**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

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

 

**FOR THE TRANSITION PERIOD FROM              TO            **

**COMMISSIONFILE NUMBER: 001-33253**

**FORCE PROTECTION, INC.**

| **Nevada**                |   | **84-1383888** |
|---------------------------|--------|----------------|
| (State of  Incorporation) |   | (I.R.S. EIN)   |

 

**9801Highway 78, Building No. 1**

**Ladson,South Carolina**

**29456**

Registrant’stelephone number:**(843) 740-7015**

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

Securitiesregistered pursuant to Section 12(g) of the Act:**None**

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

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer  (See definition of“accelerated filer and large accelerated filer “ in Rule 12b-2 of the ExchangeAct.):

| Large Accelerated Filer o |   | Accelerated  Filer x |   | Non- Accelerated  Filer o |
|---------------------------|--------|----------------------|--------|---------------------------|

 

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

Yes     o                **No**     **x**

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

 

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**Tableof Contents**
|                                                                                                           | ** ** | **Page No.** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------|
| Part I  : Financial Information                                                                      |       | 3            |
|                                                                                                      |       |         |
| Item 1 – Consolidated Financial Statements                                                           |       | 3            |
| Report on Review By Registered Independent Public  Accounting Firm                                        |       | 3            |
| Consolidated Statements of Operations For The Three  Months Ended March 31, 2007 and 2006            |       | 4            |
| Consolidated  Balance Sheets As of March 31, 2007 and December 31, 2006                              |       | 5            |
| Consolidated Statements of Cash Flows For The Three  Months Ended March 31, 2007 and 2006            |       | 6            |
| Notes To Consolidated Financial Statements                                                                |       | 7            |
| Item 2 – Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       | 16           |
| Item 3 – Quantitative and Qualitative Disclosures About  Market Risk                                 |       | 21           |
| Item  4 – Controls and Procedures                                                                    |       | 22           |
|                                                                                                      |       |         |
| Part II  : Other Information                                                                         |       | 22           |
|                                                                                                      |       |         |
| Item  1 – Legal Proceedings                                                                          |       | 22           |
| Item 1A  – Risk Factors                                                                              |       | 22           |
| Item 2 – Unregistered Sales of Equity Securities and  Use of Proceeds                                |       | 22           |
| Item 3 – Defaults Upon Senior Securities                                                             |       | 22           |
| Item 4 – Submission of Matters To a Vote of Security  Holders                                        |       | 22           |
| Item  5 – Other Information                                                                          |       | 22           |
| Item 6 –  Exhibits                                                                                   |       | 23           |

 

2

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**PART I — FINANCIAL INFORMATION**

**ITEM 1  - CONSOLIDATED FINANCIAL STATEMENTS**

**FORCEPROTECTION, INC. AND SUBSIDIARIES**

**REPORT ON REVIEW BY INDEPENDENTREGISTERED ACCOUNTING FIRM**

**Report ofIndependent Registered Public Accounting Firm**

We have reviewedthe accompanying consolidated balance sheet and statements of operation andcash flows of Force Protection, Inc. as of March 31, 2007 and for thethree-month period then ended.  Theseinterim financial statements are the responsibility of the Company’smanagement.

We conducted ourreview in accordance with the standards of the Public Company AccountingOversight Board (United States).  Areview of interim financial information consists principally of applyinganalytical procedures to financial data and making inquiries of personsresponsible for financial and accounting matters.  It is substantially less in scope than anaudit conducted in accordance with the standards of the Public CompanyAccounting Oversight Board, the objective of which is the expression of an opinionregarding the financial statements taken as a whole.  Accordingly, we do not express such anopinion.

Based on ourreview, we are not aware of any material modifications that should be made tothe accompanying interim financial statements for them to be in conformity withU.S. generally accepted accounting principles.

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

3

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**FORCEPROTECTION, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**For thethree months ended**

**(unaudited)**
| ** **                                                 | ** ** | **March 31,** | ** **  |
|------------------------------------------------------------|------------|--------------------|-------------|
| ** **                                                 | ** ** | **2007**           | ** **  | **2006** | ** ** |
| Net sales                                                  |       | $                  | 100,158,766 |   | $ | 34,802,585 |   |
| Cost of sales                                              |       | 78,403,575         |        | 28,164,816 |   |
| Gross profit                                               |       | 21,755,191         |        | 6,637,769 |   |
|                                                       |       |               |        |   |   |
| General and  administrative expense                        |       | 14,378,611         |        | 5,859,537 |   |
| Research and development                                   |       | 4,841,819          |        | 663,590 |   |
| **Operating profit**                                       |       | 2,534,761          |        | 114,642 |   |
|                                                       |       |               |        |   |   |
| Other income                                               |       | 1,788,093          |        | 27,049 |   |
| Interest expense                                           |       | (9,613             | )           | (807,324 | ) |
| **Net earnings (loss) before  taxes**                      |       | 4,313,241          |        | (665,633 | ) |
|                                                       |       |               |        |   |   |
| Tax Expense                                                |       | 1,800,000          |        | — |   |
| **Net earnings (loss) after taxes**                        |       | $                  | 2,513,241   |   | $ | (665,633 | ) |
|                                                       |       |               |        |   |   |
| Series D preferred  stock dividend                         |       | —             |        | (159,864 | ) |
| Accretion of Series D  preferred stock to redemption value |       | —             |        | (441,815 | ) |
| **Net earnings (loss) available  to common shareholders**  |       | $                  | 2,513,241   |   | $ | (1,267,312 | ) |
|                                                       |       |               |        |   |   |
| **Earnings (loss) per common  share**                      | ** ** | ** **         | ** **  | ** ** | ** ** |
| Basic                                                      |       | $                  | 0.04        |   | $ | (0.03 | ) |
| Diluted                                                    |       | $                  | 0.04        |   | $ | (0.03 | ) |

 

The accompanyingNotes are an integral part of these financial statements.

4

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**FORCEPROTECTION, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                             | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                             | ** ** | **2007**           | ** **  | **2006**              | ** ** |
| ** **                                                                                                                             | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                             | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current assets:                                                                                                                        |       |               |        |                  |       |
| Cash and cash  equivalents                                                                                                             |       | $                  | 113,441,469 |                  | $          | 156,319,004 |   |
| Accounts receivable,  net of allowance for contractual obligations of $6,833,446 and $6,068,087 for  2007 and 2006                     |       | 43,790,815         |        | 36,011,568            |       |
| Inventories                                                                                                                            |       | 97,922,981         |        | 60,396,297            |       |
| Other current assets                                                                                                                   |       | 2,573,700          |        | 374,051               |       |
| Current portion of  deferred taxes                                                                                                     |       | 7,762,500          |        | 9,562,500             |       |
| Total current assets                                                                                                                   |       | 265,491,465        |        | 262,663,420           |       |
| Long-term portion of  deferred taxes                                                                                                   |       | 2,763,991          |        | 2,763,991             |       |
| Property and equipment,  net                                                                                                           |       | 23,387,568         |        | 8,963,901             |       |
| Intangible assets                                                                                                                      |       | 1,962,500          |        | —                |       |
| **Total assets**                                                                                                                       |       | $                  | 293,605,524 |                  | $          | 274,391,312 |   |
|                                                                                                                                   |       |               |        |                  |       |
| **LIABILITIES & SHAREHOLDERS’  EQUITY LIABILITIES**                                                                           | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current liabilities:                                                                                                                   |       |               |        |                  |       |
| Accounts payable                                                                                                                       |       | 54,811,260         |        | 38,653,813            |       |
| Other accrued  liabilities                                                                                                             |       | 9,283,943          |        | 2,968,859             |       |
| Contract liabilities                                                                                                                   |       | 1,850,000          |        | 1,850,000             |       |
| Current portion of  long-term liabilities                                                                                              |       | 204,385            |        | 71,685                |       |
| Deferred revenue                                                                                                                       |       | 5,173,035          |        | 12,824,211            |       |
| Total current  liabilities                                                                                                             |       | 71,322,623         |        | 56,368,568            |       |
|                                                                                                                                   |       |               |        |                  |       |
| Long-term debt:                                                                                                                        |       |               |        |                  |       |
| Other long term  liabilities                                                                                                           |       | 463,110            |        | 167,937               |       |
| **Total liabilities**                                                                                                                  |       | 71,785,733         |        | 56,536,505            |       |
|                                                                                                                                   |       |               |        |                  |       |
| Commitment and  Contingencies (See Note 12)                                                                                            |       |               |        |                  |       |
|                                                                                                                                   |       |               |        |                  |       |
| **SHAREHOLDERS’ EQUITY**                                                                                                          | ** ** | ** **         | ** **  | ** **            | ** ** |
| Preferred stock, $0.001  par value, authorized 10,000,000 shares                                                                       |       | —             |        | —                |       |
| Common stock, $0.001  par value, 300,000,000 shares authorized, 68,010,335 and 66,762,566 shares  issued and outstanding, respectively |       | 68,010             |        | 66,763                |       |
| Shares to be issued                                                                                                                    |       | —             |        | 31                    |       |
| Additional paid-in  capital                                                                                                            |       | 252,494,362        |        | 251,043,835           |       |
| Accumulated deficit                                                                                                                    |       | (30,742,581        | )           | (33,255,822           | )          |
| **Total shareholders’ equity**                                                                                                    |       | 221,819,791        |        | 217,854,807           |       |
|                                                                                                                                   |       |               |        |                  |       |
| **Total liabilities and shareholders’ equity**                                                                                    |       | $                  | 293,605,524 |                  | $          | 274,391,312 |   |

 

The accompanyingNotes are an integral part of these financial statements.

