U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-22273
FORCE PROTECTION, INC.
----------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1383888
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
9801 Highway 78, #3, Ladson South Carolina 29456
---------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number: (843) 740-7015
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par
Value
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) been subject to such filing requirements
for the past 90 days. Yes -- x No.
--- ---
As of March 31, 2004, the Registrant had 151,454,698 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes -- No X.
----
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
REORT ON REVIEW BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT 3
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004 4
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2004 AND MARCH 31, 2003 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2004 AND MARCH 31, 2003 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors
Force Protection, Inc. and Subsidiary
We have reviewed the accompanying consolidated balance sheet of Force
Protection, Inc., and Subsidiary (formerly known Sonic Jet Performance, Inc.) as
of March 31, 2004 and the related statements of consolidated operations and cash
flows for the three months ended March 31, 2004 and 2003 included in the
accompanying Securities and Exchange Commission Form 10-QSB for the period ended
March 31, 2004. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
the objective of which is the expression of an opinion regarding the financial
statements as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet as of December 31, 2003, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein). In our report dated March
2, 2004, we expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance sheet as of
March 31, 2004 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC.
Denver, Colorado
May 14, 2004
3
FORCE PROTECTION
CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(Unaudited)
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,210,137
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,888
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,409
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,599
-------------
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,606,032
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,824
-------------
Other Assets
--------------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359,023
-------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,965,056
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,033,013
Accrued payroll taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,514
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,260
-------------
General reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,234
-------------
Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,304
Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373,325
-------------
Long term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,404
-------------
Subordinated notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
-------------
Shareholder's Equity:
Common, no par value, 300,000,000 authorized, issued and outstanding 151,454,698. 20,780,074
-------------
Preferred, no par value
Series B convertible preferred (10 shares issued and outstanding) . . . . . . . 25,000
Series C convertible preferred (115 shares issued and outstanding) . . . . . . . 1,230,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,900,444)
Additional Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,317,197
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,453,327
-------------
Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . $ 3,965,056
=============
The accompanying notes are an integral part of these financial statements
4
FORCE PROTECTION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2004
---------------- ---------------
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,349 1,642,853
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,753 1,232,037
---------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135,404) 410,816
---------------- ---------------
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . 1,648,528 1,603,953
---------------- ---------------
Profit (loss) from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,783,932) (1,193,136)
---------------- ---------------
Other income(expense)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,458 37,012
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,195) (40,314)
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 (3,303)
---------------- ---------------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,783,669) (1,196,439)
================ ===============
Basic loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) (0.008)
================ ===============
Diluted loss per shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) (0.005)
================ ===============
Weighted average common shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,152,071 144,161,083
================ ===============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,784,564 233,495,731
================ ===============
* Taken from the weighted average common shares outstanding as at the end of 03/31/03
The accompanying notes are an integral part of these financial statements
5
FORCE PROTECTION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2004
-------------------- --------------------
Cash Flows From Operating Activities:
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,783,669) $ (1,191,454)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 77,159 31478
Common stock issued for services . . . . . . . . . . . . . . . . . . . 1,004,617
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,039)
Royalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Changes in assets and liabilities:
