Valley Forge 10-Q/A (01152426-2).DOC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A
(Amendment No. 1)

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010.

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

Commission file number 000-29587

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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

50 East River Center Blvd., Suite 820, Covington, KY		41011
(Address of principal executive offices)		(Zip Code)

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

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

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

Common Stock, Par Value $.001 Per Share

(Title of class)

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

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

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




Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [X]

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

The number of shares outstanding of the issuer’s common stock as of June 30, 2010 was 61,103,631 shares.

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

FORM 10-Q/A

FOR THE PERIOD ENDED JUNE 30, 2010

INDEX


		Page
EXPLANATORY NOTE		4

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		4

PART I. FINANCIAL INFORMATION		5

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009	5
	Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2010 and 2009	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2010 and 2009	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION		28

Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	30
Item 4.	[REMOVED AND RESERVED]	30
Item 5.	Other information	30
Item 6.	Exhibits	30

SIGNATURES		31

EXPLANATORY NOTE

Valley Forge Composite Technologies, Inc. (the “Company,” “we,” “us,” and “our”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, originally filed with the Securities and Exchange Commission on August 16, 2010 (the “Filing Date”), to reflect a correction to inadvertent typographical errors in the Condensed Consolidated Statement of Operations. The 10-Q as originally filed indicated that the Company had a loss of $0.01 per common share (both basic and diluted) for the three months ended June 30, 2010, and no gain or loss per common share for the six months ended June 30, 2010. Those entries are being amended to reflect that the Company had a gain of $0.01 per common share (both basic and diluted) for the three months ended June 30, 2010, and a loss of $0.01 per common share for the six months ended June 30, 2010.

The Amendment also makes the following clarifications: (i) that the amount of debt discount netted from Long Term Debt, as reflected in the Condensed Consolidated Balance Sheet, was $1,000,000; (ii) that the total number of warrants shown outstanding in the table of Stock Warrant Activity in Note 7 to the Condensed Consolidated Financial Statements was as of June 30, 2010; (iii) that the loan fees listed in Note 10 to the Condensed Consolidated Financial Statements were as of June 30, 2010 and December 31, 2009, and that the amortization expense listed in Note 10 for the six months ending June 30, 2010 and June 30, 2009 was $129,843 and $23,389, respectively; (iv) that all of the Company’s revenues in 2010 have been from sales of aerospace products, and not from sales of ODIN or THOR LVX units; (v) that the disclosure in Part 2, Item 2 is being provided with respect to Unregistered Sales of Securities for the first two quarters of 2010; and (vi) that Lawrence Livermore National Laboratory has issued its final report under the Cooperative Research and Development Agreement (“CRADA”) between LLNL and the Company. No other changes were made to the 10-Q as originally submitted on the Filing Date, but for the convenience of the reader, the Company through this amendment is resubmitting the entire 10-Q (with the changes noted above). This Amendment No. 1 does not reflect facts or events occurring after the Filing Date.

In accordance with Exchange Act Rule 12b-15, new certifications of the Company’s Chief Executive Officer and Chief Financial Officer are also being filed.

Special Note Regarding Forward-Looking Statements

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

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

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements


VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET

					June 30,			December 31,
					2010		2009
ASSETS					(unaudited)
	Current assets:
		Cash		$	1,491,578	$	1,492,135
		Accounts receivable			-		99,120
		Inventory			164,621		151,300
		Prepaid expenses			74,056		104,285
		Deposits with vendors			1,416,082		21,000
			Total current assets		3,146,337		1,867,840
	Property and equipment, net				43,568		40,958
	Other assets:
		Security deposit			5,535		5,535
		Capitalized R&D costs, net of amortization of $97,636 and $73,227 at June 30, 2010 and December 31, 2009			146,454		170,863
		Loan fees, net of amortization of $234,685 and $26,614 at June 30, 2010 and December 31, 2009			-		129,843
			Total other assets		151,989		306,241

			Total Assets	$	3,341,894		2,215,039

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
	Current liabilities:
		Accounts payable and accrued expenses		$	1,447,645	$	1,217,603
		Deferred revenue			1,282,319		858,400
		Convertible debenture			42,000		42,000
		Due to shareholder			192,108		216,558
			Total current liabilities		2,964,072		2,334,561
	Long-term debt, net of debt discount of $1,000,000 and $541,893 at June 30, 2010 and December 31, 2009				-		458,107
	Shareholders' Equity:
		Common stock, $.001 par value, 100,000,000 shares
			authorized; 61,103,631 and 54,688,920 issued and outstanding at June 30, 2010 and December 31, 2009		61,104		54,689
		Additional paid-in capital			8,881,774		7,673,903
		Accumulated deficit			(8,565,056)		(8,306,221)
			Total shareholders' equity (deficit)		377,822		(577,629)

			Total Liabilities and Shareholders' Equity (Deficit)	$	3,341,894	$	2,215,039
See the accompanying notes to the unaudited condensed consolidated financial statements

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



			For the three months ending				For the six months ending
			June 30,				June 30,
			2010		2009		2010		2009

