**U.S.SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**ý****                                ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005**

 

**OR**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**FOR THE TRANSITION PERIOD FROM               TO               **

 

**COMMISSION FILE NUMBER: 0-22273**

 

**FORCEPROTECTION, INC.**

 
| **Nevada**                   | ** ** | **84-1383888** |
|------------------------------|------------|----------------|
| (State of Incorporation)     |       | (I.R.S. EIN)   |
|                         |       |           |
| **9801 Highway 78, Bldg #2** |
| **Ladson, South Carolina**   |
| **29456**                    |

 

Registrant’s telephone number: **(843) 740-7015**

 

Securities registered pursuant to Section 12(b) ofthe Act:   ** None**

 

Securities registered pursuant to Section 12(g) ofthe Act:**Common Stock par value $0.001 per share**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) been subject to such filing requirements for thepast 90 days. **Yes****ý**                                                No o

 

**As of June 30,2005, the Issuer had 35,897,848 shares of common stock issued and outstanding.**

 

Transitional Small BusinessDisclosure Format (check one): Yes o                          **No****ý**

 

 

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**Table of Contents**

 
| Part I : Financial Information | 3                                                                                                                   |
|-------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                |   |
|                                | Item 1 - Financial Statements                                                                                       | 3 |
|                                | Report On Review By Independent Public Accountant                                                                   | 3 |
|                                | Consolidated  Balance Sheet As Of June 30, 2005                                                                | 4 |
|                                | Consolidated Statements Of Operations For The Three and Six  Months Ended June 30, 2005 And June 30, 2004 | 5 |
|                                | Consolidated Statements Of Cash Flows For The Three and Six  Months Ended June 30, 2005 And June 30, 2004 | 6 |
|                                | Notes To Consolidated Financial Statements                                                                          | 7 |
|                                | Item 2 - Management’s Discussion And  Analysis Or Plan Of Operations                                           | 12 |
|                                | Item 3 - Controls And Procedures                                                                                    | 19 |
|                                |                                                                                                                |   |
| Part II : Other Information    | 19                                                                                                                  |
|                                |                                                                                                                |   |
|                                | Item 1 - Legal Proceedings                                                                                          | 19 |
|                                | Item 2 - Unregistered Sales Of Equity  Securities And Use of Proceeds                                               | 20 |
|                                | Item 3 - Defaults Upon Senior Securities                                                                            | 20 |
|                                | Item 4 - Submission Of Matters To A Vote Of  Security Holders                                                       | 20 |
|                                | Item 5 - Other Information                                                                                          | 20 |
|                                | Item 6 - Exhibits And Reports On Form 8-K                                                                      | 21 |

 

2

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**PART ONE – FINANCIAL INFORMATION**

 

**ITEM 1 - FINANCIAL STATEMENTS**

 

**REPORT ON REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To the Board of Directors

Force Protection, Inc.and Subsidiaries

 

We have reviewed the consolidated balancesheet of Force Protection, Inc., and its subsidiaries as of June 30, 2005,and the related consolidated statements of operations for the three-month andsix-month periods ended June 30,2005, and consolidated statement of cash flows for the six-monthperiod then ended. These financial statements are the responsibility of theCompany’s management.

 

We conducted our review in accordance withthe standards of the Public Company Accounting Oversight Board (United States).A review of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with standards of the Public Company AccountingOversight Board (United States), the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express such an opinion.

 

Based on our reviews, we are not aware ofany material modifications that should be made to the accompanying interimfinancial statements referred to above for them to be in conformity withaccounting principles generally accepted in the United States of America.

 

We have previously audited, in accordancewith auditing standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheet of Force Protection, Inc.,and its subsidiaries as of December 31, 2004, and the related consolidated statement of income,consolidated statement of shareholders equity and consolidated statement ofcomprehensive income (loss) for the year then ended (not presented herein); andin our report dated March 18, 2005, we expressed an unqualified opinion on those financialstatements. In our opinion, the information set forth in the accompanyingcondensed balance sheet as of June 30,2005, is fairly stated, in all material respects, in relation to the balancesheet from which it has been derived.

 

The accompanying consolidated financial statementshave been prepared assuming that the Company will continue as a going concern.As discussed in Note 18 to the financial statements, the Company’s recurringlosses from operations and its difficulties in generating sufficient cash flowfrom operations to meet its obligation and sustain its operations raisesubstantial doubt about its ability to continue as a going concern. Management’splans concerning these matters are also described in Note 18. The financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty.

 
| /s/ Jaspers + Hall, PC |   |
|------------------------|--------|
|                   |
| Jaspers + Hall, PC     |
| Denver, Colorado       |
| July 22, 2005     |

 

3

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FORCE PROTECTION, INC.

CONSOLIDATED BALANCE SHEET

JUNE 30, 2005

(Unaudited)

 
| ASSETS                                                                                             | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------|------------|
| Current  Assets                                                                                    |       |        |       |
| Cash                                                                                               |       | $           | 8,812,344  |   |
| Accounts  receivable                                                                               |       | 2,072,683   |       |
| Other  current assets                                                                              |       | 343,200     |       |
| Inventories  - Net                                                                                 |       | 12,142,565  |       |
| Current Assets                                                                                     |       | 23,370,792  |       |
|                                                                                               |       |        |       |
| Other Assets                                                                                       |       |        |       |
| Fixed Assets  - Net                                                                                |       | 2,079,594   |       |
|                                                                                               |       |        |       |
| Total Assets                                                                                       |       | $           | 25,450,386 |   |
|                                                                                               |       |        |       |
| LIABILITIES  AND SHAREHOLDERS’ EQUITY                                                         |       |        |       |
| Current  Liabilities                                                                               |       |        |       |
| Accounts  payable                                                                                  |       | $           | 4,288,811  |   |
| Accrued  payroll taxes                                                                             |       | 11,447      |       |
| Deferred  revenue                                                                                  |       | 4,405,188   |       |
| Other  accrued liabilities                                                                         |       | 979,637     |       |
| Warranty  reserve                                                                                  |       | 273,160     |       |
|                                                                                               |       |        |       |
| Current  Liabilities                                                                               |       | 9,958,243   |       |
|                                                                                               |       |        |       |
| Long-term  liabilities                                                                             |       | 159,153     |       |
|                                                                                               |       |        |       |
| Total  Liabilities                                                                                 |       | $           | 10,117,396 |   |
|                                                                                               |       |        |       |
| Shareholders  Equity:                                                                              |       |        |       |
| Common, par  value .001, 300,000,000 shares authorized. Issued and outstanding, 35,897,848  shares |       | $           | 35,897     |   |
| Common Stock  in excess of par (Additional Paid in Capital)                                        |       | 38,207,261  |       |
| Preferred Series D  Par value $1000, shares authorized 20,000, 13,004 outstanding shares      |       | 13,004,000  |       |
| Retained  earnings                                                                                 |       | (35,914,168 | )          |
|                                                                                               |       |        |       |
| Shareholders  equity                                                                               |       | 15,332,990  |       |
|                                                                                               |       |        |       |
| Total  Liabilities and Shareholders’ Equity                                                   |       | $           | 25,450,386 |   |

 

See Accountants’ Review Report

 

4

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**FORCE PROTECTION, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                  | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                  | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                    |       | $                                     | 18,295,357 |                                | $          | 15,578 |   | $ | 24,148,780 |   | $ | 1,658,431 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Cost of  Sales                              |       | 14,258,685                            |       | 296,527                             |       | 20,656,484 |   | 1,528,479 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Gross Profit                                |       | 4,036,672                             |       | (280,949                            | )          | 3,492,296 |   | 129,952 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Operating  Expenses:                        |       |                                  |       |                                |       |   |   |   |   |
| Selling,  General & Administrative |       | 3,732,020                             |       | 1,673,385                           |       | 6,931,839 |   | 3,278,018 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Total  Operating Expenses                   |       | 3,732,020                             |       | 1,673,385                           |       | 6,931,839 |   | 3,278,018 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Gain / Loss  from Operations                |       | 304,652                               |       | (1,954,334                          | )          | (3,439,543 | ) | (3,148,066 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Other  Income/Expense                       |       |                                  |       |                                |       |   |   |   |   |
| Other Income                                |       | 29,484                                |       | 477                                 |       | 68,024 |   | 36,534 |   |
| Interest  Expense                           |       | (203,503                              | )          | (4,133                              | )          | (480,758 | ) | (44,447 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Total Other  Income (Expense)               |       | (174,019                              | )          | (3,656                              | )          | (412,734 | ) | (7,913 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Net Gain /  Loss                            |       | $                                     | 130,633    |                                | $          | (1,957,990 | ) | $ | (3,852,277 | ) | $ | (3,155,979 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Basic gain  /loss per share                 |       | $                                     | 0.0038     |                                | $          | (0.1483 | ) | $ | (0.1120 | ) | $ | (0.2390 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Diluted gain  / loss per share              |       | $                                     | 0.0029     |                                | $          | (0.0938 | ) | $ | (.0865 | ) | $ | (0.1511 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Weighted  average common shares outstanding |       |                                  |       |                                |       |   |   |   |   |
| Basic                                       |       | 34,403,512                            |       | 13,206,105                          |       | 34,.403,512 |   | 13,206,105 |   |
| Diluted                                     |       | 44,557,203                            |       | 20,881,254                          |       | 44,557,203 |   | 20,881,254 |   |

 

See Accountants’Review Report

 

