U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
----------------
{X} ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
or
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from 01-01-2003 to 12-31-2003
Commission File Number 0-22273
FORCE PROTECTION, INC.
(Name of small business issuer in its charter)
----------------
Colorado 84-1383888
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9801 Highway 78, Building No. 3, Ladson, SC 29456
(Address of principal executive offices) (Zip Code)
(843) 740-7015
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, par value $.0001 per share
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes {X}
No { }
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. { }
Issuer's revenues for fiscal year ending December 31, 2003 - $6,247,285.
The aggregate market value of the voting Common Stock held by non-
affiliates of the issuer was approximately $3,483,764 (computed using the
49,768,057 non affiliate shares outstanding at closing price of $0.07 per share
of Common Stock on December 31, 2003 as reported by the Over the Counter
Bulletin Board).
As of December 31,2003,the issuer had 122,280,238 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement prepared in connection with
the Annual Meeting of Stockholders to be held in 2004 are incorporated by
reference in Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes { } No { X }
FORCE PROTECTION, INC.
FORM 10-KSB
TABLE OF CONTENTS
Page
Forward-Looking Statements 4
Part I
Item 1. Description of Business 4
Item 2. Description of Property 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis or Plan of Operation 18
Item 7B. Risk Factors 22
Item 8. Financial Statements 29
Management Report
"Independent Auditors" Report
Statement of Consolidated Operations
Statement of Consolidated Financial Position (Balance Sheet)
Statement of Consolidated Cash Flows
Statement of Shareholders' Equity
Statement of Consolidated Comprehensive Income (Loss)
Notes to the Consolidated Financial Statements 39
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 48
Item 9A. Control and Procedures 48
Part III
Item 10. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 49
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 55
Part IV
Signatures 58
Item 14. Exhibits and Reports on Form 8-K 61
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K are forward-looking statements
that are based on current expectations, estimates, forecast and
projections about us, our future performance, the industries in which
we operate, our beliefs and our managements assumptions. In
addition, other written or oral statements that constitute forward-
looking statements may be made by us or on our behalf. Words such as
"expects," "anticipates," "targets," "goals," "projects," "intends,"
"plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements are found at various
places throughout this report and in the documents incorporated
herein by reference. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions
that are difficult to assess. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements. These risk and uncertainties include the
failure of the vehicle protection market to improve or to improve at
the pace we anticipate; continued net losses and negative operating
cash flow that may affect our ability to satisfy our cash
requirements; our ability to realize the benefits we expect from our
strategic direction and restructuring program; our ability to secure
additional sources of funds on reasonable terms; our credit ratings;
our ability to compete effectively; our reliance on a limited number
of key customers; our exposure to the credit risk of our vendors; our
reliance on third parties to manufacture some of our components and
parts; the cost and other risks inherent in our long-term sales
agreements; our product portfolio and the ability to keep pace with
technological advances in our industry; the complexity of our
products; our ability to retain and recruit key personnel; existing
and future litigation; our ability to protect our intellectual
property rights and the expenses we may incur in defending such
rights; changes in environmental health and safety law; changes to
existing regulations or technical standards; and the social,
political and economic risks of our foreign operations. For a more
detailed list of risks and uncertainties please refer to " Risk
Factors". Except as required under federal securities laws and the
rules and regulations of the SEC, we do not have any intention or
obligation to update publicly any forward-looking statements, whether
as a result of new information, future events, changes in assumptions
or otherwise.
PART I
Item 1 BUSINESS
Overview: Force Protection, Inc.
Force Protection, Inc. incorporated in the State of Colorado in
November 1996. Our wholly-owned subsidiary, Technical Solutions
Group, Inc. incorporated in Nevada in 1997. We acquired Technical
Solutions Group, Inc. in July 2002. Through our subsidiary,
Technical Solutions Group; Inc. we design, manufacture and market
mine protected vehicles that are protected against landmines and
hostile fire. These products are designed to protect and save lives.
The mine-protected vehicles used by military organizations
domestically and abroad are typically used for transportation,
de-mining, and special applications.
Our principal executive offices are located at 9801 Highway 78, #3,
Ladson, South Carolina 29456. Our telephone number is (843) 740-
7015. Our website address is www.forceprotectioninc.com. Information
contained on our website does not constitute part of this report and
our address should not be used as a hyperlink to our website.
We are an Over-the-Counter company, publicly traded on the Over the
Counter Bulletin Board under the ticker symbol "FRCP.OB."
Details:
Force Protection, formally Sonic Jet Performance, Inc. (the "Company)
designs, manufactures and markets mine protected vehicles. The
products combine innovative designs with power, safety, handling and
stability to create vehicles designed to protect and save lives. Force
Protection, Inc. is a publicly traded company, which trades on the Over-the-
Counter Bulletin Board, ( National Quotation Service under the ticker symbol
"FRCP.OB").
The Company is headquartered in Ladson, South Carolina and is
comprised of one business division and a corporate group. The operating
division is the Mine Protected Vehicles division, ("TSG"), which is located in
Ladson, South Carolina.
- TSG designs, manufactures and markets mine-protected vehicles
(collectively, the "MPVs" or "Vehicles") used by police, and
military organizations domestically and abroad for transportation, de-
mining, and special applications.
During 2003 the company , the Company shifted its primary focus to
producing mine clearing and protection vehicles with its Acquisition of
Technical Solutions Group Inc.
Force Protection (collectively the "Company") conducts operations
through its facility almost exclusively in the United States, with some
operations conducted in South Africa and England.
The Company has dedicated its efforts to producing the finest
mission-specific vehicles for fire, rescue, law enforcement, military, and
government agencies. The Company is a complete design-to-manufacturing
organization.
The Company plans to become the leading proprietary designer and
manufacturer of mission-specific specialty vehicles - delivered at a superior
cost-versus-performance ratio to competitive products.
History:
We organized under the laws of the State of Colorado, having been
originally incorporated in November 1996, as Boulder Capital
Opportunities III. Effective June 30, 1998, we acquired all assets
and assumed all liabilities of Sonic Jet Performance, LLC, a
California limited liability company in the business of producing and
marketing recreational boats, jet boats, trailers, and related
accessories. On November 4, 1998, we changed our name to Sonic Jet
Performance, Inc. In 2000, and 2001 the Company emphasized
recreational boats, and generated gross revenues
of approximately one million dollars ($1,000,000) while sustaining
operating losses. As part of the shift in 2002 to focus primarily on
Commercial Boats, the Company relocated its corporate headquarters,
assembly, and prototyping facility to Stanton, California and a
storage facility in Riverside, California.
In July of 2002 the Company acquired all of the shares of Technical
Solutions Group (TSG), a development stage manufacturer of Mine
Protected Vehicles based in Charleston, South Carolina. The shares
are held in a subsidiary, TSG International, a Nevada Corporation
established in 2002 and controlled by the Company. TSG was originally
formed 1997 to supply specialty vehicles to military and law
enforcement agencies worldwide. The vehicles are used to transport
personnel in hostile areas that may include landmines, and to locate
and remove landmines. The Company's primary products are Mine
Protected and Armored Land Vehicles produced, during 2002, in 85,000
square feet of office and heavy manufacturing space on the grounds of
the former Navy Shipyard in Charleston, South Carolina.
In July of 2003 we determined that our limited resources would be
better focused on TSG and began the process of moving our
headquarters to South Carolina and realizing the most value for our
existing watercraft business. From July through September we
negotiated and finalized an agreement with investors that was
consummated in October of 2003 to sell certain assets related to our
Fire Rescue Boat Business.
In August of 2003 we changed our name to Force Protection, Inc. to
reflect our focus on Mine Protected Vehicles. We now own 100% of our
subsidiary Technical Solutions Group and are focused on our primary
products which are Mine Protected and Armored Land Vehicles produced
in 86,000 square feet of office, and heavy manufacturing space in
Ladson, South Carolina.
Leases:
On October 10, 2003, TSG entered into a lease agreement with
Intertech Group, Inc. to lease 86,000 square feet of manufacturing
and administrative space and transfer the Company's executive offices
at the end of October, 2003 to new facilities at 9801 Highway 78,
Building No. 3, Ladson, South Carolina. 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. The prior landlord has agreed to terminate its
lease at the Company's prior headquarters located at 2031 Avenue B,
Building 44, North Charleston, South Carolina, in exchange for
payment of rent at this prior facility through November 30, 2003.
The Company has terminated its month-to-month lease in Stanton,
California and transferred its headquarters to Ladson, South
Carolina. Additionally, the month-to-month warehouse lease in
Riverside, California was terminated with no penalty to the Company.
The Company has no remaining obligations under the terminations. The
Company's wholly owned subsidiary in China has been dissolved. The
Company has no ongoing obligations in Nanning, China.
Business Overview
Technical Solutions Group:
The Company is a complete design-to-manufacturing organization,
creating or licensing designs, and creating tooling, molds, and parts necessary
to assemble the products in-house. The Company is dedicated to producing the
finest, technologically superior, commercial, and military vehicles to
protect and save lives.
This unique design capability, combined with extensive field
experience in vehicles have allowed us to position ourselves as an innovative
pioneer in the creation of specialty vehicles.
The Vehicle or Mine Protected Vehicle "MPV" contracts typically are
fixed-price. The Company also anticipates contracts for research, engineering,
and prototypes that are typically cost-plus arrangements, under which we are
reimbursed for approved costs and also receive a fee. Our production contracts
are typically fixed-price arrangements under which we assume the risk
of cost overruns and receive the benefit of cost savings. All of our
contracts, whether we are the prime contractor or a subcontractor,
are subject to audit and cost controls. As a result, the customer
typically has the right to object to our costs as not allowable or as
unreasonable, which can increase the costs we bear rather than allow
recovery as costs.
Customer Activity
Twelve Buffalo mine protected vehicles have been delivered to the
U.S. Army prior to the end of 2003. One more Buffalo was shipped
during January 2004. The vehicles were extensively tested prior to
selection by the Army. In addition, in 2002 we delivered eight
Cougar/Tempest vehicles to the British Ministry of Defense. These
vehicles are part of an Urgent Operational Requirement, and the
Cougar beat out several competitors for this contract, including
vehicles from Vickers, Australian Defense Industries, and KMW
Industries.
In tests at the U.S. Army proving grounds, the Buffalo blast capsule
protected both the occupants and the critical automotive components
from the effects of large mine blasts. The vehicles integrate a blast
resistant capsule with a truck engine and drive train, and have a
modern design that uses American-made trucks. A key aspect of mine
protected vehicle design is the dispersion of hot gasses released by
a mine blast. The force of the blast is routed along the V hull and
dissipated to the side of the vehicle so that the vehicle is not
lifted or severely damaged by the blast. It is the absence of this V
hull design that makes it virtually impossible to properly protect a
standard vehicle by retrofitting armor plates. The design must be
undertaken from the beginning with mine protection as the primary
design criteria.
We are using the Buffalo platform for a special project for the US
Navy and continue to ship spares and steel wheels to the US Army.
Industry Overview
The basic concept of Mine Protected Vehicles was developed in
Rhodesia and South Africa in response to the landmine problems
arising from the wars in Southern Africa. The vehicles were designed
to protect personnel during transport, removal of Unexploded
Ordnance, route clearance, humanitarian de-mining, and other missions
that require protection from landmines and hostile fire. The
technology has been developed and used in several parts of the world,
principally Africa, over the last 20 years in response to the intense
use of landmines in that region. The world market for mine-protected
vehicles is growing rapidly.
Landmines are a weapon of choice for terrorists and insurgent groups
because they are highly effective yet relatively low cost. Rising
populations in heavily mined regions and the need to utilize and
develop such areas means the problem can no longer be ignored. With
increasing world tensions, there is a need for vehicles that can
provide a protection against these threats during a variety of
missions. Such missions include troop transport in and around
Unexploded Ordnance or mine threat areas as well as route clearance
and humanitarian de-mining - which require entrance into known mine
fields.
Mine protected vehicles have been purchased worldwide, principally in
Africa, with additional purchases by several NATO allied countries.
Troop movements in overseas operations face a continuous threat
because of the use of land mines or the possibility of ambush and
enemy fire. Vehicles that move troops or ordnance economically and
are protected against ballistic, incendiary, landmine hazards, and
Improvised Explosive Devices (IED's) are useful in these situations.
This is a pressing issue for the U.S. and its allies throughout the
world. The recent deaths of American and Allied personnel throughout
Iraq, Afghanistan, and earlier deaths in Kosovo of American solders
while riding in an up-armored M998 High Mobility Multi-purpose
Wheeled Vehicle (Hummv) highlights the need for mine protected vehicles.
Personnel transport missions create the greatest portion of demand
for Mine Protected Vehicles. Various types of landmine and
Unexploded Ordnance clearance missions also generate demand.
Embassies, consulates, and other U.S. government agencies require
vehicles to safely transport personnel at low cost. The modified
Chevrolet Suburban or High Mobility Multi-purpose Wheeled Vehicle s
does not provide adequate protection against high-powered automatic
rifles or explosives as demonstrated in Iraq and Afghanistan.
U.S. Law enforcement agencies have a pressing need to move personnel
safely in dangerous situations, such as riots or standoffs with armed
militant groups as demonstrated in a bank robbery stand-off in Los
Angeles. Mine protected vehicles are used around the world in mine problem
areas by most military organizations. The current "hot spots" in
which the U.S. and other allied countries operate, and the likely
areas for the future in the "War on Terrorism", are all heavily
mined. Currently there are no current technologies available to
detect mines effectively enough to avoid them, so mine protected
vehicles are valuable for the U.S. to protect its troops.
Products
The specialty vehicle business requires experience with blast
protection and vehicle design, heavy manufacturing equipment and
facilities, and knowledge of target customers. The cycle for product
entrance into this market is long and complex. We have attained
credibility with our products, and have sold production vehicles to
the U.S. and British militaries. Our units have seen action in Iraq,
Afghanistan and Bosnia.
Buffalo
A Mine Resistant Vehicle with multiple mission configurations and
field reparability. This design mates a monocoque capsule protection,
meaning the hull is built as a single unit, with a Peterbilt or other
U.S. manufactured truck. The Buffalo offers protection against mines
with 45-pounds of TNT under the wheel and 30-pounds of TNT under the
centerline protection, along with standard ballistic protection,
which is 7.62mm NATO ball which is the international standard for
ballistics, upgradeable to Dragunov Anti-Personnel round protection.
The roof is identical to the sides, providing equal overhead
ballistic and splinter protection, creating a full 360-degree
occupant protection, a capability that is essential for urban
fighting. Self Forming Fragmentation Plates, which protect the
occupants of the vehicle against newer landmine technology, are
available as an option. C-17 transportable.
Cougar
The Cougar is versatile and multi-purpose. It can be configured to
satisfy a wide variety of mission requirements. The purpose-built
monocoque capsule is designed to protect both the driver and crew
from both ballistic and mine/blast threats, and is mated with
commercial automotive technology from Peterbilt,` Marmon-Herrington,
Fabco, and others to produce a user-friendly and adaptable vehicle.
The Cougar can be configured to serve as a mine protected 8 - 10 seat
troop transport vehicle, a weapons platform, a law enforcement
special response vehicle, an EOD/Range Clearance vehicle, or a VIP
Protection vehicle. It is available in various configurations
including: 4x2, 4x4, and 6x6. The Cougar is protected to 30 pounds
of TNT on any wheel and 15 pounds of TNT on the centerline. C-130
Transportable.
Tempest
The Tempest is a heavy duty version of the Cougar that adds a Self
Forming Fragment Plate to provide protection against state-of-the art
Self Forming Fragment "Tank Killer" mines. C-17 transportable.
Typhoon
Typhoon is the ultimate urban combat vehicle. It is a multi-role
armored combat vehicle. Typhoon has an improved hull, upgraded
ballistic protection, enhanced access, reduced profile, and a remote
controlled weapons platform. Designed to seat eight passengers and
upgradeable with an interior based upon customer requirements. The
vehicle can withstand a single anti-tank land mine explosion on any
wheel. The Typhoon has ballistic protection to 7.62 x 51mm NATO AP,
which can be increased to Dragunov Armor Piercing anti personnel rounds.
All products have superior power/weight ratios.
Iguana
Iguana is a high mobility all-terrain combat vehicle that fits in the
V-22 Osprey. It is a fully articulated tail-steer vehicle that can
scale a four foot high obstacle. It has a limited swimming capability.
Competitive Positioning
We are subject to significant competition that could harm our ability
to win business and increase the price pressure on our products. We
face strong competition from a wide variety of firms, including
large, multinational vehicle, defense and aerospace firms such as
Alvis, Vickers, Australian Defense Industries, KMW Industries and
Oshkosh. Most of our competitors have considerably greater financial,
marketing and technological resources than we do which may make it
difficult to win new contracts and we may not be able to compete
successfully. Certain competitors operate fabrication facilities and
have longer operating histories and presence in key markets, greater
name recognition, larger customer bases and significantly greater
financial, sales and marketing, manufacturing, distribution,
technical and other resources, as a result, these competitors may be
able to adapt more quickly to new or emerging technologies and
changes in customer requirements. They may also be able to devote
greater resources to the promotion and sale of their products.
We believe our competitive advantages include:
- as an American company, access to American commercial drive train
technology, which has the best after market support system in the
world,
- as an American producer of mine protected vehicles, many countries
wish to purchase from America rather from the third world,
our mine protected vehicles are effective and were tested and
accepted by the U.S. Army and the British Ministry of Defense,
- access to low cost heavy manufacturing facilities,
- Exclusive rights to South African blast protection technology,
considered the best in the world,
- updated designs will take time for competitors to develop.