Sales		$	3,644,204	$	315,000	$	8,155,774	$	315,000
Cost of sales			3,091,010		221,300		7,015,386		221,300

Gross Profit			553,7194		93,700		1,140,338		93,700

Costs and expenses
	Selling and administrative expenses		363,642		272,237		899,239		606,340
	Warrant expense		-		302,600		-		302,600
			363,642		574,837		899,239		908,940

Income (loss) from operations			189,552		(481,137)		241,149		(815,240)

Other income
	Interest expense		(3,546)		(126,460)		(548,518)		(251,170)
	Legal settlement		48,500		-		48,500		-
	Investment income		1		1		58		58

Net income (loss)		$	234,524	$	(607,596)	$	(258,835)	$	(1,066,352)

Income (loss) per common share:
	Basic	$	0.01	$	(0.01)	$	(0.01)	$	(0.02)
	Diluted	$	0.01

Weighted Average Common Shares Outstanding:
	Basic		59,173,561		52,125,239		57,306,837		51,772,255
	Diluted		62,059,278

See the accompanying notes to the unaudited condensed consolidated financial statements


VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
					For the six months ending June 30,
					2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(258,835)	$	(1,066,352)
	Adjustments to reconcile net loss
	to net cash used in operating activities:
		Depreciation and amortization expense			161,844		69,326
		Amortization of debt discount			541,893		190,092
		Fair value of warrants					302,600
		Change in operating assets and liabilities
			(Increase) decrease in:
			Accounts receivable		99,120		(157,296)
			Inventory		(13,321)		-
			Prepaid expenses		30,229		99,579
			Vendor deposits		(1,395,082)		-
			Increase (decrease) in:
			Accounts payable and accrued expenses		230,042		104,097
			Deferred revenue		423,919		-
	Net Cash Used In Operating Activities				(180,191)		(457,954)
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchases of equipment				(10,202)		-
	Net Cash Used In Investing Activities				(10,202)		-
CASH FLOWS FROM FINANCING ACTIVITIES
	Gross proceeds from exercise of warrants				214,286		-
	Proceeds from issuance of common stock				-		237,500
	Repayments to shareholder				(24,450)		-
	Net Cash Provided From Financing Activities				189,836		237,500
NET DECREASE IN CASH					(557)		(220,454)
CASH AT BEGINNING OF PERIOD					1,492,135		305,179
CASH AT END OF PERIOD				$	1,491,578		84,725

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
	Income taxes			$	-	$	-
	Interest			$	50,550	$	64,907
See the accompanying notes to the unaudited condensed consolidated financial statements.

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

JUNE 30, 2010

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

Nature of the Business

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

The primary activity of VFI is to market and sell personnel screening devices known as ODIN.

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

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

Between 1996 and 2003 and in 2009, through VFDS, the Company won numerous contracts to produce momentum wheels and various other mechanical devices for special projects. Since September 11, 2001 the Company has focused much of its energy on the development and commercialization of its counter-terrorism products. Such products include an advanced detection capability for illicit narcotics, explosives, and bio-chemical weapons using photo-nuclear reactions to initiate secondary gamma quanta the result of which is a unique and distinguishable signal identifying each component of a substance. This product is known as the THOR LVX photonuclear detection system (“THOR”). The development and commercialization of THOR is the present focus of VFDS.

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

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

Basis of Presentation

The accompanying interim condensed financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at June 30, 2010, the results of operations for the three months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 2010 and 2009. The balance sheet as of December 31, 2009 is derived from the Company’s audited financial statements.

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

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

The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2010.

Going Concern

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

Use of Estimates

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

Comprehensive Income

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

Fair Value of Financial Instruments

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

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash. The Company maintains its cash investments in high credit quality financial institutions. At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts. At June 30, 2010, the Company’s cash deposits exceeded the FDIC insured limits by $1,022,333.

Cash Equivalents

The Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. At June 30, 2010, the Company held no cash equivalent securities.

Inventories

The Company’s accounts for finished goods inventory by applying the lower of cost or market method, on a first-in, first-out (FIFO) basis. Inventories consist of the following:



	June 30		December 31
	2010		2009
Raw materials	$	-0-	$	-0-
Work in process		164,621		-0-
Finished goods		-0-		151,300
	$	164,621	$	151,300

Property and Equipment

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

Computers and Equipment 5 years

Furniture and fixtures 7 years

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

Loan Fees

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

Revenue Recognition

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

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

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

Income Taxes

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

Loss per common share

Basic earnings per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the periods below the Company excludes potentially dilutive securities such as convertible warrants and the convertible debenture from the loss per share calculations as their effect would have been anti-dilutive.

The following sets forth the computation of earnings per share.


	For the Six Month Period Ended
	June 30,
	2010		2009
Net loss (A)	$	(258,835)	$	(1,066,352)
Weighted average shares outstanding (B)		57,306,837		51,772,255
Dilutive effect of stock-based awards		2,885,717		-
Common stock and common stock equivalents (C)		60,192,554		51,772,255
Loss per share – Basic (A/B)	$	( .01)		( .02)
Loss per share - Diluted (A/C)	$	( .01)	$	( .02)

The Company’s common stock equivalents include the following:



	June 30,		June 30,
	2010		2009
Class A Warrants		– ⁽¹⁾		– ⁽¹⁾
Class B Warrants		⁽²⁾		⁽²⁾
Class C Warrants		⁽³⁾		2,146,667
Class D Warrants		1,585,717		1,857,146
Class F Warrants		1,300,000		-
Total common stock equivalents		2,885,717		7,762,313

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

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

(3) All Class C warrants have been exercised.

