VALLEY FORGE COMPOSITE TECHNOLOGIES, INC. - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.	ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.	ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.	ex32_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012.

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

Commission file number 0-51420

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. Yes R 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 R 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 R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act

Yes £ No R

The number of shares outstanding of the issuer’s common stock as of November 14, 2012 was 62,512,048 shares.

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2012

INDEX

		Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	3
	Condensed Consolidated Statements of Operations (Unaudited) for the three months and nine months ended September 30, 2012 and 2011	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2012 and 2011	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION		29

Item 1.	Legal Proceedings	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures (Not Applicable)	33
Item 5.	Other information	33
Item 6.	Exhibits	33

SIGNATURES		34

Special Note Regarding Forward-Looking Statements

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

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

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS



	SEP 30, 2012			Dec 31, 2011
	(unaudited)
ASSETS
Current assets:
Cash	$	2,068,780		$	372,435
Marketable securities		546,803			518,576
Accounts receivable		2,782,283			3,592,821
Note receivable		300,000			-
Insurance receivable		62,684			-
Inventories		1,379,144			4,508,686
Vendor order deposits		193,200			-
Prepaid expenses and other		17,812			66,183
Total current assets		7,350,706			9,058,701
Property and equipment, net		57,426			112,062
Non-current assets:
Patent license, net		50,418			39,430
Deferred equity offering costs, net		737,760			658,262
Security deposits		5,535			5,535
Total non-current assets		793,713			703,227

Total Assets	$	8,201,845		$	9,873,990



LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,654,239		$	5,934,187
Accrued expenses and other		49,200			409,364
Deferred revenue		147,651			291,051
Total current liabilities		4,851,090			6,634,602
Shareholders' Equity:
Common stock, $.001 par value, 100,000,000 shares authorized;
62,416,048 and 62,066,928 shares issued and
outstanding at September 30, 2012 and December 31, 2011		62,416			62,067
Additional paid-in capital		13,222,980			12,544,597
Accumulated deficit		(9,935,097	)		(9,356,115	)
Accumulated other comprehensive income (loss)		456			(11,161	)
Total shareholders' equity		3,350,755			3,239,388

Total Liabilities and Shareholders' Equity	$	8,201,845		$	9,873,990

See the accompanying notes to the condensed consolidated financial statements.

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


	For the three months ended					For the nine months ended
	September 30,					September 30,
	2012		2011			2012			2011
Sales, net	$	5,825,920	$	1,756,042		$	11,081,682		$	11,337,017
Cost of sales		5,149,263		1,434,593			9,778,293			9,425,071

Gross Profit		676,657		321,449			1,303,389			1,911,946

Costs and expenses
Selling and administrative expenses		364,490		477,427			1,220,300			1,385,606
Share-based payments		222,221		273,571			678,732			683,483
Total expenses		586,711		750,998			1,899,032			2,069,089

Income (loss) from operations		89,946		(429,549	)		(595,643	)		(157,143	)

Other non-operating income (expense)
Interest expense		-		-			-			(3,102	)
Investment income		5,342		5,783			16,661			16,729

Net income (loss)		95,288		(423,766	)		(578,982	)		(143,516	)

Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities		5,873		(10,144	)		11,617			(10,171	)

Comprehensive income (loss)	$	101,161	$	(433,910	)	$	(567,365	)	$	(153,687	)

Income (loss) per common share:
Basic	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.00	)
Diluted	$	0.00

Weighted Average Common Shares Outstanding:
Basic		62,416,048		61,320,774			62,393,113			61,320,774
Diluted		63,125,140

See the accompanying notes to the condensed consolidated financial statements.

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the nine months ended
	September 30,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(578,982	)	$	(143,516	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense		56,194			59,044
Share-based payments		678,732			683,483
Change in operating assets and liabilities
(Increase) decrease in operating assets:
(Increase) decrease in accounts receivable		810,538			(2,514,774	)
Increase in insurance receivable		(62,684	)		-
(Increase) decrease in inventories		3,129,542			(1,567,751	)
(Increase) decrease in vendor deposits		(193,200	)		21,000
Decrease in prepaid expenses and other		48,371			15,802
Increase (decrease) in operating liabilities:
Increase (decrease) in accounts payable		(1,273,644	)		3,881,286
Increase (decrease) in accrued expenses and other		(360,164	)		269,114
Decrease in deferred revenue		(143,400	)		(862,414	)
Net Cash Provided By (Used In) Operating Activities		2,111,303			(158,726	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities		(16,608	)		(15,412	)
Patent license		(12,547	)		(40,000	)
Purchases of equipment		-			(45,483	)
Increase in note receivable		(300,000	)		-
Net Cash Used In Investing Activities		(329,155	)		(100,895	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments for equity offering costs		(85,803	)		-
Repayments to shareholder		-			(124,846	)
Net cash Used In Financing Activities		(85,803	)		(124,846	)

NET INCREASE (DECREASE) IN CASH		1,696,345			(384,467	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		372,435			585,549
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,068,780		$	201,082

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes	$	-		$	-
Interest	$	-		$	3,102

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES
Deferred equity offering costs in payables	$	79,498		$	-

See the accompanying notes to the condensed consolidated financial statements.

VALLEY FORGE COMPOSITE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SEPTEMBER 30, 2012

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

Valley Forge Composite Technologies, Inc., a Florida corporation (“VF”), is headquartered in Covington, Kentucky, and operates within the following wholly-owned subsidiaries (collectively, the “Company”) (all Florida corporations):

	·	Valley Forge Detection Systems, Inc. (“VFDS”) – Development and sale of advanced detection systems, such as Thor, as further described below.
	·	Valley Forge Aerospace, Inc. (“VFA”) – Primarily, the design and manufacture of attitude control instruments for small satellites, in particular, mini momentum reaction wheels based on VFA’s proprietary composite and bearing technology. This represents all of the Company’s revenues during 2012 and 2011.
	·	Valley Forge Imaging, Inc. (“VFI”) – Market and sell personnel screening devices known as ODIN.
	·	Valley Forge Emerging Technologies, Inc. (“VFET”) – Evaluates other scientific technologies not matching the Company’s aerospace and anti-terrorism business segments for potential commercialization.

During 2012 and 2011, the Company continues to receive contracts to supply momentum wheels and components and various other electronic and mechanical devices for special projects. This represents all of the Company’s revenues during these periods. Periodically, the Company has a high margin sale outside of the expected gross profit range of approximately 10% - 15%. Sales of this type cannot be predicted to reoccur on a consistent basis.

In recent years, 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 photonuclear detection system (“THOR”). The development of the THOR advanced explosives detection system was completed in Russia in 2009. We are currently focused on the marketing, manufacture and distribution of THOR in the United States and other countries.

Former Shell Company

On July 6, 2006, Quetzal Capital 1, Inc., a Florida corporation and public company (“QC1”), entered into a share exchange agreement with the then shareholders of VF. Under the share exchange agreement, the VF shareholders gained control of QC1. For financial accounting purposes, the exchange of stock was treated as a recapitalization of VF with the former shareholders of QC1 retaining 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 VF’s board of directors and a majority of its shareholders. QC1 changed its name to Valley Forge Composite Technologies, Inc., a Florida corporation.

