These dental product dealers then sell our products to
dentists, oral surgeons and periodontists. During fiscal 2003, our marketing
efforts included demonstrating our dental products at numerous dental trade
shows, sponsoring training seminars and advertising our dental products in
leading trade journals. Also, in the fourth quarter of fiscal 2003, we hired a
dental product manager to provide training and assistance and expand our
marketing efforts with the key dental product distributors.

The Neurosurgery Market

         There are more than 3,600 Board Certified Neurological Surgeons in the
United States, and more than 15,000 neurosurgeons worldwide. Neurological
surgery is a medical specialty dealing with disorders of the brain, skull,
spinal cord, cranial and spinal nerves, the autonomic nervous system and the
pituitary gland. It is believed that approximately 500,000 brain and spine
surgery procedures are performed each year in the United States.

         A prominent use of bipolar electrosurgical instrumentation in
neurosurgery is tumor removal. There are over 100 different types of brain
tumors and more than 180,000 Americans are diagnosed with brain tumors each
year. The most common brain tumors in adults are: glioblastoma, meningioma, and
oligodendroglioma. Approximately 2,200 children are also diagnosed with a brain
tumor each year, with the most common being medulloblastoma and astrocytoma. The
first line of treatment for these tumors is typically surgical removal of the
tumor.

                                       6
<PAGE>

         For each bipolar neurosurgical procedure, the neurosurgeon needs a
hand-held instrument that will cut, divide, core or remove tissue and tumors and
coagulate blood vessels. The neurosurgeon also needs to connect that instrument
with a cord/tubing set to the bipolar generator and irrigation unit, which
provides fluids to the surgical site. This area of practice demands that the
cord/tubing sets be single-use. We believe that as neurosurgeons are educated on
the functionality and cost advantages of our disposable neurosurgical hand-held
instruments, our sales of these instruments will increase.

         In neurosurgery, a bipolar electrosurgical system is the modality of
choice, largely due to the efforts of Dr. Leonard I. Malis, one of our
directors. Dr. Malis, who is Professor and Chairman Emeritus of the Mount Sinai
School of Medicine Department of Neurosurgery, designed and developed the first
commercial bipolar coagulator in 1955, and pioneered the use of bipolar
electrosurgery for use in the brain. Dr. Malis is a frequent author and lecturer
on neurosurgery and bipolar electrosurgery.

Our Neurosurgery Bipolar Systems.
--------------------------------

         Our neurosurgery bipolar systems, which were developed in conjunction
with Dr. Malis, are used to cut, core and divide tissue and tumors and coagulate
blood vessels in the brain and spine. Our neurosurgery bipolar systems, which
are currently marketed and sold by Codman & Shurtleff, Inc. to end-users under
the MALIS(R) tradename, are used by neurosurgeons worldwide.

         Our neurosurgery bipolar system is a surgical device intended to
perform two separate functions: bipolar cutting of tissue and bipolar
coagulation of blood vessels. Our system is comprised of the bipolar
electrosurgical generator, an irrigation module, foot pedal, connecting cables,
and an array of disposable bipolar hand-held instrumentation in varying sizes
and shapes connected to the generator via a single-use disposable bipolar cord
and tubing set.

         Our bipolar generator delivers our DualWave(TM) bipolar cutting and
bipolar coagulation through radio frequency waveforms. Our irrigation modules
deliver fluids, such as saline, to the surgical field through a hand-held
instrument. Surgeons can use our disposable bipolar hand-held instruments to cut
tissue and to seal blood vessels in an irrigated surgical field. The surgeon can
control the mode of operation with the foot pedal and power setting with keys on
the front panel of the controller.

         Our disposable bipolar hand-held instruments are approved for sale in
various tip sizes and shapes. We have developed seven different models of
disposable hand-held instruments for neurosurgery, which provide the surgeon
control and precision for different procedures during surgery. We believe that
the typical use per surgical procedure will be one to two disposable instruments
and one disposable cord/tubing set.

                                       7
<PAGE>

         Our current neurosurgery products consist of the following:

                  Generators/Irrigators
                  ---------------------

         -        MALIS(R)CMC-III Bipolar Generator  (High power
                  cutting/coagulation)
         -        MALIS(R)Bipolar Synergy Generator (Low power coagulation)
         -        MALIS(R)Irrigation Module

                  Disposable Instrumentation and Cord sets
                  ----------------------------------------

         -        MALIS(R)Bipolar Cord/Irrigation Tubing Set
         -        MALIS(R)Bipolar Cord
         -        MALIS(R)Bipolar Cutting Loops - 3x5mm
         -        MALIS(R)Bipolar Cutting Loops - 5x5mm
         -        MALIS(R)Bipolar Cutting Loops - 5x10mm
         -        MALIS(R)Bipolar Cutting Loops - 10x10mm
         -        MALIS(R)Bipolar Cutting Pen
         -        MALIS(R)Bipolar Coagulation Ball - 3mm
         -        MALIS(R)Bipolar Coagulation Ball - 5mm

The Dental Market

         There are an estimated 150,000 professionally active dentists in the
United States. As primary oral health care providers, approximately 80% of
dentists are generalists, and approximately 20% are specialists. More than 90%
of active dentists are in private practice.

         There are currently more than 20 different bipolar electrosurgical
procedures with American Dental Association, ADA, codes eligible for insurance
reimbursement. Examples of commonly performed procedures include:

          o    Gingivectomey / Gingivoplasty (surgical treatment of gingivitis),
          o    Connective tissue graft,
          o    Surgical removal of residual tooth roots,
          o    Crown and bridge preparation,
          o    Biopsy of oral tissue,
          o    Excision of cysts or tumors, benign and malignant, and
          o    Surgical removal of impacted or erupted tooth.

Our Bident(R) Bipolar Tissue Management System
----------------------------------------------

         Our Bident(R) Bipolar Tissue Management System uses the same
DualWave(TM) technology used in our neurosurgery bipolar systems to allow
dentists to work in direct contact with metal implants, nerves, bone and blood
vessels, essentially eliminating collateral tissue damage from current spread
and heat buildup.

                                       8
<PAGE>

         Dentists, similar to neurosurgeons, are particularly affected by the
limitations of monopolar electrosurgical systems to work safely around metal
implants, bone, nerves and blood vessels due to the nature of delicate
structures they work within. We believe, the elimination of the grounding pad
through bipolar delivery of our current to cut and coagulate in our Bident(R)
Bipolar Tissue Management System is also an important factor to dentists
concerned with both safety, and patient perception/fear of the equipment used in
the general dentistry setting.

         Our Bident(R) Bipolar Tissue Management System is a surgical device,
which performs two separate functions: bipolar tissue cutting and bipolar
coagulation of blood vessels. The size, features and overall power output of the
generator itself is different than our neurosurgery bipolar system, to meet the
need for a cost effective, office style generator for the dentist. The system is
comprised of the electrosurgical generator, foot pedal, connecting cables and an
array of disposable bipolar hand-held instruments, which are attached to the
generator via a single use bipolar cord.

         Dentists can use our disposable bipolar hand-held instruments to cut
tissue and to seal blood vessels. The dentist can control the mode of operation
with the foot pedal and power setting with keys on the front panel of the
generator.

         Our disposable bipolar hand-held instruments are available in various
tip sizes, shapes and angles to perform the varying procedures performed by the
dentist. We currently sell sixteen different models of disposable bipolar
hand-held instruments for dental procedures. We believe that the typical use for
each dental surgical procedure is one to two disposable instruments and one
disposable cord set.

         Our current bipolar dental products consist of the following:

                  Generator
                  ---------
         -        Bident(R) Bipolar Surgical System

                  Bipolar Instrument and Cord Sets
                  --------------------------------
         -        Bipolar Flap Access Pen
         -        Bipolar Gingivoplasty Pen
         -        Bipolar Gingivectomy Pen
         -        Bipolar Gingival Troughing Pen 5 mm (.012")
         -        Bipolar Gingivectomy Pen (.020")
         -        Bipolar Coagulating Ball 3mm
         -        Bipolar Coagulating Ball 3mm (30(Degree))
         -        Bipolar Gingivoplasty Loop 1.5x9mm
         -        Bipolar Gingivoplasty Loop 1.5x9mm (30(Degree))
         -        Bipolar Gingivoplasty Loop 3x5mm
         -        Bipolar Gingivoplasty Loop 3x5mm (30(Degree))
         -        Bipolar Gingivoplasty Loop 3x8mm
         -        Bipolar Gingivoplasty Loop 3x8mm (30(Degree))
         -        Bipolar Gingivoplasty Loop 5x5mm
         -        Bipolar Gingivoplasty Loop 5x5mm (30(Degree))
         -        Bipolar Cord Set

                                       9
<PAGE>

Other Surgical Markets

         Building upon our DualWave(TM) technology and its use in neurosurgery,
our strategy is to expand the market for our bipolar systems and disposable
bipolar products in other clinical and surgical markets that have a need for
bipolar electrosurgery. We continue to research market potential and product
refinement opportunities for additional clinical applications of our
DualWave(TM) technology. Potential fields include: general surgery, minimally
invasive applications in various clinical fields, maxillofacial surgery, ENT,
plastic surgery and other intracranial applications. As we open new markets, we
plan to select leading national/international medical sales organizations
specializing in the applicable field(s) to launch our bipolar systems in the
market place and to sell our product offerings to end-users.

Manufacturing and Supplies

         We conduct the manufacturing of our bipolar generators and irrigation
systems in our facility in Philadelphia, Pennsylvania in conjunction with our
wholly owned subsidiary, Diversified Electronics Company, Inc. Our products are
manufactured from raw materials and components supplied to us by third parties.
Most of the raw material and components we use in the manufacture of our
products are available from more than one supplier. For some components,
however, there are relatively few alternate sources of supply and we rely upon
single source suppliers or contract manufacturers. For example, we currently
subcontract the manufacturing of our disposable instruments with a single
contract manufacturer and we subcontract the manufacture of our disposable cord
and tube sets with a single manufacturer. Our profit margins and our ability to
develop and deliver such products on a timely basis may be adversely affected by
the lack of alternative sources of supply.

         Our manufacturing process is subject to the regulatory requirements of
the Federal Good Manufacturing Practice Regulations as promulgated by the FDA,
which mandate detailed quality assurance and record-keeping procedures and
subjects us to unscheduled periodic regulatory inspections. We conduct quality
assurance audits throughout the manufacturing process and believe that we are in
compliance with all applicable government regulations.

Marketing and Sales

         We have chosen not to directly market or sell our products to
end-users. Instead, we sell all of our products to or through
national/international distributors.

                                       10
<PAGE>

         Codman & Shurtleff, Inc. For over twenty years, we have entered into
distribution agreements with Codman & Shurtleff, Inc. to sell and distribute our
products in the field of neurosurgery. On December 11, 2000, we entered into our
current distribution agreement with Codman & Shurtleff, Inc. under which Codman
& Shurtleff, Inc. was granted the exclusive worldwide right to sell our bipolar
neurosurgery system and certain other products in the fields of neurocranial and
neurospinal surgery on the condition that Codman & Shurtleff, Inc. makes minimum
purchases of $4,000,000 per calendar year, as may be adjusted by mutual
agreement of the parties. If Codman & Shurtleff, Inc. fails to satisfy the
minimum purchase obligations, our remedy is to terminate the agreement or
convert it to a nonexclusive agreement. The term of our current distribution
agreement with Codman & Shurtleff, Inc. was recently extended from December 31,
2003 to March 31, 2004 to allow the parties time to discuss the terms of a new
distribution agreement. We primarily perform product development, manufacturing
and clinical and regulatory functions for our neurosurgery bipolar systems.

         For the 2003, 2002 and 2001 fiscal years, we had sales to Codman &
Shurtleff, Inc. of approximately $4,236,000, $4,515,000, and $4,169,000,
respectively. In fiscal 2003, approximately 95% of our sales revenue was derived
from sales to Codman & Shurtleff, Inc. and in fiscal 2002 and 2001 approximately
90% and 79% of our sales, respectively, were derived from sales to Codman &
Shurtleff, Inc.. Codman & Shurtleff, Inc. also sells its own passive hand-held
instruments under the MALIS(R) tradename which are used in conjunction with our
neurosurgery bipolar system.

         Boston Scientific Corporation. In 1993, we entered into a supply and
distribution agreement with Boston Scientific Corporation covering the exclusive
worldwide marketing rights of our bipolar coagulators for use in the fields of
gastroenterology and endoscopy, through March 2002. In Feburary 2002, we
terminated this agreement by mutual consent and entered into a new agreement
with Boston Scientific Corporation to provide primarily product support for the
installed base of Boston Scientific's "Symmetry Endo-Bipolar Generator" and the
Mini-SymmetryTM generators.

         Our neurosurgery bipolar systems are sold in certain foreign markets by
Codman & Shurtleff, Inc. Prior to sales in certain foreign markets, we are
required to comply with applicable foreign government regulations.

         Our business is not affected to any material extent by seasonal
factors.

Competition

         We believe that principal competitive factors with our bipolar products
are product features and quality, safety, ease of use, cost, acceptance by
leading physicians, and improved patient outcomes. We believe that our
DualWave(TM) technology, which delivers both bipolar cutting and bipolar
coagulation with two separate waveforms, distinguishes our bipolar
electrosurgical systems from electrosurgical systems sold by other entities,
which do not offer both bipolar cutting and bipolar coagulation. We believe that
our unique bipolar electrosurgical products offer enhanced capabilities and
safety advantages as compared to other electrosurgical systems.