5

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**FORCE PROTECTION, INC.**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Six Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2004** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Cash Flows From Operating Activities:                                        | ** ** | ** **                                | ** ** | ** **                                | ** ** |
| Net Loss                                                                     |       | $                                         | (3,852,277 | )                                         | $          | (3,155,979 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                      |       |                                      |       |
| Depreciation  and amortization                                               |       | 182,854                                   |       | 34,405                                    |       |
| Common Stock  issued for services                                            |       | —                                    |       | 70,841                                    |       |
| Warranty &  royalties                                               |       | 257,000                                   |       | 62,083                                    |       |
| Changes in  assets and liabilities:                                          |       |                                      |       |                                      |       |
| (Increase)  in accounts receivable                                           |       | (1,018,710                                | )          | (594,690                                  | )          |
| (Increase)  in inventories                                                   |       | (3,232,652                                | )          | (2,535,756                                | )          |
| (Increase)  Decrease in other assets                                         |       | (101,290                                  | )          | (120,928                                  | )          |
| (Decrease)  Increase in accounts payable                                     |       | 2,481,485                                 |       | 405,303                                   |       |
| (Decrease)  Increase in payroll liabilities                                  |       | (42,232                                   | )          | 110,816                                   |       |
| (Decrease)  Increase in accrued expenses, deferred revenue and other         |       | 1,038,368                                 |       | 552,862                                   |       |
| (Decrease)  Increase in reserves                                             |       | (517,092                                  | )          | 370,220                                   |       |
| Total  adjustments                                                           |       | (952,269                                  | )          | (1,644,844                                | )          |
| Net Cash  Used in Operating Activities                                       |       | (4,804,546                                | )          | (4,800,823                                | )          |
|                                                                         |       |                                      |       |                                      |       |
| Cash Flow  From Investing Activities:                                        |       |                                      |       |                                      |       |
| Purchase of  equipment                                                       |       | (1,092,676                                | )          | (236,099                                  | )          |
| Proceeds  from sale of property and equipment                                |       | 155,442                                   |       | —                                    |       |
| Net Cash  Provided By Investing Activities                                   |       | (937,234                                  | )          | (236,099                                  | )          |
|                                                                         |       |                                      |       |                                      |       |
| Cash Flow  From Financing Activities:                                        |       |                                      |       |                                      |       |
| Proceeds  from issuance of common stock                                      |       | —                                    |       | 5,600,000                                 |       |
| Proceeds  from issuance of Preferred Stock                                   |       | 15,800,000                                |       |                                      |       |
| Proceeds  from convertible debt                                              |       | —                                    |       |                                      |       |
| Short term  Debts                                                            |       | (360,975                                  | )          | (369,387                                  | )          |
| Payments  from capitalized lease obligations                                 |       | 48,420                                    |       | (6,017                                    | )          |
| Long Term  Liabilities                                                       |       | (4,000,000                                | )          | (24,461                                   | )          |
| Notes  Payable                                                               |       | —                                    |       | (124,036                                  | )          |
| Additional  Paid-in-capital                                                  |       | 802,273                                   |       | 993,733                                   |       |
| Net Cash  Provided By Financing Activities                                   |       | 12,289,718                                |       | 6,069,832                                 |       |
|                                                                         |       |                                      |       |                                      |       |
| Increase in  Cash                                                            |       | 6,547,938                                 |       | 1,032,910                                 |       |
|                                                                         |       |                                      |       |                                      |       |
| Beginning  Balance (at 12/31/04)                                             |       | 2,264,406                                 |       | 278,777                                   |       |
|                                                                         |       |                                      |       |                                      |       |
| Ending  Balance                                                              |       | $                                         | 8,812,344  |                                      | $          | 1,311,687 |   |

 

See Accountants’ Review Report

 

6

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**FORCE PROTECTION, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**June 30, 2005**

(Unaudited)

 

**NOTE 1 -PRESENTATION OF INTERIM INFORMATION**

 

In the opinion of themanagement of Force Protection, Inc. and its wholly-owned subsidiaries,the accompanying unaudited consolidated financial statements include all normaladjustments considered necessary to present fairly the financial position as ofJune 30, 2005, and the results of operations and cash flows for the threeand six months periods ended June 30, 2004 and 2005. Interim results arenot necessarily indicative of results for a full year.

 

The consolidated financialstatements and notes are presented as permitted by Form 10-QSB, anddo not contain certain information included in Force Protection Inc.’s auditedconsolidated financial statements and notes for the fiscal year ended December 31,2004.

 

**NOTE 2 -FINANCIAL STATEMENTS**

 

The consolidated financialstatements include the accounts of the Company and its wholly-owned subsidiaries.All significant inter-company balances, transactions, and stockholdings havebeen eliminated.

 

**NOTE 3 -INVENTORIES**

 

The Company intends to implement a material resourceplanning system during 2005 to further develop the Company’s internal controlprocesses. Beginning July 2004, the Company set up an inventory loss reserveof $10,000 per month which will be adjusted according to physical inventoryresults.  To date, the Company has a $120,000reserve balance..

 

Inventories at June 30, 2005 consisted of thefollowing:

 
| Raw  materials and supplies |   | 8,293,695  |       |
|-----------------------------|--------|------------|------------|
| Work in  process            |   | 3,968,870  |       |
| Total Gross  Inventories:   |   | 12,262,565 |       |
| Less:  Provision for Loss   |   | (120,000   | )          |
|                        |   |       |       |
| Total Net  Inventories      |   | $          | 12,142,565 |   |
|                             |        |            |            |  |

 

**NOTE 4 - PROPERTY AND EQUIPMENT**

 

Property and equipment at June 30, 2005consisted of the following:

 
| Furniture  and fixtures             |   | $         | 330,096   |   |
|-------------------------------------|--------|-----------|-----------|--------|
| Machinery  and equipment            |   | 1,749,868 |      |
| Test  Equipment                     |   | 16,790    |      |
| Manuals                             |   | 104,798   |      |
| Vehicles                            |   | 26,070    |      |
| Demo  vehicles                      |   | 425,845   |      |
| Less  depreciation and amortization |   | (573,873  | )         |
|                                |   |      |      |
| Net property  and equipment         |   | $         | 2,079,594 |   |

 

Depreciation expense for thequarter ended June 30, 2005 was $109,017 as compared to $2,927 for the secondquarter of 2004.

 

7

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**NOTE 5 - COMMITMENTS ANDCONTINGENCIES**

 

Leases

 

The Company leases space in three buildings inLadson, South Carolina for its principal executive offices and manufacturingfacilities.

 

The term of the lease for Building One is threeyears, with a 5 year option, starting June 1, 2005.  Annual rent is $119,880 plus utilities, taxesand maintenance. The Company has 7,190 square feet of office space and 9,139square feet of warehouse space in Building One.

 

The term of the lease for Building Two is five yearsstarting July 15, 2004, with an option to renew for another five years.Annual rent is $439,500 for the first year plus utilities, taxes andmaintenance, and $439,500 base rental for the next four years, which may beadjusted by increases to the Consumer Price Factor by three to seven percent.

 

The term of the lease for Building Three is fiveyears starting October 15, 2003. Annual rent is $215,000 for the firstyear plus utilities, taxes and maintenance, and $258,000 base rental for thenext four years. The Company has 84,800 square feet of space in Building Three.

 

We have deposited $160,000 to secure the buildingleases.

 

Long Term Commitment

 

Royalty/Licensing Agreements

 

We are party to two long term intellectual propertyagreements covering technology used in the production of our ballistic andblast protected vehicles. One agreement is with the CSIR Defencetek, a divisionof the Council for Scientific and Industrial Research, a statutory councilestablished in accordance with the Laws of the Republic of South Africa, andthe other is with MECHAM, a division of Denel Pty Ltd, a company established inaccordance with the Laws of the Republic of South Africa. Under theseagreements, we pay a fixed royalty in exchange for the exclusive transfer to productionof the South African technology used in certain of our products.

 

Employment Agreements

 

Effective October 26,2004, the Company entered into an Agreement with Gale Aguilar to receive annualcash compensation of $15,000 per month plus stock grants as the new InterimChief Executive Officer. Effective January 27, 2005, Mr. Aguilarstopped collecting his compensation as an employee.  Mr. Aguilar is eligible to receivecompensation for his services as a Director. On January 27, 2005, Mr. R.Scott Ervin replaced Mr. Aguilar as Interim Chief Executive Officer.

 

Pursuant to a LetterAgreement dated November 15, 2004, Mr. R. Scott Ervin is employed asGeneral Counsel receiving an annual salary of $118,000, relocation expenses of$15,000, plus a one time grant of 41,666 shares of common stock and 4 Series Cconvertible preferred shares valued at $108,000.  On January 27, 2005, Mr. Ervin wasappointed by the Board to act as Interim Chief Executive Officer during oursearch for a Chief Executive Officer. Upon the appointment of the new CompanyChief Executive Officer on April 18, 2005, Mr. Ervin ceased to serveas the Interim Chief Executive Officer but continues to serve as GeneralCounsel and a member of the board of directors. 

 

On January 27, 2005, the Company entered intoan agreement with Gordon McGilton to act as our Chief Quality Officer. Mr. McGiltonreceives a base salary of $180,000 plus an annual bonus of $180,000 andreimbursement for travel, lodging and other out of pocket expenses incurredduring employment. We also agreed to provide Mr. McGilton stock optionsonce we adopt a stock option plan.  EffectiveApril 18, 2005, the Company appointed Mr. McGilton as Chief ExecutiveOfficer.  Additionally, Mr. McGiltonjoined the board of directors.

 

8

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Mr. Kavanaugh resigned as the Company’s Vice Presidentof Business Development effective May 14, 2005.  In such position, Mr. Kavanaugh receivedan annual salary of $180,000.  As of May 14,2005, Mr. Kavanaugh no longer receives a salary as an employee of theCompany.  On December 31, 2004 Mr. Kavanaughreceived a one time grant of 10 Series C shares and 41,667 common shares valuedat $180,000 as additional compensation.  Mr. Kavanaughcurrently serves on the board of directors as Chairman and is eligible toreceive compensation for his services as a Director. As part of Mr. Kavanaugh’sresignation, we agreed to pay for 24 months of health coverage valued at $24,179.76.

 

Legal Proceedings

 

On June 17, 2003, the CSIR, a statutory councilestablished in accordance with the South African Research Council Act 46 of1988, filed suit in the High Court of South Africa, Transvaal ProvincalDivision, against us claiming a balance due and owing under a Purchase Orderfor the design and supply of seven TMRP-6 protection kits with a totalcontract price of ZAR631,800. As of the date hereof, we have paid all amountsdue under the contract and are awaiting final dismissal of the claim withprejudice.

 

On May 12, 2005, Atlantis Partners, Inc.filed a complaint in the Circuit Court for the 15th Judicial Circuit, Palm BeachCounty Florida for breach of terms related to a finder’s fee agreement dated March 28,2003.  The complaint alleges damages ofat least $400,000 in fees, plus costs and interest.  This matter is too preliminary for us topredict the outcome however we intend to vigorously defend against AtlantisPartner’s claims.