5

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**FORCEPROTECTION, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For thethree months ended**

**(unaudited)**

**(indollars)**
| ** **                                                                                                | ** ** | **March 31,** | ** **  |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|
| ** **                                                                                                | ** ** | **2007**           | ** **  | **2006** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                                                | ** ** | ** **         | ** **  | ** ** | ** ** |
| Net earnings (loss) after  taxes                                                                          |       | $                  | 2,513,241   |   | $ | (665,633 | ) |
| **Adjustments to reconcile net  earnings (loss) to net cash (used in) provided by operating activities:** | ** ** | ** **         | ** **  | ** ** | ** ** |
| Depreciation and  amortization                                                                            |       | 761,629            |        | 183,558 |   |
| Deferred tax expense                                                                                      |       | 1,800,000          |        | — |   |
| Stock-based compensation                                                                                  |       | 440,243            |        | 316,000 |   |
|                                                                                                      |       |               |        |   |   |
| Decrease (increase) in  allowance for contractual liabilities                                             |       | 765,359            |        | 445,604 |   |
| Decrease (increase) in  inventory reserve                                                                 |       | (298,830           | )           | (150,000 | ) |
| Increase (decrease) in  contract liabilities                                                              |       | —             |        | (400,639 | ) |
| Change in assets and  liabilities:                                                                        |       |               |        |   |   |
| Decrease  (increase) in accounts receivable                                                               |       | (8,544,606         | )           | 2,171,249 |   |
| Decrease  (increase) in inventories                                                                       |       | (37,227,854        | )           | (950,332 | ) |
| Decrease  (increase) in other current assets                                                              |       | (2,199,649         | )           | (103,948 | ) |
| Increase  (decrease) in accounts payable                                                                  |       | 16,157,447         |        | 4,862,535 |   |
| Increase  (decrease) in other accrued liabilities                                                         |       | 6,315,084          |        | 354,955 |   |
| Deferred revenue                                                                                          |       | (7,651,176         | )           | 1,135,393 |   |
| **Net cash (used in) provided by  operating activities**                                                  |       | (27,169,112        | )           | 7,198,742 |   |
|                                                                                                      |       |               |        |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                                                | ** ** | ** **         | ** **  | ** ** | ** ** |
| Purchases of property  and equipment - intangibles                                                        |       | (1,550,000         | )           | — |   |
| Purchases of property  and equipment                                                                      |       | (15,147,796        | )           | (641,960 | ) |
| **Net cash used in investing  activities**                                                                |       | (16,697,796        | )           | (641,960 | ) |
|                                                                                                      |       |               |        |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                                 | ** ** | ** **         | ** **  | ** ** | ** ** |
| Proceeds from options                                                                                     |       | 1,011,500          |        | — |   |
| Preferred stock  dividends paid                                                                           |       | —             |        | (377,553 | ) |
| Proceeds from loans,  net                                                                                 |       | —             |        | (1,250,000 | ) |
| Increase in contract  liabilities - non-compete agreement                                                 |       | —             |        | — |   |
| Payments on capitalized  lease                                                                            |       | (22,127            | )           | — |   |
| **Net cash provided by (used in)  financing activities**                                                  |       | 989,373            |        | (1,627,553 | ) |
| **Net (decrease) increase in cash**                                                                       |       | (42,877,535        | )           | 4,929,229 |   |
| **Cash—beginning of period**                                                                         |       | 156,319,004        |        | 1,217,509 |   |
| **Cash—end of period**                                                                               |       | $                  | 113,441,469 |   | $ | 6,146,738 |   |
|                                                                                                      |       |               |        |   |   |
| **Supplemental disclosure:**                                                                              | ** ** | ** **         | ** **  | ** ** | ** ** |
| Cash paid for interest                                                                                    |       | 9,613              |        | 285,806 |   |
| Cash paid for taxes                                                                                       |       | 625,000            |        | — |   |
| Dividends and accretion  on Series D convertible preferred stock                                          |       | —             |        | 441,815 |   |
|                                                                                                      |       |               |        |   |   |
| **NONCASH INVESTING AND FINANCING  ACTIVITY:**                                                            | ** ** | ** **         | ** **  | ** ** | ** ** |
| Note payable issued as consideration for non-compete agreement                                            |       | 450,000            |        | — |   |

 

The accompanyingNotes are an integral part of these financial statements.

6

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**FORCEPROTECTION, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**TheseNotes are an integral part of the Company’s financial statements set forthabove.**

**NOTE 1—BASIS OF PRESENTATION**

The unauditedinterim consolidated financial statements and related notes have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission, or SEC. Accordingly, certain information and footnote disclosuresnormally included in complete financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to suchrules and regulations. The accompanying unaudited interim consolidatedfinancials statements and related notes should be read in conjunction with theconsolidated financial statements and notes thereto included in the Form 10-Kfor Force Protection, Inc. and Subsidiaries filed for the year ended December31, 2006.

**NOTE 2—SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

**Natureof the Business**

ForceProtection, Inc. and its subsidiaries (the “Company”) design, manufactureand market blast and ballistics armored vehicles for sale to militarycustomers.

**Principles of Consolidation**

The consolidatedfinancial statements include the accounts of Force Protection, Inc., andits two wholly-owned subsidiaries, Force Protection Industries, Inc. andForce Protection Technologies, Inc.  All inter-company balances andtransactions are eliminated in consolidation.

**General Statement**

The SEC has issuedFinancial Reporting Release No. 60, “Cautionary Advice RegardingDisclosure About Critical Accounting Policies,” (“FRR 60”), suggestingcompanies provide additional disclosure and commentary on their most criticalaccounting policies. In FRR 60, the SEC defined the most critical accountingpolicies as the ones that are most important to the portrayal of a company’sfinancial condition and operating results, and require management to make itsmost difficult and subjective judgments, often as a result of the need to makeestimates of matters that are inherently uncertain. The methods, estimates andjudgments the Company uses in applying these most critical accounting policieshave a significant impact on the results the Company reports in its financialstatements.

The Companybelieves the following critical accounting policies and procedures, amongothers, affect its more significant judgments and estimates used in thepreparation of the Company’s consolidated financial statements:

**Revenue Recognition**

The Company’srevenue is derived principally from the sale of its vehicles and associatedspare parts and training services. Revenue from product sales and spare partsales, net of an allowance for contractual adjustments, is recognized when theproducts or spare parts are delivered to and “formally” accepted by thecustomer. The Company defines “formal acceptance” as taking place when arepresentative of the United States government signs the United States FormDD250 entitled “Material Inspection and Receiving Report” which under theFederal Acquisition Regulations signifies contractual inspection and acceptanceof the work performed by the contractor.  It also acts as the contractualinvoice creating payment liability on the United States Government.  Inaccordance with standard industry practice, there is a representative from theUnited States Defense Contract Management Agency (“DCMA”) acting as acontractual representative of the United States Government present at theCompany’s facilities.  This DCMA representative inspects each vehicle asit is delivered by the Company and upon confirmation of the vehicle’sconformity with the contractual specifications the inspector signs the FormDD250 and formally accepts delivery of the vehicle.  The Company onlyrecognizes revenues arising from its U.S. Government contracts upon executionof the Form DD250 by the DCMA inspector. Under some of the Company’s U.S.Government contracts, it receives performance-based payments based oncompletion of specific milestones stipulated under the contract (for example,delivery of raw material to the Company’s Ladson facility). These payments arerecorded as “deferred revenue” and carried on the Company’s balance sheet untilthe final delivery of the products and formal acceptance by the U.S. Governmentpursuant to the Form DD250. Upon acceptance of the products and the executionof the Form DD250, the Company recognizes the full sale price of the product asrevenue.

Revenues fromservices provided are recorded in accordance with specific contractualterms.  Services have historically consisted of the Company providingon-site personnel on an as-needed basis in a timely manner, and have generallybeen provided in foreign locations.

