UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                TO               

COMMISSION FILE NUMBER: 001-33253

FORCE PROTECTION, INC.

 

9801 Highway 78, Building No. 1
Ladson, South Carolina
29456
Registrant’s telephone number: (843) 740-7015

Securities registered pursuant to Section 12(b) of the Act: Common Stock par value $0.001 per share

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer  (See definition of “accelerated filer and large accelerated filer “ in Rule 12b-2 of the Exchange Act.):

Large Accelerated Filer o

Accelerated Filer x

Non- Accelerated Filer o

 

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

Yes     o                No     x

As of March 31, 2007, the registrant had 68,010,335 shares of common stock issued and outstanding.

Table of Contents

Part I: Financial Information
Item 1 – Consolidated Financial Statements
Report on Review By Registered Independent Public Accounting Firm
Consolidated Statements of Operations For The Three Months Ended March 31, 2007 and 2006
Consolidated Balance Sheets As of March 31, 2007 and December 31, 2006
Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2007 and 2006
Notes To Consolidated Financial Statements
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Item 4 – Controls and Procedures
Part II: Other Information
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 – Defaults Upon Senior Securities
Item 4 – Submission of Matters To a Vote of Security Holders
Item 5 – Other Information
Item 6 – Exhibits

 

2

---

PART I — FINANCIAL INFORMATION

ITEM 1 — CONSOLIDATED FINANCIAL STATEMENTS

FORCE PROTECTION, INC. AND SUBSIDIARIES

REPORT ON REVIEW BY INDEPENDENT REGISTERED ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying consolidated balance sheet and statements of operation and cash flows of Force Protection, Inc. as of March 31, 2007 and for the three-month period then ended.  These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

/s/ Elliott Davis, LLC
Columbia, South Carolina
May 14, 2007

 

3

---

FORCE PROTECTION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended
(unaudited)

		March 31,
		2007			2006
Net sales		$	100,158,766		$	34,802,585
Cost of sales		78,403,575			28,164,816
Gross profit		21,755,191			6,637,769
General and administrative expense		14,378,611			5,961,353
Research and development		4,841,819			663,590
Operating profit		2,534,761			12,826
Other income		1,788,093			27,049
Interest expense		(9,613		)	(807,324		)
Net earnings (loss) before taxes		4,313,241			(767,449		)
Tax Expense		1,800,000			—
Net earnings (loss) after taxes		$	2,513,241		$	(767,449	)
Series D preferred stock dividend		—			(161,115		)
Accretion of Series D preferred stock to redemption value		—			(484,750		)
Net earnings (loss) available to common shareholders		$	2,513,241		$	(1,413,314	)
Earnings (loss) per common share
Basic		$	0.04		$	(0.04	)
Diluted		$	0.04		$	(0.04	)
Weighted average shares used to compute:
Basic earnings (loss) per common share		67,636,052			37,451,698
Diluted earnings (loss) per common share		68,004,752			37,451,698

 

The accompanying Notes are an integral part of these financial statements.

4

---

FORCE PROTECTION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		March 31,			December 31,
		2007			2006
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	113,441,469		$	156,319,004
Accounts receivable, net of allowance for contractual obligations of $6,833,446 and $6,068,087 for 2007 and 2006		43,790,815			36,011,568
Inventories		97,922,981			60,396,297
Other current assets		2,573,700			374,051
Current portion of deferred taxes		7,762,500			9,562,500
Total current assets		265,491,465			262,663,420
Long-term portion of deferred taxes		2,763,991			2,763,991
Property and equipment, net		23,387,568			8,963,901
Intangible assets		1,962,500			—
Total assets		$	293,605,524		$	274,391,312
LIABILITIES & SHAREHOLDERS’ EQUITY LIABILITIES
Current liabilities:
Accounts payable		54,811,260			38,653,813
Other accrued liabilities		9,283,943			2,968,859
Contract liabilities		1,850,000			1,850,000
Current portion of long-term liabilities		204,385			71,685
Deferred revenue		5,173,035			12,824,211
Total current liabilities		71,322,623			56,368,568
Long-term debt:
Other long term liabilities		463,110			167,937
Total liabilities		71,785,733			56,536,505
Commitment and Contingencies (See Note 12)
SHAREHOLDERS’ EQUITY
Preferred stock, $0.001 par value, authorized 10,000,000 shares		—			—
Common stock, $0.001 par value, 300,000,000 shares authorized, 68,010,335 and 66,762,566 shares issued and outstanding, respectively		68,010			66,763
Shares to be issued		—			31
Additional paid-in capital		250,705,134			249,694,850
Accumulated deficit		(28,953,353		)	(31,906,837		)
Total shareholders’ equity		221,819,791			217,854,807
Total liabilities and shareholders’ equity		$	293,605,524		$	274,391,312

 

The accompanying Notes are an integral part of these financial statements.

