UNITED STATES
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 SEPTEMBER 30, 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
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 September 30, 2004, the Registrant had 196,471,310 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
REPORT ON REVIEW BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT 3
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004 4
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 9
ITEM 3. CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. UNREGISTERED SALES OF EQUITY 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 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 September 30, 2004 and the related statements of consolidated operations for
the three and nine months ended September 30, 2004 and 2003 and the consolidated
statements of cash flows for the nine months ended September 30, 2004 and 2003
included in the accompanying Securities and Exchange Commission Form 10-QSB for
the period ended September 30, 2004. These consolidated 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
and standards of the PCAOB, 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, conditions
exist which raise substantial doubt about the Company's ability to continue as a
going concern unless it is able to generate sufficient cash flows to meet its
obligations and sustain its operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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
September 30, 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
November 15, 2004
FORCE PROTECTION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(Unaudited)
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 548,781
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,237,718
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,410
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,783,471
-------------
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,840,380
Other Assets
--------------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Fixed Assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085,155
-------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,925,535
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,429,702
Accrued payroll taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,666
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,374,970
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,873
-------------
General reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792,950
-------------
Loans payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,233,162
-------------
Long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,448
-------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,347,610
-------------
Shareholder's Equity:
Common, no par value, 300,000,000 authorized, issued and outstanding 196,471,310. 20,922,574
Preferred, no par value
Series B convertible preferred (8 shares issued and outstanding) . . . . . . . 80,000
Series C convertible preferred (119 shares issued and outstanding) . . . . . . . 1,428,000
Retained earnings, Includes 2004 Net Income /(loss). . . . . . . . . . . . . . . . (28,085,030)
Additional Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,230,881
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
------------
Shareholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,577,925
-------------
Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . $ 12,925,535
=============
The accompanying notes are an integral part of these financial statements
FORCE PROTECTION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------- -----------------------------
2003 2004 2003 2004
------------------- ------------------ ------------ --------------
Revenues . . . . . . . . . . $ 2,738,901 $ 93,727 $ 3,442,035 $ 1,752,158
Cost of Sales. . . . . . . . 1,861,614 757,458 2,698,051 2,285,937
------------------- ------------------ ------------ --------------
Gross Profit . . . . . . . . 877,287 (663,732) 743,984 (533,779)
------------------- ------------------ ------------ --------------
Operating Expenses:
Selling, General &
Administrative . . . . . . 621,930 2,406,902 3,614,378 5,706,937
------------------- ------------------ ------------ --------------
Total Operating Expenses . . 621,930 2,406,902 3,614,378 5,706,937
------------------- ------------------ ------------ --------------
Loss from Operations . . . . 255,357 (3,070,634) (2,870,394) (6,240,716)
Restructuring Expense. . . . - - 514,499 -
------------------- ------------------ ------------ --------------
Profit (Loss) after
Restructuring Expense. . . . 255,357 (3,070,634) (3,384,893) (6,240,716)
Other Income/Expense
Other Income . . . . . . 16,869 1,608 (28,483) 38,352
Interest Expense . . . . (88,981) (167,766) (160,006) (193,699)
------------------- ------------------ ------------ --------------
Total Other Income (Expense) (72,112) (166,158) (188,489) (155,347)
------------------- ------------------ ------------ --------------
Net Loss . . . . . . . . . . $ 183,246 $ (3,236,792) $ (3,573,382) $ (6,396,063)
==================== =================== ============= ==============
Basic loss per share . . . . 0.0017 (0.020) (0.0367) (0.039)
==================== =================== ============= ==============
Diluted loss per shares. . . 0.0012 (0.011) (0.026) (0.021)
==================== =================== ============= ==============
Weighted average common
shares outstanding
Basic . . . . . . . . . . 109,885,783 162,571,326 97,542,491 162,571,3216
==================== =================== ============= ==============
Diluted . . . . . . . . . 150,008,346 306,377,195 137,665,054 306,377,195