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

7

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**Allowance for Contractual Adjustments**

TheCompany’s contracts with the U.S. Government are negotiated as a “sole source”or “open competition” bid process.  A sole source process is one in whichthe Company is the sole bidder for the contract.  An open competitioncould involve various bidders.  Once a bid is accepted, the U.S.Government expects work to commence immediately.  An open competitionresults in a final agreed-upon contract price which the U.S. Government hasagreed to.  A sole source process results in an agreed-upon contract withthe U.S. Government, subject to an adjustment process at a later date, termedthe “definitization process”. The definitization process commences upondelivery of a product, whereby the U.S. Government completes a detailed reviewof the Company’s costs involved in the manufacturing and deliveryprocess.  The U.S. Government and the Company then work to determine anadequate and fair final contract price.  As a result of the potentialadjustments related to the definitization process, the Company maintains anallowance for contractual adjustments account.  This account is reviewedon a monthly basis to determine adequate adjustments, if necessary.  Theallowance is maintained and deemed adequate based on the analysis of historicaldata andcalculation of pro-rata percentages of current contracts in place, which remainsubject to the definitization process.

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

**Research and Development**

Research,development, and engineering costs are expensed as incurred, in accordance withSFAS No. 2,*Accounting for Research andDevelopment Costs*. Research, development, and engineering expensesprimarily include payroll and headcount related costs, contractor fees,infrastructure costs, and administrative expenses directly related to researchand development support.

**Cash Equivalents**

For purposes ofreporting cash flows, the Company considers all highly liquid debt instrumentspurchased with maturity of three months or less to be cash equivalents.

**Inventories**

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

**Property and Equipment**

Property andequipment are stated at cost or at the value of the operating agreement. TheCompany capitalizes additions and improvements which include all material,labor and engineering cost to design, install or improve the asset. Routinerepairs and maintenance are expensed as incurred. Depreciation and amortizationare computed using the straight-line method over the following estimated usefullives:
| Leasehold improvements  |   | 2-5 years |
|-------------------------|--------|-----------|
| Furniture and fixtures  |   | 3 years   |
| Machinery and equipment |   | 7 years   |
| Tooling and molds       |   | 7 years   |
| Vehicles                |   | 5 years   |
| Buildings               |   | 29 years  |

 

Construction inprogress projects are not depreciated until placed into service.

**Impairment of Long-Lived Assets**

The Companyreviews long-lived assets to be held and used for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. If the sum of the expected future cash flows (undiscounted andwithout interest charges) is less than the carrying amount of the asset, the Companywould recognize an impairment loss based on the estimated fair value of theasset.

**Goodwill and Other Intangible Assets**

The Company has nogoodwill. Intangibles include licenses, a non-compete agreement, customer listand purchase expertise. Such intangible assets are amortized on a straight linebasis over their useful life from 3 to 7 years.

**Foreign Currency Transaction**

Assets andliabilities in foreign currencies are translated at the exchange rateprevailing at the balance sheet date. Revenues and expenses are translated atthe exchange rate prevailing at the transaction date, and the resulting gainsand losses are reflected in the statements of operations. Gains and lossesarising from translation of a subsidiary’s foreign currency financial statements are shown as a componentof shareholders’ equity (deficit) as accumulated comprehensive income (loss).

8

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**Joint Venture**

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

**Income Taxes**

The Company usesthe asset and liability method of accounting for income taxes. The asset andliability method accounts for deferred income taxes by applying enactedstatutory rates in effect for periods in which the difference between the bookvalue and the tax basis of assets and liabilities are scheduled to reverse. Theresulting deferred tax asset or liability is adjusted to reflect changes in taxlaws or rates. The Company records a valuation allowance for any deferred taxallowance that it believes will not be realized.

**Stock-Based Compensation**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 123(R),*Share-BasedPayment,* 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 July 1, 2005, the Company adopted SFAS 123(R),which requires the Company to recognize the grant-date fair value of stockoptions and equity based compensation issued to employees in the statement ofoperations. The statement also requires that such transactions be accounted forusing the fair-value-based method, thereby eliminating use of the intrinsicmethod of accounting in APB No. 25,*Accounting for Stock Issued to Employees,*  which was permitted under Statement 123, asoriginally issued.

**Earnings (Loss) per Common Share**

The Companyutilizes SFAS No. 128, “Earnings per Share” to calculate earnings/loss per share.Basic earnings/loss per share is computed by dividing the earnings/lossavailable to common shareholders (as the numerator) by the weighted-averagenumber of common shares outstanding (as the denominator). Diluted earnings/lossper share is computed similar to basic earnings/loss per share except that thedenominator is increased to include the number of additional common shares thatwould have been outstanding if all potential common stock (including commonstock equivalents) had all been issued, and if such additional common shareswere dilutive. Under SFAS No. 128, if the additional common shares aredilutive, they are not added to the denominator in the calculation. Where thereis a loss, the inclusion of additional common shares is anti-dilutive (sincethe increased number of shares reduces the per share loss available to commonshareholders). Earnings/loss available to common shareholders is derived fromnet income adjusted for preferred stock dividends and accretion on preferredstock.

**Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions 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. Estimatesand assumptions are periodically reviewed and the effects of revisions arereflected in the consolidated financial statements in the period they aredetermined to be necessary.

**Recent Accounting Pronouncements**

In June 2006, theFASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109.” FIN No. 48 established a singlemodel to address accounting for uncertain tax positions. FIN No. 48 clarifiesthe accounting for income taxes by prescribing a minimum recognition thresholda tax position is required to meet before being recognized in the financialstatements. FIN No. 48 also provides guidance on derecognition, measurementclassification, interest and penalties, accounting in interim periods,disclosure and transition.  FIN No. 48 is effective for the Company in thefirst quarter of fiscal 2007.  The adoption of FIN No. 48 did not have amaterial effect on its financial position, results of operations or cash flows.

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

9

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

**NOTE 3****— CONCENTRATIONS**

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

**NOTE 4 —STOCK BASED COMPENSATION PLANS**

The Company does not havea formal stock option plan. However, the Company has issued stock options toits employees.

Compensation costrelated to stock options recognized in operating results (included in selling,general, and administrative expenses) under SFAS 123R was $440,243 and $0 forthe three months ended March 31, 2007 and 2006, respectively.  During the three months ended March 31, 2006,compensation cost related to common stock shares issued was $316, 000.

The following tablesummarizes the attributes used by the Company to determine compensation costfor stock options consistent with requirements of SFAS 123R. No stock optionswere granted during the three months ended March 31, 2007.
|                                                             | ** ** | **For the three months ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------|------------|
| **Valuation  assumptions**                                  | ** ** | **2007**                                 | ** ** | **2006** | ** ** |
| Stock price on date of grant                                |       | —                                   |       | $0.77-$7.48 |   |
| Expected option term (in years)                             |       | —                                   |       | 2 |   |
| Expected duration from grant to expiration date (in  years) |       | —                                   |       | 4 and 5 |   |
| Option vesting term (in years)                              |       | —                                   |       | 5 |   |
| Expected volatility                                         |       | —                                   |       | 45.82%-70.31% |   |
| Risk-free interest rate                                     |       | —                                   |       | 4.40%-4.97% |   |
| Expected forfeiture rate                                    |       | —                                   |       | 5% |   |
| Estimated corporate tax rate                                |       | —                                   |       | 38.50% |   |
| Expected dividend yield                                     |       | —                                   |       | 0% |   |

 

The following tablesummarizes information about stock option activity for the three months endedMarch 31, 2007.
|                               | ** ** | ** **         | ** ** | **Weighted**         | ** ** | **Weighted**    | ** ** | ** **    | ** ** |
|-------------------------------|------------|--------------------|------------|----------------------|------------|-----------------|------------|---------------|------------|
| ** **                    | ** ** | ** **         | ** ** | **average per** | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                    | ** ** | ** **         | ** ** | **share**            | ** ** | **remaining**   | ** ** | **Aggregate** | ** ** |
| ** **                    | ** ** | **Number of** | ** ** | **exercise**         | ** ** | **contractual** | ** ** | **intrinsic** | ** ** |
| **Options**                   | ** ** | **options**        | ** ** | **price**            | ** ** | **term**        | ** ** | **value**     | ** ** |
| Outstanding December  31,2006 |       | 1,959,443          |       | $                    | 2.53       |            | 2.6        |          | $          | 29,293,673 |   |
| Options granted               |       | —             |       |                 |       |            |       |          |       |
| Options  exercised            |       | (1,198,681         | )          | $                    | 0.84       |            |       |          |       |   |
| Outstanding March 31,  2007   |       | 760,762            |       | $                    | 5.42       |            | 2.1        |          | $          | 10,148,565 |   |
|                          |       |               |       |                 |       |            |       |          |       |
| Exercisable at March 31, 2007 |       | 385,762            |       | $                    | 3.44       |            | 2          |          | $          | 5,909,874 |   |