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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete consolidated financial statements. The Accounting Standards Codification (“ASC”) as produced by the Financial Accounting Standards Board (“FASB”) is the sole source of authoritative GAAP for non-governmental entities. The information furnished includes all adjustments, which are, in the opinion of management, necessary to present fairly our financial position as of September 30, 2012 and the results of our operations and changes in our cash flows for the periods ended September 30, 2012 and 2011. Results of operations for the period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the entire year. Additional information, including the audited December 31, 2011 consolidated financial statements and the Summary of Significant Accounting Policies, is included in our Annual Report on Form 10-K for the year ended December 31, 2011 on file with the Securities and Exchange Commission. The consolidated financial statements of the Company include the Company and its subsidiaries. All material inter-company balances and transactions have been eliminated.

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 (Loss)

The Company follows the ASC for reporting comprehensive income (loss). Comprehensive income (loss) 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 (loss). The Company’s item of other comprehensive income (loss) is the unrealized gain (loss) on marketable securities.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, marketable securities, accounts receivable, security deposits and accounts payable. Except as disclosed in Note 3, the carrying value of these financial instruments approximates their fair value due to their short term maturities.

Cash Equivalents

The Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at September 30, 2012 and 2011.

Marketable Securities

The Company’s marketable securities include a mutual fund investment which is classified as available for sale. Securities classified as available for sale are carried in the financial statements at fair value. Realized gains and losses, determined using the first-in, first-out (FIFO) method, are included in earnings; unrealized holding gains and losses are reported in other comprehensive income (loss).

Accounts receivable

Receivables are based on contracted prices and are considered past due when the due date has expired. Typically, receivables are due within 30 - 180 days, a change from the Company’s previous policy of receivables due within 15-45 days. The policy change came at the request of the largest customer due to their collection cycle and was based upon the customer’s past payment performance and general assessment of creditworthiness. For all customers, credit is based on the credit worthiness of the customer and collateral is generally not obtained. Receivables are reviewed for collectability when they become past due. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. The Company provides for estimated uncollectible accounts based on prior experience and review of existing receivables. There was no allowance for doubtful accounts at September 30, 2012 and December 31, 2011.

Inventories

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

	SEP 30		DEC 31
	2012		2011
	(unaudited)
Raw Materials	$	419,519	$	4,035,468
Work in process		-		-
Finished goods		959,625		473,218
	$	1,379,144	$	4,508,686

Property and Equipment

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

Computers and equipment	5 - 15 years
Furniture and fixtures	7 years
Demonstration unit	5 years

Depreciation expense for the nine months ended September 30, 2012 and 2011 is $54,636 and $59,044, respectively.

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.

Deferred Equity Offering Costs

In connection with the Lincoln Park Capital (“LPC”) arrangement (Note 9), the Company incurred the following costs through September 30, 2012: (1) warrants issued to Wharton Capital Partners (Note 9), fair value of $356,145, (2) shares issued to LPC as a commitment fee, fair value of $282,739, and (3) professional fees related to the registration statement to register the LPC shares of $165,301. These costs will be charged to additional paid-in-capital (“APIC”) as shares are sold to LPC. During 2011, $66,425 has been charged to APIC related to the initial sale of shares to LPC in 2011. In the event it is determined no additional shares will be sold under the LPC arrangement, any deferred equity offering costs will be expensed at such time.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists, shipment of goods to the customer occurs, the price is fixed or determinable and collection is reasonably assured. See Note 8 for discussion of deferred revenue. Sales are also net of customer returns of $750,000 for the nine months ended September 30, 2012.

For future sales of ODIN and THOR, it is expected customer acceptance, which may include testing, will also be required for revenue recognition.

Shipping and Handling Costs

Shipping and handling costs incurred by the Company are included in cost of sales, and shipping charges billed to the customer are included in net sales in the accompanying statements of operations.

Share Based Payments

Generally, all forms of share-based payments, including stock option grants, stock warrants and restricted stock grants, 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.

Warranties

The Company warrants that aerospace goods and other mechanical devices delivered under its customer arrangements will conform to applicable technical standards and specifications and will be free from material and manufacture defects. The warranty period is one year and extends to goods subject to normal use by the customer, as defined. Management does not believe any significant warranty exposure exists at September 30, 2012.

Research and Development Costs

Research and development (“R&D”) costs, which relate primarily to the development, design and testing of products, are expensed as incurred. R&D expense is included in selling and administrative expenses, and was $14,171 and $-0- for the nine months ended September 30, 2012 and 2011, respectively. R&D expenses are necessary to accommodate customer needs, ongoing improvements or changing government regulations, the extent of which is presently unknown.

Income Taxes

Income taxes are accounted for in accordance with ASC 740, Accounting for Income Taxes. ASC 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.

The FASB has issued standards, contained in the ASC, clarifying the accounting for uncertainty in income taxes. These standards require recognition and measurement of uncertain tax positions using a “more-likely-than-not” approach.

The Company’s policy for interest and penalties on material uncertain income tax positions recognized in the financial statements is to classify them as interest expense and operating expense, respectively. The Company assessed its uncertain income tax positions for all open tax years and concluded that they have no material liabilities to be recognized. The Company is no longer subject to federal, state, and local examination by tax authorities for tax years before 2009.

Advertising

Advertising costs are expensed as incurred. For the nine months ended September 30, 2012 and 2011, advertising expense was insignificant.

Legal Costs

Legal costs are expensed as incurred.

Income (loss) per Common Share

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the 2012 period below, the Company excludes potentially dilutive securities such as exercisable warrants and stock options 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 Nine Months Ended
	September 30,
	2012			2011
	(unaudited)			(unaudited)
Net loss	$	(578,982	)	$	(143,516	)
Weighted average shares outstanding		62,393,113			61,320,774
Loss per share - basic and diluted	$	(0.01	)	$	(0.00	)

The Company’s common stock equivalents include the following:

	SEP 30		SEP 30
	2012		2011
	(unaudited)		(unaudited)
Class D Warrants		1,428,574		1,428,574
Class F Warrants		800,000		1,300,000
Class H Warrants		410,000		-
Class I Warrants		100,000		-
Options		4,050,000		4,050,000
Total common stock equivalents		6,788,574		6,778,574

On September 13, 2010, the Company issued 4,050,000 stock options of which 1,940,000 and 1,320,000 were vested at September 30, 2012 and 2011, respectively. See Note 9 for further details regarding warrants. See Note 11 for further details regarding options.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“FASB ASU No. 2011-05”), which requires a company to present components of net income (loss) and other comprehensive income (loss) in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net income or other comprehensive income under current GAAP. In addition, in December 2011, the FASB issued an amendment which specifically defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. This guidance is effective for fiscal years ending after December 15, 2012, with early adoption permitted. The Company currently presents components of net income and other comprehensive income in one continuous statement.

Reclassification

Certain 2011 items have been reclassified in order to conform with the 2012 financial statement presentation.

NOTE 2 - LIQUIDITY

The accompanying financial statements have been prepared assuming 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. Management currently believes its existing cash and investment balances, ongoing profitable sales and access to capital are adequate for the Company’s liquidity needs for the next twelve months. However, this determination is subject to change based on changing facts and circumstances.

NOTE 3 – MARKETABLE SECURITIES

The cost and fair value of marketable securities are as follows:

	SEP 30		December 31,
	2012		2011
	(unaudited)
Available for sale equity securities:
Amortized Cost	$	546,347	$	529,737
Unrealized Gain (Loss)		456		(11,161	)
Fair Value	$	546,803	$	518,576

Available for sale securities are carried in the financial statements at fair value. Net unrealized holding gains and losses on available-for-sale securities in the amount of $456 and ($11,161) have been included in accumulated other comprehensive income (loss) at September 30, 2012 and December 31, 2011, respectively.

The ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a framework for measuring fair value. GAAP establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2- inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

At September 30, 2012 and December 31, 2011, marketable securities consisted of an exchange traded bond fund that was measured using the Level 1 valuation hierarchy.