The Company's Buffalo soundly beat the former Mine Protected Vehicle
standard, the Casspir, in an exhaustive testing program conducted by the US
Army. This testing has determined that the future Mine Protected Control
Vehicle for de-mining and route clearance missions for the Army will be the
Buffalo. The US Army has so far purchased thirteen Buffalos.
The Company has also delivered Tempest vehicles to the British
Ministry of Defense (MOD).
These vehicles are part of an Urgent Operational Requirement, and the
Cougar beat out seven competitors for this important contract,
including vehicles from Vickers, Australian Defense
Industries, and KMW. The Tempests have been deployed in Bosnia, Iraq,
and Afghanistan.
The Company has an exclusive license to manufacture five current
designs from Mechem Consultants, the South African governmental
agency that designed and produced over 33 of South Africa's original
countermine vehicles. Each design is being systematically migrated
into novel, U.S. -only, designs.
Sales and Marketing:
Our primary sales and marketing efforts are done through employees
including the various senior executives in our company who call on
prospective customers and foreign agents representing various
governments and agencies who would have an interest in our product
offerings. Currently our primary sales staff resides in the states
of South Carolina and Connecticut, and we have a European presence
with an employee based in England. The company engages in some
advertising focused on the military community.
Marketing efforts include our web site, brochures, and independent
referral sources who assist the company in identifying opportunities
for our products and services. Any payments to referral sources are
negotiated on a case by case basis and are dependent on various
factors including the quality of the referral, the opportunity, the
role of the referral sources in the sale, and the potential revenues
associated with a specific opportunity. Many of these referral
sources have established relationships with the potential customers
through the sale of other products and services.
Our specialty vehicle business requires many years of experience with
Blast protection and vehicle design, substantial heavy manufacturing
equipment and facilities, and knowledge of and relationships with the target
customers. The cycle for product entrance into this market is long and complex.
The vehicles are big-ticket items with healthy margins in a niche market that
has few competitors and high barriers to entry. As the only U.S. manufacturer
of MPVs, the Company offers the latest vehicle technology mated with the
latest protection technology, all from the design team that created the
original concepts of vehicle mine protection. It has the facilities,
personnel, relationships, and experience to become the leader in a growing
industry with substantial barriers to entry.
The company intends to participate in the growth of the Security and
Defense Market's increased demand for protection by focusing on sales to the
Government and Military markets. Management and advisors are active
Participants in all the major shows involving countermine operations and
technology, military vehicle, law enforcement technology, and military force
protection. This includes the UXO/Countermine conference, FPED (Force
Protection Equipment Demonstration), and Trexpo East.
Personnel
As of December 31, 2003, we had 29 employees in the U.S. and 4
consultants located in the United Kingdom and South Africa. Employees
can be broken down to 22 factory workers, 3 sales, 3 administrative
and 5 management personnel. The Company is not a party to any
collective bargaining agreement. See Management.
Environmental Matters
We are subject to federal, state, local and foreign laws and regulations
regarding protection of the environment, including air, water, and soil. Our
manufacturing business involves the use, handling, storage, and contracting for
recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as batteries, solvents, lubricants,
degreasing agents, gasoline and resin. We must comply with certain requirements
for the use, management, handling, and disposal of these materials. We, however
do not maintain insurance for pollutant cleanup and removal. If we are found
responsible for any hazardous contamination, any fines or penalties we may be
required to pay, or any clean up we are required to perform, could be very
costly. Even if we are charged, and later found not responsible, for such
contamination or clean up, the cost of defending the charges could be high. If
either of the foregoing occurs, our business, results from operations and
financial condition could be materially adversely affected. We do not believe
we have any material environmental liabilities or that compliance with
environmental laws, ordinances, and regulations will, individually or in the
aggregate, have a material adverse effect on our business, financial condition,
or results of operations.
Other Regulatory Matters
Our operations and products are subject to extensive government regulation,
supervision, and licensing under various federal, state, local and foreign
statutes, ordinances and regulations. Certain governmental agencies such as the
EPA and the Occupational Safety and Health Administration, or OSHA, monitor our
compliance with their regulations, require us to file periodic reports, inspect
our facilities and products, and may impose substantial penalties for
violations of the regulations. For example, we are subject to federal
regulation under the Boat Safety Act of 1971 that requires boat manufacturers
to recall products for replacement of parts or components that have
demonstrated defects affecting safety. Although manufacturers of certain
equipment we use in our boats have instituted recalls, there has never been a
recall resulting from our design or manufacturing process.
While we believe that we maintain all requisite licenses and permits and are in
compliance with all applicable federal, state, local and foreign regulations,
there can be no assurance that we will be able to maintain all requisite
licenses and permits. The failure to satisfy those and other regulatory
requirements could have a material adverse effect on our business, financial
condition, and results of operations.
Item 2. DESCRIPTION OF PROPERTY
On October 10, 2003, TSG entered into a lease agreement with
Intertech Group, Inc. to lease 86,000 square feet of manufacturing
and administrative space and transfer the Company's executive offices
at the end of October, 2003 to new facilities at 9801 Highway 78,
Building No. 3, Ladson, South Carolina. 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. The prior landlord has agreed to terminate its
lease at the Company's prior headquarters located at 2031 Avenue B,
Building 44, North Charleston, South Carolina, in exchange for
payment of rent at this prior facility through November 30, 2003.
We believe our facilities are adequate for our current operations and that we
can obtain additional leased space if needed.
Item 3. LEGAL PROCEEDINGS
On June 26, 2003 Albert Mardikian, a company 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 the company. The complaint
further alleges breach of an employment and agency agreement between
the Registrant and Mr. Mardikian, 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 in the early stages of litigation
and we can not assure anyone of the outcome. 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.
A potential liability from the discontinued boat operation exists.
There is a lawsuit pending in Texas seeking $42,495 and legal fees.
The claim has arises over charges of vessel defects, specifically the
motor supports creating hull damage.
On September 4, 2003 the Commonwealth of Pennsylvania, Pennsylvania
Securities Commission issued a summary order to Cease and Desist
pertaining to the Private Placement Memorandum. A Sonic Jet
representative sent a packet of disclosure materials to a non-
accredited investor under Section 501 of Regulation D.
To our knowledge there are no other unasserted claims or assessments that are
probable to arise and must be disclosed in accordance with Statement of
Financial Standards No. 5.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 300 million shares of common
stock, and 10 million shares of preferred stock. The following is a
summary of certain provisions of our common stock, preferred stock,
Articles of Incorporation and bylaws.
Common Stock
As of December 31, 2003, there were 122,280,238 shares of common
stock outstanding. All outstanding shares of common stock are, and
the common stock to be issued in this offering will be, fully paid
and non-assessable.
Each share of our common stock has identical rights and privileges in
every respect. The holders of our common stock are entitled to vote
upon all matters submitted to a vote of our shareholders and are
entitled to one vote for each share of common stock held. There are
no cumulative voting rights.
The holders of our common stock are entitled to share equally in
dividends and other distributions that our board of directors may
declare from time to time out of funds legally available for that
purpose, if any, after the satisfaction of any prior rights and
preferences of any outstanding preferred stock.
If we liquidate, dissolve or wind up, the holders of shares of common
stock will be entitled to share ratably in the distribution of all of
our assets remaining available for distribution after satisfaction of
all our liabilities and our obligations to holders of our outstanding
preferred stock.
The holders of our common stock have no preemptive or other
subscription rights to purchase shares of our stock, nor are they
entitled to the benefits of any redemption or sinking fund provisions.
Preferred Stock
As of December 31, 2003, there were 10 shares of Series B preferred
stock outstanding. Each share is convertible into two percent of the
shares of our common stock outstanding at the date of conversion. The
shares shall convert at the earlier of the election of the holder, or
December 27, 2004. The holder of the Series B preferred stock, has
the right to vote, with the holders of common stock, on any matter to
which the common stock holders are entitled to vote, the number of
shares of common stock into which the Series B preferred stock is
convertible. If we are liquidated, distribute our assets, dissolve or
wind-up, the holders of Series B preferred stock shall receive the
greater of (i) $2,500 per share of Series B preferred stock they hold
at the time of such Liquidation, or (ii) their pro rata share of the
total value of our assets and funds to be distributed, assuming the
Series B preferred stock is converted to common stock.
As of December 31, 2003, there were 130 shares of series C preferred
stock outstanding, Each shares converts into .2% of the outstanding
shares at the time of conversion. The Series C shareholders are
subject to a mandatory conversion on December 27, 2004 unless the
terms are modified by mutual agreement of the parties. In the event
of a liquidation, the holders of Series C preferred stock shall be
entitled to receive one hundred and fifty percent (150%) of the
amount of consideration paid for the Series C preferred stock, after
which time the holders of Series B preferred stock and Series C
preferred stock shall participate in such liquidation, on a pro rata
basis, based on the number of shares of the common stock into which
the Series B preferred stock and the Series C preferred stock are
convertible at the time of the liquidation. The holders of Series C
preferred stock have no voting rights.
Our board of directors has the authority to issue additional shares
of preferred stock in one or more series, and fix for each series,
the designation of, and number of shares to be included in, each such
series. Our board of directors is also authorized to set the powers,
privileges, preferences, and relative participating, optional or
other rights, if any, of the shares of each such series and the
qualifications, limitations or restrictions of the shares of each such series.
Unless our board of directors provides otherwise, the shares of all
series of preferred stock will rank on a parity with respect to the
payment of dividends and to the distribution of assets upon
liquidation. Any issuance by us of shares of our preferred stock may
have the effect of delaying, deferring or preventing a change of our
control or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings and assets
available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of
the holders of common stock.
Our common stock is traded on the OTC Bulletin Board under the symbol
"FRCP.OB". Our common stock began trading on the OTC Bulletin Board
on December 29, 1998 under the symbol "SJET.OB". Before our listing
on the OTC Bulletin Board none of our securities were traded in the
public market. Bid and ask quotations for our common shares are
routinely submitted by registered broker dealers who are members of
the National Association of Securities Dealers on the NASD Over-the-
Counter Electronic Bulletin Board. These quotations reflect inner-
dealer prices, without retail mark-up, markdown or commission and may
not represent actual transactions. The following table shows, for
the periods indicated, the high and low closing sales prices per
share of our common stock.
High Low
2001
First Quarter $0.22 $0.05
Second Quarter $0.17 $0.05
Third Quarter $0.20 $0.04
Fourth Quarter $0.07 $0.02
2002
First Quarter $0.22 $0.08
Second Quarter $0.42 $0.06
Third Quarter $0.29 $0.07
Fourth Quarter $0.25 $0.10
2003
First Quarter $0.27 $0.10
Second Quarter $0.21 $0.12
Third Quarter $0.13 $0.07
Fourth Quarter $0.11 $0.07
Share Holders
As of December 31, 2003, there were 412 shareholders of record of our
common stock.
Dividend Policy
We have never declared or paid a cash dividend on our common stock.
We currently intend to retain all of our future earnings, if any, for use in
Our business and therefore we do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Any future determination to pay
cash dividends will be at the discretion of our board of directors and will
depend upon our financial condition, operating results, capital requirements,
restrictions contained in our agreements and other factors which our board of
directors deems relevant.
Recent Sales of Unregistered Securities
On March 31, 2003, we entered a Settlement Agreement with Jeff Conrad
pursuant to which we agreed to issue Mr. Conrad 375,000 shares of our
Common stock in lieu of cash payment for legal services he performed
for us.
On March 31, 2003, we entered a Settlement Agreement with Catherine
Basinger pursuant to which we agreed to issue Ms. Basinger 375,000
shares of our Common stock in lieu of cash payment for legal services
she performed for us.
We sold the following unregistered (restricted) securities during the
quarter ended September 30, 2003:
On July 15, 2003 and August 11, 2003, we issued a total of 126,123
shares of common stock to one company for services rendered in
connection with the private offering discussed above valued at
$12,613 ($0.10 per share).
On July 31, 2003, we issued 10,000 shares of common stock to one
employee for services rendered to us valued at $700 ($0.07 per share).
On August 11, 2003 and August 18, 2003, we issued a total of 660,000
shares of common stock to our former production manager in settlement
of his employment agreement; these shares were valued at $46,200 ($0.07 per
share).
On August 11, 2003 and September 13, 2003, we issued a total of
800,000 shares of common stock to our president in connection with
the termination of his employment agreement with the Company; these
shares were valued at $62,000 (average of $0.0775 per share).
On September 13, 2003, we issued a total of 298,713 shares of common
stock to two companies for services rendered in connection with the
private offering discussed above; these shares were valued at $26,871
(average of $0.0899 per share). On this date, we also issued 375,000
shares of common stock to one individual for legal services rendered
to us valued at $26,250 ($0.07 per share). On this date, we also
issued a total of 500,000 shares of common stock to two individuals
(one a director and one an ex-employee of the company) in connection
with services rendered to us valued at $35,000 ($0.07 per share).
Finally, on this date we issued a total of 1,250,000 shares of common
stock to three individuals in connection with the repayment of
certain loans made to us; these shares were valued at $87,500 ($0.07
per share).
During the third quarter, we sold a total of 2,245,000 shares of
common stock to investors pursuant to a private placement memorandum,
generating net proceeds of $88,981 (gross proceeds of $164,650 less
offering fees and commissions of $75,669) pursuant to the sale of
common stock units. Each common stock unit consists of (a) 50 shares
of common stock, (b) one warrant to purchase 25 shares of common
stock at an exercise price of $0.20 per share, and (c) one warrant to
purchase 25 shares of common stock, at an exercise price of $0.30 per
share (which was subsequently reduced to $0.01 per share and which
has been exercised).
During the three months ended September 30, 2003, we issued warrants
covering 875,018 shares of common stock to Denis Hickey, a
consultant, valued at $0.065 per share, plus 580,000 warrants of
shares of common stock to two employees, valued at $0.10 a share.
During the fourth quarter, 2003, we issued 8,842,246 shares of common
stock and cancelled 250,000 shares of common stock issued in error.
We committed to warrants of 1,000,000 shares of common stock , valued at $0.07a
share per an employee agreement with Thomas Thebes.
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;
- we 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 we 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, we
advised each purchaser of the limitations on resale in the manner
contained in Rule 502(d)2;
- neither we nor any person acting on our behalf sold the
securities by any form of general solicitation or general
advertising; and
- we 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).
Other
Conversion of TSG International, Inc. Shares.
As part of the purchase of TSG International, Inc. (which owns 100%
of Technical Solutions Group, Inc.,) in July 2002 (see Exhibit 2.2 to
Form 10-QSB and the 2002 Form 10-KSB), Ashford Capital, LLC, an
advisor to the transaction and a shareholder of the Registrant,
received shares equal to 10% of TSG International, Inc. in the form
of a Series A preferred stock. An agreement was reached in April of
2003 (see Exhibit 4.9 to Form 10-QSB) under which Ashford Capital,
LLC could exchange each shares of TSG International, Inc. Series A
preferred stock for 50 shares of the Registrant's Series C preferred
shares, by notifying the Company by October 15, 2003.
In September 2003, Ashford Capital and the Company's CEO, Michael
Watts, reached an agreement under which the TSG Series A preferred
shares and the rights associated with the Series A preferred shares
were purchased by Mr. Watts in a private sale between the parties.
On October 12, 2003, the Company was notified of Ashford Capital's
intention to exercise its option to exchange its TSG International,
Inc. preferred stock for the Company's Series C preferred stock.
Under the terms of the agreement, Mr. Watts will exchange each share
of his TSG International, Inc. stock for 50 shares of Company Series
C preferred stock effective October 15, 2003. As a result, the
Company will hold 100% of TSG International, Inc.
Redemption of Series C Preferred Stock.
Under the terms of the Series C preferred stock, as reflected in an
amended Certificate of Designation, shareholders could redeem each
preferred share for $12,000 after a certain date. Under these terms,
Noriaki Sasaki notified the Company of his request to redeem 10
shares of the Series C preferred stock at a schedule to be provided
by the Company. The Company has agreed to a redemption schedule and
has redeemed 8 of the 10 shares. The remaining 2 shares should be
redeemed by January 2004. Subsequently, the remaining Series C
shareholders have waived the redemption rights in return for an
extension of the mandatory conversion dates (see 2002 Form 10-KSB).
Change In Securities
On September 30, 2002 the Series C shareholders and the Company agreed to amend
and restate the Certificate of Designation of Series C Convertible Preferred
for Sonic Jet Performance. Pursuant to the agreement and upon finalization of
the amendment of the Series C documents, the stock shall be voted equally with
the shares of the Common Stock of the Corporation and not as a separate class,
at any annual or special meeting of shareholders of the Corporation, and may
act by written consent in the same manner as the Common Stock, in either
case upon the following basis: the holder of the shares of Series C Stock shall
be entitled to such number of votes as shall be equal to the aggregate number
of shares of Common Stock into which such holder's shares of Series C Stock are
convertible immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent. Furthermore,
the parties also agreed that each 10 shares of Series C stock shall be
convertible into two percent (2%) of the Company's common stock outstanding at
the time of conversion. Also, amended was the Company's power to redeem the
Series C Stock.
On or after February 14, 2003, the Company may, at its sole discretion, with 5
days notice, redeem some or all of the outstanding shares of Series C Stock at
a "Redemption Price" equal to $12,000 per share, during this period the Series
C shareholders may elect to convert their shares under the conversion formula.