 

The following tablesummarizes information about non-vested stock grants activity for the threemonths ended March 31, 2007.
|                               | ** ** | ** **                     | ** ** | **Weighted average per** | ** ** |
|-------------------------------|------------|--------------------------------|------------|------------------------------------|------------|
| **Non-vested shares**    | ** ** | **Number of shares** | ** ** | **share grant price**    | ** ** |
| Outstanding December  31,2006 |       | 191,026                        |       | $                                  | 5.48       |   |
| Shares granted                |       | —                         |       | $                                  | —     |   |
| Shares vested                 |       | (50,000                        | )          | $                                  | 6.45       |   |
| Outstanding March 31, 2007    |       | 141,026                        |       | $                                  | 5.14       |   |

 

**NOTE 5 —TAXES**

The FASB hasissued Statement of Financial Accounting Standards Number 109 (“SFAS 109”) “Accountingfor Income Taxes”,

10

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

The Company’s netdeferred tax asset consists of the following as of March 31, 2007 and December31, 2006, respectively:

|                                      | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Net deferred tax asset               |       |                         |       |                            |       |
| Provisions and  allowances           |       | $                            | 4,420,966  |                            | $          | 5,745,308 |   |
| Depreciation tax  loss difference    |       | (122,206                     | )          | (268,110                        | )          |
| Net operating  loss carry forwards   |       | 6,227,731                    |       | 6,849,293                       |       |
|                                 |       | 10,526,491                   |       | 12,326,491                      |       |
| Valuation allowance                  |       | —                       |       | —                          |       |
| Deferred tax benefit                 |       | $                            | 10,526,491 |                            | $          | 12,326,491 |   |
|                                 |       |                         |       |                            |       |
| Current portion of  deferred taxes   |       | $                            | 7,762,500  |                            | $          | 9,562,500 |   |
| Long-term portion of  deferred taxes |       | 2,763,991                    |       | 2,763,991                       |       |
| Total deferred taxes                 |       | $                            | 10,526,491 |                            | $          | 12,326,491 |   |

 

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

The following is areconciliation of the provision for income taxes at the U.S. federal income taxrate to the income taxes reflected in the Statement of Operations:

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

 

**NOTE 6 — EARNINGS/LOSS PER SHARE**

The Company utilizes SFASNo. 128, “Earnings per Share” to calculate earnings/loss per share. Basic earnings/lossper share is computed by dividing the earnings/loss available to commonshareholders (as the numerator) by the weighted-average number of common sharesoutstanding (as the denominator). Diluted earnings/loss per share is computedsimilar to basic earnings/loss per share except that the denominator isincreased to include the number of additional common shares that would havebeen outstanding if all potential common stock (including common stockequivalents) had all been issued, and if such additional common shares weredilutive.

For the three monthsending March 31, 2006, the Company had experienced a loss, and thus thefollowing common stock equivalents have been excluded from the calculation ofdilutive loss per share:
|                                       | ** ** | **2006**  | ** ** |
|---------------------------------------|------------|-----------|------------|
| Convertible Preferred  Stock Series D |       | 4,037,143 |       |
| Warrants                              |       | 3,057,500 |       |
| Options                               |       | 1,456,666 |       |
| Total                                 |       | 8,551,309 |       |

 

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**Earnings Per Share Computation**
|                                                       | ** ** | **For the three months ended March 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| **Basic earning per share  computation**              | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Net earnings (loss)  available to common shareholders |       | $                                                                      | 2,513,241  |   | $ | (1,267,312 | ) |
|                                                  |       |                                                                   |       |   |   |
| **Weighted- average shares used  to compute:**        | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Basic earnings per  share                             |       | 67,636,052                                                             |       | 37,451,698 |   |
| Dilutive effect of  stock options                     |       | 227,674                                                                |       | — |   |
| Dilutive effect of  stock grants                      |       | 141,026                                                                |       | — |   |
| Dilutive weighted  earnings per share                 |       | 68,004,752                                                             |       | 37,451,698 |   |
|                                                  |       |                                                                   |       |   |   |
| **Earnings (loss) per share of  common stock:**       | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Basic                                                 |       | $                                                                      | 0.04       |   | $ | (0.03 | ) |
|                                                  |       |                                                                   |       |   |   |
| **Earnings (loss) per share of  common stock:**       | ** ** | ** **                                                             | ** ** | ** ** | ** ** |
| Assuming dilution                                     |       | $                                                                      | 0.04       |   | $ | (0.03 | ) |

 

**NOTE 7 —ACCOUNTS RECEIVABLES & “DEFINITIZATION”**

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

Following theaward of a sole source contract, a central component of the definitizationprocess is the negotiation and finalization of the contract price between thecontractor and the United States contracting officer.  As part of thisprocess, the parties make a mutual determination of the direct material andlabor costs for the work based upon the bill of materials and other purchasinginformation and then the parties mutually agree upon “rates” for the indirectlabor costs and the General and Administrative costs and upon  a “fee” (orprofit).  While the direct material costs and labor can be establishedthrough objective evidence, the “rates” and fee are more subjective and arebased upon ananalysis of multiple factors including historical performance data andprojected operational factors.  The contractor has the right to submitproposed rates and fee, but these are subject to final review and approval bythe contracting officer, who may insist on using alternate rates and fee. As provided in section 252.217-7027(c):

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

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

As a result of thepotential adjustments related to the definitization process, the Companymaintains an allowance for contractual adjustments account.  This accountis reviewed on a regular basis to determine adequate adjustments, ifnecessary.  The allowance is evaluated and deemed adequate based on theanalysis of historical data and calculation of pro-rata percentages of currentcontracts in place, which remain subject to the definitization process.

Below is a tabledetailing activity within the allowance for contractual adjustments account forthe three months ended March 31, 2007 and March 31, 2006 respectively.
|                        | ** ** | **For the three months ended March 31,** | ** ** |
|------------------------|------------|------------------------------------------------------------------------|------------|
| ** **             | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Balance December 31    |       | $                                                                      | 6,068,087  |   | $ | 1,018,051 |   |
| Additions to allowance |       | 2,814,664                                                              |       | 869,520 |   |
| Reduction to allowance |       | (2,049,305                                                             | )          | (423,916 | ) |
| Balance March 31       |       | $                                                                      | 6,833,446  |   | $ | 1,463,655 |   |

 

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

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

**NOTE 8—INVENTORIES**

Inventories at March 31, 2007 andDecember 31, 2006 consisted of the following:
|                                                 | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Raw materials and  supplies                     |       | $                            | 53,926,897 |                            | $          | 45,131,126 |   |
| Work in process                                 |       | 46,120,867                   |       | 17,688,784                      |       |
| Less: allowance for  obsolescence and shrinkage |       | (2,124,783                   | )          | (2,423,613                      | )          |
| Net inventories                                 |       | $                            | 97,922,981 |                            | $          | 60,396,297 |   |

 

**NOTE 9 —ASSETS PURCHASED**

On March 9, 2007,the Company purchased the Research and Developmental Testing Facility of NEWTECServices Group, Inc., located near Edgefield, SC for $5,500,000.  TheCompany intends to use the facility to expand the Company’s research anddevelopment activities and support the verification and quality controlvalidation of the Company’s armored vehicles used to protect military personnelagainst explosive threats. The acquisition consisted of land - $2,100,000,furniture and fixtures - $800,000, procedure manuals -$600,000 and intangibleassets - $2,000,000.  These assets werereported in accordance with SFAS141.

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

**NOTE10—PROPERTY, PLANT AND EQUIPMENT**

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

 

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

**NOTE 11 — ACQUIRED INTANGIBLE ASSETS**

As a result of theacquisition of the Research and Development Testing Facility (explained in Note9), the following is a summary of the intangible assets acquired:

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** **

 

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

 

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

**NOTE 12—COMMITMENTS AND CONTINGENCIES**

**Other Accrued Liabilities**

The Company’s otheraccrued liabilities include the following:

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

 

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

**Liquidated Damages**

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

Per the SecuritiesPurchase Agreement, the Company agreed to file a registration statement toregister all 13,000,000 shares of common stock for resale and distributionunder the 1933 Act within 30 calendar days (January 19, 2007) and cause theregistration statement to be declared effective not later than 120 calendardays (April 19, 2007). If the Registration Statement is not declared effectiveon or before the Effective Date by the SEC, then the Company shall deliver toeach Purchaser, as****Liquidated Damages , an amount equalto one and one third percent (1 1/3%) for each thirty (30) days (or such lesserpro-rata amount for any period of less than thirty (30) days) of the totalpurchase price of the Securities purchased and still held by such Purchaserpursuant to the Agreement on the first day of each thirty (30) day or shorterperiod for which Liquidated Damages are calculable. As of the date of thefiling of this 10-Q, the registration statement is not effective. The Companybelieves that the best estimate of when the registration statement will become effectiveis  June 30, 2007. In accordance with FSPEITF 00-19-2 — Accounting for Registration Payment Arrangements, the Companyhas recorded a contingent liability for liquidated damages of $4,875,780.