NOTE 4 – NOTE RECEIVABLE

Note receivable represents an unsecured $300,000 receivable from a third party that is non-interest bearing and due on May 29, 2013. The Company funded the $300,000 for the posting of a bond, which is a necessary step to completing a potential revenue arrangement with a Latin American government. The borrower has the right to prepay the note in full or part at anytime.

NOTE 5 – PROPERTY AND EQUIPMENT

The major classifications of equipment are summarized below:

	SEP 30			December 31,
	2012			2011
	(unaudited)
Computers and equipment	$	89,643		$	89,643
Furniture and fixtures		49,564			49,564
Demonstration unit		244,090			244,090
		383,297			383,297
Less: accumulated depreciation		(325,871	)		(271,235	)
	$	57,426		$	112,062

The demonstration unit is an ODIN unit available for testing by customers.

NOTE 6 – PATENT LICENSE

On September 22, 2011, the Company announced that it signed a definitive agreement for an exclusive license with Lawrence Livermore National Security, LLC (an affiliate of Lawrence Livermore National Laboratory (“LLNS”)) for certain patents covering an advanced accelerator-detector complex for high efficiency detection of hidden explosives. The patents are those that may ultimately issue from two provisional patent applications filed by LLNS and related to inventions resulting from work done under a Cooperative Research and Development Agreement. Pursuant to the license, the Company paid LLNS license issue fees of $40,000 and $12,547 in 2011 and 2012, respectively and will make royalty payments equal to 6% of net sales, subject to a minimum annual royalty of $30,000 beginning in 2014, $50,000 in 2015 and $60,000 in 2016 and thereafter during the term of the agreement, expiring December 5, 2030.

The patent license costs will be amortized over 19 years and three months until the expiration of the patents, if granted, on December 5, 2030.

	SEP 30			December 31,
	2012			2011
	(unaudited)
Patent License	$	52,547		$	40,000
Less: accumulated amortization		(2,129	)		(570	)
	$	50,418		$	39,430

Amortization expense for the nine months ended September 30, 2012 and 2011 was $1,559 and $-0-.

Amortization for each of the next five years will be $2,765 per year.

NOTE 7 – ACCOUNTS PAYABLE

The Company’s 2012 accounts payable include $8,872 borrowed on revolving credit lines utilizing corporate credit cards which bear interest at an average rate of 11.36% per annum and call for total minimum monthly installment payments of $178 as of September 30, 2012. However, since amounts may be due on demand and it is the Company’s intent to pay such balances in their entirety within 12 months; such amounts have been classified as current.

The remaining 2012 accounts payable consist of ordinary inventory purchases and administrative expenses which were incurred in the operations of the Company and include $4,645,367 of trade accounts.

The Company’s 2011 accounts payable include $8,351 borrowed on revolving credit lines utilizing corporate credit cards which bear interest at an average rate of 13.04% per annum and call for total minimum monthly installment payments of $145 as of December 31, 2011. However, since amounts may be due on demand and it is the Company’s intent to pay such balances in their entirety within 12 months; such amounts have been classified as current.

The remaining 2011 accounts payable consist of ordinary inventory purchases and administrative expenses which were incurred in the operations of the Company and include $5,925,836 of trade accounts.

NOTE 8 – DEFERRED REVENUE

The Company has received $147,651 and $291,051, at September 30, 2012 and December 31, 2011, respectively, in cash for orders it generally intends to ship in the following twelve months based on customer needs. Per the Company’s revenue recognition policy (see Note 1), generally the revenue will be recognized when goods have been shipped to the customer. The Company no longer requires an advance payment on customer orders.

NOTE 9 – SHAREHOLDERS’ EQUITY

On October 5, 2011, the Company signed a $20.25 million purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). Upon signing the Purchase Agreement, LPC agreed to initially purchase 300,000 shares of our common stock for $250,000. The Company also entered into a registration rights agreement with LPC whereby it agreed to file a registration statement related to the transaction with the SEC covering the shares that may be issued to LPC under the Purchase Agreement.

Under the Purchase Agreement, after the SEC has declared effective a registration statement related to the transaction, we may direct Lincoln Park to purchase up to $20,250,000 worth of shares of our common stock until April 1, 2014. On any trading day selected by us, we may sell to Lincoln Park up to $500,000 of common stock by delivering a purchase notice to Lincoln Park. The Purchase Price of such shares is equal to the lesser of: (i) the lowest sale price of our common stock on the purchase date; or (ii) the arithmetic average of the three lowest closing sale prices for our common stock during the twelve consecutive trading days ending on the trading day immediately preceding the purchase date. Lincoln Park does not have the right or the obligation to purchase any shares of our common stock on any business day that the market price of our common stock is less than $0.50. To the extent that the market price of our common stock is below $0.50 per share on a trading day, we would not receive any proceeds under the Purchase Agreement for that day.

If the market price of our common stock is not below $4.00 per share, our sales will be limited to up to $500,000 of our common stock on each purchase date. If the market price of our common stock is not below $2.25 per share, our sales will be limited to up to $300,000 of our common stock on each purchase date. If the market price of our common stock is not below $1.90 per share, our sales will be limited to up to $250,000 of our common stock on each purchase date. If the market price of our common stock is not below $1.50 per share, our sales will be limited to up to $200,000 of our common stock on each purchase date.

This registration statement was declared effective as of October 2, 2012.

There are no upper limits to the share price LPC may pay to purchase common stock and the purchase price of the shares related to the $20 million of additional future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, with the Company controlling the timing and amount of future sales, if any, of shares to LPC. LPC shall not have the right or the obligation to purchase any shares of our common stock on any business day that the price of common stock is below the floor price as set forth in the Purchase Agreement.

In consideration for entering into the $20.25 million agreement, the Company issued to LPC 314,154 shares of common stock as a commitment fee. The fair value of these commitment fee shares have been recorded as deferred equity offering costs (Note 1). The Purchase Agreement may be terminated by the Company at any time.

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 (Note 1). These warrants granted in connection with the consulting agreement include the following provisions: 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.00 per share when the per share market value closes at or above $1.00 for up to two years from the effective date of the registration statement registering the underlying shares; 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $1.50 per share when the per share market value closes at or above $1.50 for up to two years from the effective date of the registration statement registering the underlying shares; and, 1,000,000 warrants to purchase 1,000,000 shares at an exercise price of $2.00 per share when the per share market value closes at or above $2.00 for up to two years from the effective date of the registration statement registering the underlying shares. The Company believes all of the Class A warrants expired on May 14, 2009. CTCEG is disputing whether these Class A warrants expired on that date.

CTCEG, 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, 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 affected. CTCEG is disputing whether these non-dilution rights expired on May 14, 2009.

Common Stock Warrants

On September 29, 2008, the Company secured a financing arrangement with MKM Capital Advisors (“MKM”) and other unrelated parties. In connection with the financing, MKM and other unrelated parties were also issued Class D Warrants to purchase up to 1,857,146 shares of the Company's common stock. The warrants contain an exercise price of $0.20 per share.

During 2010, the Company issued 428,572 shares of common stock following the exercise of 428,572 Class D Warrants and 1,428,574 shares under Class D warrants remain unexercised .

On May 27, 2009, the Company issued 1,900,000 shares of common stock to MKM and individual investors for 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 at an exercise price of $0.20 per share.

On January 29, 2010, the Company issued 534,624 shares of common stock following the cashless exercise of 600,000 Class F Warrants. On January 18, 2012, the Company issued 349,120 shares of common stock following the cashless exercise of 500,000 Class F Warrants. Accordingly, 1,800,000 shares under Class F warrants remain unexercised.