On July 17, 2002 the Series B shareholder of Sonic Jet Performance, Inc.,
Ashford Capital, and the Company agreed to amend the Series B Preferred. The
parties agreed that no shares could be sold prior to January 1, 2003, and the
conversion date of Series B Preferred Stock to common stock would be changed
from December 27, 2002 to June 27, 2003. Furthermore, on July 17th, 2002 the
parties agreed that the Series B shareholder would have the right to exchange 5
shares of Sonic Jet Series B Preferred (equal to 10% of Sonic Jet common stock)
for 10 shares of TSG International (equal to 20% of TSG International common
stock), the holding Company for Technical Solutions Group. Ashford Capital must
notify Sonic Jet and surrender the shares by June 27th, 2003 at which time it
would receive the shares of TSG International. As of March 31, 2003 no action
has been taken either by Series B Shareholder or Sonic Jet Performance, Inc.
DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data (Unaudited)
(Dollars in Thousands)
2003 2002 2001
Revenues 6,247 2,607 1,199
Income from Operations (290) (5,375) (1,199)
Net Operating Income (472) (5,375) (1,437)
Net Income (5,322) (5,373) (1.437)
Diluted Earnings / (Loss)
Per Share: (.03) (.09) (.07)
Diluted Shares Outstanding 186,760,559 61,421,885 23,816,716
Cash at end of Period 279 144 43
Total Assets 1,620 2,615 2,114
Stockholders Equity (261) 803 1,175
Notes:
1. Fiscal year 2003 includes a $2,932,179 loss from discounted
operations of the boat division.
2. Fiscal year 2003 includes a $1,917,747 loss from goodwill
impairment.
3. Fiscal year 2003 Revenues and Income from Operations excludes the
boat division.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
The following discussion is intended to provide an analysis of our
financial condition and should be read in conjunction with our
financial statements and the accompanying notes.
Overview
We have a limited operating history and conduct our operations
through our wholly owned subsidiary, Technical Solutions Group, Inc,
or TSG,, which manufactures and sells mine and blast protected
vehicles. Force Protection, Inc. through TSG designs, manufactures
and markets high performance mine and blast protected vehicles. We
operate both in the United States and internationally.
Effective July 1, 2003, in an effort to focus on TSG as well as
achieving profitable operations, and as a result of the poor
performance of the boat division and the long lead times necessary to
achieve success in that business, we downsized and transferred the
fire and rescue operations to a subsidiary company, Rockwell Power
Systems, Inc. Subsequently the shares held in Rockwell Power Systems,
Inc. were exchanged for 20,000,000 shares of common stock in Xtreme
Companies, Inc. and the shares received in the transaction were
distributed to shareholders of record on December 5, 2003. In
addition, the Force Protection, Inc. received preferred shares from
Xtreme Companies in the amount of $500,000 which are convertible to
common stock three years from the date of the transaction.
Results of Operations
Comparison of the twelve months ended December 31, 2003, and 2002.
In fiscal year 2003, we focused on restructuring and refocusing our
business, raising money, and writing off impaired assets to direct us
toward a more profitable product line.
Net sales for 2003 increased by $3,640k or 139% compared to 2002.
During 2002, we acquired TSG, whose sales for 2002 were $2.2 million.
The entire increase in sales is attributable to the acquisition.
Sales of boats were flat as compared to the previous year, $462k.
TSG began shipping production Buffaloes under a U.S. Army contract in
June of 2003, which contract comprised over 90% of the sales of that
division. The improvement in operations is due to the sales increase
in the TSG division and the downsizing and eventual sale of the boat
operations assets.
Cost of Sales for 2003 was $4,442k, or 70.6% of sales, compared to 72%
in 2002. This decrease is attributable to decreasing cost of sales
for boats and the production shift to MPV- particularly the Buffaloes.
Selling, general and administrative expenses for 2003, decreased by
$2,612k to $ 2,095k compared to $ 4,704k for 2002. The decrease is
partially the result of the sale of the boat division. Selling,
general and administrative expenses were substantially the same in
both years and reflected asset write downs, financing costs, outside
professional services, and grants of stock to employees.
Restructuring expenses are related to writing down the boat division
assets to fair market value, direct expenses and employee termination
agreements involved with the reorganization, and the transfer of the
boat business.
Our net loss for 2003 was $5,322k as compared to $5,373k for 2002.
The minor decrease is attributed to the sale of assets of the boat
division and the turnaround in operational profit attributable to the
government program selling TSG's Buffalos to the Army. Included in
the 2003 loss was a loss of $1,917k for goodwill impairment and a
loss on discontinued operations of $2,932k from the boat division.
Investing Activities.
Our capital expenditures for the twelve months December 31, 2003 were
$125,008 as compared to $337,373 during 2002, related to investments
in office and manufacturing equipment. We anticipate that our
capital expenditures during 2004 will increase because of
improvements to operating efficiencies, and relocation of our primary
facilities and new contracts.
Financing Activities.
During the year ended December 31, 2003, the Company sold a total of
25,924,000 restricted shares of common stock and warrants,
respectively, to investors pursuant to its private placement
memorandum, generating net proceeds of $1,299,900, pursuant to the
sale of common stock units. For details about this transaction, see
Note 8 - Capital Stock Transactions. The Company believes the
issuance of the shares and warrants was exempt from registration
under the private placement exemption available under Section 4(2) of
the 1933 Securities Act.
On March 31, 2003, the Company began securing capital commitments
through the issuance of promissory notes. Under the terms of the
promissory notes, the loans are payable in six months with 8%
interest; however, at the end of the term the loan has an option to
convert into Series C preferred stock. As of June 30, 2003, the
Company had obtained $725,000 in capital from note holders for 2003.
Of this amount, $50,000 was converted into series C preferred stock.
The remaining notes will have their terms extended and management
anticipates that a significant portion will convert to equity over
the next six months.
TSG has entered into an agreement with GC Financial Service, Inc. by
which this firm may purchase from Company certain accounts receivable
and other rights, including without limitations, all liens, security
interest, warrants and guarantees to secure payments of the accounts
receivables. As of December 31, 2003 TSG had drawn approximately
$6,138,434 gross, all of which has been repaid at December 31, 2003.
On September 20, 2003, the Company entered into an equity line of
credit agreement with Dutchess Capital Management LLC. Under this
agreement, Dutchess committed to purchase up to $3,500,000 of the
Registrant's restricted common stock over the course of 36 months,
after the date either free trading shares are deposited in an escrow
account or a registration statement of the stock has been declares
effective by the U.S. Securities and Exchange Commission. The amount
that the Dutchess will be entitled to request from each of the
purchase "puts" will be equal to 200% of the averaged daily volume
("ADV") multiplied by the average of the 3 daily closing prices
immediately preceding the put date. The ADV shall be computed using
the ten (10) trading days prior to the put date. The purchase price
will be the 93% of the market price, which is defined as the average
of the lowest closing bid price of the common stock during the
pricing period (which is the 5 consecutive trading days immediately
after the put date).
Liquidity and Capital Resources.
As of December 31, 2003, cash and cash equivalents were $278,777
compared to $144,476 as of December 31, 2002. The Company has raised
net proceeds $1,299,900 through a private placement during the nine
months ended September 30, 2003. The Company's principal sources of
capital have been cash flow from its operations, the sale of common
stock, promissory notes mentioned in financing activities, and
borrowings from G.C. Financial Services. Based on its current
operating plan, the Company anticipates that additional financing
will be required to finance growth in operations and capital
expenditures, definitely in 2004 and possibly in 2005.
Presently, the Company is generating sufficient revenue to cover
expenses and hire employees. However, the Company's near-term future
liquidity will depend on its ability to obtain necessary financing
from outside sources.
The Company currently anticipated levels of revenues and cash flow
are subject to many uncertainties and cannot be assured. The amount
of funds required by the Company will depend upon many factors,
including without limitation, the extent and timing of sales of the
Company's products, future inventory costs, the timing and costs
associated with the establishment and/or expansion, as appropriate,
of the Company's manufacturing, development, engineering and customer
support capabilities, the timing and cost of the company's product
development and enhancement activities and the company's operating
results. Until the Company generates cash flow from operations that
will be sufficient to satisfy its cash requirements, the company will
continue to seek alternative means for financing its 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. There can be no
assurance that, if and when needed, additional financing will be
available, or available on acceptable terms. The inability to obtain
additional financing or generate sufficient cash from operations
could require the Company to reduce or eliminate expenditures for
capital equipment, research and development, production or marketing
of its products, or otherwise curtail or discontinue its operations,
which could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, if the
Company raises funds through the sale of additional equity
securities, the common stock currently outstanding may be further diluted.
Inflation.
We do not believe that inflation has had or is likely to have any
significant impact on our operations.
Contractual obligations
Technical Solution Group has a long-term lease of five (5) years, (5
years remaining) with five (5) years option with Intertech Group, Inc., giving
us a stable base for future planning.
Foreign Currency Translation and Hedging
No exposure.
10K Business Segment Analysis of 2003
Force Protection Performance - 2003 10K Segment Information
(000's)
(Discontinued) TSG
Boats MPV Consolidated
--------------- ------------ ----------- ---------------
Sales 462 6289 6247
Cost of Sales 315 4442 4757
-------------- ------------ ----------- -----------------
Gross Profit 146 1847 1490
G.P. % 31.6% 29.4% 23.8%
SG&A 2964 1469 2095
--------------- -------------- ------------ ----------- ----------------
Other
Income(Expense)
Segment P&L (2932) 378 (5322)
------------- -------------- ------------ ----------- ---------------
Mine protected vehicles provided 92.6% of the sales, resulting from 2 major
Customers and 3 minor customers; in the USA and the UK; with one customer
accounting for 92.7% of the mine and blast protected sales.
During 2003, the Boat Division assets were sold and the divisions
results have been accounted for as losses from discontinued
operations of $2,932k.
The TSG-MPV analysis is presented before inter-company eliminations.
Corporate expenses of $627K and interest expense of $233k have been
excluded. There were no material capital additions during 2003. The
basis for accounting for this segment is the same as for the company.
Item 7 B: RISK FACTORS
A number of the matters and subject areas discussed in this Form 10-KSB are
forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may differ materially from our actual future
experience involving any one or more of such matters and subject areas. We wish
to caution readers that all statements other than statements of historical
facts included in this Annual Report on Form 10-KSB regarding our financial
position and business strategy, may constitute forward-looking statements. All
of these forward-looking statements are based on estimates and assumptions
made by our management, which although believed to be reasonable, are
inherently uncertain.
Therefore, undue reliance should not be placed on such estimates and
statements.
No assurance can be given that any of such estimates or statements will be
realized and it is likely that actual results will differ materially from those
contemplated by such forward-looking statements. We have attempted to identify,
in context, certain of the factors that we currently believe may cause actual
future experience and results to differ from our current expectations regarding
the relevant matter or subject area. In addition to the items specifically
discussed in the foregoing, our business and results of operations are subject
to the rules and uncertainties described under the heading "Factors That May
Affect Future Results" contained herein, however, the operations and results of
our business also may be subject to the effect of other risks and
uncertainties.
Such risks and uncertainties include, but are not limited to, items described
from time to time in our reports filed with the Securities and Exchange
Commission.
Operating results highly uncertain. Before deciding to invest in
Force Protection, Inc. or to maintain or increase your investment, you should
carefully consider the risks described below, in addition to the other
information contained in this report on Form 10-KSB, our Quarterly Reports on
Form 10-QSB, as amended, and in our other filings with the Commission,
including any subsequent reports filed on Forms 10-KSB, 10-QSB and 8-K. The
risks and uncertainties described below are not the only ones that we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business and results of
operations. If any of these risks actually occur, our business, financial
condition or results of operations could be seriously harmed. In that event,
the market price for our common stock could decline and you may lose all or
part of your investment.
Risks Related to Our Business
We had losses since our inception and expect losses to continue in
the future. We may never become profitable.
We have historically generated substantial losses, which, if
continued, could make it difficult to fund our operations or
successfully execute our business plan, and could adversely affect
our stock price. We experienced net losses of $5,373,377 for the year
ended December 31, 2002, and $5,321,623 for the twelve-month period
ended December 31, 2003. We have generated significant net losses in
recent periods, and experienced negative cash flows from operations
in the amount of $1,498,184 for the year ended December 31, 2002 and
$4,371,480 for the twelve-month period ended December 31, 2003. In
recent years, some of the losses were incurred as a result of
investments in new product development and marketing costs. While we
have reduced our investments, we anticipate that we will continue to
generate net losses and we may not be able to achieve or sustain
profitability on a quarterly or annual basis in the future. In
addition, because large portions of our expenses are fixed, we
generally are unable to reduce expenses significantly in the short-
term to compensate for any unexpected delay or decrease in
anticipated revenues. As a result, we may continue to experience net
losses, which will make it difficult to fund our operations and
achieve our business plan, and could cause the market price of our
common stock to decline.
We have a limited operating history and may never achieve or sustain
profitable operations.
We are an early stage production company originally incorporated in
1996. We acquired our subsidiary, Technical Solutions Group, Inc. in
July 2002. We have generated limited revenues from our current
products and revenue of $6,247,285 and $2,606,634 in years 2003 and
2002. In 2003 the mine protected vehicles division provided 100% of
the sales, 100% of the cost of goods sold and 100% of the profit. In
2002 mine protected vehicles provided 83% of the sales, 86% of the
cost of goods sold, and 75% of the gross profit. In 2001, all of our
revenue was derived from the sale of boats, which we no longer
manufacture. Our ability to successfully commercialize our products
will depend on, among other things, successful completion of our
ongoing development activities, geo-political events, ability to
manufacture and distribute the products, and the relative cost to the
customer of our system as compared to alternative competitive
products. Because we focus on emerging markets, market reaction can
be difficult to predict. Many of our planned products incorporate
technologies or approaches that have not yet achieved broad market
acceptance. In addition, we have a limited history of competing in
the intensely competitive defense industry. Our technology may not be
successfully commercialized or marketed. As a result, we may never
achieve or sustain profitable operations.
Our Independent Accountants have issued a Going Concern Opinion and
if we do not generate enough cash from operations to sustain our
business we may have to liquidate assets or curtail our operations.
The accompanying financial statements have been prepared assuming we
will continue as a going concern. During the year ended December 31,
2003, we incurred a net loss of $5,321,623. During the year ended
December 31, 2002, we incurred net loss of $5,373,377. Conditions
exist which raise substantial doubt about our ability to continue
unless we are able to generate sufficient cash flows to meet our
obligations and sustain our operations. The financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
We depend on our suppliers and if we can not obtain certain
components for our products, we might have to develop alternative
designs that could increase our costs.
We depend upon a number of suppliers for components of our products.
There is an inherent risk that certain components of our products
will be unavailable for prompt delivery or, in some cases,
discontinued. We have only limited control over any third-party
manufacturer as to quality controls, timeliness of production,
deliveries and various other factors. Should the availability of
certain components be compromised, it could force us to develop
alternative designs using other components, which could add to the
cost of goods sold and compromise delivery commitments. If we are
unable to obtain components in a timely manner, at an acceptable
cost, or at all, we may need to select new suppliers, redesign or
reconstruct process we use to build the hulls and/or the vehicles,
which management believes would take a minimum of one-year. We may
not be able to manufacture any vehicles for a period of time, which
could materially adversely affect our business, results from
operations, and financial condition.
We market our products to a limited customer base and if we do not
find acceptance of our products within that customer base, our
business may fail.
Our government business depends on a limited number of customers, and
if any of these customers terminate or reduce their contracts, or if
we cannot obtain additional government contracts in the future, our
revenues will decline and our results of operations will decrease.
Because most of our consolidated revenues were derived directly or
indirectly from government contractors, this risk can significantly
affect our business, results of operations and financial condition.
In the twelve-months ended December 31, 2003, our revenues were
derived directly or indirectly from two governmental agencies, the
U.S. Army and through a private contractor, the British Ministry of
Defence. We expect to continue to be dependent upon contracts with
governmental agencies and their contractors for a substantial portion
of revenue for the foreseeable future.
Because we currently depend on government contracts and subcontracts,
we face certain risks, including budget restraints and fixed price
contracts. General political and economic conditions, which are
difficult to accurately predict, directly and indirectly affect the
quantity and allocation of expenditures by government agencies. Even
the timing of incremental funding commitments to existing, but
partially funded, contracts can be affected by these factors.
Therefore, cutbacks or re-allocations in the U.S. or other government
budget could have a material adverse impact on our results of
operations as long as research and development contracts remain an
important element of the business.
Obtaining government contracts may also involve long purchase and
payment cycles, competitive bidding, qualification requirements,
delays or changes in funding, budgetary constraints, political
agendas, extensive specification development, price negotiations and
milestone requirements. Each government agency also maintains its own
rules and regulations with which we must comply and which can vary
significantly among agencies. Governmental agencies also often retain
some portion of fees payable upon completion of a project and
collection of these fees may be delayed for several months or even
years, in some instances.
In addition, an increasing number of government contracts are fixed
price contracts which may prevent us from recovering costs incurred
in excess of its budgeted costs. Fixed price contracts require us to
estimate the total project cost based on preliminary projections of
the project's requirements. The financial viability of any given
project depends in large part on our ability to estimate such costs
accurately and complete the project on a timely basis. In the event
actual costs exceed the fixed contractual cost, we may not be able to
recover the excess costs.