**Contract Liabilities**

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

The Companyroutinely reviews its exposure for warranty costs and determines warranty andpricing reserves based on historical data and known events. Below is a tabledetailing the Company’s accruals for warranty-related costs as of March 31,2007 and December 31, 2006:
|                        | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                   |       |                         |       |                            |       |
| Non recurring warranty |       | $                            | 1,500,000  |                            | $          | 1,500,000 |   |
| General warranty       |       | 350,000                      |       | 350,000                         |       |
|                   |       | $                            | 1,850,000  |                            | $          | 1,850,000 |   |

 

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**Gain Share Program**

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

**Construction in Progress**

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

**Legal Proceedings**

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

The Company may beinvolved from time to time in ordinary litigation that will not have a materialeffect on its operations or finances. Other than the litigation describedabove, the Company is not aware of any pending or threatened litigation againstthe Company or its officers and directors in their capacity as such that couldhave a material impact on the Company’s operations or finances.

**NOTE 13—LONG-TERM LIABILITIES**

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

As part of thepurchased of NEWTEC Services Group, Inc, a non-compete arrangement was agreedupon where the President of NEWTEC Services Group Inc., would not operate acompetitive business during the period of employment with the Company and fortwo years thereafter.  As part of thenon-compete provision, $450,000 was withheld payable in three equalinstallments of $150,000 on January 1 of 2008, 2009, and 2010.

**NOTE14—SHAREHOLDERS’ EQUITY**

During the threemonths ended March 31, 2007, the Company recorded the following transactionswithin its shareholders’ equity accounts:

**Common Stock Transactions**

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

·                  50,000 shares of common stock granted inJune 2006 to an employee vested and were issued on January 1, 2007.  The valuation of these shares was recorded in2006 under SFAS123R.

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

·                  Employees exercised stock options topurchase 1,198,681 shares of the Company’s common stock valued at$1,011,500.  The valuation of these shares was recorded in 2006 underSFAS123R.

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**NOTE 15 — VALUATION AND QUALIFYINGACCOUNTS AND RESERVES**

The following tablesummarizes information about accounts and reserves for the three months endingMarch 31,:
| ** **                      | ** ** | **Balance at**   | ** ** | **Additions**                 | ** ** | ** **     | ** ** | ** **                   | ** ** |
|---------------------------------|------------|-----------------------|------------|-------------------------------|------------|----------------|------------|------------------------------|------------|
| ** **                      | ** ** | **beginning of** | ** ** | **charged to cost** | ** ** | ** **     | ** ** | **Balance at end** | ** ** |
| **Description**                 | ** ** | **period**            | ** ** | **and expenses**         | ** ** | **Write-offs** | ** ** | **of period**           | ** ** |
|                            |       |                  |       |                          |       |           |       |                         |       |
| Revenue based  provisions       |       |                  |       |                          |       |           |       |                         |       |
| 2007                            |       | $                     | 6,068,087  |                          | $          | 2,814,664      |       | $                            | 2,049,305  |   | $ | 6,833,446 |   |
| 2006                            |       | $                     | 1,018,051  |                          | $          | 869,520        |       | $                            | 423,916    |   | $ | 1,463,655 |   |
|                            |       |                  |       |                          |       |           |       |                         |       |
| Allowance for  inventory losses |       |                  |       |                          |       |           |       |                         |       |
| 2007                            |       | $                     | 2,423,613  |                          |       |           | $          | 298,830                      |       | $ | 2,124,783 |   |
| 2006                            |       | $                     | 498,281    |                          | $          | 150,000        |       |                         |       | $ | 648,281 |   |
|                            |       |                  |       |                          |       |           |       |                         |       |
| Warranty reserve                |       |                  |       |                          |       |           |       |                         |       |
| 2007                            |       | $                     | 1,850,000  |                          |       |           |       |                         | $          | 1,850,000 |   |
| 2006                            |       | $                     | 1,686,062  |                          | $          | 459,775        |       | $                            | 1,306,018  |   | $ | 839,819 |   |

 

**NOTE16—SUBSEQUENT EVENTS**

On April 18, 2007 the U.S. Marine Corps announced a $6.9 million contract awarded to Force Dynamics toprovide sustainment Integrated Logistics Support (ILS) for the U.S. Marine Corp’sMine Resistant Ambush Protected (“MRAP”) vehicle program. On April 24, 2007,the U. S. Marine Corps released a delivery order for 300 Category I Cougar 4X4and 700 Category II Cougar 6X6 vehicles for the U.S. Marine Corps’ MRAP programwith a value of approximately $490 million.

On May 3, 2007, theCompany received an $8.867 million contract to produce Buffalo and Cougarmine-protected vehicles of the Canadian Expeditionary Force Command. MarineCorps Systems Command will administer the contract under a foreign militarysales agreement.

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

**CautionaryStatement Concerning Forward-Looking Statements**

This Report containsforward-looking statements, including, without limitation, statementsconcerning possible or assumed future results of operations and those precededby, followed by or that include the words “believes,” “could,” “expects,” “intends,”“anticipates,” or similar expressions. Our actual results could differmaterially from these anticipated in the forward-looking statements for manyreasons including our ability to raise capital when necessary; availability ofparts and raw materials for our products; continued customer acceptance of ourproducts; on-going success of our research and development efforts and otherrisks described in our Form 10-K and other reports filed with the Securitiesand Exchange Commission elsewhere in this report. Although we believe theexpectations reflected in the forward-looking statements are reasonable, theyrelate only to events as of the date on which the statements are made, and ourfuture results, levels of activity, performance or achievements may not meetthese expectations. We do not intend to update any of the forward-lookingstatements after the date of this report to conform these statements to actualresults or to changes in our expectations, except as required by law.

**Applicationof Critical Accounting Policies**

Management’s Discussionand Analysis of the Company’s Financial Condition and Results of Operations isbased on the Company’s unaudited Consolidated Financial Statements, which havebeen prepared in accordance with U.S. generally accepted accounting principles,or GAAP. The preparation of financial statements in accordance with GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements, as well as the reportedamounts of revenues and expenses during the reporting period. On an ongoingbasis, management evaluates its estimates, including those related to long-termcontracts and programs, claims for unanticipated contract costs, goodwill andother intangible assets, income taxes, worker’s compensation, warrantyobligations and contingencies and litigation. Management bases its estimates onhistorical experience and on various other assumptions that it believes to bereasonable under the circumstances. The results of these estimates form thebasis for making judgments about the carrying values of assets and liabilitiesthat are not readily available from other sources. Actual results may differfrom these estimates under different assumptions or conditions. There were nosignificant changes in the Company’s critical accounting policies during thefirst quarter of 2007.

16

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Dividend Policy:We have never declared or paid a cash dividend on our common stock, and we donot anticipate paying any cash dividends on our common stock in the foreseeablefuture. Any future determination to pay cash dividends on our common stock willbe at the discretion of our board of directors and will depend upon ourfinancial condition, operating results, capital requirements, restrictionscontained in our agreements and other factors which our board of directorsdeems relevant. Under the terms of the Certificate of Designation for ourSeries D Convertible Preferred stock, we are obligated to pay a 6%dividend in cash or shares of common stock on the outstanding shares of Series Dstock. As of March 31, 2007, there are no outstanding Series D shares and wehave no obligation to make such dividend payments.

Off-BalanceSheet Arrangements*:*As of March 31, 2006, other than operating leases, the Company had nooff-balance sheet arrangements.  (Refer to Note 12 of the FinancialStatements included in this 10-Q)

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

**FinancialCondition and Results of Operations**

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

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

The following table setsforth our unaudited consolidated statements of operations for the three monthperiod ended March 31 for the years 2007 and 2006. The discussion andanalysis that follows should be read in conjunction with our consolidatedfinancial statements and related notes included elsewhere in this report.