(Increase) in accounts receivable. . . . . . . . . . . . . . . . . . 25,532 (3,956)
(Increase) in inventories. . . . . . . . . . . . . . . . . . . . . . (2,128,674) 630,738
(Increase) Decrease in other assets. . . . . . . . . . . . . . . . . (9,155) 20,212
(Decrease) Increase in accounts payable. . . . . . . . . . . . . . . 301,299 317,947
(Decrease) Increase in payroll liabilities . . . . . . . . . . . . . (13,251) 4,688
(Decrease) Increase in accrued expenses &deferred revenue. . . . . . 1,415,294 (233,234)
-------------------- --------------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . (683,782) 767,873
-------------------- --------------------
Net Cash Used in Operating Activities. . . . . . . . . . . . . (1,099,887) (423,581)
-------------------- --------------------
Cash Flow From Investing Activities:
Purchase of equipment . . . . . . . . . . . . . . . . . . . . . . . . . (4,460) (49,955)
-------------------- --------------------
Proceeds from sale of property and equipment
Net Cash Provided By Investing Activities. . . . . . . . . . . (4,460) (49,955)
-------------------- --------------------
Cash Flow From Financing Activities:
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . 977,230 216,000
Proceeds from convertible preferred stock . . . . . . . . . . . . . . . (20,000) (28,000)
Short-term debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,526 (527,500)
Payments from capitalized lease obligations
Long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (6,653)
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (14,376)
Additional Paid -in - Capital 3,758,772
-------------------- --------------------
Net Cash Provided By Financing Activities. . . . . . . . . . . 1,461,103 469,528
-------------------- --------------------
Effect of exchange rate on cash . . . . . . . . . . . . . . . . . . . . . - -
Increase in Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356,756 2,931,360
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,476 278,777
-------------------- --------------------
Ending Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 501,232 $ 3,210,137
==================== ====================
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,746 $ 40,314
==================== ====================
Income Tax Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
==================== ====================
The accompanying notes are an integral part of these financial statements
6
FORCE PROTECTION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Force Protection, Inc. and Subsidiary, the
accompanying un-audited consolidated financial statements include all normal
adjustments considered necessary to present fairly the financial position as of
March 31, 2004, and the results of operations and cash flows for the three
months ended March 31, 2004 and 2003. Interim results are not necessarily
indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-QSB, and do not contain certain information included in the Force
Protection's audited consolidated financial statements and notes for the fiscal
year ended December 31, 2003.
NOTE 2 - FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant inter-company balances,
transactions, and stockholdings have been eliminated.
NOTE 3 - INVENTORIES
Inventories at March 31, 2004 consisted of the following:
Raw materials and supplies $ 4,420
Work in process 139,478
Finished goods 52,701
Less provision 0
---------
Total $ 196,599
==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2004 consisted of the following:
Furniture and fixtures $ 92,209
Machinery and equipment 316,990
Tooling - new products 104,797
Vehicles 500
Demo vehicles 192,530
--------
707,026
Less accumulated depreciation and
amortization (348,003)
--------
Total $ 359,023
==========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease
-----
The Company leases its principal executive offices with Technical solutions
Group in Ladson, South Carolina.
Technical Solutions Group, Inc. has a long-term lease of five years giving it a
stable base for future planning. The term of the lease is five years starting
October 15, 2003, with an option to renew for another five years. The space
substantially increases the Company's ability to qualify for and fulfill larger
contracts for its mine-protected vehicles. Annual rent is $215,000 for the
first year plus utilities, taxes and maintenance, and $258,000 base rental for
the next four years.
7
Employment Agreements
----------------------
The Company anticipates formally establishing an executive and management
compensation plan. The current compensation in cash for the Company's executive
officers and managers is as follows: Mr. Kavanaugh - $180,000, Mr. Thebes -
$95,000, plus an allowance of $1,500, Mr. Watts $180,000 plus an expense
allowance, Mr. Barrett - $120,000. Executive officer compensation is subject to
review on a periodic basis by the Board of Directors.
Sonic Jet Performance, Inc. entered into an employment agreement with Walter
Wright on April 1, 2003. Mr. Wright functions as the Company's investor
relations coordinator and is paid an annual salary of $60,000. Mr. Wright's
employment agreement will expire on July, 31, 2004.
Royalty/Licensing Agreements
-----------------------------
On April 1, 2004, the Company entered into a new royalty agreement with J.J. van
Eck covering the Typhoon - Long design. The Company will pay Mr. Van Eck $500.00
per vehicle sold based on the Typhoon - Long design he provided if used.
NOTE 6 - OTHER TRANSACTIONS
Capital Stock Transactions
----------------------------
During the three months ended March 31, 2004, the Company issued an aggregate of
8,217,500 restricted shares of its common stock for the exercise of warrants
generating $743,750 per a private placement offering dated April 10, 2002.
During the period of February 1, 2004 to March 31, 2004, the Company issued a
total of 600,185 restricted shares of common stock to two consultants for
services to be rendered to the Company.