==================== =================== ============= ==============
* Taken from the weighted average common shares outstanding as at the end of 09/30/04
The accompanying notes are an integral part of these financial statements
FORCE PROTECTION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2004
------------------- --------------------
Cash Flows From Operating Activities:
Net Loss . . . . . . . . . . . . . . . . . . . . . . . $ (3,573,382) $ (6,396,063)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . 138,546 117,180
Common Stock issued for services. . . . . . . . . . . 2,018,309 470,841
Warranty & royalties. . . . . . . . . . . . . . . . . - (117,434)
Restructuring expense . . . . . . . . . . . . . . . . - -
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . . . . . . (356,210) (2,092,786)
(Increase) in inventories . . . . . . . . . . . . . (1,819,497) (7,895,579)
(Increase) Decrease in other assets . . . . . . . . 103,514 (180,410)
(Decrease) Increase in accounts payable . . . . . . 266427 1,725,254
(Decrease) Increase in payroll liabilities. . . . . 50,284 10,840
(Decrease) Increase in accrued expenses & deferred
revenue . . . . . . . . . . . . . . . . . . . . . . . 1,095,876 6,274,105
(Decrease) Increase in reserves and other . . . . . (23,716) 730,000
------------------- --------------------
Total adjustments . . . . . . . . . . . . . . . 1,473,532 (1,395,351)
------------------- --------------------
Net Cash Used in Operating Activities . . . . . . . . . (2,099,849) (7,354,052)
-------------------- --------------------
Cash Flow From Investing Activities:
Purchase of equipment. . . . . . . . . . . . . . . . . (53,650) (893,267)
Proceeds from sale of property and equipment . . . . . - -
------------------- --------------------
Net Cash Provided By Investing Activities. . . . . . . (53,650) (893,267)
------------------- --------------------
Cash Flow From Financing Activities:
Proceeds from issuance of common stock . . . . . . . . 1,299,900 -
Proceeds from issuance of Preferred Stock. . . . . . . (20,000) -
Proceeds from use of Line of Credit. . . . . . . . . . - 1,500,000
Short term Debts . . . . . . . . . . . . . . . . . . . - (369,387)
Short term Loans and lease obligations . . . . . . . . 841,423 (90,774)
Long Term Liabilities. . . . . . . . . . . . . . . . . (99,279) (94,973)
Notes Payable. . . . . . . . . . . . . . . . . . . . . - (100,000)
Additional Paid-in-capital . . . . . . . . . . . . . . . - 7,672,457
------------------- --------------------
Net Cash Provided By Financing Activities. . . . . . . 2,022,044 8,517,323
-------------------- --------------------
Effect of exchange rate on cash. . . . . . . . . . . . . - -
Increase in Cash . . . . . . . . . . . . . . . . . . . . (131,455) 270,004
Beginning Balance (12/31/03 in reference to 2004). . . . 144,476 278,777
Ending Balance . . . . . . . . . . . . . . . . . . . . . 13,020 548,781
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
September 30, 2004, and the results of operations and cash flows for the three
months and nine months ended September 30, 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 subsidiaries. All significant inter-company balances,
transactions, and stockholdings have been eliminated.
NOTE 3 - INVENTORIES
We intend to implement a material resource planning (MRP) system during the
fourth quarter to further develop our control processes. Beginning July 2004, we
have set up an inventory loss reserve of $10,000 per month. To date, we have a
$30,000 reserve balance. Inventories at September 30, 2004 consisted of the
following:
Raw materials and supplies $8,520,708
Work in process 205,868
Finished goods 56,895
Less provision 30,000
---------
Total $8,753,471
==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2004 consisted of the following:
Furniture and fixtures $ 325,637
Machinery and equipment 969,776
Tooling - new products 16,790
Vehicles 10,110
Demo vehicles 192,530
--------
1,514,843
Less accumulated depreciation and
amortization (433,706)
--------
Total $1,081,137
==========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LEASES
------
The Company leases space in two buildings in Ladson, South Carolina for its
principal executive offices and manufacturing facilities. The term of the lease
for Building Three is five years starting October 15, 2003. Annual rent is
$215,000 for the first year plus utilities, taxes and maintenance, and $258,000
base rental for the next four years. The Company has 84,800 square feet of
space in Building Three.
The term of the lease for Building Two is five years starting July 15, 2004,
with an option to renew for another five years. Annual rent is $439,500 for the
first year plus utilities, taxes and maintenance, and $439,500 base rental for
the next four years, which may be adjusted by increases to the Consumer Price
Factor by three to seven percent. This additional lease of 142,500 square feet
gives the Company a stable base for future planning. The space substantially
increases the Company's ability to qualify for and fulfill larger contracts for
its mine-protected vehicles.
EQUIPMENT
---------
On July 15, 2004 Technical Solutions Group entered into a 60 month option lease
of $952.71 per month with Gregory Poole Lift Systems for a new Caterpillar
forklift.
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 -
$115,000, Mr. Barrett - $144,000. As part of employment agreements and bonus,
Mr. Thebes was awarded 1,500,000 shares of common stock and 4 Series C shares of
preferred convertible stock and Mr. Watts was awarded 20 Series C shares of
preferred convertible stock and 1,000,000 shares of common stock. Executive
officer compensation is subject to review by the Board of Directors.