                                       11
<PAGE>

         The medical device industry is intensely competitive in almost all
segments and tends to be dominated in large more mature markets by a relatively
small group of large and well financed companies. We also compete with smaller,
entrepreneurial companies. There can be no assurance that these or other
companies will not succeed in developing, or have not already developed,
technologies or products that are more effective than ours or that would render
our technology or products obsolete or uncompetitive.

Neurosurgery
------------

         In neurosurgery, we believe that we are the principal manufacturer of
bipolar electrosurgical systems. Our neurosurgery bipolar system competes
against manufacturers of electrosurgical systems, including ValleyLab and Erbe.
In addition, we compete with other technologies and a variety of tissue removal
systems designed for removing brain and cranial-based tumors, such as an
ultrasonic tissue aspiration system also manufactured by ValleyLab.

Dental Market
-------------

         We believe that we are the only manufacturer of bipolar electrosurgical
systems serving the dental market. Our Bident(R) Bipolar Tissue Management
System competes with monopolar electrosurgical systems manufactured by Ellman,
and laser and other monopolar electrosurgical systems manufactured by other
companies.

Other Surgical Markets
----------------------

         In other surgical markets, our bipolar generator and disposable
instruments will compete with large companies, such as ValleyLab, Ellman and
Conmed, which manufacture and sell electrosurgical medical devices. Our systems
will also compete with laser systems and other technologies manufactured or
utilized by other companies. We cannot assure you that we, or the companies we
contract with to sell our products, can effectively convince physicians and
surgeons to purchase our products in the face of competition.

Research and Development

         We are continually working on enhancements to our generator products
and on new disposable instrumentation along with other products to meet the
needs of surgeons in various surgical disciplines. We also are exploring new
applications for our DualWave(TM) technology in other clinical and surgical
markets. In September 2002, we entered into a development agreement with Stryker
Corporation for a new product for use in a field outside of the neurosurgery and
dental fields.

         For the 2003, 2002 and 2001 fiscal years, we expended $489,930,
$360,111, and $352,773, respectively, for research and development. We
anticipate that we will continue to incur research and development costs in
connection with development of products.

         Substantially all of our research and development is conducted
internally. In the 2004 fiscal year, we anticipate that we will fund all our
research and development with current assets and cash flows from operations.

                                       12
<PAGE>

Government Regulation

         The marketing and sale of our products in the United States is governed
by the Federal Food, Drug and Cosmetic Act (the "Act") administered by the FDA,
as well as varying degrees of regulation by a number of state and foreign
governmental agencies. The Act requires certain clearances from the FDA before
medical devices can be marketed.

         FDA regulations are wide ranging and govern, among other things:

           o    product design and development;
           o    product testing;
           o    product labeling;
           o    product storage;
           o    premarket clearance or approval;
           o    advertising and promotion; and
           o    product sales and distribution.

         Noncompliance with applicable regulatory requirements can result in
enforcement action, which may include:

           o    warning letters;
           o    fines, injunctions and civil penalties against us;
           o    recall or seizure of our products;
           o    operating restrictions, partial suspension or total shutdown of
                our production;
           o    refusing our requests for premarket clearance or approval of new
                products;
           o    withdrawing product approvals already granted; and
           o    criminal prosecution.

         All medical devices introduced into the market since 1976, which
include substantially all of our products, are required by the FDA as a
condition of sale and marketing to secure either a 510(k) premarket notification
clearance or an approved premarket approval application ("PMA"). A 510(k)
premarket notification clearance indicates FDA agreement with an applicant's
determination that the product for which clearance has been sought is
substantially equivalent to another medical device that was on the market prior
to 1976 or that has received 510(k) premarketing notification clearance. The
process of obtaining a 510(k) premarket notification clearance can typically
take several months and commonly involves the submission of limited clinical
data and supporting information while the PMA process typically will last more
than a year and requires the submission of significant quantities of clinical
data and manufacturing information.

         To comply with the FDA regulations, we may incur substantial costs
relating to laboratory and clinical testing of new and existing products and the
preparation and filing of documents in formats required by the FDA. In addition,
we may also encounter delays in bringing new or existing devices to market as a
result of being required by the FDA and foreign governmental authorities to
conduct and document additional investigations of product safety and
effectiveness.

                                       13
<PAGE>

         For European distribution, we have received ISO 9001 certification for
our neurosurgery bipolar system and are allowed to use the CE mark on our
neurosurgery bipolar system after assembling appropriate documentation. Failure
to maintain the CE Mark will preclude our distributor from selling our products
in Europe. We cannot assure you that we will be successful in maintaining
certification requirements.

         We have received 510(k) clearance to market our bipolar electrosurgical
generator and disposable instrumentation. We have also received clearance to
market our Bident(R) Bipolar Tissue Management System for dental procedures. We
cannot assure you that we will be able to obtain necessary clearances or
approvals to market any other products, or existing products for new intended
uses, on a timely basis, if at all. Delays in receipt or failure to receive
clearances or approvals, the loss of previously received clearances or
approvals, or failure to comply with existing or future regulatory requirements
could have a material adverse effect on business, financial condition, results
of operations and future growth prospects.

         Under FDA regulations, after a device receives 510(k) clearance, any
modification that could significantly affect its safety or effectiveness, or
that would constitute a major change in the intended use of the device,
technology, materials, packaging, and certain manufacturing process may require
a new 510(k) clearance. The FDA requires a manufacturer to make this
determination in the first instance, but the FDA can review any such decision,
and if it disagrees it can require a manufacturer to obtain a new 510(k)
clearance or it can seek enforcement action against the manufacturer.

         We are also required to maintain compliance with the Quality System
Regulation, or QSR. The QSR incorporates the requirements of Good Manufacturing
Practice and relates to product design, testing, and manufacturing quality
assurance, as well as the maintenance of records and documentation. The FDA
enforces the QSR through inspections. We cannot assure you that we or our key
components suppliers are or will continue to be in compliance, will not
encounter any manufacturing difficulties, or that we or any of our
subcontractors or key component suppliers will be able to maintain compliance
with regulatory requirements. Failure to do so will have a material adverse
effect on our business, financial condition, results of operations and future
growth prospects.

         We may not promote or advertise our products for uses not within the
scope of our clearances or approvals or make unsupported safety and
effectiveness claims. We believe that we are in material compliance with
regulations promulgated by the FDA, and that such compliance has been and is
anticipated to be without adverse effect on our business.

Patents and Trademarks

         Our ability to compete in an effective manner depends in part on
developing and maintaining proprietary aspects of our bipolar technology. We own
two principal United States patents that are directed towards our DualWave(TM)
bipolar technology used in our bipolar electrosurgical systems. Our first
patent, which was issued on May 27, 1986, expired on May 27, 2003. Our second
patent was issued on June 17, 1994. Since our current bipolar electrosurgical
generators are based on the combination of both of these patents and other
know-how and trade secrets, we do not believe that the expiration of our first
patent will adversely affect our business.

                                       14
<PAGE>

         We also own two United States patents, which are used in our disposable
hand-held bipolar instruments, and we have applied for United States patents on
additional disposable instrumentation and electronic circuitry. Our practice and
experience is to apply for patents that are important to the development or sale
of a product.

         Dr. Leonard I. Malis, one our principal shareholders and directors, has
also entered into an agreement with us to license the MALIS(R) trademark to us,
at no cost, to the extent the name has not been licensed to Codman & Shurtleff,
Inc.

         We cannot assure you that the patents we have obtained, or any patents
that we may obtain as a result of our patent applications, will provide any
competitive advantages for our products or that they will not be successfully
challenged, invalidated or circumvented in the future. In addition, we cannot
assure you that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that will prevent, limit or interfere with our ability to
make, use and sell our products either in the United States or in international
markets.

         Other companies and entities have filed patent applications or have
been issued patents relating to monopolar and/or bipolar electrosurgical methods
and devices. We do not believe that our products currently infringe any valid
and enforceable claims of the issued patents that we have reviewed. We cannot
assure you that we will not have to defend ourselves in court against
allegations of infringement of third-party patents.

         In addition to patents, we rely on trade secrets and proprietary
know-how, which we seek to protect, in part, through confidentiality and
proprietary information agreements. We require our key employees and consultants
to execute confidentiality agreements upon the commencement of an employment or
consulting relationship with us. These agreements generally provide that all
confidential information developed or made known to the individual by us during
the course of the individual's relationship with us, is to be kept confidential
and not disclosed to third parties. These agreements also generally provide that
inventions conceived by the individual in the course of rendering services to us
shall be our exclusive property. We cannot assure you that employees will not
breach the agreements, that we would have adequate remedies for any breach or
that our trade secrets will not otherwise become known to or be independently
developed by competitors.

Product Liability Risk and Insurance Coverage

         The development, manufacture, sale and use of medical products entail
significant risk of product liability claims. Our current product liability
coverage limits are $5,000,000 per occurrence and $6,000,000 in the aggregate.
We cannot assure you that such coverage limits are adequate to protect us from
any liabilities we might incur in connection with the development, manufacture,
sale or use of our products. In addition, we may require increased product
liability coverage as our sales increase in their current applications and new
applications. Product liability insurance is expensive and in the future may not
be available on acceptable terms, if at all. A successful product liability
claim or series of claims brought against us in excess of our insurance coverage
could have a material adverse affect on our business, prospects, financial
condition and results of operations.

                                       15
<PAGE>

Employees

         At September 30, 2003, we and our subsidiaries had 20 full-time
employees, including executive officers. From time to time we retain part-time
employees, engineering consultants, scientists and other consultants. All
full-time employees participate in our health benefit plan. None of our
employees are represented by a union or covered by a collective bargaining
agreement. We consider our relationship with our employees to be satisfactory.


Forward Looking Statements

         The information provided in this Annual Report on Form 10-K contains in
addition to historic information, "forward looking" statements or statements
which arguably imply or suggest certain things about our future. Statements
which express that we "believe", "anticipate", "expect", or "plan to" as well as
other statements which are not historical fact, are forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These include, but are not limited to statements about: any competitive
advantage we may have as a result of our installed base of electrosurgical
generators in the neurosurgery market; our belief that our products exceed
industry standards or favorably compete with other companies' new technological
advancements; the future success of our products and disposable instrumentation
in the neurosurgery and dental markets; our ability, along with the third
parties with whom we contract, to distribute and sell our products both in and
outside of the neurosurgery market; and the continued acceptance of our products
in the neurosurgery market and the acceptance of our products in the dental
market and outside the neurosurgery market. These statements are based on
assumptions that we believe are reasonable, but a number of factors could cause
our actual results to differ materially from those expressed or implied by these
statements. We do not intend to update these forward looking statements. You are
advised to review the Additional Cautionary Statements section, which follows
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section (Item 7) of this Annual Report, for more information about
risks and uncertainties that could affect our financial results.

Item 2.           PROPERTIES.
------            ----------

         We currently lease approximately 4,200 square feet of office and
warehouse space at a base monthly rent of $4,716 (with increases based on
increases in the producer price index) in an office building in Oaks,
Pennsylvania, approximately 12 miles northwest of Philadelphia, Pennsylvania.
The current lease term ends on June 30, 2005. Our manufacturing operations are
conducted in a building owned by our wholly owned subsidiary, Diversified
Electronics Company, Inc., with approximately 15,000 square feet in
Philadelphia, Pennsylvania.

Item 3.           LEGAL PROCEEDINGS.
------            -----------------

         From time to time we are subject to litigation claims. As of September
30, 2003, there are no material pending legal proceedings to which we are a
party or to which any of our property is the subject.

                                       16
<PAGE>

         On September 19, 2002, we were served with a Complaint that was filed
in the Superior Court of the State of Arizona, County of Maricopa entitled
Jeffrey Turner and Cathryn Turner, husband and wife, individually, and on behalf
of Morgan Rose Turner, a Minor v. Phoenix Children's Hospital, Inc., Valley
Forge Scientific Corp., et al (CV 2002-010791) in which we are named as one of
the defendants. The plaintiff seeks an unspecified amount of damages for alleged
injuries sustained in a surgery that took place in June 2000. Our products
liability insurance carrier is providing our defense in this matter. We have
denied liability and we are vigorously defending ourselves.


Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------            ---------------------------------------------------

         No matters were submitted to a vote of the securityholders during the
fourth quarter of fiscal year 2003.

                                     PART II
                                     -------

Item 5.           MARKET FOR REGISTRANT'S COMMON EQUITY
------            -------------------------------------
                  AND RELATED STOCKHOLDER MATTERS.
                  -------------------------------

         Our Common Stock, no par value, is quoted on the Boston Stock Exchange
under the symbol VLF, and traded in the over-the-counter market, and is included
in the Nasdaq - Small Cap Issues under the symbol "VLFG." The table below sets
forth the range of high and low closing bid quotations per share of Common Stock
as reported on Nasdaq. Quotations represent prices between dealers and do not
necessarily represent actual transactions. None of the prices shown reflect
retail mark-ups, mark-downs, or commissions.