On June 25, 2010, the Company’s Board of Directors approved stock option grants under the Company’s 2008 Equity Incentive Plan (the “Plan”). Due to potential conflicts with the terms of the 2008 Equity Incentive Plan, the Board subsequently rescinded all of the June 25, 2010 option grants. Consequently, none of the options granted on June 25, 2010 are included in the Company’s common stock equivalents.

Share Based Payments

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

On July 6, 2006 the Company granted 3,000,000 Class A warrants in connection with a two-year consulting agreement beginning July 6, 2006 to CTCEG. These warrants granted in connection with the consulting agreement include the following provisions: 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.00 per share when the per share market value closes at or above $1.00 for up to two years from the effective date of the registration statement registering the underlying shares; 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.50 per share when the per share market value closes at or above $1.50 for up to two years from the effective date of the registration statement registering the underlying shares; and, 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $2.00 per share when the per share market value closes at or above $2.00 for up to two years from the effective date of the registration statement registering the underlying shares. All of the Class A warrants expired on May 14, 2009.

Warranties

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

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

Recent accounting pronouncements

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

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

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

Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cashflows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company’s financial statements.

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

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

Research and Development Costs

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

NOTE 2 - GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $8,565,056 at June 30, 2010, net losses in the six month period ended June 30, 2010 of $258,835 and cash used in operations during the six month period ended June 30, 2010 of $180,191. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

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

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

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

NOTE 3 – INCOME TAXES

There was no income tax expense for the six month periods ended June 30, 2010 and 2009 due to the Company’s net losses.

NOTE 4 - RELATED PARTY TRANSACTIONS

At June 30, 2010 the Company owed Louis J. Brothers, the Company’s president and major shareholder, $192,108 for advances made to the Company. Such amount, which is included in the due to shareholders balance on the balance sheet at June 30, 2010 earns 6% annual interest quarterly, and is due on demand. As of December 31, 2010, the Company owed Mr. Brothers the principal amount of $216,558 for advances made to the Company, plus accrued interest. During the second quarter of 2010, the Company made a payment of $75,000 against the amounts owed to Mr. Brothers. Of that payment $50,550 was applied to accrued but unpaid interest, and the remaining $24,450 was applied to reduce the principal amount owed to Mr. Brothers. The Company has not made any further payments to Mr. Brothers with respect to this obligation following the end of the second quarter of 2010.

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

NOTE 5 - DESCRIPTION OF LEASING ARRANGEMENTS

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

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

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

Under the terms of the lease, the Company shall pay additional rent to cover operating expenses of the property of approximately $349 per month. Rent expense for the six months period ended June 30, 2010 and 2009 was $48,670 and $53,991, respectively.

The following is a schedule of future minimum lease payments required under the lease as of June 30, 2010:


Period Ending
June 30	Amount
2011	$	63,259
2012		8,955
	$	72,214

NOTE 6 - CONVERTIBLE DEBENTURE

On August 11, 2006, the Company issued a convertible debenture to Coast To Coast Equity Group, Inc. (“CTCEG”), in the amount of $42,000 in exchange for cash received. This debenture matures upon the earlier of twelve months from the date of the closing of the merger between VFDS and CTCEG, which occurred on July 6, 2006, or upon the date of an “event of default” which would include any proceedings by VFDS to seek protection due to insolvency. On July 2, 2008, the Company and CTCEG agreed to extend the agreement until August 11, 2010. The stated interest rate is 4% per annum.

NOTE 7 – SHAREHOLDERS’ EQUITY

On July 6, 2006, the Company issued 3,000,000 Class A warrants in exchange for consulting services rendered. The Company valued these warrants at the fair market value on the dates of the grant as referred to in Note 1. The Class A warrants expired on May 14, 2009.

During the period August 2006 through November 2006, the Company sold in private placement transactions 1,296,500 units at $1.00 per unit which consist of 1 share of common stock and 1 Class B warrant which can be exercised at $1.50 per share within 6 months from the effective date of a registration statement registering the units and the underlying shares reserved for the exercise of the warrants. A registration statement was required to be filed within 30 days from the date that the Company attains a shareholder base of 35 shareholders. This filing occurred on November 14, 2006 and was declared effective on May 14, 2007. The Class B warrants’ contractual expiration date of November 13, 2007 has been extended several times by the board of directors, with the most recent extension occurring on December 23, 2008. The Class B warrants expired on April 4, 2009.