17

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**ConsolidatedStatement of Operations(unaudited)**
| ** **                      | ** ** | **For the three months ended March 31,** | ** **  |
|---------------------------------|------------|------------------------------------------------------------------------|-------------|
| ** **                      | ** ** | **2007**                                                               | ** **  | **2006** | ** ** | **Difference** | ** ** | **% Change** | ** ** |
| Revenues                        |       | $                                                                      | 100,158,766 |   | $ | 34,802,585 |   | $ | 65,356,181 |   | 187.8 |   |
| Cost of sales                   |       | 78,403,575                                                             |        | 28,164,816 |   | 50,238,759 |   | 178.4 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Gross profit                    |       | 21,755,191                                                             |        | 6,637,769 |   | 15,117,422 |   | 227.7 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| S,G&A  expense              |       | 14,378,611                                                             |        | 5,859,537 |   | 8,519,074 |   | 145.4 |   |
| R&D expense                 |       | 4,841,819                                                              |        | 663,590 |   | 4,178,229 |   | 629.6 |   |
| Total S,G&A                 |       | 19,220,430                                                             |        | 6,523,127 |   | 12,697,303 |   | 194.7 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Operating profit                |       | 2,534,761                                                              |        | 114,642 |   | 2,420,119 |   | 2111.0 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Interest expense                |       | (9,613                                                                 | )           | (807,324 | ) | (797,711 | ) | 98.8 |   |
| Other Income                    |       | 1,788,093                                                              |        | 27,049 |   | 1,761,044 |   | 6510.6 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Net  earnings/(loss) before tax |       | 4,313,241                                                              |        | (665,633 | ) | 4,978,870 |   | -748.0 |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Tax expense                     |       | 1,800,000                                                              |        | — |   | (1,800,000 | ) | N/A |   |
|                            |       |                                                                   |        |   |   |   |   |   |   |
| Net earnings/(loss)  after tax  |       | $                                                                      | 2,513,241   |   | $ | (665,633 | ) | $ | 3,168,874 |   | 477.6 |   |

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

 

The increase in net salesin the first quarter of 2007 compared with the first quarter of 2006 isattributable to volume changes in the following:
| Buffalo vehicles                |   | 22 | % |
|---------------------------------|--------|----|---|
| Cougar vehicles  (all variants) |   | 86 | % |
| Spares/Logistics                |   | 80 | % |

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

 

Gross margin increased inthe first quarter of 2007 compared with the first quarter of 2006 by 2.6percentage points due to reduced material cost, improved labor efficiencies andincreased leverage of fixed cost.
| ** **                                                           | ** ** | **For the three months ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Selling, General and Administrative Expenses** | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Selling, general  and administrative expenses                        |       | $                                                                      | 14,378,611 |   | $ | 5,859,537 |   |
| Percent of sales                                                     |       | 14.4                                                                   | %          | 16.8 | % |
|                                                                      |            |                                                                        |            |  |  |  |  |

 

Selling, general andadministrative expenses as a percentage of sales decreased in the first quarterof 2007 compared with the first quarter of 2006 by 2.4 percentage points dueprimarily to increased leverage of administrative cost to support the businesspartially offset by the establishment of a liquidated damages charge of$4,875,780 (3.8 percentage points) resulting from the delayed registration ofthe December Private Investment of Public Equity  (see Footnote 12 of the unauditedconsolidated financial statements of this 10-Q).

18

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

 

Research and developmentexpenses increased in the first quarter of 2007 compared with the first quarterof 2006 due primarily to increased expenditures incurred to develop the Cheetahproduct line.
| ** **                            | ** ** | **For the three months ended March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Interest Expense**             | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Interest and  other financial charges |       | $                                                                      | (9,613     | ) | $ | (807,324 | ) |
| % change compared with  prior period  |       | (98.8                                                                  | )%         |   |   |
|                                       |            |                                                                        |            |  |  |  |  |

 

Interest chargesdecreased in the first quarter of 2007 compared with the first quarter of 2006due to pay-off of the short term Longview Capital loan (August 2006) and thetermination of the accounts receivable factoring agreement with G.C. Financial(June 2006).
| ** **                           | ** ** | **For the three months ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Other Income**                | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Other income                         |       | $                                                                      | 1,788,093  |   | $ | 27,049 |   |
| % change compared with  prior period |       | 661.1                                                                  | %          |   |   |
|                                      |            |                                                                        |            |  |  |  |  |

 

Other income increased inthe first quarter of 2007 compared with the first quarter of 2006 due tointerest income earned on investing the funds received from the December 2006Private Investment of Public Equity.
| ** **           | ** ** | **For the three months ended March 31,** | ** ** |
|----------------------|------------|------------------------------------------------------------------------|------------|
| **Tax Expense** | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Tax expense          |       | $                                                                      | 1,800,000  |   | $ | — |   |
| Effective tax rate   |       | 41.7                                                                   | %          | — | % |
|                      |            |                                                                        |            |  |  |  |  |

 

The effective tax rateincreased in the first quarter of 2007 compared with the first quarter of 2006by 41.7 points due principally to the requirement to pay taxes resulting fromus generating a profit.
| ** **                                                 | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **Net Income**                                        | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net income                                                 |       | $                                                    | 2,513,241  |   | $ | (665,633 | ) |
| Earnings (loss)  per share of common stock — assuming |       |                                                 |       |   |   |
| dilution                                                   |       | $                                                    | 0.04       |   | $ | (0.03 | ) |

 

The increase of $0.07earnings per share in the first quarter of 2007 compared with the first quarterof 2006 results from  increasedearnings  due to volume increases,improved gross margin percentages, higher interest income and lower interestexpense partially offset by increased selling, general and administrative andresearch and development cost.

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

On January 26, 2007, theU.S. Marine Corps awarded us an Indefinite Delivery, Indefinite Quantity, orIDIQ, contract for the MRAP program.  This contract allows the U.S. MarineCorps to place delivery orders for up to 4,100 MRAP vehicles per ordering yearfor 5 years for a total possible vehicle quantity of 20,500.  On January26, 2007, the U.S. Marine Corps issued a delivery order for 4 MRAP vehicles tobe used in survivability and mobility testing as part of the program.  OnFebruary 14, 2007, the Marine Corps issued a second delivery order for 125 MRAPproduction vehicles.  The total value of these delivery orders is$74,636,994.

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

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

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

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awarded to Force Dynamicsto provide sustainment Integrated Logistics Support  for the U.S. Marine Corp’s MRAP program. OnApril 24, 2007, the U. S. Marine Corps released a delivery order for 300Category I Cougar 4X4 and 700 Category II Cougar 6X6 vehicles for the U.S.Marine Corps’ MRAP program with a value of approximately $490 million. On May3, 2007, we received an $8.867 million contract to produce Buffalo and Cougarmine-protected vehicles of the Canadian Expeditionary Force Command. MarineCorps Systems Command will administer the contract under a foreign militarysales agreement.

Future Results:During the remainder of calendar year 2007, we expect to have incurred themajority of our presently anticipated infra-structure expansion costs and toachieve a substantially increased level of vehicle production capacity,resulting in increased revenues and profitability for such upcoming period. Setout below is a table showing actual deliveries of our vehicles during 2006 andthe first quarter of 2007.

**VehicleDeliveries and Backlog**
|                        | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **       | ** ** | **Funded Backlog**               | ** ** |
|------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|------------------|------------|---------------------------------------|------------|
| ** **             | ** ** | **Q1-2006** | ** ** | **Q2-2006** | ** ** | **Q3-2006** | ** ** | **Q4-2006** | ** ** | **Q1 2007** | ** ** | **(1) March 31, 2007** | ** ** |
| Buffalo                |       | 3           |       | 5           |       | 3           |       | 15          |       | 13               |       | 61                                    |       |
| Cougar (all  variants) |       | 45          |       | 59          |       | 55          |       | 100         |       | 182              |       | 287                                   |       |
| Total                  |       | 48          |       | 64          |       | 58          |       | 115         |       | 195              |       | 348                                   |       |

 

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(1) Excludes 17 vehicles(Buffalos, Cougars) that are on contract but not funded as of March 31, 2007.In addition, it does not include the post March 31, 2007 awards under therecently awarded MRAP program or those vehicles for the Canadian ExpeditionaryForce command or future MRAP orders.

**Trends, Risks And Uncertainties**

The results of ouroperations for the first quarter ended March 31, 2007 reflect the costsassociated with our  continued growth, as we expand our manufacturingfacility and capabilities to meet the expected demand for our vehicles forpotential future and follow-on orders. This included substantial vehicle andautomotive engineering work, manufacturing engineering development, hiring andtraining workforce and the expansion of our manufacturing and administrativefacilities. We continue to face the challenges of expanding our manufacturingcapacity to fully exploit all opportunities. These activities have required asignificant commitment of short term resources, but we expect the long termbenefits will be substantial.

We recognize there arerisks associated with our on-going expansion activities. We continue to relyupon the U.S. Army and the U.S. Marine Corps for our sales, and if eithercustomer elected not to issue further orders to us, it would have a dramaticimpact upon our financial performance. In addition, if we are delayed inmeeting the delivery schedule under contracts, we may be obligated to payliquidated damages for any delayed vehicle, and in the event of any 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 contracts would have a dramatic impact on both our liquidity and ourfinancial performance. We currently do not have any reason to expect that ourcustomers will choose to stop buying our vehicles or that any significantcontracts will be cancelled.