During the three months ended March 31, 2004, the Company issued 25 Series C
preferred shares in exchange for settlement of long-term debt - $250,000,
finalizing May 7, 2004.
On March 23, 2004, the Company closed on a private offering. This offering,
sold to six accredited investors, consisted of the following:
(a) 15,000,000 shares at $0.20 per share; generating $2,670,000 net proceeds.
(b) An "A" Warrant for each share purchased, exercisable at $0.24 per share.
The "A" Warrants expire March 23, 2006; and
(c) A "Green Shoe" warrant for each share purchased, exercisable at $0.20 per
share for a period of 180 days after the effective date of the registration
statement, commencing on the effective date of the registration statement.
During the three months ended March 31, 2004, 15 shares of Series C preferred
stock were converted into common stock and 225,000 common shares were cancelled.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with our financial
statements and the notes thereto contained elsewhere in this report.
Critical Accounting Policies
The Securities and Exchange Commission has issued Financial Reporting release
No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," or FRR 60, suggesting companies provide additional disclosure and
commentary on their most critical accounting policies. In FRR 60, the SEC
defined the most critical accounting policies as the ones that are most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. The methods, estimates and judgments we use in applying
these most critical accounting policies have a significant impact on the results
we report in our financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
As a general rule, financial information is accounted for and based on cost, not
current market value. Revenues and gains should be matched using the accrual
method with the expenses giving rise to the revenues and gains to determine
earnings for the period. Expenses are necessarily incurred to produce revenue.
Expenses are then "matched" in the same accounting period against the revenue
generated. Revenues are recognized when they are earned and expenses are
recognized in the same period as the related revenue (matching or using a
systematic and rational allocation or expensing in the period in which they
expire), not necessarily in the period in which the cash is received or expended
by the company. Other areas include:
Inventories
Inventories are stated at the lower of cost or market. The cost is determined
under the first-in-first-out method base (FIFO) valuation method.
Goodwill
Under SFAS No. 142. Goodwill and other Intangible Assets, all goodwill
amortization ceased effective Jan.1, 2002. Rather, goodwill is now subject to
only impairment reviews. A fair-value based test is applied at the reporting
level. This test requires various judgments and estimates. A goodwill
impairment loss will be recorded for any goodwill that is determined to be
impaired. Goodwill is tested for impairment at least annually.
9
We acquired Goodwill, which represents the excess of purchase price over fair
value of net assets, in the acquisition of Technical Solutions Group, Inc. in
June 2002. We follow SFAS 142, Goodwill and Intangible Assets, which requires us
to test goodwill for potential impairment annually. When the carrying value
exceeds fair value, the impairment is the difference between the carrying value
of goodwill and the implied value. The implied value of goodwill is the
difference between the fair value for the unit as a whole and the value of
individual assets and liabilities using an "as-if" purchase price.
Loss per Share
We utilize SFAS No. 128, "Earnings per Share." Basic loss per share is computed
by dividing loss available to common stockholders by the weighted-average number
of common shares outstanding. Diluted loss per share is computed similar to
basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.
Revenue Recognition
Our revenues are derived principally from the sale of blast and mine-protected
vehicles. Revenue from products and services are recognized at the time goods
are shipped or services are provided to the customer, with an appropriate
provision for returns and allowances. The estimated sales value of performance
under fixed-price and fixed-price incentive contracts in process is recognized
under the percentage-of-completion method of accounting in which the estimated
sales value is determined on the basis of physical completion to date (the total
contract amount multiplied by percent of performance to date less sales value
recognized in previous periods) and cost (including general and administrative)
are expensed as incurred. It is our policy to not recognize revenue until
customer acceptance and shipment to the customer. All advance payments are
treated as "deferred revenue".
Research and Development
We expense research and development cost as incurred.
Comparison of Three Months Ended March 31, 2004 and 2003.