5

---

FORCE PROTECTION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended
(unaudited)
(in dollars)

		March 31,
		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) after taxes		$	2,513,241		$	(767,449	)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		761,629			183,558
Deferred tax expense		1,800,000			—
Stock-based compensation (FAS 123R)		440,243			101,816
Stock-based compensation		—			551,529
Net change in Definitization		765,359
Decrease (increase) in inventory reserve		(298,830		)	150,000
Increase (decrease) in contract liabilities		—			(33,416		)
Change in assets and liabilities:
Decrease (increase) in accounts receivable		(8,544,606		)	2,249,629
Decrease (increase) in inventories		(37,227,854		)	(1,250,332		)
Decrease (increase) in other current assets		(2,199,649		)	(103,948		)
Increase (decrease) in accounts payable		16,157,447			4,862,535
Increase (decrease) in other accrued liabilities		6,315,084			(140,652		)
Deferred revenue		(7,651,176		)	1,135,393
Net cash (used in) provided by operating activities		(27,169,112		)	6,938,663
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - intangibles		(1,550,000		)	—
Purchases of property and equipment		(15,147,796		)	(641,960		)
Net cash used in investing activities		(16,697,796		)	(641,960		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from options		1,011,500			—
Preferred stock dividends paid		—			(117,474		)
Proceeds from loans, net		—			(1,250,000		)
Increase in contract liabilities - non-compete agreement		—			—
Payments on capitalized lease		(22,127		)	—
Net cash provided by (used in) financing activities		989,373			(1,367,474		)
Net (decrease) increase in cash		(42,877,535		)	4,929,229
Cash—beginning of period		156,319,004			1,217,509
Cash—end of period		$	113,441,469		$	6,146,738
Supplemental disclosure:
Cash paid for interest		9,613			285,806
Cash paid for taxes		625,000			—
Dividends and accretion on Series D convertible preferred stock		—			484,750
NONCASH INVESTING AND FINANCING ACTIVITY:
Note payable issued as consideration for non-compete agreement		450,000			—

 

The accompanying Notes are an integral part of these financial statements.

6

---

FORCE PROTECTION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These Notes are an integral part of the Company’s financial statements set forth above.

NOTE 1—BASIS OF PRESENTATION

2006 Year End Amendment and Q1 Restatement

The financial information included in this 10-Q referring to the year ended December 31, 2006 and the quarter ended March 31, 2007 has been amended to include the effect of the updated amended financial statements for the year ended 2006, filed July 12, 2007. The financial information included in this 10-Q referring to the quarter ended March 31, 2006 have been restated for the effects of stock based compensation to employees (FAS 123R) and the effect on the basic earning per share (EPS) of accretion on preferred stock and the calculation of weighted average common shares used to compute diluted earnings per share.

Effects of Amendment

		March 31, 2007		December 31, 2006
Decrease in Additional paid-in-capital		(1,789,228	)	(1,348,985	)
Decrease in Accumulative deficit		1,789,228		1,348,985

 

Effects of Restatement

Stock Based Compensation

The Company has restated its calculation of stock based compensation (SFAS 123(R)) for the first quarter 2006.

		March 31, 2006
Increase in General and administrative cost		$	101,816
Increase in Net loss		$	101,816
Increase in Net loss available to common shareholders		$	101,816
Decrease in Basic earnings per common share		$	(0.01	)
Decrease in Diluted earnings per common share		$	(0.01	)

 

Earnings Per Share

The Company has reviewed the Financial Accounting Standards Board’s Statement of Financial Accounting Standard No. 128—Earnings Per Share (EPS) and determined that income available to common shareholders did not include the accretion related to preferred stock and the weighted average number of common shares outstanding used to calculate diluted earnings per share did not give effect to common shares issued upon conversion for the quarter ended March 31, 2006.

		March 31, 2006
Increase in Net loss available to common shareholders		$	44,186

 

The unaudited interim consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited interim consolidated financials statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K for Force Protection, Inc. and Subsidiaries filed for the year ended December 31, 2006.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

Force Protection, Inc. and its subsidiaries (the “Company”) design, manufacture and market blast and ballistics armored vehicles for sale to military customers.

Principles of Consolidation

The consolidated financial statements include the accounts of Force Protection, Inc., and its two wholly-owned subsidiaries, Force Protection Industries, Inc. and Force Protection Technologies, Inc.  All inter-company balances and transactions are eliminated in consolidation.

General Statement

The SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” (“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 the Company uses in applying these most critical accounting policies have a significant impact on the results the Company reports in its financial statements.

The Company believes the following critical accounting policies and procedures, among others, affect its more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements:

Revenue Recognition

The Company’s revenue is derived principally from the sale of its vehicles and associated spare parts and training services. Revenue from product sales and spare part sales, net of an allowance for contractual adjustments, is recognized when the products or spare parts are delivered to and “formally” accepted by the customer. The Company defines “formal acceptance” as taking place when a representative of the United States government signs the United States Form DD250 entitled “Material Inspection and Receiving Report” which under the Federal Acquisition Regulations signifies contractual inspection and acceptance of the work performed by the contractor.  It also acts as the contractual invoice creating payment liability on the United States Government.  In accordance with standard industry practice, there is a representative from the United States Defense Contract Management Agency (“DCMA”) acting as a contractual representative of the United States Government present at the Company’s facilities.  This DCMA representative inspects each vehicle as it is delivered by the Company and upon confirmation of the vehicle’s conformity with the contractual specifications the inspector signs the Form DD250 and formally accepts delivery of the vehicle.  The Company only recognizes revenues arising from its U.S. Government contracts upon execution of the Form DD250 by the DCMA inspector. Under some of the Company’s U.S. Government contracts, it receives performance-based payments based on completion of specific milestones stipulated under the contract (for example, delivery of raw material to the Company’s Ladson facility). These payments are recorded as “deferred revenue” and carried on the Company’s balance sheet until the final delivery of the products and formal acceptance by the U.S. Government pursuant to the Form DD250. Upon acceptance of the products and the execution of the Form DD250, the Company recognizes the full sale price of the product as revenue.

Revenues from services provided are recorded in accordance with specific contractual terms.  Services have historically consisted of the Company providing on-site personnel on an as-needed basis in a timely manner, and have generally been provided in foreign locations.