COMMON STOCK                                          High-Bid      Low-Bid
                                                      --------      -------

         Fiscal 2003
                  First Quarter                        $1.88         $1.23
                  Second Quarter                        1.54          1.05
                  Third Quarter                         1.57          1.10
                  Fourth Quarter                        1.75          1.15

         Fiscal 2002:
                  First Quarter ................       $2.95         $2.20
                  Second Quarter................        3.15          2.20
                  Third Quarter.................        3.05          2.38
                  Fourth Quarter................        2.60          1.26

         At December 9, 2003, we had 109 shareholders of record.

         We have not paid any dividends to date, nor do we expect to do so in
the foreseeable future.

Item 6.           SELECTED FINANCIAL DATA
                  -----------------------

         The selected financial data set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-K. The statement of

                                       17
<PAGE>

operations data for the year ended September 30, 2003, 2002 and 2001 and the
balance sheet data as of September 30, 2003 and 2002 have been derived from
audited consolidated financial statements included elsewhere in this report. The
consolidated statement of operations for the years ended September 30, 2000 and
1999 and the balance sheet data as of September 30, 2001, 2000 and 1999 have
been derived from audited consolidated financial statements that are not
included in this report. The historical results are not necessarily indicative
of the results of operations to be expected in the future.

<TABLE>
<CAPTION>
Statement of Operations Data:
   For Fiscal Year Ended:               2003          2002          2001          2000           1999
   ----------------------           -----------   -----------   -----------   -----------    -----------
<S>                                 <C>           <C>           <C>           <C>            <C>
Net Sales                           $ 4,474,308   $ 5,021,931   $ 5,263,485   $ 4,397,939    $ 3,721,528
Income (loss) from Operations           155,427       632,000       485,746      (110,817)      (197,810)
Net Income (loss)                   $   108,925   $   380,527   $   330,221   $   (54,312)   $  (124,973)
                                    ===========   ===========   ===========   ===========    ===========
Basic Earnings (loss) per share     $      0.01   $      0.05   $      0.04   $     (0.01)   $     (0.02)
                                    ===========   ===========   ===========   ===========    ===========
Diluted Earnings (loss) per share   $      0.01   $      0.05   $      0.04   $     (0.01)   $     (0.02)
                                    ===========   ===========   ===========   ===========    ===========


Balance Sheet Data:
  At September 30,                      2003          2002          2001          2000           1999
  ----------------                  -----------   -----------   -----------   -----------    -----------
Current Assets                      $ 3,777,456   $ 3,981,746   $ 3,516,992   $ 3,093,698    $ 3,161,394
Total Assets                          4,374,413     4,570,035     4,171,214     3,852,079      4,034,443
Current Liabilities                     216,457       353,281       283,186       182,185        166,618
Long Term Liabilities                    19,950        14,357        19,280        20,661         16,885
Retained Earnings (deficit)             609,476       500,551       120,024      (210,197)      (155,885)
Stockholders' Equity                  4,138,006     4,202,397     3,868,746     3,649,233      3,850,940
</TABLE>

Item 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------            -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

         The following is a discussion and analysis of Valley Forge Scientific
Corp.'s financial condition and results of operations for the fiscal years ended
September 30, 2003, 2002 and 2001. This section should be read in conjunction
with the financial statements and related notes thereto appearing elsewhere in
this Form 10-K.

Cautionary Note Regarding Forward Looking Statements

         This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains, in addition to historic information, "forward
looking" statements or statements which arguably imply or suggest certain things
about our future. Statements which express that we "believe", "anticipate",
"expect", or "plan to" as well as other statements which are not historical
fact, are forward looking statements within the meaning of the Private

                                       18
<PAGE>

Securities Litigation Reform Act of 1995. These forward looking statements
include, but are not limited to statements about: any competitive advantage we
may have as a result of our installed base of electrosurgical generators in the
neurosurgery market; our belief that our products exceed industry standards or
favorably compete with other companies' new technological advancements; the
future success of our products and disposable instrumentation in the
neurosurgery and dental markets; and our ability, along with the third parties
with whom we contract, to distribute and sell our products both in and outside
of the neurosurgery market, and the continued acceptance of our products in the
neurosurgery market and the acceptance of our products in the dental market and
outside of the neurosurgery market. These statements are based on assumptions
that we believe are reasonable, but a number of factors could cause our actual
results to differ materially from those expressed or implied by these
statements. We do not intend to update these forward looking statements after
the date of this report. You are advised to review the "Additional Cautionary
Statements" section below for more information about risks and uncertainties
that could affect the financial results of Valley Forge Scientific Corp.

Overview

         We design, develop, manufacture and sell medical and dental devices.
Our core business is in our bipolar electrosurgical generators and related
instrumentation, based on our DualWave(TM) technology. Our bipolar systems allow
a surgeon or dentist to cut tissue in a manner that minimizes collateral damage
to surrounding healthy tissue and to coagulate blood vessels quickly, safely and
efficiently. By substantially reducing damage to surrounding healthy tissue, the
surgeon or dentist can work safely in close proximity with nerves, blood
vessels, bone and metal implants. Our bipolar systems are designed to replace
other surgical tools, such as monopolar electrosurgery systems, lasers and
conventional instruments, used in soft tissue surgery.

         Our DualWave(TM) technology is applicable to many surgical markets. Our
bipolar systems are currently used to perform many types of neurosurgery, spine
surgery and dental surgery. We have had worldwide exclusive distribution
agreements with Codman & Shurtleff, Inc., a subsidiary of Johnson & Johnson,
Inc., to market our neurosurgery bipolar systems since 1983. The term for our
current distribution agreement with Codman & Shurtleff, Inc. was recently
extended from December 31, 2003 to March 31, 2004 to allow the parties time to
continue to discuss the terms of a new distribution agreement.

         Historically, we have derived a significant portion of our sales from
our neurosurgery bipolar system. Sales revenue from our Bident(R) Bipolar Tissue
Management System for dental applications commenced in the 2000 fiscal year. Our
current strategy is to increase sales of our Bident(R) Bipolar Tissue Management
System by selling it directly to an expanded base of national dental product
dealers, expand the offerings of products in the field of neurosurgery and
broaden the market for our products in other clinical and surgical markets that
have a need for bipolar electrosurgery. Our strategy also includes using our
DualWave(TM) technology and sales of our bipolar generators to drive sales of
complementary disposable hand-held instruments and products.

                                       19
<PAGE>

Critical Accounting Policies and Estimates

         The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations", as well as disclosures included elsewhere
in this Form 10-K, are based upon our audited consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingencies. On an on-going basis, we evaluate the estimates used, including
those related to product returns, bad debts, inventory valuation, impairments of
tangible and intangible assets, income taxes, warranty obligations, other
accruals, contingencies and litigation. We base our estimates on historical
experience, current conditions and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources as well as identifying and
assessing our accounting treatment with respect to commitments and
contingencies. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
involve more significant judgments and estimates used in the preparation of the
consolidated financial statements.

         We maintain an allowance for doubtful accounts for estimated losses
resulting from the potential inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

         We provide for the estimated cost of product returns based upon
historical experience and any known conditions or circumstances. Our warranty
obligation is affected primarily by product that does not meet specifications
and performance requirements within the applicable warranty period and any
related costs of addressing such matters. Should actual incidences of product
not meeting specifications and performance requirements differ from our
estimates, revisions to the estimated warranty liability may be required.

         We value inventory at the lower of cost or market and write down the
value of inventory for estimated obsolescence or unmarketable inventory. An
inventory reserve is maintained based upon historical data of actual inventory
written off and for known conditions and circumstances. Should actual product
marketability be affected by conditions that are different from those projected
by management, revisions to the estimated inventory reserve may be required.

         Our deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax based assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance at
the time that a determination can be made that it is more likely than not that a
portion or all of the related tax assets will not be realized.

         In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement No. 123" ("SFAS 148"), we have
elected to account for stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations.

                                       20
<PAGE>

Results of Operations

Summary

         Sales of $4,474,308, for fiscal 2003 were 11% less than sales of
$5,021,931 for fiscal 2002 and 15% less than sales of $5,263,485 for fiscal
2001. Operating income was $155,427 in fiscal 2003 as compared to $632,000 in
fiscal 2002 and $485,746 in fiscal 2001. Net income for fiscal 2003 was $108,925
as compared to $380,527 for fiscal 2002 and $330,221 for fiscal 2001.

Revenues

         Sales of $4,474,308 in fiscal 2003 reflect a decrease in sales volume
to Codman & Shurtleff, Inc., the distributor of our products in the neurosurgery
market, and a decrease in sales of our Bident(R) dental products. In fiscal
2003, Codman & Shurtleff, Inc. accounted for 95% of our sales, as compared to
90% of sales for fiscal 2002 and 79% of our sales for fiscal 2001. Sales of the
Bident(R) Bipolar Tissue Management System for dental applications were 4% of
total sales for fiscal 2003 as compared to 7% of sales for fiscal 2002 and 19%
of our sales for fiscal 2001.

         Sales of our neurosurgical products to Codman & Shurtleff, Inc.
decreased by $284,090 in fiscal 2003. This was primarily due to reduced sales of
generators in anticipation of the release of a new neurosurgical generator and
instrumentation in 2004. Sales volume of our disposable cord/tubing sets in
fiscal 2003 increased compared to sales volume in fiscal 2002. We recently
extended the term of our distribution agreement with Codman & Shurtleff, Inc.
from December 31, 2003 to March 31, 2004 under the same terms as are currently
in place in order to provide more time to continue discussions on the terms of a
new distribution agreement for both our existing products and other products and
disposable instruments, which are or will be ready for introduction into the
market. In addition to the new irrigation unit and related disposable tubing
sets, which began production after the end of the 2003 fiscal year, we
anticipate completing a new neurosurgical generator and disposable
instrumentation in the first six months of calendar 2004.

         In the second quarter of fiscal 2003, we implemented a new marketing
plan for our Bident(R) Bipolar Tissue Management System for dental applications
focusing on direct marketing and sales to national dental product dealers. These
dental product dealers then sell our products to dentists, oral surgeons and
periodontists. During the 2003 fiscal year, our marketing efforts included
demonstrating our dental products at numerous dental trade shows, sponsoring
training seminars and advertising our dental products in leading trade journals.
In addition, with a new dental product manager, which we hired in the fourth
quarter of fiscal 2003, we are expanding our marketing efforts with the key
dental product distributors. In the first quarter of 2004 and beyond, we
anticipate seeing a greater contribution from the sales of our dental products
as the leads we are receiving turn to sales.

          In fiscal 2003, 51% of our sales related to sales of bipolar
electrosurgical generators, irrigators and accessories as compared to
approximately 59% and 57% of our sales in fiscal 2002 and 2001, respectively.
Sales of disposable products accounted for approximately $1,934,400, or 43% of
our sales, in fiscal 2003 as compared to approximately $1,699,000, or 33% of our

                                       21
<PAGE>

sales, in fiscal 2002 and approximately $1,999,000, or 38% of our sales, in
fiscal 2001. The increased sales levels of disposable products reflect increased
sales of neurosurgery disposable tubing sets.

Cost of Product Sales

         Cost of sales for fiscal 2003 was $2,264,902, or 51% of sales, compared
with $2,463,209, or 49% of sales, for fiscal 2002. During fiscal 2001, cost of
sales was $2,692,036, or 51% of sales. Gross margin was 49% for fiscal 2003 as
compared to 51% for fiscal 2002 and 49% for fiscal 2001.

         The decrease in gross margin as a percentage of sales is primarily
attributable to decreased sales volume and an increase in our inventory
obsolescence provisions. We cannot be sure that gross margins will remain at
current levels or show improvement in the future due to the distribution
channels used, product mix, and fluctuation in manufacturing production levels
and overhead costs as new products are introduced. In addition, inefficiencies
in manufacturing new products and the distribution channels utilized to sell
those products may adversely impact gross margin.

Operating Expenses

         Selling, general and administrative expenses increased slightly to
$1,523,751, or 34% of sales, in fiscal 2003, from $1,503,001, or 30% of sales,
in fiscal 2002, and from $1,652,289, or 31% of sales, in fiscal 2001. Selling,
general and administrative expenses reflect increased selling and marketing
expenses incurred in connection with implementing the sales and marketing plan,
which we commenced in fiscal 2003, for the Bident(R) Bipolar Tissue Management
System.

         Research and development expenses were $489,930, or 11% of sales, in
fiscal 2003, $360,111, or 7% of sales, in fiscal 2002, and $352,773, or 7% of
sales, in fiscal 2001. We will continue to invest in research and development to
expand our technological base for use in both existing and additional clinical
areas. The increase was primarily related to our reaching the final stages of
development of our new surgical irrigator system and increased resources
directed towards the development of a new generator and instrumentation for
neurosurgery. During the year, we also expended additional funds to reach the
final stages of development for a product outside of the neurosurgery and dental
markets pursuant to a development agreement we entered into with Stryker
Corporation in September 2002. After the end of our 2003 fiscal year, we
extended the term of that development agreement until February 28, 2004.