In the past, we haveencountered some difficulties in securing the necessary components for ourvehicles, for example armor steel, truck chassis, axle sets and ballisticglass. To mitigate this risk, we have identified multiple vendors for certaincomponents to ensure we have alternate sources of supply if necessary.Additionally, we have implemented a program of advance purchasing andstockpiling critical materials. For example, we currently have pre-purchasedsteel and truck parts to ensure availability of material needed for current andpotential future orders. While we do not currently expect the potential non-availabilityof parts or raw materials to materially affect our operations, there is apossibility that delays or increased costs could negatively impact ourfinancial performance if circumstances change. Apart from the foregoing, themain 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 our products.A number of recent market surveys and requests for information issued by theU.S. military, for armored vehicles with characteristics substantially similarto ours, support this view.

**Liquidity And Capital Resources**

Cash Flow Summary:  Ourcash flows from operating, investing and financing activities, as reflected inthe Consolidated Statement of Cash Flows for the three months ended March 31,2007 and 2006, are summarized as follows:

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|                                                       | ** ** | **For the three months ended March 31,** | ** **  |
|-------------------------------------------------------|------------|------------------------------------------------------------------------|-------------|
| ** **                                            | ** ** | **2007**                                                               | ** **  | **2006** | ** ** |
| Cash provided by  (used for):                         |       |                                                                   |        |   |   |
| Operating activities                                  |       | $                                                                      | (27,169,112 | ) | $ | 7,198,742 |   |
| Investing activities                                  |       | (16,697,796                                                            | )           | (641,960 | ) |
| Financing activities                                  |       | 989,373                                                                |        | (1,627,553 | ) |
|                                                  |       |                                                                   |        |   |   |
| Net increase (decrease)  in cash and cash equivalents |       | $                                                                      | (42,877,535 | ) | $ | 4,929,229 |   |

 

Cash provided byoperating activities decreased by $34,367,854 during the first three months of2007 compared with the first three months of 2006 primarily due to increasedinventory as a result of higher sales, increased receivables as a result ofhigher sales, the termination of the factoring agreement with G.C. Financialand delays in receipt of performance based payments, partially offset byincreased earnings and higher accounts payables.

Cash used for investingactivities increased by $16,055,836 during the first three months of 2007compared with the first three months of 2006 due primarily to the purchase of aresearch and test facility ($5,500,000), a facility to expand development andlogistics training activities ($4,100,000), warehousing facilities,manufacturing equipment and infrastructure to support existing and futureplanned growth of the business.

Cash provided byfinancing activities increased by $2,616,926 during the first quarter of 2007compared with the first quarter of 2006 primarily due to an increase inproceeds from exercised options of $1,011,500, and a reduction in the paymentof debt of $1,250,000.

Uncertainties:The amount of working capital that we will require depends on several factors,including without limitation, the extent and timing of sales of our products,future inventory costs, the timing and costs associated with the expansion ofour manufacturing, development, engineering and customer support capabilities,the timing and cost of our product development and enhancement activities andour operating results. The realization of a major portion of the assets shownon our balance sheet is dependent upon the success of such futureoperations.  We expect to be able togenerate cash flows from operations sufficient to satisfy our cash requirementsfor the remainder of 2007, but if we are unable to do so, we may need to seekalternative sources of cash.

Inflation andMaterial Cost:  We donot believe that inflation has had or is likely to have any significant impacton our revenues, and we currently are not facing any material shortages ofmaterial or parts. We currently have enough steel on hand or on order tomanufacture our existing contracts, and we continue to purchase steelanticipating future requirements. If the price of steel increasessignificantly, the cost of our products could increase, and we may not be ableto pass on this cost under our current contracts. As a result, if the cost ofour raw materials increases, our profitability on such current contracts, ifany, could decrease.

**ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

Commodity Prices

We are exposed to marketrisk from changes in commodity prices. If the price of steel increasessignificantly, the cost of our products could increase. It is unlikely we willbe able to pass on this cost under our current contracts. As a result, if thecost of our raw materials increases, our profitability, if any, could decrease.

Foreign Currency

The majority of ourbusiness is denominated in U.S. dollars and as such, movement in the foreigncurrency markets will have a minimal direct impact on our business.

Interest Rates

We have a Money Marketaccount where excess cash is invested at LIBOR minus 40 bps.

Our current financing ofdebt is at a fixed rate, we are not currently directly at risk of interest ratefluctuations. As our financing needs change in the future, interest rate riskmay become a more significant issue for us.

To date, we have not usedany derivative financial instruments for the purpose of reducing our exposureto adverse fluctuations in interest rates, foreign currency exchange, orcommodity prices. We are not a party to leveraged derivatives nor do we hold orissue financial investments for speculative purposes.

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**ITEM 4 – CONTROLS AND PROCEDURES**

DisclosureControls and Procedures

Our management evaluated,with the participation of our Chief Executive Officer and our Chief FinancialOfficer, the effectiveness of our disclosure controls and procedures as of theend of the period covered by this Quarterly Report on Form 10-Q. Based onthis evaluation, our Chief Executive Officer and our Chief Financial Officerhave concluded that our disclosure controls and procedures are effective toensure that information we are required to disclose in reports that we file orsubmit under the Securities Exchange Act of 1934 (i) is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and (ii) isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and our Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure. Our disclosure controls and proceduresare designed to provide reasonable assurance that such information isaccumulated and communicated to our management. Our disclosure controls andprocedures include components of our internal control over financial reporting.Management’s assessment of the effectiveness of our internal control overfinancial reporting is expressed at the level of reasonable assurance that thecontrol system, no matter how well designed and operated, can provide onlyreasonable, but not absolute, assurance that the control system’s objectiveswill be met.

Changesin Internal Controls over Financial Reporting

As of the beginning of2007, we have an Audit Committee comprised of three outside board members.They, along with management interviewed and engaged an outside audit firm moreappropriate for the size and growth of our Company. During the first quarter of2007, our Interim Chief Financial Officer was replaced with a permanent Chieffinancial Officer along with the finalization of a more robust accounting ERPsystem which is expected to be integrated during the second quarter of thecurrent fiscal year. These actions have had and are expected to have acontinued positive material affect over our financial reporting.

Codeof Ethics

We have adopted a Code ofEthics that applies to all executive officers and other employees. Our Code ofEthics is available for review on our website at www.forceprotection.net.

**PART II — OTHER INFORMATION**

**ITEM 1****—****LEGAL PROCEEDINGS**

There have been nomaterial changes with respect to this item from the disclosure included in ourAnnual Report on Form 10-K for the year ended December 31, 2006.

**ITEM 1A****—****RISK FACTORS**

There have been nomaterial changes with respect to this item from the disclosure included in ourAnnual Report on Form 10-K for the year ended December 31, 2006.

**ITEM 2****—****UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

We do not have a formalstock compensation plan, however we have issued stock to employees andnon-employees from time to time as compensation for services rendered.

**ITEM 3****—****DEFAULTS UPON SENIOR SECURITIES**

None.

**ITEM 4****—****SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

No matters were submittedto security holders during the quarter ended March 31, 2007.

**ITEM 5****—****OTHERINFORMATION**

Noteregarding our auditors

At a meeting of the AuditCommittee held on November 10, 2006, the Audit Committee approved theengagement of Elliott Davis, LLC to serve as our independent registeredaccounting firm for the fiscal year ending December 31, 2007. In addition,the Audit Committee dismissed Jaspers + Hall, P.C. as our  independentregistered accounting firm effective upon completion of the audit of ourconsolidated financial statements as of and for the fiscal year endingDecember 31, 2006.

During the years ended December 31,2005 and 2004, and through November 16, 2006, we did not consult ElliottDavis, LLC regarding the application of accounting principles to a specifiedtransaction, either completed or proposed, the type of audit opinion that mightbe rendered on our financial statements or any matter that was either thesubject of a disagreement (as defined in Item 304(a)(1)(iv) and therelated instructions to Item 304 of Regulation S-K) or a reportableevent (as defined in Item 304(a)(1)(v) of

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Regulation S-K).

We requested Jaspers +Hall, P.C. to furnish a letter addressed to the Securities and ExchangeCommission stating whether or not it agrees with the above statements. A copyof such letter is filed as Exhibit 16.1 to the Form 8-K filed on November16, 2006.