The Company negotiates contracts with its customers which may include revenue arrangements with multiple deliverables, as outlined by Emerging Issues Task Force No. 00-21 (“EITF 00-21”).  The Company’s accounting policies are defined such that each deliverable under a contract is accounted for separately.  Historically, the Company has negotiated and signed contracts with its customers which outline the contract amount and specific terms and conditions associated with each deliverable.

7

Allowance for Contractual Adjustments

The Company’s contracts with the U.S. Government are negotiated as a “sole source” or “open competition” bid process.  A sole source process is one in which the Company is the sole bidder for the contract.  An open competition could involve various bidders.  Once a bid is accepted, the U.S. Government expects work to commence immediately.  An open competition results in a final agreed-upon contract price which the U.S. Government has agreed to.  A sole source process results in an agreed-upon contract with the U.S. Government, subject to an adjustment process at a later date, termed the “definitization process”. The definitization process commences upon delivery of a product, whereby the U.S. Government completes a detailed review of the Company’s costs involved in the manufacturing and delivery process.  The U.S. Government and the Company then work to determine an adequate and fair final contract price.  As a result of the potential adjustments related to the definitization process, the Company maintains an allowance for contractual adjustments account.  This account is reviewed on a monthly basis to determine adequate adjustments, if necessary.  The allowance is maintained and deemed adequate based on the analysis of historical data and calculation of pro-rata percentages of current contracts in place, which remain subject to the definitization process.

Historically, the Company has not encountered sales returns.  The Company does not anticipate sales returns in the future.

Research and Development

Research, development, and engineering costs are expensed as incurred, in accordance with SFAS No. 2, Accounting for Research and Development Costs. Research, development, and engineering expenses primarily include payroll and headcount related costs, contractor fees, infrastructure costs, and administrative expenses directly related to research and development support.

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.

Inventories

Inventories are stated at the lower of cost or market. The cost is determined under the first-in-first-out (“FIFO”) valuation method.  An allowance for obsolescence and shrinkage is maintained by the Company.  The Company determines an appropriate balance in this account based on historical data and specific identification of certain inventory items.

Property and Equipment

Property and equipment are stated at cost or at the value of the operating agreement. The Company capitalizes additions and improvements which 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:

Leasehold improvements		2-5 years
Furniture and fixtures		3 years
Machinery and equipment		7 years
Tooling and molds		7 years
Vehicles		5 years
Buildings		29 years

 

Construction in progress projects are not depreciated until placed into service.

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 and Other Intangible Assets

The Company has no goodwill. Intangibles include licenses, a non-compete agreement, customer list and purchase expertise. Such intangible assets are amortized on a straight line basis over their useful life from 3 to 7 years.

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 shareholders’ equity (deficit) as accumulated comprehensive income (loss).

8

---

Joint Venture

On December 15, 2006, the Company entered into a Joint Venture Agreement (the “Agreement”) with General Dynamics Land Systems Inc. (“GDLS”), pursuant to which the Company agreed to work together with GDLS to win and execute a contract for the Mine Resistant Ambush Protected (“MRAP”) Vehicle Program. Under the Agreement, the MRAP Program is defined to include any and all solicitations and requests for proposals for MRAP production and Lifecycle Support and/or any follow on work that may be performed. The scope of work to be undertaken by the Joint Venture is limited to the use of the Company’s Cougar 4x4 and 6x6 armored vehicles for the MRAP Category I and Category II requirements. The Joint Venture board is made up of three designees from Venture Force Protection, Inc. (“FPI”) and three designees from GLDS. The Joint Venture board will have authority to execute documents in accordance with the terms of the Agreement. Decisions of the Joint Venture board shall be made by majority vote. The Company agreed to operate the Joint Venture on the principle of equitable division of burden and benefit with GDLS. This means that parties are expected to contribute resources equally to the venture. The Company agreed to divide the Joint Venture revenues between the Company and GDLS on a 50%/50% basis. Wherever practicable, Force Dynamics will act as the prime contractor for Joint Venture work, and the Company, along with GDLS, shall act as the exclusive subcontractors. For the three months ended March 31, 2007 the Joint Venture had no activity.

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 basis 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. The Company records a valuation allowance for any deferred tax allowance that it believes will not be realized.

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123(R), Share-Based Payment, which establishes accounting standards for transactions in which an entity receives employee services in exchange for (a) equity instruments of the entity or (b) liabilities that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of equity instruments. Effective July 1, 2005, the Company adopted SFAS 123(R), which requires the Company to recognize the grant-date fair value of stock options and equity based compensation issued to employees in the statement of operations. The statement also requires that such transactions be accounted for using the fair-value-based method, thereby eliminating use of the intrinsic method of accounting in APB No. 25, Accounting for Stock Issued to Employees,  which was permitted under Statement 123, as originally issued.

Earnings (Loss) per Common Share

The Company utilizes SFAS No. 128, “Earnings per Share” to calculate earnings/loss per share. Basic earnings/loss per share is computed by dividing the earnings/loss available to common shareholders (as the numerator) by the weighted-average number of common shares outstanding (as the denominator). Diluted earnings/loss per share is computed similar to basic earnings/loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potential common stock (including common stock equivalents) had all been issued, and if such additional common shares were dilutive. Under SFAS No. 128, if the additional common shares are dilutive, they are not added to the denominator in the calculation. Where there is a loss, the inclusion of additional common shares is anti-dilutive (since the increased number of shares reduces the per share loss available to common shareholders). Earnings/loss available to common shareholders is derived from net income adjusted for preferred stock dividends and accretion on preferred stock.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Recent Accounting Pronouncements

In June 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” FIN No. 48 established a single model to address accounting for uncertain tax positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN No. 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN No. 48 is effective for the Company in the first quarter of fiscal 2007.  The adoption of FIN No. 48 did not have a material effect on its financial position, results of operations or cash flows.