 

In March 2005, we received a letter from H.C.Wainwright & Co., Inc. threatening litigation. The potentialdispute relates to a letter agreement between H.C. Wainwright & Co andus dated November 29, 2004. The dispute has been settled for $225,000 pluswarrants to purchase 150,000 shares of unregistered common stock at $3.75/share.

 

**NOTE 6 - OTHER TRANSACTIONS**

 

On March 4, 2005, we issued 57,186 restrictedshares of our common stock to seven investment groups valued at $100,076 as astock dividend.

 

During the three months ended March 31, 2005,we issued an aggregate of 116,172 restricted shares of our common stock for theexercise of warrants generating $139,750 per a private placement offering datedApril 10, 2002.

 

On February 9, 2005, we issued a total of59,717 restricted shares of common stock to four individuals or entities forsettlement for investment related services to us.  The value for services rendered, that waspaid in common stock was $153,472.69.

 

During the three months ended March 31, 2005,we issued 14,876 restricted common shares to GC Financial in exchange for cash($38,700) for Year 2004 interest payable.

 

During the three months ended March 31, 2005,we issued an aggregate of 152,404 post-split common shares at an average priceof $2.6834 per share, generating $408,975 for the payback of the DutchessEquity Line.

 

During the three months ended June 30, 2005 theCompany issued an aggregate of 1,331,429 shares of its common stock upon the conversionof 2,796 Series D convertible preferred shares that had been issued in aprivate placement offering on January 19, 2005.

 

**NOTE 7 - CONVERTIBLE PREFERREDSTOCK**

 

The board of directors has the authority to issuepreferred stock in one or more series, and fix for each series, the designationof, and number of shares to be included in each such series.  The board of directors is also authorized toset the powers, privileges, preferences, and relative participating, optionalor other rights, if any, of the shares of each such series and thequalifications, limitations or restrictions of the shares of each such series.

 

**Series B Convertible PreferredStock**

 

The board of directors has authorized twenty fiveshares of “Series B” Convertible Preferred Stock. As of June 30, 2005,there were no shares of Series B preferred stock issued and outstanding.Holders of the Series B preferred stock, have the right to vote, with theholders of common stock, on any matter to which the common stock holders areentitled to vote. Each holder of the Series B Stock is entitled to suchnumber of votes as shall be equal to the aggregate number of shares of CommonStock into which such holder’s shares of Series B Stock are convertibleimmediately after the close of business on the record date fixed for suchmeeting or the effective date of such written consent, plus such number ofvotes that equals twenty percent of the number of votes to which the holders ofother securities of the Company are entitled as of such dates multiplied by thefraction obtained by dividing the number of Series B shares held by eachsuch owner by the total number of Series B Shares issued and outstanding.If the Company is liquidated, distributes its assets, dissolves or winds-up,the holders of Series B preferred stock shall receive the greater of (i) $2,500per share of Series B preferred stock they hold at the time of suchLiquidation, or (ii) their pro rata share of the total value of our assetsand funds to be distributed, assuming the Series B preferred stock isconverted to common stock.   On February 10,2005 the Board of Directors approved a resolution adopting an Amended andRestated Certificate of Designation for Series B Convertible PreferredStock.  The

 

9

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Board Resolution was ratified and approved by amajority of the Series B shareholders. The Amended and Restated Certificate of Designation permits the Board ofDirectors to convert the Series B stock into common stock. The conversionrate for the Series B stock is 759,166 shares of common stock for eachshare of Series B stock.

 

**Series C Convertible PreferredStock**

 

The board of directors has authorized one hundredfifty shares of “Series C” Convertible Preferred Stock. As of June 30,2005, there were no shares of Series C preferred stock outstanding.  The holders of the Series C Stock mayvote on any amendment, alteration, or repeal of any provision of the Articlesof Incorporation or Bylaws of the Corporation or any other action thatmaterially and adversely alters or changes the voting powers, preferences, orother special rights or privileges, or restrictions of the Series C Stock,subject to certain limitations, and any increase in the authorized number ofshares of Series C Stock.  In theevent of any voluntary or involuntary liquidation, distribution of assets(other than the payment of dividends), dissolution or winding-up of theCompany, Series C Stock shall have preferential rights to Series BStock whereby Series C Stock shall get a one hundred and fifty percentreturn on its capital, after which time Series B Stock and Series CStock shall participate, on a pro rata basis, based on the number of shares ofthe Company’s common stock into which the Series B Stock and the Series CStock are convertible at the time of the liquidation, distribution of assets,dissolution or winding-up.  On February 10,2005 the Board of Directors approved a resolution adopting an Amended andRestated Certificate of Designation for Series C Convertible PreferredStock. The Board Resolution was ratified and approved by a majority of the Series Cshareholders.  The Amended and RestatedCertificates of Designation permits the Board of Directors to convert the Series Cstock into common stock. The conversion rate for Series C stock is 75,916 sharesof common stock for each share of Series C stock.

 

**Series D Convertible PreferredStock**

 

On January 20, 2005 the Company authorizedtwenty thousand shares of Series D 6% Convertible Preferred Stock. On January 21,2005, the Company issued 15,800 shares of Series D stock in a privateplacement.  As of June 30, 2005there were 13,004 shares of Series D stock outstanding.  Holders of the Series D stock areentitled to receive cumulative dividends at the rate per share of 6% per annum**,** payable semi-annually on March 1 andSeptember 1, beginning with the first such date after the original issue date.  The Preferred Series D does not havevoting rights.  Upon any liquidation,dissolution or winding-up of the Corporation, whether voluntary or involuntary,the Holders of the Series D shall be entitled to receive out of the assetsof the Company, whether such assets are capital or surplus, for each share ofPreferred Stock an amount equal to the Stated Value per share plus any accruedand unpaid dividends thereon and any other fees or liquidated damages owingthereon before any distribution or payment shall be made to the holders of anyJunior Securities.  Each share of Series DStock will convert into the number of shares of the Company’s common stockequal to $1,000 divided by the conversion price at the holder’sdiscretion.  The current conversion priceis $2.10.

 

**NOTE 8 - RECEIVABLES / FACTORING**

 

OnJuly 28, 2004, we entered into an agreement with GC Financial Services, Inc.for a revolving credit line of up to $4 million dollars. Receivables can be factoredat 2% per invoice submitted. We also secured a line of credit of up to$4,000,000 at a base rate of 4.1%  per month.As of June 30, 2005 the balance outstanding on such line of credit was $0.  During 2004 and the first quarter of 2005,the Company factored receivables due under its 2004 contracts with the U.S.Army and the U.S. Marine Corps at 2% per invoice submitted for factoring.

 

OnJune 29, 2005, we issued a Demand Note with a maximum principal amount of$5,000,000 to GC Financial Services, Inc. The Demand Note will bearinterest at a fixed rate of 4% per month. As of June 30, 2005 the balanceoutstanding on such line of credit was $0. Additionally, we entered into Security Agreement to pledge our accounts,inventory, equipment, general intangibles, and certain other assets to GCFinancial Services as collateral to secure payment of the Demand Note. Finally,we entered into a Purchase and Sale Agreement to sell to GC Financial Servicescertain of our receivables under Government Contract No. M67854-05-D-5091in an amount not to exceed $63,000,000. We will receive 98.1% of the amountsdue under such Contract.

 

**NOTE 9 - REVERSE STOCK SPLIT**

 

In January, 2005, the Board of Directors approved a1 (new)-for-12 (old) reverse stock split of the outstanding shares ofcommon stock. The reverse stock split became effective February 4, 2005.Shareholders approved the action at the Company’s annual meeting on December 30,2004. All references in the Company’s quarterly and annual reports are to postreverse split shares.

 

**NOTE 10 - MATERIAL COMMITMENTS**

 

The Company has issued Purchase Orders to securecomponents and the steel needed for production. As of June 30, 2005 theCompany has $43,895,367 of such material commitments. These purchases areexpected to be financed by existing cash, debt and cash flows from operations.

 

On June 29, 2005, the Company entered into aservices contact with Ricardo Engineering, an international automotiveconsultancy. Under the terms of the contract, Ricardo will provide anintegrated bill of materials including chassis assemblies and subassemblies in

 

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the Cougar product line, automated drawings andmodel updates, design releases, and vehicle validation tasks for the Joint EODRapid Response Vehicle. Ricardo will receive an estimated $1,682,000.00 for itsservices and materials as outlined in the Purchase Order.

 

**NOTE 11- STOCK COMPENSATIONPLAN**

 

Currently, the Company does not have a stockcompensation plan.

 

**NOTE 12 - DEFERRED REVENUE**

 

The Company recognizes revenue upon formalacceptance (DD250) by the customer. The Company has received progress /performance based payments from the U.S. Army and U.S. Marines. The Companyrecords these performance based payments as deferred revenue and carries themon the balance sheet as such until shipment acceptance. As of June 30,2005, the Company had $4,405,188 as deferred revenue resulting from threecontracts, one from the U.S. Army (Buffalos), one from the U.S. Marines(Cougars) and one from a joint Department of Defense contract.

 

**NOTE 13 - DEBTS**

 

As of June 30, 2005,the Company had $159,153 total long-term debt, which includes long-termpayables with no effective or stated interest or maturity dates.  As of December 31, 2004, the Company had$4,101,078 of total long term debt. $4,000,000 of such debt, as referred to inNote 8, was the outstanding balance due under the GC Financial line of credit,and was paid in full on January 22, 2005.

 

**NOTE 14 - CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

Our Chief Executive Officer, Mr. McGilton, is aprinciple of APT Leadership.  The Companyhas hired APT to perform various consulting duties. As of June 30, 2005, theCompany has paid APT Leadership $118,725.