The Company established a price protection provision relating to the selling unit holders of the private placement securities named in the registration statement. The provision states that parties to the agreement are entitled to receive additional stock or warrants if the Company sells shares of stock or warrants for less than $1.00 per share of common stock and $1.50 per warrant prior to the time limitations specified which are one year from the effective date of the Registration Statement for common stock issued and six months from the effective date of the Registration Statement for warrants issued. The Company did not offer any additional securities that would have caused this provision to become effective prior to the applicable time limitations of the provisions, which expired in May 2008. Accordingly, the Company believes that the price protection provision will have no accounting impact.

Coast To Coast Equity Group, Inc., and Charles J. Scimeca, George Frudakis, and Tony N. Frudakis (formerly the shareholders of Quetzal Capital Funding 1, Inc.), were previously protected from dilution of their percentage ownership of the Company. Non-dilution rights, as defined by the registration rights agreement (incorporated by reference herein), mean that these parties shall continue to have the same percentage of ownership and the same percentage of voting rights of the class of the Company’s common stock regardless of whether the Company or its successors or its assigns may thereafter increase or decrease the authorized number of shares of the Company’s common stock or increase or decrease the number of shares issued and outstanding. The non-dilution rights, by the terms of the registration rights agreement, expired on May 14, 2009. Language in prior filings inadvertently and mistakenly implied that these non-dilution rights had been extended until May 13, 2010, but no such extension was ever effected.

Common Stock Warrants

On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LTD ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on July 3, 2011. On September 29, 2008, the Company reduced the conversion price to $0.35 per share. In connection with the financing, MKM was also issued Class C Warrants (the "Warrants") to purchase up to 1,000,000 shares of the Company's common stock. The warrants were exercisable at an exercise price of $1.61 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $250,685 to interest expense during the months ended June 30, 2010. On September 29, 2008 the Company issued an additional 1,146,667 warrants due to the issuance of warrants at $0.75 pursuant to section 2(c) of the Class C warrant agreement. Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share.

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

On June 30, 2010, the Company issued 1,951,515 shares of common stock following the cashless exercise of 2,146,667 Class C Warrants.

On September 29, 2008, the Company secured a financing arrangement with MKM and several securities purchasers unrelated to MKM. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were

also issued Class D Warrants (the "Warrants") to purchase up to 1,857,146 shares of the Company's common stock. The warrants are exercisable at an exercise price of $0.75 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $291,209 to interest expense during the three months ended June 30, 2010. Subsequently, on May 27, 2009, the Company reduced the exercise price of the MKM Class D warrants to $0.20 per share from $0.75 per share.

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

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

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

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

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

On August 10, 2009 the Company issued 800,000 shares of common stock to individual investors for $100,000 in cash ($92,000 net of expenses). In connection with the common stock purchase, the individual investors were issued Class G Warrants to purchase up to 800,000 shares of the Company’s common stock. A total of $143,623 was expensed to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.18; Strike price of $0.20 per share; Time to expiration (days) of 1,826; Expected volatility of 270.54%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 0.19%. In addition, on May 27, 2009, the Company reduced the exercise price of the MKM Class C warrants to $0.20 per share from $1.61 per share and the series D warrants to $0.20 per share from $0.75 per share.

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

Stock warrant activity for the period ended June 30, 2010 is summarized as follows:



			Weighted
			average
	Number		exercise
	of shares		price
Outstanding at December 31, 2009	6,703,813	$	1.32
Granted	-		-
Forfeited	-		-
Exercised	(3,818,096)		0.20
Outstanding at June 30, 2010	2,885,717	$	0.20

The following table summarizes the Company's Class D and Class F stock warrants outstanding at June 30, 2010:



				Weighted		Weighted
		Range of		Average		Average
Warrant		Exercise		Remaining		Exercise
Class		Price	Number	Life		Price
D	$	0.20	1,585,717	5.25	$	0.20
F	$	0.20	1,300,000	4.00	$	0.20

NOTE 8 – PROPERTY AND EQUIPMENT

The major classifications of equipment are summarized below:



	June 30,		December 31,
Estimated Life	2010		2009
Office equipment 5 years	$	66,073	$	55,871
Furniture and fixtures 7 years		49,564		49,564
		115,637		105,435
Less accumulated depreciation		(71,979)		(64,477)
	$	43,658	$	40,958

Depreciation expense for the six months ending June 30, 2010 and 2009 was $7,592 and $6,914.

NOTE 9 – CAPITALIZED R&D COSTS

The major classifications are summarized below:



	June 30,		December 31,
	2010		2009
Capitalized R&D costs	$	244,090	$	244,090
Less accumulated amortization		(97,636)		(73,227)
	$	146,454	$	170,863

Amortization expense for the six months ending June 30, 2010 and 2009 was $24,409 and $11,695.

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

NOTE 10 – LOAN FEES

The major classifications are summarized below:



	June 30,		December 31,
	2010		2009
Loan fees	$	234,685	$	234,685
Less accumulated amortization		(234,685)		(104,842)
	$	-	$	129,843

Amortization expense for the six months ending June 30, 2010 and 2009 was $129,843 and $23,389.

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

NOTE 11 – ACCOUNTS PAYABLE

The Company’s current accounts payable and accrued expenses include $5,285 borrowed on revolving credit lines utilizing corporate credit cards which bear interest at an average rate of 11.39% per annum and call for total minimum monthly installment payments of $95 as of June 30, 2010. However, since amounts may be due on demand and it is the Company’s intent to pay such balances in their entirety during 2010, such amounts have been classified as current.