Some government contracts are also subject to termination or
renegotiation at the convenience of the government, which could
result in a large decline in revenue in any given quarter. Although
government contracts have provisions providing for the reimbursement
of costs associated with termination, the termination of a material
contract at a time when our funded backlog does not permit
redeployment of staff could result in reductions of employees. In
addition, the timing of payments from government contracts is also
subject to significant fluctuation and potential delay, depending on
the government agency involved. Any such delay could result in a
temporary shortage in working capital.
Some of our product components are manufactured in South Africa and
if that country becomes unstable or changes government regulations
our costs may increase or we may become unable to source certain
parts.
Some of our product components are manufactured in South Africa. If
import tariffs or taxes increase for any reason, our cost of goods
would increase. Our financial performance may be affected by changes
in South Africa's political, social and economic environment. The
role of the South African central and local governments in the
economy is significant. South African policies toward economic
liberalization, and laws and policies affecting foreign companies,
foreign investment, currency exchange rates and other matters could
change, resulting in greater restrictions on our ability to do
business with suppliers based in South Africa. The government could
impose surcharges, increase tax rates, or revoke, terminate or
suspend operating licenses without compensating us. Also, South
Africa has, from time to time, experienced instances of civil unrest
and hostilities. Confrontations have occurred between the military,
insurgent forces, and civilians. If for these or any other reason, we
lose our ability to sub-contract or manufacture the compenents to its
products, or the cost of doing business increases, our business,
financial condition, and results of operations would be materially
and adversely affected.
We may be subject to personal liability claims and our insurance, if
any, may not be adequate to cover such claims. As a result, a
significant lawsuit could adversely affect our business.
We may be exposed to liability for personal injury or property damage
claims relating to the use of the products. Any future claim against
us for personal injury or property damage could materially adversely
affect the business, financial condition, and results of operations
and result in negative publicity. Even if we are not found liable,
the costs of defending a lawsuit can be high. We do not currently
maintain insurance for this type of liability. Additionally, even if
we do purchase insurance, we may experience legal claims outside of
our insurance coverage, or in excess of our insurance coverage, or
that insurance will not cover.
We are subject to substantial competition and we must continue
research and development to remain competitive.
We are subject to significant competition that could harm our ability
to win business and increase the price pressure on our products. We
face strong competition from a wide variety of firms, including
large, multinational vehicle, defense and aerospace firms. Most of
our competitors have considerably greater financial, marketing and
technological resources than we do which may make it difficult to win
new contracts and we may not be able to compete successfully. Certain
competitors operate fabrication facilities and have longer operating
histories and presence in key markets, greater name recognition,
larger customer bases and significantly greater financial, sales and
marketing, manufacturing, distribution, technical and other
resources, as a result, these competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer
requirements. They may also be able to devote greater resources to
the promotion and sale of their products.
Moreover, we may not have sufficient resources to undertake the
continuing research and development necessary to remain competitive.
Competitors may attempt to independently develop similar designs or
duplicate our products or designs. We or our competitors may
intentionally or unintentionally infringe upon or misappropriate
products or proprietary information. In the future, litigation may
be necessary to enforce intellectual property rights or to determine
the validity and scope of the proprietary rights of others. Any such
litigation could be time consuming and costly. Currently we have no
patents. Any patent or patents sub-licensed to us relating to
current or future products may be challenged, invalidated, or
circumvented or the rights granted thereunder will may not be held
valid if subsequently challenged.
Our products are based on technological innovation. Consequently, the
life cycles of some of our products can be relatively short. Our
success depends significantly on our ability to establish and
maintain a competitive position in this field. Our products may not
remain competitive in light of technological developments by others.
Our competitors may succeed in discovering and developing technology
before we do that would render our technology, and hence our
products, obsolete and noncompetitive.
We must comply with environmental regulations or we may have to pay
expensive penalties or clean up costs.
We are subject to federal, state, local and foreign laws, and
regulations regarding protection of the environment, including air,
water, and soil. Our manufacturing business involves the use,
handling, storage, and contracting for recycling or disposal of,
hazardous or toxic substances or wastes, including environmentally
sensitive materials, such as batteries, solvents, lubricants,
degreasing agents, gasoline and resin. We must comply with certain
requirements for the use, management, handling, and disposal of these
materials. We do not maintain insurance for pollutant cleanup and
removal. If we are found responsible for any hazardous
contamination, we may have to pay expensive fines or penalties or
perform costly clean-up. Even if we are charged, and later found not
responsible, for such contamination or clean up, the cost of
defending the charges could be high.
If we do not comply with government regulations, we may be unable to
ship our products or have to pay expensive fines or penalties.
We are subject to regulation by county, state and federal governments,
governmental agencies, and regulatory authorities from several
different countries. If we fail to obtain regulatory approvals or
suffer delays in obtaining regulatory approvals, we may not be able to
marketing our products and services, and generate product and service
revenues. Further, we may not be able to obtain necessary regulatory
approvals. Although we do not anticipate problems satisfying any of
the regulations involved, we cannot foresee the possibility of new
regulations, which could adversely affect our business. Further our
products are subject to export limitations and we may be prevented
from shipping our products to certain nations or buyers.
We rely on Proprietary Designs and Rights and if we have to litigate
those rights, our expenses could substantially increase.
Our success and ability to compete depend, in part, on the protection
of its designs and technology. In addition, our technology could
infringe on patents or proprietary rights of others. We have not
undertaken or conducted any comprehensive patent infringement
searches or studies. If any third parties hold any conflicting
rights, we may be required to stop making, using or selling our
products or to obtain licenses from and pay royalties to others.
Further, in such event, we may not be able to obtain or maintain any
such licenses on acceptable terms, if at all. We may need to engage
in future litigation to enforce intellectual property rights or the
rights of customers, to protect trade secrets or to determine the
validity and scope of proprietary rights of others, including
customers. This litigation could result in substantial costs and
diversion of resources and could materially and adversely affect our
results of operations.
Insiders can exert significant control over our policies and affairs.
As of December 31, 2003, our significant shareholders, Directors and
Executive Officers will, in the aggregate, beneficially own shares
that can convert into 40.07% of our outstanding common stock. These
shareholders, if acting together, will be able to exert substantial
influence over all matters requiring shareholder approval, including
amendments to our Articles of Incorporation, fundamental corporate
transactions such as mergers, acquisitions, the sale of the company,
and other matters involving the direction of our business and
affairs. As a result, although you may vote your shares, you will
have limited influence on our business and management.
The holder of our Series B Preferred Stock can exercise significant
control over our affairs and business.
Ashford Capital, LLC, as the holder of the 10 outstanding shares of
Series B Stock, has the right to vote, with the holders of common
stock, on any matter to which the common stock holders are entitled
to vote, the number of shares of common stock into which the Series B
Stock is convertible. In connection with the purchase, Ashford
obtained, but has not exercised, the right to appoint three of five
of our directors. The Series B Stock was purchased pursuant to a
Series B Convertible Preferred Stock Purchase Agreement we entered
into with Ashford Capital, LLC on December 27, 2001. In connection
with the Series B Agreement, we amended our Articles of Incorporation
by filing a Certificate of Designation with the Secretary of State of
Colorado. Under the Series B Designation, each share of Series B
Stock is convertible into 2% of the outstanding shares of our common
stock, on a fully diluted basis, measured at the time of the
conversion. Ashford may convert the Series B Stock into shares of
common stock, at any time, however, shares not voluntarily converted
by December 27, 2004 of the Agreement shall automatically convert
unless otherwise extended.
We depend on management and other key personnel and we may not be
able to execute our business plan without their services.
Our success and our business strategy depends in large part on our
ability to attract and retain key management and operating personnel.
Such individuals are in high demand and are often subject to
competing employment offers. We depends to a large extent on the
abilities and continued participation of our executive officers and
other key employees, particularly Mike Watts, CEO, Tom Thebes, CFO,
and Garth Barrett, president of our TSG subsidiary. We do not
presently maintain "key man" insurance on any employees. We believe
that, as our activities increase and change in character, additional,
experienced personnel will be required to implement our business
plan. Competition for such personnel is intense and we may not be
able to hire them when required, or have the ability to attract and
retain them.
"Penny Stock" rules may make buying or selling our securities difficult.
Trading in our securities is subject to the Securities and Exchange
Commission's "penny stock" rules and it is anticipated that trading
in our securities will continue to be subject to the penny stock
rules for the foreseeable future. The Securities and Exchange
Commission has adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. These rules require
that any broker-dealer who recommends our securities to persons other
than prior customers and accredited investors must, prior to the
sale, make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to execute
the transaction. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and
the risks associated with trading in the penny stock market. In
addition, broker-dealers must disclose commissions payable to both
the broker-dealer and the registered representative and current
quotations for the securities they offer. The additional burdens
imposed upon broker-dealers by such requirements may discourage
broker-dealers from recommending transactions in our securities,
which could severely limit the liquidity of our securities and
consequently adversely affect the market price for our securities.
Existing stockholders may experience significant dilution from the
sale of securities pursuant to our Investment Agreement with Dutchess.
The sale of shares pursuant to our Investment Agreement with Dutchess
will have a dilutive impact on our stockholders. As a result, our net
income per share, if any, could decrease in future periods, and the
market price of our common stock could decline. In addition, the
lower our stock price at the time we exercise our put option, the
more shares we will have to issue to Dutchess to draw down on the
full equity line with Dutchess. If our stock price decreases, then
our existing stockholders would experience greater dilution.
Dutchess will pay less than the then-prevailing market price of our
common stock which may cause our stock price to decline.
The common stock to be issued under our agreement with Dutchess will
be purchased at a 7% discount to the lowest closing bid price for the
ten days immediately following our notice to Dutchess of our election
to exercise our put right. These discounted sales could cause the
price of our common stock to decline and you may not be able to sell
our stock for more than you paid for it.
Our securities have been thinly traded on the over-the-counter
bulletin board, which may not provide liquidity for our investors.
Our securities are quoted on the Over-the-Counter Bulletin Board. The
Over-the-Counter Bulletin Board is an inter-dealer, over-the-counter
market that provides significantly less liquidity than the NASDAQ
Stock Market or national or regional exchanges. Securities traded on
the Over-the-Counter Bulletin Board are usually thinly traded, highly
volatile, have fewer market makers and are not followed by analysts.
The Securities and Exchange Commission's order handling rules, which
apply to NASDAQ-listed securities, do not apply to securities quoted
on the Over-the-Counter Bulletin Board. Quotes for stocks included on
the Over-the-Counter Bulletin Board are not listed in newspapers.
Therefore, prices for securities traded solely on the Over-the-
Counter Bulletin Board may be difficult to obtain and holders of our
securities may be unable to resell their securities at or near their
original acquisition price, or at any price.
We may not be able to access sufficient funds under the equity line
of credit with Dutchess when needed.
We will depend on external financing to fund our planned expansion.
We expect that these financing needs will be primarily met by our
agreement with Dutchess. However, due to the terms of the Investment
Agreement, this financing may not be available in sufficient amounts
or at all when needed. As a result, we may not be able to grow our
business as planned.
Investors must contact a broker-dealer to trade over-the-counter
bulletin board securities. As a result, you may not be able to buy
or sell our securities at the times that you may wish.
Even though our securities are quoted on the Over-the-Counter
Bulletin Board, the Over-the-Counter Bulletin Board may not permit
our investors to sell securities when and in the manner that they
wish. Because there are no automated systems for negotiating trades
on the Over-the-Counter Bulletin Board, they are conducted via
telephone. In times of heavy market volume, the limitations of this
process may result in a significant increase in the time it takes to
execute investor orders. Therefore, when investors place market
orders an order to buy or sell a specific number of shares at the
current market price it is possible for the price of a stock to go up
or down significantly during the lapse of time between placing a
market order and its execution.
We do not intend to pay dividends in the foreseeable future;
therefore, you may never see a return on your investment.
We do not anticipate the payment of cash dividends on our common
stock in the foreseeable future. We anticipate that any profits from
our operations will be devoted to our future operations. Any decision
to pay dividends will depend upon our profitability at the time, cash
available and other factors. Therefore, you may never see a return on
your investment. Investors who anticipate a need for immediate income
from their investment should not purchase the securities offered in
this prospectus.
Our stock price is volatile and you may not be able to sell your
shares for more than what you paid.
Our stock price has been subject to significant volatility, and you
may not be able to sell shares of common stock at or above the price
you paid for them. The trading price of our common stock has been
subject to wide fluctuations in the past. Since January 2002, our
common stock has traded at prices as low as $0.07 per share and as
high as $0.42 per share.
The market price of the common stock could continue to fluctuate in
the future in response to various factors, including, but not limited
to:
- quarterly variations in operating results;
- our ability to control costs and improve cash flow;
- announcements of technological innovations or new products by us or
our competitors;
- changes in investor perceptions; and
- new products or product enhancements by us or our competitors.
The stock market in general has continued to experience volatily
which may further affect our stock price. As such, you may not be
able to resell your shares of common stock at or above the price you
paid for them.
Impact of Financing on Subsidiaries.
The Company's equity and voting interests in subsidiaries could be
significantly diluted as a result of private placements, and further
financings could cause us to lose control of subsidiaries. We have
historically funded the operations of business with equity
financings. In order to continue the activities of subsidiaries, the
company is seeking direct equity investments to finance at least some
portion of business plans. Such additional financings may not be
available on acceptable terms, it at all.
Even if financing becomes available, the Company's ability to enjoy
the benefits of any potential increase in value on the part of
subsidiaries can be greatly reduced by third-party investments.
Additional financings in subsidiaries will result in a reduction in
equity interests in the subsidiaries and reduced control of
subsidiaries. Significant third-party investment in subsidiaries will
likely result in third-party investors receiving subsidiary board
representation and/or protective covenants that could further reduce
control over the day-to-day operations and strategic direction of
subsidiaries. Third-party financings of subsidiaries will also
inherently complicate fiduciary and contractual obligations and could
leave the Company more vulnerable to costly and uncertain litigation in the
future, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
No Assurance of Successful and Timely Product Development.
Although the Company designs and sells vehicles, the Company's
emphasis is the sales of development stage mine protected vehicle and the
Company's future is significantly reliant upon the success of the products. The
Company's vehicles and proposed enhancements are at various stages of
development and additional development and testing will be required
in order to determine the technical feasibility and commercial
viability of the products.
There can be no assurance that the Company's product development
efforts will be successfully completed. The Company's proposed
development schedule may be affected by a variety of factors, many of
which will not be within the control of the Company, including technological
difficulties, access to proprietary technology of others, delays in regulatory
approvals, international operating licenses, and the availability of necessary
funding. In light of the foregoing factors, there can be no assurance
that the Company will be able to complete or successfully commercialize its
products. The inability of the Company to successfully complete the development
of its new vehicles designs or to do so in a timely manner, could force the
Company to scale back operations, or cease operations entirely.
Success dependent on market acceptance.
The Company's success is dependent on the market acceptance of its
products. Despite the increasing demand for mine protected vehicles,
the Company's products represents an advanced approach to the
industry, and market acceptance of the Company's
products will be dependent, among other things, upon its quality,
ease of use, speed, reliability, and cost effectiveness. Even if the
advantages of the Company's products are established, the Company is
unable to predict how quickly, if at all, the products will be
accepted by the marketplace.
Uninsured claims or losses.
The Company may obtain comprehensive insurance, including liability,
fire and extended coverage, as is customarily obtained for
businesses similar to the Company. Certain types of losses of a
catastrophic nature, such as losses resulting from floods, tornadoes,
thunderstorms, and earthquakes, are uninsurable or not economically
insurable to the full extent of potential loss. Such Acts of God,
work stoppages, regulatory actions or other causes, could interrupt
production and adversely affect the Company's business,
expansion and results of operations.
The Company may be exposed to liability for personal injury or
property damage claims relating to the use of the products.
A wrongful death action was filed against the Company in September
2000. Although the Company settled the lawsuit and it did not materially
affect business, any future claim against the Company for personal injury or
property damage could materially adversely affect the business, financial
condition, and results of operations and result in negative
publicity. There can be no assurance that the Company will maintain
insurance, experience legal claims outside of its insurance coverage,
or in excess of its insurance coverage, or that insurance will not cover.
Technological obsolescence.
The industry is subject to technological innovation. Consequently,
the life cycles of products introduced in this industry can be
relatively short in some instances. The Company's success depends
significantly on its ability to establish and maintain a competitive
position in this field. There can be no assurance that the Company's
products will remain competitive in light of technological developments by
others. There can be no assurance that the Company's competitors will not
succeed in discovering and developing technology in advance of the Company that
would render the Company's technology, and hence its products, obsolete and
noncompetitive.
Limitations on Directors' and Officers' Liability.
The Company's Articles of Incorporation provide, as permitted by
governing Colorado law, that a director or officer of the Company shall not be
personally liable to the Company, or its shareholders, for monetary damages for
breach of his or her fiduciary duty of care as a director or officer, with
certain exceptions. In addition, the Company has agreed to indemnify its
officers and directors to the fullest extent permitted by Colorado law. Such
provisions may discourage stockholders from bringing a lawsuit against
directors for breaches of fiduciary duty and may also have the effect of
reducing the likelihood of derivative litigation against directors and officers
even though such action, if successful, might otherwise have benefited the
Company's stockholders. In addition, a stockholder's investment in the Company
may be adversely affected to the extent that the Company, pursuant to such
provisions, pays costs of settlement and damage awards against the Company's
officers or directors.