Wharton Capital Partners, Ltd. assisted the Company in arranging for the equity offering arrangement with Lincoln Park Capital, as described above. As compensation for its services, the Company issued Class H Warrants to Wharton Capital Partners, Ltd, dated October 4, 2011, to acquire 410,000 shares of the Company's common stock at a price of $1.09 per share. The warrants expire on October 3, 2016 and may be exercised, in whole or in part, at any time prior to expiration either for cash or pursuant to a cashless exercise provision contained in the warrant. A fair value of $356,145 was calculated relating to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.94; exercise price of $1.09 per share; time to expiration (days) of 1,826; expected volatility of 158%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 0.19%. The fair value has been recorded to deferred equity offering costs (Note 1) in the accompanying September 30, 2012 and December 31, 2011 consolidated balance sheets.

On February 16, 2012, the Company issued Class I Warrants to Hayden Investor Relations to acquire 100,000 shares of common stock at a price of $0.60 per share. The warrants expire on February 15, 2015. A fair value of $53,429 was calculated relating to these warrants using the Black-Scholes pricing model with the following assumptions: share price of $0.64; exercise price of $0.60 per share; time to expiration (days) of 1,095; expected volatility of 156%; no dividends; and an annual interest rate based on 3-month U.S. Treasury Bill of 2.31%. The warrants vest 50% at inception and 50% on August 16, 2012. For the nine months ended September 30, 2012, expense of $53,429 was recorded along with an increase of additional paid-in capital.

Stock warrant activity for the period ended September 30, 2012 is summarized as follows:

	Number of shares			Weighted average exercise price
Outstanding at January 1, 2012		3,138,574		$	0.32
Granted		100,000			0.60
Forfeited		-			-
Exercised		(500,000	)		0.20
Outstanding at September 30, 2012		2,738,574		$	0.35

The following table summarizes the Company's Class D, Class F Class H and Class I stock warrants outstanding at September 30, 2012:

Warrant Class	Range of Exercise Price		Number		Weighted Average Remaining Life		Weighted Average Exercise Price
D	$	0.20		1,428,574		3.00	$	0.20
F	$	0.20		800,000		1.75	$	0.20
H	$	1.09		410,000		4.00	$	1.09
I	$	0.60		100,000		2.40	$	0.60

NOTE 10 – STOCK GRANT

On September 29, 2011, the Board of Directors of the Company authorized the issuance of 60,000 shares of common stock for 2011 services, distributed equally to the five Board members. The $57,180 value of the services was recorded based on the previous five day average share price at the date of authorization. The recipients were required to remain in service through December 31, 2011.

On September 29, 2011, the Board of Directors of the Company authorized the issuance of 72,000 shares of common stock for 2011 services, distributed equally to the three executive officers. The $68,616 value of the services was recorded based on the previous five day average share price at the date of authorization. The recipients were required to remain in service through December 31, 2011.

NOTE 11 – STOCK OPTIONS

On September 13, 2010, the Company granted certain employees and others the option to purchase 4,050,000 shares of the Company’s common stock at prices ranging from $1.35 - $1.49 per share. The fair value of stock at the option grant date was determined to be $1.32 per share. The options vest 660,000 on September 13, 2010, 660,000 on January 1, 2011, 620,000 on January 1, 2012, 620,000 on January 1, 2013, 620,000 on January 1, 2014, 620,000 on January 2, 2015, and 250,000 options will vest upon the completion of certain sales goals for ODIN and THOR, and are exercisable from vesting date through a period of five to ten years from the grant date. Management anticipates the average term of the options will be 5-7 years.

Using the Black-Scholes-Merton option pricing model, management has determined that the options have a value ranging from $1.29 to $1.33. For the nine months ended September 30, 2012 and 2011 the Company recognized compensation cost and an increase in additional paid-in capital of $614,867 and $614,867 and an income tax benefit has not been reflected due to an increase in the deferred tax asset valuation allowance. As of September 30, 2012, there was $2,382,166 of total unrecognized compensation cost relating to unvested stock options. That cost is expected to be recognized in the years ending December 31, 2012, 2013, and 2014 in the amounts of $819,823 per year, while $332,500 will be recognized upon the completion of certain sales goals for ODIN and THOR.

The assumptions used and the calculated fair value of the options are as follows:

Expected dividend yield		-0-
Risk-free interest rate		3.78% - 4.99%
Expected life in years		5-7
Expected volatility		180.00%
Weighted average of fair value of options granted	$	1.32

The following is an analysis of options to purchase shares of the Company’s stock issued and outstanding:

	Total Options			Weighted Average Exercise Price
Total options outstanding, January 1, 2012		4,050,000		$	1.38
Granted		-			-
Exercised		-			-
Expired/cancelled		-			-
Total options outstanding, September 30, 2012		4,050,000			1.38

Options exercisable, September 30, 2012		1,940,000		$	1.38

	Nonvested Options			Average Fair Value
Nonvested options
Nonvested options, January 1, 2012		2,730,000		$	1.32
Granted		-			-
Vested		(620,000	)		1.32
Forfeited		-			-
Nonvested options, September 30, 2012		2,110,000		$	1.32

At September 30, 2012, vested exercisable options were outstanding for 1,940,000 shares at an exercise price between $1.35 and $1.49. The weighted average value of the options is $1.32. Of the vested options, 404,040 options have a remaining life of 2.6 years and expire on September 13, 2015 while 1,535,960 options have a remaining life of 7.6 years and expire on September 13, 2020. The 2,110,000 nonvested options will vest over the next 2.6 to 7.6 years excluding 250,000 which will vest upon completion of certain sales goals for ODIN and THOR.

2011 Amendment

On August 8, 2011, the Board of Directors approved an amendment to the Incentive Stock Option Master Agreement and the Non Qualified Stock Option Master Agreement previously adopted as part of the Company’s 2008 Equity Incentive Plan (a) to provide for a different vesting schedule, (b) to permit the vesting of unvested options upon Change of Control as defined in the Plan and (c) to permit, in the Board’s discretion, alternative means of payments to exercise options. No change was made to the vesting schedule for options previously granted. No accounting adjustments were recorded as a result of this amendment.

NOTE 12 – INCOME TAXES

There was no income tax expense or benefit for the nine months ended September 30, 2012 and 2011 due to the Company’s net losses and changes in its deferred tax asset valuation allowance.

Deferred income taxes reflect the income tax effect of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income taxes. Management has recorded a full valuation allowance of its net deferred tax asset at September 30, 2012 and December 31, 2011 under the more likely than not approach.

The Company has net operating loss carryforwards for tax purposes of approximately $3,400,000 that begin to expire in 2028 if not utilized. Utilization of the Company’s net operating loss carryforwards may be limited based on changes in ownership as defined in Internal Revenue Code Section 382.

NOTE 13 - DESCRIPTION OF LEASING ARRANGEMENTS

The Company leases of 2,985 square feet of office space located at 50 E. River Center Boulevard, Suite 820, Covington, Kentucky. The lease expires in February, 2017. Under the terms of the lease, the Company shall pay additional rent to cover operating expenses of the property of approximately $41,000 for the initial twelve months. These expenses are anticipated to increase at a 3% rate annually for the remaining term of the agreement.

The Company leases 2,700 square feet of warehouse space located at 1895 Airport Exchange Blvd, Building A, Erlanger, Kentucky, expiring in December, 2012. Under the terms of the lease, the Company shall pay additional rent to cover operating expenses of the property of approximately $350 per month.