Other Income and Expense, net

         Other income and expense, net, decreased for fiscal 2003 to $11,451
from $23,111 for fiscal 2002 and from $39,428 for fiscal 2001 due primarily to
lower interest rates on the short-term investments for our cash balances and the
write down of certain molding equipment to its estimated fair value. At the end
of fiscal 2003, we had $2,305,556 in cash and cash equivalents as compared to
$2,543,898 at the end of fiscal 2002 and $1,500,622 at the end of fiscal 2001.

                                       22
<PAGE>

Income Tax Provision

         The provision for income taxes was $57,953 for fiscal 2003 as compared
to $274,584 for fiscal 2002 and $194,953 for fiscal 2001. Our effective tax rate
in fiscal 2003 was approximately 35% as compared to approximately 42% in fiscal
2002 and approximately 37% in fiscal 2001.

Net Income

         Net income decreased to $108,925 for fiscal 2003, as compared to net
income of $380,527 for fiscal 2002, and net income of $330,221 for fiscal 2001.
Basic and diluted income per share was $0.01 for fiscal 2003 as compared to
basic and diluted income per share of $.05 for fiscal 2002 and $.04 for fiscal
2001. Although we have been profitable on a quarterly basis since the third
quarter of fiscal 2000, we cannot be sure that we can sustain profitability or
achieve revenue growth.

Liquidity and Capital Resources

         At the end of fiscal 2003, we had $3,560,999 in working capital
compared to $3,628,465 at the end of fiscal 2002 and $3,233,806 at the end of
fiscal 2001. The primary measures of our liquidity are cash, cash equivalents,
accounts receivable and inventory balances, as well as our borrowing ability.
The cash equivalents are highly liquid with original maturities of ninety days
or less.

         Cash used by operating activities was $9,009 for fiscal 2003 as
compared to $1,059,755 generated in fiscal 2002. The cash used by operating
activities was mainly attributable to increases in prepaid items of $135,205 and
accounts receivable of $38,976 and a decrease in accounts payable and other
expenses of $136,824, offset by operating profits net of adjustments for
non-cash items and a decrease in inventory of $107,649.

         In fiscal 2003, accounts receivable net of allowances increased by
$38,796 to a total of $376,915 at the end of fiscal 2003. The increase in
accounts receivable was principally due to the timing of shipments.

         In fiscal 2003, inventories decreased by $107,649 to a total of
$775,183 at the end of fiscal 2003 compared to $882,832 at the end of fiscal
2002. The decrease was primarily due to improved inventory management and
reduced sales levels for fiscal 2003. Inventories were kept at these levels
primarily to support anticipated future sales activity.

         In fiscal 2003, we received net proceeds of $10,000 from the repayment
of employee loans. We also used $66,017 for the purchase of equipment and
intangible assets used in connection with the sale and marketing of the
Bident(R) dental products and in connection with our manufacturing operations.
Net property and equipment increased to $156,697 at the end of fiscal 2003 as
compared to $136,131 for fiscal 2002.

         In August 2002, our Board of Directors terminated our then existing
stock repurchase plan and authorized a new repurchase plan to purchase up to
200,000 shares of our common stock. Cash used for financing activities was
$173,316 in fiscal 2003 as a result of the repurchase of 127,600 shares of our
common stock in fiscal 2003 pursuant to the stock repurchase plan. All 127,600
shares of common stock repurchased were retired or were in the process of being
retired as of September 30, 2003. To date, we have repurchased 154,100 shares of

                                       23
<PAGE>

our common stock under the plan, leaving a balance of 45,900 that are available
for repurchase under the plan.

         At September 30, 2003, we had cash and cash equivalents of $2,305,556.
We plan to finance our operating and capital needs principally with cash flows
from operations and existing balances of cash and cash equivalents, which we
believe will be sufficient to fund our operations in the near future. However,
should it be necessary, we believe we could borrow adequate funds at competitive
rates and terms. Our future liquidity and capital requirements will depend on
numerous factors, including the funds we expend in marketing, selling and
distributing our products, the success in commercializing our existing products,
development and commercialization of products in other clinical markets, the
ability of our suppliers to continue to meet our demands at current prices, the
status of regulatory approvals and competition.

         We have a line of credit of $1,000,000 with Wachovia Bank, N.A. which
calls for interest to be charged at the bank's national commercial rate. The
credit accommodation is unsecured and requires us to have a tangible net worth
of no less than $3,000,000. Our current tangible net worth exceeds $3,000,000 at
September 30, 2003. There was no outstanding balance on this line.

Non-Audit Services Performed by External Auditors

         Pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934,
as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible
for disclosing to investors the non-audit services approved by our Audit
Committee to be performed by Samuel Klein and Company, our external auditor.
Non-audit services are defined in the law as services other than those provided
in connection with an audit or a review of the financial statements of the
company. During the period covered by this filing, our Audit Committee approved
non-audit tax compliance services in connection with the preparation of our tax
returns, which subsequently were or are being performed by Samuel Klein and
Company.

Additional Cautionary Statements

We Face Intense Competition
---------------------------

         The markets for our current and potential products are intensely
competitive. Some surgical procedures which utilize or could utilize our
products could potentially be replaced or reduced in importance by products sold
by other companies or alternative medical procedures or new drugs which could
render our products obsolete or uncompetitive in the markets which we sell, or
in the future may sell, our products.

We are Dependent Upon Sales of Our Neurosurgery System - Almost All of Our
--------------------------------------------------------------------------
Business in Fiscal 2003 Comes From One Customer
-----------------------------------------------

         Codman & Shurtleff, Inc., which sells our products in the neurosurgery
market, accounted for 95% of our sales in fiscal 2003, and 90% and 79% of our
sales in fiscal 2002 and 2001, respectively. Any cancellation, deferral or
significant reduction in sales in the neurosurgery market could seriously harm
our business, financial condition and results of operations. The term or our
current distribution agreement with Codman & Shurtleff, Inc. was recently
extended from December 31, 2003 to March 31, 2004 to allow the parties time to
continue to discuss the terms of a new distribution agreement. Increased sales

                                       24
<PAGE>

in the neurosurgery market are dependent on the acceptance of our new
neurosurgical generators and disposable hand-held instruments in the
marketplace.

Commercial Success of our Non-Neurosurgical Products is Uncertain
-----------------------------------------------------------------

         Our growth depends on the acceptance of our products in the
marketplace, the market penetration achieved by the companies that we utilize,
sell to, and rely on, to sell and distribute our products, and our ability to
introduce new and innovative products that meet the needs of medical
professionals. There can be no assurance that we will be able to continue to
introduce new and innovative products or that the products we introduce, or have
introduced, will be widely accepted, or continue to be accepted, in the
marketplace, or that we or companies, which we may contract with to distribute
or sell our products, achieve market penetration. While we have developed
several applications for our DualWave technology outside of neurosurgery and we
believe that the products based on our technology offer advantages over other
products, we cannot assure you that these advantages will be realized, or if
realized, that these products will result in any meaningful benefits to
physicians or patients.

We Have Limited Marketing and Sales Experience
----------------------------------------------

         We currently have limited experience in marketing and selling our
products. To the extent that we have established or will enter into distribution
arrangements for the sale of our products, we are and will be dependent upon the
efforts of third parties. We have entered into a distribution agreement with
Codman & Shurtleff, Inc. to sell our products in the neurosurgery market and we
sell our Bident(R) Bipolar Tissue Management System through independent dental
product dealers. We cannot assure you that these distributors and dealers will
commit the necessary resources to effectively market and sell our neurosurgery
and dental product lines, or that they will be successful in selling our
products. To the extent our marketing and sales efforts are unsuccessful, our
business, financial condition, results of operations and future growth prospects
may be materially adversely affected.

Our Products are Extensively Regulated Which Could Delay Product Introduction or
--------------------------------------------------------------------------------
Halt Sales
----------

         The process of obtaining and maintaining required regulatory approvals
is lengthy, expensive and uncertain. Although we have not experienced any
substantial regulatory delays to date, there is no assurance that delays will
not occur in the future, which could have a significant adverse effect on our
ability to introduce new products on a timely basis. Regulatory agencies
periodically inspect our manufacturing facilities to ascertain compliance with
"good manufacturing practices" and can subject approved products to additional
testing and surveillance programs. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal penalties. While
we believe that we are currently in compliance, if we fail to comply with
regulatory requirements, it could have an adverse effect on our results of
operations and financial condition.

We are Dependent on Key Suppliers
---------------------------------

For some of the components we use in our products we rely upon single source
suppliers or a single contract manufacturer. For example, we currently
subcontract the manufacturer of our disposable cord and tubing sets with a

                                       25
<PAGE>

single manufacturer. While we believe there are alternative sources available,
we would be required to qualify and validate a new supplier(s) or contractor(s),
which could lead to a disruption in our operations and ability to supply product
for a period of time.

We Face Uncertainty Over Reimbursement
--------------------------------------

         Failure by physicians, hospitals and other users of our products to
obtain sufficient reimbursement from health care payors for procedures in which
our products are used or adverse changes in governmental and private third-party
payors' policies toward reimbursement for such procedures would have a material
adverse effect on our business, financial condition, results of operations and
future growth prospects.

We May Be Unable to Effectively Protect Our Intellectual Property
-----------------------------------------------------------------

         Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our bipolar technology. We cannot assure
you that the patents we have obtained, or any patents we may obtain, will
provide any competitive advantages for our products, or that we will be able to
maintain a competitive advantage after our patents expire. We also cannot assure
you that those patents will not be successfully challenged, invalidated or
circumvented in the future. In addition, we cannot assure you that competitors,
many of which have substantial resources and have made substantial investments
in competing technologies, have not already applied for or obtained, or will not
seek to apply for and obtain, patents that will prevent, limit or interfere with
our ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.

We May Become Subject to a Patent Litigation
--------------------------------------------

         The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. We cannot assure you that we will
not become subject to patent infringement claims or litigation or interference
proceedings declared by the United States Patent and Trademark Office to
determine the priority of invention.

We May have Product Liability Claims
------------------------------------

         Our products involve a risk of product liability claims. Although we
maintain product liability insurance at coverage levels, which we believe are
adequate, there is no assurance that, if we were to incur substantial liability
for product liability claims, insurance would provide adequate coverage against
such liability.

Our Operating Results May Fluctuate
-----------------------------------

         We have experienced operating losses at various times since our
inception. Our results of operations may fluctuate significantly from quarter to
quarter based on numerous factors including the following:

                                       26
<PAGE>

          o    the introduction of new product lines;
          o    the level of market acceptance of our products;
          o    achievement of research and development milestones;
          o    timing of the receipt of orders from, and product shipments to,
               distributors and customers;
          o    timing of expenditures;
          o    changes in the distribution of our products;
          o    manufacturing or supply delays;
          o    the time needed to educate and train a distributor's sales force;
          o    costs associated with product introduction;
          o    product returns; and
          o    receipt of necessary regulation approvals.

The Market Price of Our Stock May be Highly Volatile
----------------------------------------------------

         During the fiscal year ended September 30, 2003, our common stock has
traded in a range of $1.15 and $1.88 per share. The market price of our common
stock could continue to fluctuate substantially due to a variety of factors,
including:

         o    Our ability to successfully commercialize our operations;
         o    The execution of new agreements and material changes in our
              relationships with companies with whom we contract;
         o    Quarterly fluctuations in results of operations;
         o    Announcements regarding technological innovations or new
              commercial products by us or our competitiors or the results of
              regulatory approval filings;
         o    Market reaction to trends in sales, marketing and research and
              development and reaction to acquisitions;
         o    Sales of common stock by existing stockholders; and
         o    Economic and political conditions.

Item 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-------           ----------------------------------------------------------

         Not Applicable.

Item 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------            -------------------------------------------

                  See Index to Financial Statements and Financial Statement
Schedules on page F-1 herein. Selected quarterly financial data is set forth in
Note 16 to the Financial Statements.

Item 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
------            -----------------------------------------------------------
AND FINANCIAL DISCLOSURE.
------------------------

                  Not applicable.

                                       27
<PAGE>

Item 9A.          CONTROLS AND PROCEDURES
-------           -----------------------

          We maintain disclosure controls and procedures (as defined in
Securities Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are designed to
ensure that the information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost benefit
relationship of possible controls and procedures.

         Within 90 days prior to the filing of this annual report, we carried
out an evaluation, under the supervision and with the participation of the
Company's management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of his evaluation. There were no significant deficiencies
or material weaknesses, and therefore no corrective actions were taken.

                                    PART III
                                    --------

Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------           --------------------------------------------------

         The information concerning directors and executive officers of Valley
Forge Scientific Corp. is incorporated by reference to the information set forth
either: (i) in our Definitive Proxy Statement for our 2004 Annual Meeting of
Stockholders, or (ii) in an amendment to this Annual Report on Form 10-K
(collectively the "2003 Proxy Information"), which in either case will be filed
within 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K.

Item 11.          EXECUTIVE COMPENSATION.
-------           ----------------------

         The information regarding executive compensation is incorporated by
reference to the information set forth in the 2003 Proxy Information.

Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------           --------------------------------------------------------------
AND RELATED STOCKHOLDER MATTERS.
-------------------------------

         The information concerning the security ownership of certain beneficial
owners and management and related stockholder matters is incorporated by
reference to the information set forth in the 2003 Proxy Information.

                                       28
<PAGE>

Item 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------           ----------------------------------------------

         The information concerning certain relationships and related
transactions is incorporated by reference to the information set forth in the
2003 Proxy Information.