In December 2006, the FASB issued a Staff Position (“FSP”) on EITF 00-19-2, “Accounting for Registration Payment Arrangements (“FSP EITF 00-19-2”).”  This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies”.  If the transfer of consideration under a registration payment arrangement is probable and can be reasonably estimated at inception, the contingent liability under the registration payment arrangements is included in the allocation of proceeds from the related financing

9

---

transaction (or recorded subsequent to the inception of a prior financing transaction) using the measurement guidance in SFAS No. 5.  This FSP is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the issuance of the FSP.  For prior arrangements, the FSP is effective for financial statements issued for fiscal years beginning after December 15, 2006 and interim periods within those years.  The Company adopted the FSP effective January 1, 2007.  See Note 12, Commitments and Contingencies.

NOTE 3 — CONCENTRATIONS

The Company’s future operations and continued expansion is subject to a significant concentration risk.  During the three months ended March 31, 2007 and March 31, 2006, the Company’s revenues from military units of the U.S. Government accounted for 95%  and 93% of total revenues, respectively.  The Company’s accounts receivable from military units of the U.S. Government as of March 31, 2007 and December 31, 2006 amounted to 95% and 81%, respectively, of total accounts receivable.

NOTE 4 — STOCK BASED COMPENSATION PLANS

The Company does not have a formal stock option plan. However, the Company has issued stock options to its employees.

Compensation cost related to stock options recognized in operating results (included in selling, general, and administrative expenses) under SFAS 123R was $440,243 and $101,816 for the three months ended March 31, 2007 and 2006, respectively.  During the three months ended March 31, 2006, compensation cost related to common stock shares issued was $551,529.

The following table summarizes the attributes used by the Company to determine compensation cost for stock options consistent with requirements of SFAS 123R. No stock options were granted during the three months ended March 31, 2007.

		For the three months ended March 31,
Valuation assumptions		2007		2006
Stock price on date of grant		—		$0.77-$7.48
Expected option term (in years)		—		2
Expected duration from grant to expiration date (in years)		—		4 and 5
Option vesting term (in years)		—		5
Expected volatility		—		45.82%-70.31	%
Risk-free interest rate		—		4.40%-4.97	%
Expected forfeiture rate		—		5	%
Estimated corporate tax rate		—		38.50	%
Expected dividend yield		—		0	%

 

The following table summarizes information about stock option activity for the three months ended March 31, 2007.

Options		Number of  options		Weighted average per share exercise price			Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding December 31,2006		1,959,443		$	2.53		2.6		$	29,293,673
Options granted		—
Options exercised		(1,198,681	)	$	0.84
Outstanding March 31, 2007		760,762		$	5.42		2.1		$	10,148,565
Exercisable at March 31, 2007		385,762		$	3.44		2		$	5,909,874

 

The following table summarizes information about non-vested stock grants activity for the three months ended March 31, 2007.

Non-vested shares		Number of shares		Weighted average per share grant price
Outstanding December 31,2006		191,026		$	5.48
Shares granted		—		$	—
Shares vested		(50,000	)	$	6.45
Outstanding March 31, 2007		141,026		$	5.14

 

NOTE 5 — TAXES

The FASB has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”) “Accounting for Income Taxes”,

10

---

which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

The Company’s net deferred tax asset consists of the following as of March 31, 2007 and December 31, 2006, respectively:

 

As of March 31, 2007 the Company has available federal operating loss carry-forwards of $18,611,810, expiring through 2025 and state operating loss carry-forwards of $7,438,470, expiring through 2025.

The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:

		March 31, 2007		March 31, 2006
Tax expense (credit) at statutory rate-federal		35.00	%	35.00	%
Other permanent differences		3.45	%	—	%
State tax expense net of federal tax		3.25	%	3.25	%
Changes in valuation allowance		—	%	(38.25	)%
Tax expense at actual rate		41.7	%	—	%

 

NOTE 6 — EARNINGS/LOSS PER SHARE

The Company utilizes SFAS No. 128, “Earnings per Share” to calculate earnings/loss per share. Basic earnings/loss per share is computed by dividing the earnings/loss available to common shareholders (as the numerator) by the weighted-average number of common shares outstanding (as the denominator). Diluted earnings/loss per share is computed similar to basic earnings/loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potential common stock (including common stock equivalents) had all been issued, and if such additional common shares were dilutive.

For the three months ending March 31, 2006, the Company had experienced a loss, and thus the following common stock equivalents have been excluded from the calculation of dilutive loss per share:

		2006
Convertible Preferred Stock Series D		5,155,306
Warrants		2,633,333
Options		1,441,292
Total		9,229,931

 

11

---

Earnings Per Share Computation

		For the three months ended March 31,
		2007			2006
Basic earning per share computation
Net earnings (loss) available to common shareholders		$	2,513,241		$	(1,413,314	)
Weighted- average shares used to compute:
Basic earnings per share		67,636,052			37,451,698
Dilutive effect of stock options		227,674			—
Dilutive effect of stock grants		141,026			—
Dilutive weighted earnings per share		68,004,752			37,451,698
Earnings (loss) per share of common stock:
Basic		$	0.04		$	(0.04	)
Earnings (loss) per share of common stock:
Assuming dilution		$	0.04		$	(0.04	)

 

NOTE 7 — ACCOUNTS RECEIVABLES & “DEFINITIZATION”

The majority of the Company’s contracts are with the United States Government and as such they are “public sector” contracts subject to the Federal Acquisition Regulations set out at Title 41 of the United States Code (“FAR”), and may result either from competitive bidding or may be awarded as “sole source” contracts “subject to definitization” as provided under FAR Section 252.217-7027.