Rent expense for the periods ended September 30, 2012 and 2011 was $60,559 and $65,355, respectively.

The following is a schedule of future minimum lease payments required under the leases as of September 30, 2012:

Period Ending September 30,	Amount
2013	$	50,391
2014		47,141
2015		48,307
2016		49,504
2017		21,094
	$	216,437

NOTE 14 - RELATED PARTY TRANSACTIONS

The Company made a $25,000 payment to Mr. Brothers on January 24, 2011 related to the due to shareholder balance. Of that payment, $1,272 was applied to accrued but unpaid interest, and the remaining $23,728 was applied to reduce the principal amount owed to Mr. Brothers. On September 30, 2011, the Company made a $103,728 payment to Mr. Brothers. Of that payment, $2,610 was applied to accrued interest and the remaining $101,118 was applied to retire the principal amount owed to Mr. Brothers.

For the nine months ended September 30, 2012 and 2011, the Company incurred expenses for accounting services of $86,490 and $85,950, respectively, to a firm related to a member of the board of directors.

For the nine months ended September 30, 2012 and 2011, the Company paid $-0- and $50,000 to L & M Consulting (“L&M”) which is owned by Louis Brothers, Jr., the son of Louis Brothers, Sr., the Company’s president and chief executive officer. The Company retained L&M to provide information technology consulting services.

For the nine months ended September 30, 2012 and 2011, the Company also paid Louis Brothers, Jr. for consulting services of $16,000 and $20,000, respectively.

For the nine months ended September 30, 2012 and 2011, the Company incurred expenses for translating services of $5,880 and $6,489, respectively, to a member of the board of directors.

NOTE 15 – CONCENTRATION AND CREDIT RISK

During the nine months ended September 30, 2012, one customer accounted for 100% of the Company’s total revenues. During the nine months ended September 30, 2011, two customers accounted for 90% and 10% of the Company’s total revenues. A reduction in sales from or loss of these customers could have a material adverse effect on the Company’s results of operations and financial condition.

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of cash and accounts receivable. 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.

The Company’s entire September 30, 2012 accounts receivable balance of $2,782,283 is from one customer. The accounts receivable balance of $3,592,821 is from one customer as of December 31, 2011. The customer is a multinational corporation and all of the Company’s sales are exported. The Company has not experienced any bad debts from this customer.

The Company receives its inventory from approximately eight suppliers. The Company has an accounts payable balance to these suppliers of $4,589,469 and $5,765,349 as of September 30, 2012 and December 31, 2011, respectively.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

The Company is involved in litigation and disputes arising in the ordinary course of business. While the ultimate outcome of these matters is not presently determinable, it is the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.

William A. Rothstein vs. Valley Forge Composite Technologies, Inc., a Florida corporation, and Louis J. Brothers

The Company and its president and director, Louis J. Brothers, have been named as defendants in a civil complaint filed in Utah by shareholder William A. Rothstein and eleven additional plaintiffs. The complaint alleges a variety of claims. Mr. Brothers and the Company filed an answer to the complaint denying all claims. The Company cannot provide any assurances on the outcome of the matter.

Coast To Coast Equity Group, Inc. vs. Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers.

The Company and its president and director, Louis J. Brothers, have been served with a civil complaint naming both of them as defendants. The complaint was filed in Florida, by shareholder, Coast To Coast Equity Group, Inc. ("CTCEG"). The complaint alleges a variety of claims and seeks damages 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. 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. A claim for non-dilution damages is also included.

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. The matter is scheduled for trial during the trial period beginning March 11, 2013.

George Frudakis vs. Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers.

George Frudakis commenced the above titled action against the Company and Lou Brothers. The Complaint generally sets forth the same causes of action as in the Coast to Coast Equity Group, Inc. vs. Valley Forge Composite Technologies, Inc. and Lou Brothers, described above. 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. The Court has granted a motion to consolidate the cases for discovery purposes and has reserved as to consolidation for trial. The Company and Lou Brothers intend to file appropriate Affirmative Defenses and Counterclaims, and possible third-party claims, in the event the Court denies the Motion to Dismiss. However, the Company cannot provide assurances as to the outcome of the matter.

Arbitration Claim filed by Advanced Technology Development, Inc.

During 2010, the Company, Louis J. Brothers and Larry K. Wilhide received a Statement of Claims (“Statement”) filed with the American Arbitration Association by Advanced Technology Development, Inc. (“ATD”).

The arbitration proceeding was heard during 2011. On July 31, 2011 and November 2, 2011, the Arbitrator issued Interim Awards. On December 30, 2011, the Arbitrator issued a Final Award in a total amount aggregating to $316,896. This amount is included in accrued expenses at December 31, 2011. In 2012, ATD has received payment in full and the matter has concluded.

Demand for action letter and settlement offer

On April 24, 2011, Valley Forge Composite Technologies, Inc. (the “Company”) and its Board of Directors (the “Board”) received a letter entitled “Demand for Action” wherein an attorney representing a class of shareholders alleges facts to support the following claims: “Fraudulent Misrepresentation and Concealments in Violation of §10(b) of the Securities Exchange Act of 1934 and S.E.C. Rule 10b-5,” “Selective Disclosure of, and Failure to Disclose, Material Information, In Violation of Regulation FD”; and “Breaches of Fiduciary Duty”.

On March 8, 2012 the attorney representing the “class of shareholders” transmitted by email a Settlement Agreement and Mutual General Release (“Settlement Agreement”). The “class of shareholders” is defined in the Settlement Agreement as the “Levine Parties” and consists of Mr. Evan Levine, his wife and children, his parents and Mark Capital LLC.

On May 3, 2012, the Company received a “Final Settlement Overture” from the attorney who sent the original demand letter and the Levine Parties and the Company (collectively, the “Parties”) agreed to mediation in an effort to resolve the disputes.

On September 28, 2012, as a result of mediation, the Parties executed an Agreement Reached Pursuant to Mediation (“Mediation Settlement Agreement”) wherein two independent persons shall be appointed to the Board, with the first by January 31, 2013 and the second by April 30, 2013. The Parties agreed that other provisions of the Mediation Settlement Agreement shall be confidential except as may be required by law. The Company believes the remaining provisions of the Mediation Settlement Agreement will not have a material impact on the Company’s finances or operations and are not subject to further disclosure.

The Company is also a plaintiff in certain legal actions which could result in a gain. The ultimate outcome is not determinable and no amounts have been recognized.

NOTE 17 – SUBSEQUENT EVENTS

On October 19, 2012, the Board of Directors of the Company authorized the issuance of 96,000 shares of common stock for 2012 services, distributed equally to the three executive officers and five members of the Board. The Company has recorded an expense of $10,584 for the nine months ended September 30, 2012 for services rendered during the first nine months of the year. The value of the services was recorded based on the previous five day average share price at the date of authorization. The recipients were required to remain in service through December 31, 2012.

We have evaluated the period from September 30, 2012 through the date the financial statements herein were issued for subsequent events requiring recognition or disclosure in the financial statements and no other events have been identified.

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, 2012 and September 30, 2012, our capital requirements have largely been met through sales of products other than THOR or ODIN. We recorded sales of $11,081,682 from the sale of various aerospace products and other mechanical devices. We anticipate that income from sales of such products will be sufficient to finance our ongoing operating requirements in 2012. To the extent we make sales of ODIN or THOR systems during the next several months, we expect to negotiate customer deposits sufficient to provide us with the working capital needed to build the related systems. However, there are no assurances this will occur. With respect to the Company no longer requiring advanced payment from customers, the effect on liquidity is offset by vendors granting the Company extended payment terms. In addition, to the extent we may need additional working capital, we may decide (if possible) to exercise our rights under our $20.25 million Purchase Agreement with Lincoln Park.