The remaining accounts payable and accrued liabilities consist of ordinary administrative expenses which were incurred in the operations of the Company and include $1,432,712 of trade accounts and accrued interest of $9,647.

NOTE 12 – NOTES PAYABLE

On July 3, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC ("MKM") an unaffiliated accredited institutional investor. The financing consists of a $500,000 Convertible Note, with a conversion price of $0.50 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on July 3, 2011. On September 29, 2008, the Company reduced the conversion price to $0.35 per share. In connection with the financing, MKM was also issued Class C Warrants to purchase up to 1,000,000 shares of the Company's common stock. The warrants were exercisable at an exercise price of $1.61 per share, but on May 27, 2009 the Company reduced the Class C Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $500,000 to be amortized over the term of the note and charged $250,685 to interest expense during the three months ended June 30, 2010.

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

On September 29, 2008, the Company secured a financing arrangement with MKM Opportunity Master Fund, LLC an unaffiliated accredited institutional investor and other unrelated individuals. The financing consists of a $650,000 Convertible Note, with a conversion price of $0.35 per share, bearing interest at the rate of 8% per year, payable on a quarterly basis and has a term of three years due on September 29, 2011. In connection with the financing, MKM and other unrelated individuals were also issued Class D Warrants to purchase up to 1,857,146 shares of the Company's common stock. The warrants were exercisable at an exercise price of $0.75 per share, but on May 27, 2009 the Company reduced the Class D Warrant exercise price to $0.20 per share. In connection with this financing arrangement, the Company recorded an initial debt discount of $650,000 to be amortized over the term of the note and charged $291,209 to interest expense during the three months ended June 30, 2010.

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

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

The promissory notes are as follows:



	June 30,		December 31,
	2010		2009
Notes payable	$	1,000,000	$	1,150,000
Less: principal payments		1,000,000		150,000
Notes payable outstanding at June 30, 2010 and December 31, 2009		-		1,000,000
Less: unamortized discount on notes payable		-		(541,893)
Notes payable, net		-		458,107
Less current portion		-		-
Notes payable, net of discount of $-0- and $1,011,553, less current portion	$	-	$	458,107

NOTE 13 – DEFERRED REVENUE

The Company has received $1,282,319 in cash for orders it intends to ship in the next six months. Per the Company’s revenue recognition policy (see note 1), the revenue will be recognized when goods have been received by the customer.

NOTE 14 – ADVERTISING

Advertising costs are expensed as incurred. For the six month periods ending June 30, 2010 and 2009, advertising expense was $40,449 and $103,678, respectively.

NOTE 15 – STANDBY EQUITY AGREEMENT

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

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

As of June 30, 2010, the Company had sold 333,333 shares for $500,000.

NOTE 16 – STOCK COMPENSATION

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

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

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

In 2009, the board of directors voted to compensate themselves in the form of restricted stock, based on 2,000 shares of restricted stock per month. Compensation commenced with respect to January 2009, but none was retroactive to 2008. On or about October 7, 2009, each director (other than Lou Brothers and Larry Wilhide) received his entire stock award of 24,000 shares of restricted stock in one lump sum for payment of the entire year’s service, along with a $3,000 tax gross-up cash payment. Neither Mr. Brothers nor Mr. Wilhide received any stock or cash compensation for his service as a director.

NOTE 17 – COMMON STOCK RESCISSION

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

NOTE 18 – SUBSEQUENT EVENTS

The Company performed a review of subsequent events between the balance sheet date of June 30, 2010, through August 16, 2010, the date the financial statements were issued, and concluded that events or transactions occurring during that period requiring recognition or disclosure were made.

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

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

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

Liquidity and Capital Resources

Between January 1, 2010 and June 30, 2010, our capital requirements have largely been met through sales of products other than THOR or ODIN. We recorded sales of $8,155,774 from the sale of various products in the first half of 2010. We anticipate that income from sales of such products will be sufficient to finance our ongoing capital requirements in 2010. To the extent we make sales of ODIN or THOR systems in 2010, we expect to negotiate customer deposits sufficient to provide us with the working capital needed to build the related systems. The following liquidity events describe the amounts and sources of our capital resources and describe how we have paid our expenses.

We have incurred losses for the past two fiscal years and had a net loss of $258,835 for the six months ended June 30, 2010.

Historically, we have relied on revenues, debt financing and sales of our common stock to satisfy our cash requirements. For the six months ended June 30, 2010, we received cash proceeds of $8,155,774 from sales of various products, $423,919 from customer deposits, and $214,286 from amounts paid to exercise warrants resulting in the issuance of common stock. For the year ended December 31, 2009 we received cash proceeds of $3,103,615 from revenues, $858,400 from deferred revenues and $337,500 from sales of our common stock. For the year ended December 31, 2008 we received cash proceeds of $123,400 from revenues, $343,000 from sales of our common stock and $1,260,000 in debt financing. For the year ended December 31, 2007, we received cash proceeds from debt financing of $160,000 and sales of our common stock of $914,000.