 

**NOTE 15 – BUSINESS SEGMENT ANALYSIS**

 

The following table sets forth a business segmentanalysis of our financial results for the three months ended June 30,2005:

 
| **(000’s) (approximate)** | ** ** | **FPI** | ** ** | **Corp** | ** ** | **Total** | ** ** |
|--------------------------------|------------|---------|------------|----------|------------|-----------|------------|
| Sales                          |       | 18,295  |       | —   |       | 18,295    |       |
| Cost of  sales                 |       | 14,258  |       | —   |       | 14,258    |       |
|                           |       |    |       |     |       |      |       |
| Gross profit                   |       | 4,037   |       | —   |       | 4,037     |       |
| G.P.%                          |       | 22.1    | %          |     |       | 22.1      | %          |
| SG&A                       |       | 2,742   |       | 990      |       | 3,732     |       |
|                           |       |    |       |     |       |      |       |
| Segment  P&L               |       | 1,295   |       | (990     | )          | 305       |       |

 

Mine, ballistic and blast protected vehicles and sparesprovided approximately 100% of the total sales and 100% of the total cost ofgoods sold.

 

**NOTE 16 – STOCK OPTION PLAN**

 

Currently, we do not have a stock option plan.  We have issued 647,833 common stock optionsat a strike price of $1.50 of which as of June 30, 2005 there were 180,557vested shares.

 

**NOTE 17 – GOVERNMENT AUDITLIABILITY**

 

TheCompany receives revenue from various federal agencies under salescontracts.  Such contracts are subject toaudit by the purchaser, which could lead to requests for reimbursement to thepurchaser for expenditures not in compliance with the terms of the contract.Based

 

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onFederal Accounting Regulations (FAR) we may be subject to reductions in overallcontract award pricing due to potential rate changes in manufacturing overhead,G&A, and margin. Based upon the lack of reimbursement requests in priorgrant audits, management believes such reimbursement requests, if any, will beimmaterial.

 

**NOTE 18 – GOING CONCERN**

 

The financial statements have been prepared on a going concern basis,which contemplates continuity of operations, realization of assets andliquidation of liabilities in the normal course of business.  The Company has recurring losses of$31,961,186 at December 31, 2004 and has negative cash flows fromoperating activities at June 30, 2005 of $4,804,546. The ability of theCompany to operate a going concern is dependent upon its ability (1) toobtain sufficient debt and/or equity capital and/or (2) cut operatingcosts such that the Company can operate until such time that it resumesgenerating positive cash flow from operations. Management is taking followingsteps to address this situation: (a) reducing operating costs, thusreducing the break even revenue level; (b) negotiating to replace the lineof credits with an agreement more attractive terms and expand borrowingcapacity.

 

The future success of theCompany is likely dependent on its ability to attain additional capital tosupport growth and ultimately, upon its ability to attain future profitableoperations.  There can be no assurancethat the Company will be successful in obtaining such financing, or that itwill attain positive cash flow from operations. The successful outcome of these or any future activities cannot bedetermined at this time and there is no assurance that if achieved, the Companywill have sufficient funds to execute their business plans or generate positiveoperating results. The financial statements do not include any adjustmentsrelating to the recoverability and classification of asset carrying amounts orthe amount and classification of liabilities that might result should theCompany be unable to continue as a going concern.

 

N**OTE 19 – RESEARCHAND DEVELOPMENT COST**

 

Research and development (R&D) cost are expensedas incurred. 2005 Second quarter R&D expense was $ 367,925.

 

**NOTE 20 - COMMON STOCK WARRANTS**

 

Inconnection with the issuance of the Series D convertible preferred stock,the Company issued warrants to purchase 2,633,333 shares of common stock at anexercise price of $3.75 per share to the firms that participated in the Series Dissuance. The warrants expire January 19, 2008.

 

TheCompany issued warrants to purchase 66,667 shares of common stock at an exerciseprice of $3.75 expiring January 19, 2008 as a placement fee in connection withthe series D issuance.

 

TheCompany issued warrants to purchase 150,000 shares of common stock at an exerciseprice of $3.75 expiring January 19, 2008 as settlement of a dispute.

 

Outstandingwarrants issued during fiscal years 2003 and 2004:

 

TheCompany issued warrants to purchase 322,918 shares of common stock at anexercise price of $0.84 expiring August 31, 2005 through November 15,2008.

 

TheCompany issued warrants to purchase 20,000 shares of common stock at anexercise price of $1.20 expiring September 23, 2008.

 

TheCompany issued warrants to purchase 6,250 shares of common stock at an exerciseprice of $2.40 expiring April 1, 2006.

 

TheCompany issued warrants to purchase 67,709 shares of common stock at anexercise price of $4.80 expiring May 20, 2006.

 

Warrantsare immediately exercisable. The fair value of all these warrants wasinsignificant at the issuance date.

 

**ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

 

**Cautionary Statement ConcerningForward-Looking Statements**

 

This Report contains forward-looking statements,including, without limitation, statements concerning possible or assumed futureresults of operations and those preceded by, followed by or that include thewords “believes,” “could,” “expects,” “intends,” “anticipates,” or similarexpressions. Our actual results could differ materially from these anticipatedin the forward-looking statements for many reasons including our ability toraise capital when necessary; availability of parts and raw materials for ourproducts; continued customer acceptance of our products; on-going success ofour research and development efforts and other risks described in our annualreport on Form 10-KSB and elsewhere in this report. Although webelieve the expectations reflected in the forward-looking statements arereasonable, they relate only to events as of the date on which the statementsare made, and our future results, levels of activity, performance or achievementsmay not meet these expectations. We do not intend to update any of the

 

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forward-looking statements after the date of thisdocument to conform these statements to actual results or to changes in ourexpectations, except as required by law.

 

**Summary of Significant AccountingPolicies**

 

The Securities and Exchange Commission, or SEC,issued Financial Reporting release No. 60, “Cautionary Advice RegardingDisclosure About Critical Accounting Policies,” or FRR 60, suggesting companiesprovide additional disclosure and commentary on their most critical accountingpolicies. In FRR 60, the SEC defined the most critical accounting policies asthe ones that are most important to the portrayal of a company’s financialcondition and operating results, and require management to make its mostdifficult and subjective judgments, often as a result of the need to makeestimates of matters that are inherently uncertain. The methods, estimates andjudgments we use in applying these most critical accounting policies have asignificant impact on the results we report in our financial statements.

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements, as well as the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from thoseestimates.

 

As a general rule, financial information isaccounted for and based on cost, not current market value. Revenues and gainsshould be matched using the accrual method with the expenses giving rise to therevenues and gains to determine earnings for the period. Expenses arenecessarily incurred to produce revenue. Expenses are then “matched” in thesame accounting period against the revenue generated. Revenues are recognizedwhen they are earned and expenses are recognized in the same period as therelated revenue (matching or using a systematic and rational allocation orexpensing in the period in which they expire), not necessarily in the period inwhich we receive or expend cash.

 

We believe the following critical accountingpolicies and procedures, among others, affect our more significant judgmentsand estimates used in the preparation of our consolidated financial statements:

 

•                       Revenue recognition;

 

•                       Inventory cost & Associated Reserves;and

 

•                       Allocation of direct & indirect costof sales.

 

We recognize revenue upon formal acceptance ofvehicles by customers. We receive performance based payments from the U.S. Armyand U.S. Marines and record such payments as deferred revenue, carrying them onour balance sheet as such until acceptance by the customer.

 

In December 2004, FASB issued Statement No. 123(R),Share-Based Payment, which establishes accounting standards for transactions inwhich an entity receives employee services in exchange for (a) equityinstruments of the entity or (b) liabilities that are based on the fairvalue of the entity’s equity instruments or that may be settled by the issuanceof equity instruments. Effective in the third quarter of 2005, SFAS 123(R) willrequire us to recognize the grant-date fair value of stock options and equitybased compensation issued to employees in the statement of operations. Thestatement also requires that such transactions be accounted for using thefair-value-based method, thereby eliminating use of the intrinsic method ofaccounting in APB No. 25, Accounting for Stock Issued to Employees, whichwas permitted under Statement 123, as originally issued. To date, we haveexpensed stock based compensation on the intrinsic method. We are currently evaluatingthe impact of Statement No. 123 (R) on our financial condition and resultsof operations.

 

In November 2004, the FASB issued Statement No. 151,Inventory Costs, to amend the guidance in Chapter 4, Inventory Pricing, of theFASB Accounting Research Bulletin No. 43, Restatement and Revision ofAccounting Research Bulletins, which will become effective for us in fiscalyear 2006. Statement No. 151 clarifies the accounting for abnormal amountsof idle facility expense, freight, handling costs, and wasted materials. TheStatement requires that those items be recognized as current-period charges.Additionally, Statement No. 151 requires that allocation of fixedproduction overhead to the costs of conversion be based on normal capacity ofthe production facility. We are currently following Statement No. 151 anddo not believe that Statement No. 151 will have a significant impact on ourfinancial condition and results of operations.

 

Principles of Consolidation: The consolidated financial statementsinclude the accounts of Force Protection, Inc., and our two wholly ownedsubsidiaries, Force Protection Industries, Inc. (formerly TechnicalSolutions Group, Inc.) and TSG International, Inc. for the quarterended June 30, 2005. All inter-company balances and transactions areeliminated in consolidation.

 

Matching Principle:****As a general rule, financial information isaccounted for and based on cost, not current market value. Revenues and gainsshould be matched using the accrual method with the expenses giving rise to therevenues and gains to determine earnings for the period. Expenses arenecessarily incurred to produce revenue. Expenses are then “matched” in thesame accounting period

 

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against the revenue generated. Revenues arerecognized when they are earned and expenses are recognized in the same periodas the related revenue (matching or using a systematic and rational allocationor expensing in the period in which they expire), not necessarily in the periodin which we receive or expend the cash.

 

Cash Equivalents: For purposes of reporting cash flows, we considerall highly liquid debt instruments purchased with maturity of three months orless to be cash equivalents. Cash equivalents consist primarily of UnitedStates government securities.

 

Inventories:** **Inventories are stated at the lower of cost or market. The cost isdetermined under the first-in, first-out, or FIFO, base valuation method.