Under the Purchase Agreement, we may direct Lincoln Park to purchase up to $20,250,000 worth of shares of our common stock until April 1, 2014. On any trading day selected by us, we may sell to Lincoln Park up to $500,000 of common stock by delivering a purchase notice to Lincoln Park. The Purchase Price of such shares is equal to the lesser of: (i) the lowest sale price of our common stock on the purchase date; or (ii) the arithmetic average of the three lowest closing sale prices for our common stock during the twelve consecutive trading days ending on the trading day immediately preceding the purchase date. Lincoln Park does not have the right or the obligation to purchase any shares of our common stock on any business day that the market price of our common stock is less than $0.50. To the extent that the market price of our common stock is below $0.50 per share on a trading day, we would not receive any proceeds under the Purchase Agreement for that day.

This registration statement was declared effective on October 2, 2012.

There are no upper limits to the share price Lincoln Park may pay to purchase our common stock and the purchase price of the shares related to the $20 million of additional future funding will be based on the prevailing market prices of the Company’s shares immediately preceding the time of sales without any fixed discount, with the Company controlling the timing and amount of any future sales, if any, of shares to Lincoln Park. Lincoln Park shall not have the right or the obligation to purchase any shares of our common stock on any business day that the price of our common stock is below the floor price as set forth in the Purchase Agreement.

The following liquidity events describe the amounts and sources of our capital resources and describe how we have paid our expenses. For the nine months ended September 30, 2012, we had positive cash flows from operations due primarily to net changes in accounts receivable, insurance receivable, inventories, vendor deposits, accounts payable, accrued expenses and deferred revenue. We had a decrease in accounts receivable of $810,538 that was due to increased efforts by the Company to collect the outstanding balance, an increase in insurance receivable, a decrease in inventories of $3,129,542, an increase in vendor deposits of $$193,200, a decrease in accounts payable of $1,359,447, a decrease in accrued expenses of $360,164 and a reduction in advance payments received from customers of $143,400 which had negative impacts on our cash flows. We expect cash flows from operations to improve for the rest of 2012 as cash receipts from customers and cash payments to vendors will be more correlated due to the extended payment terms we have received from vendors. From October 1, 2012 through November 12, 2012, the Company has collected $965,100 of the outstanding accounts receivable balance of $2,782,283 at September 30, 2012. The accounts receivables balance 180 days past due at September 30, 2012 was $-0-. From October 1, 2012 through November 12, 2012, the Company has paid $750,561 of the outstanding accounts payable balance of $4,654,239. Further, we believe our cash and investment reserves are satisfactory to fund any potential operating shortfalls in 2012.

We have incurred a net loss of $578,982 for the nine months ended September 30, 2012 but had net income of $426,756 for the year ended December 31, 2011.

Historically, we have relied on gross profit from revenues, debt financing and sales of our common stock to satisfy our cash requirements. For the nine months ended September 30, 2012, we received cash proceeds of $8,299,399 from sales of various products and $3,592,821 from accounts receivable outstanding at December 31, 2011. Our cash outflows for the period consisted of net decrease in accounts receivable of $810,538, an increase in insurance receivable of $62,684, increase in vendor deposits of $193,200, marketable securities purchases of $16,610, investment in patent license of $12,547, decrease in accounts payable of $1,279,948, decrease of accrued expenses of $360,164, and a net decrease in advance payments received from customers of $143,400. For the nine months ended September 30, 2011, we received cash proceeds of $5,995,647 from sales of various products and $1,991,902 from accounts receivable outstanding at December 31, 2010. Our cash outflows for the nine months consisted of net increase of inventories of $1,567,751, marketable securities purchases of $15,412, investment in patent license of $40,000, equipment purchases of $45,483, and repayment to shareholder of $124,846 and a net decrease in advance payments received from customers of $862,414.

While our customer base is limited, so is the number of competing suppliers worldwide. We have developed a reputation with our customers of delivering high quality products on time and at competitive prices. While we cannot be certain they will remain customers, we believe that our current relationship with our customers will continue. We also believe the market for our specific products will sustain in the foreseeable future based on customer feedback regarding future expectations.

For the year ended December 31, 2011 we issued 746,154 shares of our common stock from the sale of 300,000 shares of our common stock for $250,000 in cash, issuance of 314,154 shares of our common stock in exchange for the financing commitment for Lincoln Park Capital and 132,000 shares issued to the Board of Directors and officers for their services in 2011.

Commitments and Contingent Liabilities

The Company leases office and warehouse space in Covington, KY and Erlanger, KY under non-cancelable operating leases, expiring February 2017 and December 2012, respectively. The aggregate base rent is $5,940 per month. At September 30, 2012, future minimum payments for operating leases related to our office and manufacturing facilities were $216,437 through February 2017.

Our total current liabilities decreased to $4,851,090 at September 30, 2012 compared to $6,634,602 at December 31, 2011. Our total current liabilities at September 30, 2012 included accounts payable of $4,654,239, accrued expenses of $49,200, and deferred revenue of $147,651 compared to our total current liabilities at December 31, 2011 which included accounts payable of $5,934,187, accrued expenses of $409,364 and deferred revenue of $291,051.

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 nine months ended September 30, 2012 and 2011, and should be read in conjunction with the financial statements, and notes thereto, included with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011.

SUMMARY COMPARISON OPERATING RESULTS

	THREE MONTHS ENDED SEP 30, 2012		THREE MONTHS ENDED SEP 30, 2011			NINE MONTHS ENDED SEP 30, 2012			NINE MONTHS ENDED SEP 30, 2011
Gross profit	$	676,657	$	321,449		$	1,303,389		$	1,911,946
Total operating expenses		586,711		750,998			1,899,032			2,069,089
Income (loss) from operations		89,946		(429,549	)		(595,643	)		(157,143	)
Total other income		5,342		5,783			16,661			13,627
Net income (loss)		95,288		(423,766	)		(578,982	)		(143,516	)
Other comprehensive income (loss)		5,873		(10,144	)		11,617			(10,171	)
Comprehensive income (loss)	$	101,161	$	(433,910	)	$	(567,365	)	$	(153,687	)
Net loss per share:
Basic	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.00	)
Diluted	$	0.00

For the nine months ended September 30, 2012, the Company’s slight decrease in revenues is related to a decrease in aerospace sales due to the timing of customer orders and shipments. Revenues primarily from momentum wheels and associated components, were $11,081,682 and $11,337,017 for the nine months ended September 30, 2012 and 2011. All of these revenues were concentrated among a few customers.

To date, no revenues have been attributable to sales from ODIN or THOR. All sales for the nine months ended September 30, 2012 and 2011 have been for aerospace products and other mechanical devices. We have experienced an increase in revenues (from 2009) due to enhanced relationships with existing momentum wheel customers. The Company periodically receives a high profit margin order that exceeds the expected gross profit range of approximately 10% - 15%.

Our gross profit margins have decreased for the nine months ended September 30, 2012, compared with the nine months ended September 30, 2011. We have seen a decrease of our gross margin to 12% from 17% for the nine months ended September 30, 2012 and 2011, respectively. The decrease in profit margin for the nine months ended September 30, 2012 was due to a few high margin sales at September 30, 2011. These high margin sales consisted of products the Company assembled and tested utilizing key legacy components the Company was able to source at the time. Because it is uncertain whether further legacy components will be available, the Company cannot predict whether these high margin sales will occur with regularity in the future. The Company’s goal is to increase gross profit margin on future sales of momentum wheels and other aerospace products.