For the six months ended June 30, 2010 we issued 6,414,711 shares of our common stock. For the year ended December 31, 2009 we issued 3,273,571 shares of our common stock. For the year ended December 31, 2008 we issued 4,459,516 shares of our common stock. For the year ended December 31, 2007 we issued 659,333 shares of our common stock as payment for services. Management anticipates that we may continue to issue shares for expansion of our business in the short term.

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

requirements for 2010. We anticipate that any capital raised in 2010 will be primarily for the purpose of expanding operations.

Commitments and Contingent Liabilities

The Company leases office and warehouse spaces in Covington, KY and Erlanger, KY under a five-year and 37 month non-cancelable operating lease, expiring August 2011 and December 2010, respectively. Base rent is $5,807 per month with an annual rent escalator of 3%. At December 31, 2009, future minimum payments for operating leases related to our office and manufacturing facilities were $90,152 through August 2011.

Our total current liabilities increased to $2,964,072 at June 30, 2010 compared to $2,334,561 at December 31, 2009. Our total current liabilities at June 30, 2010 included accounts payable and accrued expenses of $1,447,645, deferred revenue of $1,282,319, convertible debentures of $42,000 and a loan from shareholder of $192,108.

Results of Operations

The following discussions are based on the unaudited condensed consolidated financial statements of Valley Forge Composite Technologies and its subsidiaries. These charts and discussions summarize our financial statements for the six months ended June 30, 2010, and 2009, and should be read in conjunction with the financial statements, and notes thereto, included with the Company’s Form 10-Q for the three months ended June 30, 2010 (as amended).



SUMMARY COMPARISON OPERATING RESULTS
		Six months ended June 30,
		2010		2009
Gross Profit	$	1,140,388	$	93,700
Total operating expenses		899,239		908,940
Income (loss) from operations		241,149		(815,240)
Total other income (expense)		(499,984)		(251,112)
Net loss	$	(258,835)	$	(1,066,352)
Net loss per share	$	(0.01)	$	(0.02)

To date, no revenues have been attributable to sales from ODIN or THOR LVX. All sales for the first six months of 2010 have been for aerospace products.While we continue to focus on ODIN and THOR LVX as our primary business, we have seen increased demand for our aerospace products which has enabled the Company to become profitable. We anticipate that demand at current levels for aerospace products may continue for another 12 months.

Our operating expenses have generally decreased for the six months ended June 30, 2010, compared with the six months ended June 30, 2009. The major component of our operating expenses consisted of selling and administrative expenses and warrant expense. For the six months ended June 30, 2010 and June 30, 2009, our selling and administrative expenses were $899,239 and $606,340, while our warrant expense were $-0- and $302,600.

expiration of the time period stated in each purchase order for final payment which may vary with each order. The customer has a right of return from the date that the shipment occurs until the final payment date stated in the purchase order. Revenue is only recognized upon completion of product testing by the customer, but not later than 180 days after product shipment occurs.

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



	June 30,		June 30,
	2009		2009
Valley Forge Detection Systems, Inc.	$	-	$	-
Valley Forge Aerospace, Inc.		8,155,774		315,000
Valley Forge Imaging, Inc.		-		-
Valley Forge Emerging Technologies, Inc.		-		-
Totals per financial statements:	$	8,155,774	$	315,000

Our total operating expense was $899,239 and $908,940 for the six months ended June 30, 2010 and 2009.

Our average monthly cost of operations from January 2010 through June 2010 was $149,873. Excluding aggregate non-cash charges of $161,844 for amortization and depreciation and $541,893 for amortization of debt discount, our average monthly cost of operations from January 2010 through June 2010 was $32,584.

As of June 30, 2010, we had $1,491,578 in cash remaining.

At this rate, and barring any material changes to our capital requirements, we anticipate being able to sustain our operations for twelve months, at which time we will have to obtain additional capital funding in the absence of obtaining additional cash from other sources. Our ability to sustain ourselves on our current cash position depends almost entirely on: (1) how long the government approval process may take and how high the initial market demand is for the THOR system, and (2) how long it takes to realize revenue from any sales of ODIN units; and (3) whether additional cash infusions are obtained via the exercise of outstanding warrants or from other sources or continued sales of our standard products. While the receipt of purchase orders for THOR units will dictate our major production needs, the timing of the government approval process is largely out of our control. Likewise, in the fourth quarter of 2009, we placed a unit with ODIN components in a foreign country for the purpose of demonstration and sales. We do not have a forecast of how long it may take to realize revenues from any sales of such units.

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

In the coming months, the Company will sharpen its estimates of its capital requirements based on any quantities of THOR and ODIN units ordered and the terms of any license the Company is able to negotiate with Lawrence Livermore National Laboratories. See the discussion in Item 5, Other Information.