Effective October 26, 2004, as the new Interim Chief Executive Officer, Gale
Aguilar will receive annual cash compensation of $180,000. Mr. Watts, as a
consultant, will receive his present monthly salary through a transition period
as approved by the Board of Directors.
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
per vehicle sold based on the Typhoon - Long design he provided, if used. The
license agreement expires when the Company no longer sells the Typhoon - Long
design.
NOTE 6 - OTHER TRANSACTIONS
CAPITAL STOCK TRANSACTIONS
----------------------------
During the three months ended September 30, 2004, the Company issued an
aggregate of 175,000 restricted shares of common stock for the exercise of
warrants generating $17,500. The warrants were issued in a private placement
that closed on April 10, 2002.
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 September 30, 2004, 4,650,000 "Green Shoe"
warrants were exercised at $0.12 generating $558,000. The Company issued
4,650,000 shares of common stock.
During the three months ended September 30, 2004, the Company issued 30 shares
of Series C Preferred Convertible stock and cancelled 1 share of Series B
Preferred Convertible stock. Additionally, the Company cancelled or converted
into common stock 20 shares of Series C Preferred Convertible stock.
During October, 2004 all outstanding shares of Series C Preferred Convertible
stock were either converted into Series B Preferred Convertible stock or into
shares of common stock. In total, 129 shares of Series C Preferred Convertible
stock were redeemed for 18.5 shares of Series B Preferred Convertible stock and
14,032,200 shares of common stock. As of November 2, 2004 there were no shares
of Series C Preferred Convertible stock outstanding. As of November 2, 2004,
there were 18.5 shares of Series B Preferred Convertible stock outstanding.
During the three months ended September 30, 2004, the Company issued a total of
2,800,000 restricted shares of common stock to one consultant for services to be
rendered to the Company related to the discontinued boat business valued at
$120,000 and two consultants for capital raise and internet public relations
valued at $280,000.
On September 14, 2004, the Company issued 75,000 warrants to Jeff Lesonsky for
marketing consulting work performed at an exercise price of $0.20 per share.
The Company owes an additional 400,000 warrant shares to Jeff Lesonsky valued at
$0.10 per share to expire December 31, 2004.
NOTE 6 - DEFERRED REVENUE
The Company recognizes revenue upon formal acceptance by the customer. The
Company has received progress / performance based payments from the U.S. Army
and U.S. Marines. The Company records these progress / performance based
payments as deferred revenue and carries them on the balance sheet as such until
shipment acceptance. As of September 30, 2004, the Company had $6, 354,970 as
deferred revenue resulting from two contracts, one from the U.S. Army (Buffalos)
and one from the U.S. Marines (Cougars) and $20,000 for the production of
another vehicle for commercial use.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis compares our results of operations for the
three and nine months ended September 30, 2004 to the same period in 2003. This
discussion and analysis should be read in conjunction with our consolidated
condensed financial statements and related notes thereto included elsewhere in
this report and our Form 10-KSB for the year ended December 31, 2003.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including,
without limitation, statements concerning possible or assumed future results of
operations and those preceded by, followed by or that include the words
"believes," "could," "expects," "intends" "anticipates," or similar expressions.
Our actual results could differ materially from these anticipated in the
forward-looking statements for many reasons including the risks described
elsewhere in this report. Although we believe the expectations reflected in the
forward-looking statements are reasonable, they relate only to events as of the
date on which the statements are made, and our future results, levels of
activity, performance or achievements may not meet these expectations. We do not
intend to update any of the forward-looking statements after the date of this
document to conform these statements to actual results or to changes in our
expectations, except as required by law.
OVERVIEW
We manufacture and distribute vehicles that protect and save lives and property.
Our subsidiary, Technical Solutions Group, Inc. manufactures and markets
military vehicles that are protected against landmines, hostile fire, and
Improvised Explosive Devices (commonly referred to as roadside bombs). We
believe our mine and ballistic protection technology is among the most advanced
in the world. The vehicles are manufactured outside Charleston, SC.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission 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.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003.