Item 14.          PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------           --------------------------------------

         The information required to be disclosed concerning principal
accountant fees and services is incorporated by reference to the information set
forth in the 2003 Proxy Information.

                                     PART IV
                                     -------


Item 15           EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
-------           -----------------------------------------------------------
8-K.
---

         a. and d. Financial Statements and Financial Statement Schedules.

            See Index to Financial Statements and Financial Statement Schedules
on Page F-1, herein.

         b. Reports on Form 8-K.

            On August 12, 2003, Valley Forge Scientific Corp. filed a report on
Form 8-K regarding a press release regarding third quarter and nine month
operating results for fiscal 2003

         c. Exhibits

          The following is a list of exhibits filed as part of this annual
report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.

              2.1    Agreement and Plan of Merger between Valley Forge
                     Scientific Corp. and Diversified Electronic Corporation
                     dated August 31, 1994. (3)


              3.1    Articles of Incorporation, restated to include amendment to
                     Articles of Incorporation dated August 26, 1999. (8)
                     (Exhibit 3(a))

              3.2    Second Amended and Restated By-Laws of the Company. (12)


              4.1    Form of Common Stock Certificate - (1) (Exhibit 4(a)).


              10.1   Valley Forge Scientific Corp. 2001 Stock Plan (10)

              10.2   Valley Forge Scientific Corp. 2000 Nonemployee Directors
                     Stock Option Plan (11)

                                       29
<PAGE>

              10.3   Assignment of Know-How Agreement, dated June 30, 1989 - (1)
                     (Exhibit 10(g)).

              10.4   Assignment of Patents - Bipolar Electrosurgical Systems,
                     June 30, 1989 - (1) (Exhibit 10(h)).


              10.5   Assignment of Patents - Binocular Magnification System,
                     June 30, 1989 -(1) (Exhibit 10(i)).

              10.6   Assignment of Malis trade name, dated June 30, 1989 - (1)
                     (Exhibit 10(j)).

              10.7   401(k) and Profit-Sharing Plan - (2) (Exhibit 10(x)).

              10.8   Promissory Note from Jerry L. Malis to the Company. (4)
                     (Exhibit 10(k))

              10.9   Commercial Lease Agreement between GMM Associates and the
                     Company dated July 1, 1995 (5) (Exhibit 10(p))

              10.10  Promissory Note from Jerry L. Malis to the Company (7)
                     (Exhibit 10(p)).

              10.11  Distribution Agreement between the Company and Codman &
                     Shurtleff, Inc., dated December 11, 2000 (9) (Exhibit 10.1)

              10.12  Addendum to Commercial Lease Agreement between the Company
                     and GMM Associates dated as of July 1, 2000 (9) (Exhibit
                     10.2)

              10.13  Extension of Distribution Agreement with Codman &
                     Shurtleff, Inc. dated November 21, 2003


              21     Subsidiary of Registrant

              23     Consent of Samuel Klein and Company

              31.1   Certification of the Chief Executive Officer pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

              32.1   Certification of the Chief Executive Officer to Section 906
                     of the Sarbanes- Oxley Act of 2002.


-----------------

       (1)    Previously filed with the Registration Statement of the Company on
              Form S-18, Registration No. 33-31008-NY, and incorporated herein
              by reference.
       (2)    Previously filed with the Registration Statement of the Company on
              Form S-18, Registration No. 33-35668-NY, and incorporated herein
              by reference.
       (3)    Previously filed with the Company's Form 8-K dated August 31,
              1994, and incorporated herein by reference.

                                       30
<PAGE>

       (4)    Previously filed with the Company's Form 10-K for the year ended
              September 30, 1994, and incorporated herein by reference.
       (5)    Previously filed with the Company's Form 10-K for the year ended
              September 30, 1995, and incorporated herein by reference.
       (6)    Previously filed with the Company's Form 10-K for the year ended
              September 30, 1997, and incorporated herein by reference.
       (7)    Previously filed with the Company's Form 10-K for the year ended
              September 30, 1998 and incorporated herein by reference.
       (8)    Previously filed with the Company's Form 10-K for the year ended
              September 30, 1999 and incorporated herein by reference.
       (9)    Previously filed with the Company's Form 10-Q for the quarter
              ended December 31, 2000, and incorporated herein by reference.
       (10)   Previously filed with the Registration Statement of the Company on
              Form S-8 Registration No.333-72296, filed on October 26, 2001 and
              incorporated herein by reference
       (11)   Previously filed with the Registration Statement of the Company on
              Form S-8 Registration No.333-72134, filed on October 24, 2001 and
              incorporated herein by reference.
       (12)   Previously filed with the Company's Form 10-K for the year ended
              December 31, 2001 and incorporated herein by reference.

                                       31
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) 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 on this 19th day of
December, 2003

                                             VALLEY FORGE SCIENTIFIC CORP.


                                         By: /s/ JERRY L. MALIS
                                             -----------------------------------
                                             Jerry L. Malis, President

     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


    Signature                      Title                            Date
    ---------                      -----                            ----


/s/ JERRY L. MALIS        Chairman of the Board,              December 19, 2003
---------------------     President (chief executive
Jerry L. Malis            officer and principal
                          financial and accounting
                          officer)


/s/ LOUIS UCHITEL         Director                            December 19, 2003
---------------------
Louis Uchitel


/s/ LEONARD I. MALIS      Director                            December 19, 2003
---------------------
Leonard I. Malis


/s/ BRUCE A. MURRAY       Director                            December 19, 2003
---------------------
Bruce A. Murray


/s/ ROBERT H. DICK        Director                            December 19, 2003
---------------------
Robert H. Dick

                                       32
<PAGE>

                          VALLEY FORGE SCIENTIFIC CORP.
                    For Fiscal Year Ended September 30, 2003
                                    FORM 10-K
         Index to Financial Statements and Financial Statement Schedules


Independent Auditor's Report                                                 F-2

Balance Sheets - September 30, 2003 and 2002                                 F-3

Statements of Operations - Years ended September 30, 2003, 2002 and 2001     F-4

Statements of Stockholders' Equity - Years ended September 30, 2003,         F-5
  2002 and 2001

Statements of Cash Flows - Years ended September 30, 2003, 2002 and 2001     F-6

Notes to Financial Statements                                                F-7



--------------

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and therefore have been omitted.

                                      F-1

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



The Board of Directors and Stockholders
Valley Forge Scientific Corp. and Subsidiary
Oaks, Pennsylvania


We have audited the accompanying consolidated balance sheets of Valley Forge
Scientific Corp. and Subsidiary as of September 30, 2003 and 2002 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valley Forge Scientific Corp.
and Subsidiary as of September 30, 2003 and 2002, and the results of operations
and cash flows for each of the three years in the period ended September 30,
2003, in conformity with accounting principles generally accepted in the United
States of America.




                                               /s/ Samuel Klein and Company

                                               SAMUEL KLEIN AND COMPANY



Newark, New Jersey
December 5, 2003

                                      F-2

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS


                                                            September 30,
                                                       -----------------------
ASSETS                                                    2003         2002
------                                                 ----------   ----------

Current Assets:
  Cash and cash equivalents                            $2,305,556   $2,543,898
  Accounts receivable, net                                376,915      337,939
  Inventory                                               775,183      882,832
  Prepaid items and other current assets                  268,371      140,784
  Deferred tax assets                                      51,431       76,293
                                                       ----------   ----------
          Total Current Assets                          3,777,456    3,981,746

Property, Plant and Equipment, Net                        156,697      136,131
Goodwill                                                  153,616      153,616
Intangible Assets, Net                                    256,681      294,371
Other Assets                                               29,963        4,171
                                                       ----------   ----------

          Total Assets                                 $4,374,413   $4,570,035
                                                       ==========   ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
  Accounts payable and accrued expenses                $  216,457   $  200,972
  Income taxes payable                                         --      152,309
                                                       ----------   ----------
          Total Current Liabilities                       216,457      353,281

Deferred Tax Liability                                     19,950       14,357
                                                       ----------   ----------

          Total Liabilities                               236,407      367,638
                                                       ----------   ----------

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock                                              --           --
  Common stock (no par, 20,000,000 shares
    authorized, shares issued and outstanding
    at September 30, 2003 - 7,913,712 and at
    September 30, 2002 - 8,041,312)                     3,528,530    3,701,846
  Retained earnings                                       609,476      500,551
                                                       ----------   ----------
                                                        4,138,006    4,202,397
                                                       ----------   ----------

          Total Liabilities and Stockholders' Equity   $4,374,413   $4,570,035
                                                       ==========   ==========


--------------------

The accompanying notes are an integral part of these financial statements.

                                       F-3

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                            For the Years Ended September 30,
                                           ------------------------------------
                                              2003         2002         2001
                                           ----------   ----------   ----------

Net Sales                                  $4,474,308   $5,021,931   $5,263,485

Cost of Sales                               2,264,902    2,463,209    2,692,036
                                           ----------   ----------   ----------

Gross Profit                                2,209,406    2,558,722    2,571,449
                                           ----------   ----------   ----------

Other Costs:
  Selling, general and administrative       1,523,751    1,503,001    1,652,289
  Research and development                    489,930      360,111      352,773
  Amortization                                 40,298       63,610       80,641
                                           ----------   ----------   ----------
          Total Other Costs                 2,053,979    1,926,722    2,085,703
                                           ----------   ----------   ----------

Income from Operations                        155,427      632,000      485,746

Other Income (Expense), Net                    11,451       23,111       39,428
                                           ----------   ----------   ----------

Income before Income Taxes                    166,878      655,111      525,174

Provision for Income Taxes                     57,953      274,584      194,953
                                           ----------   ----------   ----------

Net Income                                 $  108,925   $  380,527   $  330,221
                                           ==========   ==========   ==========


Income per Share:
  Basic income per common share            $     0.01   $     0.05   $     0.04
                                           ==========   ==========   ==========

  Diluted income per common share          $     0.01   $     0.05   $     0.04
                                           ==========   ==========   ==========

  Basic weighted average common shares
    outstanding                             7,960,676    8,067,286    8,081,890

  Diluted weighted average common shares
    outstanding                             7,986,448    8,154,570    8,152,946

--------------------

The accompanying notes are an integral part of these financial statements.

                                       F-4

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

<TABLE>
<CAPTION>
                                       Common Stock
                                       No Par Value
                                --------------------------
                                  Number         Common        Retained         Total
                                    of           Stock         Earnings      Stockholders'
                                  Shares         Amount        (Deficit)        Equity
                                -----------    -----------    -----------    -----------
<S>                               <C>          <C>            <C>            <C>
Balances, October 1, 2000         8,151,862    $ 3,859,430    $  (210,197)   $ 3,649,233

Purchases and Retirement of
  Common Shares                     (84,050)      (110,706)            --       (110,706)

Net Income for the Year Ended
  September 30, 2001                     --             --        330,221        330,221
                                -----------    -----------    -----------    -----------

Balances, September 30, 2001      8,067,812      3,748,724        120,024      3,868,748

Purchases and Retirement of
  Common Shares                     (26,500)       (46,878)            --        (46,878)

Net Income for the Year Ended
  September 30, 2002                     --             --        380,527        380,527
                                -----------    -----------    -----------    -----------

Balances, September 30, 2002      8,041,312      3,701,846        500,551      4,202,397

Purchases and Retirement of
  Common Shares                    (127,600)      (173,316)            --       (173,316)

Net Income for the Year Ended
  September 30, 2003                     --             --        108,925        108,925
                                -----------    -----------    -----------    -----------

Balances, September 30, 2003      7,913,712    $ 3,528,530    $   609,476    $ 4,138,006
                                ===========    ===========    ===========    ===========
</TABLE>

--------------------

The accompanying notes are an integral part of these financial statements.

                                       F-5

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              For the Years Ended September 30,
                                                          -----------------------------------------
                                                             2003           2002           2001
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Cash Flows from Operating Activities:
  Net income                                              $   108,925    $   380,527    $   330,221
  Adjustments to reconcile net income to net
    cash provided by (used in) operating activities:
      Depreciation and amortization                            66,641         84,784        118,601
      Writedown of property, plant and equipment               16,500          5,300             --
      Allowance for loans and advances to employee                 --             --         48,384
      Reduction of allowance for loans and advances
        to employee                                                --        (47,790)            --
      Interest accrued on loans and advances to
        employees and related parties                          (2,382)        (2,810)        (4,737)

  Changes in assets and liabilities:
    (Increase) decrease in accounts receivable, net           (38,976)       267,211         22,105
    (Increase) decrease in inventory                          107,649        316,704        (21,689)
    Decrease in deferred tax assets                            24,862         28,087        104,934
    (Increase) decrease in other assets                       (25,792)         1,275          2,200

    Increase in prepaid items and other current
      assets                                                 (135,205)       (38,705)       (20,649)
    Increase (decrease) in accounts payable and accrued
      expenses and income taxes payable                      (136,824)        70,095        101,001
    Increase (decrease) in deferred tax liability               5,593         (4,923)        (1,381)
                                                          -----------    -----------    -----------
        Net cash provided by (used in) operating
          activities                                           (9,009)     1,059,755        678,990
                                                          -----------    -----------    -----------

Cash Flows from Investing Activities:
  Proceeds from repayment of employee loans                    10,000         57,261          6,150
  Loans and advances to employees                                  --         (1,436)       (22,410)
  Acquisition of intangible assets                             (2,608)        (8,621)        (1,416)
  Purchases of property, plant and equipment                  (63,409)       (16,805)       (15,226)
                                                          -----------    -----------    -----------
        Net cash provided by (used in) investing
          activities                                          (56,017)        30,399        (32,902)
                                                          -----------    -----------    -----------

Cash Flows from Financing Activities:
  Repurchase of common stock                                 (173,316)       (46,878)      (110,706)
                                                          -----------    -----------    -----------
        Net cash used in financing activities                (173,316)       (46,878)      (110,706)
                                                          -----------    -----------    -----------

Net Increase (Decrease) in Cash and Cash
  Equivalents                                                (238,342)     1,043,276        535,382

Cash and Cash Equivalents, beginning of year                2,543,898      1,500,622        965,240
                                                          -----------    -----------    -----------

Cash and Cash Equivalents, end of year                    $ 2,305,556    $ 2,543,898    $ 1,500,622
                                                          ===========    ===========    ===========


Supplemental Disclosures of Cash Flow Information:
  Cash paid during the year for:
    Interest                                              $        --    $        --    $        --
                                                          ===========    ===========    ===========
    Income taxes                                          $   271,300    $   186,960    $     1,500
                                                          ===========    ===========    ===========
</TABLE>

--------------------

The accompanying notes are an integral part of these financial statements.