Following the award of a sole source contract, a central component of the definitization process is the negotiation and finalization of the contract price between the contractor and the United States contracting officer.  As part of this process, the parties make a mutual determination of the direct material and labor costs for the work based upon the bill of materials and other purchasing information and then the parties mutually agree upon “rates” for the indirect labor costs and the General and Administrative costs and upon a “fee” (or profit).  While the direct material costs and labor can be established through objective evidence, the “rates” and fee are more subjective and are based upon an analysis of multiple factors including historical performance data and projected operational factors.  The contractor has the right to submit proposed rates and fee, but these are subject to final review and approval by the contracting officer, who may insist on using alternate rates and fee.  As provided in section 252.217-7027(c):

If agreement on a definitive contract action to supersede this undefinitized contract action is not reached by the target date in paragraph (b) of this clause, or within any extension of it granted by the Contracting Officer, the Contracting Officer may, with the approval of the head of the contracting activity, determine a reasonable price or fee in accordance with subpart 15.4 and part 31 of the FAR, subject to Contractor appeal as provided in the Disputes clause.

Finally, although both parties make an effort to definitize the contract as quickly as possible, the process is time consuming and can take months or even years to complete.  During the definitization process the contractor is required to perform the contract work and to make deliveries under the contract before the final contract price has been established.  For this reason, as part of the original letter award, the contractor provides a rough order of magnitude (“ROM”) price to be used for invoicing and accounting purposes pending definitization.

As a result of the potential adjustments related to the definitization process, the Company maintains an allowance for contractual adjustments account.  This account is reviewed on a regular basis to determine adequate adjustments, if necessary.  The allowance is evaluated and deemed adequate based on the analysis of historical data and calculation of pro-rata percentages of current contracts in place, which remain subject to the definitization process.

Below is a table detailing activity within the allowance for contractual adjustments account for the three months ended March 31, 2007 and March 31, 2006 respectively.

		For the three months ended March 31,
		2007			2006
Balance December 31		$	6,068,087		$	1,018,051
Additions to allowance		2,814,664			869,520
Reduction to allowance		(2,049,305		)	(423,916		)
Balance March 31		$	6,833,446		$	1,463,655

 

12

The Company does not maintain an allowance for doubtful accounts.  The Company’s significant sales for the quarter ended March 31, 2007 and March 31, 2006 involved contracts signed with the U.S. Government. As of the date of this report, all non-direct government year-end receivables have been collected. The Company does not believe an allowance for doubtful accounts is necessary due to the credit-worthiness of the U.S. Government.

Historically, the Company has not encountered sales returns.  The Company does not anticipate sales returns in the future.

NOTE 8—INVENTORIES

Inventories at March 31, 2007 and December 31, 2006 consisted of the following:

 

NOTE 9 —ASSETS PURCHASED

On March 9, 2007, the Company purchased the Research and Developmental Testing Facility of NEWTEC Services Group, Inc., located near Edgefield, SC for $5,500,000.  The Company intends to use the facility to expand the Company’s research and development activities and support the verification and quality control validation of the Company’s armored vehicles used to protect military personnel against explosive threats. The acquisition consisted of land - $2,100,000, furniture and fixtures - $800,000, procedure manuals -$600,000 and intangible assets - $2,000,000.  These assets were reported in accordance with SFAS141.

On March 22, 2007, the Company purchased real and personal property located in Summerville, SC for $4,100,000. The Company intends to use the facility as a product development and logistic services training center. The acquisition consisted of land - $1,320,000, building -  $2,502,000 and furniture and fixtures - $278,000.

NOTE 10—PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment at March 31, 2007 and December 31, 2006:

		March 31, 2007			December 31, 2006
Furniture and fixtures		$	3,244,203		$	1,022,984
Leasehold improvements		4,076,822			1,534,057
Machinery and equipment		7,595,109			6,534,550
Test equipment		27,179			16,790
Manuals		704,798			104,797
Vehicles		393,819			143,464
Demo vehicles		1,095,925			1,095,925
Buildings		2,502,000			—
Construction in progress		2,540,508			—
Land		3,420,000			—
Less depreciation and amortization		(2,212,795		)	(1,488,666		)
Net property and equipment		$	23,387,568		$	8,963,901

 

Depreciation expense for the three months ended March 31, 2007 and March 31, 2006 was $ 724,129 and $183,558 respectively.

NOTE 11 — ACQUIRED INTANGIBLE ASSETS

As a result of the acquisition of the Research and Development Testing Facility (explained in Note 9), the following is a summary of the intangible assets acquired:

13

---

 

		Gross carrying amount			Accumulated amortization			March 31, 2007 net book value
Subject to amortization:
License		$	800,000		$	—		$	800,000
Non-compete agreement		600,000			37,500			562,500
Customer base		200,000			—			200,000
Special expertise		400,000			—			400,000
Total		$	2,000,000		$	37,500		$	1,962,500

 

Amortization expense for the three months ended March 31, 2007 was $37,500. Estimated aggregate amortization expenses for each of the next three years is $466,667, $466,667, and $429,167.