The following table sets forth our consolidated statements of operations:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------- -----------------------------
2003 2004 2003 2004
-------------------- ------------------- ------------- --------------
Revenues. . . . . . . . . . . . . . . . . . $ 2,738,901 $ 93,727 $ 3,442,035 $ 1,752,158
-------------------- ------------------- ------------- --------------
Cost of sales . . . . . . . . . . . . . . . 1,861,614 757,458 2,698,051 2,285,937
-------------------- ------------------- ------------- --------------
Gross Profit (loss) . . . . . . . . . . . . 877,287 (663,732) 743,984 (533,779)
-------------------- ------------------- ------------- --------------
Selling, General & Administration . . . . . 621,930 2,406,902 3,614,378 5,706,937
-------------------- ------------------- ------------- --------------
Total Operating Expenses. . . . . . . . . . 621,930 2,406,902 3,614,378 5,706,937
-------------------- ------------------- ------------- --------------
Income / (loss) from operations . . . . . . 255,357 (3,070,634) (2,870,394) (6,240,716)
-------------------- ------------------- ------------- --------------
Restructuring Expense . . . . . . . . . . . - - 514,499 -
-------------------- ------------------- ------------- --------------
Profit (loss) after Restructuring Expense . 255,357 (3,070,634) (3,384,893) (6,240,716)
Other Income/Expense
Other income. . . . . . . . . . . . . . 16,869 1,608 (28,483) 38,352
Interest expense. . . . . . . . . . . . (88,981) (167,766) (160,006) (193,699)
-------------------- ------------------- ------------- --------------
Total other income (expense). . . . . . . . (72,112) (166,158) (188,489) (155,347)
-------------------- ------------------- ------------- --------------
Net income / (loss) . . . . . . . . . . . . $ 183,246 $ (3,236,792) $ (3,573,382) $ (6,396,063)
Basic loss per share. . . . . . . . . . . . 0.0017 (0.020) (0.0367) (0.039)
==================== =================== ============= ==============
Diluted loss per shares . . . . . . . . . . 0.0012 (0.011) (0.026) (0.021)
==================== =================== ============= ==============
Weighted average common shares outstanding
Basic. . . . . . . . . . . . . . . . . . 109,885,783 162,571,326 97,542,491 162,571,3256
==================== =================== ============= ==============
Diluted. . . . . . . . . . . . . . . . . 150,008,346 306,377,195 137,665,054 306,377,195
==================== =================== ============= ==============
OVERVIEW
The three and nine month periods ended September 30, 2004 we continued the ramp
up of our business and facilities to fulfill contracts with the U.S. Marines
and the U.S. Army valued at an aggregate of approximately twenty million sales
dollars. As of September 30, 2004, we had 134 employees, an increase of 105
employees from December 31, 2003. Additionally, as of September 30, 2004, we
had 16 operational production cells to manufacture our products compared to an
effective 2 cells at December 31, 2003. During the third quarter we spent
$217,817, and for the first nine months of the year, we spent $811,009, on
Research and Development to further strengthen our position as leaders in mine
and blast protection worldwide.
REVENUES
Revenues for the three and nine month periods ended September, 2004 were $93,727
and $1,752,158, respectively. Revenues for the three months ended September
30, 2004 decreased by $2,654,174 compared to the same period in 2003. Revenues
for the nine month period ended September 30, 2004 decreased $1,689,877 compared
to the same period in 2003. The decrease in revenues during the three and nine
month periods was due to the timing of awarded contracts and vendor part
delivery schedules. Revenues in the third quarter of 2004 were derived
primarily from the shipment of spare parts for our products. Shipments for both
the U.S. Army and U.S. Marines contracts began in October 2004. Our sales
backlog was $19,999,000 at September 30, 2004.
COST OF SALES
Cost of sales for the three and nine month periods ended September 30, 2004 were
$757,458 and $2,285,937, respectively. Cost of sales for the three months ended
September 30, 2004 compared to the same period in 2003 decreased by $1,104,156
as a result of the decrease in revenues. Cost of sales for the nine month
period ended September 30, 2004 compared to the same period in 2003 decreased by
$412,114. Cost of sales was 808.2% of sales for the three month period ended
September 30, 2004 compared to 68% for the same period in 2003. Cost of sales
was 130.5% of sales for the nine month period ended September 30, 2004 compared
to 78.4% for the same period in 2003. Manufacturing costs have increased as a
percentage of sales because, in 2004, most revenues were derived from the sale
of spare parts which have a higher cost of goods. Additionally, manufacturing
costs increased substantially as we increased spending in Engineering, Quality
Control and Integrated logistics Support ( ILS) to begin to fulfill two
government contracts. Indirect cost accounted for 92.7% of Cost Of Goods Sold
during the quarter ended September 30, 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses for the three and nine months ended
September 30, 2004 were $2,406,902 and $5,706,937, respectively. As compared to
the three and nine months periods ended September 30, 2003, Selling, General and
Administrative expenses increased $1,784,972 and $2,092,559, respectively.