                                       F-6

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
-----------

Valley Forge Scientific Corp. ("VFSC") was incorporated on March 27, 1980 in the
Commonwealth of Pennsylvania and is engaged in the business of developing,
manufacturing and selling medical devices and products. On August 18, 1994, VFSC
formed a wholly-owned subsidiary, Diversified Electronics Company, Inc. ("DEC"),
a Pennsylvania corporation, in order to continue the operations of Diversified
Electronics Corporation, a company which was merged with and into VFSC on August
31, 1994. VFSC and DEC are referred to herein as the "Company".

Principles of Consolidation and Basis of Presentation
-----------------------------------------------------

The accompanying financial statements consolidate the accounts of the parent
company and its wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Use of Management's Estimates
-----------------------------

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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

The Company considers cash equivalents to be all highly liquid investments with
original maturities of three months or less. Substantially all cash and cash
equivalents are held in one major financial institution.

Segment Information
-------------------

The Company has one operating segment comprised of its bipolar electrical
generators and instrumentation products. The Company's business is conducted
entirely in the United States. Major customers are discussed elsewhere in Note
11.

Fair Value of Financial Instruments
-----------------------------------

Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, trade receivables, accounts payable and other accrued
expenses approximate fair value because of their short maturities.

Revenue Recognition
-------------------

The Company sells its products to U.S. based national and international dealers
and distributors which include an affiliate of a major medical products company.
A significant part of the Company's sales are made pursuant to distribution
agreements with these Companies which typically provide exclusive distribution
rights of specified products in a defined medical field, within a territory or
territories, during the term of such agreements. The agreements typically
include a price list for the specified product or products which is fixed for a
period of time, after which these prices are subject to adjustment by the
Company due to changes in manufacturing cost or technological improvements to
the products.

                                       F-7

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition (Continued)
-------------------

Product revenue is recognized when the product has been shipped which is when
the title and risk of loss has been transferred to the customer. Service revenue
substantially relates to repairs of product and is recognized when the service
has been completed. Revenues from license and royalty fees are recorded when
earned.

The Company reduces revenue for customer returns and allowances. In addition,
the Company accrues for warranty cost and other allowances based on its
experience and reflects these accruals in cost of sales or administrative
expense as applicable.

The Company adopted Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" (SAB 101) in the first quarter of fiscal year ended
September 30, 2001. The adoption of SAB 101 did not have a material impact on
the Company's financial position or results of operations.

Inventory
---------

Inventory is stated at the lower of cost, determined by the moving average cost
method, or market. The Company provides inventory allowances based on
slow-moving and obsolete inventories.

Property, Plant and Equipment
-----------------------------

Property, plant and equipment are recorded at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets, which
vary from three to thirty-nine years. Leasehold improvements are being amortized
over the related lease term or estimated useful lives, whichever is shorter.

Upon retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the gains or losses
are reflected in the results of operations. Routine maintenance and repairs are
charged to expense as incurred.

Intangible Assets and Goodwill
------------------------------

Intangible assets, consisting of patents, licensing agreements, proprietary
know-how, logos and cost of acquisition are amortized to operations under the
straight-line method over their estimated useful lives or statutory lives,
whichever is shorter. Acquisition costs have been capitalized and are being
amortized over 5 years. All other intangible assets, except for goodwill, are
being amortized over periods ranging from 15 to 17 years.

As of October 1, 2001, the Company early-adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
which addresses the financial accounting and reporting standards for goodwill
and other intangible assets subsequent to their acquisition. This accounting
standard requires that goodwill no longer be amortized, and instead, be tested
for impairment on a periodic basis. Pursuant to adoption of this accounting
standard, a transitional impairment test was completed, and no impairment was
identified.

In accordance with SFAS 142, the Company discontinued the amortization of
goodwill effective October 1, 2001.

                                       F-8
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible Assets and Goodwill (Continued)
------------------------------

A reconciliation of previously reported net income and earnings per share to the
amounts adjusted for the exclusion of goodwill amortization, net of the related
income tax effect, is shown in Note 5.

Impairment of Long-Lived Assets
-------------------------------

As of October 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", (SFAS 144). Pursuant to SFAS 144
long-lived assets, or asset groups and certain identifiable intangible assets to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted cash flows resulting from the use of the asset, or asset groups,
and its eventual disposition. Measurement of an impairment loss for long-lived
assets, or asset groups, and certain identifiable intangible assets that
management expects to hold and use is based on the fair value of the asset.
Long-lived assets, or asset groups and certain identifiable intangible assets to
be disposed of are reported at the lower of carrying amount or fair value less
costs to sell.

Research and Development
------------------------

Costs associated with development of new products are charged to operations as
incurred.

Advertising Costs
-----------------

Advertising expenditures relating to the advertising and marketing of the
Company's products and services are expensed in the period the advertising costs
are incurred. Prior to 2003, substantially all cost of such product marketing
and advertising had been borne by the Company's major distributors. During the
year ended September 30, 2003, due to the Company's strategy shift to market and
sell the Bident Dental Products utilizing the Company's proprietary resources,
the Company incurred marketing and advertising costs of approximately $161,000.

Income Taxes
------------

Tax provisions and credits are recorded at enacted tax rates for taxable items
included in the consolidated statements of operations regardless of the period
for which such items are reported for tax purposes. Deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
tax assets are reduced by a valuation allowance when the determination can be
made that it is more likely than not that some portion or all of the related tax
assets will not be realized.

Comprehensive Income
--------------------

The Company reports components of comprehensive income under the requirements of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). This statement establishes rules for the reporting of
comprehensive income and its components which require that certain items such as
foreign currency translation adjustments, unrealized gains and losses on certain
investments in debt and equity securities, minimum pension liability adjustments
and unearned compensation expense related to stock issuances to employees be
presented as separate components of stockholders' equity.

                                       F-9
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per Share
------------------

The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other agreements to issue common stock were exercised or converted
into common stock. Diluted earnings per share is computed based upon the
weighted average number of common shares and dilutive common equivalent shares
outstanding, which include convertible debentures, stock options and warrants.

Accounting for Stock-Based Compensation
---------------------------------------

In December, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123" (SFAS 148). SFAS 148 amends SFAS 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 was effective
for the Company as of January 1, 2003. The Company has not elected a voluntary
change in accounting to the fair value based method, and accordingly, the
adoption of SFAS 148 did not have any impact on the Company's results of
operations or financial position.

Employee stock plans are accounted for using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", (APB 25). The Company utilizes the Black-Scholes option
valuation model to value stock options for pro forma presentation of income and
per share data as if the fair value based accounting method in SFAS 123 had been
used to account for stock-based compensation. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting periods. In accordance with SFAS 123, only stock
options granted after September 30, 1995 have been included for the Company's
pro forma information as follows:


                                                 For the Years Ended
                                                    September 30,
                                       ---------------------------------------
                                          2003          2002          2001
                                       -----------   -----------   -----------

Additional compensation expense,
  net of tax effect                    $    57,180   $    89,333   $    56,328
Pro forma net income                        51,745   $   291,194   $   273,893
Pro forma income per share:
  Basic                                       0.01          0.04          0.03
  Diluted                                     0.01          0.04          0.03

                                      F-10
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements
--------------------------------

In January, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51, which provides
guidance on the identification of and reporting for variable interest entities.
Interpretation No. 46 expands the criteria for consideration in determining
whether a variable interest entity should be consolidated. Interpretation No. 46
is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Company does not expect the adoption of
Interpretation No. 46 to have a significant impact on its future results of
operations or financial position.

In May, 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with characteristics of both Liabilities and Equity." SFAS 150
requires that certain financial instruments, which under previous guidance could
be accounted for as equity, be classified as liabilities in statements of
financial position (balance sheets). SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective for the Company in the first quarter of the year ending September 30,
2004. The adoption of SFAS 150 had no impact on the Company's financial position
or results of operations for the year ended September 30, 2003, and the Company
does not expect the adoption of this pronouncement to have any impact on its
future financial position or results of operations.


2. ACCOUNTS RECEIVABLE

The Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts receivable. It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change. Accounts receivable consists of the following:

                                                    September 30,
                                               -----------------------
                                                  2003         2002
                                               ----------   ----------

          Accounts receivable                  $  378,786   $  385,483
          Less:  Allowances                         1,871       47,544
                                               ----------   ----------

                                               $  376,915   $  337,939
                                               ==========   ==========

The Company provided for estimated doubtful accounts through charges to selling,
general and administrative expenses for $ - 0 - , $50,003 and $26,316 for the
years ended September 30, 2003, 2002 and 2001, respectively, and wrote-off $ - 0
- , $34,375 and $19,400, respectively, against this allowance for these periods.

In addition, during the year ended September 30, 2003, the Company recorded a
benefit of $43,000 arising from the collection of an account receivable which
had been previously provided for, and further reduced the allowance by
approximately $2,700.

                                      F-11
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



3.  INVENTORY

The Company provides an allowance for slow moving and potentially obsolete
inventories. Inventory consists of the following:

                                                        September 30,
                                                   -----------------------
                                                      2003         2002
                                                   ----------   ----------

          Finished goods                           $   88,401   $   87,748
          Work-in-process                             316,600      368,068
          Materials and parts                         433,459      515,586
          Less: Allowance for slow moving
                        and obsolete inventory         63,277       88,570
                                                   ----------   ----------

                                                   $  775,183   $  882,832
                                                   ==========   ==========

The Company provided for obsolete and slow moving inventory through charges to
cost of sales for $109,635, $52,875 and $22,500 in the years ended September 30,
2003, 2002 and 2001, respectively, and wrote off $134,928, $41,183 and $110,621,
respectively, against this allowance in these periods.


4. PROPERTY, PLANT AND EQUIPMENT

                                                             September 30,
                                         Useful Life   -----------------------
                                           (Years)        2003         2002
                                           -------     ----------   ----------

       Land                                   -        $   11,953   $   11,953
       Buildings and improvements          15 - 39         94,832       94,832
       Furniture and fixtures               5 -  7         17,953       17,953
       Laboratory equipment                 5 - 10        370,119      357,544
       Office equipment                          5        181,318      146,984
       Leasehold improvements               3 -  5          9,413        9,413
                                                       ----------   ----------
                                                          685,588      638,679
       Less:  Accumulated depreciation
                    and amortization                      528,891      502,548
                                                       ----------   ----------

                                                       $  156,697   $  136,131
                                                       ==========   ==========

Depreciation is reflected in both cost of sales and selling, general and
administrative expenses. Total depreciation for the years ended September 30,
2003, 2002 and 2001 was $26,343, $21,174 and $37,961, respectively. In addition,
in accordance with SFAS 144, the Company wrote down certain molding equipment
intended to be utilized in the production of certain disposable surgical
products, to their estimated fair values. For the years ended September 30,
2003, 2002 and 2001, the Company wrote down $16,500, $5,300 and $ - 0 - ,
respectively. These write downs are reflected in the statement of operations
under the caption "Other Income (Expense), Net".

                                      F-12
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



5.  GOODWILL

As indicated in Note 1 - Significant Accounting Policies, pursuant to SFAS 142,
the Company discontinued the amortization of goodwill effective October 1, 2001,
and completed the transitional test for impairment of the carrying value of this
asset as of March 31, 2002. Another impairment test was conducted as of March
31, 2003, and no impairment was identified.