NOTE 12—COMMITMENTS AND CONTINGENCIES

Other Accrued Liabilities

The Company’s other accrued liabilities include the following:

		March 31, 2007			December 31, 2006
Compensation and benefits		$	3,365,315		$	1,222,143
Vehicle fee payable		1,042,848			1,139,250
Settlement		—			607,466
Liquidated damages		$	4,875,780		—
		$	9,283,943		$	2,968,859

 

The March 31, 2007 compensation and benefits includes $1,005,922 for taxes withheld relating to options exercised which was paid in April.

Liquidated Damages

On December 20, 2006, the Company completed a private placement of 13,000,000 shares of its common stock to institutional investors at $11.75 per share, resulting in gross proceeds of $152,750,000.  The proceeds, net of commissions, were $146,640,000.

Per the Securities Purchase Agreement, the Company agreed to file a registration statement to register all 13,000,000 shares of common stock for resale and distribution under the 1933 Act within 30 calendar days (January 19, 2007) and cause the registration statement to be declared effective not later than 120 calendar days (April 19, 2007). If the Registration Statement is not declared effective on or before the Effective Date by the SEC, then the Company shall deliver to each Purchaser, as Liquidated Damages , an amount equal to one and one third percent (1 1/3%) for each thirty (30) days (or such lesser pro-rata amount for any period of less than thirty (30) days) of the total purchase price of the Securities purchased and still held by such Purchaser pursuant to the Agreement on the first day of each thirty (30) day or shorter period for which Liquidated Damages are calculable. As of the date of the filing of this 10-Q, the registration statement is not effective. The Company believes that the best estimate of when the registration statement will become effective is  June 30, 2007. In accordance with FSP EITF 00-19-2 — Accounting for Registration Payment Arrangements, the Company has recorded a contingent liability for liquidated damages of $4,875,780.

Contract Liabilities

The Company’s sales contracts generally include a warranty such that the Company’s products are free from defects in design, material, and workmanship for a period of 1 year from the acceptance date.  The warranty does not apply to any damage or failure to perform caused by the misuse or abuse of the vehicle, combat damage, fair wear and tear items (brake shoes, track pads, wiper blades, etc.), or by the customer’s failure to perform proper maintenance or service on the supplies.

The Company routinely reviews its exposure for warranty costs and determines warranty and pricing reserves based on historical data and known events. Below is a table detailing the Company’s accruals for warranty-related costs as of March 31, 2007 and December 31, 2006:

		March 31, 2007			December 31, 2006
Non recurring warranty		$	1,500,000		$	1,500,000
General warranty		350,000			350,000
		$	1,850,000		$	1,850,000

 

14

---

Gain Share Program

On March 1, 2007, the Board of Directors approved a quarterly gain share program. The program will distribute 10% of each quarter’s net earnings to employees.

Construction in Progress

During the first quarter 2007, the Company entered into a contract to build a 90,000 square foot warehouse facility in Ladson, SC. As of March 31, 2007, the Company has expended $1,795,520 in progress payments (accounted for as construction in progress) against the total contract of $4,474,000. The construction is scheduled to be completed by August 31, 2007.  The remaining construction in progress is associated with the ongoing development and implementation of various business operating systems software.

Legal Proceedings

During June, 2006, the Company confirmed that two former employees had filed claims under 31 U.S.C. §3730 alleging inter alia  that the Company had failed to comply with the terms of the JERRV contract in respect to the allocation and use of the initial contract milestone payment for such “accelerated delivery costs.” On August 23, 2006, the Company agreed to settle with the United States Government and with these former employees all claims relating to or arising under the JERRV contract and the payment of such accelerated delivery costs for a total of $1,905,000 plus interest of $23,000. As of December 31, 2006, the Company has paid $1,297,534 under the terms of such settlement agreement and the Company has established a provision of $607,466 for the remaining liability. The final payment on this settlement was paid February 7, 2007.

The Company may be involved from time to time in ordinary litigation that will not have a material effect on its operations or finances. Other than the litigation described above, the Company is not aware of any pending or threatened litigation against the Company or its officers and directors in their capacity as such that could have a material impact on the Company’s operations or finances.

NOTE 13—LONG-TERM LIABILITIES

In October 2006, the Company acquired capital equipment valued at $234,875 using a note with implied interest of 11.25% from the supplier with a repayment based on usage of materials used with the equipment.  It is expected that based on usage estimates the note payments in 2007, 2008, and 2009 will be $92,608, $92,608 and $69,456, respectively.

As part of the purchased of NEWTEC Services Group, Inc, a non-compete arrangement was agreed upon where the President of NEWTEC Services Group Inc., would not operate a competitive business during the period of employment with the Company and for two years thereafter.  As part of the non-compete provision, $450,000 was withheld payable in three equal installments of $150,000 on January 1 of 2008, 2009, and 2010.

NOTE 14—SHAREHOLDERS’ EQUITY

During the three months ended March 31, 2007, the Company recorded the following transactions within its shareholders’ equity accounts:

Common Stock Transactions

·                  27,700 shares were cancelled relating to the December 2006 PIPE (Private Investment in Public Equity) offering.

·                  50,000 shares of common stock granted in June 2006 to an employee vested and were issued on January 1, 2007.  The valuation of these shares was recorded in 2006 under SFAS123R.

·                  26,789 shares of common stock were issued to members of the Board of Directors as 2006 compensation. These shares were classified as shares to be issued as of December 31, 2006.