The following table sets forth our consolidated statements of operations:
10
THREE MONTHS ENDED MARCH 31,
2003 2004
------------- -------------
Sales $96,349 $1,642,853
Cost of sales 231,753 1,232,037
Gross profit (loss) (135,404) 410,816
Selling, general and administrative 1,648,527 1,603,953
Income/(Loss) from operations (1,783,932) (1,193,136)
----------- ------------
Interest expenses (14,195) (40,314)
Other income 14,458 37,012
---------- -----------
Total other income (expense) 263 (3,303)
---------- -----------
Net income/(loss) $(1,783,669) $(1,196,439)
------------ -----------
Basic loss per share $(0.02) $ (0.008)
Diluted loss per share $(0.02) $ (0.005)
Weighted-average common shares
Basic 78,152,071 144,161,083
Diluted 99,784,564 233,495,731
Net sales for the three months period ended March 31, 2004 increased by
$1,546,504 or 16.1 times 2003 sales compared to three months period ended March
31, 2003. Sales during the first quarter of 2004 were strongly influenced by
2003 orders finalized during the quarter. Final shipment of the first Buffalo
order and spares attributed to the increase in sales.
Cost of sales for 2004 was $1,232,037, or 74.99% of sales, compared to 240.6%
of sales in 2003. During the first quarter of 2003, manufacturing period
costs were high in comparison to sales due to the start up of a government
contract. The cost of goods sold in the first quarter of 2004 were higher than
we have experienced in the past due to the percentage of spares shipments in
relation to product sales.
Selling, General and Administrative expenses for 2004 decreased slightly by
$44,575 to $1,603,953 compared to $ 1,648,528 for 2003. Incremental Research &
Development expenditures of $501,850 during the first quarter of 2004 as
compared to $0 during 2003 attributed to the relative flat spending between the
two periods. Excluding Research & Development expenditures, Selling, General &
Administrative spending, normalized was $1,102,103 or 66.8% of the 2003 run
rate. Actual marketing expenses increased by $62,847 during the first quarter
of 2004, due to increased potential customer presentations. During the first
quarter of 2004 we incurred $300,000 of commission fees on the $3,000,000 of
raised capital.
During the quarter ended March 31, 2004, other income was $36,021. Inactive
accounts payable of $29,048 were settled and an overstated Notes payable of
$6,861 was corrected. We earned $1,103 interest income. Bank charges of $708,
Loan interest of $610 and factoring expenses of $37,701 accounted for the
majority of the $40, 314 of interest expense for the quarter.
Net Loss for three months ended March 31, 2004 was $1,196,436, which decreased
by $587,230 from $1,783,669 during the three months period ended March 31,
2003. The decrease is attributed to cost control and the discontinued boat
operations. Research & Development activities, fund raising and demonstration
expenses accounted for an incremental $864,697 erosion of net income. Excluding
these expenses, net loss would have been $331,742.
11
Business segment analysis of the three months ended March 31, 2004:
10-QSB Segment Information (000's) (approximate)
TSG Corp Total
--------------- ----- ------------ ----------- ----------------
Sales 1,679 1,679
Cost of sales 1,232 1.232
------------ ----------- ----------------
Gross profit 411 411
G.P. % 24.4% 24.4%
SG&A 1,077 527 1,604
--------------- ----- ------------ ----------- ----------------
Segment P&L (669) (527) 1,196
------------- ------- ------------ ----------- ----------------
Mine and blast protected vehicles provided approximately 100% of the total
sales and 100% of the total cost of goods sold.
Going Concern
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements, during the year ended December 31, 2003, we incurred losses of
$5,321,623 and our current liabilities exceed our current assets by $360,652.
During the quarter ended March 31, 2004, we incurred losses of $1,196,439,
however current assets exceeded current liabilities by $2,253,207.
Realization of a major portion of the assets in the accompanying balance sheet
is dependent upon our continued operations, obtaining additional financing, and
the success of our future operations.
Due to the nature of our business it is uncertain whether we will receive orders
impeding our cash situation and our ability to pay creditors.
Liquidity and Capital Resources
As of March 31, 2004, cash and cash equivalents were $ 3,210,136 compared to
$271,293 as of December 31, 2003. Our principal sources of capital have been
cash flow from operations, warrant exercises, and the sale of common stock.