As required by SFAS 142, a reconciliation of previously reported net income and
earnings per share to the amounts adjusted for the exclusion of goodwill
amortization, net of related income tax effect follows:

<TABLE>
<CAPTION>
                                                      For the Years Ended
                                                          September 30,
                                             ---------------------------------------
                                                2003          2002          2001
                                             -----------   -----------   -----------
<S>                                          <C>           <C>           <C>
   Reported net income                       $   108,925   $   380,527   $   330,221
   Add:  Goodwill amortization, net of tax            --            --        17,556
                                             -----------   -----------   -----------

   Adjusted net income                       $   108,925   $   380,527   $   347,777
                                             ===========   ===========   ===========

   Basic and diluted net income per share:
     Reported basic and diluted net
       income per share                      $      0.01   $      0.05   $      0.04
   Add:  Goodwill amortization, net of tax            --            --            --
                                             -----------   -----------   -----------

   Adjusted basic and diluted net income
     per share                               $      0.01   $      0.05   $      0.04
                                             ===========   ===========   ===========
</TABLE>

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

                                                             September 30,
                                         Useful Life   -----------------------
                                           (Years)        2003         2002
                                           -------     ----------   ----------

Patents/trademarks/logos, licensing
  agreements                                  17       $  571,617   $  569,009
Proprietary know-how                          15          452,354      452,354
Acquisition costs                              5           55,969       55,969
                                                       ----------   ----------
                                                        1,079,940    1,077,332
Less:  Accumulated amortization                           823,259      782,961
                                                       ----------   ----------

                                                       $  256,681   $  294,371
                                                       ==========   ==========

Total amortization for the years ended September 30, 2003, 2002 and 2001 was
$40,298, $63,610 and $63,084, respectively. Amortization for the years ended
September 30, 2004, 2005, 2006, 2007 and 2008 is estimated to be $40,298,
$40,298, $40,280, $39,939 and $39,939, respectively.

                                      F-13
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



6. INTANGIBLE ASSETS (Continued)

During the current fiscal year a patent for the technology underlying the
"aperiodic" wave form utilized in some of the Company's products expired. The
remaining patent, which relates to the Company's current bi-polar generators
expires in the fiscal year ending September 30, 2011.


7. OTHER RECEIVABLES

The Company from time to time has made advances and loans to certain employees.
These loans and advances are unsecured, payable on demand and have stated
interest rates ranging from 4.57% to 8.20%, the then current "Applicable Federal
Rate" as set forth under the Internal Revenue Code as of each date of advance or
loan. During the fourth quarter of fiscal year ending September 30, 2001, as a
result of the termination subsequent to year end of an employee from whom
approximately $49,500 remained outstanding, the Company recorded an allowance of
approximately $48,400 against the amount owed by this individual. The
outstanding balance was received in the first quarter of the subsequent fiscal
year.

As of September 30, 2003 and 2002, the balance of these loans net of the
allowances was $ - and $ - , respectively.


8. RELATED PARTY TRANSACTIONS

Loans Receivable
----------------

On July 6, 1998, Jerry L. Malis, a principal shareholder, director and officer
of the Company, borrowed $15,015 from the Company. The note is payable on demand
and has a stated rate of interest of 5.42%, the then current "Applicable Federal
Rate" as set forth under the Internal Revenue Code. The Company has additional
loans due from Jerry L. Malis payable on demand with similar interest terms as
stated above ranging from 4.83% to 6.97%. The collective loans, which total
$45,979 as of September 30, 2003, are partially secured by 5,833 shares of
common stock of the Company. As of September 30, 2003 the pledged stock had a
value of approximately $8,750.

The balance of these loans is reflected on the balance sheet under the caption
"prepaid expenses and other current assets" and as of September 30, 2003 and
2002, was $45,979 and $53,597, respectively, which includes accrued interest of
$18,148 and $15,762, respectively.

Consulting Services
-------------------

During 2003, 2002 and 2001 the Company engaged R.H. Dick and Company, Inc., a
corporation owned by Robert H. Dick, a director of the Company, to provide
certain investment banking and consulting services. For the years ended
September 30, 2003, 2002 and 2001 the Company incurred consulting fees for these
services, excluding reimbursement of out-of-pocket expenses in an amount
totaling $10,000, $10,000 and $15,000, respectively. As of September 30, 2003
and 2002, the Company owed R.H. Dick and Company $5,000 and $2,500,
respectively. The liability is reflected on the balance sheet under the caption
"accounts payable and accrued expenses".

                                      F-14

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



9. LINE OF CREDIT

The Company has a line of credit of $1,000,000 with Wachovia Bank, formerly
First Union National Bank, which calls for interest to be charged on any loans
under this line equal to the bank's national commercial rate. The line is
unsecured and any borrowing under the line would be payable on demand, require
monthly interest payments on any unpaid principal and a reduction of any loan
balance to zero for a minimum of thirty consecutive days during each twelve
month period. In addition, the loan covenant calls for a minimum tangible net
worth of no less than $3,000,000 during the term of the extended line of credit.
At September 30, 2003 and 2002, there were no outstanding balances under this
line.


10. COMMITMENTS AND CONTINGENCIES

Litigation
----------

The Company is subject from time to time to litigation arising from the normal
course of business. In management's opinion, any such contingencies would be
covered under its existing insurance policies or would not materially affect the
Company's financial position or results of operations.

On July 25, 2001 the Company was named as a defendant in a lawsuit filed in the
United States District Court for the Eastern District of Pennsylvania by a
former employee alleging gender discrimination and sexual harassment. On March
2, 2002 the Company, without admitting any liability, entered into a settlement
agreement and pursuant to this agreement, paid the plaintiff $37,000, an amount
which was net of certain amounts due from this party. This payment is reflected
in other costs under selling, general and administrative expenses for the year
ended September 30, 2002.

On September 19, 2002, the Company was served with a complaint that was filed in
the Superior Court of the State of Arizona, County of Maricopa, entitled Jeffrey
Turner and Cathryn Turner et al v. Phoenix Children's Hospital, Inc., et al, (CV
2002-010791) in which the Company was named as one of the defendants. The
plaintiffs seek an unspecified amount of damages for alleged injuries sustained
in a surgery that took place in June 2000. The Company's product liability
insurance carrier is providing the Company's defense in this matter. This
insurance coverage has a $10,000 deductible that applies to attorney fees and
damages which has been provided for in other costs under selling, general and
administrative expense for the year ended September 30, 2002. In an answer that
was filed on November 26, 2002, the Company denied any liability. The Company
believes the claim is without merit and will vigorously defend itself in this
action.

Regulatory Compliance
---------------------

The Company is subject to regulatory requirements throughout the world. In the
normal course of business, these regulatory agencies may require companies in
the medical industry to change their products or operating procedures, which
could affect the Company. The Company regularly incurs expenses to comply with
these regulations and may be required to incur additional expenses. Management
is not able to estimate any additional expenditures outside the normal course of
operations which will be incurred by the Company in future periods in order to
comply with these regulations.

                                      F-15

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



10. COMMITMENTS AND CONTINGENCIES (Continued)

Employment Agreements
---------------------

On September 30, 1999, the Company entered into one year employment agreements
with Messrs. Malis and Gilloway effective October 1, 1999. Under the terms, the
agreements provided for an annual base salary of $198,950 for Jerry L. Malis and
$90,000 for Thomas J. Gilloway. Although the agreements for Messrs. Malis and
Gilloway had not been further extended, the Company continued to provide
compensation to them at the annual rate of $198,950 and $90,000, respectively.
Effective October 1, 2002 the Compensation Committee of the Board of Directors
approved an increase of Mr. Malis's base salary to $220,000. The base salaries
for the years ended September 30, 2003, 2002 and 2001 were approximately
$220,000, $199,000 and $199,000 for Jerry L. Malis and approximately $ - , $ -
and $69,000 for Thomas J. Gilloway, respectively. Mr. Gilloway passed away on
February 18, 2001 and the Company continued to pay his salary to his spouse
until June 29, 2001. The amount reflected as paid to him for the year ended
September 30, 2001 includes the amount paid to his spouse subsequent to his
death.

Subsequent to September 30, 2002, the Compensation Committee of the Board of
Directors approved a $25,000 cash bonus to Mr. Malis for services rendered
during the year ended September 30, 2002. The bonus was accrued for the year
ended September 30, 2002 and is reflected on the balance sheet under the caption
"accounts payable and accrued expenses".

401(k) Profit Sharing Plans
---------------------------

The Company's 401(k) Plan and Profit Sharing Plan cover full-time employees who
have attained the age of 21 and have completed at least one year of service with
the Company. Under the 401(k) Plan, an employee may contribute an amount up to
25% of his compensation to the Plan on a pretax basis not to exceed the current
Federal limitation per year (as adjusted for cost of living increases). Amounts
contributed to the 401(k) Plan are nonforfeitable.

Under the Profit Sharing Plan, a member in the plan participates in the
Company's contributions to the Plan as of December 31 in any year, with
allocations to individual accounts based on annual compensation. An employee
does not fully vest in the plan until completion of three years of employment.
The Board of Directors determines the Company's contributions to the plan on a
discretionary basis. The Company has not made any contributions to date.

Stock Option Plans
------------------

On July 6, 1988, the Company adopted a Nonqualified Employee Stock Option Plan
(the "1988 Plan") pursuant to which 500,000 shares of Common Stock have been
reserved for issuance to employees, officers, directors or consultants of the
Company. Options granted pursuant to this plan were nontransferable and expired
if not exercised after ten years from the date of grant or for such lesser term
as approved by the Board of Directors. Options may be granted in such amounts
and at such prices as determined by the Board of Directors, but the price per
share shall not be less than the fair market value of the Company's Common Stock
as of the date of grant.

On January 16, 2001, pursuant to the adoption of the 2001 Stock Plan (the "2001
Plan"), the 1988 plan was terminated. As of the date the plan was terminated, a
total of 404,800 options had been granted and were outstanding.

                                      F-16

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



10. COMMITMENTS AND CONTINGENCIES (Continued)

Stock Option Plans (Continued)
------------------

On December 12, 2000, the Company adopted a Non-employee Directors Stock Option
Plan ("Directors Plan") pursuant to which 150,000 shares of Common Stock have
been reserved for issuance to non-employee directors of the Company. The
Directors Plan was approved by the Company's stockholders on March 14, 2001.
Shares issued pursuant to options granted under this plan may be issued from
shares held in the Company's treasury or from authorized and unissued shares.
Under this plan, each Director, on an annual basis, shall be automatically
granted 10,000 options upon the first business day after being elected a
director. The options are immediately vested on the date of grant. Discretionary
options granted pursuant to this plan shall be determined by the Board of
Directors or a duly appointed stock option committee (the "Committee"). Options
granted pursuant to this plan shall be nonqualified stock options as defined in
Section 422 of the Internal Revenue Code, will be nontransferable and expire if
not exercised after ten years from the date of grant or for such lesser term as
approved by the Committee. All options shall be issued at a price per share
equal to the fair market value of the Company's Common Stock as of the date of
grant.

On January 16, 2001, the Company adopted the 2001 Stock Plan (the "2001 Plan")
pursuant to which 345,000 shares of Common Stock have been reserved for issuance
to employees, officers and consultants of the Company. The 2001 plan was
approved by the Company's stockholders on March 14, 2001. Shares issued pursuant
to this plan may be issued from shares held in the Company's treasury or from
authorized and unissued shares. Options granted pursuant to this plan are
generally nontransferable, except in the event of a participant's death, in
which case the options shall be transferable to the participant's designated
beneficiary or as permitted by law. The options shall expire if not exercised
after ten years from the date of grant or for such lesser term as approved by
the Board of Directors or a duly appointed committee. Options issued to
employees who are then later terminated for cause generally are immediately
forfeited. Options may be granted in such amounts and at such prices as
determined by the Board of Directors or the duly appointed committee, but the
price per share shall not be less than the fair market value of the Company's
Common Stock as of the date of grant in the case of an incentive stock option
and not less than 85% of the fair market value of the Company's Common Stock as
of the date of grant in the case of a non-qualified stock option, as defined in
section 422 of the Internal Revenue Code.

As referred to in Note 1, the Company has adopted the disclosure provisions of
SFAS 123, and SFAS 148. As permitted under these statements, the Company
retained its current method of accounting for stock compensation in accordance
with APB 25.

                                      F-17
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



10. COMMITMENTS AND CONTINGENCIES (Continued)

Following is a summary of the Company's various stock option plans:

<TABLE>
<CAPTION>
                                                                                           Weighted
                                                                                            Average
                                                               Range of       Weighted     Remaining
                                                               Exercise       Average     Contractual
                                                                Prices        Exercise       Life
                                               Shares          Per Share        Price       (Years)
                                            -------------    -------------   ----------   ----------
<S>                                              <C>         <C>             <C>                <C>
Options outstanding at October 1, 2000            288,075    $ 1.94 - 4.25   $     2.88         3.68

Granted                                           347,000      1.13 - 2.75         2.01         9.38
Exercised                                              --           -                --           --
Surrendered, forfeited or expired                (152,000)     1.94 - 3.63         2.76         1.92
                                            -------------    -------------   ----------

Options outstanding at September 30, 2001         483,075      1.13 - 4.25         2.29         7.39

Granted                                            47,500      1.85 - 2.75         2.42         9.64
Exercised                                              --           -                --
Surrendered, forfeited or expired                 (12,725)     1.13 - 4.25         2.55         5.38
                                            -------------    -------------   ----------

Options outstanding at September 30, 2002         517,850      1.13 - 4.25         2.30         6.31

Granted                                            50,000      1.06 - 1.70         1.22         9.46
Exercised                                              --           -                --
Surrendered, forfeited or expired                 (88,000)     1.50 - 3.63         3.11         2.47
                                            -------------    -------------   ----------

Options outstanding at September 30, 2003         479,850    $ 1.06 - 4.25   $     2.04         6.55
                                            =============    =============   ==========
</TABLE>

As of September 30, 2003, 356,850 of these options outstanding are vested and
are exercisable at prices ranging from $1.06 to $4.25 which correspond to a
weighted average exercise price of $2.25 and a weighted average remaining
contractual life of 7.57 years.