·                  Employees exercised stock options to purchase 1,198,681 shares of the Company’s common stock valued at $1,011,500.  The valuation of these shares was recorded in 2006 under SFAS123R.

15

---

NOTE 15 — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

The following table summarizes information about accounts and reserves for the three months ending March 31,:

		Balance at			Additions
		beginning of			charged to cost						Balance at end
Description		period			and expenses			Write-offs			of period
Revenue based provisions
2007		$	6,068,087		$	2,814,664		$	2,049,305		$	6,833,446
2006		$	1,018,051		$	869,520		$	423,916		$	1,463,655
Allowance for inventory losses
2007		$	2,423,613					$	298,830		$	2,124,783
2006		$	498,281		$	150,000					$	648,281
Warranty reserve
2007		$	1,850,000								$	1,850,000
2006		$	1,686,062		$	459,775		$	1,306,018		$	839,819

 

NOTE 16—SUBSEQUENT EVENTS

On April 18, 2007 the U. S. Marine Corps announced a $6.9 million contract awarded to Force Dynamics to provide sustainment Integrated Logistics Support (ILS) for the U.S. Marine Corp’s Mine Resistant Ambush Protected (“MRAP”) vehicle program. On April 24, 2007, the U. S. Marine Corps released a delivery order for 300 Category I Cougar 4X4 and 700 Category II Cougar 6X6 vehicles for the U.S. Marine Corps’ MRAP program with a value of approximately $490 million.

On May 3, 2007, the Company received an $8.867 million contract to produce Buffalo and Cougar mine-protected vehicles of the Canadian Expeditionary Force Command. Marine Corps Systems Command will administer the contract under a foreign military sales agreement.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Concerning Forward-Looking Statements

This Report contains forward-looking statements, including, without limitation, statements concerning possible or assumed future results of operations and those preceded by, followed by or that include the words “believes,” “could,” “expects,” “intends,” “anticipates,” or similar expressions. Our actual results could differ materially from these anticipated in the forward-looking statements for many reasons including our ability to raise capital when necessary; availability of parts and raw materials for our products; continued customer acceptance of our products; on-going success of our research and development efforts and other risks described in our Form 10-K and other reports filed with the Securities and Exchange Commission elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

Application of Critical Accounting Policies

Management’s Discussion and Analysis of the Company’s Financial Condition and Results of Operations is based on the Company’s unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to long-term contracts and programs, claims for unanticipated contract costs, goodwill and other intangible assets, income taxes, worker’s compensation, warranty obligations and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in the Company’s critical accounting policies during the first quarter of 2007.

16

---

Dividend Policy: We have never declared or paid a cash dividend on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends on our common stock 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. Under the terms of the Certificate of Designation for our Series D Convertible Preferred stock, we are obligated to pay a 6% dividend in cash or shares of common stock on the outstanding shares of Series D stock. As of March 31, 2007, there are no outstanding Series D shares and we have no obligation to make such dividend payments.

Off-Balance Sheet Arrangements: As of March 31, 2007, other than operating leases, the Company had no off-balance sheet arrangements.  (Refer to Note 12 of the Financial Statements included in this 10-Q)

Joint Venture Agreement:  On December 15, 2006, we entered into a Joint Venture Agreement with General Dynamics Land Systems Inc. (“GDLS”), pursuant to which we agreed to work together with GDLS to win and execute a contract for the Mine Resistant Ambush Protected Vehicle Program, or MRAP Program. Under the Agreement, the MRAP Program is defined to include any and all solicitations and requests for proposals for MRAP production and Lifecycle Support and/or any follow on work that may be performed. The scope of work to be undertaken by the Joint Venture is limited to the use of our Cougar 4x4 and 6x6 armored vehicles for the MRAP Category I and Category II requirements. The Joint Venture board is made up of three designees from Venture FPI and three designees from GLDS. The Joint Venture board will have authority to execute documents in accordance with the terms of the Agreement. Decisions of the Joint Venture board shall be made by majority vote. We agreed to operate the Joint Venture on the principle of equitable division of burden and benefit with GDLS. This means that parties are expected to contribute resources equally to the venture. We agreed to divide the Joint Venture revenues between us on a 50%/50% basis. Wherever practicable, Force Dynamics will act as the prime contractor for Joint Venture work, and we, along with GDLS, shall act as the exclusive subcontractors.

Financial Condition and Results of Operations

 Overview: We generated net earnings of $2,513,241 for the three month period ended March 31, 2007. Sales for this period from all sources generated gross revenue of $100,158,766, against which we incurred total cost of goods of $78,403,575 generating a gross profit of $21,755,191, or 21.7%. We incurred Selling, General and Administrative expenses of $14,378,611 which includes a $4,875,780 charge for liquidated damages for late effective registration of stock, plus Research and Development expenses in the amount of $4,841,819 resulting in an operating profit of $2,534,761. During this three month period, we delivered a total of 195 vehicles consisting of 13 Buffalo and 182 Cougars – all variants.

Results of Operations — First Quarter 2007 Compared with First Quarter 2006

The following table sets forth our unaudited consolidated statements of operations for the three month period ended March 31 for the years 2007 and 2006. The discussion and analysis that follows should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.