Operating Activities
The cash used by operating activities for the year ended March 31, 2004 was
$423,581, as compared to $1,099,887 for the quarter ended March 31, 2003. The
cash used can be attributable primarily to funding ongoing operations and the
development of the Typhoon - Long. The large decrease is primarily the result of
a reduction in inventory of $630,738.
12
Investing Activities
Our capital expenditures for the three months ended March 31, 2004 were $49,955,
related to investments in office and manufacturing equipment. We anticipate
that our capital expenditures during 2004 will increase significantly due to
contract awards, the improvement of operating efficiencies, and additional
manufacturing capacity.
Financing Activities
On March 23, 2004, we closed on a private offering. This offering, sold to six
accredited investors, consisted of the following:
(a) 15,000,000 shares at $0.20 per share;
(b) an "A" Warrant for each share purchased, exercisable at
$0.24 per share. The "A" Warrants expire March 23, 2006; and
(c) A "Green Shoe" warrant for each share purchased,
exercisable at $0.20 per share for a period of 180 days after
the effective date of the registration statement, commencing on
the effective date of the registration statement.
We generated proceeds of $3,000,000 from the sale of common stock. Commission
expense and fees totaled $330,000, generating net proceeds of $2,670,000.
During the three months period ended March 31, 2004, we received $743,750
through the exercise of warrants that were originally issued pursuant to an
addendum to the private placement memorandum dated April 10, 2002. $0.01 and
$0.10 warrants were exercised yielding $543,750. $0.20 warrants were exercised
yielding $200,000.
We repaid 3 promissory notes during the first quarter of 2004, finalized as of
May 7, 2004 by receipt of all the required paperwork, totaling $400,000 of
principle, all interest was forgiven. $150,000 of cash was repaid and 25 Series
C preferred shares were issued to settle all 3 promissory notes.
On September 20, 2003, we entered into an Investment Agreement with
Dutchess Private Equities Fund, also referred to as an Equity Line of
Credit. That agreement provides that, following notice to Dutchess, we may put
to Dutchess up to $3.5 million in shares of our common stock for a purchase
price equal to 93% of the lowest closing bid price on the Over-the-Counter
Bulletin Board of our common stock during the five day period following that
notice. Each put will be equal to either (a) 200% of the average daily volume of
our common stock for the 10 trading days prior to the put notice date,
multiplied by the average of the three daily closing best bid prices
immediately preceding the Put or (b) $10,000; provided that in no event will
the Put Amount be more than $1,000,000 with respect to any single Put. Under
the March 23, 2004 Private Placement we have agreed not to utilize the Equity
Line for a period of 6 months following the effective registration of the
shares underlying the Private Placement. The shares underlying the Private
Placement were registered on April 15, 2004.
On April 23, 2004 we announced award of a contract to deliver up to 27 Cougar
type vehicles. Initial deliveries are scheduled to ship September 2004.
Substantial cash will be required for the inventory build and capital
infrastructure negatively affecting liquidity and our current favorable cash
position. We expect to receive progress payments during production and except
to receive final payment per unit shipped within 45 days of acceptance by our
customer.
13
At the present time, we are not generating sufficient revenue to cover expenses.
Based on our current operating plan, we anticipate that additional financing
will be required to finance our operations and capital expenditures in 2004.
Accordingly, our future liquidity will depend on our ability to obtain necessary
financing from outside sources and our ability to execute our contract awards.
We currently believe that we have sufficient cash to continue for the next 8
months.
Our currently anticipated levels of revenues and cash flow are subject to many
uncertainties. Further, unforeseen events may occur that will require us to
raise additional funds. The amount of funds we need will depend upon many
factors, including without limitation, the extent and timing of sales of our
products, future product costs, the timing and costs associated with the
establishment and/or expansion, as appropriate, of our manufacturing,
development, engineering and customer support capabilities, the timing and cost
of our product development and enhancement activities and our operating results.