Subsequent Events

During the period of July 9^th and 13^th, the Company, Louis J. Brothers and Larry K. Wilhide were served by mail courier with a Statement of Claim (“Statement”) filed with the American Arbitration Association by Advanced Technology Development, Inc. (“ATD”). Summarizing in general terms, ATD’s arbitration claims one through four are based upon allegations the Company failed to perform or pay ATD for goods pursuant to two separate supply contracts. Claims five through eight are based upon the Company’s activities in the promotion and sale of the ODIN imaging device. Claims nine through thirteen are based upon the Company’s alleged misuse of ATDs’ “ULDRIS” mark. The final claim seeks injunctive relief. The section below discusses the claims in greater detail.

ATD’s first claim is an alleged breach by the Company of a Supplier Agreement pursuant to which ATD was to supply the Company with a low dose radiographic imaging product for resale and seeks $3,600,000 plus interest in damages. The second claim is for breach of an agreement where ATD was to supply to the Company certain space craft instruments; ATD seeks $1,000,000 plus interest in damages. ATD’s third claim alleges the Company failed to pay for certain items, thereby unlawfully converting ATD’s property and seeks not less than $270,580 in damages. The fourth claim, unjust enrichment, money due and owing, money had and received and constructive trust and seeks not less than $4,600,000, that a constructive trust be established in ATD’s favor for $4,600,000 plus interest plus ATD’s costs and expenses in the arbitration proceeding.

ATD’s fifth claim, for tortious interference with actual and prospective business relationships, seeks to impose joint and several liability on all respondents of at least $4,600,000 plus punitive damages. Claim number six alleges misappropriation of confidential information and seeks at least $4,600,000 plus punitive damages jointly and severally from respondents. The seventh claim alleges theft of corporate opportunities and seeks at least $4,600,000 plus punitive damages jointly and severally from respondents. In the eighth claim for unfair competition, ATD seeks at least $4,600,000 plus punitive damages jointly and severally from respondents.

The ninth claim alleges trademark infringement, unfair competition, false description and false designation of origin in violation of the Lanham Act, section 43(a) and seeks $3,600,000 in damages In the tenth claim, ATD asserts dilution in violation of the Lanham Act, section 43(c) because of respondent’s alleged use of ATD’s mark; this claim seeks at least $3,600,000. ATD asserts common law infringement and unfair competition in its eleventh claim, alleging the Company was “palming off” ATD’s scanner as its own and seeks to impose joint and several liability on the respondents of not less than $3,600,000 plus punitive damages. Claim number 12 alleges infringement of N.Y. Gen. Bus. Law sections 360-l, 360-l and 360-m for state law infringement, unfair competition, false description, false designation of origin and dilution. ATD seeks at least $3,600,000 in damages, again asserting joint and several liability plus all profits. Claim thirteen is based upon alleged violations of Fl. St. Ann.495.151 for state law infringement, unfair competition, false description, false designation of origin and dilution. Finally, claim fourteen seeks to enjoin the Company from, among other things, selling any ULDRIS scanners, under that name or under the ODIN name or copying or utilizing the technology of the ULDRIS scanner in any way in any scanner. ATD also seeks to have the Company ordered to return the scanner ATD caused to be delivered and installed at the Company’s premises in December, 2007.

The Company believes the damages sought in the 13 claims for monetary awards overlap and may not represent a cumulative liability exposure.

On July 19, 2010, the Company was served with a Order to Show Cause (“Order”) issued by the Supreme Court of the State of New York, County of New York, issued pursuant to a Petition for Injunction in Aid of Arbitration filed therein by ATD. The Order directed the Company, Brothers and Wilhide to appear and show cause why a preliminary injunction should not issue, with ATD essentially seeking the same injunctive relief as sought in claim fourteen of the arbitration proceeding.

On July 30, 2010, the Company removed the New York state case to the United States Federal Court, Southern District of New York, removing the New York court of jurisdiction. On August 11, the Federal Judge Victor Marreo ordered the case dismissed with prejudice upon stipulation of counsel that ATD can

seek injunctive relief in the arbitration proceeding. Presently, the Company does not know whether ATD will seek injective relief in the arbitration proceedings. An initial conference has been scheduled for September 1, 2010 in the arbitration matter.

The Company, Brothers and Wilhide deny all ATD allegations but cannot make any assurances as to the outcome of the arbitration proceeding.

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

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

Critical Accounting Policies and Estimates

The accompanying consolidated financial statements have been prepared by the Company. The Company’s financial statements are consolidated with the results of its subsidiaries. All material inter-company balances and transactions have been eliminated.

Our financial statements have been prepared according to accounting principles generally accepted in the United States of America. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate these estimates on an on-going basis. We base these estimates on historical experiences and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. At this point in our operations, subjective judgments do not have a material impact on our financial statements except as discussed in the next paragraph.

Going Concern

Use of Estimates

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

Fair Value of Financial Instruments

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

Revenue Recognition

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

Recent Accounting Pronouncements

The Company does not believe that recent accounting pronouncements will have a material affect on the content or presentation of its financial statements.

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

Off-Balance Sheet Arrangements

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

Contractual Obligations

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

Item 3. Quantitative And Qualitative Disclosures About Market Risk

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

Item 4T. Controls And Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, as of June 30, 2010 (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to management, including our principal executive officer/principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Our management has concluded that, as of June 30, 2010, our internal control over financial reporting is effective based on these criteria.