 

Property, Plant and Equipment:** **Property and equipment are stated at cost or at the value of theoperating agreement. We capitalize additions and improvements which include allmaterial, labor and engineering cost to design, install or improve the asset.Routine repairs and maintenance are expensed as incurred. The capitalizationthreshold is $2,000 and a useful life greater than one year. Depreciation andamortization are computed using the straight-line method over the followingestimated useful lives:

 
| Building and  improvements |   | 20 years |   |
|----------------------------|--------|----------|--------|
| Furniture  and fixtures    |   | 3 years  |   |
| Machinery  and equipment   |   | 7 years  |   |
| Tooling and  molds         |   | 7 years  |   |
| Vehicles                   |   | 5 years  |   |

 

Goodwill:****Under SFAS No. 142. Goodwill and otherIntangible Assets, all goodwill amortization ceased effective Jan.1, 2002.Rather, goodwill is now subject to only impairment reviews. A fair-value basedtest is applied at the reporting level. This test requires various judgmentsand estimates. A goodwill impairment loss will be recorded for any goodwillthat is determined to be impaired. We follow SFAS 142, Goodwill and IntangibleAssets, which requires us to test goodwill for potential impairment annually.When the carrying value exceeds fair value, the impairment is the differencebetween the carrying value of goodwill and the implied value. The implied valueof goodwill is the difference between the fair value for the unit as a wholeand the value of individual assets and liabilities using an “as-if” purchaseprice.

 

Gain/Loss per Share:****Weutilize SFAS No. 128, “Earnings per Share.” Basic gain/loss per share iscomputed by dividing gain/loss available to common stockholders by theweighted-average number of common shares outstanding. Diluted gain/loss pershare is computed similar to basic gain/loss per share except that thedenominator is increased to include the number of additional common shares thatwould have been outstanding if the potential common shares had been issued andif the additional common shares were dilutive.

 

Estimates: The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements, as well as the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

Revenue Recognition: Our revenue is derived principally from thesale of our vehicles and associated spare parts and training services. Revenuefrom products and services is recognized at the time goods are shipped orservices are provided to the customer, with an appropriate provision forreturns and allowances. We receive performance based payments based oncompletion of specific milestones. These payments are recorded as DeferredRevenue and recognized on the profit and loss statement upon customeracceptance of the completed vehicle. It is our policy to not recognize revenueuntil customer acceptance. All advance payments are treated as “deferredrevenue”.

 

Dividend Policy: We have never declared or paid a cashdividend on our common stock. We do not anticipate paying any cash dividends onour common stock in the foreseeable future. Any future determination to paycash dividends will be at the discretion of our board of directors and willdepend upon our financial condition, operating results, capital requirements,restrictions contained in our agreements and other factors which our board ofdirectors deems relevant.  We do pay asemi-annual 6% dividend in cash or shares of common stock on our Series DPreferred Convertible Stock for so long as such shares are outstanding. Todate, one share dividend of 57,186 common shares has been issued.

 

**Financial Condition and Results of Operations**

 

Overview:****We showed a profitable quarter for the firsttime in our operating history during the second quarter of 2005 as we continuedto execute on existing vehicle orders to the U.S. Army and the U.S. MarineCorps.  During the three month period endedJune 30, 2005 we delivered 22 Buffalo vehicles to the Army and 2 Cougarsto the Marine Corps as part of our contract backlog from 2004.  Vehicle sales together with associated spareparts, service, and training generated gross revenue of $18,295,357, againstwhich we

 

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incurred $18,164,724 in cost of sales and other expenses,resulting in a net gain of $130,633.  Thefollowing table sets forth our consolidated statements of operations for thethree month period ended June 30th for the years 2004 and 2005. Thediscussion and analysis that follows should be read in conjunction with ourconsolidated financial statements and related notes included elsewhere in thisreport.

 

**Consolidated Statement of Operations**

 

| ** **                      | ** ** | **Three Months ended June 30th** | ** ** |
|---------------------------------|------------|---------------------------------------|------------|
| ** **                      | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                            |       |                                  |       |   |   |
| Revenue                         |       |                                  | $          | 18,295,357 |   | $ | 15,578 |   |
| Cost of  sales                  |       |                                  | 14,258,685 |   | 296,527 |   |
|                            |       |                                  |       |   |   |   |
| Gross  profit/(loss)            |       |                                  | 4,036,672  |   | (280,949 | ) |
| SG&A                        |       |                                  | 3,732,020  |   | 1,673,385 |   |
|                            |       |                                  |       |   |   |   |
| Income/(Loss) from operations   |       |                                  | $          | 304,652 |   | $ | (1,954,334 | ) |
|                            |       |                                  |       |   |   |   |
| Interest  expenses              |       |                                  | (203,503   | ) | (4,133 | ) |
| Other income                    |       |                                  | 29,484     |   | 477 |   |
|                            |       |                                  |       |   |   |   |
| Total other income (expense)    |       |                                  | (174,019   | ) | (3,656 | ) |
|                            |       |                                  |       |   |   |   |
| Net  income/(loss)              |       |                                  | $          | 130,633 |   | $ | (1,957,990 | ) |
|                            |       |                                  |       |   |   |   |
| Weighted-average  common shares |       |                                  |       |   |   |   |
| Basic                           |       |                                  | 34,403,512 |   | 13,206,105 |   |
| Diluted                         |       |                                  | 44,557,203 |   | 20,881,254 |   |
|                            |       |                                  |       |   |   |   |
| Profit/(Loss) per share         |       |                                  | $          | 0.0038 |   | $ | (0.1483 | ) |
| Diluted Profit/(Loss) per share |       |                                  | $          | 0.0029 |   | $ | (0.0938 | ) |

 

Revenue: Revenue for the three month period ended June 30, 2005 was$18,295,357, representing an increase of $18,279,779 compared to the sameperiod in 2004. The increase during this period was mainly due to the increasedlevel of vehicle production we have achieved since last year.  Our revenue is derived from the sale of our Buffalosand Cougars vehicles and the sale of spare parts and other support services, howeverwe do not book any income until our products are formally accepted by ourcustomers.  The revenue we receivedduring this three month period thus reflects amounts we previously carried onour balance sheet as deferred revenue pending acceptance of the final productsby the U.S. Army and the U.S. Marines. During the three month period ending June 30,2005, we received $17,221,543 from vehicle sales and $1,073,814 from the saleof spare parts and other support services.

 

Cost of Sales: Cost of sales (to include vehicles and spareparts) for the three month period ended June 30, 2005 was $14,258,685,representing an increase of $13,962,158 compared to the same period in 2004.  The increase during this period was mainlydue to the increased level of vehicle production, and the corresponding increasedcost of labor and material associated with our manufacturing activities.  Cost of sales for our vehicles was 78% of grossrevenues for the three month period ended June 30, 2005.  We had no vehicle sales during the secondquarter of in 2004.  Cost of sales forour spare parts was 64.6% of gross revenues for the three month period ended June 30,2005 compared to 87.3% for the same period in 2004.  As we continue to expand our productioncapacity, we expect to achieve increased cost efficiency from volumepurchasing, improvements in our manufacturing processes and the allocation of indirectcosts across a broader production base, resulting in a projected decrease inthe cost of sales as a percentage of gross revenues.

 

Selling, General and Administrative Expenses: Selling, General and Administrative expensesfor the three months ended June 30, 2005 were $3,732,020, representing anincrease of $2,058,635 compared to the same period in 2004.  This increase included $276,539 Research &Development expenditures, $752,562 commission and settlement related expenses, $563,536attributable to benefits for new employees, and $100,365 associated with thecost of maintaining a senior mechanic in Iraq to ensure the highest level ofsupport for our vehicles deployed with the U.S. Marine Corps.  We expect our Selling, General andAdministrative expenses to increase over time as we continue to expand ourproduction capacity to meet increasing sales demand and we expect thepercentage of our Selling, General and Administrative expenses in relation togross revenues to decrease as we achieve greater efficiencies of scale.

 

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Net Gain: Net Gain for the three months ended June 30, 2005 was $130,633, representingan increase of $2,088,623 as compared to the net loss of $1,957,990 incurredduring the same period in 2004.  This increasereflects our progress in achieving gross profits on the sale of our vehiclesand spare parts, and our achieving increased revenues from increased vehicleproduction levels.

 

Future Results: Based on our projections, we expect to incura loss during the three month period ending September 30, 2005 due to adrop in production levels resulting from the completion of our prior contractbacklog and the gradual ramp up in production of vehicles under our newcontract.  During such period, we willcontinue to incur expenses associated with our infrastructure expansion, and wewill not be in a position to fully realize revenue from new contract vehicledeliveries. However, during the three month period ending December 31,2005 we expect to absorb the majority of expansion costs and achieve a higherlevel of production capacity, resulting in a return to profitability for thatperiod.

 

Backlog: On April 23, 2004 we announced a contract award to deliverCougar Hardened Engineer Vehicles (“HEV”) to the United States Marine Corps, ofwhich 14 were initially funded under the contract. On March 8, 2005 the USMarine Corp exercised its option to increase the number of HEV vehicles by 14,for a total of 28 vehicles. As of June 30, 2005 we have delivered a totalof 15 HEV vehicles, and have a remaining backlog of 13 Cougar HEV vehicles tobe delivered under this contract. On May 17, 2004 we announced the awardof a contract to deliver 21 Buffalo vehicles to the U.S. Army and in October 2004we were awarded a separate contract by the US Army for an additional 15 Buffalovehicles. Initial deliveries under these contracts began during the fourthquarter of 2004, and as of June 30, 2005 we have delivered a total of 33Buffalo vehicles, leaving a backlog of 3 Buffalo vehicles to be delivered underthese two contracts.  As of June 30,2005 our sales backlog for the 13 Cougar HEV vehicles and the 3 remainingBuffalo vehicles is approximately $8,000,000. During the period ended June 30, 2005, we announced the award of anew contract by the United States Marine Corps for delivery of up to 122 CougarJoint Explosive Ordinance Disposal Rapid Removal (“JERRV”) vehicles to bedelivered during the 2005 and 2006. As of June 30, 2005 the value of thisJERRV contract (together with associated spares parts and training) is$93,000,000.