Until we generate cash flow from operations that will be sufficient to satisfy
our cash requirements, we will need to seek alternative means for financing our
operations and capital expenditures and/or postpone or eliminate certain
investments or expenditures. Potential alternative means for financing may
include leasing capital equipment, obtaining a line of credit, or obtaining
additional debt or equity financing. Additional financing may not be available,
or available on acceptable terms. The inability to obtain additional financing
or generate sufficient cash from operations could require us to reduce or
eliminate expenditures for capital equipment, research and development,
production or marketing of our products, or otherwise curtail or discontinue our
operations, which could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, if we raise funds
through the sale of additional equity securities, the common stock currently
outstanding will be further diluted.
Inflation
We do not believe that inflation has had or is likely to have any significant
impact on our operations. However, with the current shortage of some types of
steel, the price of steel may increase significantly and could affect
profitability.
Forward Looking Statements
This report, including the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements, including statements regarding, among other items, our business
strategies, continued growth in our markets, projections, and anticipated trends
in our business and the industry in which we operate. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-looking
statements are based largely on our expectations and are subject to a number of
risks and uncertainties, certain of which are beyond our control. We caution
that these statements are further qualified by important factors that could
cause actual results to differ materially from those in the forward-looking
statements, including, among others, the following: reduced or lack of increase
in demand for our products, competitive pricing pressures, changes in the market
price of ingredients used in our products and the level of expenses incurred in
or operations. In light of these risks and uncertainties, the forward-looking
information contained herein may not in fact transpire or prove to be accurate.
We do not intend to update any forward-looking statements, except as required by
law.
14
ITEM 3. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that
material information relating to us, including our consolidated subsidiary, is
made known to the officers who certify our financial reports and to other
members of senior management and the Board of Directors.
9(a) Evaluation of disclosure controls and procedures. Our management,
with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this Quarterly Report on
Form 10-QSB. Based on this evaluation, our principal executive officer
and principal financial officer concluded that these disclosure controls
and procedures are effective and designed to ensure that the information
required to be disclosed in our reports filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the requisite time periods.
9(b) Changes in internal controls. There was no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended) that
occurred during our last fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over
financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 26, 2003, Albert Mardikian, a shareholder and holder of certain designs
and components, filed a complaint against us in the Orange Country Superior
Court. The complaint alleges breach of contract of the license agreement dated
December 27, 2001 between Mr. Mardikian, Mardikian Marine Design, and us. The
complaint further alleges breach of an employment and agency agreement between
Mr. Mardikian and us, and fraud, conversion and unfair competition. We have
filed an answer denying these allegations, and on July 28, 2003 filed a
cross-complaint against Mr. Mardikian and Mardikian Marine Design. While we
believe that the matter will be resolved in our favor, this case is scheduled
for mediation on June 2, 2004 and we can not predict an outcome at this time.
If we receive an unfavorable ruling, there is a possibility of a material
adverse impact of money damages on our financial condition, results of
operations, or liquidity of the period in which the ruling occurs, or future
periods.
In July 2003, Peggy Gonzales and Edward Huerta filed a claim against us in the
Cameron County District Court in Brownsville, Texas. The claim relates to a
vortex boat purchased by the plaintiff and alleges vessel defects. The claim is
for unquantified damages. While this case is still in the early stages and it is
difficult to predict the outcome, we currently believe the matter will be
resolved with no material impact on our business or results of operations.
On March 22, 2004, the Utah Division of Securities submitted to us an Order to
Show Cause in an action before the Division of Securities of the Department of
Commerce of the State of Utah pertaining to an alleged sale of our securities in
Utah by an unlicensed broker-dealer and unlicensed agent. The Utah Division of
Securities is currently seeking a $1,000 fine in connection with this matter.
We believe this matter will be resolved with no material impact on our business
or results of operations.
15
We have received communications from the Rhode Island Securities Division
pertaining to an alleged sale of our securities in Rhode Island by an unlicensed
broker-dealer and unlicensed agent. We believe this matter will be resolved
with no material impact on our business or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
We sold the following unregistered (restricted) securities during the quarter
ended March 31, 2004:
(a) From January 1, 2004 through March 31, 2004, we issued a total of
8,217,500 shares of common stock to exercise warrants, valued at a total of
$743,750.4 (average of $0.0905 per share).