Additional Risks
The Company is subject to many additional risks. The risks and
uncertainties described outlined above are not a comprehensive list.
Additional risks and uncertainties not presently known or those the
management does not currently deem material may also affect business
operations.
Item 8. FINANCIAL STATEMENTS
Management's Report:
Force Protection's management is responsible for the fair
presentation and consistency, in accordance with generally accepted
accounting principles, of all the financial information included in
this Form 10-KSB. Where necessary, the information reflects
management's best estimates and judgments.
Management believes that Force Protection's system of control over
financial reporting as of November 15, 2003, was effective and
adequate to accomplish the objectives described above. Force
Protection's consolidated financial statements have been audited by
Michael Johnson & Co., LLC., independent auditors. Their audits were
conducted in accordance with auditing standards generally accepted in
the United States, and included a test of financial controls, tests
of accounting records, and other procedures as they considered
necessary in the circumstances.
Michael Watts
Director, CEO Force Protection
March 2, 2004
Report of Independent Auditors:
Michael Johnson & Co., LLC.
9175 Kenyon Ave., #100
Denver, CO 80237
Phone: 303-796-0099
Fax: 303-796-0137
Independent Auditor's Report
To the Board of Directors and Stockholders of
Force Protection, Inc. and subsidiary
We have audited the accompanying consolidated balance sheets of Force
Protection, Inc., and subsidiary (formerly known as Sonic Jet
Performance, Inc.) as of December 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders' equity (deficit)
and cash flow for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Force
Protection, Inc, and subsidiary, at December 31, 2003 and 2002, and
the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally
accepted in the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company's
recurring losses from operations and its difficulties in generating
sufficient cash flow to meet its obligation and sustain its
operations raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Michael Johnson & Co., LLC
Michael Johnson & Co., LLC
Denver, Colorado
March 2, 2004
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
For the Period ending DECEMBER 31 2003, 2002 and 2001
2003 2002 2001
----------------- ----------------- -----------
ASSETS
Current Assets:
Cash $ 278,777 $ 144,476 $ 42,760
Restricted cash - 201,004
Accounts receivable 144,932 166,242 9,500
Inventories 827,337 186,463 363,971
Other current assets 60,000 146,874 7,731
----------------- ----------------- -----------
Total Current Assets 1,311,046 644,055 624,966
----------------- ----------------- -----------
Property and equipment, net 309,068 336,523 1,221,313
----------------- ----------------- -----------
Other Assets:
Licensing rights 200,000 267,500
Goodwill - 1,434,873
--------------- ----------------- -----------
Total Other Assets - 1,634,873 267,500
---------------- ----------------- -----------
TOTAL ASSETS $1,620,114 $2,615,451 $2,113,779
---------------- ================= ==============
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
For the Period ending DECEMBER 31 2003, 2002 and 2001
2003 2002 2001
----------------- ----------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Account payable $715,066 $ 873,544 $ 458,416
Accrued payroll taxes 13,826 38,690 70,936
Other accrued liabilities 197,469 122,867 172,329
Current portion of capitalized
lease obligations - 12,236
Loans payable 536,162 56,807 -
General reserve 424,947 224,947
Deferred Revenue 209,175
------------- ---------------- ----------------
Total Current Liabilities 1,671,698 1,516,855 938,864
------------- ---------------- ----------------
Long-term debt:
Long-term accrued liabilities 176,961 227,414 -
Note payable - long-term 32,461 67,732 -
------------- ---------------- ----------------
Total long-term 209,422 295,146 -
------------- ---------------- ----------------
TOTAL LIABILITIES 1,881,120 1,812,001 938,864
------------- ---------------- ---------------
Shareholders' equity:
Preferred stock: no par value, 10,000,000
shares authorized, issued and outstanding
Series A convertible preferred stock
no share issued and outstanding - - -
Series B convertible preferred stock,
1 share issued and outstanding 25,000 25,000 25,000
Series C convertible preferred stock,
issued and outstanding,
34 and 5 shares respectively 1,294,000 340,000 50,000
Common stock, no par value, 300,000,000
shares authorized, issued and outstanding
122,280,238 and 29,016,461 respectively 19,403,349 15,985,256 12,015,715
Warrants 689,726 692,226 -
Shares committed to be issued 30,924 143,350 93,205
Accumulated deficit (21,704,005) (16,382,382) (11,009,005)
--------------- ---------------- --------------
Total stockholders' equity (261,006) 803,450 1,174,915
--------------- ---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,620,114 $ 2,615,451 $ 2,113,779
================ ================ ================
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENT
For the Period ending DECEMBER 31 2003, 2002 and 2001
(in dollars)
2003 2002 2001
-------------- ------------------ ----------------
NET SALES $6,247,285 $ 2,606,634 $ 1,199,047
COST OF SALES 4,442,418 1,877,495 896,084
-------------- ------------------ ----------------
GROSS PROFIT 1,804,867 729,139 302,963
-------------- ------------------ ----------------
OPERATING EXPENSES:
General and administrative 2,095,339 4,704,249 1,501,864
Impairment losses - goodwill 1,917,747 1,400,000 -
------------ ------------------ ----------------
Total Operating Expenses 4,013,086 6,104,249 1,501,864
------------ ------------------ ----------------
Loss from operations (2,208,219) (5,375,110) (1,198,901)
------------ ------------------ ----------------
OTHER INCOME (EXPENSE):
Interest income - 3,227 7,056
Other income 41,668 41,435 172,258
Interest expense (222,894) (42,929) (24,938)
Extraordinary loss - (393,293)
------------ ------------------ ----------------
Total Other Income (Expenses) (181,226) 1,733 (238,917)
------------ ------------------ ----------------
NET LOSS $(2,389,445) $(5,373,377) $(1,437,818)
============ ================== ================
Loss from Discontinued Operations $(2,932,179) - -
Net Loss $(5,321,623) $(5,373,377) $(1,437,818)
============= ================== =================
Basic loss per common share $ (.054) $ (0.13) $ (0.08)
------------- ------------------ ----------------
Diluted loss per common share $ (.028) $ (0.09) $ (0.07)
------------- ------------------ ----------------
Weighted-average shares used to compute:
Basic loss per share 98,221,830 40,697,802 15,847,263
------------- ------------------ ----------------
Diluted loss per share 186,760,559 61,421,885 23,816,716
------------- ------------------ ----------------
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended December 31,2003
Additional
Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Capital Warrants
---------- ------------- ------------- ------------- ------------- -------
Balance, December 31, 1999 1,600 $ 1,500,000 12,676,000 3,618,194 $ 272,000 $ 316,026
Issuance of common stock for
cash - - 348,767 710,583 - -
Capital changes due to debt
financing - - - - 826,000 708,601
Cumulative translation adjustment - - - - - -
Net loss - - - - - -
---------- ------------- ------------- ------------- ------------- --------
Balance, December 31, 2000 1,600 1,500,000 13,024,767 4,328,777 1,098,000 1,024,627
---------- ------------- ------------- ------------- ------------- ---------
Issuance of common stock for
services - - 4,841,969 6,186,938 (1,098,000) (1,024,627)
Conversion of preferred stock
into common stock (1,600) (1,500,000) 1,467,200 1,500,000
Issuance of preferred stock 6 75,000 - - - -
Cumulative translation adjustments - - - - - -
Net loss - - - - - -
---------- ------------- ------------- ------------- ------------- --------
Balance, December 31, 2001 6 75,000 19,333,936 12,015,715 - -
---------- ------------- ------------- ------------- ------------- --------
Issuance of common stock for
services - - 47,086,879 3,858,083 - -
Issuance of preferred stock 31 310,000 - - - -
Conversion of preferred stock
into common stock (2) (20,000) 564,706 20,000 - -
Beneficial conversion feature - - - - - 692,226
Stock issued in lieu of debt - - 4,572,897 91,458 - -
Net loss - - - - - -
---------- ------------- ------------- ------------- ------------- --------
Balance, December 31, 2002 35 $365,000 71,558,418 $15,985,256 - $ 692,226
========== ============= ============= ============= ============= ========
Issuance of common stock for
services - - 7,319,836 284,884 - -
Issuance of preferred stock 98 990,000 - - - -
Issuance of common stock for
cash 42,151,984 3,045,709
Conversion of preferred stock
into common stock - - - -
Beneficial conversion feature (3) (36,000) - - - (2,500)
Stock issued in lieu of debt - - 1,250,000 87,500 - -
Net loss - - - - - -
---------- ------------- ------------- ------------- ------------- --------
Balance, December 31, 2003 130 $ 1,319,000 122,280,238 19,403,349 - $ 689,726
========== ============= ============= ============= ============= ========
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY Continued
For the year ended December 31,2003
Accumulated
Shares Other
Committed Comprehensive Accumulated
to be issued Income Deficit Total
----------- ----------- --------------- ------------
Balance, December 31, 1999 $799,455 $ (4,943) $(2,132,207) $4,368,525
-
Issuance of common stock for -
cash (655,583) - - 55,000
Capital changes due to debt
financing - - - 1,534,601
Cumulative translation adjustment - 25,273 - 25,273
Net loss - - (7,458,046) (7,458,046)
----------- ----------- --------------- ------------
Balance, December 31, 2000 143,872 20,330 (9,590,253) (1,474,647)
----------- ----------- --------------- ------------
Issuance of common stock for
services (50,667) (20,330) 20,332 4,013,646
Conversion of preferred stock
into common stock -
Issuance of preferred stock - - - 75,000
Cumulative translation adjustments - - (1,266) (1,266)
Net loss - - (1,437,818) (1,437,818)
----------- ----------- - -------------- ------------
Balance, December 31, 2001 93,205 - (11,491,879) 1,174,915
----------- ----------- - -------------- ------------
Issuance of common stock for
services 50,145 - - 3,908,228
Issuance of preferred stock - - - 310,000
Conversion of preferred stock
into common stock - - - -
Beneficial conversion feature - - - 692,226
Stock issued in lieu of debt - - - 91,458
Net loss - - (5,373,377) (5,373,377)
----------- ----------- - -------------- ------------
Balance, December 31, 2002 $143,350 $ - $(16,382,382) $ 803,450
=========== =========== =============== ============
Issuance of common stock for
services (112,426) - - 172,458
Issuance of common stock for
cash - - - 3,045,709
Issuance of preferred stock - - - 990,000
Conversion of preferred stock
into common stock - - - -
Beneficial conversion feature - - - (38,500)
Stock issued in lieu of debt - - - 87,500
Net loss - - (5,321,623) (5,321,623)
----------- ----------- - -------------- ------------
Balance, December 31, 2003 $ 30,924 $ - $(19,644,292) $ (261,006)
=========== =========== =============== ============
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003 AND 2002
2003 2002 2001
------------ -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,389,445) $(5,373,377) $(1,437,818)
Loss from discontinued operations (2,932,179)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization (343,511) 245,807 141,314
Royalty 60,000 -
Goodwill Impairment 1,917,747 1,400,000 -
Restructuring Expense (224,947) - -
Deferred Revenue 209,175 - -
Write off of molds and tools on discontinued product - 1,020,000 -
Write off Dalian Sonic Jet Co, Ltd inventory - 5,863
Write off investment in Dalian Sonic Jet Co., Ltd - 393,292
Provision for China inventory and assets 368,492 -
Common stock issued for services 284,884 528,834 96,080
Common stock committed for services - 93,205
Stock issued in lieu of debt 87,500 (74,311) (164,335)
Write down of assets 1,400,000
Bad debts (57,950) 36,500 152,970
Beneficial conversion feature - warrants (2,500) 692,226 100,000
Change in assets and liabilities:
Decrease (increase) in accounts receivable 64,528 (206,650) 36,261
Decrease (increase) in other receivable 27,714 - (4,281)
Decrease (increase) in inventories (640,874) (150,411) 205,069
Decrease (increase) in due from related parties - (32,084)
Decrease (increase) in other current assets (54,000) (139,143)
Increase (decrease) in accounts payable (173,598) 125,557 430,546
Increase (decrease) in accrued payroll taxes (24,864) (32,246) 2,450
Increase (decrease) from customers 50,000 -
Increase (decrease) in other accrued liabilities (119,160) (49,462) (138,940)
----------- ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (4,371,480) (1,498,184) (120,408)
----------- ------------ ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restriced cash 201,004 2,116
Purchase of property and equipment (60,713) - (2,645)
Proceeds from sale of assets 294,862 - -
Investment in Technical Solutions Group (21,546) (505,000) -
----------- ------------- ------- ----
NET CASH USED IN INVESTING ACTIVITIES 212,603 (303,996) (529)
----------- ------------- ------------
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003 AND 2002
2003 2002 2001
------------ -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt - related party - 125,000
Proceeds from (payments on) capitalized lease (12,236) (1,432)
Issuance of common stock, net 3,045,709 1,425,825 -
Issuance of preferred stock, net 954,000 290,000 -
Proceeds from stock commitment (112,426) 143,500 -
Proceeds from loans 405,895 56,807 -
----------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,293,178 1,903,896 123,568
----------- --------------- ---------------
NET (DECREASE) INCREASE IN CASH 134,301 101,716 2,631
CASH - beginning of period 144,476 42,760 40,129
------------ --------------- ---------------
CASH - end of period $278,777 $ 144,476 $ 42,760
============ =============== ===============
Supplemental disclosures of cash flow information:
Interest paid (includes factoring) $ 322,992 $ 8,184 $ 24,937
============ =============== ===============
Income taxes paid $ 0 $ 800 $ 800
============ =============== =============
Supplemental schedule of non-cash investing and financing activities:
During the year ended December 31, 2003, the Company issued
4,019,836 restricted shares of common stock valued at $297,134
in connection with settlement agreements and outstanding
debts owed by the Company under various loan agreements. $ 297,134
During the year ended December 31, 2002, the Company issued
9,972,020 restricted shares of common stock valued at $963,626
in connection with the settlement agreement of all outstanding
debts owed by the Company under various loan agreements. $ 963,626
During the year ended December 31, 2001, the Company issued
6,309,169 restricted shares of common stock valued at $6,044,961
in connection with the settlement agreement of all outstanding
debt owed by the Company under loan agreements, agreement
between the Company and Plaintiffs in "Wrongful death case" and
outstanding amounts owed to employee and other expenses. $ 6,044
During the year ended December 31, 2001, the Company recorded
$93,205 for settlement with employees and consultants by
committing to issue shares, which represents the Company's
committed-to-issue 1,656,695 shares of common stock. $ 93,205
During the year ended December 31, 2002, the Company issued
6,000,000 restricted shares of common stock valued at $1,200,000
in connection with the acquisition of Technical Solutions Group, Inc.
$1,200,000
Cash from investing and financing activities exclude the effect of
the acquisition of real property through the assumption of debt.
The accompanying notes are an integral part of these financial statements.
FORCE PROTECTION INC. AND SUBSIDIARY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
For the period ending December 31, 2003
(in dollars)
Net Income $(5,321,623)
Other Comprehensive Income,
Net of tax -
---------------
Comprehensive Income $(5,321,623)
The accompanying notes are an integral part of these financial statements.
Force Protection, Inc.
(formerly Sonic Jet Performance, Inc.)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business:
Force Protection, Inc. (the "Company) designs, manufactures and
markets mine and blast protected vehicles.
General Statement
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.
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:
Principles of Consolidation
The consolidated financial statements include the accounts of Force
Protection, Inc., and Technical Solution Group, Inc. for the year ended
December 31, 2003. All inter-company balances and transactions are eliminated
in consolidation.
Going Concern
The accompanying consolidated financial statements have been prepare
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 the Company incurred losses of $5,321,623 and its
current liabilities exceed its current assets by $360,652.
Realization of a major portion of the assets in the accompanying
balance sheet is dependent upon continued operations of the Company,
obtaining additional financing, and the success of its future operations.
Due to the nature of the business it is uncertain whether we will
receive orders impeding our cash situation and our ability to pay creditors.
Comprehensive Income (Loss)
Comprehensive loss is equal to net loss for the years ended December
31, 2000, 2001, 2002 and 2003.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three
months or less to be cash equivalents. Cash equivalents consist
primarily of United States government securities.
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.
Property, Plant and Equipment
Property and equipment are stated at cost or at the value of the
operating agreement. Additions and improvements are capitalized;
these include all material, labor and engineering cost to design,
install or improve the asset. Routine repairs and maintenance are
expensed as incurred. Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives:
Building and improvements 20 years
Furniture and fixtures 7 years
Machinery and equipment 7 years
Tooling and molds 7 years
Vehicles 7 years
Impairment of Long-Lived Assets
The Company reviews long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company
would recognize an impairment loss based on the estimated fair value
of the asset.
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.
Goodwill, which represents the excess of purchase price over fair
value of net assets, acquired in the acquisition of Technical
Solutions Group, Inc. in June 2002. The Company follows SFAS 142,
Goodwill and Intangible Assets, which requires the Company 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 as "as-if" purchase price.
Foreign Currency Transaction
Assets and liabilities in foreign currencies are translated at the
exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at the exchange rate prevailing at the
transaction date, and the resulting gains and losses are reflected in
the statements of operations. Gains and losses arising from
translation of a subsidiary's foreign currency financial statements
are shown as a component of stockholders' equity (deficit) as
accumulated comprehensive income (loss).