 

**Trends, Risks and Uncertainties**

 

The results of our operations for the period ended June 30,2005 reflect a generally positive trend in the continued growth of ourcompany.  During 2004 we were awardedcontracts by the US Army for 36 Buffalos and by the US Marines for 28 Cougars,for a total of 64 vehicles.  We delivered14 of the vehicles during 2004, 10 of the vehicles during the three monthsended March 31, 2005 and 24 vehicles during the three month period ended June 30,2005.  As of June 30, 2005 we have abacklog of 16 vehicles under these prior contracts with a remaining contractvalue of $7,565,000.  Based upon ourcurrent production schedule, we anticipate that during the third quarter of2005 we should complete deliveries of all Buffalo and Cougar vehicles remainingfrom the contracts awarded to us during 2004.

 

In addition to continued performance of our contractbacklog, during the period ending June 30, 2005, we were awarded a newcontract by the U.S. Marine Corps System Command for delivery under threeDelivery Orders of 122 Cougars (designated JERRV – for “Joint Explosive Removaland Recovery Vehicles”) with associated spares and training, for a total amountnot to exceed $87,190,000.  Thesevehicles are scheduled for delivery commencing in third quarter 2005 and endingin first quarter 2006 and will be used by the Marine Corps, the Army and theNavy under a joint services agreement. Set out below is a table showing actualand projected deliveries of our vehicles during 2004 and 2005, based on ourinternal estimates although our actual results may vary depending upon partsand material availability, actual production schedules, production efficienciesand other contingencies discussed in this report.

 

**Projected Vehicle Deliveries 2005**

 
| ** **                             | ** ** | **Actual  2004-Total** | ** ** | **Actual  Q1-2005** | ** ** | **Actual  Q2-2005** | ** ** | **Projected  Q3-2005** | ** ** | **Projected  Q4-2005** | ** ** | **Projected  2005-Total** | ** ** |
|----------------------------------------|------------|------------------------|------------|---------------------|------------|---------------------|------------|------------------------|------------|------------------------|------------|---------------------------|------------|
| Buffalo  (MRPV)                        |       | 9                      |       | 2                   |       | 22                  |       | 3                      |       | 0                      |       | 36                        |       |
| Cougar (HEV)                           |       | 5                      |       | 8                   |       | 2                   |       | 13                     |       | 0                      |       | 28                        |       |
| Cougar  (JERRV)                        |       | 0                      |       | 0                   |       | 0                   |       | 10                     |       | 50                     |       | 60                        |       |
| Total Vehicles                         |       | 14                     |       | 10                  |       | 24                  |       | 26                     |       | 50                     |       | 124                       |       |
| Vehicle Revenue  (Figures approximate) |       | $                      | 9.0        | M                   | $          | 5.0                 | M          | $                      | 17.0       | M                      | $          | 13.0                      | M          | $ | 25.0 | M | $ | 69 | M |
|                                        |            |                        |            |                     |            |                     |            |                        |            |                        |            |                           |            |  |  |  |  |  |  |

 

16

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While our current trend of increasing revenues hasenabled us to achieve profitability for the first time in our history, and thenew joint services contract reflects a broader, growing demand for ourvehicles, we are faced with the challenge of expanding our manufacturingcapacity to fully exploit this opportunity. Meeting this challenge will be the primary focus of our managementduring the third and fourth quarters of 2005.

 

Our new contract for production of 122 JERRV vehiclespresents an exciting opportunity for us but it also presents the challenge ofexpanding our production capacity to meet our customer’s expedited deliveryschedule. Resource constraints, that previously existed in the company,prevented the company from preparing for the current “expedited”opportunities.   Accepting such challenges has created thesignificant current opportunities but may expose us to several potential risks,including the risk of risk of non-performance and/or loss of liquidity.  To meet the vehicle delivery schedule requiredby the customer, we must substantially expand our production capabilitiesbeyond our present state, specifically increasing capacity to more than 20vehicles per month. To meet this goal, we have undertaken the following steps:

 

•                  Management Team – we have restructured oursenior management team, by hiring a Chief Executive Officer, an experiencedPresident for our operating subsidiary, new Vice Presidents of Quality andHuman Resources, new Program Managers and several new departmentaldirectors.  These executives bringsubstantial depth of experience to our Company and have filled critical gaps inour operations.  We will continue to seekqualified and experienced individuals as required to meet our future needs.

 

•                  Workforce Expansion – we are expanding ourworkforce to meet our operational requirements by adding employees to theengineering, quality, purchasing and production departments. As of June 30,2005, we had 248 employees and long term independent contractors, an increaseof 63 employees and contractors from December 31, 2004.

 

•                  Infrastructure Improvement – we are improvingand expanding our infrastructure to accommodate an increased workforce andincreased production capacity.  Suchactivities include leasing an additional 17,000 square feet of office space,implementing a new telecommunication system and a new Material ResourcePlanning system, implementing company-wide training programs to improve ourinternal systems and processes, and constructing new manufacturing fixtures andproduction cells.

 

•                  Business Agreements – to assist us inundertaking this rapid expansion program we have entered into agreements withvarious consultants and vendors to provide mission critical support.  These agreements include an arrangement withSpartan Chassis, Inc. to provide vehicle integration services, anagreement with Ricardo, Inc. to provide automotive engineering services;and an agreement with Apt Leadership to provide management leadership servicesand analytic software.  We will continueto utilize third parties as necessary to meet current requirements during theprocess of building our internal capabilities.

 

We recognize there are risks associated with oursubstantial and on-going expansion. In the event we are delayed in meeting thedelivery schedule under the JERRV contract, we may be obligated to payliquidated damages for any delayed vehicle, and in the event of substantialfailure to perform, the customer could cancel the contract and/or claimadditional damages. Payment of liquidated damages could negatively impact ourfuture liquidity, and since we are incurring significant costs associated withour expansion program based on the expectation of future contract revenues,loss of the JERRV contract would have a dramatic impact on both our liquidityand our financial performance.

 

In the past, we encountered some difficulties insecuring the necessary components for our vehicles, for example steel, truckchassis, axle sets and ballistic glass. In response, we have identifiedmultiple vendors for certain components so we have alternate sources of supplyif necessary. Additionally, we have implemented a program of advance purchasingand stockpiling critical materials. For example, we currently havepre-purchased steel and truck parts to ensure availability of material neededfor current and potential future orders.   While we do not currently expect thepotential non-availability of parts or raw materials to materially affect ouroperations, there is a possibility that delays or increased costs could negativelyimpact our financial performance if circumstances change. Apart from the foregoing,the main uncertainty about our future operations is whether we will continue toreceive additional orders for our vehicles. It is impossible to predict withcertainty whether such future orders will be placed by existing or newcustomers. If we do not receive future orders, it is unlikely that our businesswill continue. However, we believe our vehicles provide proven blast andballistic protection, and that for so long as there is a risk of bodily harm toservice personnel from explosive blasts, there will be a market for ourproducts.

 

**Liquidity and Capital Resources**

 

Current Liquidity: For the six month period ending June 30,2005, we had a starting cash balance of $2,264,406 and an ending cash balanceof $8,812,344 representing an increase in our cash of $6,547,938.  During the six month period ended June 30,2005, we incurred a net cash loss from operations of $4,804,546 (mostly theresult of inventory purchases), we paid down $4,000,000 in short

 

17

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term debt outstanding under our credit facility, andwe invested $1,092,676 in infrastructure expansion.  To meet our cash needs during this period, wesold 15,800 shares of our Series D Convertible Preferred Stock for$15,800,000 and we exercised the balance of $445,985 remaining under our EquityLine of Credit facility originally entered into on September 20, 2003 withDutchess Private Equities Fund. During 2005 the Dutchess Equity Line of Creditwas completely repaid.

 

Future Liquidity: Our Current Assets exceed our CurrentLiabilities by $13,412,549 and we have only nominal long-term debt ($159,153).  Based on these circumstances and our cashprojections, we believe we have sufficient cash resources to cover our fixedcosts during the next reporting period ending September 30, 2005, and tofund our expected operational activities. In addition to our cash on hand, weexpect to receive the $6,565,000 balance due for the 15 vehicles remainingunder our 2004 contract backlog, and under the JERRV contract we expect toreceive monthly payments according to scheduled performance milestones. Inaddition, we have secured a revolving credit line of $5,000,000 through GCFinancial Services, Inc. which includes a Factoring Agreement allowing usto factor our U.S. government contract receivables and receive payment within 24-48hours of delivery, greatly reducing the impact of the government contractpayment cycle on our short term liquidity. During the third quarter we expect to incur substantial operating andinvestment expenses as we expand our manufacturing capacity to fulfill ourproduction requirements and commence production of the JERRV vehicles, howeverwe expect the cash available from these sources will be adequate to meet ourprojected financial requirements.

 

Uncertainties: Our currently anticipated level of revenueand cash flow are subject to some uncertainties. The amount of funds that wewill require depends on several factors, including without limitation, theextent and timing of sales of our products, future inventory costs, the timingand costs associated with the expansion of our manufacturing, development,engineering and customer support capabilities, the timing and cost of ourproduct development and enhancement activities and our operating results. Weexpect in the future to be able to generate cash flows from operationssufficient to satisfy our cash requirements, but if were unable to do so, wemay need to seek alternative sources of cash. Potential sources of such cashcould include leasing capital equipment, securing lines of credit, or making additionalsales of our securities. If we raise funds through the sale of securities, thecommon stock currently outstanding could be diluted.  There is a risk that such additional financingmay not be available, or may not be available on acceptable terms, and the inabilityto obtain additional financing or generate sufficient cash from operationscould require us to reduce or eliminate expenditures for capital equipment,research and development, production, or marketing of our products, orotherwise curtail or discontinue our operations, which could have a materialadverse effect on our business, financial condition and results of operations.Finally, realization of a major portion of the assets shown on our balancesheet is dependent upon the success of our future operations.

 

Inflation

 

We do not believe that inflation has had or islikely to have any significant impact on our revenues. However, there iscurrently a shortage of the type of steel we use in our products. We currentlyhave enough steel on hand or on order to manufacture to our existing contracts.We continue to purchase steel anticipating future requirements. If the price ofsteel increases significantly, the cost of our products could increase. It isunlikely we will be able to pass on this cost under our current contracts. As aresult, if the cost of our raw materials increases, our profitability, if any,could decrease.

 

Subsidiaries

 

As of June 30,, 2005, we had two wholly-ownedsubsidiaries, Force Protection Industries, Inc. a Nevada corporation andTSG, International, a Nevada corporation.