Changes in Internal Control over Financial Reporting

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

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

On October 30, 2009, the Company and its president and director Louis J. Brothers were both named as defendants in a civil complaint filed on that date in the Third Judicial District Court in and for Salt Lake County, Utah by shareholder William A. Rothstein. The complaint has been served on Mr. Brothers and the Company. The five-count complaint alleges that the defendants committed fraud, violated the Utah Uniform Securities Act (Ut. Code Ann. §61-1-1, et seq.), made negligent misrepresentations, breached a fiduciary duty to shareholders, and breached a settlement agreement and seeks unspecified compensatory and punitive damages and attorney’s fees. The complaint alleges that Mr. Brothers misrepresented the timetable in which the Company’s THOR LVX technology would receive government approvals and the number of Department of Energy employees working on the THOR project and thereby induced plaintiffs to invest in the Company’s securities in 2006. The Company and Mr. Brothers filed a motion to dismiss the complaint based upon the Utah court’s lack of personal jurisdiction over the Company and Brothers. Plaintiff has replied to the motion to dismiss; the matter is pending before the Honorable Judge Kate Toomey.

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

On November 11, 2009, the Company and its president and director Louis J. Brothers were served with a civil complaint naming both of them as defendants. The complaint was filed on or about October 28, 2009 in circuit court in Manatee County, Florida by shareholder and creditor Coast To Coast Equity Group, Inc. (“CTCEG”) The complaint alleges that the defendants breached a consulting services agreement by not reimbursing plaintiff for $44,495.18 in expenses, committed fraud, pleaded for the rescission of a

standby equity agreement in the amount of $500,000, violated the Florida Securities and Investor Protection Act (Fla. Stat. §517.301), made negligent misrepresentations, and breached a fiduciary duty to shareholders and seeks damages in excess of $15,000 and attorney’s fees. As it pertains to non-contract claims, the complaint alleges that Mr. Brothers misrepresented the distribution rights that the Company had to its ODIN product and misused plaintiff’s proceeds which were to be allocated towards the purchase of an ODIN unit

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

The Company and Mr. Brothers deny all allegations and have filed an Answer and Affirmative Defenses; raising numerous defenses to the claims. They also intend to file applicable counterclaims and possible third party claims, but they cannot provide assurances as to the outcome of the matter.

George Frudakis vs. Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers, Civil Action No. 22010 CA-04230 (Fla. 12 th Jud. Cir.)

On or about May 7, 2010, George Frudakis commenced the above titled action against the Company and Lou Brothers. The Compliant sets forth the exact same causes of action as in the Coast to Coast Equity Group, Inc. vs. Valley Forge Composite Technologies, Inc. and Lou Brothers, described above, with the exception that the Frudakis matter does not include a claim for breach of contract based upon the Consulting Agreement. The Company and Brothers deny all allegations and have filed a motion to dismiss the complaint and a motion to consolidate the Frudakis and Coast to Coast cases into a single proceeding. However, the Company cannot provide assurances as to the outcome of the matter.

Arbitration Claim filed by Advanced Technology Development, Inc.

See the “Subsequent Events” discussion in Part I, Item 2, above, for a description of the arbitration claim filed in July, 2010 by Advanced Technology Development, Inc. against the Company and Messrs. Brothers and Wilhide.

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

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

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

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

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

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

On June 30, 2010, the Company issued 1,951,515 shares of common stock pursuant to the cashless exercise of 2,146,667 Class C warrants.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [REMOVED AND RESERVED]

Item 5. Other Information

In July 2010, Lawrence Livermore National Laboratory (“LLNL”) issued its final report (“Report”) pursuant to the Cooperative Research and Development Agreement (“CRADA”) between LLNL and the Company. The CRADA involves the development of an accelerator-detector complex which is the basis for the Company’s THOR LVX product. LLNL did not publically release the Report, but authorized the Company to issue a July 12, 2010 press release concerning the system’s performance, which states, in part:

Technical objectives of the project included the development and automation of the accelerator-detector complex for high efficiency detection of hidden explosives. Data acquisition and a photonuclear signature database were created. The system was operated and tested albeit on a limited sample size. A technique for the time analysis of signals from latent targets was developed and tested. This resulted in the positive identification of carbon and/or nitrogen. These techniques detected measurable decay from the radioisotopes formed upon irradiation.

The CRADA terms require LLNL to negotiate the terms of a technology license to the Company following the issuance of the Report.

Item 6. Exhibits

The following exhibits are filed herewith:

(a) Exhibits


Exhibit No.	Description
31.1**	13a-14(a)-15d-14(a) Certification - Louis J. Brothers
31.2**	13a-14(a)-15d-14(a) Certification - Louis J. Brothers
32.1**	18 U.S.C. § 1350 Certification - Louis J. Brothers
32.2**	18 U.S.C. § 1350 Certification - Louis J. Brothers

** Filed herewith

SIGNATURES

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



	VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

Date: August 23, 2010	By:	/s/ Louis J. Brothers
		Louis J. Brothers
		President, Secretary and Treasurer (Principal Accounting Officer and Authorized Officer