(b) On March 18, 2004, we issued a total of 15,000,000 shares of common
stock to six investors in connection with a private placement, valued at a total
of $3,000,000 ($0.20 per share).
(c) On February 28, 2004, we issued a total of 100,185 shares of common
stock, valued at $12,022 to one consultant as compensation. March 10, 2003, the
Company issued a total of 500,0000 shares of common stock to one consultant as
compensation in such capacity, valued at a total of $100,000 ($0.20 per share).
The sales set forth above were undertaken under Rule 506 of Regulation D
under the Securities Act of 1933, as amended ("Act"), by the fact that:
- the sales were made to a sophisticated or accredited investors, as defined
in Rule 502;
- the Registrant gave each purchaser the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and to
obtain any additional information which the Registrant possessed or could
acquire without unreasonable effort or expense that is necessary to verify
the accuracy of information furnished;
- at a reasonable time prior to the sale of securities, the Registrant
advised each purchaser of the limitations on resale in the manner contained
in Rule 502(d)2;
- neither the Registrant nor any person acting on its behalf sold the
securities by any form of general solicitation or general advertising; and
- the Registrant exercised reasonable care to assure that each purchaser of
the securities is not an underwriter within the meaning of Section 2(11) of
the Securities Act of 1933 in compliance with Rule 502(d).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
ITEM 5. OTHER INFORMATION
During the first quarter, we announced the appointments of Michael Aldrich as
Vice President-Sales and Murray Hammock as Vice President - Project Management.
On March 31, 2004 we announced that our subsidiary, Technical Solutions Group,
subsidiary signed a non-exclusive agreement with U.S. Marketing Group LLC to
develop a commercial U.S. distribution channel for its Lion, a ballistic and
blast protected vehicle with the protection necessary to deter carjacking and
able to resist most threats that might be experienced in the United States -
including small arms fire and homemade explosives or bombs.
On April 23, 2004, we announced that our subsidiary, Technical Solutions Group,
was awarded a contract to manufacture and deliver up to 27 Cougar type mine and
ballistic protected vehicles. The 27 vehicles, training programs and consumable
spare parts have a total value of $9.7 million. Initial deliveries are scheduled
to begin in September 2004 and all of the initial release will be delivered
before the end of the year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibits included or incorporated by reference herein are set forth in the
attached Exhibit Index.
Reports on Form 8-K
On March 26, 2004, we filed a report on Form 8-K regarding our private
placement.
17
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Force Protection, Inc.
Dated: May 17, 2004 By: /s/ Thomas H. Thebes
-----------------------
Thomas H. Thebes,
Chief Financial Officer
EXHIBIT INDEX
Number Description
------ -----------
3.1 Articles of Incorporation for the Registrant (filed as Exhibit 3.(i) to the
Registrant's General Form for Registration of Securities of Small Business
Issuer on Form 10-SB filed on March 24, 1997 and incorporated herein by
reference).
3.2 Articles of Amendment to the Articles of Incorporation the Registrant dated
December 24, 1996 (filed as Exhibit 3.2 to the Registrant's Report on Form
10-KSB filed on March 15, 2002 and incorporated herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation for the Registrant
dated December 24, 1996 (filed as Exhibit 3.(iv) to the Registrant's Report
on Form 10-KSB filed on April 15, 1998 and incorporated herein by
reference).
3.4 Articles of Amendment to the Articles of Incorporation for the Registrant
(filed as Exhibit 3.(I) to the Registrant's Current Report on Form 8-K
filed on December 16, 1998 and incorporated herein by reference).
3.5 Bylaws for the Registrant (filed as Exhibit 3.(ii) to the Registrant's
General Form for Registration of Securities of Small Business Issuer on
Form 10-SB filed on March 24, 1997 and incorporated herein by reference).