                                      F-18
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



10. COMMITMENTS AND CONTINGENCIES (Continued)

Assumptions used in the Black-Scholes option valuation model to estimate the
value of the Company's options included in pro forma amounts in Note 1 are as
follows:

<TABLE>
<CAPTION>
                                                          For the Years Ended
                                                             September 30,
                                               ----------------------------------------
                                               2003              2002              2001
                                               ----              ----              ----
<S>                                       <C>               <C>                <C>
Risk-free interest (based on U.S.
Government strip bonds on the
   date of grant with maturities
   approximating the expected
   option term)                            3.65% - 4.00%     3.84% - 5.13%     4.86% - 5.29%

Dividend yields                                  0%                0%                0%

Volatility factors of the expected
market price of the Company's
Common Stock (based on
historical data)                          158.4% - 163.9%   165.1% - 169.7%    90.0% - 96.0%

Expected life of options                      10 Years          10 Years          10 Years
</TABLE>

The weighted average fair value of options granted during the years ended
September 30, 2003, 2002 and 2001 were as follows:

                                               2003        2002        2001
                                              ------      ------      ------

Stock Prices Equal to Exercise Price          $ 1.21      $ 2.40      $ 1.77

Stock Prices in Excess of Exercise Price      $   --      $   --      $   --

Stock Prices Less than Exercise Price         $   --      $   --      $ 2.10


The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in subjective input assumptions can
materially affect the fair value estimated, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options. In management's opinion existing stock option
valuation models do not provide a reliable single measure of the fair value of
employee stock options that have vesting provisions and are not transferable.

                                      F-19

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

10. COMMITMENTS AND CONTINGENCIES (Continued)

Operating Leases
----------------

The Company leases approximately 4,200 square feet of office and warehouse space
in an office building in Oaks, Pennsylvania, from GMM Associates, a Pennsylvania
general partnership, whose partners are Jerry L. Malis, Leonard I. Malis,
(principal shareholders, directors, and/or officers of the Company), and the
Francis W. Gilloway Marital Trust, the successor in interest to Thomas Gilloway,
an officer of the Company until the time of his death on Feburary 18, 2001. The
lease which commenced on July 1, 1995 for a term of five years provided for a
monthly base rent of $4,716 (with increases based on increases in the consumer
price index) which include costs associated with real estate taxes, maintenance
and utilities. During December 2000 the lease was extended for an additional
term of five years effective as of July 1, 2000 and calls for a monthly base
rent of $4,643 (with increases on June 30th of each year based on increases in
the Producer Price Index). All other terms remain the same. The related expense
for this lease for the years ended September 30, 2003, 2002 and 2001 was
$59,608, $57,740 and $56,115, respectively. As of September 30, 2003, the
Company was current on all rental obligations due the related party.

The Company has also entered into leases for certain equipment under operating
lease agreements with terms ranging between two and four years.

A schedule of future minimum payments under operating leases is as follows:

     Years ending September 30,
     --------------------------

                                           Related          Other
                                            Party         Operating
                                          ---------       ---------

              2004                        $  61,569       $  15,446
              2005                           48,600          14,087
              2006                               --           6,801
              2007                               --             989
                                          ---------       ---------

                                          $ 110,169       $  37,323
                                          =========       =========


11. MAJOR CUSTOMERS

For the years ended September 30, 2003, 2002 and 2001, a significant part of the
Company's revenues were derived from one major customer pursuant to a
distribution agreement under which the Company granted the exclusive right to
sell its electrosurgical systems and other products developed by the Company in
the field of neurosurgery. Revenues derived from this customer are approximately
as follows:

                                                                 Percent of
                                                                   Total
                                               Revenues           Revenues
                                               --------           --------

Year ended September 30, 2003                $ 4,231,000             95%
Year ended September 30, 2002                $ 4,515,000             90%
Year ended September 30, 2001                $ 4,169,000             79%

                                      F-20

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



11. MAJOR CUSTOMERS (Continued)

In addition, for the years ended September 30, 2003, 2002 and 2001, revenue
derived from another customer totaled approximately $4,000, $347,000 and
$1,009,000, respectively, representing approximately 0%, 7% and 19%,
respectively of the Company's total revenues.

At September 30, 2003 and 2002, the Company's largest customer accounted for
approximately 93% and 99%, respectively, of the Company's accounts receivable.


12. STOCKHOLDERS' EQUITY

Common Stock
------------

On August 26, 1999, the Company filed an amended and restated Certificate of
Incorporation increasing the shares of Common Stock the Company is authorized to
issue from 10,000,000 to 20,000,000 shares with no stated par value.

The holders of Common Stock have no preemptive rights and the Common stock has
no redemption, sinking fund or conversion provisions. Each share of Common Stock
is entitled to one vote on any matter submitted to the holders and to equal
rights in the assets of the Company upon liquidation. All of the outstanding
shares of Common Stock are fully paid and nonassessable.

In April 2000, the Board of Directors of the Company approved a stock repurchase
program continuing a prior program whereby the Company may, from time to time,
repurchase on the open market up to 200,000 shares of the Company's Common
Stock. In August 2002, the Board of Directors of the Company voted to terminate
the then existing program and approved a new program for the repurchase of up to
200,000 shares of the Company's Common Stock. During the fiscal years ended
September 30, 2003, 2002 and 2001, the Company repurchased for retirement
127,600, 26,500 and 84,050 shares at an aggregate cost of $173,316, $46,878 and
$110,706, respectively.

Preferred Stock
---------------

The Company is authorized to issue 487 shares of preferred stock, $1,000 par
value. The holders of the preferred stock would have no voting rights or
preemptive rights. Upon liquidation of the Company, a $1,000 per share
liquidating dividend must be paid upon each issued and outstanding share of
preferred stock before any liquidating dividend is paid on the Common Stock. For
each of the years ended September 30, 2002, 2001 and 2000, there were no issued
or outstanding preferred shares, and the Company has no intention to issue any
preferred stock in the immediate future.

                                      F-21
<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



13. EARNINGS PER SHARE

                                                   For the Years Ended
                                                      September 30,
                                           ------------------------------------
                                              2003         2002         2001
                                           ----------   ----------   ----------

Basic Income Per Share:
  Income available to common
    shareholders                           $  108,925   $  380,527   $  330,221
                                           ==========   ==========   ==========

  Weighted average shares outstanding       7,960,676    8,067,286    8,081,890
                                           ==========   ==========   ==========

Basic Income Per Share                     $     0.01   $     0.05   $     0.04
                                           ==========   ==========   ==========

Diluted Income Per Share:
  Income available to common
    shareholders                           $  108,925   $  380,527   $  330,221
                                           ==========   ==========   ==========

  Weighted average shares outstanding       7,960,676    8,067,286    8,081,890

  Dilutive shares issuable in connection
  with stock plans                             25,772       87,284       71,056
                                           ----------   ----------   ----------

  Diluted weighted average common
    shares outstanding                      7,986,448    8,154,570    8,152,946
                                           ==========   ==========   ==========

  Diluted Income Per Share                 $     0.01   $     0.05   $     0.04
                                           ==========   ==========   ==========

Options to purchase 479,850, 517,850 and 483,075 shares of common stock were
outstanding at September 30, 2003, 2002 and 2001, respectively, and 314,850 ,
68,100 and 70,200 of these shares were not included in the computation of
diluted earnings per share in accordance with SFAS 128, as the potential shares
are considered anti-dilutive.

                                      F-22

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



14. PROVISION FOR INCOME TAXES

Provision for income taxes is as follows:

                                           For the Years Ended
                                              September 30,
                                   ------------------------------------
                                      2003         2002         2001
                                   ----------   ----------   ----------

         Current:
         Federal                   $   19,075   $  204,500   $   74,100
         State                         12,790       40,200       17,300
                                   ----------   ----------   ----------
                                       31,865      244,700       91,400
                                   ----------   ----------   ----------

         Deferred:
         Federal                       18,392       20,703       93,840
         State                          7,696        9,181        9,713
                                   ----------   ----------   ----------
                                       26,088       29,884      103,553
                                   ----------   ----------   ----------

                                   $   57,953   $  274,584   $  194,953
                                   ==========   ==========   ==========


The Company's effective tax rate was 34.7%, 41.9% and 37.2% for the years ended
September 30, 2003, 2002 and 2001, respectively. Reconciliation of income tax at
the statutory rate to the Company's effective rate is as follows:

                                                     For the Years Ended
                                                         September 30,
                                               -------------------------------
                                                 2003        2002       2001
                                               --------    --------   --------

   Computed at the expected statutory rate         28.3 %      34.0 %     34.0 %
   State taxes net of federal tax benefit           7.2         6.6        5.9
   Other                                           (0.8)        1.3       (2.7)
                                               --------    --------   --------

                                                   34.7 %     41.9 %      37.2 %
                                               ========    ========   ========

                                      F-23

<PAGE>

                  VALLEY FORCE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



14. PROVISION FOR INCOME TAXES (Continued)

Certain items of income and expense are recognized in different years for
financial reporting and income tax purposes. Deferred income taxes are provided
in recognition of these temporary differences. The items that give rise to the
deferred income tax assets and deferred income tax liability are as follows:

<TABLE>
<CAPTION>
                                                               September 30,
                                                    ------------------------------------
                                                       2003         2002         2001
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
 Deferred Tax Assets:
   Difference in capitalization of inventory cost   $   50,670   $   56,993   $   54,499
   Difference in reporting bad debts                       761       19,300       32,067
   Federal and State of Pennsylvania net
     operating loss carryforward                            --           --       14,527
   Tax credits and other current assets                     --           --        3,287
                                                    ----------   ----------   ----------

 Total Deferred Tax Assets                          $   51,431   $   76,293   $  104,380
                                                    ==========   ==========   ==========

 Deferred Tax Liability:
   Difference in reporting depreciation and
     amortization on long-term assets               $   19,950   $   14,357   $   19,280
                                                    ----------   ----------   ----------

 Total Deferred Tax Liability                       $   19,950   $   14,357   $   19,280
                                                    ==========   ==========   ==========
</TABLE>


15. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of short-term cash investments and trade
receivables. The Company maintains substantially all of its banking activities
with one bank and cash balances throughout the year generally exceeded the
federally insured limits of the FDIC and SIPC of $100,000. The Company typically
invests cash balances which exceed $100,000 in money market accounts, money
market mutual funds or short-term municipal securities. At September 30, 2003
and 2002, the balances the Company held in these securities was approximately
$2,163,000 and $2,278,000, respectively. Management believes that its customer
acceptance, billing and collection policies are adequate to minimize potential
credit risk associated with trade receivables, which are principally due from
one customer.

                                      F-24

<PAGE>

                  VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



16. QUARTERLY RESULTS (UNAUDITED)

The following table presents selected unaudited quarterly operating results for
the Company's eight quarters ended September 30, 2003 for continuing operations.
The Company believes that all necessary adjustments have been made to present
fairly the related quarterly results.

<TABLE>
<CAPTION>
                             First       Second        Third       Fourth
   Fiscal 2003              Quarter      Quarter      Quarter      Quarter        Total
   -----------             ----------   ----------   ----------   ----------   ----------
<S>                        <C>          <C>          <C>          <C>          <C>
   Net sales               $1,019,942   $1,289,136   $1,081,872   $1,083,358   $4,474,308
   Gross profit               486,355      665,733      583,749      473,569    2,209,406
   Operating income            60,639       45,742       43,230        5,816      155,427
   Net income                  40,139       29,593       37,353        1,840      108,925
   Basic and diluted net
     income per common
     share                 $     0.01   $     0.00   $     0.01   $     0.00   $     0.01

   Fiscal 2002
   -----------

   Net sales               $1,262,406   $1,457,798   $1,148,278   $1,153,449   $5,021,931
   Gross profit               646,066      760,588      602,406      549,662    2,558,722
   Operating income           211,776      199,077      153,378       67,769      632,000
   Net income                 127,473      117,634       90,669       44,751      380,527
   Basic and diluted net
     income per common
     share                 $     0.02   $     0.01   $     0.01   $     0.01   $     0.05
</TABLE>

                                      F-25

<PAGE>

                          VALLEY FORGE SCIENTIFIC CORP.
                    For Fiscal Year Ended September 30, 2003
                                    FORM 10-K
                                  EXHIBIT INDEX


              Exhibit 10.13     Extension of Distribution Agreement with Codman
                                & Shurtleff, Inc. dated November 21, 2003

              Exhibit 21        Subsidiary of Registrant

              Exhibit 23        Consent of Samuel Klein and Company

              Exhibit 31.1      Certification of Chief Executive Officer
                                pursuant to Section 302 of the Sarbanes-Oxley
                                Act of 2002

              Exhibit 32.1      Certification of the Chief Executive Officer
                                pursuant to Section 906 of the Sarbanes-Oxley
                                Act of 2002