Our operating expenses generally increased for the nine months ended September 30, 2012, compared with the nine months ended September 30, 2011. The major components of our operating expenses consisted of selling and administrative expenses and share-based payments. For the nine months ended September 30, 2012 and 2011, our selling and administrative expenses were $1,220,300 and $1,385,606 and our share-based payment expenses were $678,732 and $683,483.

Operating expenses The following table shows our operating expenses:

	For the three months ended SEP 30,							For the nine months ended SEP 30,
	2012		2011		Percent Change			2012		2011		Percent Change
Selling and administrative expenses	$	364,490	$	477,427		(24	) %	$	1,220,300	$	1,385,606		(12	) %
Share-based payments		222,221		273,571		(19	) %		678,732		683,483		(1	) %
Total operating expenses	$	586,711	$	750,998		(22	) %	$	1,899,032	$	2,069,089		(8	) %

Selling and administrative expenses decreased $165,306 for the nine months ended September 30, 2012 compared to the same period of 2011 which is primarily attributable to a decrease in legal settlement costs. Total selling and administrative expenses were 11.0% and 12.2% of sales for the nine months ended September 30, 2012 and 2011, respectively.

Share-based payments decreased $4,751 for the nine months ended September 30, 2012 compared to the same period of 2011.

Total operating expenses were 17.1% and 18.3% of sales for the nine months ended September 30, 2012 and 2011.

Loss from operations Loss from operations totaled $595,643 (or 5.4% of sales) in the nine months ended September 30, 2012 compared to the loss from operations of $157,143 (or 1.4% of sales) for the nine months ended September 30, 2011. The loss from operations increased due to a decrease in sales and a decrease in gross profit. The decrease in sales is due to the timing of shipments. The decrease in gross profit is due to the higher margin non-recurring sale in 2011.

Net loss Net loss for the nine months ended September 30, 2012 increased $435,466, compared to 2011. The increase in net loss is primarily due to a decrease in sales and a decrease in gross profit.

Interest expense, net Overall interest expense, net, decreased due to the full repayment of outstanding long-term debt in 2011.

The following chart provides a breakdown of our sales for the three and nine months ended September 30, 2012 and 2011.

	THREE MONTHS ENDED SEP 30, 2012		THREE MONTHS ENDED SEP 30, 2011		NINE MONTHS ENDED SEP 30, 2012		NINE MONTHS ENDED SEP 30, 2011
Valley Forge Detection Systems, Inc.	$	-	$	-	$	-	$	-
Valley Forge Aerospace, Inc.		5,825,920		1,756,042		11,081,682		11,337,017
Valley Forge Imaging, Inc.		-		-		-		-
Valley Forge Emerging Technologies, Inc.		-		-		-		-
Totals Per Financial Statements	$	5,825,920	$	1,756,042	$	11,081,682	$	11,337,017

Our total operating expense was $1,899,032 and $2,069,089, respectively, for the nine months ended September 30, 2012 and 2011.

Our average monthly cost of operations from January 2012 through September 2012 was approximately $211,000. Excluding aggregate non-cash charges of $56,194 for depreciation and amortization, and $678,732 for share-based payments, our average monthly cost of operations from January 2012 through September 2012 was approximately $129,000.

As of September 30, 2012, we had $2,068,780 in cash remaining as well as $546,803 of marketable securities.

At this rate, and barring any material changes to our capital requirements and assuming no additional revenue with margin, we anticipate being able to sustain our operations for more than twelve months, at which time we will have to obtain additional funding in the absence of obtaining additional cash from operations or other sources. Our ability to sustain ourselves on our current cash position depends almost entirely on: (1) continued sales of our aerospace products and conversion of working capital to cash (2) how long the government and/or customer approval process may take and how high the initial market demand is for the THOR system, and (3) how long it takes to realize revenue from any sales of ODIN units; and (4) whether additional cash infusions are obtained via the issuance of equity securities or from other sources, including from Lincoln Park. It is uncertain whether we will receive significant cash payments for THOR and unlikely we will receive significant cash payments for ODIN sales during the remainder of 2012. While the receipt of purchase orders for THOR units will dictate our major production needs, the timing of the government approval process, where relevant, 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. That demonstration unit has been returned and no sale occurred. Although the unit performed according to specifications, we do not have a forecast of how long it may take to realize revenues from any sales of such units. Although we presently have enough cash and marketable securities to fund operations through December 31, 2012, we have no immediate plans to raise additional capital, notwithstanding the Lincoln Park Capital arrangement, because we believe profits from sales of momentum wheels and associated products will be sufficient to cover operating expenses through the end of 2012. However, we are refining our cash flow forecast and if warranted, we will seek to raise additional capital through commercial loans and other financing sources, if available, or, through exercising our rights under the Lincoln Park Capital Purchase Agreement, if possible.

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 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 accommodate customer needs, ongoing improvements or to facilitate obtaining necessary approvals before we can commence production of the THOR system or to facilitate the execution of contracts.

The Company has received information regarding new government specifications for passenger screening, but has not yet reviewed it. Once the company reviews it, the Company will reevaluate whether or not to continue to use the existing technology associated with ODIN. Currently we have two ODIN machines, which are included on the balance sheet as assets in the amount of $149,056, net of accumulated depreciation and inventory allowance, as of September 30, 2012. If we decide not to continue with the existing technology but to utilize a new system that we have developed, then it will be possible that we may not be able to sell our existing ODIN machines. In that case we may be required to write down the carrying value of those existing machines on our financial statements. In addition, in light of all this, the Board of Directors has discussed whether or not it makes sense to continue to pursue ODIN, particularly because the effort to continue ODIN may detract from our management's focus on THOR and our growing aerospace business. The Board of Directors has not made a decision on this issue yet.

The Company entered into a Consulting and Services Agreement (“CSA”) with Idaho State University (“ISU”). The CSA establishes a framework under which ISU, through the Idaho Accelerator Center (“IAC”), could assemble a THOR demonstration unit in Pocatello, Idaho. In order to begin that project, the CSA requires the Company to propose a series of work orders setting forth work tasks, deliverables, due dates, IAC’s compensation and other commercial terms. On July 15, 2011, the first accepted work order was transmitted to the Company. The work order is the first request for services under the CSA. The work order had a deliverable date of September 30, 2011 which required preliminary research steps and related deliverables; this deliverable date was extended to November 30, 2011. The Company is currently reviewing results from the first work order along with a proposal from the IAC for additional work. The Company may prepare a proposed second work order but has not yet done so.

If the Company and ISU do negotiate and execute additional work orders, then, pursuant to the CSA, ISU may assemble and demonstrate an accelerator and detector to the Company’s customers. The Company will compensate ISU for hourly labor and for materials and sub-contracting costs. The Company and ISU will jointly hold all right, title and interest in any invention the parties jointly make resulting from services performed under the CSA. To the extent ISU holds an interest in an Encumbered Invention, as such term is defined in the Agreement, the Company has the option to negotiate an exclusive (for a time to be determined), worldwide, royalty-bearing license to make, use or sell under any Encumbered Invention. If we do issue additional work orders we may have additional research and development expense.

In the coming months, the Company will refine its estimates of its capital requirements based on any quantities of THOR and ODIN units ordered.

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

This section of our 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 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 of the “Notes to Consolidated Financial Statements” for the nine months ended September 30, 2012.

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.

Liquidity

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. While the Company has a net loss for the nine months ended September 30, 2012, it had a net profit for the year ended December 2011 and has experienced net losses in prior years. Management believes its existing cash and investment balances, ongoing profitable sales and access to capital are adequate for the Company’s liquidity needs for the next twelve months.