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. The asset and liability method accounts for deferred
income taxes by applying enacted statutory rates in effect for
periods in which the difference between the book value and the tax
bases of assets and liabilities are scheduled to reverse. The
resulting deferred tax asset or liability is adjusted to reflect
changes in tax laws or rates. Because the Company has incurred losses
from operations, no benefit is realized for the tax effect
of the net operating loss carry-forward due to the uncertainty of its
realization.
Loss per Share
The Company utilizes 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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
The Company's 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.
Internal Controls
TSG is a relatively new company with limited staff resources.
Internal controls have been put in place and are evolving as the
company grows.
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 December 31, 2003 consisted of the following:
Raw materials and supplies $100,217
Work in process 674,419
Finished goods - Demo 52,701
Finished Goods 0
Less: Provision 0
Total Inventories $827,337
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 consisted of the following:
Furniture and fixtures $125,074
Machinery and equipment 307,490
Tooling - new products -
Design rights -
Vehicles 500
Demo vehicles 192,530
Less depreciation and
amortization (316,526)
Total property and equipment $309,068
Depreciation expense for the year ended December 31, 2003 was $104,334.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
On October 10, 2003, TSG entered into a lease agreement with
Intertech Group, Inc. to lease 86,000 square feet of manufacturing
and administrative space and transfer the Company's executive offices
at the end of October, 2003 to new facilities at 9801 Highway 78,
Building No. 3, Ladson, South Carolina. 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. The prior landlord has agreed to terminate its
lease at the Company's prior headquarters located at 2031 Avenue B,
Building 44, North Charleston, South Carolina, in exchange for
payment of rent at this prior facility through November 30, 2003.
The Company has terminated its month-to-month lease in Stanton,
California and transferred its headquarters to Ladson, South
Carolina. Additionally, the month-to-month warehouse lease in
Riverside, California was terminated with no penalty to the Company.
The Company has no remaining obligations under the terminations. The
Company's wholly owned subsidiary in China has been dissolved. The
Company has no ongoing obligations in Nanning, China.
Royalty/Licensing Agreements
On December 27, 2001, the Company entered into a new license
agreement covering the design and other rights, with Mardikian Marine
Design, an entity that includes two of the Company's larger
shareholders, and a principal of the holder of the Company's Series B
preferred stock. The Company paid all outstanding obligations under
the agreement for 2002 in the first quarter of 2003; in addition the
Company paid all outstanding obligations under the agreement through
June 2003. The remaining obligation under the agreement remain in
dispute and is the subject of a claim by a member of Mardikian Marine
Design and a counter suit against a member of Mardikian Marine
Design. One of the principals of Mardikian Marine Design has
informed the Company of his intention to revoke the licensing
agreement to the Company and has filed a lawsuit against the Company
(discussed in Part 1,Item 3 of this Form 10-KSB).
NOTE 6 - STOCK COMPENSATION PLAN
On September 30, 2003, the Company adopted a Directors and
Consultants Retainer Stock Plan. A total of 5,000,000 shares can be
issued under this plan and were registered under a Form S-8
registration statement filed with the Securities and Exchange
Commission on November 7, 2003, and declared effective on that date.
The purposes of the plan are to enable the Company to promote the
interests of the Company and its shareholders by attracting and
retaining both employee and non-employee directors and consultants by
paying their retainer or fees in the form of free trading shares of
the Company's common stock. No shares have yet been issued under this plan.
The Company's July 2000 Employee Stock Compensation Plan provides for
the granting of stock options to employees and certain consultants of
the Company. A total of 2,000,000 shares of common stock have been
reserved for issuance upon exercise of options granted under the
plan. Securities authorized for issuance under equity compensation plans:
Number of securities Weighted average Number of securities
to be issued upon exercise price of for remaining available
exercise of future outstanding options
outstanding options
Plan Category
Equity compensation plans approved by
security holders (a) 1,987,829 (b) $0.11 (c) 12,171
Equity compensation plans not
approved by security holders ________ ____ _____
Total: (a) 1,987,829 (b) $0.11 (c) 12,171
NOTE 7 - SALE OF ASSETS
Effective July 1, 2003 and modified on September 15, 2003, the
Company transferred the sales activity and right to use the Stanton,
California facility, and transferred certain boat assets of the fire
and rescue operations to its subsidiary, Rockwell Power Systems Inc.
("RPSI"). The Company then agreed to accept shares from Xtreme
Companies, a public traded company trading under the symbol XTRI.OB
on the Bulletin Board. Under the agreement, Force Protection agreed
to distribute the shares it received to its shareholders of record on
December 5, 2003. In addition Force Protection is to receive
$500,000 in preferred Series A stock of Xtreme for a list of tangible
and intangible assets included as part of the original asset sale agreement.
NOTE 8 - OTHER TRANSACTIONS
Rights of Series B and Series C Preferred Shareholders.
Under the original agreements for Series B and Series C preferred
shares, the conversion rights were extended to December 27, 2004 from
the previous mandatory conversion of December 27, 2003. The
extension was agreed to in exchange for waiving the time provisions
for the filing of the registration statement by the registrant.
Capital Stock Transactions
During the nine months ended September 30, 2003, two restricted
shares of Series C preferred stock were redeemed, ten shares were
issued to Garth Barrett, an employee, two shares to Russell Miller, a
consultant advising on strategic issues, and one share was committed to
Scott Ervin, a director of the company, in exchange for a loan of
$50,000 to the Company, leaving a balance of 45 shares of Series C
preferred stock outstanding and committed at September 30, 2003.
The Company issued to Scott Ervin, a director, as compensation in
such capacity, restricted shares of common totaling 250,000 in the
third quarter 2003.
During the three months and nine months ended September 30, 2003, the
Company issued or committed to be issued 195,085 and 3,300,000
restricted shares of common stock, respectively, to five companies
and individuals (Regent Capital West, Albert Mardikian, Ashford
Capital LLC., R. James Consulting, and Harrison Douglas, Inc.) in
connection with compensation under the private placement being
conducted by the Company.
During the three months and nine months ended September 30, 2003, the
Company sold a total of 2,245,000 and 25,924,000 restricted shares of
common stock and warrants, respectively, to investors pursuant to its
private placement memorandum, generating net proceeds of $88,981 and
$1,299,900 respectively, pursuant to the sale of common stock units.
Each common stock unit consists of (a) 50 restricted shares of common
stock of the Company, (b) one warrant to purchase 25 restricted
shares of common stock of the Company at an exercise price of $0.20
per share, and (c) one warrant to purchase 25 restricted shares of
common stock, at an exercise price of $0.30 per share (which was
subsequently reduced to $0.01 per share, of which all warrants were
exercised).
Employment Agreements.
During the second quarter of 2003, the Company negotiated certain
changes in employment agreements with certain of its officers.
Under a previous agreement, the Company was to issue Mr. Watts a
warrant for 2,000,000 restricted shares of common stock at $0.07 a
share with full vesting rights as of July 1, 2002, plus a warrant for
1,000,000 restricted shares of common stock at $0.07 a share vesting
on the June 30, 2003, plus a warrant for 1,000,000 restricted shares
of common stock at $0.07 a share vesting on June 30, 2004, plus 10
shares of Series "C" preferred or the equivalent in common shares.
These issuances were modified to be grants, effective July 1, 2002,
of 2,000,000 shares of S8 common stock, plus a warrant for 1,000,000
S8 shares of common stock at $0.07 exercisable on June 20, 2003, plus
a warrant for 1,000,000 S8 shares of common stock exercisable on June
20, 2004.
Garth Barrett is to receive a salary plus a grant of 10 shares of
series "C" preferred stock.
On April 1, 2003, the Company entered into an agreement with Frank
Kavanaugh, the Company's director of business development, for a
salary, and a grant of 500,000 restricted shares of the Company's
common stock. Also, during June 2003, Mr. Kavanaugh was granted
750,000 restricted shares of common stock that were committed in June
of 2002, for consulting services as interim general manager during
the second and third quarters of 2002.
In connection with the restructuring of the Company, it entered into
a verbal termination agreement with Madhava Rao Mankal. The
agreement stipulates that he will assist the Company as a consultant
for 90 days beginning October 1, 2003 at the same salary, without
benefits, and receive a grant of 600,000 restricted shares of stock
in September, 2003. On December 31, 2003 Mr. Mankal will be paid 90
days termination based on his annual rate of salary of $64,800. In
June 2003, Mr. Mankal received 200,000 restricted shares of common
stock for the first and second quarters of 2003 in connection with
his employment contract dated March 17, 2003, and in September 2003
he received 600,000 restricted shares of common stock in connection
with his termination agreement.
During the third quarter of 2003, the Company also negotiated a
termination agreement with Hratch Khedesian, the Company's former
production manager. Mr. Khedesian received 660,000 restricted shares
of common stock in 2003 in connection with his employment contract
dated January 2, 2002 and termination agreement. In addition Mr.
Khedesian will receive future payments totaling $58,000 over the next
two years. Executive officer compensation is subject to review on a
periodic basis by the board of directors.
Acquisition of TSG International, Inc.
As part of the purchase of TSG International, Inc. (which owns 100%
of Technical Solutions Group, Inc.,) in July 2002 (see 2002 Form 10-
KSB), Ashford Capital, LLC, an advisor to the transaction and a
shareholder of the Company, received shares equal to 10% of TSG
International, Inc. in the form of a Series A preferred stock. An
agreement was reached in April of 2003 under which Ashford Capital,
LLC could exchange each shares of TSG International, Inc. Series A
preferred stock for 50 shares of the Company's Series C preferred
shares, by **notifying the Company by October 15, 2003.
In September 2003, Ashford Capital, LLC and the Company's CEO,
Michael Watts, reached an agreement under which the TSG Series A
preferred shares and the rights associated with the Series A
preferred shares were purchased by Mr. Watts in a private sale
between the parties. On October 12, 2003, the Company was notified
of Ashford Capital, LLC's intention to exercise its option to
exchange its TSG International, Inc. preferred stock for the
Company's Series C preferred stock. Under the terms of the
agreement, Mr. Watts will exchange each share of his TSG
International, Inc. stock for 50 shares of Company Series C preferred
stock effective October 15, 2003. As a result, the Company will hold
100% of TSG International, Inc.
Redemption of Series C Preferred Stock
Under the terms of the Series C preferred stock, as reflected in an
amended Certificate of Designation, shareholders could redeem each
preferred share for $12,000 after a certain date. Under these terms,
Noriaki Sasaki notified the Company of his request to redeem 10
shares of the Series C preferred stock at a schedule to be provided
by the Company. The Company has agreed to a redemption schedule and
has redeemed 2 of the 10 shares. The remaining 8 shares should be
redeemed by January 2004. Subsequently, the remaining Series C
shareholders have waived the redemption rights in return for an
extension of the mandatory conversion dates (see 2002 Form 10-KSB).
NOTE 9 - INCOME TAXES
There has been no provision for U.S. federal, state, or foreign
income taxes for any period because the Company has incurred losses
in all periods and for all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets are as
follows as of December 31, 2002:
Deferred tax assets:
Net operating loss carry forwards $11,954,500
Future deduction for intangible assets 1,612,013
Future deduction for reserves & others 1,880,682
Less valuation allowance (15,447,195)
------------
Net deferred tax assets $ -
============
Realization of deferred tax assets is dependent upon future earnings,
if any, the timing and amount of which are uncertain. Accordingly,
the net deferred tax assets have been fully offset by a valuation
allowance. As of December 31, 2002, the Company had net operating
loss carry forwards of approximately $11,954,500 for federal and
state income tax purposes. These carry forwards, if not utilized to
offset taxable income begin to expire in 2007. Utilization of the net
operating loss may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue
Code and similar stat provisions. The annual limitation could result
in the expiration of the net loss before utilization.
Note 10 Discontinued Operations
Discontinued operations follows SFAS no. 144. The loss from
discontinued operations consist of impairment loss, the loss or gain
from actual operations, and the gain/loss on the disposal of assets.
All these accounts are included in discontinued operations in the
period in which they occur.
On October 1, 2003, Force Protection discontinued operations of its
boat division from its ongoing operations as the result of the asset
disposal. Force Protection does not have any continuing involvement
in the operations after the disposal.
We anticipate "subsequent adjustments" in 2004 for settlement of
employee severance and any potential warranty claims.
Discontinued operations:
Loss from operations including
Impairment loss $2,932,179
Income tax benefit -
-----------
Loss from Discontinued Operations $2,932,179
Note 11 Contingency Losses
A potential liability from the discontinued boat operation exists.
During the 2001-2002 time frame, the company experienced a hull
quality problem with a foreign distributor. The issue has been
satisfied however a $29,000 potential exposure remains. The company
believes the probability of this exposure is very low.
A potential liability from the discontinued boat operation exists.
There is a lawsuit pending in Texas seeking $42,495 and legal fee.
The claim has arises over charges of vessel defects, specifically the
motor supports creating hull damage.
There has been no adjustment to the financial statements reflecting
these potential liabilities.
Note 12 Receivables
During 2003 we factored our receivables at 3%.
Note 13 Goodwill
The impairment expense for 2002 was $1,400,000. $482,874 was
reclassified from "Investment in TSG" to Goodwill during the 4th
quarter. The goodwill impairment expense for 2003 was $1,917,747.
There is no goodwill remaining on the balance sheet as of December
31, 2003.
Note 14 Restructuring Expenses - Net
The Company implemented restructuring actions to streamline
operations and exit the boat business. These actions include
workforce reductions, rationalization and the exit of the boat
business. Charges and credits related to discontinued operations are
included in income (loss) from operations of discontinued operations.
As of December 31, 2003, there is no longer a restructuring reserve on the
balance sheet. Restructuring expense for 2003 was $224,947.
SFAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized and measured initially at fair
value only when the liability is incurred. The adoption of SFAS 146
did not have a material impact on the Company's financial condition.
Note 15 Debts
As of December 31, 2003 we had $209,422 of total long term debt.
$32,461 of this debt is a 12% simple interest loan, with a maturity
date of November 1, 2004. The remaining $176,961 are long-term
payables with no effective or stated interest or maturity dates.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. Control and Procedures
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the end of the period covered by this
report, the Company carried out an evaluation of the effectiveness of
the design and operation of its disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
("Exchange Act"). This evaluation was done under the supervision and
with the participation of the Company's president and chief financial
officer. Based upon that evaluation, they concluded that the
Company's disclosure controls and procedures are effective in
gathering, analyzing and disclosing information needed to satisfy the
Company's disclosure obligations under the Exchange Act as of
September 30, 2003.
(b) Changes in internal controls.
The most significant changes in the Registrant's internal
controls or in its factors that could significantly affect those
controls was the addition of a chief executive officer and the
issuance of an authorization procedure for commitment of resources.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTES AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors, Executive Officers, Promoters and Control Persons
The following table sets forth certain information about our
directors and executive officers.
Name Age Position
Michael Watts 56 Chief Executive Officer, Director
Madhava Rao Mankal 52 Director
Scott R. Ervin 49 Director
Frank Kavanaugh 43 Director of Business Development, Director
Gale Aguilar 71 Director
Thomas H. Thebes 48 VP of Finance, Chief Financial Officer
Biographies of executive officers and directors
Michael Watts, Chief Executive Officer/Director
Mr. Watts joined us in July of 2002 as General Manager of TSG,
International and was appointed Chief Executive Officer on May 29,
2003. Mr. Watts has more than 30 years of experience as an executive
and investor. He has served as CEO of four private companies in the
computer hardware, computer software, consumer electronics, and
semiconductors fields - two of which he founded. In addition, he has
served as a management consultant to numerous companies, including
BNP Paribas and Wells Fargo Bank, in various industries. From March
1998 to February 2002, Mr. Watts was self employed as an investor.
For the period of January 2002 to July 2002, he served as a
management consultant to visual enVisual Enterprises, Inc. a software
company. From November 2002 through May 2003 he was associated with
the consulting firm of Hickey & Hill and was employed as an advisor
to BNP Paribas. Mr. Watts received a Bachelor of Science degree in
Electrical Engineering with high honors from Colorado State
University in 1969 and studied Finance in the MBA program at the
University of Colorado in 1973. He holds five patents, including one
for the laser bar code scanner and four related to software.
Madhava Rao Mankal: - Director
Mr. Mankal served as Chief Financial Officer from May 1999, and was
appointed President in January of 2002. With the sale of our
California operations, agreement was terminated which stipulates that
he remain chief financial officer of the Registrant until November
30, 2003 and then act as a consultant for the Registrant until
December 31, 2003. Prior to that, Mr. Mankal served as Controller of
American Power Products, Inc. between 1998 and 1999, and Manager at
American Power Products, Inc., from September 1994 to 1998. He has
more than 28 years of experience in senior positions in various
manufacturing and service organizations. He is Qualified Chartered
Accountant and Cost Accountant and a member of the Institute of
Chartered Accountant, Institute of Cost and Works Accountants, and
Institute of Management Accounting.
Scott R. Ervin: - Director
Mr. Ervin acted initially as a director from June through October
2001, and has served on the board continuously since February 2002.
He is an attorney, having graduated from Boston College Law School
(JD 1984) and is licensed to practice in New York and Texas. From
1984 through 1991 Mr. Ervin was associated with the New York law firm
of Burlingham, Underwood and from 1991 through 1999 he practiced law
with the law offices of Dr. Abdelrahman Abbar, in Jeddah Saudi
Arabia. Since 1999 Mr. Ervin has been in private practice in Austin
Texas. He is a director of Interlex, Inc a Texas corporation and a
director of The Behavioural Sciences Foundation, a non-profit
scientific research foundation. He also acts as trustee for several
private trusts.