Incremental Research & Development expenditures of $217,817 during the third
quarter of 2004 increased as compared to the moderate pace in the second quarter
as we added new projects and we completed phase 1 of the rapid production ramp
to satisfy our two new contracts. For the nine months ended September 30, 2004,
excluding Research & Development expenditures, Selling, General & Administrative
spending, normalized, was $4,895,927 or 135% of the 2003 run rate. We incurred
and accrued an incremental $703,215 of bonus and commissions paid in stock
compensation. Fringe expense has risen due to the increase in headcount of 105
people since the start of the year. During the quarter, we incurred $176,666 of
investor relations cost. A majority of this was associated with $42,000 for
marketing communications and $135,000 for fees associated with raising capital.
We incurred $287,500 corporate consulting fees for two consultants, TGR Group
LLC ( $160,000) for Internet Public relations and Robert Gayson ($120,000)
associated with the Sonic Jet boat business which was discontinued during fiscal
year 2003. Actual marketing expenses during the third quarter of 2004 were
$23,399 higher than normal due to conferences and show participation and
increased potential customer presentations. During the third quarter of 2004 we
incurred $130,000 of commission fees on the $2,600,000 of raised capital during
the second quarter of 2004.
OTHER INCOME / EXPENSE
Other Income / Expense for the three and nine months ended September 30, 2004,
was ($166,158) and ($155,347), respectively. For the three months ended
September 30, 2004, we settled inactive accounts payable of $51,931 and earned
interest income of $1,608. The interest expense for the three months ended
September 30, 2004 of $167,766 consisted of bank charges of $1,671 and factoring
and loan interest of $165,541. Interest expense for the nine months ended
September 30, 2004 was $193,699 consisting of $185,451 factoring and loan
interest charges and $7,247 of other bank charges and $1,000 of penalties.
NET INCOME / LOSS
Net Loss for three months ended September 30, 2004 was $3,236,792 which
increased $3,420,038 as compared to the September 30, 2003 gain of $183,246. For
the nine months ended September 30, 2004 the net loss was $6,396,063 an increase
of $2,822,681 as compared to the net loss of $3,573,382 for the nine months
ended September 30, 2003. The increase in net loss is attributed to the third
quarter production ramp up to fulfill two government contracts and to build
infrastructure. Our year to date, Research and Development activities, bonus and
commissions, fund raising and demonstration expenses accounted for an
incremental $2,683,595 erosion of net income. Excluding these expenses, net loss
would have been $3,712,468, $534,325 higher than the 2003 year to date run rate.
BUSINESS SEGMENT ANALYSIS OF THE THREE MONTHS ENDED SEPTEMBER 30, 2004:
10-QSB Segment Information (000's) (approximate)
TSG Corp. Total
--------------- ----- ------------ ----------- ----------------
Sales 93 93
Cost of sales 757 757
------------ ----------- ----------------
Gross profit (664) (664)
G.P. % (-)% (-)%
Selling General & Administrative 1,581 993 2,574
--------------- ----- ------------ ----------- ----------------
Segment Profit & Loss (2,245) (993) (3,238)
------------- ------- ------------ ----------- ----------------
Mine and blast protected vehicles and spares provided approximately 100% of the
total sales and 100% of the total cost of goods sold.
TRENDS, RISKS AND UNCERTAINTIES
During the third quarter of 2004 we continued to expand our business operations
to meet the increased demand for our products resulting from the orders placed
by the U.S. Army for 21 Buffaloes during the first quarter of 2004 and the order
placed during the second quarter by the U.S. Marine Corps for 14 Cougars
(with a possible additional 13 to come). As part of this expansion, during
2004, we increased our workforce by approximately 435% and increased the number
of our production "cells" by 800%. These infra-structure developments will
facilitate meeting our current obligations and will enhance our qualifications
to bid on future projects. The rapid pace of expansion created a number of
challenges and caused us to be slower than our originally anticipated projected
delivery schedule for the Buffaloes and the Cougars. However, we believe we
have overcome the major hurdles and are now in process of completing these
orders according to a revised delivery schedule. There is always some risk that
an unforeseen event could interrupt or negatively impact our production
operations, and under our contract with the U.S. Marines liquidated damages can
be assessed against us for delayed delivery of Cougars, however we believe that
we will be able to complete our current orders according to the revised delivery
schedule.
Overall, the expansion of our operations during 2004 has been part of a growth
trend that has carried us from a cramped facility in the old Charleston Navy
shipyards with capacity to produce only a single vehicle at a time, to our
present manufacturing plant with more than 200,000 square feet of production
area and a current production capacity of approximately 6-8 vehicles a month.
This growth is consistent with our business plan to position ourselves as the
leading manufacturer in the United States of blast and mine protected vehicles,
and we will continue to take appropriate steps to achieve this goal.