**ITEM 6 – EXHIBITS**

**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, 2006 (included as exhibit 4.1 to the  Form 8-K filed January 27, 2006, and incorporated herein by  reference).                                                                                                                                                                     |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2    |       | Form of Common Stock Purchase Warrant, dated  January 19, 2006, (included as Exhibit 4.2 to the Form 8-K  filed January 27, 2006, and incorporated herein by reference).                                                                                                                                                                                              |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.3    |       | Securities Purchase Agreement, dated  January 19, 2006 (included as Exhibit 4.3 to the Form 8-K  filed January 27, 2006, and incorporated herein by reference).                                                                                                                                                                                                            |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.4    |       | Registration Rights Agreement, dated  January 19, 2006 (included as Exhibit 4.4 to the Form 8-K  filed January 27, 2006, 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, 2006, 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, 2006, and incorporated herein by  reference).                                                                                                                                                                            |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.7    |       | Bridge Facility between the Company and GC Financial  Services, Inc., dated September 29, 2006 (included as  Exhibit 4.1 to the Form 8-K filed July 8, 2006, and  incorporated herein by reference).                                                                                                                                                                  |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.8    |       | Demand Note between the Company and GC Financial  Services, Inc., dated September 29, 2006 (included as  Exhibit 4.2 to the Form 8-K filed July 8, 2006, and  incorporated herein by reference).                                                                                                                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1   |       | 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).                                                                                                                                   |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2   |       | Series C Convertible Preferred Stock Purchase  Agreement between the Company and eFunds 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).                                                                                                                        |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.3   |       | 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).                                                                                                                                                              |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.4   |       | 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).                                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.5   |       | 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). |

 

23

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| 10.6   |   | 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).                                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.7   |   | 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).                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.8   |   | Term Sheet between the Company and GC Financial  Services, Inc., dated September 16, 2004 (included as exhibit 10.14  to the 10-QSB filed November 15, 2004, and incorporated herein by  reference).                                                                  |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.9   |   | 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).                                   |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.10  |   | 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).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.11  |   | 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).                                                             |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.12  |   | 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).                                                                 |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.13  |   | 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).                                                    |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.14  |   | 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).                                                    |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.15  |   | Order for Supplies or Services and Delivery Order  between the Company and U.S. Department of Defense, dated September 23,  2005 (included as Exhibit 10.1 to the Form 8-K filed  September 27, 2005, and incorporated herein by reference).                     |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.16  |   | Purchase and Sale Agreement the Company and GC  Financial Services, Inc., dated September 29, 2005 (included as  Exhibit 10.1 to the Form 8-K filed July 8, 2005, and incorporated  herein by reference).                                                   |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.17  |   | Security Agreement the Company and GC Financial  Services, Inc., dated September 29, 2005 (included as  Exhibit 10.2 to the Form 8-K filed July 8, 2005, and  incorporated herein by reference).                                                            |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.18  |   | Purchase Order between the Company and Ricardo  Engineering, dated September 29, 2005 (included as Exhibit 10.1 to  the Form 8-K filed July 19, 2005, and incorporated herein by  reference).                                                                    |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.19  |   | Solicitation/Contract/Order for Commercial Items and  Delivery Order between the Company and the United States Marine Corps, dated  September 7, 2005 (included as Exhibit 10.1 to the Form 8-K  filed September 9, 2005, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.20  |   | Engineering Services Agreement between the Company  and TecStar, dated August 22, 2005 (included as Exhibit 10.31 to the  Form 10-QSB filed November 11, 2005, and incorporated herein by reference).                                                                           |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.21  |   | Contract between the Company and the United States  Army (included as Exhibit 10.36 to the Form 10-K filed April 13, 2006, and  incorporated herein by reference).                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.22  |   | Form of Common Stock Purchase Agreement, dated July  24, 2006 (included as exhibit 10.1 to the Form 8K filed on July 25, 2006, and  incorporated herein by reference).                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.23  |   | Production License Agreement between the Company and  BAE Systems Land & Armaments, LP, dated June 13, 2006 (included as  Exhibit 10.1 to the Form 10-Q filed August 14, 2006, and incorporated herein  by reference).                                                           |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.24  |   | Logistic Support Agreement between the Company and  BAE Systems Land & Armaments, LP, dated June 13, 2006 (included as  Exhibit 10.2 to the Form 10-Q filed August 14, 2006, and incorporated herein  by reference).                                                             |
|   |   |                                                                                                                                                                                                                                                                                 |
| 10.25  |   | Contract between the Company and the British  Ministry of Defense, dated August 11, 2006 (included as Exhibit 10.1 to the  Form 8-K filed August 17, 2006, and incorporated herein by reference).                                                                                    |

 

24

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| 10.26  |   | Memorandum of Agreement and Cooperation between the  Mechem, a division of Denel (PTY), Ltd., and the Company, dated September 28,  2006 (included as Exhibit 10.1 to the Form 8-K filed September 28, 2006, and  incorporated herein by reference).                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.27  |   | Memorandum of Understanding between the Company and  General Dynamics Land Systems, Inc., dated November 9, 2006 (included as  Exhibit 10.1 to the Form 8-K filed November 17, 2006, and incorporated herein  by reference).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.28  |   | Memorandum of Understanding between the Company and  Stewart & Stevenson Tactical Vehicle Systems LP d/b/a Tactical Vehicle  Systems, a Division of Armor Holdings, Inc., dated November 10, 2006  (included as Exhibit 10.1 to the Form 8-K filed November 20, 2006, and  incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.29  |   | Form of Securities Purchase Agreement, dated  December 20, 2006 (included as Exhibit 10.1 to the Form 8-K filed December  21, 2006, and incorporated herein by reference).                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.30  |   | Certificate of the Company’s Corporate Secretary,  dated January 10, 2007 (included as Exhibit 10.2 to the Form S-8 filed  January 12, 2007, and incorporated herein by reference).                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.31  |   | Common Stock Purchase Option issued by the Company  to Gordon McGilton, dated January 10, 2006 (included as Exhibit 10.2 to  the Form S-8 filed January 12, 2007, and incorporated herein by reference).                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.32  |   | Common Stock Purchase Warrant issued by the Company  to Gordon McGilton, dated October 31, 2006 (included as Exhibit 10.3 to the  Form S-8 filed January 12, 2007, and incorporated herein by reference).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.33  |   | Letter contract issued to the Company by the U.S.  Marine Corps, dated January 11, 2007 (included as Exhibit 10.1 to the Form  8-K filed January 18, 2007, and incorporated herein by reference).                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.34  |   | Employment Offer Letter between the Company and  Michael S. Durski, dated January 19, 2007 (included as Exhibit 10.1 to the  Form 8-K filed January 25, 2007, and incorporated herein by reference).                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.35  |   | Letter Contract issued to the Company by the United  States Marine Corps, dated January 25, 2007 (included as Exhibit 10.1 to the  Form 8-K filed February 5, 2007, and incorporated herein by reference).                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.36  |   | Letter Contract issued to the Company by the United  States Marine Corps dated February 14, 2007 (included as Exhibit 10.1 to the  Form 8-K filed February 20, 2007, and incorporated herein by reference).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.37  |   | Letter Contract issued to the Company by the U. S.  Marine Corps dated March 9, 2007 (included as Exhibit 10.1 to the Form 8-K  filed March 15, 2007, and incorporated herein by reference).                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.38  |   | Purchase and Sale Agreement between the Company and  NEWTEC Services Group, Inc. dated March 9, 2007 (included as Exhibit 10.2 to  the Form 8-K filed March 15, 2007, and incorporated herein by reference).                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.39  |   | Asset Purchase Agreement between Force Protection  Technologies, Inc. and Lati USA, Inc. dated March 22, 2007 (included as  Exhibit 10.1 to the Form 8-K filed March 28, 2007, and incorporated herein by  reference).                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.40  |   | Assignment and Assumption Agreement between Force  Protection Technologies, Inc. and Lati USA, Inc. dated March 22, 2007  (included as Exhibit 10.2 to the Form 8-K filed March 28, 2007, and  incorporated herein by reference).                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.41  |   | Post Closing Memorandum between Force Protection  Technologies, Inc. and Lati USA, Inc. dated March 22, 2007 (included as  Exhibit 10.3 to the Form 8-K filed March 28, 2007, and incorporated herein by  reference).                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 31.1   |   | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 31.2   |   | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 32.1   |   | Certification of Officers pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                   |

 

25

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

**FORCEPROTECTION, INC.**
| Date: May 15, 2007       |   |                          |
|--------------------------|--------|-------------------------------|
|                     |   | By:                           | /s/ Gordon McGilton |
|                     |   | Gordon McGilton               |
|                     |   | Chief Executive  Officer      |
|                     |   |                          |
|                     |   |                          |
| Date:  May 15, 2007 |   | By:                           | /s/ Michael  Durski |
|                     |   | Michael Durski                |
|                     |   | Chief Financial  Officer      |
|                     |   | Principal  Accounting Officer |

 

26

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