17

---

Consolidated Statement of Operations
(unaudited)

		For the three months ended March 31,
		2007			2006			Difference			% Change
Revenues		$	100,158,766		$	34,802,585		$	65,356,181		187.8
Cost of sales		78,403,575			28,164,816			50,238,759			178.4
Gross profit		21,755,191			6,637,769			15,117,422			227.7
S,G&A expense		14,378,611			5,961,353			8,471,258			142.1
R&D expense		4,841,819			663,590			4,178,229			629.6
Total S,G&A		19,220,430			6, 624,943			12,595,487			190.1
Operating profit		2,534,761			12,826			2,521,935			N/M
Interest expense		(9,613		)	(807,324		)	797,711			98.8
Other Income		1,788,093			27,049			1,761,044			N/M
Net earnings/(loss) before tax		4,313,241			(767,449		)	5,080,690			662.0
Tax expense		1,800,000			—			(1,800,000		)	N/M
Net earnings/(loss) after tax		$	2,513,241		$	(767,449	)	$	3,280,690		427.5

N/M—Not Material

		For the three months ended March 31,
Net Sales		2007			2006
Net sales		$	100,158,766		$	34,802,585
% change compared with prior period		188		%	—		%

 

The increase in net sales in the first quarter of 2007 compared with the first quarter of 2006 is attributable to volume changes in the following:

Buffalo vehicles		22	%
Cougar vehicles (all variants)		86	%
Spares/Logistics		80	%

 

		For the three months ended March 31,
Cost of Products and Services Sold		2007			2006
Cost of products and services sold		$	78,403,575		$	28,164,816
Gross Margin%		21.7		%	19.1		%

 

Gross margin increased in the first quarter of 2007 compared with the first quarter of 2006 by 2.6 percentage points due to reduced material cost, improved labor efficiencies and increased leverage of fixed cost.

		For the three months ended March 31,
Selling, General and Administrative Expenses		2007			2006
Selling, general and administrative expenses		$	14,378,611		$	5,961,353
Percent of sales		14.4		%	17.1		%

 

Selling, general and administrative expenses as a percentage of sales decreased in the first quarter of 2007 compared with the first quarter of 2006 by 2.7 percentage points due primarily to increased leverage of administrative cost to support the business partially offset by the establishment of a liquidated damages charge of $4,875,780 (3.8 percentage points) resulting from the delayed registration of the December Private Investment of Public Equity  (see Footnote 12 of the unaudited consolidated financial statements of this 10-Q).

18

---

 

		For the three months ended March 31,
Research and Development Expenses		2007			2006
Research and development expenses		$	4,841,819		$	663,590
% change compared with prior period		629.6		%

 

Research and development expenses increased in the first quarter of 2007 compared with the first quarter of 2006 due primarily to increased expenditures incurred to develop the Cheetah product line.

		For the three months ended March 31,
Interest Expense		2007			2006
Interest and other financial charges		$	(9,613	)	$	(807,324	)
% change compared with prior period		98.8		%

 

Interest charges decreased in the first quarter of 2007 compared with the first quarter of 2006 due to pay-off of the short term Longview Capital loan (August 2006) and the termination of the accounts receivable factoring agreement with G.C. Financial (June 2006).

		For the three months ended March 31,
Other Income		2007			2006
Other income		$	1,788,093		$	27,049
% change compared with prior period		N/M

 

Other income increased in the first quarter of 2007 compared with the first quarter of 2006 due to interest income earned on investing the funds received from the December 2006 Private Investment of Public Equity.

		For the three months ended March 31,
Tax Expense		2007			2006
Tax expense		$	1,800,000		$	—
Effective tax rate		41.7		%	—		%

 

The effective tax rate increased in the first quarter of 2007 compared with the first quarter of 2006 by 41.7 points due principally to the requirement to pay taxes resulting from us generating a profit.

		Three months ended March 31,
Net Income		2007			2006
Net income		$	2,513,241		$	(767,449	)
Earnings (loss) per share of common stock — assuming
dilution		$	0.04		$	(0.04	)

 

The increase of $0.08 earnings per share in the first quarter of 2007 compared with the first quarter of 2006 results from  increased earnings  due to volume increases, improved gross margin percentages, higher interest income and lower interest expense partially offset by increased selling, general and administrative and research and development cost.

Backlog: On January 15, 2007, the U.S. Marine Corps awarded a firm fixed price contract for 15 Cougar Joint EOD Rapid Response Vehicles, or JERRV.  The value of this contract is approximately $9.4 million.

On January 26, 2007, the U.S. Marine Corps awarded us an Indefinite Delivery, Indefinite Quantity, or IDIQ, contract for the MRAP program.  This contract allows the U.S. Marine Corps to place delivery orders for up to 4,100 MRAP vehicles per ordering year for 5 years for a total possible vehicle quantity of 20,500.  On January 26, 2007, the U.S. Marine Corps issued a delivery order for 4 MRAP vehicles to be used in survivability and mobility testing as part of the program.  On February 14, 2007, the Marine Corps issued a second delivery order for 125 MRAP production vehicles.  The total value of these delivery orders is $74,636,994.

On February 14, 2007, Force Dynamics - a joint venture between Force Protection, Inc. and General Dynamics Land Systems, a business unit of General Dynamics Corporation announced it has received a $67.4 million contract award from the U.S. Marine Corps to produce 125 vehicles for its MRAP program.

On March 9, 2007, the U.S. Marine Corps issued a delivery order for an additional 19 Buffalo mine-protected vehicles worth an estimated $16.2 million.  On March 14, 2007, the Mastiff contract was modified to add 22 additional Mastiffs increasing the total Mastiffs to be delivered to 108 vehicles.

Subsequent to the quarter ended March 31, 2007,  on April 18, 2007, the U. S. Marine Corps announced a $6.9 million contract

19