A major challenge facing us at present is satisfactory completion of our
existing orders. This is significant for two reasons; first, it will
demonstrate our ability to manufacture vehicles on a "production basis" (i.e.,
multiple vehicle sets built to a consistent specification, and according to a
predictable schedule) and thus position us for future orders, possibility on a
substantially larger scale than we have received to date. Second, as discussed
above, in accordance with accepted accounting practice, we have treated progress
payments received on our two main contracts as "deferred income", which means
that even though we have actually received progress payments totaling
$6,354,970, the revenue is not stated on our income statement. As a result, our
financial results for the nine month period ending September 30, 2004 show
revenues to date of $1,752,158, and a resulting loss from operations of
$6,240,716. When we complete and deliver the vehicles, we will be able to move
current deferred amounts from the "deferred revenue" category and book it as
direct revenue from operations.
In the past, we encountered some difficulties in securing the necessary
components for our vehicles, specifically steel and, from time-to-time, truck
chassis. In response, we have identified multiple vendors for certain
components so we have alternate sources of supply if necessary. Additionally,
we have implemented a program of advance purchasing and stockpiling critical
materials. For example, we currently have pre-purchased steel and truck parts
to ensure availability of material needed for current and potential future
orders. It is also possible that, even if we can continue to source our
necessary raw materials and parts, the price we pay will increase substantially,
negatively impacting our financial performance.
Apart from the risks mentioned above, the main uncertainty about our future
operations is whether we will continue to receive additional orders for our
vehicles. It is impossible to predict with certainty whether such future orders
will be placed by existing or new customers, however we believe our vehicles
provide proven landmine and blast protection, and that for so long as there is a
risk of bodily harm to service personnel from such explosive blasts, there will
be a market for our products.
On September 29, 2004 our Chief Executive Officer, Mr. Michael Watts, was
indicted in Federal District Court for the Northern District of California for a
single count of violating Title 26, United States Code Section 7201. The
government charges arise from events that took place prior to 1997 - well before
Mr. Watts become involved with our company - and are unrelated to our
operations. Although the legal proceedings against Mr. Watts do not involve us
and do not directly implicate his activities as our Chief Executive Officer, Mr.
Watts concluded that it was in the best interests of the Company and its
shareholders if he stepped aside pending resolution of the government case.
Accordingly, on October 22, 2004 Mr. Watts submitted a letter to the Board of
Directors indicating that he would step aside from his position on the Board of
Directors and as the Chief Executive Officer. On October 25, 2004, the Board
named Gale Aguilar, an existing Board member, to serve as Interim Chief
Executive Officer, and on November 8, 2004 the Board approved a Consulting
Agreement with Mr. Watts to secure his continuing services as an independent
consultant. We believe the actions taken by Mr. Watts and the Board have
minimized the potential impact of the government charges regarding Mr. Watts on
the company and its business and operations. However, there is always some risk
of further developments having a negative impact on the company.,
GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going
concern basis. During the year ended December 31, 2003, we incurred losses of
$5,321,623 and our current liabilities exceeded our current assets by $360,652
which raised substantial doubt about our ability to continue as a going concern.
During the nine months ended September 30, 2004, we incurred losses of
$6,396,063, however current assets exceeded current liabilities by $607,218.
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.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, our cash and cash equivalents were $548,781 compared
to $278,777 as of December 31, 2003; $3,210,136 as of March 31, 2004 and
$1,311,687 as of June 30, 2004. Our principal sources of capital have been cash
flow from operations, warrant exercises, and the sale of common stock.
We renewed our existing agreement with GC Financial Services for receivables
financing on July 28, 2004. Receivables can be factored 2% . We also secured
a line of credit of up to $4,000,000 at a base rate of 4.1% per month.
OPERATING ACTIVITIES
The cash used by operating activities for the nine months ended September 30,
2004 was $7,354,052, as compared to $2,099,849 for the nine months ended
September 30, 2003. We used cash primarily to fund existing operations,
purchase inventory to manufacture our products for the second half of 2004 for
the U.S. Marine and U.S. Army contracts and Research and Development for future
products.
INVESTING ACTIVITIES
Our capital expenditures for the three months ended March 31, 2004 were $49,955
which consisted primarily of office and manufacturing equipment. Capital
expenditures for the three months ended June 30, 2004 were $186,144 which
consisted primarily of expenditures related to the ramp-up of our manufacturing
facilities. Capital expenditures for the three months ended September 30, 2004
were $539,988 which related to the support of additional headcount and the
completion of the first phase of the ramp up of our manufacturing facilities.
We anticipate that our capital expenditures during the fourth quarter of 2004
will increase significantly due to increased headcount and the ramp up of
additional manufacturing capacity.
FINANCING ACTIVITIES
During the three months ended September 30, 2004, we issued an aggregate of
175,000 restricted shares of common stock for the exercise of warrants
generating $17,500. The warrants were issued in a private placement that closed
on April 10, 2002.