 

Contractual Obligations

 

Leases

 

The Company leases space in three buildings inLadson, South Carolina for its principal executive offices and manufacturingfacilities.

 

The term of the lease for Building One is threeyears, with a 5 year option, starting June 1, 2005.  Annual rent is $119,880 plus utilities, taxesand maintenance. The Company has 7,190 square feet of office space and 9,139square feet of warehouse space in Building One.

 

The term of the lease for Building Two is five yearsstarting July 15, 2004, with an option to renew for another five years.Annual rent is $439,500 for the first year plus utilities, taxes andmaintenance, and $439,500 base rental for the next four years, which may beadjusted by increases to the Consumer Price Factor by three to seven percent.

 

The term of the lease for Building Three is fiveyears starting October 15, 2003. Annual rent is $215,000 for the firstyear plus utilities, taxes and maintenance, and $258,000 base rental for thenext four years. The Company has 84,800 square feet of space in Building Three.

 

We have deposited $160,000 to secure the buildingleases.

 

18

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Long Term Commitment

 

The Company has issued Purchase Orders to securecomponents and the steel needed for production. As of June 30, 2005 theCompany has $43,895,367 of such material commitments. These purchases areexpected to be financed by existing cash, debt and cash flows from operations.

 

On June 29, 2005, the Company entered into aservices contact with Ricardo Engineering, an international automotiveconsultancy. Under the terms of the contract, Ricardo will provide anintegrated bill of materials including chassis assemblies and subassemblies inthe Cougar product line, automated drawings and model updates, design releases,and vehicle validation tasks for the Joint EOD Rapid Response Vehicle. Ricardowill receive an estimated $1,682,000.00 for its services and materials asoutlined in the Purchase Order.

 

**ITEM 3 – CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

Our management evaluated, with the participation ofour Chief Executive Officer and our Chief Financial Officer, the effectivenessof our disclosure controls and procedures as of the end of the period coveredby this Quarterly Report on Form 10-QSB.  Based on this evaluation, our Chief ExecutiveOfficer and our Chief Financial Officer have concluded that our disclosurecontrols and procedures are effective to ensure that information we arerequired to disclose in reports that we file or submit under the SecuritiesExchange Act of 1934 (i) is recorded, processed, summarized and reportedwithin the time periods specified in Securities and Exchange Commission rules andforms, and (ii) is accumulated and communicated to our management,including our Chief Executive Officer and our Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.  Our disclosure controls and procedures aredesigned to provide reasonable assurance that such information is accumulatedand communicated to our management.  Ourdisclosure controls and procedures include components of our internal controlover financial reporting.  Management’sassessment of the effectiveness of our internal control over financialreporting is expressed at the level of reasonable assurance that the controlsystem, no matter how well designed and operated, can provide only reasonable,but not absolute, assurance that the control system’s objectives will be met.

 

**Changes in Internal Controls overFinancial Reporting**

 

There were no changes in our internal control overfinancial reporting that occurred during our last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting. However, as discussed above we arecommitted to a process of change and improvement throughout the enterpriseintended to optimize our operations, and this process will necessarily entailimprovements to our financial controls over the coming year.

 

**Code ofEthics**

 

We have adopted a Code of Ethics that applies to allexecutive officers and other employees. Our Code of Ethics is available forreview on our website at www.forceprotectioninc.com.

 

**PART TWO– OTHER INFORMATION**

 

**ITEM 1 - LEGAL PROCEEDINGS**

 

On June 17, 2003, the CSIR, a statutory councilestablished in accordance with the South African Research Council Act 46 of1988, filed suit in the High Court of South Africa, Transvaal ProvincalDivision, against us claiming a balance due and owing under a Purchase Orderfor the design and supply of seven TMRP-6 protection kits with a total contractprice of ZAR631,800. As of the date hereof, we have paid all amounts due underthe contract and are awaiting final dismissal of the claim with prejudice.

 

On May 12, 2005, Atlantis Partners, Inc.filed a complaint in the Circuit Court for the 15th Judicial Circuit, PalmBeach County Florida for breach of terms related to a finder’s fee agreementdated March 28, 2003.  The complaintalleges damages of at least

 

19

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$400,000 in fees, plus costs and interest.  This matter is too preliminary for us topredict the outcome however we intend to vigorously defend against AtlantisPartner’s claims.

 

In March 2005, we received a letter from H.C.Wainwright & Co., Inc. threatening litigation. The potentialdispute relates to a letter agreement between H.C. Wainwright & Co andus dated November 29, 2004. The dispute has been settled for $225,000 pluswarrants to purchase 150,000 shares of unregistered common stock at an exerciseprice of $3.75/share.

 

**ITEM 2 - UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

On March 4, 2005, we issued 57,186 restrictedshares of our common stock to seven investment groups valued at $100,076 as a stockdividend.

 

During the three months ended March 31, 2005,we issued an aggregate of 116,172 restricted shares of our common stock for theexercise of warrants generating $139,750 per a private placement offering datedApril 10, 2002.

 

On February 9, 2005, we issued a total of59,717 restricted shares of common stock to four individuals or entities forsettlement for investment related services to us.  The value for services rendered, that waspaid in common stock was $153,473.

 

During the three months ended March 31, 2005,we issued 14,876 restricted common shares to GC Financial in exchange for cash($38,700) for Year 2004 interest payable.

 

During the three months ended March 31, 2005,we issued an aggregate of 152,404 post-split common shares at an average priceof $2.6834 per share, generating $408,975 for the payback of the DutchessEquity Line.

 

During the three months ended June 30, 2005, weissued an aggregate of 1,331,429 unrestricted shares of common stock for theexercise of 2,796 Series D convertible preferred shares pursuant to aprivate placement offering dated January 19, 2005. These sales wereundertaken under Rule 506 of Regulation D under the Securities Act of 1933(as amended) in that:

 

•                  the sales were made to a sophisticated oraccredited investors, as defined in Rule 502;

 

•                  we gave each purchaser the opportunity to askquestions and receive answers concerning the terms and conditions of theoffering and to obtain any additional information which we possessed or couldacquire without unreasonable effort or expense that is necessary to verify theaccuracy of information furnished;

 

•                  at a reasonable time prior to the sale ofsecurities, we advised each purchaser of the limitations on resale in themanner contained in Rule 502(d)2;

 

•                  neither we nor any person acting on ourbehalf sold the securities by any form of general solicitation or generaladvertising; and

 

•                  we exercised reasonable care to assure thateach 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).

 

**STOCK OPTION PLAN**

 

Currently, we do not have a stock option plan.  We have issued 647,833 common stock optionsat a strike price of $1.50 of which as of June 30, 2005 there were 180,557vested shares.

 

**ITEM 3 - DEFAULTS UPON SENIOR SECURITIES**

 

Not Applicable

 

**ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None

 

**ITEM 5 - OTHER INFORMATION**

 

NOTE REGARDING OUR AUDITORS

 

20

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The firm of Jaspers and Hall, PC purchased theassets of our former audit firm - Michael Johnson and Company, LLC - during2004. The company chose to use Jaspers and Hal, PC after the asset purchase asthe preceding company was familiar with the company’s financial records.  This decision was made in an attempt tomaintain continuity in the audit procedure.

 

**ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K**

 

**Exhibits**

 

Exhibits included or incorporated by referenceherein are set forth in the attached Exhibit Index.

 

**Reports on Form 8-K**

 

On April 18, 2005, we filed an 8-Kregarding departure of directors or principle officers. Mr. McGilton wasnamed Chief Executive Officer replacing Mr. Ervin who will continue to actas director and as General Counsel.

 

On May 18, 2005, we filed an 8-Kregarding entry into a material definitive agreement. The U.S. Department ofDefense awarded us a procurement contract for 71 vehicles not to exceed $45.7million.

 

On May 23, 2005, we filed an 8-Kregarding entry into a material definitive agreement. The U.S. Department ofDefense awarded us a procurement contract for 17 vehicles not to exceed $16.5million.

 

On June 27, 2005, we filed an 8-Kregarding entry into a material definitive agreement. The U.S. Department ofDefense awarded us a procurement contract for 34 vehicles not to exceed $24.9million.

 

On July 8, 2005, we filed an 8-Kregarding entry into a material definitive agreement and creation of a directfinancial obligation.  We issued a demandnote with a maximum principal amount of $5 million to GC Financial Services, Inc.  The Demand Note will bear interest at a fixedrate of 4% per month. 

 