Frank Kavanaugh: - Manager of Business Development, Director
Mr. Kavanaugh has worked for the Company since May of 2002 in our
fire/rescue business, and in January of 2003 became responsible for
strategic and investment relationships. In October of 2003 he was
appointed to the board of directors. Over the last 8 years, as a
principal in Ashford Capital, LLC and its predecessor he has served
in several executive positions including operational management roles
at NewGen Systems, and several portfolio companies. He co founded
and served as President of QuickStart Technologies and held positions
at Microsoft and Hewlett Packard. His education includes: a BS degree
in Information & Computer Science, from University of California,
Irvine and an MBA from Pepperdine University. He also serves on
several community boards including the Child Guidance Center of
Orange County, and the board of advisors at Chaprman University's
Leatherby Center.
Gale Aguilar: - Director
Mr. Aguilar has served as our director since October of 2003.
Currently he is the President and a member of the Board of Directors
at MITEM Corporation which he joined in 1995. His experience
includes SF2 Corp, Stardent Corporation, and Prime Computer as VP of
Marketing Senior, and VP of Corp. Strategy and Corp. Development. In
addition, he worked at IBM for 27 years in several positions
including \ Director of Marketing and Service General Products
Division, and IBM Director of Product Marketing, and Director of
Systems Strategy. His experience includes active duty in the Army
1951-55. He participates on several corporate and charitable boards.
Thomas H. Thebes: - VP Finance, Chief Financial Officer
Mr. Thebes joined the company in November 2003 as VP Finance,
Chief Financial Officer. Prior to joining us, Mr. Thebes served as Program
Manager for Flextronics. From 2001 through 2003, Mr. Thebes was a
Financial Consultant for ID Technologies and GlaxoSmithKline. From 1999 to
2001, Mr. Thebes was the Controller, Manufacturing and International Operations
- Insilco Technologies. Mr. Thebes has over 22 years of operational management
and strategic business analysis in both the federal sector and private
industry. He has spent over 12 years conducting Activity Based Management
studies, business process reengineering, benchmarking and strategic planning
for Fortune 100 and Fortune 1000 companies. Mr. Thebes holds an undergraduate
degree from Miami University and an MBA from the University of Toledo.
Number and Election of Directors
We have five directors. Directors are elected annually.
Director Compensation
We currently reimburse Directors for travel expense associated with
their work for the company and have agreed to establish a
compensation plan to be submitted for approval by shareholders at our
annual meeting in 2004.
Employment Agreements with Key Persons
During the second quarter of 2003, we negotiated certain changes in
employment agreements with certain of our executive officers:
Under a previous agreement dated June 20, 2002 and effective on July
1, 2002 we were to issue our CEO, Michael Watts, 2,000,000 restricted
shares of common stock vesting immediately and delivered no later
than one-year from the date of this agreement. In addition, he was
to receive a warrant for 2,000,000 restricted shares of common stock,
exercisable at $0.07 per share, vesting on the first and second
anniversary dates of the agreement. Finally, he was to receive a
warrant to purchase 10 shares of Registrant Series C preferred stock
or its equivalent in our common stock. These issuances were modified
by the board of directors to be grants, effective July 1, 2002, of
2,000,000 restricted shares of common stock, plus a warrant for
1,000,000 restricted shares of common stock at $0.07 a share vesting
on June 20, 2003, plus a warrant for 1,000,000 restricted shares of
common stock vesting on June 20, 2004.
On April 1, 2003, we entered into an agreement with Frank Kavanaugh,
our director of business development, for a salary, and a grant of
500,000 restricted shares of our common stock. Also, during June
2003, Mr. Kavanaugh was granted 750,000 restricted shares of common
stock that were committed in June of 2002, for consulting services as
interim general manager during the second and third quarters of 2002.
In connection with our restructuring, we entered into a verbal
termination agreement with Madhava Rao Mankal in connection with his
prior employment agreement. The agreement stipulates that he remain
our chief financial officer until November 30, 2003 and then act as
our consultant until December 31, 2003 at the same salary, without
benefits, and receive a grant of 600,000 restricted shares of stock
in September, 2003. On December 31, 2003 Mr. Mankal will be paid 90
days termination based on his annual rate of salary of $64,800. In
June 2003, Mr. Mankal received 200,000 restricted shares of common
stock for the first and second quarters of 2003 in connection with
his employment contract dated March 17, 2003, and in September 2003
he received 600,000 restricted shares of common stock in connection
with his termination agreement.
Effective on November 30, 2003, Madhava Rao Mankal will resign as
president, secretary, and chief financial officer, and on that date,
Thomas H. Thebes will assume the position of chief financial officer
of the Registrant. Mr. Mankal will remain a member of the board of
directors.
Limitations on Officer and Director Liability
Our Articles of Incorporation limit the liability of our directors or
our shareholders for monetary damages for breach of fiduciary duty as
a director except, for (i) liability based on a breach of the duty of
loyalty to us or our shareholders; (ii) liability for acts or
omissions not in good faith or that involved intentional misconduct
or a knowing violation of the law; (iii) liability based on the
payment of an improper dividend or an improper repurchase of our
stock under California law, or violations of federal or state
securities laws; (iv) liability for transactions from which the
director derived an improper personal benefit; or (v) liability for
any act or omissions occurring prior to the effective date of the
Articles of Incorporation.
Our Bylaws provide that we shall indemnify a person made or
threatened to be made a party to a threatened, pending or completed
civil, criminal, administrative, arbitration or investigative
proceeding by reason of such person's present or former capacity as
our director, officer, employee or agent if such person: (a) has not
been indemnified by another organization or employee benefit plan for
the same judgment, penalty or fine; (b) acted in good faith; (c)
received no improper personal benefit and, if a director, had no
improper conflict of interest; (d) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was
unlawful; and (e) reasonably believed that the conduct complained of
was in our best interests or was not opposed to our best interests.
The Colorado Business Corporation Act requires that unless prohibited
or limited by our Articles of Incorporation or Bylaws, we must
indemnify its current and former directors, officers and employees who
are made or threatened to be made a party to certain proceedings by
reason of their present or former official capacity with us, against
judgments, penalties, fines, settlements, and reasonable expenses
(including attorney's fees) incurred in connection with such
proceedings. "Proceeding," means a threatened, pending or completed
civil, criminal, administrative or investigative action, including a
derivative action in our name. Reference is made to the detailed terms
of the Colorado statute for a complete statement of such indemnification right.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling us under the foregoing provisions, we have been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act, and is
unenforceable for that reason.
Item 11. EXECUTIVE COMPENSATION
Set forth in the following table is certain information relating to
the approximate remuneration we paid during the past fiscal year to
our president and each of our most highly compensated executive
officers whose total compensation exceeded $100,000.
Summary Compensation Table
The following table presents a summary of the compensation paid to
our Chief Executive Officer and other highly compensated employees
during the last four fiscal years.. Except as listed below, there
are no bonuses, other annual compensation, restricted stock awards or
stock options/SARs or any other compensation paid to executive officers.
Annual compensation Long-term Compensation
Awards
Name and Other Restricted Securities Payouts
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation options/ payouts compensation
award SARs
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Madhava Rao 2000 60,000 0 0 0 0 0 0
Mankal 2001 64,000 0 0 0 0 0 0
President, 2002 65,000 0 0 0 500,000 0 0
CFO, Director 2003 64.800 0 0 0 1,000,000 0 0
===========================================================================================================
Mike Watts 2000 0 0 0 0 0 0 0
Force 2001 0 0 0 0 0 0 0
Protection 2002 4,500 0 0 0 2,000,000 0 77,000
CEO/President 2003 180,500 0 0 0 1,000,000 0 0
===========================================================================================================
Garth Barrett
TSG 2000 0 0 0 0 0 0 0
President 2001 0 0 0 0 0 0 0
2002 60,000 0 0 0 0 0 0
2003 120,000 0 0 0 2,250,000 0 0
===========================================================================================================
Frank Kavanaugh
TSG 2000 0 0 0 0 0 0 0
Business 2001 0 0 0 0 0 0 0
Development, 2002 60,000 0 0 0 500,000 0 32,000
Director 2003 146,923 0 0 0 750,000 0 0
Mr. Watts received $77,000 as a consultant to the company prior to
his employment.
Director Compensation
Mr. Scott Ervin was awarded 600,000 shares during 2002 and 2003 for
services as director.
Stock Option Plans
On September 30, 2003, we adopted a Directors and Consultants
Retainer Stock Plan. A total of 5,000,000 shares can be issued under
this plan and were registered under a Form S-8 registration statement
filed with the Securities and Exchange Commission on November 7,
2003. The purposes of the plan are to enable us to attract and
retain both employee and non-employee directors and consultants by
paying their retainer or fees in the form of free trading shares of
our common stock. As of December 29, 2003, no shares have been
issued under this plan. The Board of Directors or a committee of the
Board, which determines the persons who are to receive options and
the terms and the number of shares subject to each option,
administers the Option Plan.
Our July 2000 Employee Stock Compensation Plan provides for the
granting of stock options to our employees and certain consultants. A total of
2,000,000 shares of common stock have been reserved for issuance upon exercise
of options granted under the plan.
Sonic Jet Performance, Inc, entered into an employment agreement with Frank
Kavanaugh on April 1, 2003. Mr. Kavanaugh will be the Company's Director of
Business Development and will be paid an annual salary of $120,000 and will be
issued 500,000 shares of the Company's stock.
Sonic Jet Performance, Inc, entered into an employment agreement with Walter
Wright on April 1, 2003. Mr. Wright will be the Company's Investor Relations
Coordinator and will be paid an annual salary of $60,000.
Sonic Jet Performance, Inc. entered into a consulting agreement on July 1, 2002
with Mike Watts as its General Manager for TSG. Under the agreement Mr. Watts
will receive a consulting fee and options to purchase 4,000,000 shares of Sonic
Jet and options to purchase a 5% equity stake in TSG.
The Company anticipates that each employment agreement into which the Company
will enter will provide for warrants and/or options to purchase shares of the
Company's Common Stock that vest upon the achievement of certain performance
objectives. In addition, the Board of Directors may, at its discretion, award
these officers cash bonuses, options to purchase shares of Common Stock under
the Company's Stock Option Plan, and such other compensation, including
equity-based compensation, as the Board of Directors, or a committee thereof,
shall approve from time to time.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
Principal Shareholders
The following table sets forth, to our knowledge, certain information
concerning the beneficial ownership of our common stock as of
December 31, 2003 by each stockholder known by us to be (i) the
beneficial owner of more than 5% of the outstanding shares of common
stock, (ii) each current director, (iii) each of the executive
officers named in the Summary Compensation Table who were serving as
executive officers at the end of the 2002 fiscal year and (iv) all of
our directors and current executive officers as a group:
Name of Number of Shares Percentage
Beneficial Owner Beneficially Owned (1) Ownership (2)
---------------- ---------------------- -------------
Michael Watts (3) 22,814,706 12.67%
Garth J. M Barrett (4) 5,850,000 3.25%
Madhava Rao Mankal (5) 2,142,353 1.19%
Tom Thebes 0 0.00%
Scott Ervin (6) 1,225,000 0.68%
Frank Kavanaugh (7) 1,150,000 0.64%
Ashford Capital, LLC (8) 38,950,000 21.64%
All directors and executive 72,132,059 40.07%
officers as a group (persons)
(1) Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and includes voting or
investment power with respect to shares beneficially owned. Shares of
Common Stock subject to options or warrants currently exercisable are
deemed outstanding for computing the percentage ownership of the
person holding such options or warrants, but are not deemed
outstanding for computing percentage ownership of any other person.
(2) The shares of common stock outstanding as of December 31, 2003
are 122,280,238.
(3) Michael Watts acquired 50 Series C preferred shares convertible
to 18,000,000 assuming total outstanding common shares of 180,000,000
as listed in Note 2. He received 2,250,000 common shares and he has
purchased 564,706 shares from the Company. Under the terms of his
employment contract he is to an option exercisable in July of 2004 to
purchase 2,000,000 shares at 7 cents.
(4) Garth Barrett obtained 2,000,000 common shares as part of
settlement of acquisition of Technical Solution Group., Inc. Also, he
was awarded 250,000 common shares as bonus and 10 "C" Preferred
shares which convert to 3,600,000 common shares.
(5) Madhava Rao Mankal was given 1,500,000 shares as part of the
employment agreement. One C preferred Share was purchased by his son,
which was converted to common stock amounting to 282,353 common
shares. Also includes one Series C preferred share purchased in the
name of his wife, Sharada Rao convertible to 360,000 common shares.
(6) Scott Ervin received 865,000 shares of common stock and purchased
one share of Series C which is convertible into 360,000 shares of
common stock.
(7) Frank Kavanaugh is a principal in Ashford Capital, LLC - See (8) below.
(8) (a) Shares of Common Stock owned for the purposes of this
calculation include, (a) 36,000,000 shares of Common Stock issuable
upon conversion of Series B Preferred Stock held by Ashford Capital,
LLC, and (b) 1,800,000 shares of Common Stock issuable upon
conversion of Series C Preferred Stock held by Ashford Capital, KK,
and (c) shares in the individual name of Frank Kavanaugh as listed in
Note 7 above. The conversion shares referenced above are calculated
assuming 180,000,000 shares outstanding.. Ashford Capital, LLC,
disclaims beneficial ownership of the shares attributable to Ashford
Capital, KK. The business address of Ashford Capital, LLC is 3419 Via
Lido, #470, Newport Beach, CA 92663.
Item 13. Certain Relationships and Related Transactions
During 2003, Mike Watts, CEO loaned the company $50,000 as reflected
as "notes payable" on the balance sheet. This note has been repaid
during 2004 with no interest.
During 2003, Texbuild, a company owned by Chairman Scott Ervin,
loaned the company $50,000 as reflected as "notes payable" on the
balance sheet. This note has been repaid during 2004.
In January 2002, Ashford Capital, KK, purchased 7 shares of the Company's
Series C Convertible Preferred Stock for an aggregate purchase price of
$70,000. It converted two of the preferred shares into 564,706 shares of Common
Stock.
Ashford Capital, LLC, the holder of the Series B Preferred Stock, owns a
minority interest in Ashford Capital, KK.
On September 30, 2002 the Series C shareholders and the Company agreed to amend
and restate the Certificate of Designation of Series C Convertible Preferred
for Sonic Jet Performance. Pursuant to the agreement and upon finalization of
the amendment of the Series C documents, the stock shall be voted equally
with the shares of the Common Stock of the Corporation and not as a separate
class, at any annual or special meeting of shareholders of the Corporation, and
may act by written consent in the same manner as the Common Stock, in either
case upon the following basis: the holder of the shares of Series C Stock shall
be entitled to such number of votes as shall be equal to the aggregate number
of shares of Common Stock into which such holder's shares of Series C Stock are
convertible immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent. Furthermore,
the parties also agreed that each 10 shares of Series C stock shall be
convertible into two percent (2%) of the Company's common stock outstanding at
the time of conversion. Also, amended was the Company's power to redeem the
Series C Stock.
On or after February 14, 2003, the Company may, at its sole
discretion, with 5 days notice, redeem some or all of the outstanding shares of
Series C Stock at a "Redemption Price" equal to $12,000 per share, during this
period the Series C shareholders may elect to convert their shares under the
conversion formula.
Pursuant to a finder's fee agreement entered into between Ashford Capital, LLC
and Sonic Jet Performance, Inc on February 1, 2002, Sonic Jet granted Ashford
Capital ten percent (10%) of the equity ownership of any referred party
Acquired by Sonic Jet. In case of Partial acquisition Sonic Jet will pay
Ashford ten percent (10%) of the transaction price and/or other consideration
of any kind paid by or to Sonic Jet or any of its subsidiaries or affiliates in
connection with any transaction for a referred party.
Rights of Series B and Series C Preferred Shareholders.
Under the original agreements for Series B and Series C preferred
shares, the conversion rights were extended to December 27, 2004 from
the previous mandatory conversion of December 27, 2003. The
extension was agreed to in exchange for waiving the time provisions
for the filing of the registration statement by the registrant.
Capital Stock Transactions.
During the nine months ended September 30, 2003, two restricted
shares of Series C preferred stock were redeemed, ten shares were
issued to Garth Barrett, an employee, two shares to Russell Miller, a
consultant advising on strategic issues, and one share was committed to
Scott Ervin, a director of the company, in exchange for a loan of
$50,000 to the Company, leaving a balance of 45 shares of Series C
preferred stock outstanding and committed at September 30, 2003.
The Company issued to Scott Ervin, a director, as compensation in
such capacity, restricted shares of common totaling 250,000 in the
third quarter 2003.
During the three months and nine months ended September 30, 2003, the
Company issued or committed to be issued 195,085 and 3,300,000
restricted shares of common stock, respectively, to five companies
and individuals (Regent Capital West, Albert Mardikian, Ashford
Capital LLC., R. James Consulting, and Harrison Douglas, Inc.) in
connection with compensation under the private placement being
conducted by the Company.
During the three months and nine months ended September 30, 2003, the
Company sold a total of 2,245,000 and 25,924,000 restricted shares of
common stock and warrants, respectively, to investors pursuant to its
private placement memorandum, generating net proceeds of $88,981 and
$1,299,900 respectively, pursuant to the sale of common stock units.