4.1 Amendment to the Certificate of Designation for Series B Convertible
Preferred Stock dated December 20, 2002 (filed as Exhibit 10.7 to the
Registrant's Report on Form 10-KSB/A filed April 21, 2003 and incorporated
herein by reference).
4.2 Amendment to the Certificate of Designation for Series C Convertible
Preferred Stock dated November 14, 2002 (filed as Exhibit 10.1 to the
Registrant's Report on Form 10-QSB filed November 18, 2002 and incorporated
herein by reference).
4.3 Amendment to the Certificate of Designation for Series B Convertible
Preferred Stock (filed as Exhibit 10.4 to the Registrant's SB-2 filed on
February 11, 2004 and incorporated herein by reference).
4.4 Certificate of Designation for Series A Convertible Preferred Stock (filed
as Exhibit 7.4 to the Registrant's Current Report on Form 8-K filed July 6,
1998 and incorporated herein by reference).
4.5 Certificate of Designation for Series B Convertible Preferred Stock (filed
as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed January
7, 2002 and incorporated herein by reference).
4.6 Certificate of Designation for Series C Convertible Preferred Stock (filed
as Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed January
7, 2002 and incorporated herein by reference).
10.1 Investment Agreement between the Registrant and Dutchess Private Equities
Fund, L.P., dated January 26, 2004 (filed as Exhibit 10.8 to the
Registrant's SB-2 filed on January 27, 2004 and incorporated herein by
reference).
10.2 Registration Rights Agreement between the Registrant and Dutchess Private
Equities Fund, L.P., dated January 26, 2004 (filed as Exhibit 10.9 to the
Registrant's SB-2 filed on January 27, 2004 and incorporated herein by
reference).
10.3 Placement Agent Agreement between the Registrant, Charleston Capital, LLC,
and Dutchess Private Equities Fund, L.P., dated January 27, 2004 (filed as
Exhibit 10.10 to the Registrant's SB-2 filed on January 27, 2004 and
incorporated herein by reference).
10.4 Form of Subscription Agreement between the Registrant and Gamma Opportunity
Capital Partners, LP, Longview Fund, LP, Alpha Capital Aktiengesellschaft,
Domino International Ltd, Magellan International Ltd, and Mountain Ridge
Capital LLC dated March 23, 2004 (filed as Exhibit 4 to the Registrant's
Form 8-K filed on March 26, 2004 and incorporated herein by reference).
10.5 Employment Offer Letter between the Registrant and Frank Kavanaugh dated
March 31, 2003 (filed as Exhibit 10.16 to the Registrant's Report on Form
10-KSB/A filed on April 21, 2003 and incorporated herein by reference).
10.6 Employment Offer Letter between the Registrant and Michael Watts dated June
20, 2002 (filed as Exhibit 10.1 to the Registrant's Report on Form 10-QSB
filed on November 18, 2003 and incorporated herein by reference).
10.7 Employment Offer Letter between the Registrant and Walter Wright dated
April 1, 2003 (filed as Exhibit 10.1 to the Registrant's Report on Form
10-KSB/A filed on April 21, 2003 and incorporated herein by reference).
10.8 Sonic Jet Corporation 2000 Stock Option Plan & Advisory and Consulting
Agreement dated May 1, 2000 (filed as Appendix A to the Registrant's
Information Statement on Form 14(c) filed June 30, 2000 and incorporated
herein by reference).
10.9 Series B Convertible Preferred Stock Purchase Agreement between the
Registrant and Ashford Capital, LLC dated December 27, 2001 (filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K on January 7,
2002 and incorporated herein by reference).
10.10 Series C Convertible Preferred Stock Purchase Agreement between eFund
Capital Partners, LLC, and the Registrant dated December 27, 2001(filed as
Exhibit 10.2 to the Registrant's Current Report on Form 8-K on January 7,
2002 and incorporated herein by reference).
10.11 Modification of Business Asset Sale, License Agreement & Assignment of
Rights between the Registrant and Rockwell Power Systems, Inc., dated
September 15, 2003. (filed as Exhibit 2.3 to the Registrant's Form 10-QSB
filed on November 18, 2003 and incorporated herein by reference).
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.