21

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**EXHIBIT INDEX**

 
| **NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                        |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                   |
| 2.1        |       | Agreement and Plan of Merger (included as Attachment A to exhibit  99.2 to the Form DEF 14A filed November 19, 2004, and incorporated  herein by reference).                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                   |
| 3.1        |       | Articles of Incorporation (included as Attachment B to exhibit 99.2  to the Form DEF 14A filed November 19, 2004, and incorporated  herein by reference).                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                   |
| 3.2        |       | By-Laws (included as Attachment C to exhibit 99.2 to the Form DEF  14A filed November 19, 2004, and incorporated herein by reference).                                                                                                                       |
|       |       |                                                                                                                                                                                                                                                                   |
| 3.3        |       | Amended Articles of Incorporation (included as Attachment D to  exhibit 99.2 to the Form DEF 14A filed November 19, 2004, and  incorporated herein by reference).                                                                                            |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.1        |       | Certificate of Designation for Series D Convertible Preferred  Stock, dated January 19, 2005 (included as exhibit 4.1 to the Form 8-K  filed January 27, 2005, and incorporated herein by reference).                                              |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.2        |       | Form of Common Stock Purchase Warrant, dated January 19,  2005, (included as Exhibit 4.2 to the Form 8-K filed January 27,  2005, and incorporated herein by reference).                                                                      |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.3        |       | Securities Purchase Agreement, dated January 19, 2005 (included  as Exhibit 4.3 to the Form 8-K filed January 27, 2005,  and incorporated herein by reference).                                                                                    |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.4        |       | Registration Rights Agreement, dated January 19, 2005 (included  as Exhibit 4.4 to the Form 8-K filed January 27, 2005,  and incorporated herein by reference).                                                                                    |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.5        |       | Amended and Restated Certificate of Designation for Series B  Convertible Preferred Stock (included as exhibit 4.1 of the Form 8-K  filed February 15, 2005, and incorporated herein by reference).                                                     |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.6        |       | Amended and Restated Certificate of Designation for Series C  Convertible Preferred Stock (included as exhibit 4.2 of the Form 8-K  filed February 15, 2005, and incorporated herein by reference).                                                     |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.7        |       | Bridge Facility between the Company and GC Financial Services, Inc.,  dated June 29, 2005 (included as Exhibit 4.1 to the Form 8-K  filed July 8, 2005, and incorporated herein by reference).                                                |
|       |       |                                                                                                                                                                                                                                                                   |
| 4.8        |       | Demand Note between the Company and GC Financial Services, Inc.,  dated June 29, 2005 (included as Exhibit 4.2 to the Form 8-K  filed July 8, 2005, and incorporated herein by reference).                                                    |
|       |       |                                                                                                                                                                                                                                                                   |
| 10.1       |       | Sonic Jet Corporation 2000 Stock Option Plan & Advisory and  Consulting Agreement, dated May 1, 2000 (included as Appendix A to the Form 14C  filed June 30, 2000, and incorporated herein by reference).                                      |
|       |       |                                                                                                                                                                                                                                                                   |
| 10.2       |       | Series B Convertible Preferred Stock Purchase Agreement between  the Company and Ashford Capital, LLC, dated December 27, 2001 (included  as exhibit 10.1 to the Form 8-K filed January 7, 2002, and  incorporated herein by reference).           |
|       |       |                                                                                                                                                                                                                                                                   |
| 10.3       |       | Series C Convertible Preferred Stock Purchase Agreement between  the Company and eFund Capital Partners, LLC, dated December 27, 2001  (included as exhibit 10.2 to the Form 8-K filed on January 7,  2002, and incorporated herein by reference). |

 

22

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| 10.4   |   | Letter Agreement between the Company and Ashford Capital, LLC, dated April 15,  2003 (included as exhibit 4.9 to the Form 10-QSB filed November 18,  2003, and incorporated herein by reference).                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.5   |   | Industrial Lease between the Company and Aerospace/Defense, Inc.,  dated September 2, 2003 (included as Exhibit 10.12 to the Form 10-QSB  filed August 13, 2004, and incorporated herein by reference).                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.6   |   | Modification of Business Asset Sale, License Agreement &  Assignment of Rights between the Company and Rockwell Power Systems, Inc.,  dated September 15, 2003 (included as exhibit 2.3 to the Form 10-QSB  filed November 18, 2003, and incorporated herein by reference).                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.7   |   | Non-Employee Directors and Consultants Retainer Stock Plan, dated September 30,  2003 (included as exhibit 4 to the Form S-8 filed November 7,  2003, and incorporated herein by reference).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.8   |   | Investment Agreement between the Company and Dutchess Private  Equities Fund, L.P., dated January 26, 2004 (included as exhibit 10.8 to  the SB-2 filed January 27, 2004, and incorporated herein by  reference).                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.9   |   | Registration Rights Agreement between the Company and Dutchess  Private Equities Fund, L.P., dated January 26, 2004 (included as exhibit  10.9 to the SB-2 filed January 27, 2004, and incorporated herein  by reference).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.10  |   | Placement Agent Agreement between the Company, Charleston Capital,  LLC, and Dutchess Private Equities Fund, L.P., dated January 27, 2004  (included as exhibit 10.10 to the SB-2 filed on January 27, 2004,  and incorporated herein by reference).                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.11  |   | Form of Subscription Agreement between the Company and Gamma  Opportunity Capital Partners, LP, Longview Fund, LP, Alpha Capital  Aktiengesellschaft, Domino International Ltd, Magellan International Ltd, and  Mountain Ridge Capital LLC, dated March 23, 2004 (included as exhibit 4  to the Form 8-K filed on March 26, 2004, and incorporated  herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.12  |   | Royalty Agreement between the Company and J.J. van Eck, dated April 1,  2004 (included as exhibit 10.13 to the Form 10-QSB filed August 13,  2004, and incorporated herein by reference).                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.13  |   | Contract between the Company and the U.S. Marines, dated April 21,  2004 (included as exhibit 10.14 to the 10-QSB filed August 13,  2004, and incorporated herein by reference).                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.14  |   | Term Sheet between the Company and GC Financial Services, Inc.,  dated June 16, 2004 (included as exhibit 10.14 to the 10-QSB filed  November 15, 2004, and incorporated herein by reference).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.15  |   | Employment Agreement between the Company and Thomas Thebes (included  as Exhibit 10.10 to the Form 10-QSB filed August 13,  2004, and incorporated herein by reference).                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.16  |   | Letter re: Industrial Lease Agreement between the Company and  Aerospace/Defense, Inc., dated July 13, 2004 (included as Exhibit 10.11  to the Form 10-QSB filed August 13, 2004, and incorporated  herein by reference).                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.17  |   | Employment Agreement between the Company and Garth Barrett, dated August 12,  2004 (included as exhibit 10.16 to the 10-QSB filed November 15,  2004, and incorporated herein by reference).                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.18  |   | Employment Agreement between the Company and Gale Aguilar, dated November 8,  2004 (included as Exhibit 10.1 to the Form 8-K/A filed November 10,  2004, and incorporated herein by reference).                                                                                                                                                                            |

 

23

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| 10.19  |   | Employment Agreement between the Company and Frank Kavanaugh, dated November 15,  2004 (included as exhibit 10.15 to the 10-QSB filed November 15,  2004, and incorporated herein by reference).                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                   |
| 10.20  |   | Letter Contract awarded to the Company by the Department of the Army  dated November 18, 2004 (as described in the 8-K filed November 24,  2004, and incorporated herein by reference).                                                      |
|   |   |                                                                                                                                                                                                                                                   |
| 10.21  |   | Promissory Note between the Company and Dutchess Private Equity Fund, II,  LP dated December 3, 2004 (included as Exhibit 10.1 to the Form 8-K  filed December 8, 2004, and incorporated herein by reference).                |
|   |   |                                                                                                                                                                                                                                                   |
| 10.22  |   | Employment Agreement between the Company and Gordon McGilton, dated January 27,  2005 (included as Exhibit 10.22 to the Form 10-KSB/A filed April 22,  2005, and incorporated herein by reference).                                |
|   |   |                                                                                                                                                                                                                                                   |
| 10.23  |   | Employment Agreement between the Company and Ted McQuinn, dated February 4,  2005 (included as Exhibit 10.23 to the Form 10-KSB/A filed April 22,  2005, and incorporated herein by reference).                                    |
|   |   |                                                                                                                                                                                                                                                   |
| 10.24  |   | Order for Supplies or Services between the Company and U.S.  Department of Defense, dated May 13, 2005 (included as Exhibit 10.1  to the Form 8-K filed May 18, 2005, and incorporated herein  by reference).                      |
|   |   |                                                                                                                                                                                                                                                   |
| 10.25  |   | Order for Supplies or Services between the Company and U.S.  Department of Defense, dated May 18, 2005 (included as Exhibit 10.1  to the Form 8-K filed May 23, 2005, and incorporated herein  by reference).                      |
|   |   |                                                                                                                                                                                                                                                   |
| 10.26  |   | Order for Supplies or Services and Delivery Order between the Company  and U.S. Department of Defense, dated June 23, 2005 (included as Exhibit 10.1  to the Form 8-K filed June 27, 2005, and incorporated herein  by reference). |
|   |   |                                                                                                                                                                                                                                                   |
| 10.27  |   | Purchase and Sale Agreement the Company and GC Financial Services, Inc.,  dated June 29, 2005 (included as Exhibit 10.1 to the Form 8-K  filed July 8, 2005, and incorporated herein by reference).                           |
|   |   |                                                                                                                                                                                                                                                   |
| 10.28  |   | Security Agreement the Company and GC Financial Services, Inc.,  dated June 29, 2005 (included as Exhibit 10.2 to the Form 8-K  filed July 8, 2005, and incorporated herein by reference).                                    |
|   |   |                                                                                                                                                                                                                                                   |
| 10.29  |   | Purchase Order between the Company and Ricardo Engineering, dated June 29,  2005 (included as Exhibit 10.1 to the Form 8-K filed July 19,  2005, and incorporated herein by reference).                                            |
|   |   |                                                                                                                                                                                                                                                   |
| 31.1   |   | Certification of the Interim Chief Executive Officer pursuant to Section 302  of the Sarbanes— Oxley Act of 2002.                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                   |
| 31.2   |   | Certification of the Chief Financial Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                   |
| 32.1   |   | Certification of Officers pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                         |

 

24

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 

**FORCE PROTECTION, INC.**

 

Date: Aug. 15, 2005

 
| By:                     | /s/ Gordon McGilton |   |
|-------------------------|---------------------|--------|
| Gordon McGilton         |
| Chief Executive Officer |

 

 

Date: Aug. 15, 2005

 
| By:                     | /s/ Thomas Thebes |   |
|-------------------------|-------------------|--------|
| Thomas Thebes           |
| Chief Financial Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 

Signature

 
| **Name**            | ** ** | **Title**               | ** **    | **Date** |
|---------------------|------------|-------------------------|---------------|----------|
|                |       |                    |          |     |
| /s/ R. Scott Ervin  |       |                    | Director, and |     | Aug. 15, 2005 |
| R. Scott Ervin      |       | General Counsel         |          |     |
|                |       |                    |          |     |
|                |       |                    |          |     |
| /s/ Gordon McGilton |       |                    | Director, and |     | Aug.  15, 2005 |
| Gordon McGilton     |       | Chief Executive Officer |          |     |
|                |       |                    |          |     |
|                |       |                    |          |     |
| /s/ Frank Kavanaugh |       |                    | Chairman of   |     | Aug. 15, 2005 |
| Frank Kavanaugh     |       | the Board of Directors  |          |     |
|                |       |                    |          |     |
|                |       |                    |          |     |
| /s/ Gale Aguilar    |       |                    | Director      |     | Aug. 15, 2005 |
| Gale Aguilar        |       |                    |          |     |
|                     |            |                         |               |          |  |  |  |  |

 

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