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.
During the three months ended September 30, 2004, 4,650,000 "Green Shoe"
warrants were exercised at $0.12 generating $558,000. We issued 4,650,000
shares of common stock.
During the nine months ending September 30, 2004 we repaid $655,134 of notes
payable and short/long term debts.
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. On May 17, 2004 we announced the award of a contract to deliver
21 Buffalo vehicles. Initial deliveries began shipping October 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.
On July 28, 2004, we entered into an agreement with GC Financial Services, Inc.
for a revolving credit line of up to $4 million dollars. Receivables can be
factored at 2% . We also secured a line of credit of up to $4,000,000 at a base
rate of 4.1% per month.
At the present time, we are generating sufficient revenue to cover operating
expenses, but we have had to use our line of credit with GC Financial Services,
Inc. to fund production inventory purchases. Based on our current operating
plan, we anticipate that we will need additional financing to finance our
operations and capital expenditures in 2005. 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 month. However, our line of
credit with GC Financial Services, Inc. and product shipments will provide
enough cash for the remainder of the year and into 2005. Additionally, we may
access cash through our equity line of credit with Dutchess Private Equities
Fund after October 16, 2004.
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 including the cost of raw materials, 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 expenditures. Potential alternative means for financing may
include leasing capital equipment, or obtaining additional debt, factoring
receivables 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
Inflation generally does not affect how we price our products. However, there is
currently a shortage of the type of steel we use in our products. We currently
have enough steel to manufacture to our existing contracts. We continue to
purchase steel anticipating future requirements. If the price of steel increases
significantly, the cost of our products could increase. It is unlikely we will
be able to pass on this cost under our current contracts. As a result, if the
cost of our raw materials increases, our profitability, if any, could decrease.
SUBSIDIARY
As of September 30, 2004, we had one wholly-owned subsidiary, Technical
Solutions Group, Inc.
ITEM 3. CONTROLS AND PROCEDURES
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.
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 17, 2003, the "CSIR," a statutory council established in accordance with
the South African Research Council Act 46 of 1988) filed suit in the High Court
of South Africa (Transvaal Provincal Division) against us claiming a balance due
and owing under a Purchase Order for the design and supply of seven TMRP-6
protection kits with a total contract price of ZAR631,800. As of the date
hereof, we have paid all amounts due under the contract and expect to resolve
the matter with the CSIR on terms to include dismissal of the claim with
prejudice.
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. The
plaintiff sought declaratory relief, compensatory damages of $700,000,
actual damages of $346,000, disgorgement of profits, civil penalties pursuant to
the California Business and Professions Code Section 17206, reasonable
attorney's fees and cost of suit incurred. On June 2, 2004 the complaint was
settled for a royalty payment by us of $45,000. On September 14, 2004
the dismissal with prejudice was filed.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
We sold the following unregistered (restricted) securities during the quarter
ended September 30, 2004:
(a) During the three months ended September 30, 2004, we issued an aggregate
of 175,000 restricted shares of common stock for the exercise of warrants
generating $17,500. The warrants were issued in a private placement that closed
on April 10, 2002.
(b) During the three months ended September 30, 2004, 4,650,000 "Green Shoe"
warrants were exercised at $0.12 generating $558,000. We issued 4,650,000
shares of common stock.
(c) During the period of July 1, 2004 to September 30, 2004, we issued a
total of 2,800,000 restricted shares of common stock to one consultant for
services to be rendered related to the discontinued boat business valued at
$120,000 and two consultants for a capital raise and internet public relations
valued at $280,000.
(d) On September 14, 2004, we issued 75,000 warrants to Jeff Lesonsky for
marketing consulting work performed at an exercise price of $0.20 per share. We
owe an additional 400,000 warrant shares to Jeff Lesonsky valued at $0.10 per
share to expire December 31, 2004.
(e) During the three months ended September 30, 2004, we issued 30 shares of
Series C Preferred Convertible stock and cancelled 1 share of Series B Preferred
Convertible stock. Additionally, we cancelled or converted into common stock 20
shares of Series C Preferred Convertible stock. During October, 2004 all
outstanding shares of Series C Preferred Convertible stock were either converted
into Series B Preferred Convertible stock or into shares of common stock. In
total, 129 shares of Series C Preferred Convertible stock were redeemed for 18.5
shares of Series B Preferred Convertible stock and 14,032,200 shares of common
stock. As of November 2, 2004 there were no shares of Series C Preferred
Convertible stock outstanding. As of November 2, 2004, there were 18.5 shares of
Series B Preferred Convertible stock outstanding.