Each common stock unit consists of (a) 50 restricted shares of common
stock of the Company, (b) one warrant to purchase 25 restricted
shares of common stock of the Company at an exercise price of $0.20
per share, and (c) one warrant to purchase 25 restricted shares of
common stock, at an exercise price of $0.30 per share (which was
subsequently reduced to $0.01 per share, of which all warrants were
exercised).
Employment Agreements.
During the second quarter of 2003, the Company negotiated certain
changes in employment agreements with certain of its officers.
Under a previous agreement, the Company was to issue Mr. Watts a
warrant for 2,000,000 restricted shares of common stock at $0.07 a
share with full vesting rights as of July 1, 2002, plus a warrant for
1,000,000 restricted shares of common stock at $0.07 a share vesting
on the June 30, 2003, plus a warrant for 1,000,000 restricted shares
of common stock at $0.07 a share vesting on June 30, 2004, plus 10
shares of Series "C" preferred or the equivalent in common shares.
These issuances were modified to be grants, effective July 1, 2002,
of 2,000,000 restricted shares of common stock, plus a warrant for
1,000,000 restricted shares of common stock at $0.07 a share vesting
on June 20, 2003, plus a warrant for 1,000,000 restricted shares of
common stock vesting on June 23, 2004.
Garth Barrett is to receive a salary plus a grant of 10 shares of
series "C" preferred stock.
On April 1, 2003, the Company entered into an agreement with Frank
Kavanaugh, the Company's director of business development, for a
salary, and a grant of 500,000 restricted shares of the Company's
common stock. Also, during June 2003, Mr. Kavanaugh was granted
750,000 restricted shares of common stock that were committed in June
of 2002, for consulting services as interim general manager during
the second and third quarters of 2002.
In connection with the restructuring of the Company, it entered into
a verbal termination agreement with Madhava Rao Mankal. The
agreement stipulates that he will assist the Company as a consultant
for 90 days beginning October 1, 2003 at the same salary, without
benefits, and receive a grant of 600,000 restricted shares of stock
in September, 2003. On December 31, 2003 Mr. Mankal will be paid 90
days termination based on his annual rate of salary of $64,800. In
June 2003, Mr. Mankal received 200,000 restricted shares of common
stock for the first and second quarters of 2003 in connection with
his employment contract dated March 17, 2003, and in September 2003
he received 600,000 restricted shares of common stock in connection
with his termination agreement.
During the third quarter of 2003, the Company also negotiated a
termination agreement with Hratch Khedesian, the Company's former
production manager. Mr. Khedesian received 660,000 restricted shares
of common stock in 2003 in connection with his employment contract
dated January 2, 2002 and termination agreement. In addition Mr.
Khedesian will receive future payments totaling $58,000 over the next
two years. Executive officer compensation is subject to review on a
periodic basis by the board of directors.
Acquisition of TSG International, Inc.
As part of the purchase of TSG International, Inc. (which owns 100%
of Technical Solutions Group, Inc.,) in July 2002 (see 2002 Form 10-
KSB), Ashford Capital, LLC, an advisor to the transaction and a
shareholder of the Company, received shares equal to 10% of TSG
International, Inc. in the form of a Series A preferred stock. An
agreement was reached in April of 2003 under which Ashford Capital,
LLC could exchange each shares of TSG International, Inc. Series A
preferred stock for 50 shares of the Company's Series C preferred
shares, by notifying the Company by October 15, 2003.
In September 2003, Ashford Capital, LLC and the Company's CEO,
Michael Watts, reached an agreement under which the TSG Series A
preferred shares and the rights associated with the Series A
preferred shares were purchased by Mr. Watts in a private sale
between the parties. On October 12, 2003, the Company was notified
of Ashford Capital, LLC's intention to exercise its option to
exchange its TSG International, Inc. preferred stock for the
Company's Series C preferred stock. Under the terms of the
agreement, Mr. Watts will exchange each share of his TSG
International, Inc. stock for 50 shares of Company Series C preferred
stock effective October 15, 2003. As a result, the Company will hold
100% of TSG International, Inc.
Redemption of Series C Preferred Stock.
Under the terms of the Series C preferred stock, as reflected in an
amended Certificate of Designation, shareholders could redeem each
preferred share for $12,000 after a certain date. Under these terms,
Noriaki Sasaki notified the Company of his request to redeem 10
shares of the Series C preferred stock at a schedule to be provided
by the Company. The Company has agreed to a redemption schedule and
has redeemed 2 of the 10 shares. The remaining 8 shares should be
redeemed by January 2004. Subsequently, the remaining Series C
shareholders have waived the redemption rights in return for an
extension of the mandatory conversion dates (see 2002 Form 10-KSB).
Royalty/Licensing Agreements
On December 27, 2001, the Company entered into a new license
agreement covering the design and other rights, with Mardikian Marine
Design, an entity that includes two of the Company's larger
shareholders, and a principal of the holder of the Company's Series B
preferred stock. The Company paid all outstanding obligations under
the agreement for 2002 in the first quarter of 2003; in addition the
Company paid all outstanding obligations under the agreement through
June 2003. The remaining obligation under the agreement remain in
dispute and is the subject of a claim by a member of Mardikian Marine
Design and a counter suit against a member of Mardikian Marine
Design. One of the principals of Mardikian Marine Design has
informed the Company of his intention to revoke the licensing
agreement to the Company and has filed a lawsuit against the
Company.(discussed in Part 2, Item 1 of this Form 10-QS.
Sale of Assets.
Effective July 1, 2003 and modified on September 15, 2003, the
Registrant transferred the sales activity and right to use the
Stanton, California facility, and is obligated to transfer certain
boat assets of the fire and rescue operations to its subsidiary,
Rockwell Power Systems Inc. ("RPSI"), whose ownership the Registrant
will control until completion of certain obligations by the
management and investors of RPSI (see Exhibit 2.3 to this Form 10-
QSB). In return, upon satisfaction by the investors in RPSI of
certain financial and business obligations of the aforementioned
agreement, the Registrant will control one third of the shares of
RPSI. Under the agreement, the Registrant agreed to distribute the
shares of RPSI to its shareholders. In addition, upon a successful
merger or listing of RPSI on the Over the Counter Bulletin Board or
its successor, the Registrant intends to sell the bulk of RPSI's
remaining tangible and intangible assets associated with the fire
rescue business for $500,000 in preferred Series A stock of RPSI.
Finally, the parties agreed that RPSI has the option to purchase
certain remaining recreational boat business assets for "book value"
on March 1, 2004. The Registrant was notified by RPSI that a
successful merger with a listed Registrant was achieved in October
2003 with Xtreme Companies, which is listed on the OTCBB and that the
payment to complete the transaction would be made during the fourth
quarter of 2003.
Subsequent Events.
During February, 2004 we introduced a new product called the
"TYPHOON". Details about this product can be found in Part I - Products.
Signatures
Controls and Procedures.
The principal executive officer and principal financial officer, based on his
evaluation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of 1934) as of
December 31, 2003 has concluded that the Company's disclosure controls and
procedures are adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiary is recorded, processed,
summarized and reported with the time periods specified by the SEC's rules and
forms, particularly during the period in which this annual report has been
prepared.
The principal executive officer and principal financial officer has
concluded that there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to December 31, 2003, the date of their most recent evaluation of
such controls, and that there were no significant deficiencies or material
weaknesses in the Company's internal controls.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FORCE PROTECTION, INC.
Date: March 1, 2004 By: /s/ MICHAEL WATTS
Michael Watts
Chief Executive Officer/Director
Date: March 1, 2004 By: /s/ Thomas Thebes
Thomas Thebes
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
(Principal Executive Officer)
Date: March 1, 2004 By: /s/ Michael Watts
Michael Watts
Chief Executive Officer/Director
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Watts, certify that:
1. I have reviewed this annual report on Form 10-KSB of Force Protection,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 1, 2004
/s/ Michael Watts
Michael Watts
CEO,Director
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas Thebes, certify that:
1. I have reviewed this annual report on Form 10-KSB of Force Protection,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 1, 2004
/s/ Thomas Thebes
Thomas Thebes
CFO, VP of Finance
Item 14. Exhibits and Reports on Form 8-K
Exhibit Description
2.1 Stock Purchase Agreement between Sonic Jet Performance, Inc. and
Technical Solutions Group. (previously filed with the Commission
on June 28, 2002, as exhibit to the Company's Current Report on
Form 8-K).
2.2 Stock Purchase Agreement between the Registrant, Garth
Barrett, and T S Group, LLC., dated June 13, 2002 (incorporated by
reference to Exhibit 2.1 to the Form 8-K filed on June 28, 2002).
2.3 Modification of Business Asset Sale, License Agreement &
Assignment of Rights between the Registrant and Rockwell Power
Systems, Inc., dated September 15, 2003 (including the following
exhibits: Exhibit A: Bill of Sale; Exhibit B: Employee Transfer
Consent; Exhibit C: Disclosure Notice; and Exhibit D: Post
Acquisition Capital Structure - previously filed).
3.1 Articles of Incorporation for Boulder Capital Opportunities III, Inc.
(Previously filed with the Commission on March 24, 1997 as Exhibit
3.(i) to the Company's General Form for Registration of
Securities of Small Business Issuer on Form 10-SB.)
3.2 Articles of Amendment to the Articles of Incorporation of Boulder
Capital Opportunities III, Inc., filed January 15, 1997
(Previously Filed previously filed with the Commission on March
15, 2002, as exhibit to the Company's Report on Form 10KSB.).
3.3 Articles of Amendment to the Articles of Incorporation for Boulder
Capital Opportunities III, Inc., filed November 5, 1998
(Previously filed with the Commission on April 15, 1998, as Exhibit
3.(iv) to the Company's Current Report on Form 8-K.)
3.4 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Boulder Capital Opportunities III,
Inc. (Previously filed with the Commission on July 6, 1998, as
Exhibit 7.4 to the Company's Current Report on Form 8-K.)
3.5 Bylaws for Boulder Capital Opportunities III, Inc. (Previously filed
with the Commission on March 24, 1997, as Exhibit 3.(ii) to the
Company's General Form for Registration of Securities of Small
Business Issuer on Form 10-SB.)
3.6 Certificate of Designation for Series B Convertible Preferred Stock
(Previously filed with the Commission on January 7, 2002, as
Exhibit 3.1 to the Company's Current Report on Form 8-K.)
3.7 Certificate of Designation for Series C Convertible Preferred Stock
(Previously filed with the Commission on January 7, 2002,
as Exhibit 3.2 to the Company's Current Report on Form 8-K.)
4.1 Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock, dated June 12, 1998
(incorporated by reference to Exhibit 7.4 of the Form 8-K filed on
July 6, 1998).
4.2 2000 Stock Plan of the Registrant, dated May 1, 2000
(incorporated by reference to Appendix A of the Schedule 14C filed on
June 30, 2000).
4.3 Certificate of Designation for Series B Convertible
Preferred Stock, dated December 27, 2001 (incorporated by reference
to Exhibit 3.1 of the Form 8-K filed on January 7, 2002).
4.4 Certificate of Designation for Series C Convertible
Preferred Stock, dated December 27, 2001 (incorporated by reference
to Exhibit 3.2 of the Form 8-K filed on January 7, 2002).
4.5 Series B Convertible Preferred Stock Purchase
Agreement between the Registrant and Ashford Capital, LLC, dated
December 27, 2001 (incorporated by reference to Exhibit 10.1 of the
Form 8-K filed on January 7, 2002).
4.6 Series C Convertible Preferred Stock Purchase Agreement
between the Registrant and eFund Capital Partners, LLC, dated
December 27, 2001 (incorporated by reference to Exhibit 10.2 of the
Form 8-K filed on January 7, 2002).
4.7 Amendment to Certificate of Designation of Series C
Convertible Preferred Stock, dated November 14, 2002 (incorporated by
reference to Exhibit 10.6 of the Form 10-QSB filed on November 18,
2002).
4.8 Amendment to Certificate of Designation of Series B
Convertible Preferred Stock, dated December 20, 2002 (incorporated by
reference to Exhibit 10.7 of the Form 10-KSB filed on April 16, 2003).
4.9 Letter Agreement between the Registrant and Ashford Capital LLC,
dated April 15, 2003 (previously filed).
4.10 Investment Agreement between the Registrant and Dutchess Private
Equities Fund, L.P., dated September 22, 2003, including the
following exhibit: Exhibit A: Registration Rights Agreement (the
following exhibits have been omitted: Exhibit B: Opinion of Company's
Counsel; Exhibit C: [reserved]; Exhibit D: Broker Representation
Letter; Exhibit E: Board Resolution; Exhibit F: Put Notice; and
Exhibit G: Put Settlement Sheet) (the following schedules have been
omitted: Schedule 4(a): Subsidiaries; Schedule 4(c): Capitalization;
Schedule 4(e): Conflicts; Schedule 4(g): Material Changes; Schedule
4(h): Litigation; Schedule 4(l): Intellectual Property; Schedule (n)
Liens; and Schedule 4(t) Certain Transactions) (previously filed).
10.1 2000 Stock Plan of Sonic Jet Performance, Inc. (Previously
filed with the Commission on June 30, 2000 as Appendix A to the
Company's Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934.)
10.2 Consulting Agreement between Kevin Ryan and Sonic Jet Performance,
Inc. (previously filed).
10.3 Consulting Agreement between eFund Capital Partners, LLC and Sonic Jet
Performance, Inc. (previously filed).
10.4 Series B Convertible Preferred Stock Purchase Agreement between
Ashford Capital, LLC and Sonic Jet Performance, Inc. (Previously
Filed with the Commission on January 7, 2002, as Exhibit
10.1 to the Company's Current Report on Form 8-K.)
10.5 Series C Convertible Preferred Stock Purchase Agreement between eFund
Capital Partners, LLC, and Sonic Jet Performance, Inc. (Previously
filed with the Commission on January 7, 2002, as Exhibit 10.2 to the
Company's Current Report on Form 8-K.)
10.6 Amendment to the Series C Preferred Stock Certificate of Designation
(previously filed with the Commission on September 30, 2002, as
exhibit to the Company's Report on Form 10 QSB).
10.7 Amendment to the Series B Preferred Stock Certificate of Designation
(previously filed).
10.8 Settlement Agreement between Jeff Conrad and Sonic Jet Performance,
Inc. (filed herewith).
10.9 Settlement Agreement between Catherine Basinger and Sonic Jet
Performance, Inc. (previously filed).
10.10 Consulting Agreement with Gordon McGilton and Sonic Jet Performance,
Inc. (previously filed).
10.11 Agreement between Mission Capital and Sonic Jet Performance, Inc.
(previously filed with the Commission on September 30, 2002, as
exhibit to the Company's Report on Form 10 QSB).
10.12 Letter dated February 5, 2002, between Regents Capital West and Sonic
Jet Performance, Inc. (previously filed with the Commission on March
15, 2002, as exhibit to the Company's Report on Form 10 KSB).
10.13 Letter between Sonic Jet Performance, Inc. and encore Capital
Management, LLC, JNC Opportunity Fund, Ltd. And JNC
Strategic Fund, Ltd. (previously filed with the Commission on
January 7, 2002, as exhibit 10.3 to the Company's Current Report on
Form 8-K).
10.14 Modified Employment Offer Letter dated March 17, 2003
between Madhava Rao Mankal and Sonic Jet Performance, Inc. (filed
herewith).
10.15 Employment Offer Letter between Madhava Rao Mankal and Sonic Jet
Performance, Inc. (filed herewith).
10.16 Employment Offer Letter between Frank Kavanaugh and Sonic Jet
Performance, Inc. (filed herewith).
10.17 Employement Offer Letter between Walter Wright and Sonic Jet
Performance, Inc. (filed herewith).
10.18 Consulting Agreement between Harrison Douglas, Inc. and Sonic Jet
Performance (filed herewith).
10.19 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 Company's Form 10-QSB filed on November 18, 2003. (previously
filed).
10.20 Letter Agreement between the Registrant and Ashford Capital,
LLC, dated April 15, 2003 (filed as Exhibit 4.9 to the Company's
Form 10-QSB filed on November 18, 2003 and incorporated herein by
reference).
10.21 Investment Agreement between the Registrant and Dutchess
Private Equities Fund, L.P., dated September 22, 2003 (filed as
Exhibit 4.10 to the Company's Form 10-QSB filed on November 18, 2003
and incorporated herein by reference).
10.22 Employment Offer Letter between the Registrant and Michael
Watts, dated June 20, 2002 (filed as Exhibit 10.1 to the Company's
Form 10-QSB filed on November 18, 2003 and incorporated herein by
reference).
10.23 Employment Offer Letter between the Registrant and Michael
Watts, dated July 1, 2002 (previously filed).
10.24 Modified Employment Offer Letter dated March 17, 2003
between the Registrant and Madhava Rao Mankal, dated March 17, 2003
(incorporated by reference to Exhibit 10.14 of the Form 10-KSB filed
on April 16, 2003).
10.25 Employment Offer Letter between the Registrant and Frank
Kavanaugh, dated March 31, 2003 (incorporated by reference to Exhibit
10.16 of the Form 10-KSB filed on April 16, 2003).
21.0 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Form 10-QSB filed on August 19, 2003).
23.1 Consent of Michael Johnson & Co. LLC. Independent Auditors.
(Previously filed)
Reports or Form 8-K filed during the last quarter of the period
covered by this report.
During the three months ended December 31, 2003 we filed the
following reports on form 8-K/A:
We filed form 8K/A, filed on 10/23/2003 announcing the acquisition or
disposition of assets, the name change to FORCE PROTECTION, INC., and
financial statements.