U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
-------------
{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 $100,000.
SUMMARY COMPENSATION TABLE
The following table presents a summary of the compensation paid to our Chief
Executive Officer and other highly compensated employees during the last four
fiscal yearsExcept as listed below, there are no bonuses, other annual
compensation, restricted stock awards or stock options/SARs or any other
compensation paid to executive officers.
Annual compensation Long-term Compensation
Awards
Name and Other Restricted Securities Payouts
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation options/ payouts compensation
award SARs
($) ($) ($) ($) (#) ($) ($)
(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
officers as a group (persons) 72,132,059 40.07%
(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 outstandingAshford 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.
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 Catherine Basinger and Sonic Jet
Performance, Inc. (previously filed).
10.9 Consulting Agreement with Gordon McGilton and Sonic Jet Performance,
Inc. (previously filed).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 Employment Offer Letter between the Registrant and Michael
Watts, dated July 1, 2002 (previously filed).
10.18 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).
10.19 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).
21.1 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.
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
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: May 4, 2004 By: /s/ MICHAEL WATTS
Michael Watts
Chief Executive Officer/Director
(Principal Executive Officer)
Date: May 4, 2004 By: /s/ Thomas Thebes
Thomas Thebes
Chief Financial Officer
(Principal Accounting and 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.
Signature Title Date
--------- ----- ----
/s/ Michael Watts Director May 4, 2004
------------------
Michael Watts
/s/ Madhava Rao Mankal Director May 4, 2004
-------------------------
Madhava Rao Mankal
/s/ Frank Kavanaugh Director May 4, 2004
---------------------
Frank Kavanaugh
/s/ Gale Aguilar Director May 4, 2004
----------------
Gale Aguilar
/s/ R. Scott Ervin Director May 4, 2004
--------------------
R. Scott Ervin