The sales set forth above were undertaken under Rule 506 of Regulation D under
the Securities Act of 1933, as amended, 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
Not Applicable.
ITEM 5. OTHER INFORMATION
On July 7, 2004 we announced Senator Lindsey Graham's visit to the Technical
Solution Group's production facility on July 1, 2004.
On July 7, 2004, our subsidiary Technical Solutions Group, renewed its existing
agreement with GC Financial Services, Inc. for receivables financing.
On July 9, 2004 and September 10, 2004, we conducted shareholder open houses.
On July 12, 2004, we published our first Letter to the Shareholders.
On July 27, 2004, U.S. Representative Henry Brown and U.S. Representative Jim
DeMint visited the Technical Solution Group facility in Ladson, SC.
On July 28, 2004, we entered into an agreement with Policy Impact Strategic
Communications to provide media relations, Executive Branch relations and brand
awareness.
On July 28, 2004, we announced that Technical Solution Group entered into an
agreement with GC Financial Services, Inc. for a revolving credit line of up to
four million dollars.
On August 9, 2004, we announced that the defense spending bill signed into law
by President Bush included a $4.5 million appropriation for our mine and blast
protected vehicles.
On July 1, 2004, we announced the appointment of Scott Ervin as General Counsel.
Mr. Ervin is also the Chairman of the Board of Directors.
On September 1, 2004, we entered into an Agreement with Landmine Clearance
International to provide a program of instruction for the U.S. Marine Corps for
the Cougar HEV.
ITEM 6. EXHIBITS
Exhibits included or incorporated by reference herein are set forth in the
attached Exhibit Index.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FORCE PROTECTION, INC.
Dated: November 15, 2004 By: /s/ Gale Aguilar
-----------------------
Gale Aguilar,
Interim Chief Executive Officer
Dated: November 15, 2004 By: /s/ Thomas H. Thebes
-----------------------
Thomas H. Thebes,
Chief Financial Officer
EXHIBIT INDEX
NUMBER DESCRIPTION
-------------------
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed on September 17, 2004 and
incorporated herein by reference).
3.2 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 Amended and Restated Certificate of Designation for Series B Convertible
Preferred Stock, dated September 14, 2004 filed as Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on September 17, 2004 and
incorporated herein by reference).
4.2 Amended and Restated Certificate of Designation for Series C Convertible
Preferred Stock, dated September 14, 2004 filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed on September 17, 2004 and
incorporated herein by reference). (filed as Exhibit 4.2 to the
Registrant's Quarterly Report on Form 10QSB filed on August 13, 2004 and
incorporated herein by reference).
4.3 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).
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).
10.7 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 14C filed June 30, 2000 and incorporated
herein by reference).
10.8 Non-Employee Directors and Consultants Retainer Stock Plan, dated September
30, 2003 (filed as Exhibit 4 to the Registrant's Form S-8 filed on November
7, 2003 and incorporated herein by reference).
10.9 Employment Agreement between the Registrant and Thomas Thebes (filed as
Exhibit 10.10 to the Registrant's Quarterly Report on Form 10QSB filed on
August 13, 2004 and incorporated herein by reference).
10.10 Letter re: Lease Agreement between the Registrant and Aerospace/Defense,
Inc., dated July 13, 2004 (filed as Exhibit 10.11 to the Registrant's
Quarterly Report on Form 10QSB filed on August 13, 2004 and incorporated
herein by reference).
10.11 Industrial Lease between the Registrant and Aerospace/Defense, Inc., dated
September 2, 2003 (filed as Exhibit 10.12 to the Registrant's Quarterly
Report on Form 10QSB filed on August 13, 2004 and incorporated herein by
reference).
10.12 Royalty Agreement J.J. Van Eck, dated April 1, 2004 (filed as Exhibit
10.13 to the Registrant's Quarterly Report on Form 10QSB filed on August
13, 2004 and incorporated herein by reference).
10.13 Contract between the Registrant and the U.S. Marines, April 21, 2004
(filed as Exhibit 10.14 to the Registrant's Quarterly Report on Form 10QSB
filed on August 13, 2004 and incorporated herein by reference).
10.14 Term Sheet between the Registrant and GC Financial Services, Inc., dated
June 16, 2004
10.15 Employment Agreement between the Registrant and Frank Kavanaugh, dated
November 15, 2004.
10.16 Employment Agreement between the Registrant and Garth Barrett, dated
August 12, 2004.
10.17 Employment Agreement between the Registrant and Gale Aguilar, dated
November 8, 2004 (filed as Exhibit 10.1 to the Registrant's Current Report
on Form 8-K filed on November 10, 2004 and incorporated herein by
reference).
31.1 Certification of the Interim 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.