Use of Estimates

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, marketable securities, security deposits, accounts receivable, and accounts payable. Except as discussed in Note 3 of the “Notes to Consolidated Financial Statements” in this 10-Q, the carrying values of these financial instruments approximates their fair value due to their short term maturities.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a customer or distributor arrangement exists, shipment of goods to the customer occurs, the price is fixed or determinable and collection is reasonably assured. See Note 8 of the “Notes to Consolidated Financial Statements” in this 10-Q for discussion of deferred revenue.

For future sales of ODIN and THOR, it is expected customer acceptance, which may include testing, will also be required for revenue recognition.

Share-based Payments

Generally, all forms of shared-based payments, including stock option grants, stock warrants and restricted stock grants, are measured at their fair value on the awards’ grant date, 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.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“FASB ASU No. 2011-05”), which will require a company to present components of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. There are no changes to the components that are recognized in net income or other comprehensive income under current GAAP. In addition, in December 2011, the FASB issued an amendment which specifically defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. This guidance is effective for fiscal years ending after December 15, 2012, with early adoption permitted. The Company currently presents components of net income and other comprehensive income in one continuous statement.

The Company does not believe that recent accounting pronouncements will have a material effect 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 significant 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 4. Controls And Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our principal executive officer/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 Securities Exchange Act of 1934, as amended (“Exchange Act”), as of September 30, 2012. During this evaluation, we identified a material weakness in our internal control over financial reporting. We have a limited staff so a limited number of people perform all financial duties. Much of our financial accounting is performed by outside accountants not affiliated with our independent registered public accounting firm. In addition, we determined that one of our previously filed financial statements required an adjustment. Accordingly, the principal executive officer/principal financial officer concluded that the disclosure controls and procedures were not effective to provide reasonable assurance that information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports or submitted by the Company under the Exchange Act was (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) 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.

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 the shareholder, and breached a settlement agreement and seeks unspecified compensatory and punitive damages and attorney’s fees. The complaint alleged 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 the Plaintiff 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. The Honorable Judge Kate Toomey denied the motion to dismiss on December 13, 2010; Mr. Brothers and the Company filed an answer to the complaint denying all claims.

On November 1, 2011, the Court granted the Plaintiff’s motion to file an amended complaint, which abandons the claims in the original complaint except for breach of contract based upon a claimed breach of an alleged agreement to settle the stock fraud claims alleged in the original Complaint. The Amended Complaint includes 11 additional plaintiffs, two of whom previously filed lawsuits against the Company in Florida, which were later voluntarily dismissed. In the first Amended Complaint claim for breach of contract, Plaintiffs seek the fair market value of stock and warrants under an alleged settlement agreement. The second claim, promissory estoppel, seeks the fair market value of the stock and warrants promised to Plaintiffs. The third claim is for a declaratory judgment that the Defendants are in material breach of a settlement agreement, specific performance for the issuance of promised stock and warrants or, alternatively, damages and other relief the court deems proper.

The Company and Mr. Brothers have filed an Answer to First Amended Complaint denying all claims and asserting affirmative defenses. The Company cannot provide any assurances on the outcome of the matter.

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, 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. 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.

A Motion to Dismiss was filed in response to the Complaint. A Consent Order was entered on January 14, 2010, allowing CTCEG to file an Amended Complaint. A Motion to Dismiss was filed in response to the Amended Complaint. On May 20, 2010, the Court granted CTCEG leave to file a third 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 claim has been resolved and the Company paid in full amounts owing under the promissory note.

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 Securities and Exchange Commission (“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 Rights 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. The matter is scheduled for trial during the trial period beginning March 11, 2013.

George Frudakis vs.Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers, Civil Action No. 2010 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 Complaint 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. The Court has granted a motion to consolidate the cases for discovery purposes and has reserved as to consolidation for trial. The Company and Lou Brothers intend to file appropriate Affirmative Defenses and Counterclaims, and possible third-party claims, in the event the Court denies the Motion to Dismiss. However, the Company cannot provide assurances as to the outcome of the matter.

Arbitration Claim filed by Advanced Technology Development, Inc.

During the period between July 9th and 13th, 2010, 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 parties agreed to the appointment of Phillip D. O’Neil, Jr. as the Sole Arbitrator and the arbitration proceeding was heard from April 27 through April 29, 2011. On July 31, the Arbitrator issued an Interim Award, finding that the Company breached the Scanner Agreement by failing to pay ATD $228,194. Because ATD never actually delivered a second unit, the Arbitrator has ordered the parties to brief the issue of damages, interest, costs and attorney fees before a Final Award will be issued. The Arbitrator also found that the Company breached the Space Supply Contract and a balance of $42,376 is owed, plus interest.

On November 2, 2011, the Arbitrator issued a Second Interim Award, awarding ATD $90,000 in lost profits resulting from the breach of the Scanner Agreement, plus interest since November 10, 2007. He additionally awarded 2% interest as part of the damage award for the Space Supply Contract breach. The Arbitrator found ATD to be the prevailing party for the purposes of shifting attorneys fees, but confined the award to those fees incurred in pursuing the breach of contract claims.

On December 30, 2011, the Arbitrator issued a Final Award. Despite the Company, along with Mr. Wilhide and Mr. Brothers collectively prevailing on 30 of 32 claims, the arbitrator named ATD the prevailing party and awarded ATD $135,194 in attorney fees and $38,909 in expenses. ATD has received payment in full and the matter has concluded.

Valley Forge Composite Technologies, Inc., a Florida corporation, and Lou Brothers vs. Debra Elenson, Scott Heiken and Lori Heiken, Case No. 11-42629 (CA) 25 (Fla. 11 th Jud. Cir.)

On December 19, 2011, the Company filed a Complaint in the Circuit Court for the 11th Judicial District in and for Miami-Dade County, Florida against Debra Elenson, Scott Heiken and Lori Heiken (“Defendants”). The complaint seeks in excess of $15,000 in damages incurred by the Company by reason of the malicious prosecution of two earlier lawsuits the Defendants filed against the Company in 2009, those lawsuits concluded favorably for the Company when the Defendants each filed Notices of Dismissal with Prejudice in April 2010 resulting in Orders of Dismissal being signed by the Honorable Ronald Dresnick on April 20, 2010.

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

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure (Not Applicable)

Item 5. Other Information

Agreement in Principle for THOR sale

On May 30, 2012, the Company announced that it had reached an agreement in principle with Symmetry, a private U.S. based company that is negotiating an agreement with a Latin American government for the first commercial development, delivery and maintenance of a THOR LVX photonuclear detection system. The Company has funded $300,000 for the posting of a bond, which is a step necessary to signing the agreement. Symmetry executed an unsecured promissory note evidencing the $300,000 loan the Company made to Symmetry. Under the terms of the note, which bears no interest, Symmetry must repay the loan in full on or before May 29, 2013. Under the proposed terms of the agreement, the agreement would be for a five-year term, with the Company to receive an initial payment for the system and ongoing monthly revenue on a per-scan basis. The Company estimates that the total value of the agreement, including ongoing fees on a per-scan basis, would exceed $5 million, with revenue to be collected as milestones of the project are completed and from ongoing scan fees. Management is in discussions with several potential partners to help finance the agreement. There is no assurance that the agreement will be finalized.

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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

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: November 14, 2012	By:	/s/ Louis J. Brothers
		Louis J. Brothers
		President, Secretary and Treasurer (Principal Accounting Officer and Authorized Officer

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